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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 27, 1997
OR
[_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 1-7685
AVERY DENNISON CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C>
DELAWARE 95-1492269
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
150 NORTH ORANGE GROVE BOULEVARD 91103
PASADENA, CALIFORNIA (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
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Registrant's telephone number, including area code: (626) 304-2000
Securities registered pursuant to Section 12(b) of the Act:
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NAME OF EACH
EXCHANGE ON WHICH
TITLE OF EACH CLASS REGISTERED
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Common stock, $1 par value New York Stock Exchange
Pacific Exchange
Preferred Share Purchase Rights New York Stock Exchange
Pacific Exchange
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Securities registered pursuant to Section 12(g) of the Act:
Not applicable.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [_]
The aggregate market value of voting stock held by non-affiliates as of
February 24, 1998, was approximately $5,081,410,848.
Number of shares of common stock, $1 par value, outstanding as of February
24, 1998: 118,069,484.
The following documents are incorporated by reference into the Parts of this
report below indicated:
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DOCUMENT INCORPORATED BY REFERENCE INTO:
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Annual Report to Shareholders for fiscal
year ended December 27, 1997 (the "1997
Annual Report")........................ PARTS I, II
Definitive Proxy Statement for Annual
Meeting of Stockholders to be held
April 23, 1998 (the "1998 Proxy
Statement")............................ PARTS III, IV
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PART I
ITEM 1. BUSINESS
Avery Dennison Corporation ("Registrant") was incorporated in 1977 in the
state of Delaware as Avery International Corporation, the successor
corporation to a California corporation of the same name which was
incorporated in 1946. In 1990, Registrant merged one of its subsidiaries into
Dennison Manufacturing Company ("Dennison"), as a result of which Dennison
became a wholly owned subsidiary of Registrant, and in connection with which
Registrant's name was changed to Avery Dennison Corporation.
The business of Registrant and its subsidiaries (Registrant and its
subsidiaries are sometimes hereinafter referred to as the "Company") include
the production of pressure-sensitive adhesives and materials and the
production of consumer and converted products. Some pressure-sensitive
adhesives and materials are "converted" into labels and other products through
embossing, printing, stamping and die-cutting, and some are sold in
unconverted form as base materials, tapes and reflective sheeting. The Company
also manufactures and sells a variety of consumer and converted products and
other items not involving pressure-sensitive components, such as notebooks,
three-ring binders, organizing systems, markers, glues, fasteners, business
forms, tickets, tags, and imprinting equipment.
A self-adhesive material is one that adheres to a surface by mere press-on
contact. It consists of four elements--a face material, which may be paper,
metal foil, plastic film or fabric; an adhesive which may be permanent or
removable; a release coating; and a backing material to protect the adhesive
against premature contact with other surfaces, and which can also serve as the
carrier for supporting and dispensing individual labels. When the products are
to be used, the release coating and protective backing are removed, exposing
the adhesive, and the label or other device is pressed or rolled into place.
Self-adhesive materials may initially cost more than materials using heat or
moisture activated adhesives, but their use often effects substantial cost
savings because of their easy and instant application, without the need for
adhesive activation. They also provide consistent and versatile adhesion,
minimum adhesive deterioration and are available in a large selection of
materials in nearly any size, shape or color.
International operations, principally in Western Europe, constitute a
significant portion of the Company's business. In addition, the Company is
currently expanding its operations in Asia Pacific, Latin America and Eastern
Europe. The Company manufactures and sells its products from 200 manufacturing
facilities and sales offices located in 39 countries, and employs a total of
approximately 16,200 persons worldwide. The Company is subject to certain
risks referred to in Exhibit 99 hereto, including those normally attending
international operations, such as changes in economic conditions, currency
fluctuation, exchange control regulations and the effect of international
relations and domestic affairs of foreign countries on the conduct of
business.
Except as set forth below, no material part of the Company's business is
dependent upon a single customer or a few customers and the loss of a
particular customer or a few customers would not have a material adverse
effect on the Company's business. Sales of the Company's U.S. consumer
products are increasingly concentrated in a small number of major customers,
principally discount office products superstores and distributors (see Note 4
of Notes to Consolidated Financial Statements on page 41 of the 1997 Annual
Report, which is incorporated by reference). United States export sales are an
insignificant part of the Company's business. Backlogs are not considered
material in the industries in which the Company competes.
PRESSURE-SENSITIVE ADHESIVES AND MATERIALS SECTOR
The Pressure-Sensitive Adhesives and Materials sector manufactures and sells
Fasson- and Avery Dennison-brand pressure-sensitive base materials, specialty
tapes, marking films and chemicals. Base materials consist primarily of
papers, fabrics, plastic films and metal foils which are primed and coated
with Company-developed and purchased adhesives, and then laminated with
specially coated backing papers and films for protection. They
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are sold in roll or sheet form with either solid or patterned adhesive
coatings, and are available in a wide range of face materials, sizes,
thicknesses and adhesive properties. The business of this sector is not
seasonal.
Base material products consist of a wide range of pressure-sensitive coated
papers, films and foils which are sold to label printers and converters for
labeling, decorating, fastening, electronic data processing and special
applications. Other product offerings include paper and film stock for use in
a variety of industrial, commercial and consumer applications. The Company
also manufactures and sells proprietary film face stocks, release-coated
materials and specialty insulation paper.
Specialty tape products are single- and double-coated tapes and transfer
adhesives for use in non-mechanical fastening systems in various industries
and are sold to industrial and medical converters, original equipment
manufacturers and disposable-diaper producers worldwide.
Marking films products consist of a variety of films and other products sold
to the worldwide automotive, architectural, commercial sign, digital,
printing, and graphics markets. The Company also sells durable cast and
reflective films to the construction, automotive, fleet transportation, sign
and industrial equipment markets, and reflective films for government and
traffic applications. In addition, the Company sells specialty print-receptive
films to the industrial label market, metallic dispersion products to the
packaging industry and proprietary woodgrain film laminates for housing
exteriors and automotive applications. During 1997, the Company reorganized
its marking films businesses on a worldwide basis to serve, in a more focused
manner, the expanding commercial graphic arts market, including wide-format
digital printing applications.
Chemical products include a range of solvent and emulsion-based acrylic
polymer adhesives, protective coatings and binders for internal uses as well
as for sale to other companies.
During 1997, the Company established a distribution center in India to
market and sell a variety of pressure-sensitive materials. In early 1998, the
Company acquired base materials manufacturing capabilities in Colombia.
The Company competes, both domestically and internationally, with a number
of medium to large firms. Entry of competitors into the field of pressure-
sensitive adhesives and materials is limited by high capital requirements and
a need for sophisticated technical know-how.
CONSUMER AND CONVERTED PRODUCTS SECTOR
The Consumer and Converted Products sector manufactures and sells a wide
range of Avery-brand consumer products, custom label products, specialty
automotive films and labels and fastening devices. The business of this sector
is not seasonal except for certain consumer products sold during the back-to-
school season.
The Company's principal consumer products are generally sold worldwide
through wholesalers and dealers, mass market channels of distribution, and
discount superstores. The Company manufactures and sells a wide range of
Avery-brand products for home, school and office uses, including copier, laser
and ink-jet printer labels, related computer software, presentation and
organizing systems, laser-printer card and index products; data-processing
labels; notebooks; notebook and presentation dividers; three-ring binders;
sheet protectors; and various vinyl and heat-sealed products. A wide range of
other stationery products is offered, including children's laser and ink-jet
labels, markers, adhesives and specialty products under brand names such as
Avery, Avery Kids, Marks-A-Lot and HI-LITER, and accounting products, note
pads and business forms under the Avery and National brand names. The extent
of product offerings varies by geographic market. Operations in Latin America,
Asia Pacific and Europe have been established to market and distribute the
Avery-brand line of stock self-adhesive products, including copier, laser and
ink-jet labels and related software; laser printed card products and other
unprinted labels.
Custom label products in North America primarily consist of custom pressure-
sensitive and heat-transfer labels for automotive and durable goods industries
and custom pressure-sensitive labels and specialty combination products for
the electronic data-processing market. These products are sold directly to
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manufacturers and packagers and retailers, as well as through international
subsidiaries, distributors and licensees. Label products in Europe include
custom and stock labels, labeling machinery and data printing systems, which
are marketed to a wide range of industrial and retail users.
The Company designs, fabricates and sells a wide variety of tags and labels,
including bar-coded tags and labels, and a line of machines for imprinting,
dispensing and attaching preprinted roll tags and labels. The machine products
are generally designed for use with tags and labels as a complete system. The
Company also designs, assembles and sells labeling systems for integration
into a customer's shipping and receiving operations. Principal markets include
apparel, retail and industrial companies for identification, tracking and
control applications principally in North America, Europe and Asia Pacific.
Fastener products include plastic tying and attaching products for retail and
industrial users. These products are sold directly to end users and
internationally through subsidiaries, as well as through distributors and
licensees in other countries.
The Company also manufactures and sells on-battery testing labels to battery
manufacturers, and self-adhesive stamps to the U.S. and international postal
services. The Company is an integrated supplier of adhesive coating, security
printing and converting technologies for postage stamp production. Specialty
automotive films products are used for interior and exterior vehicle finishes,
striping decoration and identification. Other products include pressure-
sensitive sheeted and die-cut papers and films, which are sold through fine-
paper merchants.
During 1997, the Company acquired a company in Australia, and broadened its
distribution of Avery-brand products in Asia Pacific and Latin America.
The Company competes, both domestically and internationally, with a number
of small to large firms (among the principal competitors are Esselte AB,
Fortune Brands, Inc. and Minnesota Mining and Manufacturing Co.). The Company
believes that its ability to service its customers with an extensive product
line; its distribution strength; its ability to develop internally and to
commercialize successfully new products; its diverse technical foundation,
including a range of electronic imprinting and automatic labeling systems, are
among the more significant factors in developing and maintaining its
competitive position.
RESEARCH AND DEVELOPMENT
Many of the Company's current products are the result of its own research
and development efforts. The Company expended $61.1 million, $54.6 million,
and $52.7 million in 1997, 1996 and 1995, respectively, on research related
activities by operating units and the Avery Research Center (the "Research
Center"), located in Pasadena, California. A substantial amount of the
Company's research and development activities are conducted at the Research
Center. Much of the effort of the Research Center applies to both of the
Company's industry sectors.
The operating units' research efforts are directed primarily toward
developing new products and processing operating techniques and improving
product performance, often in close association with customers. The Research
Center supports the operating units' patent and product development work, and
focuses on research and development in new adhesives, materials and coating
processes. Research and development generally focuses on projects affecting
more than one industry sector in such areas as printing and coating
technologies, and adhesive, release, coating and ink chemistries.
The loss of any of the Company's individual patents or licenses would not be
material to the business of the Company taken as a whole, nor to either one of
the Company's industry sectors except those referred to above. The Company's
principal trademarks are Avery, Fasson and Avery Dennison. These trademarks
are significant in the markets in which the Company's products compete.
3
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THREE-YEAR SUMMARY OF SECTOR INFORMATION
The Business Sector Information attributable to the Company's operations for
the three years ended December 27, 1997, which appears in Note 10 of Notes to
Consolidated Financial Statements on pages 46 through 48 of the 1997 Annual
Report, is incorporated herein by reference.
OTHER MATTERS
The raw materials used by the Company are primarily paper, plastic and
chemicals which are purchased from a variety of commercial and industrial
sources. Although from time to time shortages could occur, these raw materials
are currently generally available.
At present, the Company produces a majority of its self-adhesive materials
using non-solvent technology. However, a significant portion of the Company's
manufacturing process for self-adhesive materials utilizes certain evaporative
organic solvents which, unless controlled, would be emitted into the
atmosphere. Emissions of these substances are regulated by instrumentalities of
federal, state, local and foreign governments. During the past several years,
the Company has made a substantial investment in solvent capture and control
units and solvent-free systems. Installation of these units and systems has
reduced atmospheric emissions and the Company's requirements for solvents.
Major research efforts have been directed toward development of new adhesives
and solvent-free adhesive processing systems. Emulsion and hot-melt adhesives
and solventless silicone systems have been installed in the Company's
facilities in Peachtree City, Georgia; Fort Wayne and Greenfield, Indiana;
Rancho Cucamonga, California; Quakertown, Pennsylvania; Rodange, Luxembourg;
Turnhout, Belgium; Hazerswoude, The Netherlands; and Cramlington, England, as
well as other plants in the United States, Australia, Brazil, France, Germany,
Korea, China and India.
The Company does not believe that the costs of complying with applicable laws
regulating the discharge of materials into the environment, or otherwise
relating to the protection of the environment, will have a material effect upon
the capital expenditures, earnings or competitive position of the Company.
The Company wishes to take advantage of the "safe harbor" provisions of the
Private Securities Litigation Reform Act of 1995, and is including Exhibit 99
to this filing to incorporate this safe harbor statement.
For information regarding the Company's potential responsibility for cleanup
costs at certain hazardous waste sites, see "Legal Proceedings" (Part I, Item
3) and "Management's Discussion and Analysis of Financial Condition and Results
of Operations" (Part II, Item 7). For information regarding the Company's
actions to address the Year 2000 Issue, see "Management's Discussion and
Analysis of Financial Condition and Results of Operations" (Part II, Item 7).
ITEM 2. PROPERTIES
The Company operates approximately 28 principal manufacturing facilities
ranging in size from approximately 100,000 square feet to approximately 370,000
square feet and totaling over 5 million square feet. The following sets forth
the locations of such principal facilities and the business sectors for which
they are presently used:
PRESSURE-SENSITIVE ADHESIVES AND MATERIALS SECTOR
Domestic--Painesville and Fairport, Ohio; Peachtree City, Georgia;
Quakertown, Pennsylvania; Rancho Cucamonga, California; Greenfield,
Fort Wayne, Lowell and Schererville, Indiana.
Foreign--Hazerswoude, The Netherlands; Cramlington, England; Champ-sur-Drac,
France; Turnhout, Belgium; Ajax, Canada; Rodange, Luxembourg; and
Haan, Germany.
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CONSUMER AND CONVERTED PRODUCTS SECTOR
Domestic--Gainesville, Georgia; Rochelle, Illinois; Chicopee and Framingham,
Massachusetts; Meridian, Mississippi; Philadelphia, Pennsylvania;
Clinton, South Carolina; and Crossville, Tennessee.
Foreign--Bowmanville, Canada; La Monnerie and Troyes, France; Hong Kong
(S.A.R.), China and Utrecht, The Netherlands.
In addition to the Company's principal manufacturing facilities described
above, the Company's principal facilities include its corporate headquarters
facility and Research Center in Pasadena, California, and offices located in
Maidenhead, England; Leiden, The Netherlands; Concord, Ohio and Framingham,
Massachusetts.
All of the Company's principal properties identified above are owned in fee
except the facilities in Ajax, Canada; Haan, Germany and small portions of the
facilities in Framingham, Massachusetts; and La Monnerie, France, which are
leased.
All of the buildings comprising the facilities identified above were
constructed after 1954, except parts of the Framingham, Massachusetts plant
and office complex. All buildings owned or leased are well maintained and of
sound construction, and are considered suitable and generally adequate for the
Company's present needs. The Company will expand capacity and provide
facilities to meet future increased demand as needed. Owned buildings and
plant equipment are insured against major losses from fire and other usual
business risks. The Company knows of no material defects in title to, or
encumbrances on, any of its properties except for mortgage liens against four
other facilities not listed separately above.
ITEM 3. LEGAL PROCEEDINGS
The Company, like other U.S. corporations, has periodically received notices
from the U.S. Environmental Protection Agency ("EPA") and state environmental
agencies alleging that the Company is a potentially responsible party ("PRP")
for past and future cleanup costs at hazardous waste sites. The Company has
been designated by the EPA and/or other responsible state agencies as a PRP at
15 waste disposal or waste recycling sites which are the subject of separate
investigations or proceedings concerning alleged soil and/or groundwater
contamination and for which no settlement of the Company's liability has been
agreed upon. Litigation has been initiated by a governmental authority with
respect to two of these sites, but the Company does not believe that any such
proceedings will result in the imposition of monetary sanctions. The Company
is participating with other PRPs at all such sites, and anticipates that its
share of cleanup costs will be determined pursuant to remedial agreements
entered into in the normal course of negotiations with the EPA or other
governmental authorities. The Company has accrued liabilities for all sites,
including sites in which governmental agencies have designated the Company as
a PRP, where it is probable that a loss will be incurred and the amount of the
loss can be reasonably estimated. However, because of the uncertainties
associated with environmental assessment and remediation activities, future
expense to remediate the currently identified sites, and sites which could be
identified in the future for cleanup, could be higher than the liability
currently accrued. Based on current site assessments, management believes the
potential liability over the amounts currently accrued would not materially
affect the Company.
The Registrant and its subsidiaries are involved in various other lawsuits,
claims and inquiries, most of which are routine to the nature of the business.
In the opinion of the Company's management, the resolution of these matters
will not materially affect the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report.
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EXECUTIVE OFFICERS OF THE REGISTRANT*
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SERVED AS
EXECUTIVE FORMER POSITIONS AND
NAME AGE OFFICER SINCE OFFICES WITH REGISTRANT
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Charles D. Miller....... 70 May 1965 1964-1983 Various positions of
Chairman and Chief increasing responsibility
Executive Officer (also
Director of Registrant)
Philip M. Neal.......... 57 January 1974 1974-1990 Various positions of
President and Chief increasing responsibility
Operating Officer (also
Director of Registrant)
Kim A. Caldwell......... 50 June 1990 1990-1997 Senior Group V.P., Worldwide
Executive Vice Materials--Americas and
President, Global Asia
Technology and New
Business Development
Robert M. Calderoni..... 38 October 1997 **1985-1994 Various positions of
Senior Vice President, increasing responsibility
Finance and Chief at IBM
Financial Officer
**1994-1996 V.P., Finance, IBM Storage
Systems Division
**1996-1997 Senior V.P., Finance, Apple
Computer, Inc.
Robert G. van 51 December 1981 1981-1996 Vice President, General
Schoonenberg........... Counsel and Secretary
Senior Vice President,
General Counsel and
Secretary
Wayne H. Smith.......... 56 June 1979 None
Vice President and
Treasurer
Thomas E. Miller........ 50 March 1994 1973-1993 Various positions of
Vice President and increasing responsibility
Controller
1993-1994 V.P. and Assistant
Controller
Diane B. Dixon.......... 46 December 1985 1985-1997 V.P., Corporate
Vice President, Communications
Worldwide
Communications and
Advertising
Susan B. Garelli........ 46 October 1994 **1991-1993 Senior V.P., Human Resources
Vice President, Human and Corporate
Resources Communications, JWP, Inc.
**1993-1994 Consultant, JWP, Inc.
Lynne M. Galligan....... 47 September 1997 **1977-1994 Various positions of
Vice President, increasing responsibility
Technical Strategic at Dow Corning Corp.
Initiatives and Chief
Technology Officer
**1994-1996 General Manager, Dendritech,
Inc.
**1996-1997 Technical Director, General
Electric Co.
Johan J. Goemans........ 54 October 1992 1975-1992 Various positions of
Vice President, increasing responsibility
Management Information
Systems
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SERVED AS
EXECUTIVE FORMER POSITIONS AND
NAME AGE OFFICER SINCE OFFICES WITH REGISTRANT
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Geoffrey T. Martin...... 43 January 1994 1992-1993 V.P., Office Products Group
Senior Group Vice Europe
President, Worldwide 1993-1994 Group V.P., Converting and
Converting, Graphic Office Products Europe
Systems and Specialty 1994-1997 Senior V.P., Worldwide Tape
Tapes & Converting and
Materials--Europe
Stephanie A. Streeter... 40 March 1996 1991-1993 V.P. and General Manager,
Group Vice President, Avery Office Labels
Worldwide Office 1993-1996 V.P. and General Manager,
Products Avery Dennison Brands
Dean A. Scarborough,.... 42 August 1997 1990-1995 V.P. and General Manager,
Group Vice President, Fasson Roll Division--
Fasson Roll--North Europe
America and Europe 1995-1997 V.P. and General Manager,
Fasson Roll Division--U.S.
Flavio T. Lacerda....... 51 May 1996 **1991-1994 Latin America Regional
Group Vice President, Manager, Loctite Corp.
Latin America **1995-1996 President for Latin America
and South Africa, Loctite
Corp.
Donald R. McKee......... 61 December 1995 1971-1993 Various positions of
Vice President, Label increasing responsibility
Ventures 1993-1995 V.P. and General Manager,
Soabar Systems Division
1995-1996 V.P., Soabar Products and
Fastener Divisions
1996-1997 Group V.P., Converted and
Fastener Products N.A.
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* All officers are elected to serve a one year term and until their successors
are elected and qualify.
** Business experience prior to service with Registrant.
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PART II
ITEM 5. MARKET FOR COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The information called for by this item appears on page 52 of Registrant's
1997 Annual Report and is incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
Selected financial data for each of Registrant's last five fiscal years
appears on pages 26 and 27 of Registrant's 1997 Annual Report and is
incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
RESULTS OF OPERATIONS
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1997 1996 1995
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(DOLLARS IN MILLIONS)
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Net sales........................................ $3,345.7 $3,222.5 $3,113.9
Cost of products sold............................ 2,263.0 2,204.2 2,156.6
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Gross profit..................................... 1,082.7 1,018.3 957.3
Marketing, general and administrative expense.... 739.8 712.4 689.8
Net gain on divestitures and restructuring
charges......................................... -- 2.1 1.5
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Earnings before interest and taxes............... $ 342.9 $ 308.0 $ 269.0
</TABLE>
Sales increased 3.8 percent to $3.35 billion in 1997, compared to $3.22
billion in 1996. Excluding changes in foreign currency exchange rates, sales
increased 6.6 percent. In 1996, sales increased 3.5 percent over 1995 sales of
$3.11 billion. Excluding the impact of business divestitures and changes in
foreign currency exchange rates for 1996, sales increased 6.4 percent. During
the fourth quarter of 1995, the Company sold a portion of its North American
label converting operations. These businesses accounted for approximately 2
percent of the Company's 1995 total sales.
Gross profit margins for the years ended 1997, 1996 and 1995 were 32.4
percent, 31.6 percent and 30.7 percent, respectively. The improvement in 1997
over 1996 was primarily due to increased productivity, cost control and an
improved product mix. The improvement in 1996 over 1995 was primarily
attributable to an improved product mix, new products, cost reduction and
control programs and increased capacity utilization. Gross profit margins were
also impacted by a $4.2 million and $3.2 million LIFO benefit reported during
1997 and 1996, respectively.
Marketing, general and administrative expense as a percent of sales was 22.1
percent in 1997 and 1996 and 22.2 percent in 1995. The expense for 1997
benefited from cost control and lower costs for certain employee benefit
plans; however, these benefits were offset by increased expenditures for
marketing, and research and development activities. The improvement in 1996
over 1995 was primarily attributable to cost control and reduction efforts
throughout the Company and was achieved despite major investments in
geographic expansion, business realignment and new product programs.
During the third quarter of 1996, restructuring actions were taken,
resulting in a net pretax gain of $2.1 million. The Company sold its equity
interest in a label operation in Japan for $28.4 million, resulting in a
pretax gain of $17.9 million. The Company also recorded $15.8 million of
restructuring charges, which included an asset impairment write-down of $6.3
million for long-lived assets held in the Company's Consumer and converted
products sector. The restructuring program also included the reorganization of
certain manufacturing, distribution and administrative sites. These costs
consisted of severance and related costs for approximately
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200 positions worldwide ($7.4 million) and the discontinuance of product lines
and related asset write-offs ($2.1 million). These actions were completed
during the third quarter of 1997 and are expected to result in estimated
annual savings of approximately $9 million to $11 million.
Business restructuring actions taken during the fourth quarter of 1995
resulted in a net pretax gain of $1.5 million. Certain businesses which no
longer met the Company's strategy for converting technology were sold for $95
million. A $40.7 million pretax gain on the sale of these businesses was
offset by restructuring charges of $39.2 million, which included the closure
of four plants and the reorganization of certain manufacturing, distribution
and administrative sites. These costs consisted of severance and related costs
for approximately 400 positions worldwide ($16.2 million), discontinuance of
product lines and related asset write-offs ($13.1 million), and plant closure
and other costs ($9.9 million). This program was completed at year-end 1997
and is expected to result in estimated annual savings of $14 million to $17
million.
Interest expense for the years ended 1997, 1996 and 1995 was $31.7 million,
$37.4 million and $44.3 million, respectively. The decrease in 1997 was
primarily due to lower weighted-average interest rates and lower average
borrowings. The decrease in 1996 was primarily due to the expiration of
interest rate swap agreements during the fourth quarter of 1995 and an overall
lower cost of borrowing.
Income before taxes, as a percent of sales, was 9.3 percent for 1997, 8.4
percent for 1996 and 7.2 percent for 1995. The improvement during 1997 and
1996 was primarily due to higher gross profit margins and lower interest
expense as a percent of sales. The effective tax rate was 34.2 percent in
1997, 35 percent in 1996 and 36 percent in 1995. The decrease in 1997 was
primarily due to the utilization of foreign tax loss carryforwards and an
increase in U.S. tax credits for research and experimentation. The Company
estimates that the effective tax rate for 1998 will be 34- to-35 percent.
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1997 1996 1995
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(IN MILLIONS, EXCEPT
PER
SHARE AMOUNTS)
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Net income............................................. $204.8 $175.9 $143.7
Net income per common share............................ 1.99 1.68 1.35
Net income per common share, assuming dilution......... 1.93 1.63 1.32
</TABLE>
Net income increased to $204.8 million in 1997 compared to $175.9 million in
1996, reflecting a 16.4 percent increase over 1996. Net income in 1995 was
$143.7 million. Net income, as a percent of sales, was 6.1 percent, 5.5
percent and 4.6 percent in 1997, 1996 and 1995, respectively.
Net income per common share increased to $1.99 in 1997 compared to $1.68 in
1996, an 18.5 percent improvement. Net income per common share was $1.35 in
1995. Net income per common share, assuming dilution, was $1.93 in 1997
compared to $1.63 in 1996, an 18.4 percent increase. Net income per common
share, assuming dilution was $1.32 in 1995.
The Company adopted Statement of Financial Accounting Standards (SFAS) No.
128, "Earnings Per Share", during the fourth quarter of 1997. All prior year
net income per share data, as shown above, has been restated in accordance
with the new standard.
RESULTS OF OPERATIONS BY BUSINESS SECTOR
PRESSURE-SENSITIVE ADHESIVES AND MATERIALS:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
(IN MILLIONS)
<S> <C> <C> <C>
Net sales........................................ $1,741.4 $1,702.6 $1,589.7
Income from operations before interest and taxes. 170.1 159.1 145.0
</TABLE>
9
<PAGE>
The Pressure-sensitive adhesives and materials sector reported increased
sales and profitability for 1997 compared to 1996. The U.S. operations' sales
growth was primarily led by increased sales volume for products in its
pharmaceutical, variable imprint and graphics businesses; however, sales were
partially impacted by paper price deflation and product mix. Income from the
U.S. operations benefited from improved capacity utilization and the extent of
restructuring charges taken in 1996 compared to 1997. The international
businesses reported increased sales and profitability primarily due to higher
unit volume and geographic expansion, which were partially offset by changes
in foreign currency rates.
The Pressure-sensitive adhesives and materials sector reported increased
sales and income for 1996 compared to 1995. The sector's income results
include restructuring charges of $7.1 million in 1996 and $15.1 million in
1995. The U.S. operations reported sales growth for the year primarily due to
increased volume and new products. Profitability improved as a result of cost
reduction actions, increased capacity utilization and improved operating
efficiencies. The international businesses reported increased sales primarily
due to its geographic expansion in emerging markets and increased volume.
Profitability for the international businesses increased primarily due to the
extent of restructuring charges taken in 1995 compared to 1996. This increase
was partially offset by costs related to continued investments in geographic
expansion and major equipment start-up costs.
CONSUMER AND CONVERTED PRODUCTS:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
(IN MILLIONS)
<S> <C> <C> <C>
Net sales........................................ $1,752.6 $1,660.8 $1,583.5
Income from operations before interest and taxes. 192.6 160.6 147.8
</TABLE>
The Consumer and converted products sector reported increased sales and
profitability for 1997 compared to 1996. Increased sales in the U.S.
operations continued to be led by growth of its Avery-brand products, new
products and other consumer products. Profitability in the U.S. businesses
improved primarily as a result of its Avery-brand products, new products and
an improved product mix. Sales for the international businesses in 1997 were
comparable to 1996. Sales for 1997 benefited from geographic expansion;
however, this increase was offset by changes in foreign currency rates and
sales declines at certain European operations. Profitability for the
international businesses was primarily impacted by operations in France,
decreased sales at other select European operations due to the softness of
certain economies, and investment for the market expansion of new products.
The Consumer and converted products sector reported increased sales and
profitability for 1996 compared to 1995. The sector's income results include
restructuring charges of $8.7 million for 1996 compared to a $16.6 million net
gain on divestitures and restructuring charges in 1995. The U.S. operations
reported increased sales primarily due to the growth of its battery label
business and for its Avery-brand products. Profitability improved primarily
due to increased sales volume, new products and operating improvements,
including lower distribution expenses. The international businesses reported
higher sales due to geographic expansion and growth of its office label
businesses; however, this sales increase was partially offset by sales
declines in a portion of the French operations. Profitability in 1996 for the
international businesses was comparable to 1995. Profit improvements from cost
control programs and product pruning were offset by lower sales in one of the
French operations and start-up costs related to geographic expansion.
FINANCIAL CONDITION
Average working capital, excluding short-term debt, as a percent of sales
was 8 percent in 1997, 9.1 percent in 1996 and 9.6 percent in 1995. The
decrease in 1997 was primarily due to increased sales, reduced days sales
outstanding in accounts receivable, improved inventory turnover and better
payables management programs. The decrease in 1996 was primarily due to higher
sales and an increase in current liabilities. Average inventory turnover was
9.5 turns in 1997, 9.3 turns in 1996 and 9 turns in 1995; the average number
of days sales outstanding in accounts receivable was 52 days in 1997 and 55
days in 1996 and 1995.
10
<PAGE>
Net cash flow from operating activities was $368.4 million in 1997, $304
million in 1996 and $187.9 million in 1995. The increase in net cash flow in
1997 and 1996 was primarily due to changes in working capital requirements and
the Company's improved profitability.
Total debt decreased $19.2 million to $447.7 million compared to year end
1996. Total debt to total capital was 34.8 percent at year end 1997 compared
to 35.9 percent at year end 1996. Long-term debt as a percent of total long-
term capital increased to 32.6 percent from 30.8 percent at year end 1996.
In October 1996, the Company established the Avery Dennison Corporation
Employee Stock Benefit Trust (the "ESBT") to fund a portion of the Company's
obligations arising from various current and future employee benefit plans. As
a result, the Company sold 18 million shares of treasury stock to the ESBT at
fair market value. This transaction had no impact on the Company's financial
condition. The ESBT has a 15-year life during which it will utilize the stock
to satisfy certain Company obligations. The market value of shares held in the
ESBT, after the issuance of shares under the Company's stock and incentive
plans, increased by $85.4 million to $729.7 million from year end 1996.
Shareholders' equity increased to $837.2 million from $832 million at year
end 1996. During 1997, the Company repurchased 2.5 million shares of common
stock at a cost of $99.3 million. As of year end 1997, a cumulative 27.9
million shares of common stock had been purchased since 1991 and 2.5 million
shares remained available for repurchase under the Board of Directors'
authorization.
The return on average shareholders' equity was 24.8 percent in 1997, 21.4
percent in 1996 and 18.6 percent in 1995. The return on average total capital
for those three years was 18.1 percent, 16.4 percent and 14.4 percent,
respectively. The improvements in 1997 and 1996 for these returns were
primarily due to an increase in profitability, more effective utilization of
the Company's assets and the impact from share repurchases.
The Company, like other U.S. corporations, has periodically received notices
from the U.S. Environmental Protection Agency and state environmental agencies
alleging that the Company is a potentially responsible party (PRP) for past
and future cleanup costs at hazardous waste sites. The Company has received
requests for information, notices and/or claims with respect to 15 waste sites
in which the Company has no ownership interest. Litigation has been initiated
by a governmental authority with respect to two of these sites, but the
Company does not believe that any such proceedings will result in the
imposition of monetary sanctions. Environmental investigatory and remediation
projects are also being undertaken on property presently owned by the Company.
The Company has accrued liabilities for all sites where it is probable that a
loss will be incurred and the minimum cost or amount of the loss can be
reasonably estimated. However, because of the uncertainties associated with
environmental assessments and remediation activities, future expense to
remediate the currently identified sites, and sites which could be identified
in the future for cleanup, could be higher than the liability currently
accrued. Based on current site assessments, management believes that the
potential liability over the amounts currently accrued would not materially
affect the Company.
LIQUIDITY AND CAPITAL RESOURCES
In addition to cash flow from operations, the Company has more than adequate
financing arrangements, at competitive rates, to conduct its operations.
During the fourth quarter of 1996, the Company registered with the
Securities and Exchange Commission $150 million in principal amount of
uncollaterized medium-term notes, of which $60 million in notes had been
issued as of year end 1997. Proceeds from the medium-term notes were used to
reduce debt and for other general corporate purposes. The Company's currently
outstanding medium-term notes have maturities from 2000 through 2025 and have
a weighted-average interest rate of 7.1 percent.
The Company's restructuring programs were completed in 1997 and included the
1996 $28.4 million sale of its equity interest in a label operation in Japan
and the 1995 $95 million sale of certain non-strategic label
11
<PAGE>
converting businesses. The restructuring programs had a cost of $15.8 million
and $39.2 million for 1996 and 1995, respectively.
Capital expenditures were $177.3 million in 1997 and $187.6 million in 1996.
Capital expenditures for 1998 are expected to be approximately $175 million to
$200 million.
The annual dividend rate per share increased to $.72 in 1997 from $.62 in
1996 and $.55 in 1995.
The Company continues to expand its operations in Asia Pacific, Latin
America and Europe. The Company's future results are subject to changes in
economic conditions and the impact of fluctuations in foreign currency
exchange and interest rates. To manage its exposure to these fluctuations, the
Company may enter into foreign exchange forward and option contracts, and
interest rate contracts, where appropriate. The recent turmoil in certain
Asian financial markets had an immaterial effect on the Company's 1997
results.
In 1997, the Company's operations located in Mexico and Brazil, were treated
as hyperinflationary economies for accounting purposes due to the cumulative
inflation rate over the past three years. As a result, all translation gains
and losses were included in net income. These operations were not significant
to the Company's consolidated financial position.
Beginning in 1998, Brazil will no longer be treated as a hyperinflationary
economy for accounting purposes. As a result, all asset and liability accounts
for the Company's Brazilian operations will be translated into U.S. dollars at
current rates and recorded directly to a component of shareholders' equity.
Gains and losses resulting from foreign currency transactions will be included
in net income currently.
FUTURE ACCOUNTING REQUIREMENTS
In June 1997, the Financial Accounting Standards Board (FASB) issued SFAS
No. 130, "Reporting Comprehensive Income". The standard establishes guidelines
for the reporting and display of comprehensive income and its components in
financial statements. Comprehensive income includes items such as foreign
currency translation adjustments and adjustments to the minimum pension
liability that are currently presented as components of shareholders' equity.
Companies will be required to report total comprehensive income for interim
periods beginning first quarter of 1998. Disclosure of comprehensive income
and its components will be required beginning fiscal year end 1998.
Also in June 1997, the FASB issued SFAS No. 131, "Disclosures About Segments
of an Enterprise and Related Information". The standard establishes guidelines
for reporting information on operating segments in interim and annual
financial statements. The new rules will be effective for the 1998 fiscal
year. Abbreviated quarterly disclosure will be required beginning first
quarter of 1999, and will include both 1999 and 1998 information. The Company
does not believe that the new standard will have a material impact on the
reporting of its segments.
YEAR 2000
The Year 2000 issue is the result of computer programs being written using
two digits (rather than four) to define the applicable year. Any of the
Company's computer programs that have date-sensitive software may recognize a
date using "00" as the year 1900 rather than the year 2000, which could result
in system failures or miscalculations.
The Company is currently working to resolve the Year 2000 issue and has
established processes for evaluating and managing the risks and costs
associated with this issue. The Company will utilize both internal and
external resources to reprogram or replace, and test the software for Year
2000 modifications. In addition, the Company is communicating with suppliers
and customers with whom the Company does business to coordinate the Year 2000
conversion. The Company plans to complete the Year 2000 project by fiscal year
end 1998.
12
<PAGE>
Based on current assessments, costs of addressing the Year 2000 issue are
not expected to have a material impact on the Company's future financial
results.
SAFE HARBOR STATEMENT
Except for historical information contained herein, the matters discussed in
the Management's Discussion and Analysis of Results of Operations and
Financial Condition, Market-Sensitive Instruments and Risk Management and
other sections of this annual report contain "forward-looking statements"
within the meaning of the Private Securities Reform Act of 1995. These
statements, which are not statements of historical fact, may contain
estimates, assumptions, projections and/or expectations regarding future
events. Such forward-looking statements, and financial or other business
targets, are subject to certain risks and uncertainties which could cause
actual results to differ materially from any future results, performance or
achievements of the Company expressed or implied by such forward-looking
statements. Such risks and uncertainties include, but are not limited to,
risks and uncertainties relating to investment in new production facilities,
timely development and successful marketing of new products, impact of
competitive products and pricing, customer and supplier and manufacturing
concentrations, changes in customer order patterns, increased competition,
litigation risks, fluctuations in foreign exchange rates or other risks
associated with foreign operations, changes in economic or political
conditions, and other factors. Any forward-looking statements should be
considered in light of the factors detailed in Exhibit 99 in the Company's
Annual Report on Form 10-K for the years ended December 27, 1997 and December
28, 1996.
The Company's forward-looking statements represent its judgment only on the
dates such statements are made. By making any forward-looking statements, the
Company assumes no duty to update them to reflect new, changed or
unanticipated events or circumstances.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
MARKET-SENSITIVE INSTRUMENTS AND RISK MANAGEMENT
The Company is exposed to the impact of interest rate and foreign currency
exchange rate changes.
The Company does not hold or purchase any foreign currency or interest rate
contracts for trading purposes.
The Company's objective in managing the exposure to foreign currency changes
is to reduce the risk to earnings and cash flow associated with foreign
exchange rate changes. As a result, the Company enters into foreign exchange
forward and option contracts to reduce risks associated with the value of its
existing foreign currency assets, liabilities, firm commitments and
anticipated foreign revenues and costs. The gains and losses on these
contracts are intended to offset changes in the related exposures. The Company
does not hedge its foreign currency exposure in a manner that would entirely
eliminate the effects of changes in foreign exchange rates on the Company's
consolidated net income.
The Company's objective in managing its exposure to interest rate changes is
to limit the impact of interest rate changes on earnings and cash flows and to
lower its overall borrowing costs. To achieve its objectives, the Company will
periodically use interest rate contracts to manage net exposure to interest
rate changes related to its borrowings. The Company had no interest rate
contracts outstanding at year end 1997.
In the normal course of operations, the Company also faces other risks that
are either nonfinancial or nonquantifiable. Such risks principally include
changes in economic or political conditions, other risks associated with
foreign operations, commodity price risk and litigation risk which are not
represented in the analyses that follow.
13
<PAGE>
FOREIGN EXCHANGE VALUE-AT-RISK
The Company uses a "Value-at-Risk" (VAR) model to determine the estimated
maximum potential one-day loss in earnings associated with both its foreign
exchange positions and contracts. This approach assumes that market rates or
prices for foreign exchange positions and contracts are normally distributed.
The VAR model estimates were made assuming normal market conditions. Firm
commitments, receivables and accounts payable denominated in foreign
currencies, which certain of these instruments are intended to hedge, were
included in the model. Forecasted transactions, which certain of these
instruments are intended to hedge, were excluded from the model.
The VAR was estimated using a variance-covariance methodology based on
historical volatility for each currency. The volatility and correlation used
in the calculation were based on historical observations, using one year's
data with equal weightings. This data was obtained from the publicly available
JP Morgan RiskMetrics data set on the InterNet. A 95 percent confidence level
was used for a one-day time horizon.
The VAR model is a risk analysis tool and does not purport to represent
actual losses in fair value that could be incurred by the Company, nor does it
consider the potential effect of favorable changes in market factors.
The estimated maximum potential one-day loss in earnings for the Company's
foreign exchange positions and contracts would have been immaterial to the
Company's 1997 earnings.
INTEREST RATE SENSITIVITY
An assumed 60 basis point move in interest rates (10 percent of the
Company's weighted-average floating rate interest rates) affecting the
Company's variable-rate borrowings would have had an immaterial effect on the
Company's 1997 earnings.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information called for by this item is contained in Registrant's
Consolidated Financial Statements and the Notes thereto appearing on pages 34
through 48, and in the Report of Independent Certified Public Accountants on
page 49 of Registrant's 1997 Annual Report and is incorporated herein by
reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information concerning directors called for by this item is incorporated
by reference from pages 2, 3 and 4 of the 1998 Proxy Statement which is to be
filed with the Securities and Exchange Commission pursuant to Regulation 14A
within 120 days of the end of the fiscal year covered by this report.
Information concerning executive officers called for by this item appears in
Part I of this report. The information concerning late filings under Section
16(a) of the Securities Exchange Act of 1934, as amended, is incorporated by
reference from page 14 of the 1998 Proxy Statement.
ITEM 11. EXECUTIVE COMPENSATION
14
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information called for by items 11, 12 and 13 is incorporated by
reference from pages 5 through 20 of the 1998 Proxy Statement which is to be
filed with the Securities and Exchange Commission pursuant to Regulation 14A
within 120 days of the end of the fiscal year covered by this report.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Financial Statements, Financial Statement Schedules and Exhibits
(1) (2) Financial statements and financial statement schedules filed as
part of this report are listed in the accompanying Index to Financial
Statements and Financial Statement Schedules.
(3) Exhibits filed as a part of this report are listed in the Exhibit
Index, which follows the financial statements and schedules referred to
above. Each management contract or compensatory plan or arrangement
required to be filed as an exhibit to this Form 10-K pursuant to Item 14(c)
is identified in the Exhibit Index.
(b) Reports on Form 8-K: Registrant filed one Report on Form 8-K for the
three months ended December 27, 1997:
Form 8-K dated October 24, 1997, in connection the 1997 Rights Plan.
(c) Those Exhibits and the Index thereto, required to be filed by Item 601
of Regulation S-K are attached hereto.
(d) Those financial statement schedules required by Regulation S-X which are
excluded from Registrant's 1997 Annual Report by Rule 14a-3(b)(1), and which
are required to be filed as financial statement schedules to this report, are
indicated in the accompanying Index to Financial Statements and Financial
Statement Schedules.
15
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
Avery Dennison Corporation
By /s/ Robert M. Calderoni
___________________________________
Robert M. Calderoni
Senior Vice President, Finance and
Chief Financial Officer
Dated: March 26, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Charles D. Miller Chairman and Chief Executive March 26, 1998
____________________________________ Officer; Director
Charles D. Miller
/s/ Philip M. Neal President and Chief March 26, 1998
____________________________________ Operating Officer; Director
Philip M. Neal
/s/ Robert M. Calderoni Senior Vice President, March 26, 1998
____________________________________ Finance and Chief Financial
Robert M. Calderoni Officer (Principal
Financial Officer)
/s/ Thomas E. Miller Vice President and March 26, 1998
____________________________________ Controller (Principal
Thomas E. Miller Accounting Officer)
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Dwight L. Allison, Jr. Director March 26, 1998
____________________________________
Dwight L. Allison, Jr.
/s/ John C. Argue Director March 26, 1998
____________________________________
John C. Argue
/s/ Joan T. Bok Director March 26, 1998
____________________________________
Joan T. Bok
/s/ Frank V. Cahouet Director March 26, 1998
____________________________________
Frank V. Cahouet
/s/ Richard M. Ferry Director March 26, 1998
____________________________________
Richard M. Ferry
/s/ Peter W. Mullin Director March 26, 1998
____________________________________
Peter W. Mullin
/s/ Sidney R. Petersen Director March 26, 1998
____________________________________
Sidney R. Petersen
/s/ John B. Slaughter Director March 26, 1998
____________________________________
John B. Slaughter
</TABLE>
17
<PAGE>
AVERY DENNISON CORPORATION
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL
STATEMENT SCHEDULES
<TABLE>
<CAPTION>
REFERENCE (PAGE)
-------------------
FORM
10-K ANNUAL
ANNUAL REPORT TO
REPORT SHAREHOLDERS
------ ------------
<S> <C> <C>
Data incorporated by reference from the attached portions
of the 1997 Annual
Report to Shareholders of Avery Dennison Corporation:
Report of Independent Certified Public Accountants...... -- 49
Consolidated Balance Sheet at December 27, 1997 and De-
cember 28, 1996........................................ -- 34
Consolidated Statement of Income for 1997, 1996 and
1995................................................... -- 35
Consolidated Statement of Shareholders' Equity for 1997,
1996 and 1995.......................................... -- 36
Consolidated Statement of Cash Flows for 1997, 1996 and
1995................................................... -- 37
Notes to Consolidated Financial Statements.............. -- 38-48
Individual financial statements of 50% or less owned entities accounted for
by the equity method have been omitted because, considered in the aggregate or
as a single subsidiary, they do not constitute a significant subsidiary.
With the exception of the consolidated financial statements and the
accountants' report thereon listed in the above index, and the information
referred to in Items 1, 5 and 6, all of which is included in the 1997 Annual
Report and incorporated herein by reference, the 1997 Annual Report is not to
be deemed "filed" as part of this report.
Data submitted herewith:
Report of Independent Certified Public Accountants...... S-2 --
Financial Statement Schedules (for 1997, 1996 and 1995):
II--Valuation and Qualifying Accounts and Reserves.... S-3 --
Consent of Independent Accountants...................... S-4 --
</TABLE>
All other schedules are omitted since the required information is not
present or is not present in amounts sufficient to require submission of the
schedule, or because the information required is included in the consolidated
financial statements and notes thereto.
S-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders
of Avery Dennison Corporation
Our report on the consolidated financial statements of Avery Dennison
Corporation and subsidiaries has been incorporated by reference in this Form
10-K from page 49 of the 1997 Annual Report to Shareholders of Avery Dennison
Corporation. In connection with our audits of such financial statements, we
have also audited the related financial statement schedule listed in the index
on page S-1 of this Form 10-K.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
COOPERS & LYBRAND L.L.P.
Los Angeles, California
January 27, 1998
S-2
<PAGE>
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(IN MILLIONS)
<TABLE>
<CAPTION>
ADDITIONS
---------------------
BALANCE CHARGED DEDUCTIONS--
AT TO COSTS UNCOLLECTIBLE BALANCE
BEGINNING AND FROM ACCOUNTS AT END
OF YEAR EXPENSES ACQUISITIONS WRITTEN OFF OF YEAR
--------- -------- ------------ ------------- -------
<S> <C> <C> <C> <C> <C>
1997
Allowance for doubtful
accounts.............. $17.5 $4.3 $-- $6.2 $15.6
===== ==== === ==== =====
1996
Allowance for doubtful
accounts.............. $17.6 $4.1 $-- $4.2 $17.5
===== ==== === ==== =====
1995
Allowance for doubtful
accounts.............. $18.5 $4.7 $-- $5.6 $17.6
===== ==== === ==== =====
</TABLE>
S-3
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statements
of Avery Dennison Corporation on Form S-3 (File Nos. 333-16375 and 333-38905)
and Form S-8 (File Nos. 33-1132, 33-3645, 33-27275, 33-35995-01, 33-41238, 33-
45376, 33-54411, 33-58921, 33-63979, 333-38707 and 333-38709) of our report,
dated January 27, 1998, which appears on page 49 of the 1997 Annual Report to
Shareholders and is incorporated by reference in this Annual Report on Form
10-K. We also consent to the incorporation by reference of our report on the
financial statement schedule listed in the index on page S-1.
COOPERS & LYBRAND L.L.P.
Los Angeles, California
March 26, 1998
S-4
<PAGE>
AVERY DENNISON CORPORATION
EXHIBIT INDEX
FOR THE YEAR ENDED DECEMBER 27, 1997
INCORPORATED BY REFERENCE:
<TABLE>
<CAPTION>
ORIGINALLY
FILED AS
EXHIBIT EXHIBIT
NO. ITEM NO. DOCUMENT
------- ---- ---------- --------
<C> <S> <C> <C>
(3.1) Restated Articles of
Incorporation.......... B Proxy Statement dated February 28,
1977 for Annual Meeting of
Stockholders March 30, 1977;
located in File No. 0-225 at
Securities and Exchange Commission,
450 5th St., N.W., Washington, D.C.
(3.1.1) Amendment to Certificate
of Incorporation, filed
April 10, 1984 with
Office of Delaware
Secretary of State..... 3.1.1 1983 Annual Report on Form 10-K
(3.1.2) Amendment to Certificate
of Incorporation, filed
April 11, 1985 with
Office of Delaware
Secretary of State..... 3.1.2 1984 Annual Report on Form 10-K
(3.1.3) Amendment to Certificate
of Incorporation filed
April 6, 1987 with
Office of Delaware
Secretary of State..... 3.1.3 1986 Annual Report on Form 10-K
(3.1.4) Amendment to Certificate
of Incorporation filed
October 17, 1990 with
Office of Delaware
Secretary of State..... Current Report on Form 8-K filed
October 31, 1990
(3.1.5) Amendment to Certificate
of Incorporation filed
April 28, 1997 with
Office of Delaware
Secretary of State..... 3 First Quarterly report for 1997 on
Form 10-Q
(3.2) By-laws, as amended..... 3(ii) 1996 Annual Report on Form 10-K
(4.1) Rights Agreement dated
as of October 23, 1997. Current Report on Form 8-K filed
October 24, 1997
(4.2) Indenture, dated as of
March 15, 1991, between
Registrant and Security
Pacific National Bank,
as Trustee (the
"Indenture")........... Registration Statement on Form S-3
(File No. 33-39491)
(4.3) Officers' Certificate
establishing a series
of Securities entitled
"Medium-Term Notes"
under the Indenture.... Current Report on Form 8-K filed
March 25, 1991
(4.4) First Supplemental
Indenture, dated as of
March 16, 1993, between
Registrant and
BankAmerica National
Trust Company, as
successor Trustee (the
"Supplemental
Indenture")............ Registration Statement on Form S-3
(File No. 33-59642)
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
ORIGINALLY
FILED AS
EXHIBIT EXHIBIT
NO. ITEM NO. DOCUMENT
------- ---- ---------- --------
<C> <S> <C> <C>
(4.5) Officers' Certificate
establishing a series
of Securities entitled
"Medium-Term Notes"
under the Indenture, as
amended by the
Supplemental Indenture. Current Report on Form 8-K filed
April 7, 1993
(4.6) Officers' Certificate
establishing a series
of Securities entitled
"Medium-Term Notes,
Series B" under the
Indenture, as amended
by the Supplemental
Indenture.............. Current Report on Form 8-K filed
March 29, 1994
(4.7) Officers' Certificate
establishing a series
of Securities entitled
"Medium-Term Notes,
Series C" under the
Indenture, as amended
by the Supplemental
Indenture.............. Current Report on Form 8-K filed
May 12, 1995
(4.8) Officers' Certificate
establishing a series
of Securities entitled
"Medium-Term Notes,
Series D" under the
Indenture, as amended
by the Supplemental
Indenture.............. Current Report on Form 8-K filed
December 16, 1996
(10.1) *Amended 1973 Stock
Option and Stock
Appreciation Rights
Plan for Key Employees
of Avery International
Corporation ("1973
Plan")................. 10.1 1987 Annual Report on Form 10-K
(10.1.1) *Form of Incentive Stock
Option Agreement for
use under 1973 Plan.... 10.1.3 1984 Annual Report on Form 10-K
(10.1.2) *Form of Non-Qualified
Stock Option Agreement
for use under 1973
Plan................... 10.1.4 1987 Annual Report on Form 10-K
(10.1.3) *Form of coupled Stock
Appreciation Right
Agreement for use under
1973 Plan.............. 10.1.5 1985 Annual Report on Form 10-K
(10.1.4) 1985 U.K. Stock Option
Scheme................. 10.1.7 1985 Annual Report on Form 10-K
(10.1.5) Form of Incentive Stock
Option Agreement for
use under U.K. Stock
Option Scheme.......... 10.1.8 1985 Annual Report on Form 10-K
(10.1.6) Form of Stock Option
Agreement for use under
U.K. Stock Option
Scheme................. 10.1.9 1985 Annual Report on Form 10-K
(10.2.2) *Form of Incentive Stock
Option Agreement for
use under 1988 Plan.... 10.2.2 1991 Annual Report on Form 10-K
(10.3) *Deferred Compensation
Plan for Directors..... 10.3 1981 Annual Report on Form 10-K
(10.5) *Executive Medical and
Dental Plan
(description).......... 10.5 1981 Annual Report on Form 10-K
(10.6) *Executive Financial
Counseling Service
(description).......... 10.6 1981 Annual Report on Form 10-K
(10.7.1) *Executive Employment
Security Policy dated
February 1, 1983....... 10.7.1 1982 Annual Report on Form 10-K
(10.7.2) *Executive Employment
Security Policy dated
February 1, 1985....... 10.13 1984 Annual Report on Form 10-K
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
ORIGINALLY
FILED AS
EXHIBIT EXHIBIT
NO. ITEM NO. DOCUMENT
------- ---- ---------- --------
<C> <S> <C> <C>
(10.7.3) *Executive Employment
Security Policy dated
November 19, 1987...... 10.7.3 1993 Annual Report on Form 10-K
(10.8.1) *Agreement dated October
24, 1990 with Charles
D. Miller.............. 10.8.1 1990 Annual Report on Form 10-K
(10.8.2) *Agreement dated October
23, 1990 with Philip M.
Neal................... 10.8.2 1990 Annual Report on Form 10-K
(10.8.3) *Agreement dated March
16, 1996 with R.G. van
Schoonenberg........... 10.8.3 1996 Annual Report on Form 10-K
(10.9) *Executive Group Life
Insurance Plan......... 10.9 1982 Annual Report on Form 10-K
(10.10) *Form of Indemnity
Agreements between
Registrant and certain
directors and officers. 10.10 1986 Annual Report on Form 10-K
(10.10.1) *Form of Indemnity
Agreement between
Registrant and certain
directors and officers. 10.10.1 1993 Annual Report on Form 10-K
(10.11) *Supplemental Executive
Retirement Plan........ 10.11 1983 Annual Report on Form 10-K
(10.11.1) *Amended Letter of Grant
to C.D. Miller under
Supplemental Executive
Retirement Plan........ 10.11.2 1992 Annual Report on Form 10-K
(10.12) *Complete Restatement
and Amendment of Avery
Dennison Corporation
Executive Deferred
Compensation Plan...... 10.12 1994 Annual Report on Form 10-K
(10.12.1) *Form of Enrollment
Agreement for use under
Executive Deferred
Compensation Plan...... 10.13.2 1985 Annual Report on Form 10-K
(10.13) *Fourth Amended Avery
Dennison Retirement
Plan for Directors..... 10.13.2 1992 Annual Report on Form 10-K
(10.15) *1988 Stock Option Plan
for Non-Employee
Directors ("Director
Plan")................. 10.15 1987 Annual Report on Form 10-K
(10.15.1) *Amendment No. 1 to 1988
Stock Option Plan for
Non-Employee Directors
("Director Plan")...... 10.15.1 1994 Annual Report on Form 10-K
(10.15.2) *Form of Non-Employee
Director Stock Option
Agreement for use under
Director Plan.......... 10.15.2 1994 Annual Report on Form 10-K
(10.16) *Complete Restatement
and Amendment of Avery
Dennison Corporation
Executive Variable
Deferred Compensation
Plan................... 10.16 1994 Annual Report on Form 10-K
(10.16.1) *Form of Enrollment
Agreement for use under
Executive Variable
Deferred Compensation
Plan................... 10.16.1 1987 Annual Report on Form 10-K
(10.17) *Complete Restatement
and Amendment of Avery
Dennison Corporation
Directors Deferred
Compensation Plan...... 10.17 1994 Annual Report on Form 10-K
(10.17.1) *Form of Enrollment
Agreement for use under
Directors Deferred
Compensation Plan...... 10.17.2 1985 Annual Report on Form 10-K
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
ORIGINALLY
FILED AS
EXHIBIT EXHIBIT
NO. ITEM NO. DOCUMENT
------- ---- ---------- --------
<C> <S> <C> <C>
(10.18) *Complete Restatement
and Amendment of Avery
Dennison Corporation
Directors Variable
Deferred Compensation
Plan................... 10.18 1994 Annual Report on Form 10-K
(10.18.1) *Form of Enrollment
Agreement for use under
Directors Variable
Deferred Compensation
Plan................... 10.18.1 1989 Annual Report on Form 10-K
(10.19) *1990 Stock Option and
Incentive Plan for Key
Employees of Avery
International
Corporation ("1990
Plan")................. 10.19 1989 Annual Report on Form 10-K
(10.19.1) *Amendment No. 1 to 1990
Plan................... 10.19.1 1993 Annual Report on Form 10-K
(10.19.2) *Form of Incentive Stock
Option Agreement for
use under 1990 Plan.... 10.19.2 1991 Annual Report on Form 10-K
(10.19.3) *Form of Non-Qualified
Stock Option Agreement
for use under 1990
Plan................... 10.19.3 1994 Annual Report on Form 10-K
(10.19.4) *Form of Non-Qualified
Stock Option Agreement
for use under 1990 Plan
(for LTIP
Participants).......... 10.19.4 1994 Annual Report on Form 10-K
(10.19.5) *Amendment No. 2 to 1990
Plan................... 10.19.5 1996 Annual Report on Form 10-K
(10.20.1) *1982 Incentive Stock
Option Plan of Dennison
Manufacturing Company.. Registration Statement on Form S-8
(File No. 33-35995-01)
(10.20.2) *1985 Incentive Stock
Option Plan of Dennison
Manufacturing Company.. Registration Statement on Form S-8
(File No. 33-35995-01)
(10.20.3) *1988 Stock Option Plan
of Dennison
Manufacturing Company.. Registration Statement on Form S-8
(File No. 33-35995-01)
(10.20.4) *Amendments effective as
of October 16, 1990 to
the 1982 Incentive
Stock Option Plan, 1985
Incentive Stock Option
Plan and 1988 Stock
Option Plan of Dennison
Manufacturing Company.. Registration Statement on Form S-8
(File No. 33-35995-01)
(10.21) *1996 Stock Incentive
Plan of Avery Dennison
Corporation............ 10.21 1996 Annual Report on Form 10-K
(10.27.1) *Amended and Restated
Key Executive Long-Term
Incentive Plan
("LTIP")............... 10.27.1 1993 Annual Report on Form 10-K
(10.27.2) *Second Amended and
Restated Key Executive
LTIP................... 1995 Annual Report on Form 10-K
(10.27.3) *Third Amended and
Restated Key Executive
LTIP................... 10.27.3 1996 Annual Report on Form 10-K
(10.28) *Complete Restatement
and Amendment of Avery
Dennison Corporation
Executive Deferred
Retirement Plan........ 10.28 1994 Annual Report on Form 10-K
(10.28.1) *Form of Enrollment
Agreement for use under
Executive Deferred
Retirement Plan........ 10.28.1 1992 Annual Report on Form 10-K
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
ORIGINALLY
FILED AS
EXHIBIT EXHIBIT
NO. ITEM NO. DOCUMENT
------- ---- ---------- --------
<C> <S> <C> <C>
(10.29) *Executive Incentive
Compensation Plan...... 10.29 1993 Annual Report on Form 10-K
(10.30) *Senior Executive
Incentive Compensation
Plan................... 10.30 1993 Annual Report on Form 10-K
(10.31) *Executive Variable
Deferred Retirement
Plan................... 10.31 Registration Statement on Form S-8
(File No. 33-63979)
(10.31.1) *Amended and Restated
Executive Variable
Deferred Retirement
Plan................... 10.31.1 1995 Annual Report on Form 10-K
(10.32) *Benefit Restoration
Plan................... 10.32 1995 Annual Report on Form 10-K
(10.33.1) *Trust Agreement for
Employee Stock Benefit
Trust.................. 10.1 Current Report on Form 8-K filed
October 24, 1996
(10.33.2) *Common Stock Purchase
Agreement.............. 10.2 Current Report on Form 8-K filed
October 24, 1996
(10.33.3) *Promissory Note........ 10.3 Current Report on Form 8-K filed
October 24, 1996
(10.34.1) *Capital Accumulation
Plan ("CAP")........... 4.1 Registration Statement on Form S-8
(File No. 333-38707)
(10.34.2) *Trust under CAP........ 4.2 Registration Statement on Form S-8
(File No. 333-38707)
</TABLE>
- --------
* Management contract or compensatory plan or arrangement required to be filed
as an Exhibit to this Form 10-K pursuant to Item 14(c).
5
<PAGE>
SUBMITTED HEREWITH:
<TABLE>
<CAPTION>
EXHIBIT
NO. ITEM
-------- ----
<C> <S>
10.8.1.1 *Amendment dated April 15, 1997 to Agreement with Charles D. Miller
10.8.1.2 *Amendment dated February 26, 1998 to Agreement with Charles D.
Miller
10.8.2.1 *Agreement dated April 15, 1997 with Philip M. Neal
10.8.4 *Form of Employment Agreement dated April 15, 1997
10.31.1 *Amended and Restated Executive Variable Deferred Retirement Plan
10.33.1 *Restated Trust Agreement for Employee Stock Benefit Trust
10.33.3 *Restated Promissory Note
11 Statement re Computation of Net Income Per Share Amounts
12 Computation of Ratio of Earnings to Fixed Changes
13 Portions of Annual Report to Shareholders for fiscal year ended
December 27, 1997
21 List of Subsidiaries
23 Consent of Independent Accountants (see page S-4)
27 Financial Data Schedule for current period and restated Financial
Data Schedules for other periods.
99 Cautionary Statement for Purposes of the "Safe Harbor" Provisions of
the Private Securities Litigation Reform Act of 1995
</TABLE>
- --------
* Management contract or compensatory plan or arrangement required to be filed
as an Exhibit to this Form 10-K pursuant to Item 14(c).
STATEMENT AND AGREEMENT REGARDING
LONG-TERM DEBT OF REGISTRANT
Except as indicated above, Registrant has no instrument with respect to
long-term debt under which securities authorized thereunder equal or exceed
10% of the total assets of Registrant and its subsidiaries on a consolidated
basis. Registrant agrees to furnish a copy of its long-term debt instruments
to the Commission upon request.
6
<PAGE>
EXHIBIT 10.8.1.1
----------------
FIRST AMENDMENT
TO AGREEMENT DATED OCTOBER 24, 1990
This First Agreement to the Agreement dated October 24, 1990 ("Agreement")
between Avery Dennison Corporation ("Avery" or "Company" herein) and Charles D.
Miller ("Executive" herein) is made this 15th day of April, 1997. In
consideration of the mutual covenants contained herein, the parties agree to
amend the Agreement as follows:
1. Section 1e of the Agreement is revised in its entirety to read as follows:
"e. "Change of Control" shall mean:
a) The acquisition by any individual, entity or group (within the meaning of
Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act")) (a "Person") of beneficial ownership (within the meaning
of Rule 13d-3 promulgated under the Exchange Act) of 30% or more of either (i)
the then-outstanding shares of common stock of the Company (the "Outstanding
Company Common Stock") or (ii) the combined voting power of the then-outstanding
voting securities of the Company entitled to vote generally in the election of
directors (the "Outstanding Company Voting Securities"); provided, however, that
for purposes of this subsection (a), the following acquisitions shall not
constitute a Change of Control: (i) any acquisition directly from the Company,
(ii) any acquisition by the Company, (iii) any acquisition by any employee
benefit plan (or related trust) sponsored or maintained by the Company or any
corporation controlled by the Company, or (iv) any acquisition by any
corporation pursuant to a transaction which complies with clauses (i), (ii) and
(iii) of subsection (c) of this Section 1e; or
b) Individuals who, as of the date hereof, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a majority of the
Board; provided, however, that any individual becoming a director subsequent to
the date hereof whose election, or nomination for election by the Company's
shareholders, was approved by a vote of at least a majority of the directors
then comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption of office occurs as a
result of an actual or threatened election contest with respect to the election
or removal of directors or other actual or threatened solicitation of proxies or
consents by or on behalf of a Person other than the Board; or
c) Consummation by the Company of a reorganization, merger or consolidation or
sale or other disposition of all or substantially all of the assets of the
Company or the acquisition of assets of another corporation (a "Business
Combination"), in each case, unless, following such Business Combination, (i)
all or substantially all of the individuals and entities who were the beneficial
owners, respectively, of the outstanding Company Common Stock and Outstanding
Company Voting Securities immediately prior to such Business Combination
beneficially own, directly or indirectly, more than 60% of, respectively, the
then-outstanding shares of common stock and the combined voting power of the
then-outstanding voting securities entitled to vote generally in the election of
directors, as the case may be, of the corporation resulting from such Business
Combination (including, without limitation, a corporation which as a result of
such transaction owns the Company or all or substantially all of the Company's
assets either directly
1
<PAGE>
or through one or more subsidiaries) in substantially the same proportions as
their ownership immediately prior to such Business Combination of the
Outstanding Company Common Stock and Outstanding Company Voting Securities, as
the case may be, (ii) no Person (excluding any employee benefit plan (or related
trust) of the Company or such corporation resulting from such Business
Combination) beneficially owns, directly or indirectly, 30% or more of,
respectively, the then-outstanding shares of common stock of the corporation
resulting from such Business Combination or the combined voting power of the
then-outstanding voting securities of such corporation except to the extent that
such ownership existed prior to the Business Combination, and (iii) at least a
majority of the members of the board of directors of the corporation resulting
from such Business Combination were members of the Incumbent Board at the time
of the execution of the initial agreement, or of the action of the Board,
providing for such Business Combination; or
d) Approval by the shareholders of the Company of a complete liquidation or
dissolution of the Company."
2. Section 8b of the Agreement is revised in its entirety to read as follows:
"b. Certain Additional Payments by the Company.
a) Anything in this Agreement to the contrary notwithstanding, in the event it
shall be determined that any payment or distribution by the Company to or for
the benefit of the Executive (whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or otherwise, but
determined without regard to any additional payments required under this Section
8b) (a "Payment") would be subject to the excise tax imposed by Section 4999 of
the Internal Revenue Code of 1986, as amended (the "Code") or any interest or
penalties are incurred by the Executive with respect to such excise tax (such
excise tax, together with any such interest and penalties, are hereinafter
collectively referred to as the "Excise Tax"), then the Executive shall be
entitled to receive an additional payment (a "Gross-Up Payment") in an amount
such that after payment by the Executive of all taxes (including any interest or
penalties imposed with respect to such taxes), including, without limitation,
any income taxes (and any interest and penalties imposed with respect thereto)
and Excise Tax imposed upon the Gross-Up Payment, the Executive retains an
amount of the Gross-Up Payment equal to the Excise Tax imposed upon the
Payments.
b) Subject to the provisions of Section 8b(c), all determinations required to
be made under this Section 8b, including whether and when a Gross-Up Payment is
required and the amount of such Gross-Up Payment and the assumptions to be
utilized in arriving at such determination, shall be made by the certified
public accounting firm which serves as the Company's auditor immediately prior
to the Change of Control (the "Accounting Firm"), which shall provide detailed
supporting calculations both to the Company and the Executive within 15 business
days of the receipt of notice from the Executive that there has been a Payment,
or such earlier time as is requested by the Company or the Executive. In the
event that such Accounting Firm declines to act, the Company shall appoint
another nationally recognized accounting firm (which is acceptable to the
Executive) to make the determinations required hereunder (which accounting firm
shall then be referred to as the Accounting Firm hereunder). All fees and
expenses of the Accounting Firm shall be borne solely by the Company. Any
Gross-Up Payment, as determined pursuant to this Section 8b, shall be paid by
the Company to the Executive within five days of the receipt of the Accounting
Firm's determination. Any determination by the Accounting Firm shall be binding
upon the Company and the Executive. As a result of the uncertainty in the
2
<PAGE>
application of Section 4999 of the Code at the time of the initial determination
by the Accounting Firm hereunder, it is possible that Gross-Up Payments which
will not have been made by the Company should have been made ("Underpayment"),
consistent with the calculations required to be made hereunder. In the event
that the Company exhausts its remedies pursuant to Section 8b(c) and the
Executive thereafter is required to make a payment of any Excise Tax, the
Accounting Firm shall determine the amount of the Underpayment that has occurred
and any such Underpayment shall be promptly paid by the Company to or for the
benefit of the Executive.
c) The Executive shall notify the Company in writing of any claim by the
Internal Revenue Service that, if successful, would require the payment by the
Company of the Gross-Up Payment. Such notification shall be given as soon as
practicable but no later than fifteen days after the Executive is informed in
writing of such claim and shall apprise the Company of the nature of such claim
and the date on which such claim is requested to be paid. The Executive shall
not pay such claim prior to the expiration of the 30-day period following the
date on which it gives such notice to the Company (or such shorter period ending
on the date that any payment of taxes with respect to such claim is due). If
the Company notifies the Executive in writing prior to the expiration of such
period that it desires to contest such claim, the Executive shall:
i) give the Company any information reasonably requested by the Company
relating to such claim,
ii) take such action in connection with contesting such claim as the
Company shall reasonably request in writing from time to time, including,
without limitation, accepting legal representation with respect to such
claim by an attorney reasonably selected by the Company,
iii) cooperate with the Company in good faith in order effectively to
contest such claim, and
iv) permit the Company to participate in any proceedings relating to such
claim; provided, however, that the Company shall bear and pay directly all
costs and expenses (including additional interest and penalties) incurred in
connection with such contest and shall defend, indemnify and hold the Executive
harmless, on an after-tax basis, for any Excise Tax or income tax (including
interest and penalties with respect thereto) imposed as a result of such
representation and payment of costs and expenses. Without limitation on the
foregoing provisions of this Section 8b(c), the Company shall control all
proceedings taken in connection with such contest and, at its sole option, may
pursue or forgo any and all administrative appeals, proceedings, hearings and
conferences with the taxing authority in respect of such claim and may, at its
sole option, either direct the Executive to pay the tax claimed and sue for a
refund or contest the claim in any permissible manner, and the Executive agrees
to prosecute such contest to a determination before any administrative tribunal,
in a court of initial jurisdiction and in one or more appellate courts, as the
Company shall determine; provided, however, that if the Company directs the
Executive to pay such claim and sue for a refund, the Company shall advance the
amount of such payment to the Executive, on an interest-free basis and shall
defend, indemnify and hold the Executive harmless, on an after-tax basis, from
any Excise Tax or income tax (including interest or penalties with respect
thereto) imposed with respect to such advance or with respect to any imputed
income with
3
<PAGE>
respect to such advance; and further provided that any extension of the
statute of limitations relating to payment of taxes for the taxable year of
the Executive with respect to which such contested amount is claimed to be due
is limited solely to such contested amount. Furthermore, the Company's control
of the contest shall be limited to issues with respect to which a Gross-Up
Payment would be payable hereunder, and the Executive shall be entitled to
settle or contest, as the case may be, any other issue raised by the Internal
Revenue Service or any other taxing authority.
d) If, after the receipt by the Executive of an amount advanced by the Company
pursuant to Section 8b(c), the Executive becomes entitled to receive any refund
with respect to such claim, the Executive shall (subject to the Company's
complying with the requirements of Section 8b(c)) promptly pay to the Company
the amount of such refund (together with any interest paid or credited thereon
after taxes applicable thereto). If, after the receipt by the Executive of an
amount advanced by the Company pursuant to Section 8b(c), a determination is
made that the Executive shall not be entitled to any refund with respect to such
claim and the Company does not notify the Executive in writing of its intent to
contest such denial of refund prior to the expiration of 30 days after such
determination, then such advance shall be forgiven and shall not be required to
be repaid and the amount of such advance shall offset, to the extent thereof,
the amount of Gross-Up Payment required to be paid."
3. All other terms and conditions of the Agreement remain in full force and
effect.
IN WITNESS WHEREOF, Avery has caused this First Amendment to the Agreement to be
executed in its name on its behalf pursuant to the authorization from its
Compensation and Executive Personnel Committee of the Board of Directors, and
Executive has affixed his signature, as of the day and year first above written.
EXECUTIVE AVERY DENNISON CORPORATION
/s/ Charles D. Miller By: /s/ Robert G. van Schoonenberg
- ------------------------- ---------------------------------
Charles D. Miller Robert G. van Schoonenberg
Senior Vice President,
General Counsel and Secretary
4
<PAGE>
EXHIBIT 10.8.1.2
----------------
SECOND AMENDMENT
TO AGREEMENT DATED OCTOBER 24, 1990
This Second Amendment to the Agreement dated October 24, 1990 ("Agreement")
between Avery Dennison Corporation ("Company") and Charles D. Miller
("Executive") is made this 26th day of February, 1998.
In consideration of the mutual covenants contained herein, the parties agree to
amend the Agreement as follows:
1. References in paragraphs 2, 3, 6, 7, 8 and 9 of the Agreement which refer to
(i) "age seventy (70)" or "70th birthday," and (ii) "September 1, 1997" are
amended to read (i) "age seventy and one half (70.5)," and (ii) "September 1,
1998," respectively.
2. All other terms and conditions of the Agreement remain in full force and
effect.
IN WITNESS WHEREOF, the Company has caused this Second Amendment to the
Agreement to be executed in its name on its behalf pursuant to the authorization
from its Compensation and Executive Personnel Committee of the Board of
Directors, and Executive has affixed his signature, as of the day and year first
above written.
EXECUTIVE AVERY DENNISON CORPORATION
/s/ Charles D. Miller By: /s/ Robert G. van Schoonenberg
- ------------------------------ --------------------------------
Charles D. Miller Robert G. van Schoonenberg
Senior Vice President,
General Counsel and Secretary
<PAGE>
EXHIBIT 10.8.2.1
----------------
EMPLOYMENT AGREEMENT
--------------------
This EMPLOYMENT AGREEMENT is entered into by and between Avery Dennison
Corporation, a Delaware corporation (the "Company") and Philip M. Neal (the
"Executive"), effective as of April 15, 1997.
The Board of Directors of the Company (the "Board") has determined that it is in
the best interests of the Company and its shareholders to enter into a new
Employment Agreement with Executive to assure that the Company will have the
continued dedication of the Executive. This Agreement contains the entire
agreement between the parties with respect to the matters specified herein and
supersedes all prior oral and written employment agreements, understandings and
commitments between the Company and Executive and any Executive Employment
Security Policy of the Company covering the Executive; except that the Option to
Purchase Agreement between the Company and Executive dated February 22, 1993,
relating to a painting located in Executive's office, shall remain in effect.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. CERTAIN DEFINITIONS.
-------------------
(a) The "Effective Date" shall mean the date hereof, which is set forth in the
first paragraph of this Agreement.
(b) The "Employment Period" shall mean the period commencing on the Effective
Date and ending on the third anniversary of the Effective Date; provided,
however, that commencing on the first day of the month next following the
Effective Date and on the first day of each month thereafter (the most recent of
such dates is hereinafter referred to as the "Renewal Date"), the Employment
Period shall be automatically extended so as to terminate on the third
anniversary of such Renewal Date (but not later than the date when the Executive
attains age 65), unless the Company or Executive shall give notice to the other
that the Employment Period shall not be further extended prior to any such
Renewal Date.
2. CHANGE OF CONTROL.
-----------------
For the purpose of this Agreement, a "Change of Control" shall mean:
(a) The acquisition by any individual, entity or group (within the meaning of
Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act")) (a "Person") of beneficial ownership (within the meaning
of Rule 13d-3 promulgated under the Exchange Act) of 30% or more of either (i)
the then-outstanding shares of common stock of the Company (the "Outstanding
Company Common Stock") or (ii) the combined voting power of the then-outstanding
voting securities of the Company entitled to vote generally in the election of
directors (the "Outstanding Company Voting Securities"); provided, however, that
for purposes of this subsection (a), the following acquisitions shall not
constitute a Change of Control: (i) any acquisition directly from the Company,
(ii) any acquisition by the Company, (iii) any acquisition by any employee
benefit plan (or related trust) sponsored or maintained by the Company or any
corporation controlled by the Company, or (iv) any acquisition by any
corporation pursuant to a transaction which complies with clauses (i), (ii) and
(iii) of subsection (c) of this Section 2; or
(b) Individuals who, as of the date hereof, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a majority of the
Board; provided, however, that any individual becoming a director subsequent to
the date hereof whose election, or nomination for election by the Company's
shareholders, was approved by a vote of at least a majority of the
1
<PAGE>
directors then comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption of office occurs as a
result of an actual or threatened election contest with respect to the election
or removal of directors or other actual or threatened solicitation of proxies or
consents by or on behalf of a Person other than the Board; or
(c) Consummation by the Company of a reorganization, merger or consolidation or
sale or other disposition of all or substantially all of the assets of the
Company or the acquisition of assets of another corporation (a "Business
Combination"), in each case, unless, following such Business Combination, (i)
all or substantially all of the individuals and entities who were the beneficial
owners, respectively, of the outstanding Company Common Stock and Outstanding
Company Voting Securities immediately prior to such Business Combination
beneficially own, directly or indirectly, more than 60% of, respectively, the
then-outstanding shares of common stock and the combined voting power of the
then-outstanding voting securities entitled to vote generally in the election of
directors, as the case may be, of the corporation resulting from such Business
Combination (including, without limitation, a corporation which as a result of
such transaction owns the Company or all or substantially all of the Company's
assets either directly or through one or more subsidiaries) in substantially the
same proportions as their ownership immediately prior to such Business
Combination of the Outstanding Company Common Stock and Outstanding Company
Voting Securities, as the case may be, (ii) no Person (excluding any employee
benefit plan (or related trust) of the Company or such corporation resulting
from such Business Combination) beneficially owns, directly or indirectly, 30%
or more of, respectively, the then-outstanding shares of common stock of the
corporation resulting from such Business Combination or the combined voting
power of the then-outstanding voting securities of such corporation except to
the extent that such ownership existed prior to the Business Combination, and
(iii) at least a majority of the members of the board of directors of the
corporation resulting from such Business Combination were members of the
Incumbent Board at the time of the execution of the initial agreement, or of the
action of the Board, providing for such Business Combination; or
(d) Approval by the shareholders of the Company of a complete liquidation or
dissolution of the Company.
3. EMPLOYMENT PERIOD.
-----------------
The Company hereby agrees to continue the Executive in its employ, and the
Executive hereby agrees to remain in the employ of the Company subject to the
terms and conditions of this Agreement, for the period commencing on the
"Effective Date" and continuing during the "Employment Period," as defined in
Sections 1(a) and (b) above.
4. TERMS OF EMPLOYMENT.
-------------------
(a) Position and Duties.
-------------------
(i) Executive is currently employed as President and Chief Operating
Officer of the Company. During the Employment Period, (A) the Executive's
position (including titles), authority, duties and responsibilities shall be at
least commensurate with the most significant of those held, exercised and
assigned to the Executive at any time during the 120-day period immediately
preceding the Effective Date, and (B) the Executive's services shall be
performed at the location where the Executive was employed immediately preceding
the Effective Date or any office or location less than 50 miles from such
location.
(ii) During the Employment Period, and excluding any periods of vacation and
sick leave to which the Executive is entitled, the Executive agrees to devote
reasonable attention and time during normal business hours to the business and
affairs of the Company and, to the extent necessary to discharge the
responsibilities assigned to the Executive hereunder, to use the Executive's
reasonable best efforts to perform faithfully and efficiently such
responsibilities.
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During the Employment Period it shall not be a violation of this Agreement for
the Executive to (A) serve on corporate, civic or charitable boards or
committees, (B) deliver lectures, fulfill speaking engagements or teach at
educational institutions and (C) manage personal investments, so long as such
activities do not interfere with the performance of the Executive's
responsibilities as an employee of the Company in accordance with this
Agreement. It is expressly understood and agreed that to the extent that any
such activities have been conducted by the Executive prior to the Effective
Date, the continued conduct of such activities (or the conduct of activities
similar in nature and scope thereto) subsequent to the Effective Date shall not
thereafter be deemed to interfere with the performance of the Executive's
responsibilities to the Company.
(b) Compensation
------------
(i) Base Salary.
-----------
During the Employment Period, the Executive shall receive an annual base
salary ("Annual Base Salary") which shall be paid at a monthly rate at least
equal to twelve times the highest monthly base salary paid or payable, including
any base salary which has been earned but deferred, to the Executive by the
Company and its affiliated companies in respect of the twelve-month period
immediately preceding the month in which the Effective Date occurs. During the
Employment Period, the Annual Base Salary shall be reviewed no more than 12
months after the last salary increase awarded to the Executive prior to the
Effective Date and thereafter at least annually. Any increase in Annual Base
Salary shall not serve to limit or reduce any other obligation to the Executive
under this Agreement. Annual Base Salary shall not be reduced after any such
increase, and the term "Annual Base Salary" as utilized in this Agreement shall
refer to Annual Base Salary as so increased; provided, however, that Executive's
Annual Base Salary may be reduced prior to a Change of Control as part of any
general, across the board salary reduction which applies in a comparable manner
to other officers or senior executives of the Company, but not by more than ten
percent (10%) (unless Executive agrees to accept a larger reduction) during any
calendar year. As used in this Agreement, the term "affiliated companies" shall
include any company controlled by, controlling or under common control with the
Company.
(ii) Annual Bonus.
------------
In addition to Annual Base Salary, the Executive shall be eligible to
receive, for each fiscal year ending during the Employment Period, an annual
bonus (the "Annual Bonus") under the Company's Senior Executive Incentive
(Leadership) Compensation Plan, or any comparable bonus under any successor plan
(such plans, collectively, the "Annual Bonus Plans"), including any Annual Bonus
which has been earned but deferred. After a Change of Control, the Executive
shall be awarded for each fiscal year ending during the Employment Period an
Annual Bonus in cash at least equal to the Executive's average Annual Bonus for
the last three full fiscal years prior to the Change of Control (annualized in
the event that the Executive was not employed by the Company for the whole of
such fiscal year) (the "Recent Annual Bonus"). Each such Annual Bonus shall be
paid no later than the end of the third month of the fiscal year next following
the fiscal year for which the Annual Bonus is awarded, unless the Executive
shall elect to defer the receipt of such Annual Bonus.
(iii) Incentive, Savings and Retirement Plans.
---------------------------------------
During the Employment Period, the Executive shall be entitled to
participate in all incentive, savings, retirement, deferral (including the plans
described in Section 6(a)(v) below), and nonqualified supplemental pension
(including the Benefit Restoration Plan) plans, practices, policies and programs
applicable generally to other peer executives of the Company and its affiliated
companies. In no event shall such plans, practices, policies and programs
provide the Executive after a Change of Control with incentive opportunities
(measured with respect to both regular and special incentive opportunities, to
the extent, if any, that such
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distinction is applicable), savings opportunities and retirement benefit
opportunities, in each case, which are less favorable, in the aggregate, than
the most favorable of those provided by the Company and its affiliated companies
for the Executive under such plans, practices, policies and programs as in
effect at any time during the 120-day period immediately preceding the Change of
Control or, if more favorable to the Executive, those provided generally at any
time after the Change of Control to other peer executives of the Company and its
affiliated companies.
(iv) Welfare Benefit Plans.
---------------------
During the Employment Period, the Executive and/or the Executive's family,
as the case may be, shall be eligible for participation in and shall receive all
benefits under welfare benefit plans, practices, policies and programs provided
by the Company and its affiliated companies (including, without limitation,
medical, prescription, dental, disability, salary continuance, employee life,
group life, accidental death and travel accident insurance plans and programs)
to the extent applicable generally to other peer executives of the Company and
its affiliated companies. In no event shall such plans, practices, policies and
programs provide the Executive after a Change of Control with benefits which are
less favorable, in the aggregate, than the most favorable of such plans,
practices, policies and programs in effect for the Executive at any time during
the 120-day period immediately preceding the Change of Control or, if more
favorable to the Executive, those provided generally at any time after the
Change of Control to other peer executives of the Company and its affiliated
companies.
(v) Expenses.
--------
During the Employment Period, the Executive shall be entitled to receive
prompt reimbursement for all reasonable expenses incurred by the Executive in
accordance with the policies, practices and procedures of the Company and its
affiliated companies in effect for the Executive from time to time. After a
Change of Control, such reimbursement shall be made in accordance with the most
favorable policies, practices and procedures of the Company and its affiliated
companies in effect for the Executive at any time during the 120-day period
immediately preceding the Change of Control or, if more favorable to the
Executive, as in effect generally at any time thereafter with respect to other
peer executives of the Company and its affiliated companies.
(vi) Fringe Benefits.
---------------
During the Employment Period, the Executive shall be entitled to fringe
benefits, including, without limitation, if applicable, tax and financial
planning services, payment of club dues, and automobile lease and payment of
related expenses, in accordance with the plans, practices, programs and policies
of the Company and its affiliated companies in effect for the Executive from
time to time. After a Change of Control, such fringe benefits shall be provided
in accordance with the most favorable plans, practices, programs and policies of
the Company and its affiliated companies in effect for the Executive at any time
during the 120-day period immediately preceding the Change of Control or, if
more favorable to the Executive, as in effect generally at any time thereafter
with respect to other peer executives of the Company and its affiliated
companies.
(vii) Office and Support Staff.
------------------------
During the Employment Period, the Executive shall be entitled to an office
and support staff in accordance with the practices and policies of the Company
and its affiliated companies in effect for the Executive from time to time.
After a Change of Control, the Executive shall be entitled to an office or
offices of a size and with furnishings and other appointments, and to exclusive
personal secretarial and other assistance, at least equal to the most favorable
of the foregoing provided to the Executive by the Company and its affiliated
companies at any time during the 120-day period immediately preceding the Change
of Control or, if more favorable to
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the Executive, as provided generally at any time thereafter with respect to
other peer executives of the Company and its affiliated companies.
(viii) Vacation.
--------
During the Employment Period, the Executive shall be entitled to paid
vacation in accordance with the plans, policies, programs and practices of the
Company and its affiliated companies in effect for the Executive from time to
time. After a Change of Control, the Executive shall be entitled to vacation in
accordance with the most favorable plans, policies, programs and practices of
the Company and its affiliated companies as in effect for the Executive at any
time during the 120-day period immediately preceding the Change or Control or,
if more favorable to the Executive, as in effect generally at any time
thereafter with respect to other peer executives of the Company and its
affiliated companies.
5. TERMINATION OF EMPLOYMENT.
-------------------------
(a) Death or Disability.
-------------------
The Executive's employment shall terminate automatically upon the Executive's
death during the Employment Period. If the Company determines in good faith
that the Disability of the Executive has occurred during the Employment Period
(pursuant to the definition of Disability set forth below), it may give to the
Executive written notice in accordance with Section 12(b) of this Agreement of
its intention to terminate the Executive's employment. In such event, the
Executive's employment with the Company shall terminate effective on the 30th
day after receipt of such notice by the Executive (the "Disability Effective
Date"), provided that, within the 30 days after such receipt, the Executive
shall not have returned to full-time performance of the Executive's duties. For
purposes of this Agreement, "Disability" shall mean the absence of the Executive
from the Executive's duties with the Company on a full-time basis for a period
of (i) ninety (90) consecutive calendar days or (ii) an aggregate of one hundred
fifty (150) calendar days in any fiscal year of the Company as a result of
incapacity due to mental or physical illness which is determined to be total and
permanent by a physician selected by the Company or its insurers and acceptable
to the Executive or the Executive's legal representative.
(b) Cause.
-----
The Company may terminate the Executive's employment during the Employment
Period for Cause. For purposes of this Agreement, "Cause" shall mean:
(i) the willful and continued failure of the Executive to perform
substantially the Executive's duties with the Company or one of its affiliates
(other than any such failure resulting from incapacity due to physical or mental
illness), after a written demand for substantial performance is delivered to the
Executive by the Board or the Chief Executive Officer of the Company which
specifically identifies the manner in which the Board or Chief Executive Officer
believes that the Executive has not substantially performed the Executive's
duties, or
(ii) the willful engaging by the Executive in illegal conduct or gross
misconduct which is materially and demonstrably injurious to the Company.
For purposes of this provision, no act or failure to act, on the part of the
Executive, shall be considered "willful" unless it is done, or omitted to be
done, by the Executive in bad faith or without reasonable belief that the
Executive's action or omission was in the best interests of the Company. Any
act, or failure to act, based upon authority given pursuant to a resolution duly
adopted by the Board or upon the instructions of the Chief Executive Officer or
a senior officer of the Company or based upon the advice of counsel for the
Company shall be conclusively presumed to be done, or omitted to be done, by the
Executive in good faith and in the best interests of the Company. The cessation
of employment of the Executive shall not be deemed to be for Cause unless and
until there shall have been delivered to the Executive a notice that
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<PAGE>
the Executive is guilty of the conduct described in subparagraph (i) or (ii)
above, and specifying the particulars thereof in detail.
(c) Good Reason.
-----------
The Executive's employment may be terminated by the Executive during the
Employment Period for Good Reason. For purposes of this Agreement, "Good
Reason" shall mean:
(i) without the express written consent of the Executive, the assignment
to the Executive of any duties or any other action by the Company which results
in a material diminution in the Executive's position (including titles),
authority, duties or responsibilities from those contemplated by Section 4(a)(i)
of this Agreement, excluding for this purpose an isolated, insubstantial and
inadvertent action not taken in bad faith and which is remedied by the Company
promptly after receipt of notice thereof given by the Executive;
(ii) any failure by the Company to comply with any of the provisions of
Section 4(b) of this Agreement, other than an isolated, insubstantial and
inadvertent failure not occurring in bad faith and which is remedied by the
Company promptly after receipt of notice thereof given by the Executive;
(iii) the Company's requiring the Executive to be based at any office or
location more than 50 miles from the location where the Executive was employed
immediately preceding the Effective Date;
(iv) any purported termination by the Company of the Executive's
employment otherwise than as expressly permitted by this Agreement; or
(v) any failure by the Company to comply with and satisfy Section 11(c)
of this Agreement.
(d) Notice of Termination.
---------------------
Any termination during the Employment Period by the Company for Cause, or by the
Executive for Good Reason, shall be communicated by Notice of Termination to the
other party hereto given in accordance with Section 12(b) of this Agreement.
For purposes of this Agreement, a "Notice of Termination" means a written notice
which (i) indicates the specific termination provision in this Agreement relied
upon, (ii) to the extent applicable, sets forth in reasonable detail the facts
and circumstances claimed to provide a basis for termination of the Executive's
employment under the provision so indicated, and (iii) if the Date of
Termination (as defined below) is other than the date of receipt of such notice,
specifies the termination date (which date shall be not more than thirty days
after the giving of such notice). The failure by the Executive or the Company
to set forth in the Notice of Termination any fact or circumstance which
contributes to a showing of Good Reason or Cause shall not waive any right of
the Executive or the Company, respectively, hereunder or preclude the Executive
or the Company, respectively, from asserting such fact or circumstance in
enforcing the Executive's or the Company's rights hereunder.
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(e) Date of Termination.
-------------------
"Date of Termination" means (i) if the Executive's employment is terminated by
the Company for Cause, or by the Executive for Good Reason, the date of receipt
of the Notice of Termination or any later date specified therein, as the case
may be, (ii) if the Executive's employment is terminated by the Company other
than for Cause or Disability, the date on which the Company notifies the
Executive of such termination, and (iii) if the Executive's employment is
terminated by reason of death or Disability, the date of death of the Executive
or the Disability Effective Date, as the case may be.
6. OBLIGATIONS OF THE COMPANY UPON TERMINATION.
-------------------------------------------
(a) Good Reason; Other Than for Cause, Death or Disability.
------------------------------------------------------
If, during the Employment Period, the Company shall terminate the Executive's
employment other than for Cause or Disability or the Executive shall terminate
employment for Good Reason:
(i) the Company shall pay to the Executive in a lump sum in cash within 30
days after the Date of Termination an amount equal to the present value,
determined in accordance with Section 280G(d)(4) of the Internal Revenue Code of
1986, as amended (the "Code"), of the aggregate of the following amounts under
A, B and C below; provided however, that prior to a Change of Control, the
Company, in its discretion, may determine to pay any such amount when it
otherwise would have been paid if the Executive's employment had not been
terminated until the end of the Employment Period:
(A) the sum of (1) the Executive's Annual Base Salary through the
Date of Termination to the extent not theretofore paid and (2) the excess of (A)
the product of (x) (i) if a Change of Control does not occur during the fiscal
year which includes the Date of Termination, the Annual Bonus which would have
been payable to the Executive for such entire fiscal year or (ii) if a Change of
Control does occur during the fiscal year which includes the Date of
Termination, the higher of (I) the Recent Annual Bonus and (II) the Annual Bonus
paid or payable, including any bonus or portion thereof which has been earned
but deferred (and annualized for any fiscal year consisting of less than twelve
full months or during which the Executive was employed for less than twelve full
months), for the most recently completed fiscal year during the Employment
Period, if any (such higher amount being referred to as the "Highest Annual
Bonus") and (y) a fraction, the numerator of which is the number of days in the
current fiscal year through the Date of Termination, and the denominator of
which is 365, over (B) any amounts previously paid to the Executive pursuant to
the terms of the Annual Bonus Plans as bonuses with respect to the year that
includes the Date of Termination (the sum of the amounts described in clauses
(1) and (2) shall be hereinafter referred to as the "Accrued Obligations"); and
(B) the amount equal to the product of (1) three (or the number of
years, including partial years, until the end of the Employment Period, if less)
and (2) the Executive's highest combined Annual Base Salary and Annual Bonus
during any of the last three full fiscal years prior to the Date of Termination;
and
(C) an amount equal to the difference between (a) the aggregate
benefit under the Company's qualified defined benefit retirement plans
(collectively, the "Retirement Plan") and any excess or supplemental defined
benefit retirement plans (including the Benefit Restoration Plan) in which the
Executive participates (collectively, the "SRP") which the Executive would have
accrued (whether or not vested) if the Executive's employment had continued for
three years after the Date of Termination, but not after the date on which the
Executive attains age 65, and (b) the actual vested benefit, if any, of the
Executive under the Retirement Plan and the SRP, determined as of the Date of
Termination (with the foregoing
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<PAGE>
amounts to be computed on an actuarial present value basis, based on the
assumption that the Executive's compensation in each of the three years
following such termination would have been that required by Section 4(b)(i) and
Section 4(b)(ii), and using the actuarial assumptions in effect for purposes of
computing benefit entitlements under the Retirement Plan and the SRP at the Date
of Termination or, following a Change of Control, using actuarial assumptions no
less favorable to the Executive than the most favorable assumptions which were
in effect for such purposes at any time from the day before the Change of
Control through the Date of Termination;
(ii) for three years after the Executive's Date of Termination, or such
longer period as may be provided by the terms of the appropriate plan, program,
practice or policy, the Company shall continue benefits to the Executive and/or
the Executive's family at least equal to those which would have been provided to
them in accordance with the plans, programs, practices and policies described in
Section 4(b)(iv) of this Agreement if the Executive's employment had not been
terminated or, if more favorable to the Executive, as in effect generally at any
time thereafter with respect to other peer executives of the Company and its
affiliated companies and their families; provided, however, that if the
Executive becomes reemployed with another employer and is eligible to receive
medical or other welfare benefits under another employer-provided plan, the
medical and other welfare benefits described herein shall be secondary to those
provided under such other plan during such applicable period of eligibility, and
for purposes of determining eligibility (but not the time of commencement of
benefits) of the Executive for retiree benefits pursuant to such plans,
programs, practices and policies, the Executive shall be considered to have
remained employed until three years after the Date of Termination and to have
retired on the last day of such period;
(iii) if the Date of Termination occurs after a Change of Control, the
Company shall, at its sole expense as incurred (but in no event to exceed
$50,000), provide the Executive with outplacement services the scope and
provider of which shall be selected by the Executive in the Executive's sole
discretion;
(iv) the Executive shall be entitled to purchase at depreciated book value
the automobile (if any) which the Company was providing for the use of such
Executive, and to the extent not theretofore paid or provided, the Company shall
timely pay or provide to the Executive any other amounts or benefits required to
be paid or provided or which the Executive is eligible to receive under any
plan, program, practice or policy or contract or agreement of the Company and
its affiliated companies (such other amounts and benefits shall be hereinafter
referred to as the "Other Benefits");
(v) the Executive shall be treated, for purposes of the Company's
Executive Deferred Compensation Plan, Executive Variable Deferred Compensation
Plan, Executive Deferred Retirement Plan, Executive Variable Deferred Retirement
Plan, and any successor or similar plans, as if he had three more years of
service, and attained an age three years older, than his actual years of service
and age as of the Date of Termination; provided, however, that Executive shall
be credited with the number of years of service and attained age (in addition to
his actual years of service and attained age on the Date of Termination) which
are required in order to satisfy the eligibility requirements for "early
retirement" benefits and to receive the retirement interest rate under such
plans, if the Date of Termination occurs after a Change of Control;
(vi) the Executive shall have the option to have assigned to him at no
cost and with no apportionment of prepaid premiums (to the extent possible under
the terms of the applicable policies) any assignable insurance policy owned by
the Company which relates specifically to the Executive; provided that the
Company shall have no obligation to pay off any loans against said insurance
policy, and the Executive shall reimburse the Company for the cash value of such
insurance policy (if any);
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(vii) the Executive shall be entitled to receive payments of deferred cash
incentive awards under the amended and restated Key Executive Long-Term
Incentive Plan ("LTIP") or any successor plan for performance cycles which
commence while the Executive is employed with the Company equivalent to the
payments which he would have received if he had remained employed with the
Company for three years after the Date of Termination (but not later than age
65), or such other payments (if greater) as may be provided under the LTIP upon
a Change of Control or otherwise; and
(viii) all stock options granted to Executive under the Company's stock
option plans shall become immediately vested on the Date of Termination.
If the Executive should die while receiving payments pursuant to this Section
6(a), the remaining payments which would have been made to the Executive if he
had lived shall be paid to the beneficiary designated in writing by the
Executive; or if there is no effective written designation, then to his spouse;
or if there is neither an effective written designation nor a surviving spouse,
then to his estate. Designation of a beneficiary or beneficiaries to receive
the balance of any such payments shall be made by written notice to the Company,
and the Executive may revoke or change any such designation of beneficiary at
any time by a later written notice to the Company.
(b) Death.
-----
If the Executive's employment is terminated by reason of the Executive's death
during the Employment Period, this Agreement shall terminate without further
obligations to the Executive's legal representatives under this Agreement, other
than for payment of Accrued Obligations and the timely payment or provision of
Other Benefits. Accrued Obligations shall be paid to the Executive's estate or
beneficiary, as applicable, in a lump sum in cash within 30 days of the Date of
Termination. With respect to the provision of Other Benefits, after a Change of
Control the term "Other Benefits" as utilized in this Section 6(b) shall
include, without limitation, and the Executive's estate and/or beneficiaries
shall be entitled to receive, benefits at least equal to the most favorable
benefits provided by the Company and affiliated companies to the estates and
beneficiaries of peer executives of the Company and such affiliated companies
under such plans, programs, practices and policies relating to death benefits,
if any, as were in effect with respect to other peer executives and their
beneficiaries at any time during the 120-day period immediately preceding the
Change of Control or, if more favorable to the Executive's estate and/or the
Executive's beneficiaries, as in effect on the date of the Executive's death
with respect to other peer executives of the Company and its affiliated
companies and their beneficiaries.
(c) Disability.
----------
If the Executive's employment is terminated by reason of the Executive's
Disability during the Employment Period in accordance with Section 5(a), this
Agreement shall terminate without further obligations to the Executive, other
than for payment of Accrued Obligations and the timely payment or provision of
Other Benefits. Accrued Obligations shall be paid to the Executive in a lump
sum in cash within 30 days of the Date of Termination. With respect to the
provision of Other Benefits, after a Change of Control the term "Other Benefits"
as utilized in this Section 6(c) shall include, and the Executive shall be
entitled after the Disability Effective Date to receive, disability and other
benefits at least equal to the most favorable of those generally provided by the
Company and its affiliated companies to disabled executives and/or their
families in accordance with such plans, programs, practices and policies
relating to disability, if any, as were in effect generally with respect to
other peer executives and their families at any time during the 120-day period
immediately preceding the Change of Control or, if more favorable to the
Executive and/or the Executive's family, as in effect at any time thereafter
generally with respect to other peer executives of the Company and its
affiliated companies and their families.
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(d) Cause; Other than for Good Reason.
---------------------------------
If the Executive's employment shall be terminated for Cause during the
Employment Period, this Agreement shall terminate without further obligations to
the Executive other than the obligation to pay to the Executive (x) the Annual
Base Salary through the Date of Termination, (y) the amount of any compensation
previously deferred by the Executive, and (z) Other Benefits, in each case to
the extent theretofore unpaid. If the Executive voluntarily terminates
employment during the Employment Period, excluding a termination for Good
Reason, or retires at age 65 or thereafter, this Agreement shall terminate
without further obligations to the Executive, other than for Accrued Obligations
and the timely payment or provision of Other Benefits. In such case, all
Accrued obligations shall be paid to the Executive in a lump sum in cash within
30 days of the Date of Termination.
7. NON-EXCLUSIVITY OF RIGHTS.
-------------------------
Nothing in this Agreement shall prevent or limit the Executive's continuing or
future participation in any plan, program, policy or practice provided by the
Company or any of its affiliated companies and for which the Executive may
qualify, nor shall anything herein limit or otherwise affect such rights as the
Executive may have under any contract or agreement with the Company or any of
its affiliated companies. Amounts which are vested benefits or which the
Executive is otherwise entitled to receive under any plan, policy, practice or
program of or any contract or agreement (other than this Agreement) with the
Company or any of its affiliated companies at or subsequent to the Date of
Termination shall be payable in accordance with such plan, policy, practice or
program or contract or agreement except as explicitly modified by this
Agreement. The Executive shall no longer be covered by any prior employment
agreement or any Executive Employment Security Policy of the Company after the
Effective Date of this Agreement.
8. FULL SETTLEMENT; OFFSETS.
------------------------
Except as provided in this Section 8, the Company's obligation to make the
payments provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any set-off, counterclaim, recoupment,
defense or other claim, right or action which the Company may have against the
Executive or others.
Executive shall not be obligated to seek other employment or take any other
action by way of mitigation of the amounts payable to the Executive under any of
the provisions of this Agreement. However, the amount of any payments and
benefits provided for in this Agreement shall be reduced by one hundred percent
(100%) of any benefits and earned income (within the meaning of Section
911(d)(2)(A) of the Code) which is earned by the Executive for services rendered
to persons or entities other than the Company or its affiliates during or with
respect to the Employment Period or, after a Change of Control, during the 36-
month period after the Date of Termination. Medical and welfare benefits shall
be offset as provided in Section 6(a)(ii).
Not less frequently than annually (by December 31 of each year), the Executive
shall account to the Company with respect to all benefits and earned income
earned by the Executive which are required hereunder to be offset against
payments or benefits received by the Executive from the Company. If the Company
has paid amounts in excess of those to which the Executive is entitled (after
giving effect to the offsets provided above), the Executive shall reimburse the
Company for such excess by December 31 of such year. The requirements imposed
under this paragraph shall terminate on December 31 of the calendar year in
which the Employment Period ends or, after a Change of Control, December 31 of
the calendar year which includes the third anniversary of the Date of
Termination.
9. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY.
------------------------------------------
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(a) Anything in this Agreement to the contrary notwithstanding, in the event it
shall be determined that any payment or distribution by the Company to or for
the benefit of the Executive (whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or otherwise, but
determined without regard to any additional payments required under this Section
9) (a "Payment") would be subject to the excise tax imposed by Section 4999 of
the Code or any interest or penalties are incurred by the Executive with respect
to such excise tax (such excise tax, together with any such interest and
penalties, are hereinafter collectively referred to as the "Excise Tax"), then
the Executive shall be entitled to receive an additional payment (a "Gross-Up
Payment") in an amount such that after payment by the Executive of all taxes
(including any interest or penalties imposed with respect to such taxes),
including, without limitation, any income taxes (and any interest and penalties
imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment,
the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax
imposed upon the Payments.
(b) Subject to the provisions of Section 9(c), all determinations required to
be made under this Section 9, including whether and when a Gross-Up Payment is
required and the amount of such Gross-Up Payment and the assumptions to be
utilized in arriving at such determination, shall be made by the certified
public accounting firm which serves as the Company's auditor immediately prior
to the Change of Control (the "Accounting Firm"), which shall provide detailed
supporting calculations both to the Company and the Executive within 15 business
days of the receipt of notice from the Executive that there has been a Payment,
or such earlier time as is requested by the Company or the Executive. In the
event that such Accounting Firm declines to act, the Company shall appoint
another nationally recognized accounting firm (which is acceptable to the
Executive) to make the determinations required hereunder (which accounting firm
shall then be referred to as the Accounting Firm hereunder). All fees and
expenses of the Accounting Firm shall be borne solely by the Company. Any Gross-
Up Payment, as determined pursuant to this Section 9, shall be paid by the
Company to the Executive within five days of the receipt of the Accounting
Firm's determination. Any determination by the Accounting Firm shall be binding
upon the Company and the Executive. As a result of the uncertainty in the
application of Section 4999 of the Code at the time of the initial determination
by the Accounting Firm hereunder, it is possible that Gross-Up Payments which
will not have been made by the Company should have been made ("Underpayment"),
consistent with the calculations required to be made hereunder. In the event
that the Company exhausts its remedies pursuant to Section 9(c) and the
Executive thereafter is required to make a payment of any Excise Tax, the
Accounting Firm shall determine the amount of the Underpayment that has occurred
and any such Underpayment shall be promptly paid by the Company to or for the
benefit of the Executive.
(c) The Executive shall notify the Company in writing of any claim by the
Internal Revenue Service that, if successful, would require the payment by the
Company of the Gross-Up Payment. Such notification shall be given as soon as
practicable but no later than fifteen days after the Executive is informed in
writing of such claim and shall apprise the Company of the nature of such claim
and the date on which such claim is requested to be paid. The Executive shall
not pay such claim prior to the expiration of the 30-day period following the
date on which it gives such notice to the Company (or such shorter period ending
on the date that any payment of taxes with respect to such claim is due). If the
Company notifies the Executive in writing prior to the expiration of such period
that it desires to contest such claim, the Executive shall:
(i) give the Company any information reasonably requested by the Company
relating to such claim,
(ii) take such action in connection with contesting such claim as the
Company shall reasonably request in writing from time to time, including,
without limitation, accepting legal representation with respect to such
claim by an attorney reasonably selected by the Company,
11
<PAGE>
(iii) cooperate with the Company in good faith in order effectively to
contest such claim, and
(iv) permit the Company to participate in any proceedings relating to such
claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall defend, indemnify and hold the Executive harmless,
on an after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limitation on the foregoing provisions
of this Section 9(c), the Company shall control all proceedings taken in
connection with such contest and, at its sole option, may pursue or forgo any
and all administrative appeals, proceedings, hearings and conferences with the
taxing authority in respect of such claim and may, at its sole option, either
direct the Executive to pay the tax claimed and sue for a refund or contest the
claim in any permissible manner, and the Executive agrees to prosecute such
contest to a determination before any administrative tribunal, in a court of
initial jurisdiction and in one or more appellate courts, as the Company shall
determine; provided, however, that if the Company directs the Executive to pay
such claim and sue for a refund, the Company shall advance the amount of such
payment to the Executive, on an interest-free basis and shall defend, indemnify
and hold the Executive harmless, on an after-tax basis, from any Excise Tax or
income tax (including interest or penalties with respect thereto) imposed with
respect to such advance or with respect to any imputed income with respect to
such advance; and further provided that any extension of the statute of
limitations relating to payment of taxes for the taxable year of the Executive
with respect to which such contested amount is claimed to be due is limited
solely to such contested amount. Furthermore, the Company's control of the
contest shall be limited to issues with respect to which a Gross-Up Payment
would be payable hereunder, and the Executive shall be entitled to settle or
contest, as the case may be, any other issue raised by the Internal Revenue
Service or any other taxing authority.
(d) If, after the receipt by the Executive of an amount advanced by the Company
pursuant to Section 9(c), the Executive becomes entitled to receive any refund
with respect to such claim, the Executive shall (subject to the Company's
complying with the requirements of Section 9(c)) promptly pay to the Company the
amount of such refund (together with any interest paid or credited thereon after
taxes applicable thereto). If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Section 9(c), a determination is made that
the Executive shall not be entitled to any refund with respect to such claim and
the Company does not notify the Executive in writing of its intent to contest
such denial of refund prior to the expiration of 30 days after such
determination, then such advance shall be forgiven and shall not be required to
be repaid and the amount of such advance shall offset, to the extent thereof,
the amount of Gross-Up Payment required to be paid.
10. CONFIDENTIAL INFORMATION.
------------------------
The Executive shall hold in a fiduciary capacity for the benefit of the Company
all secret or confidential business information, knowledge or data relating to
the Company or any of its affiliated companies, and their respective businesses,
which shall have been obtained by the Executive during the Executive's
employment by the Company or any of its affiliated companies and which shall not
be or become public knowledge (other than by acts by the Executive or
representatives of the Executive in violation of this Agreement). After
termination of the Executive's employment with the Company, the Executive shall
not, without the prior written consent of the Company or as may otherwise be
required by law or legal process, communicate or divulge any such information,
knowledge or data to anyone other than the Company and those designated by it.
In no event shall an asserted or alleged violation of the provisions of this
Section 10 constitute a basis for deferring or withholding any amounts otherwise
payable to the Executive under this Agreement.
12
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11. SUCCESSORS.
----------
(a) This Agreement is personal to the Executive and without the prior written
consent of the Company shall not be assignable by the Executive otherwise than
by will or the laws of descent and distribution. This Agreement shall inure to
the benefit of and be enforceable by the Executive's legal representatives.
(b) This Agreement shall inure to the benefit of and be binding upon the
Company and its successors and assigns.
(c) The Company will require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all of the
business and/or assets of the Company to assume expressly and agree to perform
this Agreement in the same manner and to the same extent that the Company would
be required to perform it if no such succession had taken place. As used in this
Agreement, "Company" shall mean the Company as hereinbefore defined and any
successor to its business and/or assets as aforesaid which assumes and agrees to
perform this Agreement by operation of law or otherwise.
12. MISCELLANEOUS.
-------------
(a) This Agreement shall be governed by and construed in accordance with the
laws of the State of California, without reference to principles of conflict of
laws. The captions of this Agreement are not part of the provisions hereof and
shall have no force or effect. This Agreement may not be amended or modified
otherwise than by a written agreement executed by the parties hereto or their
respective successors and legal representatives.
(b) All notices and other communications hereunder shall be in writing and
shall be given by hand delivery to the other party or by registered or certified
mail, return receipt requested, postage prepaid, addressed as follows:
<TABLE>
<CAPTION>
If to the Executive: If to the Company:
------------------- -----------------
<S> <C>
Philip M. Neal Avery Dennison Corporation
518 Pacific Avenue 150 North Orange Grove Boulevard
Manhattan Beach, CA 90266 Pasadena, California 91103
Attention: General Counsel
</TABLE>
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of this Agreement shall
not affect the validity or enforceability of any other provision of this
Agreement.
(d) The Company may withhold from any amounts payable under this Agreement such
Federal, state, local or foreign taxes as shall be required to be withheld
pursuant to any applicable law or regulation.
(e) The Executive's or the Company's failure to insist upon strict compliance
with any provision hereof or any other provision of this Agreement or the
failure to assert any right the Executive or the Company may have hereunder,
including, without limitation, the right of the Executive to terminate
employment for Good Reason pursuant to Section 5(c)(i)-(v) of this
13
<PAGE>
Agreement, shall not be deemed to be a waiver of such provision or right or any
other provision or right of this Agreement.
13. ARBITRATION; ATTORNEYS FEES.
---------------------------
(a) The parties agree that any disputes, controversies or claims which arise
out of or are related to this Agreement, Executive's employment or the
termination of his employment, including, but not limited to, any claim relating
to the purported validity, interpretation, enforceability or breach of this
Agreement, and/or any other claim or controversy arising out of the relationship
between the Executive and Company (or the nature of the relationship) or the
continuation or termination of that relationship, including, but not limited to,
claims that a termination was for Cause or for Good Reason, claims for breach of
covenant, breach of an implied covenant of good faith and fair dealing, wrongful
termination, breach of contract, or intentional infliction of emotional
distress, defamation, breach of right of privacy, interference with advantageous
or contractual relations, fraud, conspiracy or other tort or property claims of
any kind, which are not settled by agreement between the parties, shall be
settled by arbitration in accordance with the then-current Rules of Practice and
Procedure for Employment Arbitration ("Rules") of the Judicial Arbitration and
Mediation Services, Inc. ("JAMS").
The arbitration shall be before a single arbitrator selected in accordance with
the JAMS Rules or otherwise by mutual agreement of the parties. The arbitration
shall take place in Los Angeles County, California, unless the parties agree to
hold the arbitration at another location. Depositions and other discovery shall
be allowed in accordance with the JAMS Rules. The arbitrator shall apply the
substantive law (and the law of remedies, if applicable) of the State of
California or federal law, or both, as applicable to the claim(s) asserted.
(b) In consideration of the parties' agreement to submit to arbitration all
disputes with regard to this Agreement and/or with regard to any alleged
contract, or any other claim arising out of their conduct, the relationship
existing hereunder or the continuation or termination of that relationship, and
in further consideration of the anticipated expedition and the minimizing of
expense of this arbitration remedy, the arbitration provisions of this Agreement
shall provide the exclusive remedy, and each party expressly waives any right he
or it may have to seek redress in any other forum. The arbitrator, and not any
federal, state, or local court or agency, shall have exclusive authority to
resolve any dispute relating to the interpretation, applicability,
enforceability or formation of this Agreement, including but not limited to any
claim that all or any part of this Agreement is void or voidable. The
arbitration shall be final and binding upon the parties.
Either party may bring an action in any court of competent jurisdiction to
compel arbitration under this Agreement and to enforce an arbitration award.
Except as otherwise provided in this Agreement, both the Company and the
Executive agree that neither of them shall initiate or prosecute any lawsuit or
administrative action in any way related to any claim covered by this Agreement.
(c) Any claim which either party has against the other party that could be
submitted for resolution pursuant to this Section must be presented in writing
by the claiming party to the other party within one year of the date the
claiming party knew or should have known of the facts giving rise to the claim,
except that claims arising out of or related to the termination of the
Executive's employment must be presented by him within one year of the Date of
Termination. Unless the party against whom any claim is asserted waives the time
limits set forth above, any claim not brought within the time periods specified
shall be waived and forever barred, even if there is a federal or state statute
of limitations which would have given more time to pursue the claim.
(d) The Company shall advance the costs and expenses of the arbitrator. In any
arbitration to enforce any of the provisions or rights under this Agreement, the
unsuccessful party in such arbitration, as determined by the arbitrator, shall
pay to the successful party or parties all costs,
14
<PAGE>
expenses and reasonable attorneys' fees incurred therein by such party or
parties (including without limitation such costs, expenses and fees on any
appeals), and if such successful party or parties shall recover an award in any
such arbitration proceeding, such costs, expenses and attorneys' fees shall be
included as part of such award. Notwithstanding the foregoing provision, in no
event shall the successful party or parties be entitled to recover an amount
from the unsuccessful party for costs, expenses and attorneys' fees that exceeds
the unsuccessful party's costs, expenses and attorneys' fees in connection with
the action or proceeding.
(e) Any decision and award or order of the arbitrator shall be final and
binding upon the parties hereto and judgment thereon may be entered in the
Superior Court of the State of California or any other court having
jurisdiction.
(f) Each of the above terms and conditions shall have separate validity, and
the invalidity of any part thereof shall not affect the remaining parts.
(g) Any decision and award or order of the arbitrator shall be final and
binding between the parties as to all claims which were or could have been
raised in connection with the dispute to the full extent permitted by law. In
all other cases the parties agree that the decision of the arbitrator shall be a
condition precedent to the institution or maintenance of any legal, equitable,
administrative, or other formal proceeding by the employee in connection with
the dispute, and that the decision and opinion of the arbitrator may be
presented in any other forum on the merits of the dispute.
IN WITNESS WHEREOF, the Executive has executed this Agreement and, pursuant to
the authorization from the Compensation and Executive Personnel Committee of the
Board of Directors, the Company has caused this Agreement to be executed, all as
of the day and year first above written.
AVERY DENNISON CORPORATION EXECUTIVE
/s/ Robert G. van Schoonenberg /s/ Philip M. Neal
- ------------------------------ ----------------------------
Robert G. van Schoonenberg Philip M. Neal
Senior Vice President, General Counsel
and Secretary
15
<PAGE>
EXHIBIT 10.8.4
--------------
EMPLOYMENT AGREEMENT
--------------------
This EMPLOYMENT AGREEMENT is entered into by and between Avery Dennison
Corporation, a Delaware corporation (the "Company") and _______ (the
"Executive"), effective as of ___________.
The Board of Directors of the Company (the "Board") has determined that it is in
the best interests of the Company and its shareholders to enter into an
Employment Agreement with Executive to assure that the Company will have the
continued dedication of the Executive. The Board further believes it is
imperative to diminish the inevitable distraction of the Executive by virtue of
the personal uncertainties and risks created by a pending or threatened Change
of Control (as defined below) and to encourage the Executive's full attention
and dedication to the Company currently and in the event of any threatened or
pending Change of Control, and has therefore determined to extend the term of
the employment period upon a Change of Control to provide the Executive with
compensation and benefits arrangements upon a Change of Control which are
competitive with those of other corporations. Therefore, in order to accomplish
these objectives, the Board has caused the Company to enter into this Employment
Agreement.
This Agreement contains the entire agreement between the parties with respect to
the matters specified herein and supersedes all prior oral and written
employment agreements, understandings and commitments between the Company and
Executive and any Executive Employment Security Policy of the Company covering
the Executive.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. CERTAIN DEFINITIONS.
-------------------
(a) The "Effective Date" shall mean the date hereof, which is set forth in the
first paragraph of this Agreement.
(b) The "Employment Period" shall mean the period commencing on the Effective
Date and ending on the first anniversary of the Effective Date; provided,
however, that commencing on the first day of the month next following the
Effective Date and on the first day of each month thereafter prior to a
Change of Control (the most recent of such dates is hereinafter referred to
as the "Renewal Date"), the Employment Period shall be automatically
extended so as to terminate on the first anniversary of such Renewal Date
(but not later than the date when the Executive attains age 65), unless the
Company or Executive shall give notice to the other that the Employment
Period shall not be further extended prior to any such Renewal Date.
Notwithstanding the foregoing or any of the provisions of this Agreement to
the contrary, if a Change of Control (as defined in Section 2) occurs, the
Employment Period shall be automatically extended so as to terminate three
years from the date on which the Change of Control occurs (but not later
than the date when the Executive attains age 65).
If the Executive's employment with the Company is terminated prior to the
date on which a Change of Control occurs, and if it is reasonably
demonstrated by the Executive that such termination of employment (i) was
at the request of a third party who has taken steps reasonably calculated
to effect a Change of Control or (ii) otherwise arose in connection with or
anticipation of a Change of Control, then for all purposes of this
Agreement the "Employment Period" for such Executive shall be three years
from the date of such termination of employment (but not later than the
date when the Executive attains age 65).
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<PAGE>
2. CHANGE OF CONTROL.
-----------------
For the purpose of this Agreement, a "Change of Control" shall mean:
(a) The acquisition by any individual, entity or group (within the meaning of
Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act")) (a "Person") of beneficial ownership (within
the meaning of Rule 13d-3 promulgated under the Exchange Act) of 30% or
more of either (i) the then-outstanding shares of common stock of the
Company (the "Outstanding Company Common Stock") or (ii) the combined
voting power of the then-outstanding voting securities of the Company
entitled to vote generally in the election of directors (the "Outstanding
Company Voting Securities"); provided, however, that for purposes of this
subsection (a), the following acquisitions shall not constitute a Change of
Control: (i) any acquisition directly from the Company, (ii) any
acquisition by the Company, (iii) any acquisition by any employee benefit
plan (or related trust) sponsored or maintained by the Company or any
corporation controlled by the Company, or (iv) any acquisition by any
corporation pursuant to a transaction which complies with clauses (i), (ii)
and (iii) of subsection (c) of this Section 2; or
(b) Individuals who, as of the date hereof, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a majority
of the Board; provided, however, that any individual becoming a director
subsequent to the date hereof whose election, or nomination for election by
the Company's shareholders, was approved by a vote of at least a majority
of the directors then comprising the Incumbent Board shall be considered as
though such individual were a member of the Incumbent Board, but excluding,
for this purpose, any such individual whose initial assumption of office
occurs as a result of an actual or threatened election contest with respect
to the election or removal of directors or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person other than
the Board; or
(c) Consummation by the Company of a reorganization, merger or consolidation or
sale or other disposition of all or substantially all of the assets of the
Company or the acquisition of assets of another corporation (a "Business
Combination"), in each case, unless, following such Business Combination,
(i) all or substantially all of the individuals and entities who were the
beneficial owners, respectively, of the outstanding Company Common Stock
and Outstanding Company Voting Securities immediately prior to such
Business Combination beneficially own, directly or indirectly, more than
60% of, respectively, the then-outstanding shares of common stock and the
combined voting power of the then-outstanding voting securities entitled to
vote generally in the election of directors, as the case may be, of the
corporation resulting from such Business Combination (including, without
limitation, a corporation which as a result of such transaction owns the
Company or all or substantially all of the Company's assets either directly
or through one or more subsidiaries) in substantially the same proportions
as their ownership immediately prior to such Business Combination of the
Outstanding Company Common Stock and Outstanding Company Voting Securities,
as the case may be, (ii) no Person (excluding any employee benefit plan (or
related trust) of the Company or such corporation resulting from such
Business Combination) beneficially owns, directly or indirectly, 30% or
more of, respectively, the then-outstanding shares of common stock of the
corporation resulting from such Business Combination or the combined voting
power of the then-outstanding voting securities of such corporation except
to the extent that such ownership existed prior to the Business
Combination, and (iii) at least a majority of the members of the board of
directors of the corporation resulting from such Business Combination were
members of the Incumbent Board at the time of the execution of the initial
agreement, or of the action of the Board, providing for such Business
Combination; or
(d) Approval by the shareholders of the Company of a complete liquidation or
dissolution of the Company.
2
<PAGE>
3. EMPLOYMENT PERIOD.
-----------------
The Company hereby agrees to continue the Executive in its employ, and the
Executive hereby agrees to remain in the employ of the Company subject to the
terms and conditions of this Agreement, for the period commencing on the
"Effective Date" and continuing during the "Employment Period," as defined in
Sections 1(a) and (b) above.
4. TERMS OF EMPLOYMENT.
-------------------
(a) Position and Duties.
-------------------
(i) During the Employment Period, the Executive's position (including
titles), authority, duties and responsibilities shall be at least commensurate
with the most significant of those held, exercised and assigned to the Executive
at any time during the 120-day period immediately preceding the Effective Date.
(ii) During the Employment Period, and excluding any periods of vacation
and sick leave to which the Executive is entitled, the Executive agrees to
devote reasonable attention and time during normal business hours to the
business and affairs of the Company and, to the extent necessary to discharge
the responsibilities assigned to the Executive hereunder, to use the Executive's
reasonable best efforts to perform faithfully and efficiently such
responsibilities. During the Employment Period it shall not be a violation of
this Agreement for the Executive to (A) serve on corporate, civic or charitable
boards or committees, (B) deliver lectures, fulfill speaking engagements or
teach at educational institutions and (C) manage personal investments, so long
as such activities do not interfere with the performance of the Executive's
responsibilities as an employee of the Company in accordance with this
Agreement. It is expressly understood and agreed that to the extent that any
such activities have been conducted by the Executive prior to the Effective
Date, the continued conduct of such activities (or the conduct of activities
similar in nature and scope thereto) subsequent to the Effective Date shall not
thereafter be deemed to interfere with the performance of the Executive's
responsibilities to the Company.
(b) Compensation
------------
(i) Base Salary.
-----------
During the Employment Period, the Executive shall receive an annual base salary
("Annual Base Salary") which shall be paid at a monthly rate at least equal to
twelve times the highest monthly base salary paid or payable, including any base
salary which has been earned but deferred, to the Executive by the Company and
its affiliated companies in respect of the twelve-month period immediately
preceding the month in which the Effective Date occurs. During the Employment
Period, the Annual Base Salary shall be reviewed no more than 12 months after
the last salary increase awarded to the Executive prior to the Effective Date
and thereafter at least annually. Any increase in Annual Base Salary shall not
serve to limit or reduce any other obligation to the Executive under this
Agreement. Annual Base Salary shall not be reduced after any such increase, and
the term "Annual Base Salary" as utilized in this Agreement shall refer to
Annual Base Salary as so increased; provided, however, that Executive's Annual
Base Salary may be reduced prior to a Change of Control as part of any general,
across the board salary reduction which applies in a comparable manner to other
officers or senior executives of the Company, but not by more than ten percent
(10%) (unless Executive agrees to accept a larger reduction) during any calendar
year. As used in this Agreement, the term "affiliated companies" shall include
any company controlled by, controlling or under common control with the Company.
3
<PAGE>
(ii) Annual Bonus.
------------
In addition to Annual Base Salary, the Executive shall be eligible to receive,
for each fiscal year ending during the Employment Period, an annual bonus (the
"Annual Bonus") under the Company's Executive Leadership Compensation Plan or
Senior Executive Incentive (Leadership) Compensation Plan, or any comparable
bonus under any successor plan (such plans, collectively, the "Annual Bonus
Plans"), including any Annual Bonus which has been earned but deferred. After a
Change of Control, the Executive shall be awarded for each fiscal year ending
during the Employment Period an Annual Bonus in cash at least equal to the
Executive's average Annual Bonus for the last three full fiscal years prior to
the Change of Control (annualized in the event that the Executive was not
employed by the Company for the whole of such fiscal year) (the "Recent Annual
Bonus"). Each such Annual Bonus shall be paid no later than the end of the
third month of the fiscal year next following the fiscal year for which the
Annual Bonus is awarded, unless the Executive shall elect to defer the receipt
of such Annual Bonus.
(iii) Incentive, Savings and Retirement Plans.
---------------------------------------
During the Employment Period, the Executive shall be entitled to participate in
all incentive, savings, retirement, deferral (including the plans described in
Section 6(a)(v) below), and nonqualified supplemental pension (including the
Benefit Restoration Plan) plans, practices, policies and programs applicable
generally to other peer executives of the Company and its affiliated companies.
In no event shall such plans, practices, policies and programs provide the
Executive after a Change of Control with incentive opportunities (measured with
respect to both regular and special incentive opportunities, to the extent, if
any, that such distinction is applicable), savings opportunities and retirement
benefit opportunities, in each case, which are less favorable, in the aggregate,
than the most favorable of those provided by the Company and its affiliated
companies for the Executive under such plans, practices, policies and programs
as in effect at any time during the 120-day period immediately preceding the
Change of Control or, if more favorable to the Executive, those provided
generally at any time after the Change of Control to other peer executives of
the Company and its affiliated companies.
(iv) Welfare Benefit Plans.
---------------------
During the Employment Period, the Executive and/or the Executive's family, as
the case may be, shall be eligible for participation in and shall receive all
benefits under welfare benefit plans, practices, policies and programs provided
by the Company and its affiliated companies (including, without limitation,
medical, prescription, dental, disability, salary continuance, employee life,
group life, accidental death and travel accident insurance plans and programs)
to the extent applicable generally to other peer executives of the Company and
its affiliated companies. In no event shall such plans, practices, policies and
programs provide the Executive after a Change of Control with benefits which are
less favorable, in the aggregate, than the most favorable of such plans,
practices, policies and programs in effect for the Executive at any time during
the 120-day period immediately preceding the Change of Control or, if more
favorable to the Executive, those provided generally at any time after the
Change of Control to other peer executives of the Company and its affiliated
companies.
(v) Expenses.
--------
During the Employment Period, the Executive shall be entitled to receive prompt
reimbursement for all reasonable expenses incurred by the Executive in
accordance with the policies, practices and procedures of the Company and its
affiliated companies in effect for the Executive from time to time. After a
Change of Control, such reimbursement shall be made in accordance with the most
favorable policies, practices and procedures of the Company and its affiliated
companies in effect for the Executive at any time during the 120-day period
immediately
4
<PAGE>
preceding the Change of Control or, if more favorable to the Executive, as in
effect generally at any time thereafter with respect to other peer executives of
the Company and its affiliated companies.
(vi) Fringe Benefits.
---------------
During the Employment Period, the Executive shall be entitled to fringe
benefits, including, without limitation, if applicable, tax and financial
planning services, payment of club dues, and automobile lease and payment of
related expenses, in accordance with the plans, practices, programs and policies
of the Company and its affiliated companies in effect for the Executive from
time to time. After a Change of Control, such fringe benefits shall be provided
in accordance with the most favorable plans, practices, programs and policies of
the Company and its affiliated companies in effect for the Executive at any time
during the 120-day period immediately preceding the Change of Control or, if
more favorable to the Executive, as in effect generally at any time thereafter
with respect to other peer executives of the Company and its affiliated
companies.
(vii) Office and Support Staff.
------------------------
During the Employment Period, the Executive shall be entitled to an office and
support staff in accordance with the practices and policies of the Company and
its affiliated companies in effect for the Executive from time to time. After a
Change of Control, the Executive shall be entitled to an office or offices of a
size and with furnishings and other appointments, and to exclusive personal
secretarial and other assistance, at least equal to the most favorable of the
foregoing provided to the Executive by the Company and its affiliated companies
at any time during the 120-day period immediately preceding the Change of
Control or, if more favorable to the Executive, as provided generally at any
time thereafter with respect to other peer executives of the Company and its
affiliated companies.
(viii) Vacation.
--------
During the Employment Period, the Executive shall be entitled to paid vacation
in accordance with the plans, policies, programs and practices of the Company
and its affiliated companies in effect for the Executive from time to time.
After a Change of Control, the Executive shall be entitled to vacation in
accordance with the most favorable plans, policies, programs and practices of
the Company and its affiliated companies as in effect for the Executive at any
time during the 120-day period immediately preceding the Change or Control or,
if more favorable to the Executive, as in effect generally at any time
thereafter with respect to other peer executives of the Company and its
affiliated companies.
5. TERMINATION OF EMPLOYMENT.
-------------------------
(a) Death or Disability.
-------------------
The Executive's employment shall terminate automatically upon the Executive's
death during the Employment Period. If the Company determines in good faith
that the Disability of the Executive has occurred during the Employment Period
(pursuant to the definition of Disability set forth below), it may give to the
Executive written notice in accordance with Section 12(b) of this Agreement of
its intention to terminate the Executive's employment. In such event, the
Executive's employment with the Company shall terminate effective on the 30th
day after receipt of such notice by the Executive (the "Disability Effective
Date"), provided that, within the 30 days after such receipt, the Executive
shall not have returned to full-time performance of the Executive's duties. For
purposes of this Agreement, "Disability" shall mean the absence of the Executive
from the Executive's duties with the Company on a full-time basis for a period
of (i) ninety (90) consecutive calendar days or (ii) an aggregate of one hundred
fifty (150) calendar days in any fiscal year of the Company as a result of
incapacity due to mental or physical illness
5
<PAGE>
which is determined to be total and permanent by a physician selected by the
Company or its insurers and acceptable to the Executive or the Executive's legal
representative.
(b) Cause.
-----
The Company may terminate the Executive's employment during the Employment
Period for Cause. For purposes of this Agreement, "Cause" shall mean:
(i) the willful and continued failure of the Executive to perform
substantially the Executive's duties with the Company or one of its affiliates
(other than any such failure resulting from incapacity due to physical or mental
illness), after a written demand for substantial performance is delivered to the
Executive by the Board or the Chief Executive Officer of the Company which
specifically identifies the manner in which the Board or Chief Executive Officer
believes that the Executive has not substantially performed the Executive's
duties, or
(ii) the willful engaging by the Executive in illegal conduct or gross
misconduct which is materially and demonstrably injurious to the Company.
For purposes of this provision, no act or failure to act, on the part of the
Executive, shall be considered "willful" unless it is done, or omitted to be
done, by the Executive in bad faith or without reasonable belief that the
Executive's action or omission was in the best interests of the Company. Any
act, or failure to act, based upon authority given pursuant to a resolution duly
adopted by the Board or upon the instructions of the Chief Executive Officer or
a senior officer of the Company or based upon the advice of counsel for the
Company shall be conclusively presumed to be done, or omitted to be done, by the
Executive in good faith and in the best interests of the Company. The cessation
of employment of the Executive shall not be deemed to be for Cause unless and
until there shall have been delivered to the Executive a notice that the
Executive is guilty of the conduct described in subparagraph (i) or (ii) above,
and specifying the particulars thereof in detail.
(c) Good Reason.
-----------
The Executive's employment may be terminated by the Executive during the
Employment Period for Good Reason. For purposes of this Agreement, "Good
Reason" shall mean:
(i) without the express written consent of the Executive, the assignment
to the Executive of any duties or any other action by the Company which results
in a material diminution in the Executive's position (including titles),
authority, duties or responsibilities from those contemplated by Section 4(a)(i)
of this Agreement, excluding for this purpose an isolated, insubstantial and
inadvertent action not taken in bad faith and which is remedied by the Company
promptly after receipt of notice thereof given by the Executive;
(ii) any failure by the Company to comply with any of the provisions of
Section 4(b) of this Agreement, other than an isolated, insubstantial and
inadvertent failure not occurring in bad faith and which is remedied by the
Company promptly after receipt of notice thereof given by the Executive;
(iii)any purported termination by the Company of the Executive's employment
otherwise than as expressly permitted by this Agreement; or
(iv) any failure by the Company to comply with and satisfy Section 11(c) of
this Agreement.
(d) Notice of Termination.
---------------------
Any termination during the Employment Period by the Company for Cause, or by the
Executive for Good Reason, shall be communicated by Notice of Termination to the
other party hereto
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given in accordance with Section 12(b) of this Agreement. For purposes of this
Agreement, a "Notice of Termination" means a written notice which (i) indicates
the specific termination provision in this Agreement relied upon, (ii) to the
extent applicable, sets forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of the Executive's employment under
the provision so indicated, and (iii) if the Date of Termination (as defined
below) is other than the date of receipt of such notice, specifies the
termination date (which date shall be not more than thirty days after the giving
of such notice). The failure by the Executive or the Company to set forth in the
Notice of Termination any fact or circumstance which contributes to a showing of
Good Reason or Cause shall not waive any right of the Executive or the Company,
respectively, hereunder or preclude the Executive or the Company, respectively,
from asserting such fact or circumstance in enforcing the Executive's or the
Company's rights hereunder.
(e) Date of Termination.
-------------------
"Date of Termination" means (i) if the Executive's employment is terminated by
the Company for Cause, or by the Executive for Good Reason, the date of receipt
of the Notice of Termination or any later date specified therein, as the case
may be, (ii) if the Executive's employment is terminated by the Company other
than for Cause or Disability, the date on which the Company notifies the
Executive of such termination, and (iii) if the Executive's employment is
terminated by reason of death or Disability, the date of death of the Executive
or the Disability Effective Date, as the case may be.
6. OBLIGATIONS OF THE COMPANY UPON TERMINATION.
-------------------------------------------
(a) Good Reason; Other Than for Cause, Death or Disability.
------------------------------------------------------
If, during the Employment Period, the Company shall terminate the Executive's
employment other than for Cause or Disability or the Executive shall terminate
employment for Good Reason:
(i) the Company shall pay to the Executive in a lump sum in cash within 30
days after the Date of Termination an amount equal to the present value,
determined in accordance with Section 280G(d)(4) of the Internal Revenue Code of
1986, as amended (the "Code"), of the aggregate of the following amounts under
A, B and C below; provided however, that prior to a Change of Control, the
Company, in its discretion, may determine to pay any such amount when it
otherwise would have been paid if the Executive's employment had not been
terminated until the end of the Employment Period:
A. the sum of (1) the Executive's Annual Base Salary through the Date
of Termination to the extent not theretofore paid and (2) the excess of (A) the
product of (x) (i) if a Change of Control does not occur during the fiscal year
which includes the Date of Termination, the Annual Bonus which would have been
payable to the Executive for such entire fiscal year or (ii) if a Change of
Control does occur during the fiscal year which includes the Date of
Termination, the higher of (I) the Recent Annual Bonus and (II) the Annual Bonus
paid or payable, including any bonus or portion thereof which has been earned
but deferred (and annualized for any fiscal year consisting of less than twelve
full months or during which the Executive was employed for less than twelve full
months), for the most recently completed fiscal year during the Employment
Period, if any (such higher amount being referred to as the "Highest Annual
Bonus") and (y) a fraction, the numerator of which is the number of days in the
current fiscal year through the Date of Termination, and the denominator of
which is 365, over (B) any amounts previously paid to the Executive pursuant to
the terms of the Annual Bonus Plans as bonuses with respect to the year that
includes the Date of Termination (the sum of the amounts described in clauses
(1) and (2) shall be hereinafter referred to as the "Accrued Obligations"); and
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B. (a) if the Date of Termination occurs prior to a Change of Control,
the amount equal to the product of (1) one and (2) the Executive's highest
combined Annual Base Salary and Annual Bonus during any of the last three full
fiscal years prior to the Date of Termination, or (b) if the Date of Termination
occurs after a Change of Control (or the Executive's Employment Period is
extended to three years under the last paragraph of Section 1(b)), the amount
equal to the product of (1) three (or the number of years, including partial
years, until the end of the Employment Period, if less) and (2) the Executive's
highest combined Annual Base Salary and Annual Bonus during any of the last
three full fiscal years prior to the Date of Termination; and
C. an amount equal to the difference between (a) the aggregate benefit
under the Company's qualified defined benefit retirement plans (collectively,
the "Retirement Plan") and any excess or supplemental defined benefit retirement
plans (including the Benefit Restoration Plan) in which the Executive
participates (collectively, the "SRP") which the Executive would have accrued
(whether or not vested) if the Executive's employment had continued for one year
(or three years if the Date of Termination occurs after a Change of Control or
the Executive's Employment Period is extended to three years under the last
paragraph of Section 1(b)) after the Date of Termination, but not after the date
on which the Executive attains age 65, and (b) the actual vested benefit, if
any, of the Executive under the Retirement Plan and the SRP, determined as of
the Date of Termination (with the foregoing amounts to be computed on an
actuarial present value basis, based on the assumption that the Executive's
compensation in the year (or, if applicable, each of the three years) following
such termination would have been that required by Section 4(b)(i) and Section
4(b)(ii), and using the actuarial assumptions in effect for purposes of
computing benefit entitlements under the Retirement Plan and the SRP at the Date
of Termination or, following a Change of Control, using actuarial assumptions no
less favorable to the Executive than the most favorable assumptions which were
in effect for such purposes at any time from the day before the Change of
Control through the Date of Termination;
(ii) for one year (or three years if the Date of Termination occurs after a
Change of Control or the Executive's Employment Period is extended to three
years under the last paragraph of Section 1(b)) after the Executive's Date of
Termination, or such longer period as may be provided by the terms of the
appropriate plan, program, practice or policy, the Company shall continue
benefits to the Executive and/or the Executive's family at least equal to those
which would have been provided to them in accordance with the plans, programs,
practices and policies described in Section 4(b)(iv) of this Agreement if the
Executive's employment had not been terminated or, if more favorable to the
Executive, as in effect generally at any time thereafter with respect to other
peer executives of the Company and its affiliated companies and their families;
provided, however, that if the Executive becomes reemployed with another
employer and is eligible to receive medical or other welfare benefits under
another employer-provided plan, the medical and other welfare benefits described
herein shall be secondary to those provided under such other plan during such
applicable period of eligibility, and for purposes of determining eligibility
(but not the time of commencement of benefits) of the Executive for retiree
benefits pursuant to such plans, programs, practices and policies, the Executive
shall be considered to have remained employed until one year (or three years if
the Date of Termination occurs after a Change of Control or the Executive's
Employment Period is extended to three years under the last paragraph of Section
1(b)) after the Date of Termination and to have retired on the last day of such
period;
(iii) if the Date of Termination occurs after a Change of Control or the
Executive's Employment Period is extended to three years under the last
paragraph of Section 1(b), the Company shall, at its sole expense as incurred
(but in no event to exceed $50,000), provide the Executive with outplacement
services the scope and provider of which shall be selected by the Executive in
the Executive's sole discretion;
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(iv) the Executive shall be entitled to purchase at depreciated book value
the automobile (if any) which the Company was providing for the use of such
Executive, and to the extent not theretofore paid or provided, the Company shall
timely pay or provide to the Executive any other amounts or benefits required to
be paid or provided or which the Executive is eligible to receive under any
plan, program, practice or policy or contract or agreement of the Company and
its affiliated companies (such other amounts and benefits shall be hereinafter
referred to as the "Other Benefits"); and
(v) the Executive shall be treated, for purposes of the Company's
Executive Deferred Compensation Plan, Executive Variable Deferred Compensation
Plan, Executive Deferred Retirement Plan, Executive Variable Deferred Retirement
Plan, and any successor or similar plans, as if he had one more year of service,
and attained an age one year older, than his actual years of service and age as
of the Date of Termination; provided, however, that Executive shall be credited
with the number of years of service and attained age (in addition to his actual
years of service and attained age on the Date of Termination) which are required
in order to satisfy the eligibility requirements for "early retirement" benefits
and to receive the retirement interest rate under such plans, if the Date of
Termination occurs after a Change of Control or the Executive's Employment
Period is extended to three years under the last paragraph of Section 1(b).
If the Executive should die while receiving payments pursuant to this
Section 6(a), the remaining payments which would have been made to the
Executive if he had lived shall be paid to the beneficiary designated in
writing by the Executive; or if there is no effective written designation,
then to his spouse; or if there is neither an effective written designation
nor a surviving spouse, then to his estate. Designation of a beneficiary or
beneficiaries to receive the balance of any such payments shall be made by
written notice to the Company, and the Executive may revoke or change any
such designation of beneficiary at any time by a later written notice to
the Company.
(b) Death.
-----
If the Executive's employment is terminated by reason of the Executive's death
during the Employment Period, this Agreement shall terminate without further
obligations to the Executive's legal representatives under this Agreement, other
than for payment of Accrued Obligations and the timely payment or provision of
Other Benefits. Accrued Obligations shall be paid to the Executive's estate or
beneficiary, as applicable, in a lump sum in cash within 30 days of the Date of
Termination. With respect to the provision of Other Benefits, after a Change of
Control the term "Other Benefits" as utilized in this Section 6(b) shall
include, without limitation, and the Executive's estate and/or beneficiaries
shall be entitled to receive, benefits at least equal to the most favorable
benefits provided by the Company and affiliated companies to the estates and
beneficiaries of peer executives of the Company and such affiliated companies
under such plans, programs, practices and policies relating to death benefits,
if any, as were in effect with respect to other peer executives and their
beneficiaries at any time during the 120-day period immediately preceding the
Change of Control or, if more favorable to the Executive's estate and/or the
Executive's beneficiaries, as in effect on the date of the Executive's death
with respect to other peer executives of the Company and its affiliated
companies and their beneficiaries.
(c) Disability.
----------
If the Executive's employment is terminated by reason of the Executive's
Disability during the Employment Period in accordance with Section 5(a), this
Agreement shall terminate without further obligations to the Executive, other
than for payment of Accrued Obligations and the timely payment or provision of
Other Benefits. Accrued Obligations shall be paid to the Executive in a lump
sum in cash within 30 days of the Date of Termination. With respect to the
provision of Other Benefits, after a Change of Control the term "Other Benefits"
as utilized in this Section 6(c) shall include, and the Executive shall be
entitled after the Disability Effective
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Date to receive, disability and other benefits at least equal to the most
favorable of those generally provided by the Company and its affiliated
companies to disabled executives and/or their families in accordance with such
plans, programs, practices and policies relating to disability, if any, as were
in effect generally with respect to other peer executives and their families at
any time during the 120-day period immediately preceding the Change of Control
or, if more favorable to the Executive and/or the Executive's family, as in
effect at any time thereafter generally with respect to other peer executives of
the Company and its affiliated companies and their families.
(d) Cause; Other than for Good Reason.
---------------------------------
If the Executive's employment shall be terminated for Cause during the
Employment Period, this Agreement shall terminate without further obligations to
the Executive other than the obligation to pay to the Executive (x) the Annual
Base Salary through the Date of Termination, (y) the amount of any compensation
previously deferred by the Executive, and (z) Other Benefits, in each case to
the extent theretofore unpaid. If the Executive voluntarily terminates
employment during the Employment Period, excluding a termination for Good
Reason, or retires at age 65 or thereafter, this Agreement shall terminate
without further obligations to the Executive, other than for Accrued Obligations
and the timely payment or provision of Other Benefits. In such case, all
Accrued obligations shall be paid to the Executive in a lump sum in cash within
30 days of the Date of Termination.
7. NON-EXCLUSIVITY OF RIGHTS.
-------------------------
Nothing in this Agreement shall prevent or limit the Executive's continuing or
future participation in any plan, program, policy or practice provided by the
Company or any of its affiliated companies and for which the Executive may
qualify, nor shall anything herein limit or otherwise affect such rights as the
Executive may have under any contract or agreement with the Company or any of
its affiliated companies. Amounts which are vested benefits or which the
Executive is otherwise entitled to receive under any plan, policy, practice or
program of or any contract or agreement (other than this Agreement) with the
Company or any of its affiliated companies at or subsequent to the Date of
Termination shall be payable in accordance with such plan, policy, practice or
program or contract or agreement except as explicitly modified by this
Agreement. The Executive shall no longer be covered by any prior employment
agreement or any Executive Employment Security Policy of the Company after the
Effective Date of this Agreement.
8. FULL SETTLEMENT; OFFSETS.
------------------------
Except as provided in this Section 8, the Company's obligation to make the
payments provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any set-off, counterclaim, recoupment,
defense or other claim, right or action which the Company may have against the
Executive or others.
Executive shall not be obligated to seek other employment or take any other
action by way of mitigation of the amounts payable to the Executive under any of
the provisions of this Agreement. However, the amount of any payments and
benefits provided for in this Agreement shall be reduced by one hundred percent
(100%) of any benefits and earned income (within the meaning of Section
911(d)(2)(A) of the Code) which is earned by the Executive for services rendered
to persons or entities other than the Company or its affiliates during or with
respect to the Employment Period or, after a Change of Control, during the 36-
month period after the Date of Termination. Medical and welfare benefits shall
be offset as provided in Section 6(a)(ii).
Not less frequently than annually (by December 31 of each year), the Executive
shall account to the Company with respect to all benefits and earned income
earned by the Executive which are required hereunder to be offset against
payments or benefits received by the Executive from the Company. If the Company
has paid amounts in excess of those to which the Executive is
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entitled (after giving effect to the offsets provided above), the Executive
shall reimburse the Company for such excess by December 31 of such year. The
requirements imposed under this paragraph shall terminate on December 31 of the
calendar year in which the Employment Period ends or, after a Change of Control,
December 31 of the calendar year which includes the third anniversary of the
Date of Termination.
9. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY.
------------------------------------------
(a) Anything in this Agreement to the contrary notwithstanding, in the event it
shall be determined that any payment or distribution by the Company to or
for the benefit of the Executive (whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or otherwise, but
determined without regard to any additional payments required under this
Section 9) (a "Payment") would be subject to the excise tax imposed by
Section 4999 of the Code or any interest or penalties are incurred by the
Executive with respect to such excise tax (such excise tax, together with
any such interest and penalties, are hereinafter collectively referred to
as the "Excise Tax"), then the Executive shall be entitled to receive an
additional payment (a "Gross-Up Payment") in an amount such that after
payment by the Executive of all taxes (including any interest or penalties
imposed with respect to such taxes), including, without limitation, any
income taxes (and any interest and penalties imposed with respect thereto)
and Excise Tax imposed upon the Gross-Up Payment, the Executive retains an
amount of the Gross-Up Payment equal to the Excise Tax imposed upon the
Payments.
(b) Subject to the provisions of Section 9(c), all determinations required to
be made under this Section 9, including whether and when a Gross-Up Payment
is required and the amount of such Gross-Up Payment and the assumptions to
be utilized in arriving at such determination, shall be made by the
certified public accounting firm which serves as the Company's auditor
immediately prior to the Change of Control (the "Accounting Firm"), which
shall provide detailed supporting calculations both to the Company and the
Executive within 15 business days of the receipt of notice from the
Executive that there has been a Payment, or such earlier time as is
requested by the Company or the Executive. In the event that such
Accounting Firm declines to act, the Company shall appoint another
nationally recognized accounting firm (which is acceptable to the
Executive) to make the determinations required hereunder (which accounting
firm shall then be referred to as the Accounting Firm hereunder). All fees
and expenses of the Accounting Firm shall be borne solely by the Company.
Any Gross-Up Payment, as determined pursuant to this Section 9, shall be
paid by the Company to the Executive within five days of the receipt of the
Accounting Firm's determination. Any determination by the Accounting Firm
shall be binding upon the Company and the Executive. As a result of the
uncertainty in the application of Section 4999 of the Code at the time of
the initial determination by the Accounting Firm hereunder, it is possible
that Gross-Up Payments which will not have been made by the Company should
have been made ("Underpayment"), consistent with the calculations required
to be made hereunder. In the event that the Company exhausts its remedies
pursuant to Section 9(c) and the Executive thereafter is required to make a
payment of any Excise Tax, the Accounting Firm shall determine the amount
of the Underpayment that has occurred and any such Underpayment shall be
promptly paid by the Company to or for the benefit of the Executive.
(c) The Executive shall notify the Company in writing of any claim by the
Internal Revenue Service that, if successful, would require the payment by
the Company of the Gross-Up Payment. Such notification shall be given as
soon as practicable but no later than fifteen days after the Executive is
informed in writing of such claim and shall apprise the Company of the
nature of such claim and the date on which such claim is requested to be
paid. The Executive shall not pay such claim prior to the expiration of
the 30-day period following the date on which it gives such notice to the
Company (or such shorter period ending on the date that any payment of
taxes with respect to such claim is due). If the Company notifies the
Executive in writing prior to the expiration of such period that it desires
to contest such claim, the Executive shall:
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(i) give the Company any information reasonably requested by the Company
relating to such claim,
(ii) take such action in connection with contesting such claim as the
Company shall reasonably request in writing from time to time, including,
without limitation, accepting legal representation with respect to such claim by
an attorney reasonably selected by the Company,
(iii)cooperate with the Company in good faith in order effectively to
contest such claim, and
(iv) permit the Company to participate in any proceedings relating to such
claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall defend, indemnify and hold the Executive harmless,
on an after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limitation on the foregoing provisions of
this Section 9(c), the Company shall control all proceedings taken in connection
with such contest and, at its sole option, may pursue or forgo any and all
administrative appeals, proceedings, hearings and conferences with the taxing
authority in respect of such claim and may, at its sole option, either direct
the Executive to pay the tax claimed and sue for a refund or contest the claim
in any permissible manner, and the Executive agrees to prosecute such contest to
a determination before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as the Company shall
determine; provided, however, that if the Company directs the Executive to pay
such claim and sue for a refund, the Company shall advance the amount of such
payment to the Executive, on an interest-free basis and shall defend, indemnify
and hold the Executive harmless, on an after-tax basis, from any Excise Tax or
income tax (including interest or penalties with respect thereto) imposed with
respect to such advance or with respect to any imputed income with respect to
such advance; and further provided that any extension of the statute of
limitations relating to payment of taxes for the taxable year of the Executive
with respect to which such contested amount is claimed to be due is limited
solely to such contested amount. Furthermore, the Company's control of the
contest shall be limited to issues with respect to which a Gross-Up Payment
would be payable hereunder, and the Executive shall be entitled to settle or
contest, as the case may be, any other issue raised by the Internal Revenue
Service or any other taxing authority.
(d) If, after the receipt by the Executive of an amount advanced by the Company
pursuant to Section 9(c), the Executive becomes entitled to receive any refund
with respect to such claim, the Executive shall (subject to the Company's
complying with the requirements of Section 9(c)) promptly pay to the Company the
amount of such refund (together with any interest paid or credited thereon after
taxes applicable thereto). If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Section 9(c), a determination is made that
the Executive shall not be entitled to any refund with respect to such claim and
the Company does not notify the Executive in writing of its intent to contest
such denial of refund prior to the expiration of 30 days after such
determination, then such advance shall be forgiven and shall not be required to
be repaid and the amount of such advance shall offset, to the extent thereof,
the amount of Gross-Up Payment required to be paid.
10. CONFIDENTIAL INFORMATION.
------------------------
The Executive shall hold in a fiduciary capacity for the benefit of the Company
all secret or confidential business information, knowledge or data relating to
the Company or any of its affiliated companies, and their respective businesses,
which shall have been obtained by the Executive during the Executive's
employment by the Company or any of its affiliated companies and which shall not
be or become public knowledge (other than by acts by the Executive or
representatives of the Executive in violation of this Agreement). After
termination of the Executive's employment with the Company, the Executive shall
not, without the prior written
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consent of the Company or as may otherwise be required by law or legal process,
communicate or divulge any such information, knowledge or data to anyone other
than the Company and those designated by it. In no event shall an asserted or
alleged violation of the provisions of this Section 10 constitute a basis for
deferring or withholding any amounts otherwise payable to the Executive under
this Agreement.
11. SUCCESSORS.
----------
(a) This Agreement is personal to the Executive and without the prior written
consent of the Company shall not be assignable by the Executive otherwise
than by will or the laws of descent and distribution. This Agreement shall
inure to the benefit of and be enforceable by the Executive's legal
representatives.
(b) This Agreement shall inure to the benefit of and be binding upon the
Company and its successors and assigns.
(c) The Company will require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all
of the business and/or assets of the Company to assume expressly and agree
to perform this Agreement in the same manner and to the same extent that
the Company would be required to perform it if no such succession had taken
place. As used in this Agreement, "Company" shall mean the Company as
hereinbefore defined and any successor to its business and/or assets as
aforesaid which assumes and agrees to perform this Agreement by operation
of law or otherwise.
12. MISCELLANEOUS.
-------------
(a) This Agreement shall be governed by and construed in accordance with the
laws of the State of California, without reference to principles of conflict of
laws. The captions of this Agreement are not part of the provisions hereof and
shall have no force or effect. This Agreement may not be amended or modified
otherwise than by a written agreement executed by the parties hereto or their
respective successors and legal representatives.
(b) All notices and other communications hereunder shall be in writing and
shall be given by hand delivery to the other party or by registered or certified
mail, return receipt requested, postage prepaid, addressed as follows:
If to the Executive: If to the Company:
- -------------------- ------------------
[to the last address provided Avery Dennison Corporation
by the Executive] 150 North Orange Grove Boulevard
Pasadena, California 91103
Attention: General Counsel
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of this Agreement shall
not affect the validity or enforceability of any other provision of this
Agreement.
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(d) The Company may withhold from any amounts payable under this Agreement such
Federal, state, local or foreign taxes as shall be required to be withheld
pursuant to any applicable law or regulation.
(e) The Executive's or the Company's failure to insist upon strict compliance
with any provision hereof or any other provision of this Agreement or the
failure to assert any right the Executive or the Company may have hereunder,
including, without limitation, the right of the Executive to terminate
employment for Good Reason pursuant to Section 5(c)(i)-(iv) of this Agreement,
shall not be deemed to be a waiver of such provision or right or any other
provision or right of this Agreement.
13. ARBITRATION; ATTORNEYS FEES.
---------------------------
(a) The parties agree that any disputes, controversies or claims which arise
out of or are related to this Agreement, Executive's employment or the
termination of his employment, including, but not limited to, any claim relating
to the purported validity, interpretation, enforceability or breach of this
Agreement, and/or any other claim or controversy arising out of the relationship
between the Executive and Company (or the nature of the relationship) or the
continuation or termination of that relationship, including, but not limited to,
claims that a termination was for Cause or for Good Reason, claims for breach of
covenant, breach of an implied covenant of good faith and fair dealing, wrongful
termination, breach of contract, or intentional infliction of emotional
distress, defamation, breach of right of privacy, interference with advantageous
or contractual relations, fraud, conspiracy or other tort or property claims of
any kind, which are not settled by agreement between the parties, shall be
settled by arbitration in accordance with the then-current Rules of Practice and
Procedure for Employment Arbitration ("Rules") of the Judicial Arbitration and
Mediation Services, Inc. ("JAMS").
The arbitration shall be before a single arbitrator selected in accordance with
the JAMS Rules or otherwise by mutual agreement of the parties. The arbitration
shall take place in Los Angeles County, California, unless the parties agree to
hold the arbitration at another location. Depositions and other discovery shall
be allowed in accordance with the JAMS Rules. The arbitrator shall apply the
substantive law (and the law of remedies, if applicable) of the State of
California or federal law, or both, as applicable to the claim(s) asserted.
(b) In consideration of the parties' agreement to submit to arbitration all
disputes with regard to this Agreement and/or with regard to any alleged
contract, or any other claim arising out of their conduct, the relationship
existing hereunder or the continuation or termination of that relationship, and
in further consideration of the anticipated expedition and the minimizing of
expense of this arbitration remedy, the arbitration provisions of this Agreement
shall provide the exclusive remedy, and each party expressly waives any right he
or it may have to seek redress in any other forum. The arbitrator, and not any
federal, state, or local court or agency, shall have exclusive authority to
resolve any dispute relating to the interpretation, applicability,
enforceability or formation of this Agreement, including but not limited to any
claim that all or any part of this Agreement is void or voidable. The
arbitration shall be final and binding upon the parties.
Either party may bring an action in any court of competent jurisdiction to
compel arbitration under this Agreement and to enforce an arbitration award.
Except as otherwise provided in this Agreement, both the Company and the
Executive agree that neither of them shall initiate or prosecute any lawsuit or
administrative action in any way related to any claim covered by this Agreement.
(c) Any claim which either party has against the other party that could be
submitted for resolution pursuant to this Section must be presented in writing
by the claiming party to the other party within one year of the date the
claiming party knew or should have known of the
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facts giving rise to the claim, except that claims arising out of or related to
the termination of the Executive's employment must be presented by him within
one year of the Date of Termination. Unless the party against whom any claim is
asserted waives the time limits set forth above, any claim not brought within
the time periods specified shall be waived and forever barred, even if there is
a federal or state statute of limitations which would have given more time to
pursue the claim.
(d) The Company shall advance the costs and expenses of the arbitrator. In any
arbitration to enforce any of the provisions or rights under this Agreement, the
unsuccessful party in such arbitration, as determined by the arbitrator, shall
pay to the successful party or parties all costs, expenses and reasonable
attorneys' fees incurred therein by such party or parties (including without
limitation such costs, expenses and fees on any appeals), and if such successful
party or parties shall recover an award in any such arbitration proceeding, such
costs, expenses and attorneys' fees shall be included as part of such award.
Notwithstanding the foregoing provision, in no event shall the successful party
or parties be entitled to recover an amount from the unsuccessful party for
costs, expenses and attorneys' fees that exceeds the unsuccessful party's costs,
expenses and attorneys' fees in connection with the action or proceeding.
(e) Any decision and award or order of the arbitrator shall be final and
binding upon the parties hereto and judgment thereon may be entered in the
Superior Court of the State of California or any other court having
jurisdiction.
(f) Each of the above terms and conditions shall have separate validity, and
the invalidity of any part thereof shall not affect the remaining parts.
(g) Any decision and award or order of the arbitrator shall be final and
binding between the parties as to all claims which were or could have been
raised in connection with the dispute to the full extent permitted by law. In
all other cases the parties agree that the decision of the arbitrator shall be a
condition precedent to the institution or maintenance of any legal, equitable,
administrative, or other formal proceeding by the employee in connection with
the dispute, and that the decision and opinion of the arbitrator may be
presented in any other forum on the merits of the dispute.
IN WITNESS WHEREOF, the Executive has executed this Agreement and, pursuant to
the authorization from the Compensation and Executive Personnel Committee of the
Board of Directors, the Company has caused this Agreement to be executed, all as
of the day and year first above written.
AVERY DENNISON CORPORATION EXECUTIVE
__________________________ ____________________________
15
<PAGE>
Exhibit 10.31.1
---------------
AVERY DENNISON CORPORATION
AMENDED AND RESTATED EXECUTIVE
VARIABLE DEFERRED RETIREMENT PLAN
-------------------------------------------------
ARTICLE I - PURPOSE
This Amended and Restated Executive Variable Deferred Retirement Plan ("Plan")
is adopted by Avery Dennison Corporation, a Delaware Corporation (the
"Company"), effective as of December 1, 1997, and provides a deferred
compensation plan for executive employees of the Company and its subsidiaries,
and amends the existing Avery Dennison Corporation Executive Variable Deferred
Retirement Plan ("Prior Plan") in its entirety. The Plan applies to all
Participants and/or Beneficiaries of the Plan commencing December 1, 1997. The
Prior Plan applies to all Participants and/or Beneficiaries who terminated
employment and received a distribution equal to 100% of their Deferral Account
balance with the Company or its subsidiaries prior to December 1, 1997.
ARTICLE 2 - DEFINITIONS AND CERTAIN PROVISIONS
Administrator. "Administrator" means the administrator appointed by the
- -------------
Committee to handle the day-to-day administration of the Plan pursuant to
Article 9.
Allocation Election Form. "Allocation Election Form" means the form on which a
- -------------------------
Participant elects the Declared Rate(s) to be credited as earnings or losses to
such Participant's Deferral Account.
Annual Base Salary. "Annual Base Salary" means an Eligible Employee's rate of
- ------------------
salary in effect on August 1 of the prior plan year, or any other subsequent
date as determined by the Administrator in his discretion.
Annual Deferral. "Annual Deferral" means the amount of Annual Base Salary and
- ---------------
Bonus which the Participant elects to defer for a Plan Year.
Beneficiary. "Beneficiary" means the person or persons or entity designated as
- -----------
such by a Participant pursuant to Article 8.
Benefit. "Benefit" means a Retirement Benefit, Survivor Benefit, Termination
- --------
Benefit, Disability Benefit, Emergency Benefit or Discounted Cash Out, as
appropriate.
Bonus. "Bonus" means the bonus paid to the Participant in such Plan Year under
- -----
any bonus plan, including any annual bonus plan or long term incentive plan
(LTIP).
1
<PAGE>
Committee. "Committee" means the deferred compensation plan committee appointed
- ---------
to administer the Plan pursuant to Article 9.
Declared Rate. "Declared Rate" means the notional rates of return (which may be
- -------------
positive or negative) of the individual investment options selected by a
Participant for such Deferral Account as set forth in Article 6.
Deferral Account. "Deferral Account" means the notional account established for
- ----------------
record keeping purposes for a Participant pursuant to Section 4.4.
Disability. "Disability" means any inability on the part of an Employee,
- ----------
commencing before age 64 1/2, as determined by the Administrator, in his sole
discretion, to perform the substantial and material duties of an Employee's job
due to injury or sickness lasting for more than one hundred eighty (180)
consecutive days. Disability for purposes of this Plan shall be deemed to
commence as of the first day following the end of such one hundred eighty (180)
day period. If an Employee makes application for disability benefits under the
Social Security Act, as in effect as of the date of this Plan or as such Act may
hereafter be amended, and qualifies for such benefits, the Employee shall be
presumed to suffer from a Disability under this Plan. The Administrator may
require the Employee to submit to an examination by a physician or medical
clinic selected by the Administrator. On the basis of such medical evidence and
in the absence of qualification for disability benefits under the Social
Security Act, the determination of the Administrator as to whether or not a
condition of Disability exists shall be conclusive. To constitute Disability,
the same must commence after the Employee has become a Participant in the Plan.
Discounted Cash Out. "Discounted Cash Out" shall mean a distribution made
- -------------------
pursuant to Section 7.9.
Discounted Cash Out Election. "Discounted Cash Out Election" means the written
- ----------------------------
election by a Participant or First Beneficiary to receive all or part of the
Participant's Deferral Account pursuant to Section 7.9.
Distribution. "Distribution" means any payment to a Participant or Beneficiary
- ------------
according to the terms of this Plan including, but not limited to a Benefit.
Early Retirement. "Early Retirement" means the termination of a Participant's
- -----------------
employment with the Company for reasons other than death or disability on or
after the Eligible Employee's attaining age 55 with fifteen (15) years of
service with the Company and before Normal Retirement.
Eligible Employee. "Eligible Employee" means an Employee who is a member of a
- -----------------
select group of management, or a highly compensated employee who meets the
annually indexed salary requirement determined by the Committee in its sole
discretion.
2
<PAGE>
Emergency Benefit. "Emergency Benefit" means the Benefit that is payable
- -----------------
pursuant to Section 7.8 of the Plan.
Employee. "Employee" means any person employed by the Company or its
- --------
subsidiaries.
Employer. "Employer" means the Company and any of its subsidiaries.
- --------
ERISA. "ERISA" means the Employee Retirement Income Security Act of 1974, as
- -----
amended.
Exchange Act. "Exchange Act" means the Securities Exchange Act of 1934, as
- -------------
amended.
Enrollment Period. "Enrollment Period" means the period(s) designated from year
- -----------------
to year by the Administrator for enrollments. An Eligible Employee must submit
a Participant Election Form during an Enrollment Period.
First Beneficiary. "First Beneficiary" means the Beneficiary (whether the
- -----------------
primary or contingent Beneficiary) who first becomes entitled to Survivor
Benefits under this Plan.
Normal Retirement. "Normal Retirement" means the termination of a Participant's
- -----------------
employment with Employer for reasons other than death on or after the
Participant attains age 65.
Participant. "Participant" means an Eligible Employee who has filed a completed
- -----------
and executed Participation Election Form with the Administrator, and who is
participating in the Plan in accordance with the provisions of Articles 3 and 4.
Participation Election Form. "Participation Election Form" means the form that
- ---------------------------
an Eligible Employee files with the Administrator to participate in the Plan for
a given Plan Year.
Plan. "Plan" means this Avery Dennison Corporation Executive Variable Deferred
- -----
Retirement Plan, a non-qualified elective deferred compensation plan, as the
same may be amended from time to time.
Plan Year. "Plan Year" means the year beginning December 1 and ending the
- ---------
following November 30.
Rabbi Trust. "Rabbi Trust" means the trust described in Section 12.15.
- -----------
Retirement. "Retirement" shall mean a termination of employment upon Early
- ----------
Retirement or Normal Retirement.
3
<PAGE>
Retirement Benefit. "Retirement Benefit" means Benefits payable to a
- ------------------
Participant when Participant has satisfied the requirements Early Retirement or
Normal Retirement pursuant to Article 7.
Retirement Plan. "Retirement Plan" means the Retirement Plan for the Employees
- ---------------
of Avery Dennison Corporation, as amended from time to time.
Savings Plan. "Savings Plan" means the Avery Dennison Corporation Employee
- ------------
Savings Plan, as amended from time to time.
Second Beneficiary. "Second Beneficiary" means the First Beneficiary's named
- ------------------
Beneficiary (whether primary or contingent) who becomes the Second Beneficiary
entitled to Survivor Benefits under the Plan.
Settlement Date. "Settlement Date" means a date upon which a Benefit payment is
- ----------------
due and payable to a Participant or Beneficiary. This date will be within 90
days of, or as soon as possible after the Valuation Date.
Survivor Rate. "Survivor Rate" means the interest rate credited to the
- --------------
Beneficiary's unpaid balance in the Deferral Account at a rate to be determined
by the Administrator, in his sole discretion, but in no event less than 7% per
annum.
Survivor Benefit. "Survivor Benefit" means those Plan Benefits that become
- ----------------
payable upon the death of a Participant pursuant to Section 7.7.
Termination Benefit. "Termination Benefit" means the lump sum amount payable to
- -------------------
a Participant who ceases to be an Employee pursuant to the provisions of Section
7.6.
Termination of Employment. "Termination of Employment" means the cessation of
- -------------------------
an Eligible Employee's employment with the Employer for any reason, whether
voluntary or involuntary other than Retirement, Disability or death.
Valuation Date. "Valuation Date" means the date on which the Deferral Account
- ---------------
is valued for Distribution purposes. This date shall be the last day of the
month in which an event occurs that triggers a Benefit payment.
ARTICLE 3 - PARTICIPATION
3.1 Participation. The Committee, through the Administrator, shall notify
-------------
Participants generally not less than 30 days (or such lesser period as may be
practicable under the circumstances) prior to any deadline for filing a
Participation Election Form.
4
<PAGE>
3.2 Participation Election. An Eligible Employee shall become a Participant in
----------------------
the Plan on the first day of the Plan Year coincident with or next following the
date the employee becomes an Eligible Employee, provided such Employee has filed
a Participant Election Form with the Administrator. To be effective, the
Eligible Employee must submit the Participant Election Form during an Enrollment
Period or any other such time as determined by the Administrator.
3.3 Continuation of Participation. A Participant who has elected to
-----------------------------
participate in the Plan by submitting a Participant Election Form shall continue
as a Participant in the Plan until the entire balance of the Participant's
Deferral Account has been distributed to the Participant. In the event a
Participant becomes ineligible to continue participation in the Plan, but
remains an Employee of the Company, the Participant's Deferral Account shall be
held and administered in accordance with the Plan until such time as
Participant's Deferred Account is completely distributed.
ARTICLE 4 - PARTICIPANT DEFERRALS
4.1 Annual Deferral. On the Participation Election Form, and subject to the
---------------
restrictions set forth herein, the Eligible Employee shall designate the amount
of Annual Base Salary and Bonus to be deferred for the next Plan Year.
4.2 Minimum Deferral. The minimum amount of Annual Deferral that may deferred
----------------
shall be $2,000 (two thousand dollars).
4.3 Maximum Deferral. The standard maximum amount of Annual Deferral that may
----------------
be deferred shall be 10% of an Eligible Employee's Annual Base Salary and 10% of
an Eligible Employee's Bonus; provided, however, that officers of the Company
may defer up to 50% of their Annual Base Salary and up to 50% of their Bonus.
The maximum deferral amount is established at the discretion of the
Administrator.
4.4 Deferral Accounts. Solely for record keeping purposes, the Company shall
-----------------
maintain a Deferral Account for each Participant. The amount of a Participant's
Annual Deferral pursuant to this Article 4 shall be credited by the Employer to
the Participant's Deferral Account on the date(s) which such Annual Deferral
would otherwise have been paid. The Deferral Account may be credited with
Company contributions pursuant to Article 5. All Distributions and penalties
(related to a Discounted Cash Out Election under Section 7.9) will be debited to
the Deferral Account on the Valuation Date.
4.5 Interest on Deferral Accounts. The Participant's Deferral Account shall be
------------------------------
credited with a rate of return (positive or negative) based on the Declared
Rate(s) which he elects. The rate of return (positive or negative) will be
credited monthly and compounded monthly.
5
<PAGE>
4.6 Statement of Accounts. The Administrator shall provide to each Participant
---------------------
periodic statements (no less than semi-annually) setting forth the Participant's
deferrals, declared rate(s) (credits or debits), distributions and Deferral
Account balance.
4.7 Errors in Benefit Statement or Distributions. In the event an error is
---------------------------------------------
made in a benefit statement, such error shall be corrected on the next benefit
statement following the date such error is discovered. In event of an error in
a Distribution, the Participant's Deferral Account shall, immediately upon the
discovery of such error, be adjusted to reflect such under or over payment and,
if possible, the next Distribution shall be adjusted upward or downward to
correct such prior error. If the remaining balance of a Participant's Deferral
Account is insufficient to cover an erroneous overpayment, the Company may, at
its discretion, offset other amounts payable to the Participant from the Company
(including but not limited to salary, bonuses, expense reimbursements, severance
benefits or other nonqualified employee benefit arrangements) to recoup the
amount of such overpayment(s).
4.8 Valuation of Accounts. The value of a Deferral Account as of any date
---------------------
shall equal the amounts theretofore credited or debited to such account, plus
the interest deemed to be earned on such account in accordance with this Article
4 through the day preceding such date.
4.9 Vesting. Except with respect to any discretionary contributions made by
-------
the Company which may have a separate vesting schedule, the Participant shall be
100% vested at all times in the Participant's Deferral Account.
ARTICLE 5 - MATCHING CONTRIBUTIONS
The Company, in its sole discretion, may credit to select Participant's Deferral
Accounts a discretionary amount or match in an amount as determined by the
Company. These amounts and subsequent earnings are subject to vesting schedules
established by the Administrator.
ARTICLE 6 - INVESTMENT OPTIONS
6.1 Participant Election of Declared Rates. A Participant may elect on the
---------------------------------------
Allocation Election Form any combination of Declared Rates in 25% increments, as
long as the total does not exceed 100% of the deferrals. A Participant may
change the Declared Rate(s) election at least twice a year effective as of the
following June 1 and December 1 of each year by filing a written notice with the
Administrator at least 30 days in advance. Such elections will apply to current
deferrals, as well as the remaining Deferral Account Balance. The Company may
modify these procedures to provide greater flexibility (e.g., smaller percentage
increments or more frequent reallocations) to Participants. The
6
<PAGE>
Company will not necessarily invest Deferral Account balances in the investment
funds represented by the Declared Rates, even though the actual performance of
the investment fund(s) that is/are chosen to measure specific Declared Rate(s)
will determine the rate of return (positive or negative) on the Participant's
Deferral Account.
6.2 Declared Rates. A Participant may select from Declared Rates initially
---------------
representing five (5) core investment funds, which may from time to time be
established under the Plan and the number of which may be expanded by the
Committee; it being the intention that at all times Participants will have at
least five (5) core investment fund choices comparable in focus, type and
quality to those listed on Exhibit A. The Declared Rate(s) provide a rate of
return (positive or negative) that is based on the actual performance of the
Pacific Life Insurance Custom COLI contract investment funds. At the end of each
month of a Plan Year, Pacific Life Insurance Company will report to the Company
the actual gross performance of each investment fund. The rate of return
determined based on such gross performance for each investment fund, less an
administrative charge of 0.000166514%, will be the Declared Rate for that
investment fund for the month.
The Declared Rates available under the Plan are set forth in Exhibit A.
ARTICLE 7 - BENEFITS
7.1 Retirement Benefit. A Participant is eligible for a Retirement Benefit
------------------
under this Plan upon the satisfaction of the requirements for Normal Retirement
or Early Retirement.
7.2 Benefit Election Alternatives. The Retirement Benefit will be paid
-----------------------------
beginning on the Settlement Date, and in the manner which the Participant elects
no later than thirteen months prior to retirement. A Participant may elect to
receive his Retirement Benefit at retirement in either a lump sum or
installments during 5, 10, 15 or 20 years, or a combination of a lump sum
payment (in 10% increments) and payments during one installment period;
provided, however, that the maximum payout period for Retirement Benefits shall
be subject to Section 7.3. In the event a payout election period exceeds the
maximum period permitted by Section 7.3 the payout period shall be reduced to
the maximum period permitted by Section 7.3.
7.3 Maximum Payout Period. Notwithstanding any Eligible Employee's election to
---------------------
the contrary, the maximum number of years over which retirement Benefits may be
paid from the Plan shall be limited as follows:
(i) Retirement ages 55-59 - lump sum or over five or ten years
(ii) Retirement ages 60-61 - lump sum or over five, ten or fifteen years
7
<PAGE>
(iii) Retirement ages 62 and above - lump sum or over five, ten, fifteen
or twenty years.
7.4 Installment Payments. All installment payments will be calculated on an
---------------------
annual basis but paid in such intervals as may be determined by the Committee,
provided that such intervals shall not be less frequent than quarterly. If a
Participant elects to receive his Retirement Benefit in installment payments,
the payments will be based on the Deferral Account balance at the beginning of
the payment period. The payments will be recalculated annually by dividing the
Participant's current Deferral Account balance as of the last day of the plan
year by the number of remaining years in the payment period based on the
Participant's retirement payment election. The rate of return (positive or
negative) during any payment year will be credited during the year on the unpaid
Deferral Account balance at the applicable Declared Rate(s). A retired
Participant may continue to change his Declared Rate(s) pursuant to Section 6.1.
7.5 Disability. If a Participant suffers a Disability, Participant deferrals
----------
that otherwise would have been credited to the Participant's Deferral Accounts
will cease during such Disability. The Participant's Deferral Accounts will
continue to earn interest at the Declared Rate(s) which he has chosen. If the
Participant terminates employment because of the Disability, the Participant's
Deferral Account will be distributed as a Retirement Benefit, Termination
Benefit or Survivor Benefit, whichever is applicable, beginning on the date and
in the form which the Participant elected in his Participant Election Form. In
the sole discretion of the Committee, the Employer may commence payments on an
earlier date. If a Participant recovers from a Disability and returns to
employment with the Employer the Participant shall resume making deferrals
pursuant to his Participant Election Form.
7.6 Termination Benefit. If a Participant ceases to be an Employee for any
-------------------
reason other than death, or Normal or Early Retirement, the Employer shall pay
to the Participant in one lump sum an amount (the "Termination Benefit") equal
to the value of the Deferral Account, provided that the Company reserves the
right to distribute this Benefit in installment payments, and in such event the
Termination Benefit will be calculated in accordance with Section 7.4. The
Participant shall be entitled to no further Benefits under this Plan.
7.7 Survivor Benefits.
-----------------
(a) Pre-Retirement. If a Participant dies and has not yet commenced
--------------
receiving Retirement Benefit payments, a Survivor Benefit will be paid to
his First Beneficiary in annual installments over ten years except as set
forth below. The aggregate Survivor Benefit will be equal to the Deferral
Account balance plus interest. The annual Survivor Benefit payments shall be
re-determined each year based upon the value of the Deferral Account at that
time plus interest based on the Survivor Rate.
8
<PAGE>
(b) Post-Retirement. If a Participant dies after payment of Benefits has
---------------
commenced, his First Beneficiary will be entitled to receive the remainder
of the payments not yet paid to the Participant in accordance with the
election of the Participant then in effect. After the Participant's death,
interest will be credited at the Survivor Rate.
(c) Second Beneficiary. If the First Beneficiary dies before all Survivor
------------------
Benefits under the Plan have been distributed to the First Beneficiary, any
remaining account balances shall be paid in a lump sum to the Second
Beneficiary or to the First Beneficiary's estate if no second Beneficiary
designation is on file with the Administrator.
7.8 Emergency Benefit. In the event that the Committee, upon written petition
------------------
of the Participant or Beneficiary, determines, in its sole discretion, that the
Participant or Beneficiary has suffered an unforeseeable financial emergency,
the Employer shall pay to the Participant or Beneficiary, as soon as practicable
following such determination, an amount necessary to meet the emergency not in
excess of the Termination Benefit to which the Participant is entitled hereunder
if said Participant had a termination of service on the date of such
determination (the "Emergency Benefit"). For purposes of this Plan, an
unforeseeable financial emergency is an unexpected need for cash arising from an
illness, casualty loss, sudden financial reversal, or other such unforeseeable
occurrence. An unforeseeable financial emergency for purposes of this Plan shall
exist for any Participant or Beneficiary who is deemed to be in constructive
receipt of income on account of deferred benefits payable under the terms of the
Plan, and in such event all deferred benefits giving rise to said constructive
receipt of income shall be paid to the Participant or Beneficiary in question.
Notwithstanding the foregoing, the final determination by the Internal Revenue
Service ("IRS") or court of competent jurisdiction, all time for appeal having
lapsed, that the Employer is not the owner of the assets of the Rabbi Trust,
with the result that the income of the Rabbi Trust is not treated as income of
the Company pursuant to Sections 671 through 679 of the Code, or the final
determination by (i) the IRS, (ii) a court of competent jurisdiction, all time
for appeal having lapsed, or (iii) counsel to the Company that a federal tax is
payable by the Participant or Beneficiary with respect to assets of the Rabbi
Trust or the Participant's or Beneficiary's Deferral Accounts prior to the
distribution of those assets or Deferral Accounts to the Participant or
Beneficiary shall in any event constitute an unforeseeable financial emergency
entitling such Participant or Beneficiary to an Emergency Benefit provided for
in this Section. Cash needs arising from foreseeable events such as the purchase
of a home or education expenses for children shall not be considered to be the
result of an unforeseeable financial emergency. The amount of benefits otherwise
payable under the Plan shall thereafter be adjusted to reflect the reduction of
a Deferral Account due to the early payment of the Emergency Benefit.
A Participant, or a First Beneficiary receiving payments, may request an
Emergency Benefit distribution or a cessation of the current Annual Deferral by
submitting a written
9
<PAGE>
request to the Committee. The Committee, or designated subcommittee thereof,
shall have the authority to require such evidence as it deems, in its sole
discretion, necessary to determine if such a distribution or cessation of
deferrals is warranted. If the request is approved, any Distribution will be
limited to an amount sufficient to meet the emergency up to the Deferral Account
balance. Any Distribution will be calculated and paid in a manner determined
solely by the Committee. The balance of the Deferral Account and any Benefits
otherwise payable under the Plan shall thereafter be adjusted accordingly.
Following such Distribution, current deferrals will cease and the Participant
may not make deferrals for one full plan year after the date of the
distribution.
7.9 Discounted Cash Out Election
----------------------------
(a) At any time a Participant or a First Beneficiary has a Deferral
Account balance in the Plan, the Participant or a First Beneficiary may
elect to receive all or part of the Participant's Deferral Account balance
in a lump sum by filing a written election with the Administrator to
receive a Discounted Cash Out pursuant to this Section. Crediting of
Declared Rates to the amount elected to be withdrawn shall cease to accrue
as of the Valuation date. The requirements for a Discounted Cash Out
Election and the manner of determining the amount to be paid to a
Participant who makes a Discounted Cash Out Election are set forth below.
(b) Minimum Amount. Except as otherwise determined by the Committee, the
--------------
Discounted Cash Out must be in an amount of at least $200,000, unless the
Participant's Deferral Account has an aggregate balance of less than
$200,000 as of the date of the Discounted Cash Out Election, in which case
the amount of the Discounted Cash Out shall be equal to 100% of the
aggregate balance of the Participant's Deferral Accounts.
(c) Deferral Account Value. The amount available for the Discounted Cash
-----------------------
Out shall be determined no later than the last day of the month during
which the Participant or First Beneficiary delivers to the Administrator a
written Discounted Cash Out Election, provided, however, that the
Administrator shall have at least fifteen (15) business days to make such
determination.
(d) Adjustment of Accounts; Penalty. If a Participant or First
-------------------------------
Beneficiary elects to receive a Discounted Cash Out, the amount actually
distributed to the Participant shall be the amount of the requested
Discounted Cash Out Election less a 6% penalty. [The Committee, or by law
or regulations, reserves the right to change the amount of the penalty if
required.]
(e) Number of Distributions. During the course of any calendar year and
-----------------------
prior to Early or Normal Retirement or Death, a Participant or a First
Beneficiary may make one Discounted Cash Out Election per year; following
Early or Normal
10
<PAGE>
Retirement, a Participant or a First Beneficiary in a payout status, may
make two Discounted Cash Out Elections per year.
7.10 Small Benefit. Notwithstanding anything herein to the contrary, with the
-------------
exception of normal Plan installment Distributions, in the event the Deferral
Account balance of a Participant or a First Beneficiary after a benefit
Distribution is $50,000 or less, the Administrator, in his sole discretion, may
elect to distribute any such amount in a single lump sum payment.
7.11 Valuation Date. Unless otherwise provided by the Administrator, the
--------------
Valuation Date for determining Deferral Account balances shall be the last day
of the month in which an event occurs that triggers a Benefit payment.
7.12 Settlement Date. Unless otherwise provided by the Administrator, the
---------------
Settlement Date for Benefit payments shall be within 90 days or as soon as
possible following the Valuation Date.
ARTICLE 8 - BENEFICIARY DESIGNATION
Each Participant and First Beneficiary shall have the right, at any time, to
designate any person or persons as Beneficiary or Beneficiaries to whom payment
under this Plan shall be made in the event of death of the Participant or First
Beneficiary, as the case may be, prior to complete distribution of the Benefits
due under the Plan. Each Beneficiary designation shall become effective only
when filed in writing with the Administrator during the Participant's or First
Beneficiary's lifetime, as the case may be, on a form prescribed by the
Administrator.
The filing of a new Beneficiary designation form will cancel and revoke all
Beneficiary designations previously filed. Any finalized divorce or marriage
(other than a common law marriage) of a Participant or First Beneficiary, as the
case may be, subsequent to the date of filing of a Beneficiary designation form
shall revoke such designation unless (i) in the case of divorce the previous
spouse or a trust for said previous spouse was not designated as Beneficiary, or
(ii) in the case of marriage the Participant's new spouse or a trust for said
new spouse had previously been designated as Beneficiary.
If a Participant or First Beneficiary, as the case may be, fails to designate a
Beneficiary as provided above, or if the Participant's Beneficiary designation
is revoked by marriage, divorce, or otherwise without execution of a new
Beneficiary designation, or if all designated Beneficiaries predecease the
Participant or First Beneficiary, as the case may be, or die prior to complete
distribution of the Participant's Benefits, then the Administrator shall direct
the distribution of such Benefits to the estate of the Participant or First
Beneficiary, as the case may be.
11
<PAGE>
ARTICLE 9 - ADMINISTRATION OF THE PLAN
A deferred compensation plan committee ("Committee") consisting of three or more
members shall be appointed by the Company's Chairman or Chief Executive Officer
to administer the Plan and establish, adopt, or revise such rules and procedures
as it may deem necessary or advisable for the administration of the Plan and to
interpret the provisions of the Plan, with any such interpretations to be
conclusive. All decisions of the Committee shall be by vote of at least a
majority of its members and shall be final and binding. Members of the Committee
shall be eligible to participate in the Plan while serving as members of the
Committee, but a member of the Committee shall not vote or act upon any matter
which relates solely to such member's interest in the Plan as a Participant.
The initial members of the Committee are the Chairman, the Chief Executive
Officer, the Chief Financial Officer, the Vice President, Human Resources, the
Senior Vice President, General Counsel and Corporate Secretary, the Vice
President, Treasurer, the Vice President, Compensation & Benefits, the Vice
President, Treasury Operations, Assistant General Counsel and Assistant
Secretary, the Controller and Corporate Center. The Committee designated the
Vice President, Compensation & Benefits as the Administrator to carry out the
day-to-day administration of the Plan. He shall exercise his discretion on a
consistent and objective basis.
ARTICLE 10 - AMENDMENT OR TERMINATION OF PLAN
The Chairman or Chief Executive Officer of the Company may amend the Plan;
provided, however, that (i) no such amendment shall be effective to decrease the
Benefits accrued by any Participant or Beneficiary of a deceased Participant
(including, but not limited to, the rate of interest credited to the Deferral
Accounts) prior to the Plan Year commencing after the date of such amendment;
(ii) no such Amendment shall decrease the Declared Rates established herein;
(iii) Section 7.1 may not be amended; (iv) the definition of Declared Rate may
not be amended; except as allowed in Article 6 and (v) the other substantive
provisions of the Plan related to the calculation of Benefits or the manner or
timing of payments to be made under the Plan shall not be amended so as to
prejudice the rights of any Participant or Beneficiary.
Notwithstanding any terms herein to the contrary, the Company may not terminate
the Plan. The Company shall not have any obligation to, but may, in its
discretion, allow additional deferrals into this Plan.
ARTICLE 11 - MAINTENANCE OF ACCOUNTS
11.1 The Company shall keep, or cause to be kept, all such books of account,
records and other data as may be necessary or advisable in its judgment for the
administration
12
<PAGE>
of this Plan, and to reflect properly the affairs thereof, and to determine the
nature and amount of the interests of the respective Participants in each
Deferral Account.
The Company is not required to segregate physically any assets with respect to
the Deferral Accounts under this Plan from any other assets of the Company and
may commingle any such assets with any other monies, securities and properties
of any kind of the Company. Separate accounts or records for the respective
Participants' Deferred Accounts shall be maintained for operational and
accounting purposes, but no such account or record shall be considered as
creating a lien of any nature whatsoever on or as segregating any of the assets
with respect to the accounts under this Plan from any other funds or property of
the Company.
ARTICLE 12 - MISCELLANEOUS
12.1 Applicable Law. Except to the extent preempted by ERISA, this Plan shall
--------------
be governed and construed in accordance with the laws of the State of California
applicable to agreements made and to be performed entirely therein, and
applicable substantive provisions of federal law.
12.2 Captions. The captions of the articles, sections, and paragraphs of this
--------
Plan are for convenience only and shall not control or affect the meaning or
construction of any of its provisions.
12.3 Employment Not Guaranteed. Nothing contained in this Plan nor any action
-------------------------
taken hereunder shall be construed as a contract of employment or as giving any
Employee any right to be retained in the employ of the Company.
12.4 Exempt ERISA Plan. The Plan is intended to be an unfunded plan
-----------------
maintained primarily to provide deferred compensation Benefits for a select
group of management or highly compensated employees within the meaning of
Section 401 of ERISA, and therefor to be exempt from parts 2,3, and 4 of
Title 1 of ERISA.
12.5 Section 162(m). Notwithstanding anything to the contrary, no Benefit or
- ---- ---------------
Distribution shall be made hereunder in any year, if payment of such Benefit or
Distribution during such year would create nondeductible compensation for the
Company under Section 162(m) of the Internal Revenue Code.
12.6 Limitation. A Participant and the Participant's Beneficiary shall assume
----------
all risks in connection with the performance of any Declared Rate and any
decrease in value of the Deferral Accounts, and the Company, Committee and the
Administrator shall not be liable or responsible therefor.
13
<PAGE>
12.7 Notice. Any notice or filing required or permitted to be given to the
------
Administrator under the Plan shall be sufficient if in writing and hand
delivered, or sent by registered or certified mail, to the principal office of
the Employer, directed to the attention of the Administrator with a copy to the
Senior Vice President, General Counsel and Secretary of the Employer. Such
notice shall be deemed given as of the date of delivery or, if delivery is made
by mail, as of the date shown on the postmark on the receipt for registration or
certification.
12.8 Obligations To Employer. If a Participant becomes entitled to a
-----------------------
Distribution of Benefits under the Plan, and if at such time the Participant has
outstanding any debt, obligation, or other liability representing an amount
owing to the Employer, then the Employer may offset such amount owed to it
against the amount of Benefits otherwise distributable. Such determination shall
be made by the Committee.
12.9 Limits on Transfer. Other than by will or the laws of descent and
------------------
distribution, no right title or interest of any kind in the Plan shall be
transferable or assignable by a Participant or the Participant's Beneficiary or
be subject to alienation, anticipation, encumbrance, garnishment, attachment,
levy, execution or other legal or equitable process, nor subject to the debts,
contracts, alimony, liabilities or engagements, or torts of any Participant or
Participant's Beneficiary. Any attempt to alienate, sell, transfer, assign,
pledge, garnish, attach or take any other action subject to legal or equitable
process or encumber or dispose of any interest in the Plan shall be void.
12.10 Satisfaction of Claims. Payments to any Participant or Beneficiary in
----------------------
accordance with the provisions of the Plan shall, to the extent thereof, be in
full or partial satisfaction of claims against the Company for the compensation
or other amounts deferred and relating to the Deferral Account to which the
payments relate.
12.11 Unfunded Status of Plan; Creation of Trusts. The Plan is intended to
-------------------------------------------
constitute an "unfunded" plan for deferred compensation and Participants shall
rely solely on the unsecured promise of the Company for payment hereunder. With
respect to any payment not yet made to a Participant under the Plan, nothing
contained in the Plan shall give a Participant any rights that are greater than
those of a general unsecured creditor of the Company; provided, however, that
the Administrator may authorize the creation of trusts, including but not
limited to the Trust referred to in this Section 12.5, or make other
arrangements to meet the Company's obligations under the Plan, which trusts or
other arrangements shall be consistent with the "unfunded" status of the Plan.
12.12 Compliance. A Participant in the Plan shall have no right to receive
-----------
payment with respect to the Participant's Deferral Account until legal and
contractual obligations of the Company relating to establishment of the Plan and
the making of such payments shall have been complied with in full.
14
<PAGE>
12.13 Tax Withholding. The Participant or Beneficiary shall make appropriate
---------------
arrangements with the Company for satisfaction of any federal, state or local
income tax withholding requirements and Social Security or other employee tax
requirements applicable to the crediting and payment of Benefits under the Plan.
If no other arrangements are made, the Company shall have the right to deduct
from amounts otherwise credited or payable in settlement of a Deferral Account
any sums that federal, state, local or foreign tax law requires to be withheld
with respect to such credit or payment.
12.14 Protective Provisions. Each Participant shall cooperate with the Employer
---------------------
by furnishing any and all information requested by the Employer in order to
facilitate the payment of Benefits hereunder, taking such physical examinations
as the Employer may deem necessary and taking such other relevant action as may
be requested by the Employer. If a Participant refuses so to cooperate, the
Employer shall have no further obligation to the Participant under the Plan,
other than payment to such Participant of the cumulative deferrals theretofore
made pursuant to this Plan. If a Participant commits suicide during the two (2)
year period beginning on the later of (a) the first day on which he participates
in the Plan or (b) the first day of the Participant's Benefit Deferral Period
for any new Benefit Unit under the Plan, or if the Participant makes any
material misstatement of information or nondisclosure of medical history, then
no Benefits will be payable hereunder to such Participant of the deferrals
theretofore made pursuant to this Plan, provided, that in the Employer's sole
discretion, Benefits may be payable in an amount reduced to compensate the
Employer for any loss, cost, damage or expense suffered or incurred by the
Employer as a result in any way of any such action, misstatement or
nondisclosure.
12.15 Unsecured General Creditor. The Company intends to establish and fund the
--------------------------
Avery Dennison Corporation Executive Compensation Trust ("Rabbi Trust"). The
assets of the Rabbi Trust shall be subject to the claims of the Company's
creditors. To the extent any Benefits provided under the Plan are actually paid
from the Rabbi Trust, the Employer shall have no further obligation with respect
thereto, but to the extent not so paid, such Benefits shall remain the
obligation of, and shall be paid by, the Employer. Participants and their
Beneficiaries, heirs, successors, and assigns shall have no legal or equitable
rights, interest, or claims in an specific property or assets of Employer, nor
shall they be beneficiaries of, or have any rights, claims, or interests in any
life insurance policies, annuity contracts, or the proceeds therefrom owned or
which may be acquired by Employer ("Policies"). Apart from the Rabbi Trust, such
Policies or other assets of Employer shall not be held under any trust for the
Benefit of Participants, their Beneficiaries, heirs, successors, or assigns, or
held in any way as collateral security for the fulfilling of the obligations of
Employer under this Plan. Any and all of the Employer's assets and Policies
shall be, and remain, the general, un-pledged, unrestricted assets of Employer.
Employer's obligation under the Plan shall be merely that of an unfunded and
unsecured promise of Employer to pay money in the future.
15
<PAGE>
12.16 Waiver of Stay, Extension and Usury Laws. The Company covenants (to the
----------------------------------------
extent that it may lawfully do so) that it will not at any time insist upon,
plead, or in any manner whatsoever claim or take the benefit or advantage of,
any stay or extension law or any usury law or other law that would prohibit or
forgive the Company from paying all or any portion of the Benefits due
hereunder, wherever such laws may be enacted, now or at any time hereafter in
force, or which may affect the administration or performance of this Plan; and
(to the extent that it may lawfully do so) the Company hereby expressly waives
all benefit or advantage of any such law, and covenants that it will not hinder,
delay or impede the realization of any Benefits to which the Participants
hereunder are entitled, but will suffer and permit the realization of all such
Benefits as though no such law had been enacted.
12.17 Status. The establishment and maintenance of, or allocations and credits
-------
to, the Deferral Accounts of any Participant shall not vest in any Participant
any right, title or interest in and to any Plan assets or Benefits except at the
time or times and upon the terms and conditions and to the extent expressly set
forth in the Plan and in accordance with the terms of the Rabbi Trust.
12.18 Validity. In the event any provision of this Plan is held invalid, void,
--------
or unenforceable, the same shall not affect, in any respect whatsoever, the
validity of any other provision of this Plan.
12.19 Waiver of Breach. The waiver by any party of any breach of any provision
- ----- -----------------
of the Plan by any other party shall not operate or be construed as a waiver of
any subsequent breach.
12.20 Gender, Singular & Plural. All pronouns and any variations thereof shall
- ----- -------------------------
be deemed to refer to the masculine, feminine, or neuter, as the identity of the
person or persons may require. As the context may require, the singular may be
read as the plural and the plural as the singular.
ARTICLE 13 - EFFECTIVE DATE
The effective date of this amended and restated Plan is December 1, 1997
16
<PAGE>
EXHIBIT A
---------
DECLARED RATES
Declared Rate 1. This rate is based on the performance of the Money Market
---------------
Fund managed by Pacific Life in the Pacific Select Fund.
Declared Rate 2. This rate is based on the performance of the Managed Bond
---------------
Fund managed by PIMCO in the Pacific Select Fund.
Declared Rate 3. This rate is based on the performance of the Equity Index
----------------
Fund managed by Bankers Trust in the Pacific Select Fund.
Declared Rate 4. This rate is based on the performance of the International
---------------
Fund managed by Morgan Stanley Asset Management in the Pacific Select Fund.
Declared Rate 5. This rate is based on the performance of the Growth LT
---------------
Fund managed by Janus Capital Corporation in the Pacific Select Fund.
17
<PAGE>
Exhibit 10.33.1
---------------
AVERY DENNISON CORPORATION
EMPLOYEE STOCK BENEFIT TRUST
Effective as of October 24, 1996
1
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
ARTICLE 1.
- ----------
Trust, Trustee and Trust Fund..................................... 2
- -----------------------------
1.1. Trust................................................... 2
-----
1.2. Trustee................................................. 2
-------
1.3. Trust Fund.............................................. 2
----------
1.4. Trust Fund Subject to Claims............................ 2
----------------------------
1.5. Definitions............................................. 3
-----------
ARTICLE 2.
- ----------
Contributions and Dividends....................................... 6
- ---------------------------
2.1. Contributions........................................... 6
-------------
2.2. Dividends............................................... 6
---------
ARTICLE 3.
- ----------
Release and Allocation of Company Stock........................... 7
- ---------------------------------------
3.1. Release of Shares....................................... 7
-----------------
3.2. Allocations............................................. 7
-----------
3.3. Excess Shares........................................... 7
-------------
ARTICLE 4.
- ----------
Compensation, Expenses and Tax Withholding........................ 8
- ------------------------------------------
4.1. Compensation and Expenses............................... 8
-------------------------
4.2. Withholding of Taxes.................................... 8
--------------------
ARTICLE 5.
- ----------
Administration of Trust Fund...................................... 9
- ----------------------------
5.1. Management and Control of Trust Fund.................... 9
------------------------------------
5.2. Investment of Funds..................................... 9
-------------------
5.3. Trustee's Administrative Powers......................... 9
-------------------------------
5.4. Voting and Tendering of Company Stock................... 11
-------------------------------------
5.5. Indemnification......................................... 13
---------------
5.6. General Duty to Communicate to Committee................ 14
----------------------------------------
ARTICLE 6.
- ----------
Accounts and Reports of Trustee................................... 14
- -------------------------------
6.1. Records and Accounts of Trustee......................... 14
-------------------------------
6.2. Fiscal Year............................................. 14
-----------
6.3. Reports of Trustee...................................... 14
------------------
6.4. Final Report............................................ 14
------------
ARTICLE 7.
- ----------
Succession of Trustee............................................. 15
- ---------------------
7.1. Resignation of Trustee.................................. 15
----------------------
7.2. Removal of Trustee...................................... 15
------------------
7.3. Appointment of Successor Trustee........................ 15
--------------------------------
7.4. Succession to Trust Fund Assets......................... 15
-------------------------------
7.5. Continuation of Trust................................... 16
---------------------
7.6. Changes in Organization of Trustee...................... 16
----------------------------------
7.7. Continuance of Trustee's Powers in Event of
-------------------------------------------
Termination of the Trust................................ 16
------------------------
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
PAGE
<S> <C>
ARTICLE 8.
- ----------
Amendment or Termination............................................. 16
- ------------------------
8.1. Amendments................................................. 16
----------
8.2. Termination................................................ 17
-----------
8.3. Form of Amendment or Termination........................... 17
--------------------------------
ARTICLE 9.
- ----------
Miscellaneous........................................................ 18
- -------------
9.1. Controlling Law............................................ 18
---------------
9.2. Committee Action........................................... 18
----------------
9.3. Notices.................................................... 18
-------
9.4. Severability............................................... 18
------------
9.5. Protection of Persons Dealing with
----------------------------------
the Trust.................................................. 19
---------
9.6. Tax Status of Trust........................................ 19
-------------------
9.7. Participants to Have No Interest in the
---------------------------------------
Company by Reason of the Trust............................. 19
------------------------------
9.8. Nonassignability........................................... 19
----------------
9.9. Gender and Plurals......................................... 19
------------------
9.10.Counterparts............................................... 19
------------
</TABLE>
-2-
<PAGE>
AVERY DENNISON CORPORATION
EMPLOYEE STOCK BENEFIT TRUST
----------------------------
THIS RESTATED TRUST AGREEMENT (the "Agreement") made effective as of April
1, 1997, between Avery Dennison Corporation, a Delaware corporation, and
Wachovia Bank of North Carolina N.A., a national banking association, as
trustee.
W I T N E S S E T H :
---------------------
WHEREAS, the Company (as defined below) desires to establish a trust (the
"Trust") in accordance with the laws of the State of Delaware and for the
purposes stated in this Agreement;
WHEREAS, the Trustee (as defined below) desires to act as trustee of the
Trust, and to hold legal title to the assets of the Trust, in trust, for the
purposes hereinafter stated and in accordance with the terms hereof;
WHEREAS, the Company or its subsidiaries have previously adopted the Plans
(as defined below);
WHEREAS, the Company desires to provide assurance of the availability of
the shares of its common stock necessary to satisfy certain of its obligations
or those of its subsidiaries under the Plans (as defined below);
WHEREAS, the Company desires that the assets to be held in the Trust Fund
(as defined below) should be principally or exclusively securities of the
Company and, therefore, expressly waives any diversification of investments that
might otherwise be necessary, appropriate, or required pursuant to applicable
provisions of law; and
WHEREAS, Wachovia Bank of North Carolina N.A. has been appointed as trustee
and has accepted such appointment as of the date set forth first above;
NOW, THEREFORE, the parties hereto hereby establish the Trust and agree
that the Trust will be comprised, held and disposed of as follows:
2
<PAGE>
ARTICLE 1.
----------
Trust, Trustee and Trust Fund
-----------------------------
1.1. Trust. This Agreement and the Trust shall be known as the Avery
-----
Dennison Corporation Employee Stock Benefit Trust. The parties intend that the
Trust will be an independent legal entity with title to and power to convey all
of its assets. The parties hereto further intend that the Trust not be subject
to the Employee Retirement Income Security Act of 1974, as amended. The assets
of the Trust will be held, invested and disposed of by the Trustee, in
accordance with the terms of the Trust.
1.2. Trustee. The trustee named above, and its successor or successors,
-------
is hereby designated as the trustee hereunder, to receive, hold, invest,
administer and distribute the Trust Fund in accordance with this Agreement, the
provisions of which shall govern the power, duties and responsibilities of the
Trustee.
1.3. Trust Fund. The assets held at any time and from time to time under
----------
the Trust collectively are herein referred to as the "Trust Fund" and shall
consist of contributions received by the Trustee, proceeds of any loans,
investments and reinvestment thereof, the earnings and income thereon, less
disbursements therefrom. Except as herein otherwise provided, title to the
assets of the Trust Fund shall at all times be vested in the Trustee and
securities that are part of the Trust Fund shall be held in such manner that the
Trustee's name and the fiduciary capacity in which the securities are held are
fully disclosed, subject to the right of the Trustee to hold title in bearer
form or in the name of a nominee, and the interests of others in the Trust Fund
shall be only the right to have such assets received, held, invested,
administered and distributed in accordance with the provisions of the Trust.
1.4. Trust Fund Subject to Claims. Notwithstanding any provision of this
----------------------------
Agreement to the contrary, the Trust Fund shall at all times remain subject to
the claims of the Company's general creditors under federal and state law.
In addition, the Board of Directors and Chief Executive Officer of the
Company shall have the duty to inform the Trustee in writing of the Company's
Insolvency. If a person claiming to be a creditor of the Company alleges in
writing to the Trustee that the Company has become Insolvent, the Trustee shall
determine whether the Company is Insolvent and, pending such determination, the
Trustee shall discontinue allocations pursuant to Article 3.
Unless the Trustee has actual knowledge of the Company's Insolvency, or has
received notice from the Company
3
<PAGE>
or a person claiming to be a creditor alleging that the Company is Insolvent,
the Trustee shall have no duty to inquire whether the Company is Insolvent. The
Trustee may in all events rely on such evidence concerning the Company's
solvency as may be furnished to the Trustee and that provides the Trustee with a
reasonable basis for making a determination concerning the Company's Insolvency.
If at any time the Trustee has determined that the Company is Insolvent,
the Trustee shall discontinue allocations pursuant to Article 3 and shall hold
the Trust Fund for the benefit of the Company's general creditors. Nothing in
this Trust Agreement shall in any way diminish any rights of employees as
general creditors of the Company with respect to benefits due under the Plan(s)
or otherwise.
The Trustee shall resume allocations pursuant to Article 3 only after the
Trustee has determined that the Company is not Insolvent (or is no longer
Insolvent).
1.5. Definitions. In addition to the terms defined in the preceding
-----------
portions of the Trust, certain capitalized terms have the meanings set forth
below:
Board of Directors. "Board of Directors" means the board of directors of
------------------
the Company.
Calculation Period. "Calculation Period" means a period consisting of
------------------
calendar years (or portions thereof) 1996-2001, 2002-2006, or 2007-2012.
Change of Control. "Change of Control" means any of the following events:
-----------------
(a) an acquisition by any individual, entity or group (within the meaning
of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act")) of beneficial ownership (within the meaning of
Rule 13d-3 promulgated under the Exchange Act) of 50% or more of the combined
voting power of the then outstanding voting securities of the Company; provided,
--------
however, that the following acquisitions shall not constitute a Change of
- -------
Control: (i) an acquisition by or directly from the Company, (ii) an
acquisition by any employee benefit plan or trust sponsored or maintained by
the Company; and (iii) any acquisition described in subclauses (A) or (B) of
subsection (b) below; or
4
<PAGE>
(b) approval by the stockholders of the Company of (i) a complete
dissolution or liquidation of the Company, (ii) a sale or other disposition of
all or substantially all of the Company's assets or (iii) a reorganization,
merger, or consolidation ("Business Combination") unless either (A) all or
substantially all of the stockholders of the Company immediately prior to the
Business Combination own more than 50% of the voting securities of the entity
surviving the Business Combination, or the entity which directly or indirectly
controls such surviving entity, in substantially the same proportion as they
owned the voting securities of the Company immediately prior thereto, or (B) the
consideration (other than cash paid in lieu of fractional shares or payment upon
perfection of appraisal rights) issued to stockholders of the Company in the
Business Combination is solely common stock which is publicly traded on an
established securities exchange in the United States.
Code. "Code" means the Internal Revenue Code of 1986, as amended.
----
Committee. "Committee" means a committee of the Company which is charged
---------
by the Board of Directors with administration of the Trust.
Company. "Company" means Avery Dennison Corporation, a Delaware
-------
corporation, or any successor thereto. References to the Company shall include
its subsidiaries where appropriate.
Company Stock. "Company Stock" means shares of common stock, par value
-------------
$1.00 per share, issued by the Company or any successor securities.
Extraordinary Dividend. "Extraordinary Dividend" means any dividend or
----------------------
other distribution of cash or other property (other than Company Stock) made
with respect to Company Stock, which the Board of Directors declares generally
to be other than an ordinary dividend.
Fair Market Value. "Fair Market Value" means as of any date the average of
-----------------
the highest and lowest reported sales price regular way on such date (or if such
date is not a trading day, then on the most recent prior date which is a trading
day) of a share of Company Stock as reported on the composite tape, or similar
reporting system, for issues listed on the New York Stock Exchange (or, if the
Company Stock is no longer traded on the New York Stock Exchange, on such other
national securities exchange on which the Company
5
<PAGE>
Stock is listed or national securities or central market system upon which
transactions in Company Stock are reported, as either shall be designated by the
Committee for the purposes hereof) or if sales of Common Stock are not reported
in any manner specified above, the average of the high bid and low asked
quotations on such date (or if such date is not a trading day, then on the most
recent prior date which is a trading day) in the over-the-counter market as
reported by the National Association of Securities Dealers' Automated Quotation
System or, if not so reported, by National Quotation Bureau, Incorporated or
similar organization selected by the Committee.
Insolvent. "Insolvent" means as to the Company, (i) the inability of the
---------
Company to pay its debts as they come due, or (ii) the Company being subject to
a pending proceeding as debtor under the provisions of Title 11 of the United
States Code.
Loan. "Loan" means the loan and extension of credit to the Trust evidenced
----
by the promissory note made by the Trustee dated October 24, 1996, with which
the Trustee purchased Company Stock.
Option Plans. "Option Plans" means the Company's 1973, 1988 and 1990 Stock
------------
Incentive Plans and any successor plans or other stock-based incentive plans of
the Company.
Plans. "Plans" means the Option Plans and the employee benefit plans
-----
listed on Schedule A hereto and any other employee benefit plan of the Company
or its subsidiaries designated as such by the Committee.
Plan Participant. "Plan Participant" means a participant in any of the
----------------
Plans.
Suspense Account. "Suspense Account" means a separate account to be
----------------
maintained by the Trustee to hold Excess Shares pursuant to the terms of Article
3 hereof.
Target Value. "Target Value" means with respect to each Trust Year the
------------
amount set forth on Schedule B hereto.
Trustee. "Trustee" means Wachovia Bank of North Carolina N.A. (not in its
-------
corporate capacity but as trustee of the Trust) or any successor trustee.
6
<PAGE>
Trust Year. "Trust Year" means the period beginning on the date hereof and
----------
ending on December 31, 1996 and each 12-month period beginning on January 1 and
ending on December 31 thereafter.
ARTICLE 2.
----------
Contributions and Dividends
---------------------------
2.1. Contributions. For each Trust Year, the Company shall contribute to
-------------
the Trust in cash such amount, which together with dividends, as provided in
Section 2.2, and any other earnings of the Trust, shall enable the Trustee to
make all payments of principal and interest due under the Loan on a timely
basis. Unless otherwise expressly provided herein, the Trustee shall apply all
such contributions, dividends and earnings to the payment of principal and
interest due under the Loan. If, at the end of any Trust Year, no such
contribution has been made in cash, such contribution shall be deemed to have
been made in the form of forgiveness of principal and interest on the Loan to
the extent of the Company's failure to make contributions as required by this
Section 2.1. All contributions made under the Trust shall be delivered to the
Trustee. The Trustee shall be accountable for all contributions received by it,
but shall have no duty to require any contributions to be made to it.
2.2. Dividends. Except as otherwise provided herein, dividends paid in
---------
cash on Company Stock held by the Trust, including Company Stock held in the
Suspense Account, shall be applied to pay interest and repay scheduled principal
due under the Loan. Extraordinary Dividends shall not be used to pay interest
on or principal of the Loan, but shall be invested in additional Company Stock
as soon as practicable. Dividends which are not in cash or in Company Stock
(including Extraordinary Dividends, or portions thereof) shall be reduced to
cash by the Trustee and reinvested in Company Stock as soon as practicable,
provided that an Extraordinary Dividend constituting a spin-off, split-off or
similar transaction may be transferred to a trust sponsored by the spun-off
company or dealt with in another equitable manner as determined in good faith by
the Committee. For purposes of this Agreement, Company Stock purchased with the
proceeds of an Extraordinary Dividend or with the proceeds of a non-cash
dividend shall be deemed to have been acquired with the proceeds of the Loan.
In the Trustee's discretion, investments in Company Stock may be made through
open-market purchases, private transactions or (with the Company's consent)
purchases from the Company.
ARTICLE 3.
----------
7
<PAGE>
Release and Allocation of Company Stock
---------------------------------------
3.1. Release of Shares. Subject to the other provisions of this Article 3,
-----------------
upon the payment or forgiveness in any Trust Year of any principal on the Loan
(a "Principal Payment"), the following number of shares of Company Stock
acquired with the proceeds of the Loan shall be available for allocation
("Available Shares") as provided in this Article 3: the number of shares so
acquired and held in the Trust immediately before such payment or forgiveness,
multiplied by a fraction the numerator of which is the amount of the Principal
Payment and the denominator of which is the sum of such Principal Payment and
the remaining principal of the Loan outstanding after such Principal Payment.
3.2. Allocations. Subject to the provisions of Section 3.3, Available
-----------
Shares shall be allocated as directed by the Committee to the Plans no less
frequently than annually. The Committee's discretion shall be limited to the
amounts allocated among Plans, with the allocation itself being mandatory.
Subject to Section 3.3, in the event that any Available Shares remain after
satisfaction of all benefit obligations under each of the Plans for a given
Trust Year, all remaining Available Shares shall be contributed by the Trustee
to such other plans of the Company or its subsidiaries covering a broad cross-
section of individuals employed by the Company as the Committee shall direct.
3.3. Excess Shares. (a) Notwithstanding the provisions of Section 3.2,
-------------
Available Shares shall not be released from the Trust and allocated pursuant to
Section 3.2 to the extent that the Fair Market Value of the Available Shares in
a Trust Year exceeds the Target Value. Available Shares which are not allocated
pursuant to the preceding sentence ("Excess Shares") shall be held by the
Trustee in the Suspense Account and allocated in accordance with the provisions
of this Section 3.3.
(b) In the event that there are any Excess Shares created in any Trust
Year within a Calculation Period, such Excess Shares shall be released from the
Suspense Account pursuant to Section 3.2 to the extent that but for such release
the Fair Market Value of the Available Shares in a subsequent Trust Year within
the same Calculation Period would be less than the Target Value. In the event
that in any Trust Year the value of the Available Shares was less than the
Target Value for such Trust Year (such amount being referred to as the
"Shortfall") and Excess Shares are created in a subsequent Trust Year within the
same Calculation Period, Excess Shares with a value equal to the Shortfall shall
be transferred by the Trustee to such Plans as directed by the Committee;
provided, however, that such shares may not be transferred to the Company.
- -------- -------
8
<PAGE>
(c) In the event that at the end of any Calculation Period there are
Excess Shares that have not been allocated pursuant to Section 3.3(b), such
Excess Shares shall, subject to the provisions of this subsection (c), be
distributed in equal amounts of shares in each Trust Year in the next
Calculation Period to individuals employed by the Company or plans in which they
participate, as directed by the Committee taking into account the best interest
of a broad cross-section of the individuals employed by the Company and its
subsidiaries. However, Excess Shares which would have been allocated in a Trust
Year pursuant to the preceding sentence shall instead be allocated pursuant to
Section 3.2 to the extent that there is a Shortfall with respect to such Trust
Year. Any Excess Shares remaining in the Trust at the beginning of the final
Calculation Period of the Trust shall be contributed in equal amounts of shares
in each Trust Year during such Calculation Period to individuals employed by the
Company or plans in which they participate, as directed by the Committee taking
into account the best interest of a broad cross-section of the individuals
employed by the Company and its subsidiaries, and the Trust shall not terminate
until such Excess Shares have been so contributed.
ARTICLE 4.
----------
Compensation, Expenses and Tax Withholding
------------------------------------------
4.1. Compensation and Expenses. The Trustee shall be entitled to such
-------------------------
reasonable compensation for its services as may be agreed upon from time to time
by the Company and the Trustee and to be reimbursed for its reasonable legal,
accounting and appraisal fees, expenses and other charges reasonably incurred in
connection with the administration, management, investment and distribution of
the Trust Fund. Such compensation shall be paid, and such reimbursement shall
be made out of the Trust Fund. The Company agrees to make sufficient
contributions to the Trust to pay such amounts owing the Trustee in addition to
those contributions required by Section 2.1.
4.2. Withholding of Taxes. The Trustee may withhold, require withholding,
--------------------
or otherwise satisfy its withholding obligation, on any distribution which it is
9
<PAGE>
directed to make, such amount as it may reasonably estimate to be necessary to
comply with applicable federal, state and local withholding requirements. Upon
settlement of such tax liability, the Trustee shall distribute the balance of
such amount. Prior to making any distribution hereunder, the Trustee may
require such release or documents from any taxing authority, or may require such
indemnity, as the Trustee shall reasonably deem necessary for its protection.
ARTICLE 5.
----------
Administration of Trust Fund
----------------------------
5.1. Management and Control of Trust Fund. Subject to the terms of this
------------------------------------
Agreement, the Trustee shall have exclusive authority, discretion and
responsibility to manage and control the assets of the Trust Fund.
5.2. Investment of Funds.
-------------------
Except as otherwise provided in Section 2.2 and in this Section 5.2, the
Trustee shall invest and reinvest the Trust Fund exclusively in Company Stock,
including any accretions thereto resulting from the proceeds of a tender offer,
recapitalization or similar transaction which, if not in Company Stock, shall be
reduced to cash as soon as practicable. The Trustee may invest any portion of
the Trust Fund temporarily pending investment in Company Stock, distribution or
payment of expenses in (i) investments in United States Government obligations
with maturities of less than one year, (ii) interest-bearing accounts including
but not limited to certificates of deposit, time deposits, saving accounts and
money market accounts with maturities of less than one year in any bank,
including the Trustee's, with aggregate capital in excess of $1,000,000,000 and
a Moody's Investor Services rating of at least P1, or an equivalent rating from
a nationally recognized ratings agency, which accounts are insured by the
Federal Deposit Insurance Corporation or other similar federal agency, (iii)
obligations issued or guaranteed by any agency or instrumentality of the United
States of America with maturities of less than one year or (iv) short-term
discount obligations of the Federal National Mortgage Association.
5.3. Trustee's Administrative Powers.
-------------------------------
Except as otherwise provided herein, and subject to the Trustee's duties
hereunder, the Trustee shall have the
10
<PAGE>
following powers and rights, in addition to those provided elsewhere in this
Agreement or by law:
(a) to retain any asset of the Trust Fund;
(b) subject to Section 5.4(b), Section 8.2 and Articles 2 and 3, to
sell, transfer, mortgage, pledge, lease or otherwise dispose of, or grant
options with respect to any Trust Fund assets at public or private sale;
(c) upon direction from the Company, to borrow from any lender
(including the Company pursuant to the Loan), to acquire Company Stock as
authorized by this Agreement, to enter into lending agreements upon such
terms (including reasonable interest and security for the loan and rights
to renegotiate and prepay such loan) as may be determined by the Committee;
provided, however, that any collateral given by the Trustee for the Loan
shall be limited to cash and property contributed by the Company to the
Trust and dividends paid on Company Stock held in the Trust Fund and shall
not include Company Stock acquired with the proceeds of Loan;
(d) with the consent of the Committee, to settle, submit to
arbitration, compromise, contest, prosecute or abandon claims and demands
in favor of or against the Trust Fund;
(e) to vote or to give any consent with respect to any securities,
including any Company Stock, held by the Trust either in person or by proxy
for any purpose, provided that the Trustee shall vote, tender or exchange
all shares of Company Stock as provided in Section 5.4;
(f) to exercise any of the powers and rights of an individual owner
with respect to any asset of the Trust Fund and to perform any and all
other acts that in its judgment are necessary or appropriate for the proper
administration of the Trust Fund, even though such powers, rights and acts
are not specifically enumerated in this Agreement;
(g) to employ such accountants, actuaries, investment bankers,
appraisers, other advisors and agents as may be reasonably necessary in
collecting, managing, administering, investing, valuing,
11
<PAGE>
distributing and protecting the Trust Fund or the assets thereof or any
borrowings of the Trustee made in accordance with Section 5.3(c); and to
pay their reasonable fees and expenses, which shall be deemed to be
expenses of the Trust and for which the Trustee shall be reimbursed in
accordance with Section 4.1;
(h) to cause any asset of the Trust Fund to be issued, held or
registered in the Trustee's name or in the name of its nominee, or in such
form that title will pass by delivery, provided that the records of the
Trustee shall indicate the true ownership of such asset;
(i) to utilize another entity as custodian to hold, but not invest or
otherwise manage or control, some or all of the assets of the Trust Fund;
and
(j) to consult with legal counsel (who may also be counsel for the
Trustee generally) with respect to any of its duties or obligations
hereunder; and to pay the reasonable fees and expenses of such counsel,
which shall be deemed to be expenses of the Trust and for which the Trustee
shall be reimbursed in accordance with Section 4.1.
Notwithstanding the foregoing, neither the Trust nor the Trustee shall have
any power to, and shall not, engage in any trade or business.
5.4. Voting and Tendering of Company Stock.
-------------------------------------
(a) Voting of Company Stock. The Trustee shall follow the directions of
-----------------------
participants in the Option Plans as to the manner in which shares of Company
Stock held by the Trust are to be voted on each matter brought before an annual
or special stockholders' meeting of the Company or the manner in which any
consent is to be executed, in each case as provided below. Before each such
meeting of stockholders, the Trustee shall cause to be furnished to each active
employee of the Company who holds a vested award under any of the Option Plans
("Active Option Plan Participant") a copy of the proxy solicitation material
received by the Trustee, together with a form requesting confidential
instructions ("Instruction Form") as to how to vote the shares of Company Stock
held by the Trustee. Each Active Option Plan Participant shall have 30 days to
return the Instruction Form to the Trustee. Upon the expiration of the period
for the return of Instruction Forms, the Trustee shall on each such matter vote
the number of shares (including fractional shares) of Company Stock held by the
Trust as follows:
The Trustee shall assign to each Active Option Plan Participant, a number
of shares (the "Participant Directed
12
<PAGE>
Amount") equal to the product of (x) the total number of shares of Common Stock
held in the Trust Fund, and (y) a fraction, the numerator of which is one (1)
and the denominator of which is the total number of Active Option Plan
Participants in such year. Each share assigned to each Active Option Plan
Participant in accordance with the previous sentence shall be voted in
accordance with such participant's Instruction Form. Any shares of Company Stock
which remain undirected pursuant to the foregoing provisions shall be voted for,
against or to abstain in the same proportions as the shares of Company Stock for
which the Trustee is directed as provided above.
(b) Tender or Exchange of Company Stock. The Trustee shall use its best
-----------------------------------
efforts timely to distribute or cause to be distributed to Active Option Plan
Participants any written materials distributed to stockholders of the Company
generally in connection with any tender offer or exchange offer for Company
Stock, together with a form requesting confidential instructions on whether or
not to tender or exchange shares of Company Stock held in the Trust (the "Tender
Form"). Each Active Option Plan Participant shall have until 4 days prior to
the expiration of the relevant tender or exchange offer to return the Tender
Form. Upon expiration of the period for return of Tender Forms, the Trustee
shall tender or not tender the Participant Directed Amount for each Active
Option Plan Participant in accordance with such participant's Tender Form. Each
Active Option Plan Participant shall not be limited in the number of
instructions to tender or withdraw from tender which he/she may give but shall
not have the right to give instructions to tender or withdraw from tender after
expiration of the period for return of Tender Forms. If the Trustee shall not
receive timely instruction by means of a Tender Form as to the manner in which
to respond to such a tender or exchange offer, the Trustee shall tender or
exchange or not tender or exchange any shares of Company Stock with respect to
which an Active Option Plan Participant has the right of direction, in the same
proportion as the shares of Company Stock for which the Trustee is directed as
provided above.
(c) The Company shall maintain appropriate procedures to ensure that all
instructions by Active Option Plan Participants are collected, tabulated, and
transmitted to the Trustee without being divulged or released to any person
affiliated with the Company or its affiliates. All actions taken by Active
Option Plan Participants and the contents of the Instruction Forms and Tender
Forms shall be held confidential by the Trustee and shall not be divulged or
released to any person, other than (i) agents of the Trustee who are not
affiliated with the Company or its affiliates or (ii) by virtue of the execution
by the Trustee of any proxy, consent or letter of transmittal for the shares of
Company Stock held in the Trust, or (iii) or as required by court order.
13
<PAGE>
5.5. Indemnification.
---------------
(a) To the extent lawfully allowable, the Company shall and hereby does
indemnify and hold harmless the Trustee from and against any claims, demands,
actions, administrative or other proceedings, causes of action, liability, loss,
cost, damage or expense (including reasonable attorneys' fees), which may be
asserted against it, in any way arising out of or incurred as a result of its
action or failure to act in connection with the operation and administration of
the Trust; provided that such indemnification shall not apply to the extent that
the Trustee has acted in willful or negligent violation of applicable law or its
duties under this Trust or in bad faith. The Trustee shall be under no liability
to any person for any loss of any kind which may result (i) by reason of any
action taken by it in accordance with any direction of the Committee or any
Active Option Plan Participant acting pursuant to Section 5.4(b) (hereinafter
collectively referred to as the "directing participants"), (ii) by reason of its
failure to exercise any power or authority or to take any action hereunder
because of the failure of any such directing participant to give directions to
the Trustee, as provided for in this Agreement, or (iii) by reason of any act or
omission of any of the directing participants with respect to its duties under
this Trust. The Trustee shall be fully protected in acting upon any instrument,
certificate, or paper delivered by the Committee or any Active Option Plan
Participant or beneficiary and believed in good faith by the Trustee to be
genuine and to be signed or presented by the proper person or persons, and the
Trustee shall be under no duty to make any investigation or inquiry as to any
statement contained in any such writing, but may accept the same as conclusive
evidence of the truth and accuracy of the statements therein contained.
(b) The Company may, but shall not be required to, maintain liability
insurance to insure its obligations hereunder. If any payments made by the
Company or the Trust pursuant to this indemnity are covered by insurance, the
Company or the Trust (as applicable) shall be subrogated to the rights of the
indemnified party against the insurance company.
(c) Without limiting the generality of the foregoing, the Company may, at
the request of the Trustee, advance to the Trustee reasonable amounts of
expenses, including reasonable attorneys' fees and expenses, which the Trustee
advised have been incurred in connection with its investigation or defense of
any claim, demand, action, cause of action, administrative or other proceeding
arising out of or in connection with the Trustee's performance of its duties
under this Agreement.
14
<PAGE>
5.6. General Duty to Communicate to Committee. The Trustee shall promptly
----------------------------------------
notify the Committee of all communications with or from any government agency or
with respect to any legal proceeding with regard to the Trust and with or from
any Plan Participants concerning their entitlements under the Plans or the
Trust.
ARTICLE 6.
----------
Accounts and Reports of Trustee
-------------------------------
6.1. Records and Accounts of Trustee. The Trustee shall maintain accurate
-------------------------------
and detailed records and accounts of all transactions of the Trust, which shall
be available at all reasonable times for inspection or audit by any person
designated by the Company and which shall be retained as required by applicable
law.
6.2. Fiscal Year. The fiscal year of the Trust shall be the twelve month
-----------
period beginning on January 1 and ending on December 31.
6.3. Reports of Trustee. The Trustee shall prepare and present to the
------------------
Committee a report for the period ending on the last day of each fiscal year,
and for such shorter periods as the Committee may reasonably request, listing
all securities and other property acquired and disposed of and all receipts,
disbursements and other transactions effected by the Trust after the date of the
Trustee's last account, and further listing all cash, securities, and other
property held by the Trust, together with the fair market value thereof, as of
the end of such period. In addition to the foregoing, the report shall contain
such information regarding the Trust Fund's assets and transactions as the
Committee in its discretion may reasonably request.
6.4. Final Report. In the event of the resignation or removal of a
------------
Trustee hereunder, the Committee may request and the Trustee shall then with
reasonable promptness
15
<PAGE>
submit, for the period ending on the effective date of such resignation or
removal, a report similar in form and purpose to that described in Section 6.3.
ARTICLE 7.
----------
Succession of Trustee
---------------------
7.1. Resignation of Trustee. The Trustee or any successor thereto may
----------------------
resign as Trustee hereunder at any time upon delivering a written notice of such
resignation, to take effect ninety (90) days after the delivery thereof to the
Committee, unless the Committee accepts shorter notice; provided, however, that
-------- -------
no such resignation shall be effective until a successor Trustee has assumed the
office of Trustee hereunder.
7.2. Removal of Trustee. The Trustee or any successor thereto may be
------------------
removed by the Company by delivering to the Trustee so removed an instrument
executed by the Committee. Such removal shall take effect at the date specified
in such instrument, which shall not be less than sixty (60) days after delivery
of the instrument, unless the Trustee accepts shorter notice; provided, however,
-------- -------
that no such removal shall be effective until a successor Trustee has assumed
the office of Trustee hereunder.
7.3. Appointment of Successor Trustee. Whenever the Trustee or any
--------------------------------
successor thereto shall resign or be removed or a vacancy in the position shall
otherwise occur, the Committee shall use its best efforts to appoint a successor
Trustee as soon as practicable after receipt by the Committee of a notice
described in Section 7.1, or the delivery to the Trustee of a notice described
in Section 7.2, as the case may be, but in no event more than one hundred eighty
(180) days after receipt or delivery, as the case may be, of such notice. A
successor Trustee's appointment shall not become effective until such successor
shall accept such appointment by delivering its acceptance in writing to the
Company. If a successor is not appointed within such 180-day period, the
Trustee, at the Company's expense, may petition a court of competent
jurisdiction for appointment of a successor. Any successor Trustee shall be an
institutional trustee not affiliated with the Company.
7.4. Succession to Trust Fund Assets. The title to all property held
-------------------------------
hereunder shall vest in any successor Trustee acting pursuant to the provisions
hereof without the execution or filing of any further instrument, but a
resigning or removed Trustee shall execute all instruments and do all acts
necessary to vest title in the successor Trustee. Each successor Trustee shall
have, exercise and enjoy all of the powers, both discretionary and ministerial,
herein conferred upon its predecessors. A successor Trustee shall not be
obliged to examine or review the accounts, records, or
16
<PAGE>
acts of, or property delivered by, any previous Trustee and shall not be
responsible for any action or any failure to act on the part of any previous
Trustee.
7.5. Continuation of Trust. In no event shall the legal disability,
---------------------
resignation or removal of a Trustee terminate the Trust, but the Board of
Directors shall forthwith appoint a successor Trustee in accordance with Section
7.3 to carry out the terms of the Trust.
7.6. Changes in Organization of Trustee. In the event that any corporate
----------------------------------
Trustee hereunder shall be converted into, shall merge or consolidate with, or
shall sell or transfer substantially all of its assets and business to, another
corporation, state or federal, the corporation resulting from such conversion,
merger or consolidation, or the corporation to which such sale or transfer shall
be made, shall thereunder become and be the Trustee under the Trust with the
same effect as though originally so named.
7.7. Continuance of Trustee's Powers in Event of Termination of the Trust.
---------------------------------------------------------------------
In the event of the termination of the Trust, as provided herein, the Trustee
shall dispose of the Trust Fund in accordance with the provisions hereof. Until
the final distribution of the Trust Fund, the Trustee shall continue to have all
powers provided hereunder as necessary or expedient for the orderly liquidation
and distribution of the Trust Fund.
ARTICLE 8.
----------
Amendment or Termination
------------------------
8.1. Amendments. Except as otherwise provided herein, the Company may
----------
amend the Trust at any time and from time to time in any manner which it deems
desirable, provided that no amendment which would adversely effect the
contingent rights of Plan Participants may change (i) the allocation formula
contained in Section 3.1 or Section 3.2 so as to change the Fair Market Value in
any Trust Year of the Available Shares or the Excess Shares, (ii) the terms of
Section 3.3, (iii) the Target Value reflected on Schedule B
17
<PAGE>
with respect to any Trust Year, (iv) the provisions of Section 5.4, other than
an amendment to reflect a change in the Plans funded by this Trust, (v) the
provisions of Section 8.2, (vi) the provisions of this Section 8.1, or (vii)
change the duties of the Trustee without the Trustee's consent, which consent
shall not be unreasonably withheld. Notwithstanding the foregoing, the Company
shall retain the power under all circumstances to amend the Trust to correct any
errors or clarify any ambiguities or similar issues of interpretation in this
Agreement.
8.2. Termination. Subject to the terms of Section 3.3(c) and this Section
-----------
8.2, the Trust shall terminate on January 1, 2012 or any earlier date on which
the Loan is paid in full (the "Termination Date"). The Board of Directors may
terminate the Trust at any time prior to the Termination Date. The Trust shall
also terminate automatically upon the Company giving the Trustee notice of a
Change of Control. Immediately upon a termination of the Trust, the Company
shall be deemed to have forgiven all amounts then outstanding under the Loan.
As soon as practicable after receiving notice from the Company of a Change of
Control or upon any other termination of the Trust, the Trustee shall sell all
of the Company Stock and other non-cash assets (if any) then held in the Trust
Fund as directed by the Committee in good faith taking into account the
interests of a broad cross-section of individuals employed by the Company. The
proceeds of such sale shall first be returned to the Company up to an amount
equal to the principal amount, plus any accrued interest of the Loan that was
forgiven upon such termination. Subject to the provisions of Section 3.3(c),
any funds remaining in the Trust after such payment to the Company shall be
distributed with reasonable promptness to a broad cross-section of Plan
Participants or to individuals employed by the Company generally or to any
benefit plan or trust in which a broad cross-section of individuals employed by
the Company participate, as the Committee may in good faith determine taking
into account the best interests of a broad cross-section of the individuals
employed by the Company.
8.3. Form of Amendment or Termination. Any amendment or termination of
--------------------------------
the Trust shall be evidenced by an instrument in writing signed by an authorized
officer of the Company, certifying that said amendment or termination has been
authorized and directed by the Company or the Board of Directors, as applicable,
and, in the case of any amendment, shall be consented to by signature of an
authorized officer of the Trustee, if required by Section 8.1.
18
<PAGE>
ARTICLE 9.
----------
Miscellaneous
-------------
9.1. Controlling Law. The laws of the State of Delaware shall be the
---------------
controlling law in all matters relating to the Trust, without regard to
conflicts of law.
9.2. Committee Action. Any action required or permitted to be taken by
----------------
the Committee may be taken on behalf of the Committee by any individual so
authorized. The Company shall furnish to the Trustee the name and specimen
signature of each member of the Committee upon whose statement of a decision or
direction the Trustee is authorized to rely. Until notified of a change in the
identity of such person or persons, the Trustee shall act upon the assumption
that there has been no change.
9.3. Notices. All notices, requests, or other communications required or
-------
permitted to be delivered hereunder shall be in writing, delivered by registered
or certified mail, return receipt requested as follows:
To the Company:
150 North Orange Boulevard
Pasadena, California 91103
Attention: General Counsel
To the Trustee:
Post Office Box 3099
Winston Salem, North Carolina 27150
Attention: John Smith
Any party hereto may from time to time, by written notice given as
aforesaid, designate any other address to which notices, requests or other
communications addressed to it shall be sent.
9.4. Severability. If any provision of the Trust shall be held illegal,
------------
invalid or unenforceable for any reason, such provision shall not affect the
remaining parts hereof, but the Trust shall be construed and enforced as if said
provision had never been inserted herein.
9.5. Protection of Persons Dealing with the Trust. No person dealing with
--------------------------------------------
the Trustee shall be required or entitled to monitor the application of any
money paid or property delivered to the Trustee, or determine whether or not
19
<PAGE>
the Trustee is acting pursuant to authorities granted to it hereunder or to
authorizations or directions herein required.
9.6. Tax Status of Trust. It is intended that the Company, as grantor
-------------------
hereunder, be treated for Federal income tax purposes as the owner of the entire
Trust and the trust assets under Section 671, et seq. of the Code. Until
advised otherwise, the Trustee may presume that the Trust is so characterized
for federal income tax purposes and shall make all filings of tax returns on
that presumption.
9.7. Participants to Have No Interest in the Company by Reason of the
----------------------------------------------------------------
Trust. Neither the creation of the Trust nor anything contained in the Trust
- -----
shall be construed as giving any person, including any individual employed by
the Company or any subsidiary of the Company, any equity or interest in the
assets, business, or affairs of the Company except to the extent that any such
individuals are entitled to exercise stockholder rights with respect to Company
Stock pursuant to Section 5.4.
9.8. Nonassignability. No right or interest of any person to receive
----------------
distributions from the Trust shall be assignable or transferable, in whole or in
part, either directly or by operation of law or otherwise, including, but not by
way of limitation, execution, levy, garnishment, attachment, pledge, or
bankruptcy, but excluding death or mental incompetency, and no right or interest
of any person to receive distributions from the Trust shall be subject to any
obligation or liability of any such person, including claims for alimony or the
support of any spouse or child.
9.9. Gender and Plurals. Whenever the context requires or permits, the
------------------
masculine gender shall include the feminine gender and the singular form shall
include the plural form and shall be interchangeable.
9.10. Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be considered an original.
20
<PAGE>
IN WITNESS WHEREOF, the Company and the Trustee have caused this Agreement
to be signed, and their seals affixed hereto, by their authorized officers all
as of the day, month and year first above written.
AVERY DENNISON CORPORATION
By /s/ R.G. Jenkins
Senior Vice President and
Chief Financial Officer
WACHOVIA BANK OF NORTH CAROLINA N.A.
By /s/ John N. Smith, III
Vice President
21
<PAGE>
SCHEDULE A
----------
1. The 1973 Employee Stock Option and Stock Appreciation Rights Plan
2. The 1988 Stock Option and Stock Appreciation Rights Plan
3. The 1990 Employee Stock Option and Incentive Plan
4. The 1985 Incentive Stock Option Plan of Dennison Manufacturing Company
5. The 1988 Stock Option Plan of Dennison Manufacturing Company
6. The Employee Saving Plan
1
<PAGE>
SCHEDULE B
----------
<TABLE>
<CAPTION>
Trust Year Target Value ($)
--------------- ----------------
<S> <C>
1997 33,616,071
1998 42,020,089
1999 52,525,112
2000 65,656,390
2001 82,070,487
2002 102,588,109
2003 128,535,136
2004 169,293,920
2005 200,367,400
2006 250,459,250
2007 313,074,062
2008 391,342,577
2009 489,178,222
2010 611,472,777
2011 764,340,971
2012 5,350,356,800
</TABLE>
1
<PAGE>
EXHIBIT 10.33.3
---------------
Appendix I
PROMISSORY NOTE
$564,750,000 October 24, 1996
Pasadena, California
FOR VALUE RECEIVED, the undersigned, Wachovia Bank of North Carolina N.A.,
not in its individual or corporate capacity but solely in its capacity as
Trustee of The Avery Dennison Corporation Employee Stock Benefit Trust (the
"Trust") hereby promises on behalf of the Trust to pay to the order of Avery
Dennison Corporation, a Delaware corporation (the "Company"), at the principal
offices of the Company in Pasadena, California, or at such other place as the
Company shall designate in writing, the aggregate principal amount of FIVE
HUNDRED AND SIXTY-FOUR MILLION SEVEN HUNDRED THOUSAND DOLLARS ($564,750,000), as
shown on Schedule A attached hereto as such may be amended from time to time,
with interest in arrears thereon, as hereinafter provided.
Principal shall be paid in installments in the amounts and on the dates set
forth on the Maturity Schedule attached hereto as Schedule A, the last such
installment due on January 1, 2012; provided, however, that this Note may be
prepaid in whole or in part at any time without penalty; and provided further
that the principal amount of this Note (1) shall be forgiven in the event that
the Trust shall have been terminated in accordance with Section 8.2 thereof and
the Trustee shall have complied with the requirements of such Section or (2)
shall be deemed forgiven, if applicable, in accordance with Section 2.1 of the
Trust. Interest on the unpaid principal balance, at an annual interest rate (the
"Interest Rate") equal to 8.0%, shall be paid quarterly, in arrears, on each
January 1, April 1, July 1 and October 1, commencing January 1, 1997, and shall
be calculated on the basis of a 360-day year of 30-day months. Whenever any
payment falls due on a Saturday, Sunday or public holiday, such payment shall be
made on the next succeeding business day.
This Note shall be construed under the laws of the State of Delaware.
The undersigned represents and warrants that the indebtedness represented
by this Note was incurred for the purpose of purchasing shares of Common Stock,
$1.00 par value, of the Company.
This Note may not be assigned by the Company, other than by operation of
law, without the prior express written consent of the undersigned.
The Company shall have no recourse whatsoever to any assets of the Trustee
in its individual or corporate capacity for repayment. The Trustee is entering
into this Agreement not in its individual or corporate capacity but solely as
Trustee, and no personal or corporate liability or personal or corporate
responsibilities are assumed by, or shall at any time be asserted or enforceable
against, the Trustee in its individual or corporate capacity under, or with
respect to, this Agreement.
<PAGE>
WACHOVIA BANK OF NORTH CAROLINA N.A.,
on behalf of THE AVERY DENNISON
CORPORATION EMPLOYEE STOCK BENEFIT TRUST
By: /s/ John N. Smith, III
Name: John N. Smith, III
Title: Vice-President
<PAGE>
Schedule A
PRINCIPAL PAYMENT DATES
<TABLE>
<CAPTION>
Date Amount
<S> <C>
January 1, 1997 $ 25,100,003
January 1, 1998 $ 25,100,003
January 1, 1999 $ 25,100,003
January 1, 2000 $ 25,100,003
January 1, 2001 $ 25,100,003
January 1, 2002 $ 25,100,003
January 1, 2003 $ 25,100,003
January 1, 2004 $ 25,100,003
January 1, 2005 $ 25,100,003
January 1, 2006 $ 25,100,003
January 1, 2007 $ 25,100,003
January 1, 2008 $ 25,100,003
January 1, 2009 $ 25,100,003
January 1, 2010 $ 25,100,003
January 1, 2011 $ 25,100,003
January 1, 2012 $188,249,960
</TABLE>
<PAGE>
EXHIBIT 11
EXHIBIT 11
AVERY DENNISON CORPORATION AND SUBSIDIARIES
COMPUTATION OF NET INCOME PER SHARE AMOUNTS
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1997 1996 1995
--------------------------------------------------
<S> <C> <C> <C>
(A) Weighted average number of common shares outstanding........ 103.1 105.0 106.5
Additional common shares issuable under employee stock
options using the treasury stock method................... 3.0 2.6 2.0
------ ------ -----
(B) Weighted average number of common shares outstanding
assuming the exercise of stock options.................... 106.1 107.6 108.5
====== ====== ======
(C) Net income available to common stockholders................. $204.8 $175.9 $143.7
====== ====== ======
Net income per share (C)/(A)..................................... $1.99 $1.68 $1.35
====== ====== ======
Net income per share, assuming dilution (C)/(B).................. $1.93 $1.63 $1.32
====== ====== ======
</TABLE>
Note: The Company adopted Statement of Financial Accounting Standards No. 128,
"Earnings Per Share" in the fourth quarter of 1997. All prior year net
income per share data has been restated in accordance with the new
standard.
<PAGE>
EXHIBIT 12
----------
AVERY DENNISON CORPORATION
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
1997 1996
------------- -------------
<S> <C> <C>
Earnings:
Income before taxes $311.2 $270.6
Add: Fixed charges* 49.2 55.2
Amortization of capitalized interest 1.4 1.3
Less: Capitalized interest (3.2) (3.5)
------ ------
$358.6 $323.6
====== ======
*Fixed charges:
Interest expense $ 31.7 $ 37.4
Capitalized interest 3.2 3.5
Amortization of debt issuance costs .5 .6
Interest portion of leases 13.8 13.7
------ ------
$ 49.2 $ 55.2
====== ======
Ratio of Earnings to Fixed Charges 7.3 5.9
====== ======
</TABLE>
The ratios of earnings to fixed charges were computed by dividing earnings by
fixed charges. For this purpose, "earnings" consist of income before taxes plus
fixed charges (excluding capitalized interest), and "fixed charges" consist of
interest expense, capitalized interest, amortization of debt issuance costs and
the portion of rent expense (estimated to be 35%) on operating leases deemed
representative of interest.
<PAGE>
ELEVEN-YEAR SUMMARY Avery Dennison Corporation
<TABLE>
<CAPTION>
Compound
Growth Rate 1997 1996
-------------------------
(In millions, except per share amounts) 5 Year 10 Year Dollars % Dollars %
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FOR THE YEAR
Net sales 5.0% 4.4% $3,345.7 100.0 $3,222.5 100.0
Gross profit 5.3 4.0 1,082.7 32.4 1,018.3 31.6
Marketing, general and administrative
expense (1), (2) 2.1 2.6 739.8 22.1 712.4 22.1
Interest expense (5.6) (.2) 31.7 .9 37.4 1.2
Income before taxes 19.0 9.0 311.2 9.3 270.6 8.4
Taxes on income 16.3 5.8 106.4 3.2 94.7 2.9
Net income 20.7 11.3 204.8 6.1 175.9 5.5
- ----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
1997 1996
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PER SHARE INFORMATION (3)
Net income per common share 24.7 13.1 $ 1.99 $ 1.68
Net income per common share, assuming
dilution 23.9 n/a 1.93 1.63
Dividends per common share 11.9 13.1 .72 .62
Average common shares outstanding (3.1) (1.6) 103.1 105.0
Average common shares outstanding,
assuming dilution (2.7) n/a 106.1 107.6
Book value at fiscal year end 3.7 3.6 $ 8.18 $ 8.03
Market price at fiscal year end 24.9 16.7 43.75 35.88
Market price range 33.38 23.88
to to
44.13 35.88
- ----------------------------------------------------------------------------------------------------------------------------------
AT YEAR END
Working capital $ 163.6 $ 110.6
Property, plant and equipment, net 985.3 962.7
Total assets 2,046.5 2,036.7
Long-term debt 404.1 370.7
Total debt 447.7 466.9
Shareholders' equity 837.2 832.0
Number of employees 16,200 15,800
- ----------------------------------------------------------------------------------------------------------------------------------
OTHER INFORMATION
Depreciation expense $ 105.5 $ 100.2
Research and development expense 61.1 54.6
Effective tax rate 34.2% 35.0%
Long-term debt as a percent of
total long-term capital 32.6 30.8
Total debt as a percent of total
capital 34.8 35.9
Return on average shareholders'
equity (percent) 24.8 21.4
Return on average total capital
(percent) 18.1 16.4
- ----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
1995 1994
(In millions, except per share amounts) Dollars % Dollars %
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FOR THE YEAR
Net sales $3,113.9 100.0 $2,856.7 100.0
Gross profit 957.3 30.7 907.8 31.8
Marketing, general and administrative
expense (1), (2) 689.8 22.2 691.9 24.2
Interest expense 44.3 1.4 43.0 1.5
Income before taxes 224.7 7.2 172.9 6.1
Taxes on income 81.0 2.6 63.5 2.2
Net income 143.7 4.6 109.4 3.8
- ----------------------------------------------------------------------------------------------------------
<CAPTION>
1995 1994
- ----------------------------------------------------------------------------------------------------------
PER SHARE INFORMATION (3)
<S> <C> <C>
Net income per common share $ 1.35 $ .98
Net income per common share, assuming
dilution 1.32 .97
Dividends per common share .55 .50
Average common shares outstanding 106.5 111.1
Average common shares outstanding,
assuming dilution 108.5 112.3
Book value at fiscal year end $ 7.69 $ 6.81
Market price at fiscal year end 25.07 17.75
Market price range 16.63 13.32
to to
25.07 17.88
- ----------------------------------------------------------------------------------------------------------
AT YEAR END
Working capital $ 127.6 $ 122.8
Property, plant and equipment, net 907.4 831.6
Total assets 1,963.6 1,763.1
Long-term debt 334.0 347.3
Total debt 449.4 420.7
Shareholders' equity 815.8 729.0
Number of employees 15,500 15,400
- ----------------------------------------------------------------------------------------------------------
OTHER INFORMATION
Depreciation expense $ 95.3 $ 87.9
Research and development expense 52.7 49.1
Effective tax rate 36.0% 36.7%
Long-term debt as a percent of
total long-term capital 29.0 32.3
Total debt as a percent of total
capital 35.5 36.6
Return on average shareholders'
equity (percent) 18.6 14.8
Return on average total capital
(percent) 14.4 12.1
- -----------------------------------------------------------------------------------------------------------
</TABLE>
(1) In 1990, the Company incurred $85.2 million in pretax charges related to
the merger of Avery International Corporation and Dennison Manufacturing
Company and $13.8 million of merger-related costs. After adjusting for
these charges, 1990 net income was $71.7 million, or $.58 per common share.
(2) In 1987, a restructuring resulted in pretax charges of $25.2 million, which
decreased net income by $25 million, or $.21 per common share.
(3) The Company adopted the new net income per share standard during 1997.
Prior year amounts have been restated in accordance with the new standard.
Diluted net income per common share information was not available prior to
1992.
Page 2
<PAGE>
ELEVEN-YEAR SUMMARY Avery Dennison Corporation
<TABLE>
<CAPTION>
1993 1992 1991 1990/(1)/
(In millions, except per share amounts) Dollars % Dollars % Dollars % Dollars %
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEAR
Net sales $ 2,608.7 100.0 $2,622.9 100.0 $2,545.1 100.0 $2,590.2 100.0
Gross profit 818.1 31.4 838.2 32.0 796.2 31.3 808.3 31.2
Marketing, general and administrative
expense (1), (2) 642.7 24.6 665.7 25.4 653.9 25.7 752.7 29.1
Interest expense 43.2 1.7 42.3 1.6 37.5 1.5 40.0 1.5
Income before taxes 132.2 5.1 130.2 5.0 104.8 4.1 15.6 .6
Taxes on income 48.9 1.9 50.1 1.9 41.8 1.6 9.7 .4
Net income 84.4 3.2 80.1 3.1 63.0 2.5 5.9 .2
- ------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
1993 1992 1991 1990
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PER SHARE INFORMATION (3)
Net income per common share $ .73 $ .66 $ .51 $ .05
Net income per common share, assuming
dilution .72 .66 n/a n/a
Dividends per common share .45 .41 .38 .32
Average common shares outstanding 115.9 120.8 123.9 123.9
Average common shares outstanding,
assuming dilution 116.9 121.8 n/a n/a
Book value at fiscal year end $ 6.40 $ 6.82 $ 6.73 $ 6.83
Market price at fiscal year end 14.69 14.38 12.69 10.75
Market price range 12.75 11.63 9.69 7.82
to to to to
15.57 14.44 12.75 16.50
- --------------------------------------------------------------------------------------------------------------------------------
AT YEAR END
Working capital $ 141.6 $ 222.6 $ 226.0 $ 298.8
Property, plant and equipment, net 758.5 779.9 814.2 821.7
Total assets 1,639.0 1,684.0 1,740.4 1,890.3
Long-term debt 311.0 334.8 329.5 376.0
Total debt 397.5 427.5 424.0 510.4
Shareholders' equity 719.1 802.6 825.0 846.3
Number of employees 15,750 16,550 17,095 18,816
- --------------------------------------------------------------------------------------------------------------------------------
OTHER INFORMATION
Depreciation expense $ 84.1 $ 83.8 $ 83.1 $ 80.8
Research and development expense 45.5 46.7 48.7 53.7
Effective tax rate 37.0% 38.5% 39.9% 62.2%
Long-term debt as a percent of
total long-term capital 30.2 29.4 28.5 30.8
Total debt as a percent of total
capital 35.6 34.8 33.9 37.6
Return on average shareholders'
equity (percent) 11.0 9.7 7.7 .7
Return on average total capital
(percent) 9.3 8.3 6.7 1.5
- --------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
1989 1988 1987/(2)/
(In millions, except per share amounts) Dollars % Dollars % Dollars %
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FOR THE YEAR
Net sales $2,490.9 100.0 $2,291.4 100.0 $2,165.1 100.0
Gross profit 806.7 32.4 780.2 34.0 734.6 33.9
Marketing, general and administrative
expense (1), (2) 591.0 23.7 554.7 24.2 571.2 26.4
Interest expense 35.1 1.4 35.5 1.5 32.4 1.5
Income before taxes 180.6 7.3 190.0 8.3 131.0 6.1
Taxes on income 66.4 2.7 73.0 3.2 60.8 2.8
Net income 114.2 4.6 117.0 5.1 70.2 3.2
- ------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
1989 1988 1987
- -----------------------------------------------------------------------------------------------------------------------------
PER SHARE INFORMATION (3)
<S> <C> <C> <C>
Net income per common share $ .92 $ .95 $ .58
Net income per common share, assuming
dilution n/a n/a n/a
Dividends per common share .27 .23 .21
Average common shares outstanding 124.2 123.4 120.6
Average common shares outstanding,
assuming dilution n/a n/a n/a
Book value at fiscal year end $ 6.55 $ 6.25 $ 5.75
Market price at fiscal year end 15.94 11.00 9.32
Market price range 10.50 8.57 8.00
to to to
15.94 13.00 14.57
- ------------------------------------------------------------------------------------------------------------------------------
AT YEAR END
Working capital $ 323.9 $ 314.3 $ 325.8
Property, plant and equipment, net 714.1 667.3 574.2
Total assets 1,715.9 1,652.2 1,558.5
Long-term debt 317.8 298.8 301.0
Total debt 418.9 411.3 393.2
Shareholders' equity 811.3 769.6 705.9
Number of employees 19,215 19,114 19,360
- ------------------------------------------------------------------------------------------------------------------------------
OTHER INFORMATION
Depreciation expense $ 71.5 $ 63.8 $ 58.8
Research and development expense 51.0 47.4 41.5
Effective tax rate 36.8% 38.4% 46.4%
Long-term debt as a percent of
total long-term capital 28.1 28.0 29.9
Total debt as a percent of total
capital 34.1 34.8 35.8
Return on average shareholders'
equity (percent) 14.7 16.0 10.5
Return on average total capital
(percent) 12.0 12.7 8.3
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 3
<PAGE>
Consolidated Balance Sheet Avery Dennison Corporation
<TABLE>
<CAPTION>
(Dollars in millions) 1997 1996
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 3.3 $ 3.8
Trade accounts receivable, less allowance for doubtful accounts
of $15.6 and $17.5 for 1997 and 1996, respectively 457.7 448.5
Inventories, net 230.1 244.4
Other receivables 28.3 25.7
Prepaid expenses 19.6 17.8
Deferred taxes 54.5 64.3
- -------------------------------------------------------------------------------------------------------------
Total current assets 793.5 804.5
Property, plant and equipment, at cost:
Land 35.4 37.7
Buildings 389.3 405.3
Machinery and equipment 1,230.1 1,180.3
Construction-in-progress 135.7 144.6
- -------------------------------------------------------------------------------------------------------------
1,790.5 1,767.9
Accumulated depreciation 805.2 805.2
- -------------------------------------------------------------------------------------------------------------
985.3 962.7
Intangibles resulting from business acquisitions, net 133.7 135.9
Non-current deferred taxes 6.8 7.1
Other assets 127.2 126.5
- -------------------------------------------------------------------------------------------------------------
$2,046.5 $2,036.7
=============================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term and current portion of long-term debt $ 43.6 $ 96.2
Accounts payable 245.3 230.7
Accrued payroll and employee benefits 115.8 134.3
Other accrued liabilities 202.1 208.2
Income taxes payable 20.9 23.0
Deferred taxes 2.2 1.5
- -------------------------------------------------------------------------------------------------------------
Total current liabilities 629.9 693.9
Long-term debt 404.1 370.7
Long-term retirement benefits and other accrued liabilities 125.1 96.6
Non-current deferred taxes 50.2 43.5
Shareholders' equity
Common stock, $1 par value, authorized - 400,000,000 shares and
200,000,000 shares at year end 1997 and 1996, respectively; issued -
124,126,624 shares at year end 1997 and 1996 124.1 124.1
Capital in excess of par value 592.5 475.4
Retained earnings 1,063.6 945.6
Cumulative foreign currency translation adjustment (21.4) 28.3
Cost of unallocated ESOP shares (23.4) (29.4)
Minimum pension liability (1.1) (.2)
Employee stock trusts, 16,693,347 shares and
17,959,358 shares at year end 1997 and 1996, respectively (730.3) (644.3)
Treasury stock at cost, 5,053,046 shares and
2,551,808 shares at year end 1997 and 1996, respectively (166.8) (67.5)
- -------------------------------------------------------------------------------------------------------------
Total shareholders' equity 837.2 832.0
- -------------------------------------------------------------------------------------------------------------
$2,046.5 $2,036.7
=============================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements
Page 10
<PAGE>
Consolidated Statement of Income Avery Dennison Corporation
<TABLE>
<CAPTION>
(In millions, except per share amounts) 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $3,345.7 $3,222.5 $3,113.9
Cost of products sold 2,263.0 2,204.2 2,156.6
- -----------------------------------------------------------------------------------------------------------------------------
Gross profit 1,082.7 1,018.3 957.3
Marketing, general and administrative expense 739.8 712.4 689.8
Net gain on divestitures and restructuring charges - 2.1 1.5
Interest expense 31.7 37.4 44.3
- -----------------------------------------------------------------------------------------------------------------------------
Income before taxes 311.2 270.6 224.7
Taxes on income 106.4 94.7 81.0
- -----------------------------------------------------------------------------------------------------------------------------
Net income $ 204.8 $ 175.9 $ 143.7
=============================================================================================================================
Per share amounts:
Net income per common share $ 1.99 $ 1.68 $ 1.35
Net income per common share,
assuming dilution 1.93 1.63 1.32
Dividends .72 .62 .55
Average shares outstanding:
Common shares 103.1 105.0 106.5
Common shares, assuming dilution 106.1 107.6 108.5
=============================================================================================================================
Common shares outstanding at year end 102.4 103.6 106.1
=============================================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements
Page 11
<PAGE>
Consolidated Statement of Shareholders' Equity Avery Dennison Corporation
<TABLE>
<CAPTION>
Cumulative
foreign Cost of
Common Capital in currency unallocated
stock, $1 excess of Retained translation ESOP
(Dollars in millions) par value par value earnings adjustment shares
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Fiscal year ended 1994 $124.1 $131.0 $ 753.2 $ 16.7 $(37.6)
Repurchase of 1.7 million shares
for treasury
Stock issued under option plans,
net of tax and dividends paid on
stock held in stock trusts (1.4)
Net income 143.7
Dividends: $.55 per share (59.1)
Translation adjustments, net of tax 17.1
ESOP transactions, net 10.6
Minimum pension liability
- --------------------------------------------------------------------------------------------------------------------------------
Fiscal year ended 1995 124.1 129.6 837.8 33.8 (27.0)
Repurchase of 3.8 million shares
for treasury
Stock issued under option plans,
net of tax and dividends paid on
stock held in stock trusts 9.0
Net income 175.9
Dividends: $.62 per share (68.1)
Translation adjustments, net of tax (5.5)
Employee stock benefit trust
transactions, net 336.8
ESOP transactions, net (2.4)
Minimum pension liability
- --------------------------------------------------------------------------------------------------------------------------------
Fiscal year ended 1996 124.1 475.4 945.6 28.3 (29.4)
Repurchase of 2.5 million shares
for treasury
Stock issued under option plans,
net of tax and dividends paid on
stock held in stock trusts (17.3)
Net income 204.8
Dividends: $.72 per share (86.8)
Translation adjustments, net of tax (49.7)
Employee stock benefit trust
market value adjustment 134.4
ESOP transactions, net 6.0
Minimum pension liability
- --------------------------------------------------------------------------------------------------------------------------------
Fiscal year ended 1997 $124.1 $592.5 $1,063.6 $(21.4) $(23.4)
================================================================================================================================
</TABLE>
Page 12
<PAGE>
Consolidated Statement of
Shareholders' Equity (Continued) Avery Dennison Corporation
<TABLE>
<CAPTION>
Minimum Employee
pension stock Treasury
(Dollars in millions) liability trusts stock
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Fiscal year ended 1994 $(5.0) -- $(253.4)
Repurchase of 1.7 million shares
for treasury (35.1)
Stock issued under option plans,
net of tax and dividends paid on
stock held in stock trusts 8.6
Net income
Dividends: $.55 per share
Translation adjustments, net of tax
ESOP transactions, net
Minimum pension liability 2.4
- ---------------------------------------------------------------------------------------
Fiscal year ended 1995 (2.6) -- (279.9)
Repurchase of 3.8 million shares
for treasury (109.3)
Stock issued under option plans,
net of tax and dividends paid on
stock held in stock trusts 11.2
Net income
Dividends: $.62 per share
Translation adjustments, net of tax
Employee stock benefit trust
transactions, net (644.3) 310.5
ESOP transactions, net
Minimum pension liability 2.4
- ---------------------------------------------------------------------------------------
Fiscal year ended 1996 (0.2) (644.3) (67.5)
Repurchase of 2.5 million shares
for treasury (99.3)
Stock issued under option plans,
net of tax and dividends paid on
stock held in stock trusts 48.4
Net income
Dividends: $.72 per share
Translation adjustments, net of tax
Employee stock benefit trust
market value adjustment (134.4)
ESOP transactions, net
Minimum pension liability (.9)
- ---------------------------------------------------------------------------------------
Fiscal year ended 1997 $(1.1) $(730.3) $(166.8)
=======================================================================================
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
Consolidated Statement of Cash Flows Avery Dennison Corporation
<TABLE>
<CAPTION>
(In millions) 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 204.8 $ 175.9 $ 143.7
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation 105.5 100.2 95.3
Amortization 11.3 13.2 12.6
Net gain on divestitures and restructuring charges - (2.1) (1.5)
Deferred taxes 9.4 .8 (17.6)
Changes in assets and liabilities, net of the effect of foreign
currency translation, business acquisitions and divestitures, and
restructuring charges:
Trade accounts receivable, net (26.6) (.9) (52.5)
Inventories, net 5.7 (18.1) (18.5)
Other receivables (4.8) 1.2 1.8
Prepaid expenses (1.6) 3.7 (5.3)
Accounts payable and accrued liabilities 44.6 45.7 18.6
Taxes on income 25.5 (12.4) 11.4
Long-term retirement benefits and other accrued liabilities (5.4) (3.2) (.1)
- -----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 368.4 304.0 187.9
- -----------------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Purchase of property, plant and equipment (177.3) (187.6) (190.3)
Net proceeds from sale of assets, business divestitures
and acquisitions 4.6 12.1 96.7
Other (16.3) (2.1) (19.1)
- -----------------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (189.0) (177.6) (112.7)
- -----------------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Increase in long-term debt 60.0 - 100.0
Decrease in long-term debt (52.7) (14.3) (107.9)
Net (decrease) increase in short-term debt (22.0) 32.2 40.5
Dividends paid (86.8) (68.1) (59.1)
Purchase of treasury stock (99.3) (109.3) (35.1)
Proceeds from exercise of stock options 13.3 13.5 7.2
Other 7.9 (3.6) 3.0
- -----------------------------------------------------------------------------------------------------------------------------------
Net cash used in financing activities (179.6) (149.6) (51.4)
- -----------------------------------------------------------------------------------------------------------------------------------
Effect of foreign currency translation on cash balances (.3) - .1
- -----------------------------------------------------------------------------------------------------------------------------------
(Decrease) increase in cash and cash equivalents (.5) (23.2) 23.9
- -----------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, beginning of year 3.8 27.0 3.1
- -----------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year $ 3.3 $ 3.8 $ 27.0
===================================================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements
Page 13
<PAGE>
Avery Dennison Corporation
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
The Company is a worldwide manufacturer of pressure-sensitive adhesives and
materials, and consumer and converted products. The Company's major markets are
in office products, data processing, health care, retail, transportation,
industrial and durable goods, food and apparel. The Pressure-sensitive adhesives
and materials sector and the Consumer and converted products sector each
contribute approximately 50 percent of the Company's total sales. Sales are
generated primarily in the United States, continental Europe and the United
Kingdom.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of all majority-owned
subsidiaries. All intercompany accounts, transactions and profits are
eliminated. Investments in certain affiliates (20 percent to 50 percent
ownership) are accounted for by the equity method of accounting. Certain prior
year amounts have been reclassified to conform with current year presentation.
FISCAL YEAR
The Company's 1997, 1996 and 1995 fiscal years reflected 52-week periods ending
December 27, 1997, December 28, 1996 and December 30, 1995, respectively. The
Company's fiscal years consist of 52 or 53 weeks and generally end on the
Saturday closest to the calendar year end.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions for
the reporting period and as of the financial statement date. These estimates and
assumptions affect the reported amounts of assets and liabilities, the
disclosure of contingent liabilities, and the reported amounts of revenues and
expenses. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash on hand, deposits in banks and short-term
investments, with maturities of three months or less when purchased. The
carrying amounts of these assets approximate fair value due to the short
maturity of the instruments. Cash paid for interest and taxes was as follows:
<TABLE>
<CAPTION>
(In millions) 1997 1996 1995
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest, net of capitalized amounts $31.5 $ 40.0 $46.7
Income taxes, net of refunds 88.1 115.9 87.2
===============================================================================
</TABLE>
Page 14
<PAGE>
Avery Dennison Corporation
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INVENTORIES
Inventories are stated at the lower of cost or market value. Cost is determined
using both the first-in, first-out (FIFO) and last-in, first-out (LIFO) methods.
Inventories valued using the LIFO method comprised 35 percent, 37 percent and 40
percent of inventories before LIFO adjustment at year end 1997, 1996 and 1995,
respectively.
During 1997 and 1996, certain inventories were reduced resulting in the
liquidation of LIFO inventory carried at lower costs prevailing in prior years
as compared with current costs. The effect was to reduce 1997 and 1996 cost of
products sold by $4.2 million and $3.2 million, respectively. Inventories at
year end were as follows:
<TABLE>
<CAPTION>
(In millions) 1997 1996
- -------------------------------------------------------------------------------
<S> <C> <C>
Raw materials $ 74.4 $ 82.7
Work-in-progress 70.9 72.4
Finished goods 114.7 123.4
LIFO adjustment (29.9) (34.1)
- -------------------------------------------------------------------------------
$230.1 $244.4
===============================================================================
</TABLE>
PROPERTY, PLANT AND EQUIPMENT
Depreciation is generally computed using the straight-line method over the
estimated useful lives of the assets. Maintenance and repair costs are expensed
as incurred; renewals and betterments are capitalized. Upon the sale or
retirement of properties, the accounts are relieved of the cost and the related
accumulated depreciation, with any resulting profit or loss included in income.
INTANGIBLES RESULTING FROM BUSINESS ACQUISITIONS
Intangibles resulting from business acquisitions consist primarily of the excess
of the acquisition cost over the fair value of net assets acquired and are
amortized over a 25-to-40 year period using the straight-line method. The
Company evaluates the carrying value of its goodwill on an ongoing basis and
recognizes an impairment when the estimated future undiscounted cash flows from
operations are less than the carrying value of the goodwill. Accumulated
amortization at year end 1997 and 1996 was $49.4 million and $46.6 million,
respectively.
FOREIGN CURRENCY TRANSLATION
All assets and liability accounts of international operations are translated
into U.S. dollars at current rates. Revenue, costs and expenses are translated
at the average currency rate which prevailed during the fiscal year. Gains and
losses resulting from foreign currency transactions, other than those
transactions described below, are included in income currently. Gains and losses
resulting from hedging the value of investments in certain international
operations and from translation of financial statements are excluded from the
statement of income and are recorded directly to a separate component of
shareholders' equity. Translation gains and losses of subsidiaries operating in
hyperinflationary economies are included in net income currently.
Transaction and translation losses decreased net income in 1997, 1996 and 1995,
by $1.5 million, $1.6 million, and $1.8 million, respectively.
Page 15
<PAGE>
Avery Dennison Corporation
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FINANCIAL INSTRUMENTS
The Company enters into foreign exchange forward and option contracts and
interest rate contracts to manage exposure to fluctuations in foreign currency
exchange and interest rates. The Company does not hold or purchase any foreign
currency or interest rate contracts for trading purposes.
Foreign exchange forward and option contracts that hedge existing assets,
liabilities or firm commitments are measured at fair value and the related gains
and losses on these contracts are recognized in net income currently. Foreign
exchange forward and option contracts that hedge forecasted transactions are
measured at fair value and the related gains and losses on these contracts are
deferred and subsequently recognized in net income in the period in which the
underlying transaction is consummated. In the event that an anticipated
transaction is no longer likely to occur, the Company recognizes the change in
fair value of the instrument in net income currently.
Gains and losses resulting from foreign exchange forward and option contracts
are recorded in the same category as the related item being hedged. Cash flows
from the use of financial instruments are reported in the same category as the
hedged item in the Consolidated Statement of Cash Flows. Gains and losses on
contracts used to hedge the value of investments in certain foreign subsidiaries
are included in the cumulative foreign currency translation adjustment component
of shareholders' equity.
The net amounts paid or received on interest rate agreements are recognized as
adjustments to interest expense over the terms of the agreements. Contract
premiums paid, if any, are amortized to interest expense over the terms of the
underlying instruments.
REVENUE RECOGNITION
Sales, provisions for estimated sales returns, and the cost of products sold are
recorded at the time of shipment.
RESEARCH AND DEVELOPMENT
Research and development costs are expensed as incurred. Research and
development expense for 1997, 1996 and 1995 was $61.1 million, $54.6 million and
$52.7 million, respectively.
STOCK-BASED COMPENSATION
The Company accounts for stock-based awards to employees using the intrinsic
value method. As such, no compensation expense is recognized since the Company's
stock option grants are generally priced at fair market value on the date of
grant.
ENVIRONMENTAL EXPENDITURES
Environmental expenditures that do not contribute to current or future revenue
generation are expensed. Expenditures for newly acquired assets and those which
extend or improve the economic useful life of existing assets are capitalized
and amortized over the remaining asset life. The Company reviews, on a quarterly
basis, its estimates of costs of compliance with environmental laws and the
cleanup of various sites, including sites in which governmental agencies have
designated the Company as a potentially responsible party. When it is probable
that obligations have been incurred and where a minimum cost or a reasonable
estimate of the cost of compliance or remediation can be determined, the
applicable amount is accrued. For other potential liabilities, the timing of
accruals coincides with the related ongoing site assessments. Potential
insurance reimbursements are not recorded or offset against the liabilities
until received, and liabilities are not discounted.
Page 16
<PAGE>
Avery Dennison Corporation
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
NET INCOME PER SHARE
Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings Per
Share", was adopted in the fourth quarter of 1997 and supersedes the Company's
previous standards for computing net income per share under Accounting
Principles Board No. 15. The new standard requires dual presentation of net
income per common share and net income per common share, assuming dilution, on
the face of the income statement. All prior year net income per share data has
been restated in accordance with the new standard.
In accordance with SFAS No. 128, net income per common share amounts were
computed as follows:
<TABLE>
<CAPTION>
(In millions, except per share amounts) 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
(A) Net income available to common stockholders $204.8 $175.9 $143.7
- --------------------------------------------------------------------------------------------------------------------------
(B) Weighted average number of common shares
outstanding 103.1 105.0 106.5
Additional common shares issuable under employee
stock options using the treasury stock method 3.0 2.6 2.0
- --------------------------------------------------------------------------------------------------------------------------
(C) Weighted average number of common shares
outstanding assuming the exercise of stock options 106.1 107.6 108.5
Net income per common share (A) / (B) $ 1.99 $ 1.68 $ 1.35
Net income per common share, assuming dilution (A) / (C) 1.93 1.63 1.32
==========================================================================================================================
</TABLE>
FUTURE ACCOUNTING REQUIREMENTS
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income".
The standard establishes guidelines for the reporting and display of
comprehensive income and its components in financial statements. Comprehensive
income includes items such as foreign currency translation adjustments and
adjustments to the minimum pension liability that are currently presented as
components of shareholders' equity. Companies will be required to report total
comprehensive income for interim periods beginning the first quarter of 1998.
Disclosure of comprehensive income and its components will be required beginning
fiscal year end 1998.
Also in June 1997, the FASB issued SFAS No. 131, "Disclosures About Segments of
an Enterprise and Related Information". The standard establishes standards for
reporting information on operating segments in interim and annual financial
statements. The new rules will be effective for the 1998 fiscal year.
Abbreviated quarterly disclosure will be required beginning first quarter of
1999, and will include both 1999 and 1998 information. The Company does not
believe that the new standard will have a material impact on its segment
reporting.
Page 17
<PAGE>
Avery Dennison Corporation
NOTE 2. DIVESTITURES AND RESTRUCTURING
During the third quarter of 1996, business restructuring actions resulted in a
net pretax gain of $2.1 million. The Company sold its equity interest in a label
operation in Japan for $28.4 million, resulting in a net gain of $17.9 million.
The Company also recorded charges for certain restructuring actions which had an
estimated cost of $15.8 million.
The 1996 restructuring actions included the reorganization of certain
manufacturing, distribution and administrative sites. These costs consisted of
severance and related costs for approximately 200 positions worldwide ($7.4
million) and the discontinuance of product lines and related asset disposals
($2.1 million). In addition, an asset impairment write-down of $6.3 million was
recognized for long-lived assets held in the Company's Consumer and converted
products sector.
The Company's 1996 restructuring program was completed as of the third quarter
of 1997 and is likely to result in estimated annual savings of $9 million to $11
million.
During 1995, the Company took specific actions to restructure certain businesses
to improve future profitability. These actions, which included the sale of non-
strategic businesses and restructuring programs, resulted in a net pretax gain
of $1.5 million.
During the fourth quarter of 1995, a portion of the North American label
converting operations was sold for $95 million. These businesses accounted for
approximately 2 percent of the Company's 1995 total sales. The $40.7 million
pretax gain on the sale of these businesses was offset by a one-time pretax
charge of $39.2 million. This charge included the closure of four plants and the
reorganization of certain manufacturing distribution and administrative sites.
The costs consisted primarily of employee severance and related costs ($16.2
million) for approximately 400 positions worldwide, discontinuance of product
lines and related asset write-offs ($13.1 million) and plant closure and other
costs ($9.9 million). At year end 1997, the Company's 1995 restructuring program
was completed and is expected to result in annual savings of $14 million to $17
million.
Page 18
<PAGE>
Avery Dennison Corporation
NOTE 3. DEBT
Long-term debt at year end was as follows:
<TABLE>
<CAPTION>
(In millions) 1997 1996
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Medium-term notes (6.1% to 8.0% at year end) $360.0 $300.0
Domestic variable-rate short-term borrowings to be refinanced
on a long-term basis 26.4 51.0
Industrial Revenue Bonds (4% to 9.9% at year end) 15.6 22.0
Other long-term debt (5.6% to 9.5% at year end) 3.6 20.2
- -----------------------------------------------------------------------------------------------------------
405.6 393.2
Less: Amount classified as current (1.5) (22.5)
- -----------------------------------------------------------------------------------------------------------
$404.1 $370.7
===========================================================================================================
</TABLE>
The Company has a revolving credit agreement with four domestic banks to provide
up to $250 million in borrowings through July 1, 2002, with all amounts borrowed
under this agreement due on the same date. The Company may annually extend the
revolving period and due date under certain conditions with approval of the
banks. The financing available under this revolving credit agreement will be
used, as needed, to repay uncollateralized short-term and currently maturing
long-term debt, and to finance other corporate requirements.
In addition to the above revolving credit agreement, the Company had short-term
lines of credit available aggregating $289.2 million at the end of 1997, of
which $42.1 million was utilized at variable interest rates ranging from 3-to-9
percent.
During the fourth quarter of 1996, the Company registered with the Securities
and Exchange Commission $150 million in principal amount of uncollateralized
medium-term notes, of which $60 million in notes had been issued as of year end
1997. Proceeds from the medium-term notes were used to reduce debt and for other
general corporate purposes. The Company's currently outstanding medium-term
notes have maturities from 2000 through 2025 and have a weighted-average
interest rate of 7.1 percent.
The amount of long-term debt outstanding at the end of 1997, which matures
during 1998 through 2002 is $1.5 million, $7 million, $3.5 million, $1.4 million
and $46.4 million, respectively.
The fair value of the Company's debt is estimated based on the discounted amount
of future cash flows using the current rates offered to the Company for debt of
the same remaining maturities. At year end 1997 and 1996, the fair value of the
Company's total debt, including domestic variable-rate short-term borrowings to
be refinanced on a long-term basis, was $447.9 million and $459.3 million,
respectively.
The terms of the various loan agreements in effect at year end require
maintenance of specified amounts of consolidated tangible net worth and
consolidated net income before interest and taxes to consolidated interest.
Under the most restrictive provisions, $76.9 million of retained earnings was
not restricted at year end 1997.
The Company's total interest expense in 1997, 1996 and 1995 was $34.9 million,
$40.9 million and $47.5 million, respectively, of which $3.2 million, $3.5
million and $3.2 million, respectively, was capitalized as part of the cost of
assets constructed for the Company's use.
Page 19
<PAGE>
Avery Dennison Corporation
NOTE 4. FINANCIAL INSTRUMENTS
The Company enters into foreign exchange forward and option contracts to reduce
its risk from exchange rate fluctuations associated with receivables, payables,
loans and commitments denominated in foreign currencies that arise primarily as
a result of its operations outside the United States. At the end of 1997 and
1996, the Company had foreign exchange forward contracts with a notional value
of $205.1 million and $166.7 million, respectively, substantially all of which
were denominated in European currencies. The Company's foreign exchange option
contracts, which were also primarily denominated in European currencies, had
notional amounts of $25.8 million and $12 million at the end of 1997 and 1996,
respectively. In general, the maturities of the contracts coincide with the
underlying exposure positions they are intended to hedge. All foreign exchange
forward and option contracts outstanding have maturities within 12 months. The
carrying value of the foreign exchange forward contracts approximated the fair
value, which, based on quoted market prices of comparable instruments, was a net
asset of approximately $1.3 million and a net liability of approximately $4.5
million at the end of 1997 and 1996, respectively. The carrying value of the
foreign exchange option contracts, based on quoted market prices of comparable
instruments, was $.9 million and $.2 million at the end of the 1997 and 1996,
respectively.
The counterparties to foreign exchange forward and option contracts consist of a
large number of major international financial institutions. The Company
centrally monitors its positions and the financial strength of its
counterparties. Therefore, while the Company may be exposed to losses in the
event of nonperformance by these counterparties, it does not anticipate any such
losses.
At the end of 1997, the Company had letters of credit outstanding totaling $20.2
million which guaranteed various trade activities. The aggregate contract amount
of all outstanding letters of credit approximates fair value.
As of year end 1997 and 1996, approximately 26 percent of trade accounts
receivables were from nine and seven domestic customers, respectively. While the
Company does not require its customers to provide collateral, the financial
position and operations of these customers are monitored on an ongoing basis.
Although the Company may be exposed to losses in the event of nonpayment, it
does not anticipate any such losses.
Page 20
<PAGE>
Avery Dennison Corporation
NOTE 5. COMMITMENTS
Minimum annual rental commitments on operating leases having initial or
remaining noncancelable lease terms in excess of one year are as follows:
<TABLE>
<CAPTION>
(In millions)
- ----------------------------------------------------------
Year
- ----------------------------------------------------------
<S> <C>
1998 $ 31.6
1999 28.1
2000 26.0
2001 23.9
2002 22.4
Thereafter 18.0
- ----------------------------------------------------------
Total minimum lease payments $150.0
- ----------------------------------------------------------
</TABLE>
Operating leases relate primarily to office and warehouse space, EDP and
transportation equipment.
Rent expense for 1997, 1996 and 1995 was $39.4 million, $39 million and $39.4
million, respectively.
The Company has an agreement to purchase certain information technology services
through June 30, 2002; however, the agreement may be terminated at the Company's
option on June 30, 2000. Total commitments remaining under the agreement through
year 2002 approximated $14 million as of December 27, 1997.
Page 21
<PAGE>
Avery Dennison Corporation
NOTE 6. TAXES BASED ON INCOME
Taxes based on income were as follows:
<TABLE>
<CAPTION>
(In millions) 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------
Current:
<S> <C> <C> <C>
U.S. Federal tax $ 58.3 $55.9 $ 51.8
State taxes 15.6 12.3 10.2
International taxes 13.6 28.1 34.6
- ----------------------------------------------------------------------------------------------------------------------
87.5 96.3 96.6
- ----------------------------------------------------------------------------------------------------------------------
Deferred:
U.S. taxes 10.8 (4.7) (4.4)
International taxes 8.1 3.1 (11.2)
- ----------------------------------------------------------------------------------------------------------------------
18.9 (1.6) (15.6)
- ----------------------------------------------------------------------------------------------------------------------
Taxes on income $106.4 $94.7 $ 81.0
======================================================================================================================
</TABLE>
The principal items accounting for the difference in taxes as computed at the
U.S. statutory rate and as recorded were as follows:
<TABLE>
<CAPTION>
(In millions) 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Computed tax at 35% of income before taxes $108.9 $94.7 $78.7
Increase (decrease) in taxes resulting from:
State taxes, net of federal tax benefits 10.1 8.0 6.6
Other items, net (12.6) (8.0) (4.3)
- ----------------------------------------------------------------------------------------------------------------------
Taxes on income $106.4 $94.7 $81.0
======================================================================================================================
</TABLE>
Consolidated income before taxes for U.S. and international operations was as
follows:
<TABLE>
<CAPTION>
(In millions) 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. $222.7 $176.4 $145.3
International 88.5 94.2 79.4
- --------------------------------------------------------------------------------------------------------------------
$311.2 $270.6 $224.7
====================================================================================================================
</TABLE>
U.S. income taxes have not been provided on undistributed earnings of
international subsidiaries ($368.5 million at year end 1997) because such
earnings are considered to be reinvested indefinitely or because U.S. income
taxes on dividends would be substantially offset by foreign tax credits.
Operating loss carryforwards for international subsidiaries aggregating $27.1
million are available to reduce income taxes payable, of which $11.6 million
will expire from 1998 through 2003, while $15.5 million can be carried forward
indefinitely.
Page 22
<PAGE>
Avery Dennison Corporation
NOTE 6. TAXES BASED ON INCOME (CONTINUED)
Deferred income taxes reflect the temporary differences between the amounts at
which assets and liabilities are recorded for financial reporting purposes and
the amounts utilized for tax purposes. The primary components of the temporary
differences which give rise to the Company's deferred tax assets and liabilities
were as follows:
<TABLE>
<CAPTION>
(In millions) 1997 1996
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
Accrued expenses not currently deductible $ 67.6 $ 76.7
Net operating losses and foreign tax credit carryforwards 20.9 23.2
Postretirement and postemployment benefits 11.7 11.1
Pension costs (5.0) (3.9)
Valuation allowance (5.0) (6.5)
Depreciation (82.9) (74.2)
Other items, net 1.6 -
- -------------------------------------------------------------------------------------------------------
Total net deferred tax assets $ 8.9 $ 26.4
=======================================================================================================
</TABLE>
NOTE 7. SHAREHOLDERS' EQUITY
COMMON STOCK AND COMMON STOCK REPURCHASE PROGRAM
The Company's Certificate of Incorporation authorizes five million shares of $1
par value preferred stock, with respect to which the Board of Directors may fix
the series and terms of issuance, and 400 million shares of $1 par value voting
common stock. The number of authorized $1 par value common shares increased from
200 million to 400 million in April 1997 upon shareholder approval to amend the
Company's Certificate of Incorporation.
On October 24, 1996, the Company's Board of Directors authorized a two-for-one
stock split of the Company's common stock effected in the form of a 100 percent
stock dividend to shareholders of record as of December 6, 1996. Par value of $1
per share remained unchanged. An amount equal to the $1 par value of the
additional common shares was transferred from capital in excess of par value to
common stock.
In December 1997, the Company redeemed the outstanding preferred stock purchase
rights and issued new preferred stock purchase rights, declaring a dividend of
one such right on each outstanding share of common stock and since such time the
Company has issued such rights with each share of common stock that has been
subsequently issued. When exercisable, each new right will entitle its holder to
buy one one-hundredth of a share of Series A Junior Participating Preferred
Stock at a price of $150.00 per one one-hundredth of a share until October 31,
2007. The rights will become exercisable if a person acquires 20 percent or more
of the Company's common stock or makes an offer, the consummation of which will
result in the person's owning 20 percent or more of the Company's common stock.
In the event the Company is acquired in a merger, each right entitles the holder
to purchase common stock of the acquiring company having a market value of twice
the exercise price of the right. If a person or group acquires 20 percent or
more of the Company's common stock, each right entitles the holder to purchase
the Company's common stock with a market value equal to twice the exercise price
of the right. The rights may be redeemed by the Company at a price of one cent
per right at any time prior to a person's or group's acquiring 20 percent of the
Company's common stock. The 20 percent threshold may be reduced by the Company
to as low as 10 percent at any time prior to a person's acquiring a percent of
Company stock equal to the lowered threshold.
Page 23
<PAGE>
Avery Dennison Corporation
NOTE 7. SHAREHOLDERS' EQUITY (CONTINUED)
The Board of Directors has authorized the repurchase of an aggregate 30.4
million shares of the Company's outstanding common stock. The acquired shares
may be reissued under the Company's stock option and incentive plans. At year
end 1997, approximately 2.5 million shares were still available for repurchase
pursuant to this authorization.
STOCK OPTION AND INCENTIVE PLANS
In October 1996, the Company established the Avery Dennison Corporation Employee
Stock Benefit Trust (the "ESBT") to fund a portion of the Company's obligations
arising from various employee benefit plans. The Company sold 18 million shares
of treasury stock to the ESBT in exchange for a promissory note of $564.8
million that bears an interest rate of 8 percent per annum. The ESBT has a 15-
year life during which it will utilize the common stock to satisfy certain
Company obligations. The common stock in the ESBT is carried at market value
with changes in share price from prior reporting periods reflected as an
adjustment to capital in excess of par value.
The Company maintains various stock option and incentive plans which are fixed
employee stock-based compensation plans. Under the plans, incentive stock
options and stock options granted to directors may be granted at not less than
100 percent of the fair market value of the Company's common stock on the date
of the grant, whereas nonqualified options granted to executives may be issued
at prices no less than par value. Options granted are generally priced at fair
market value on the date of the grant and generally vest ratably over a four
year period. Unexercised options expire ten years from the date of grant. The
following table sets forth stock option information relative to all plans:
<TABLE>
<CAPTION>
1997 1996 1995
-------------------------------- ------------------------------- --------------------------------
Weighted-average Number Weighted-average Number Weighted-average Number of
(Options in thousands) exercise price of options exercise price of options exercise price options
- --------------------------------------------------- ------------ ------------------------------- --------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year $18.76 9,775.7 $15.03 10,224.6 $13.03 9,650.2
Granted 42.29 1,339.0 34.67 1,623.0 23.52 1,792.1
Exercised 12.93 (1,706.9) 11.96 (1,778.9) 11.23 (955.3)
Forfeited or expired 22.39 (260.1) 18.23 (293.0) 12.93 (262.4)
- -------------------------------------------------- ------------ ------------------------------- --------------------------------
Outstanding at year end $23.19 9,147.7 $18.76 9,775.7 $15.03 10,224.6
Options exercisable at year end 4,518.7 4,670.4 5,309.7
===================================================================================================================================
</TABLE>
Page 24
<PAGE>
Avery Dennison Corporation
NOTE 7. SHAREHOLDERS' EQUITY (CONTINUED)
The following table summarizes information on fixed stock options outstanding at
December 27, 1997 (options in thousands):
<TABLE>
<CAPTION>
Options outstanding Options exercisable
------------------------------------------------------- -----------------------------------
Weighted-average Weighted-average
Number remaining Weighted-average Number exercise
Range of exercise prices outstanding contractual life exercise price exercisable price
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 9.59 - 14.00 2,625.3 3.7 years $12.33 2,625.4 $12.33
15.28 - 23.63 3,604.8 7.1 years 18.97 1,654.5 17.49
34.94 - 43.38 2,917.6 9.4 years 38.16 238.8 34.48
- ----------------------------------------------------------------------------------------------------------------------------
$ 9.59 - 43.38 9,147.7 6.8 years $23.19 4,518.7 $15.39
============================================================================================================================
</TABLE>
As permitted under current accounting standards, no compensation cost was
recognized in the Consolidated Statement of Income for the Company's stock
option and incentive plans. Had compensation cost for the Company's stock-based
compensation plans been recognized ratably over the options' vesting periods,
the Company's pro forma net income and net income per common share would have
been $197.8 million and $1.92, respectively for 1997, $172.1 million and $1.64,
respectively for 1996 and $142.2 million and $1.34, respectively for 1995. Net
income per share, assuming dilution, would have been $1.86, $1.59 and $1.31 for
1997, 1996 and 1995, respectively.
The weighted-average fair value of options granted during 1997, 1996 and 1995
were $12.70, $9.51 and $5.87, respectively. Option grant date fair values were
determined using a Black-Scholes option pricing value. The underlying
assumptions used were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Risk-free interest rate 6.39% 6.40% 6.75%
Expected stock price volatility 17.74 18.57 17.99
Expected dividend yield 1.74 2.09 2.67
Expected option term 10 years 10 years 10 years
===============================================================================
</TABLE>
Page 25
<PAGE>
Avery Dennison Corporation
NOTE 8. CONTINGENCIES
The Company has been designated by the U.S. Environmental Protection Agency
(EPA) and/or other responsible state agencies as a potentially responsible party
(PRP) at 15 waste disposal or waste recycling sites which are the subject of
separate investigations or proceedings concerning alleged soil and/or
groundwater contamination and for which no settlement of the Company's liability
has been agreed upon. Litigation has been initiated by a governmental authority
with respect to two of these sites, but the Company does not believe that any
such proceedings will result in the imposition of monetary sanctions. The
Company is participating with other PRPs at all such sites, and anticipates that
its share of cleanup costs will be determined pursuant to remedial agreements
entered into in the normal course of negotiations with the EPA or other
governmental authorities.
The Company has accrued liabilities for all sites, including sites in which
governmental agencies have designated the Company as a PRP, where it is probable
that a loss will be incurred and the minimum cost or amount of loss can be
reasonably estimated. However, because of the uncertainties associated with
environmental assessment and remediation activities, future expense to remediate
the currently identified sites, and sites which could be identified in the
future for cleanup, could be higher than the liability currently accrued. Based
on current site assessments, management believes the potential liability over
the amounts currently accrued would not materially affect the Company.
The Company and its subsidiaries are involved in various other lawsuits, claims
and inquiries, most of which are routine to the nature of the business. In the
opinion of management, the resolution of these matters will not materially
affect the Company.
Page 26
<PAGE>
Avery Dennison Corporation
NOTE 9. EMPLOYEE RETIREMENT PLANS
DEFINED BENEFIT PLANS
The Company sponsors a number of defined benefit plans covering substantially
all U.S. employees, employees in certain other countries and non-employee
directors. It is the Company's policy to make contributions to these plans
sufficient to meet the minimum funding requirements of applicable laws and
regulations, plus additional amounts, if any, as the Company's actuarial
consultants advise to be appropriate. Plan assets are invested in a diversified
portfolio that consists primarily of equity securities. Benefits payable to
employees are based primarily on years of service and employees' pay during
their employment with the Company. Certain benefits provided by the Company's
U.S. defined benefit plan were paid, in part, from an employee stock ownership
plan. The net pension cost and the funded status of the defined benefit plans
are summarized as follows:
<TABLE>
<CAPTION>
NET PENSION COST
- --------------------------------------------------------------------------------------------------------------------
(In millions) 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost $ 8.4 $ 9.1 $ 8.7
Interest cost 29.1 27.0 26.4
Return on plan assets (67.9) (67.3) (69.9)
Net amortization and deferral 28.9 28.8 34.6
- --------------------------------------------------------------------------------------------------------------------
Net pension income $ (1.5) $ (2.4) $ (.2)
- --------------------------------------------------------------------------------------------------------------------
Assumptions used:
Weighted-average discount rate 7.0% 7.4% 7.4%
Weighted-average rate of increase in future compensation levels 4.4 5.0 5.3
Weighted-average expected long-term rate of return on assets 9.3 9.7 9.7
====================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
FUNDED STATUS OF PENSION PLANS Fully-funded plans Underfunded plans
- -------------------------------------------------------------------------------------------------------- ----------------------
(In millions) 1997 1996 1997 1996
- -------------------------------------------------------------------------------------------------------- ----------------------
<S> <C> <C> <C> <C>
Actuarial present value of:
Vested benefits $237.1 $207.2 $167.8 $150.5
Non-vested benefits 3.7 .4 1.5 .2
- -------------------------------------------------------------------------------------------------------- ---------------------
Accumulated benefit obligation 240.8 207.6 169.3 150.7
Effect of projected future salary increases 16.2 27.8 13.4 15.0
- -------------------------------------------------------------------------------------------------------- ---------------------
Projected benefit obligation 257.0 235.4 182.7 165.7
Plan assets at fair value 372.1 339.2 149.7 132.3
- -------------------------------------------------------------------------------------------------------- ---------------------
Plan assets in excess of (less than) projected
benefit obligation 115.1 103.8 (33.0) (33.4)
Unrecognized net (gain) loss (18.1) (16.4) 7.7 16.5
Unrecognized prior service cost (9.4) (13.6) 6.6 7.7
Unrecognized net asset at year end (18.9) (22.6) (.7) (1.4)
Adjustment to recognize minimum liability - - (2.5) (7.8)
- ------------------------------------------------------------------------------------------------------- ---------------------
Prepaid (accrued) pension cost $ 68.7 $ 51.2 $(21.9) $(18.4)
======================================================================================================= =====================
</TABLE>
Page 27
<PAGE>
Avery Dennison Corporation
NOTE 9. EMPLOYEE RETIREMENT PLANS (CONTINUED)
As a result of changes in assumptions used during 1997 and 1996, an additional
liability of $2.5 million and $7.8 million, respectively, is reflected in the
Company's Consolidated Balance Sheet. These amounts are offset in 1997 and 1996
by a charge to equity of $1.1 million and $.2 million, respectively, and the
recording of an intangible pension asset of $1.4 million and $7.6 million,
respectively. Consolidated pension expense for 1997, 1996 and 1995 was $.4
million, $1.5 million and $2 million, respectively.
DEFINED CONTRIBUTION PLANS
The Company sponsors various defined contribution plans covering its U.S.
employees, including a 401(k) savings plan. The Company matches participant
contributions to the 401(k) savings plan based on a formula within the plan. The
Avery Dennison Corporation Employee Savings Plan (Savings Plan) has a leveraged
employee stock ownership plan (ESOP) feature which allows the plan to borrow
funds to purchase shares of the Company's common stock at market prices. Savings
Plan expense consists primarily of stock contributions from the ESOP feature to
participant accounts.
The Company also maintained another leveraged ESOP for employees not covered by
a collective bargaining agreement. This ESOP also borrowed funds to purchase
shares of the Company's common stock at market prices. On December 1, 1997, the
Savings Plan ESOP merged with this ESOP. The combined ESOP will continue to fund
the Company's stock contributions to the Savings Plan.
ESOP expense is accounted for under three different methodologies: the cost of
shares allocated method, the cash flow method and the fair value method. The
following table sets forth certain information relating to the Company's ESOPs
on a combined basis:
<TABLE>
<CAPTION>
(In millions) 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest expense $ 2.6 $ 2.7 $ 3.4
Dividends on unallocated ESOP shares used for debt service 1.6 1.7 1.9
Total ESOP expense 3.5 8.9 7.5
Contributions to pay interest and principal on ESOP borrowings 3.2 8.8 7.4
============================================================================================================================
</TABLE>
Consolidated expense for all defined contribution plans, including total ESOP
expense, for 1997, 1996 and 1995 was $4 million, $9.3 million and $8.2 million,
respectively. The total ESOP shares held at the end of 1997 and 1996 were as
follows:
<TABLE>
<CAPTION>
(In millions) 1997 1996
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Allocated shares 6.8 6.7
Unallocated shares 1.9 2.5
- --------------------------------------------------------------------------------------------------------------------------
Total ESOP shares held 8.7 9.2
==========================================================================================================================
</TABLE>
Of the total ESOP shares held, shares accounted for under the fair value method
comprised of 200,100 allocated shares and 137,300 unallocated shares at year end
1997, and 167,800 allocated shares and 169,600 unallocated shares at year end
1996. Under the fair value method, unallocated shares were valued at $6 million
and $6.1 million at year end 1997 and 1996, respectively.
Page 28
<PAGE>
Avery Dennison Corporation
NOTE 9. EMPLOYEE RETIREMENT PLANS (CONTINUED)
OTHER POSTRETIREMENT BENEFITS
The Company provides postretirement health benefits to its retired employees up
to the age of 65 under a cost-sharing arrangement, and supplemental Medicare
benefits to certain U.S. retirees over the age of 65. The Company's policy is to
fund the cost of the postretirement benefits on a cash basis. The following
table sets forth the Company's unfunded obligation and amount recognized in the
Consolidated Balance Sheet:
<TABLE>
<CAPTION>
(In millions) 1997 1996
- ----------------------------------------------------------------------------------------------------------------------------
Actuarial present value of benefit obligation:
<S> <C> <C>
Retirees $10.5 $10.0
Fully-eligible participants 5.2 4.9
Other active participants 14.3 13.5
- ----------------------------------------------------------------------------------------------------------------------------
Accumulated postretirement benefit obligation 30.0 28.4
Plan assets - -
- ----------------------------------------------------------------------------------------------------------------------------
Accumulated postretirement benefit obligation in excess of plan assets 30.0 28.4
Unrecognized net gain 3.0 3.0
Unrecognized prior service cost (1.1) (1.2)
- ----------------------------------------------------------------------------------------------------------------------------
Accrued postretirement benefit obligation $31.9 $30.2
============================================================================================================================
</TABLE>
Net periodic postretirement benefit costs included the following components:
<TABLE>
<CAPTION>
(In millions) 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost $ 1.1 $ .9 $ 1.1
Interest cost 2.0 1.8 2.2
Net amortization and deferral .1 - .1
- ------------------------------------------------------------------------------------------------------------------------------
Net periodic postretirement expense $ 3.2 $ 2.7 $ 3.4
==============================================================================================================================
</TABLE>
A health care cost trend rate of 10 percent was assumed for 1997 and will
decline 1 percent annually to 6 percent by 2001 and remain at that level. The
discount rate assumed for 1997 and 1996 was 7.25 percent. A one percent increase
in the health care cost trend rate would cause the accumulated postretirement
benefit obligation to increase by $4 million and service and interest cost to
increase by $.5 million for 1997.
OTHER RETIREMENT PLANS
The Company has deferred compensation plans which permit eligible employees and
directors to defer a specific portion of their compensation. The deferred
compensation, together with certain Company contributions, earn specified and
variable rates of return. As of year end 1997 and 1996, the Company had accrued
$72.3 million and $57.9 million, respectively, for its obligations under these
plans. The Company's expense, which includes Company contributions and interest
expense, was $8.1 million, $6 million and $5.6 million for 1997, 1996 and 1995,
respectively. A portion of the interest may be forfeited by participants in the
event employment is terminated before age 55 other than by reason of death,
disability or retirement.
Page 29
<PAGE>
Avery Dennison Corporation
NOTE 9. EMPLOYEE RETIREMENT PLANS (CONTINUED)
To assist in the funding of these plans, the Company purchases corporate-owned
life insurance contracts. Proceeds from the insurance policies are payable to
the Company upon the death of the participant. The cash surrender value of these
policies, net of outstanding loans, included in "Other assets" was $30.7 million
and $21.6 million at year end 1997 and 1996, respectively.
NOTE 10. SECTORS OF BUSINESS OPERATIONS
The Company reports its operations as the production of pressure-sensitive
adhesives and materials and the production of consumer and converted products.
Operations in the Pressure-sensitive adhesives and materials sector sell
primarily to converters and label printers, and include the Fasson-brand papers,
films and foils, specialty tape and specialty chemical businesses. Operations in
the Consumer and converted products sector sell primarily to the retail industry
and original equipment manufacturers, and include the Avery-brand labels and
other consumer products, custom label converters, high-performance specialty
films and labels, merchant distributors, automotive and fastener businesses.
During the third quarter of 1996, the Company sold its equity interest in a
label operation in Japan. A $17.9 million gain was recorded in Corporate
administrative and research and development expenses during 1996. In addition,
the Company recorded an impairment for long-lived assets and restructuring
actions, which combined, had an estimated pretax cost of $15.8 million.
During the fourth quarter of 1995, the Company sold a portion of its North
American label converting operations. These businesses accounted for
approximately $63 million in sales and $2.6 million in income from operations
before interest and taxes. In addition, $40.7 million gain from restructuring
activities was recorded in the Consumer and converted products sector's income
from operations before interest and taxes during 1995.
Intersector sales are recorded at or near market prices and are eliminated in
determining consolidated sales. Income from operations represents total revenue
less operating expenses. General corporate expenses, interest expense and taxes
on income are excluded from the computation of income from operations.
Page 30
<PAGE>
Avery Dennison Corporation
NOTE 10. SECTORS OF BUSINESS OPERATIONS (CONTINUED)
Financial information by industry and geographic sectors is set forth below:
<TABLE>
<CAPTION>
(In millions) 1997 1996/(1)/ 1995/(2)/
- -------------------------------------------------------------------------------------------------------------------------------
SALES BY INDUSTRY SECTOR:
<S> <C> <C> <C>
Pressure-sensitive adhesives and materials $1,741.4 $1,702.6 $1,589.7
Consumer and converted products 1,752.6 1,660.8 1,583.5
Intersector (148.3) (145.0) (128.1)
Divested operations - 4.1 68.8
- -------------------------------------------------------------------------------------------------------------------------------
Net sales $3,345.7 $3,222.5 $3,113.9
===============================================================================================================================
INCOME (LOSS) FROM OPERATIONS BEFORE INTEREST AND TAXES:
Pressure-sensitive adhesives and materials $ 170.1 $ 159.1 $ 145.0
Consumer and converted products 192.6 160.6 147.8
Divested operations - (3.6) .2
- -------------------------------------------------------------------------------------------------------------------------------
362.7 316.1 293.0
Corporate administrative and research and
development expenses (19.8) (8.1) (24.0)
Interest expense (31.7) (37.4) (44.3)
- -------------------------------------------------------------------------------------------------------------------------------
Income before taxes $ 311.2 $ 270.6 $ 224.7
===============================================================================================================================
IDENTIFIABLE ASSETS BY INDUSTRY SECTOR:
Pressure-sensitive adhesives and materials $ 991.9 $ 972.2 $ 888.5
Consumer and converted products 886.5 873.9 848.4
Intersector (29.8) (30.0) (26.6)
Corporate and divested operations 197.9 220.6 253.3
- -------------------------------------------------------------------------------------------------------------------------------
Total assets $2,046.5 $2,036.7 $1,963.6
===============================================================================================================================
</TABLE>
/(1)/ Fiscal 1996 results include a pretax gain of $17.9 million from the sale
of its equity interest in a label operation in Japan which was included
in Corporate's administrative expense. Fiscal 1996 results also include
pretax restructuring charges of $15.8 million. The restructuring charges
were allocated as follows: $7.1 million to the Pressure-sensitive
adhesives and materials sector and $8.7 million to the Consumer and
converted products sector.
/(2)/ Fiscal 1995 results include a pretax gain of $40.7 million from the sale
of a portion of its North American label converting operations and was
included in the Consumer and converted products 1995 operating results.
Fiscal 1995 results also include pretax restructuring charges of $39.2
million. The restructuring charges were allocated as follows: $15.1
million to the Pressure-sensitive adhesives and materials sector and
$24.1 million to the Consumer and converted products sector.
The 1996 and 1995 restructuring charges, along with the gains on
divestiture, were reported in the "Net gain on divestitures and
restructuring charges" line of the Consolidated Statement of Income.
Page 31
<PAGE>
Avery Dennison Corporation
NOTE 10. SECTORS OF BUSINESS OPERATIONS (CONTINUED)
<TABLE>
<CAPTION>
(In millions) 1997 1996/(1)/ 1995/(2)/
- ------------------------------------------------------------------------------------------------------------------------------
SALES BY GEOGRAPHIC SECTOR:
<S> <C> <C> <C>
U.S. $2,151.1 $2,047.7 $1,941.5
International 1,230.8 1,213.2 1,142.8
Intersector (36.2) (42.5) (39.2)
Divested operations - 4.1 68.8
- ------------------------------------------------------------------------------------------------------------------------------
Net sales $3,345.7 $3,222.5 $3,113.9
==============================================================================================================================
INCOME (LOSS) FROM OPERATIONS BEFORE INTEREST AND TAXES:
U.S. $ 273.8 $ 234.6 $ 213.7
International 88.9 85.1 79.1
Divested operations - (3.6) .2
- ------------------------------------------------------------------------------------------------------------------------------
362.7 316.1 293.0
Corporate administrative and research and
development expenses (19.8) (8.1) (24.0)
Interest expense (31.7) (37.4) (44.3)
- ------------------------------------------------------------------------------------------------------------------------------
Income before taxes $ 311.2 $ 270.6 $ 224.7
==============================================================================================================================
IDENTIFIABLE ASSETS BY GEOGRAPHIC SECTOR:
U.S. $1,056.8 $1,035.7 $ 996.2
International 821.7 801.5 729.5
Intersector (29.9) (21.1) (15.4)
Corporate and divested operations 197.9 220.6 253.3
- ------------------------------------------------------------------------------------------------------------------------------
Total assets $2,046.5 $2,036.7 $1,963.6
==============================================================================================================================
</TABLE>
/(1)/ The 1996 restructuring charges were allocated as follows: $13.8 million
to the U.S. sector and $2 million to the International sector. In
addition, the 1996 pretax gain of $17.9 million from the sale of its
equity interest in a label operation in Japan was included in Corporate's
administrative expense.
/(2)/ The 1995 restructuring charges were allocated as follows: $18.8 million
to the U.S. sector and $20.4 million to the International sector. In
addition, the 1995 pretax gain from the sale of its North American label
converting operations was allocated as follows: $38.4 million to the U.S.
sector and $2.3 million to the International sector.
The Company's international operations, conducted primarily in continental
Europe and the United Kingdom, are on the FIFO basis of inventory cost
accounting. U.S. operations use both FIFO and LIFO. Export sales from the
United States to unaffiliated customers are not a material factor in the
Company's business.
Identifiable assets are those assets of the Company which are identifiable with
the operations in each industry or geographic sector. Corporate assets consist
principally of Corporate property, plant and equipment, tax related asset
accounts and other non-operating assets. Intersector receivables are eliminated
in determining consolidated identifiable assets.
Page 32
<PAGE>
Avery Dennison Corporation
NOTE 10. SECTORS OF BUSINESS OPERATIONS (CONTINUED)
Capital expenditures and depreciation expense by industry sector are set forth
below:
<TABLE>
<CAPTION>
(In millions) 1997 1996 1995
- -----------------------------------------------------------------------------------------------------
CAPITAL EXPENDITURES:
<S> <C> <C> <C>
Pressure-sensitive adhesives and materials $105.6 $100.8 $100.5
Consumer and converted products 66.9 76.9 73.8
Corporate and divested operations 4.8 9.9 16.0
- -----------------------------------------------------------------------------------------------------
$177.3 $187.6 $190.3
=====================================================================================================
DEPRECIATION EXPENSE:
Pressure-sensitive adhesives and materials $ 53.5 $ 49.5 $ 41.9
Consumer and converted products 45.3 40.8 41.5
Corporate and divested operations 6.7 9.9 11.9
- -----------------------------------------------------------------------------------------------------
$105.5 $100.2 $ 95.3
=====================================================================================================
</TABLE>
NOTE 11. QUARTERLY FINANCIAL INFORMATION (UNAUDITED) /(1)/
<TABLE>
<CAPTION>
(In millions, except per share data) First Second Third Fourth
Quarter Quarter Quarter /(3)/ Quarter/(2)/,/(4)/,/(5)/
- --------------------------------------------------------------------------------------------------------------------------------
1997 /(2)/
<S> <C> <C> <C> <C>
Net sales $828.9 $844.8 $835.6 $836.4
Gross profit 262.9 273.8 270.1 275.9
Net income 48.2 49.6 52.6 54.4
Net income per common share .47 .48 .51 .53
Net income per common share, assuming dilution .45 .47 .50 .52
- ---------------------------------------------------------------------------------------------------------------------
1996 /(3)/, /(4)/
Net sales $796.6 $797.7 $819.3 $808.9
Gross profit 246.7 248.4 260.5 262.7
Net income 40.0 41.6 46.6 47.7
Net income per common share .38 .39 .45 .46
Net income per common share, assuming dilution .37 .39 .44 .45
- ---------------------------------------------------------------------------------------------------------------------
1995 /(5)/
Net sales $773.2 $780.5 $783.5 $776.7
Gross profit 244.8 239.0 235.0 238.5
Net income 34.5 35.7 35.8 37.7
Net income per common share .32 .34 .34 .35
Net income per common share, assuming dilution .32 .33 .33 .35
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
/(1)/ The new net income per share accounting standard was adopted during the
fourth quarter of 1997. Prior year amounts have been restated in
accordance with the new standard.
/(2)/ During the fourth quarter of 1997, certain inventories were reduced,
resulting in the liquidation of LIFO inventory. The effect was to reduce
cost of products sold by $3 million.
/(3)/ Net income for the third quarter of 1996 includes income of $1.4 million,
or $.01 per common share, related to the net gain on divestiture and
restructuring charges.
/(4)/ During the fourth quarter of 1996, certain inventories were reduced,
resulting in the liquidation of LIFO inventory. The effect was to reduce
cost of products sold by $1.7 million.
/(5)/ Net income for the fourth quarter of 1995 includes income of $1 million,
or $.01 per common share, related to the net gain on divestitures and
restructuring charges.
Page 33
<PAGE>
Avery Dennison Corporation
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of Avery Dennison:
We have audited the accompanying consolidated balance sheet of Avery Dennison
Corporation and subsidiaries as of December 27, 1997 and December 28, 1996, and
the related consolidated statements of income, shareholders' equity and cash
flows for each of the three years in the period ended December 27, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion the financial statements referred to above, which appear on pages
34 through 48 of this Annual Report, present fairly, in all material respects,
the consolidated financial position of Avery Dennison Corporation and
subsidiaries as of December 27, 1997 and December 28, 1996, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 27, 1997, in conformity with generally accepted
accounting principles.
s/ Coopers & Lybrand L.L.P.
- ---------------------------
Coopers & Lybrand L.L.P.
Los Angeles, California
January 27, 1998
Page 35
<PAGE>
Avery Dennison Corporation
CORPORATE INFORMATION
COUNSEL
Latham & Watkins
Los Angeles, California
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P.
Los Angeles, California
TRANSFER AGENT-REGISTRAR
First Chicago Trust Company of New York
P.O. Box 2500
Jersey City, NJ 07303-2500
(800) 756-8200
ANNUAL MEETING
The Annual Meeting of Shareholders will be held at 1:30 pm, Thursday, April 23,
1998, in the Conference Center of the Avery Dennison Corporate Center, 150 North
Orange Grove Boulevard, Pasadena, California.
FAX-ON-DEMAND
To obtain news releases on Avery Dennison earnings, dividends or other
activities, dial our 24-hour fax-on-demand service at (800) 947-1093, and follow
the voice prompts.
DIVIDEND REINVESTMENT PLAN
Shareholders of record may reinvest their cash dividends in additional shares of
Avery Dennison common stock at market price.
Shareholders can also invest optional cash payments of up to $3,000 per month in
Avery Dennison common stock at market price.
Avery Dennison investors not yet participating in the plan, as well as brokers
and custodians who hold Avery Dennison common stock for clients, may obtain a
copy of the plan by writing to First Chicago Trust Company of New York, Attn.
Avery Dennison Corporation Dividend Reinvestment Plan, P.O. Box 2598, Jersey
City, NJ 07303-2598, (800) 756-8200.
DIRECT DEPOSIT OF DIVIDENDS
Avery Dennison shareholders can now deposit quarterly dividend checks directly
into their checking or savings accounts. For more information, call Avery
Dennison's transfer agent and registrar, First Chicago Trust Company of New
York, at (800) 870-2340.
Page 36
<PAGE>
Avery Dennison Corporation
FORM 10-K
A copy of the Company's Annual Report on Form 10-K, as filed with the Securities
and Exchange Commission, will be furnished to shareholders and interested
investors free of charge upon written request to the Secretary of the
Corporation.
CORPORATE HEADQUARTERS
150 North Orange Grove Boulevard
Pasadena, California 91103
(626) 304-2000
MAILING ADDRESS:
P.O. Box 7090
Pasadena, California 91109-7090
Fax: (626) 792-7312
INVESTOR RELATIONS CONTACT
Wayne H. Smith, Vice President and Treasurer
(626) 304-2000
[email protected]
WORLDWIDE WEB SITES
http://www.averydennison.com
http://www.avery.com (direct address for Avery-brand office and consumer
products)
PRODUCT INFORMATION
For information about Avery Dennison products and services, call the Consumer
Service Center toll-free at (800) 252-8379.
Page 37
<PAGE>
Avery Dennison Corporation
STOCK AND DIVIDEND DATA
Common shares of Avery Dennison are listed on the New York and Pacific stock
exchanges. Ticker symbol: AVY
<TABLE>
<CAPTION>
1997 1996
---------------------------- --------------------------------
High Low High Low
- -------------------------------------------------------------------------- --------------------------------
<S> <C> <C> <C> <C>
Market Price
First Quarter 43 1/2 33 3/8 28 1/2 23 7/8
Second Quarter 39 5/8 35 1/8 29 1/16 27
Third Quarter 44 1/8 38 5/16 27 3/4 25
Fourth Quarter 43 3/4 38 1/4 35 7/8 27 11/16
- ---------------------------------------------------------------------------------------------------------------
Prices shown represent closing prices on the NYSE.
1997 1996
- -------------------------------------------------------------------------- --------------------------------
Dividends Per Common Share
First Quarter .17 .15
Second Quarter .17 .15
Third Quarter .17 .15
Fourth Quarter .21 .17
- ---------------------------------------------------------------------------------------------------------------
Number of shareholders of record as of year end 1997: 12,432
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
Page 38
<PAGE>
EXHIBIT 21
-----------
SUBSIDIARIES OF REGISTRANT
<TABLE>
<CAPTION>
JURISDICTION
SUBSIDIARY IN WHICH
---------- ORGANIZED
---------
<C> <S> <C>
1. A.V. Chemie A.G........................................................ Switzerland
2. A-D Holdings Argentina S.A............................................. Argentina
3. ADC Philippines, Inc................................................... Philippines
4. AEAC, Inc.............................................................. Delaware
5. Avery Automotive Limited............................................... United Kingdom
6. Avery China Company Limited............................................ China
7. Avery Coordination Center N.V.......................................... Belgium
8. Avery Corp............................................................. Delaware
9. Avery de Mexico S.A. de C.V............................................ Mexico
10. Avery Dennison (Fiji) Limited.......................................... Fiji
11. Avery Dennison (Hong Kong) Limited..................................... Hong Kong
12. Avery Dennison (India) Private Limited................................. India
13. Avery Dennison (Ireland) Limited....................................... Ireland
14. Avery Dennison (Malaysia) Sdn. Bhd..................................... Malaysia
15. Avery Dennison (Retail) Limited........................................ Australia
16. Avery Dennison (Thailand) Ltd.......................................... Thailand
17. Avery Dennison Argentina S.A........................................... Argentina
18. Avery Dennison Australia Group Holdings Pty. Limited................... Australia
19. Avery Dennison Australia Limited....................................... Australia
20. Avery Dennison C.A..................................................... Venezuela
21. Avery Dennison Canada Inc.............................................. Canada
22. Avery Dennison Chile S.A............................................... Chile
23. Avery Dennison Colombia S.A............................................ Columbia
24. Avery Dennison Danmark A/S............................................. Denmark
25. Avery Dennison Deutschland GmbH........................................ Germany
26. Avery Dennison do Brasil Ltda.......................................... Brazil
27. Avery Dennison Dover S.A............................................... Argentina
28. Avery Dennison Foreign Sales Corporation............................... Barbados
29. Avery Dennison France S.A.............................................. France
30. Avery Dennison Holding AG.............................................. Switzerland
31. Avery Dennison Holding GmbH............................................ Germany
32. Avery Dennison Holdings Limited........................................ Australia
33. Avery Dennison Hong Kong B.V........................................... Netherlands
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION> JURISDICTION
SUBSIDIARY IN WHICH
---------- ORGANIZED
---------
<C> <S> <C>
34. Avery Dennison Hungary Limited......................................... Hungary
35. Avery Dennison Iberica, S.A............................................ Spain
36. Avery Dennison Italia S.p.A............................................ Italy
37. Avery Dennison Korea Limited........................................... Korea
38. Avery Dennison Luxembourg S.A.......................................... Luxembourg
39. Avery Dennison Materials GmbH.......................................... Germany
40. Avery Dennison Materials France S.a.r.L................................ France
41. Avery Dennison Materials Ireland Limited............................... Ireland
42. Avery Dennison Materials Nederland B.V................................. Netherlands
43. Avery Dennison Materials U.K. Limited.................................. United Kingdom
44. Avery Dennison Mexico S.A. de C.V...................................... Mexico
45. Avery Dennison Norge A/S............................................... Norway
46. Avery Dennison Office Products (Pty.) Ltd.............................. South Africa
47. Avery Dennison Office Products Company................................. Nevada
48. Avery Dennison Office Products U.K. Ltd................................ United Kingdom
49. Avery Dennison Osterreich GmbH......................................... Austria
50. Avery Dennison Overseas Corporation.................................... Massachusetts
51. Avery Dennison Pension Trustee Limited................................. United Kingdom
52. Avery Dennison Polska Sp. Zo.o......................................... Poland
53. Avery Dennison Printer Labels A/S...................................... Denmark
54. Avery Dennison Scandinavia A/S......................................... Denmark
55. Avery Dennison Security Printing Europe A/S............................ Denmark
56. Avery Dennison Singapore (Pte) Ltd..................................... Singapore
57. Avery Dennison South Africa (Proprietary) Limited...................... South Africa
58. Avery Dennison Suomi OY................................................ Finland
59. Avery Dennison Sverige AB.............................................. Sweden
60. Avery Dennison U.K. Limited............................................ United Kingdom
61. Avery Dennison, S.A. de C.V............................................ Mexico
62. Avery Etiketsystemer A/S............................................... Denmark
63. Avery Etiketten B.V.................................................... Netherlands
64. Avery Etiketten N.V.................................................... Belgium
65. Avery Etikettsystem Svenska AB......................................... Sweden
66. Avery Foreign Sales Corporation B.V.................................... Netherlands
67. Avery Graphic Systems, Inc............................................. Delaware
68. Avery Guidex Limited................................................... United Kingdom
69. Avery Holding B.V...................................................... Netherlands
70. Avery Holding Limited.................................................. United Kingdom
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION> JURISDICTION
SUBSIDIARY IN WHICH
---------- ORGANIZED
---------
<C> <S> <C>
71. Avery Holding S.A...................................................... France
72. Avery International France S.A......................................... France
73. Avery Label (Northern Ireland) Limited................................. United Kingdom
74. Avery Maschinen GmbH................................................... Germany
75. Avery Pacific Corporation.............................................. California
76. Avery Properties Pty. Limited.......................................... Australia
77. Avery Research Center, Inc............................................. California
78. Avery Specialty Tape Division N.V...................................... Belgium
79. Avery, Inc............................................................. California
80. Cardinal Insurance Limited............................................. Bermuda
81. Dennison do Brasil Industria e Comercio Ltda........................... Brazil
82. Dennison International Company......................................... Massachusetts
83. Dennison International Holding B.V..................................... Netherlands
84. Dennison Ireland Limited............................................... Ireland
85. Dennison Manufacturing (Trading) Ltd................................... United Kingdom
86. Dennison Manufacturing Company......................................... Nevada
87. Dennison Monarch Systems, Inc.......................................... Delaware
88. Dennison Office Products Limited....................................... Ireland
89. DMC Development Corporation............................................ Nevada
90. Etikettrykkeriet A/S................................................... Denmark
91. Fasson (Schweiz) A.G................................................... Switzerland
92. Fasson Belgie N.V...................................................... Belgium
93. Fasson Canada Inc...................................................... Canada
94. Fasson Portugal Produtos Auto-Adesivos Lda............................. Portugal
95. Fasson Pty. Limited.................................................... Australia
96. LAC Retail Systems Limited............................................. United Kingdom
97. LDNA Corporation....................................................... California
98. Metallised Films & Papers Ltd.......................................... United Kingdom
99. Monarch Industries, Inc................................................ New Jersey
100. Plastimpres S.A........................................................ Argentina
101. PT Avery Dennison Indonesia............................................ Indonesia
102. Retail Products Limited................................................ Ireland
103. Security Printing Division, Inc........................................ Delaware
104. Soabar Systems (Hong Kong) Limited..................................... Hong Kong
105. Societe Civile Immobiliere Sarrail..................................... France
106. TIADECO Participacoes, Ltda............................................ Brazil
107. Unistat Pty. Limited................................................... Australia
</TABLE>
3
<PAGE>
All of the preceding subsidiaries have been consolidated in the Registrant's
financial statements and no separate financial statements have been filed.
4
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND THE CONSOLIDATED STATEMENT OF INCOME AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000008818
<NAME> AVERY DENNISON
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-27-1997
<PERIOD-START> DEC-28-1996
<PERIOD-END> DEC-27-1997
<CASH> 3,300
<SECURITIES> 0
<RECEIVABLES> 473,300
<ALLOWANCES> 15,600
<INVENTORY> 230,100
<CURRENT-ASSETS> 793,500
<PP&E> 1,790,500
<DEPRECIATION> 805,200
<TOTAL-ASSETS> 2,046,500
<CURRENT-LIABILITIES> 629,900
<BONDS> 404,100
0
0
<COMMON> 124,100
<OTHER-SE> 713,100
<TOTAL-LIABILITY-AND-EQUITY> 2,046,500
<SALES> 3,345,700
<TOTAL-REVENUES> 3,345,700
<CGS> 2,263,000
<TOTAL-COSTS> 2,263,000
<OTHER-EXPENSES> 739,800
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 31,700
<INCOME-PRETAX> 311,200
<INCOME-TAX> 106,400
<INCOME-CONTINUING> 204,800
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 204,800
<EPS-PRIMARY> 1.99
<EPS-DILUTED> 1.93
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND THE CONSOLIDATED STATEMENT OF INCOME AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-28-1996
<PERIOD-START> DEC-31-1995
<PERIOD-END> DEC-28-1996
<CASH> 3,800
<SECURITIES> 0
<RECEIVABLES> 466,000
<ALLOWANCES> (17,500)
<INVENTORY> 244,400
<CURRENT-ASSETS> 804,500
<PP&E> 1,767,900
<DEPRECIATION> (805,200)
<TOTAL-ASSETS> 2,036,700
<CURRENT-LIABILITIES> 693,900
<BONDS> 370,700
0
0
<COMMON> 124,100
<OTHER-SE> 707,900
<TOTAL-LIABILITY-AND-EQUITY> 2,036,700
<SALES> 3,222,500
<TOTAL-REVENUES> 3,222,500
<CGS> 2,204,200
<TOTAL-COSTS> 2,204,200
<OTHER-EXPENSES> 710,300
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 37,400
<INCOME-PRETAX> 270,600
<INCOME-TAX> 94,700
<INCOME-CONTINUING> 175,900
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 175,900
<EPS-PRIMARY> 1.68<F1>
<EPS-DILUTED> 1.63<F1>
<FN>
<F1>EARNINGS PER SHARE AMOUNTS WERE RECALCULATED IN ACCORDANCE WITH STATEMENT OF
FINANCIAL ACCOUNTING STANDARDS NO. 128, "EARNINGS PER SHARE." BASIC AND DILUTED
AMOUNTS ARE SHOWN IN PLACE OF PRIMARY AND FULLY DILUTED, RESPECTIVELY, AND
REFLECT THE DECEMBER 1996 TWO-FOR-ONE STOCK SPLIT EFFECTED IN THE FORM OF A
STOCK DIVIDEND.
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND THE CONSOLIDATED STATEMENT OF INCOME AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-30-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-30-1995
<CASH> 27,000
<SECURITIES> 0
<RECEIVABLES> 461,700
<ALLOWANCES> (17,600)
<INVENTORY> 223,200
<CURRENT-ASSETS> 800,100
<PP&E> 1,652,100
<DEPRECIATION> (744,700)
<TOTAL-ASSETS> 1,963,600
<CURRENT-LIABILITIES> 672,500
<BONDS> 334,000
0
0
<COMMON> 62,100
<OTHER-SE> 753,700
<TOTAL-LIABILITY-AND-EQUITY> 1,963,600
<SALES> 3,113,900
<TOTAL-REVENUES> 3,113,900
<CGS> 2,156,600
<TOTAL-COSTS> 2,156,600
<OTHER-EXPENSES> 688,300
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 44,300
<INCOME-PRETAX> 224,700
<INCOME-TAX> 81,000
<INCOME-CONTINUING> 143,700
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 143,700
<EPS-PRIMARY> 1.35<F1>
<EPS-DILUTED> 1.32<F1>
<FN>
<F1>EARNINGS PER SHARE AMOUNTS WERE RECALCULATED IN ACCORDANCE WITH STATEMENT OF
FINANCIAL ACCOUNTING STANDARDS NO. 128, "EARNINGS PER SHARE." BASIC AND DILUTED
AMOUNTS ARE SHOWN IN PLACE OF PRIMARY AND FULLY DILUTED, RESPECTIVELY, AND
REFLECT THE DECEMBER 1996 TWO-FOR-ONE STOCK SPLIT EFFECTED IN THE FORM OF A
STOCK DIVIDEND.
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET AND THE CONSOLIDATED STATEMENT OF INCOME
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-27-1997
<PERIOD-START> DEC-29-1997
<PERIOD-END> MAR-29-1997
<CASH> 5,500
<SECURITIES> 0
<RECEIVABLES> 463,300<F1>
<ALLOWANCES> 0<F1>
<INVENTORY> 236,800
<CURRENT-ASSETS> 812,400
<PP&E> 1,738,800
<DEPRECIATION> 797,800
<TOTAL-ASSETS> 2,019,400
<CURRENT-LIABILITIES> 631,800
<BONDS> 394,600
0
0
<COMMON> 124,100
<OTHER-SE> 691,300
<TOTAL-LIABILITY-AND-EQUITY> 2,019,400
<SALES> 828,900
<TOTAL-REVENUES> 828,900
<CGS> 566,000
<TOTAL-COSTS> 566,000
<OTHER-EXPENSES> 180,300
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,500
<INCOME-PRETAX> 74,100
<INCOME-TAX> 25,900
<INCOME-CONTINUING> 48,200
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 48,200
<EPS-PRIMARY> .47<F2>
<EPS-DILUTED> .45<F2>
<FN>
<F1>Accounts receivable are shown net of any allowances.
<F2>Earnings per share amounts were recalculated in accordance with Statement of
Financial Accounting Standards No. 128, "Earnings Per Share". Basic and diluted
amounts are shown in place of primary and fully diluted, respectively, and
reflect the December 1996 two-for-one stock split effected in the form of a
stock dividend.
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET AND THE CONSOLIDATED STATEMENT OF INCOME
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-27-1997
<PERIOD-START> DEC-29-1996
<PERIOD-END> JUN-28-1997
<CASH> 9,500
<SECURITIES> 0
<RECEIVABLES> 496,800<F1>
<ALLOWANCES> 0<F1>
<INVENTORY> 254,600
<CURRENT-ASSETS> 872,000
<PP&E> 1,751,800
<DEPRECIATION> 808,200
<TOTAL-ASSETS> 2,092,100
<CURRENT-LIABILITIES> 644,800
<BONDS> 444,100
0
0
<COMMON> 124,100
<OTHER-SE> 701,500
<TOTAL-LIABILITY-AND-EQUITY> 2,092,100
<SALES> 1,673,700
<TOTAL-REVENUES> 1,673,700
<CGS> 1,137,000
<TOTAL-COSTS> 1,137,000
<OTHER-EXPENSES> 369,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 17,300
<INCOME-PRETAX> 150,400
<INCOME-TAX> 52,600
<INCOME-CONTINUING> 97,800
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 97,800
<EPS-PRIMARY> .95<F2>
<EPS-DILUTED> .92<F2>
<FN>
<F1>Accounts receivable are shown net of any allowances.
<F2>Earnings per share amounts were recalculated in accordance with Statement of
Financial Accounting Standards No. 128, "Earnings Per Share". Basic and diluted
amounts are shown in place of primary and fully diluted, respectively, and
reflect the December 1996 two-for-one stock split effected in the form of a
stock dividend.
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET AND THE CONSOLIDATED STATEMENT OF INCOME
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-27-1997
<PERIOD-START> DEC-28-1996
<PERIOD-END> SEP-27-1997
<CASH> 6,300
<SECURITIES> 0
<RECEIVABLES> 499,400<F1>
<ALLOWANCES> 0<F1>
<INVENTORY> 227,100
<CURRENT-ASSETS> 843,500
<PP&E> 1,756,500
<DEPRECIATION> 809,600
<TOTAL-ASSETS> 2,060,700
<CURRENT-LIABILITIES> 631,100
<BONDS> 430,500
0
0
<COMMON> 124,100
<OTHER-SE> 702,000
<TOTAL-LIABILITY-AND-EQUITY> 2,060,700
<SALES> 2,509,300
<TOTAL-REVENUES> 2,509,300
<CGS> 1,702,500
<TOTAL-COSTS> 1,702,500
<OTHER-EXPENSES> 552,900
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 25,300
<INCOME-PRETAX> 228,600
<INCOME-TAX> 78,200
<INCOME-CONTINUING> 150,400
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 150,400
<EPS-PRIMARY> 1.46<F2>
<EPS-DILUTED> 1.41<F2>
<FN>
<F1>Accounts receivable are shown net of any allowances.
<F2>Earnings per share amounts were recalculated in accordance with Statement of
Financial Accounting Standards No. 128, "Earnings Per Share". Basic and diluted
amounts are shown in place of primary and fully diluted, respectively, and
reflect the December 1996 two-for-one stock split effected in the form of a
stock dividend.
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET AND THE CONSOLIDATED STATEMENT OF INCOME
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-28-1996
<PERIOD-START> DEC-31-1996
<PERIOD-END> MAR-30-1996
<CASH> 5,300
<SECURITIES> 0
<RECEIVABLES> 460,000<F1>
<ALLOWANCES> 0<F1>
<INVENTORY> 229,000
<CURRENT-ASSETS> 796,900
<PP&E> 1,665,000
<DEPRECIATION> 755,200
<TOTAL-ASSETS> 1,963,200
<CURRENT-LIABILITIES> 623,800
<BONDS> 374,900
0
0
<COMMON> 62,100
<OTHER-SE> 756,300
<TOTAL-LIABILITY-AND-EQUITY> 1,963,200
<SALES> 796,600
<TOTAL-REVENUES> 796,600
<CGS> 549,900
<TOTAL-COSTS> 549,900
<OTHER-EXPENSES> 175,300
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,900
<INCOME-PRETAX> 62,500
<INCOME-TAX> 22,500
<INCOME-CONTINUING> 40,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 40,000
<EPS-PRIMARY> .38<F2>
<EPS-DILUTED> .37<F2>
<FN>
<F1>Accounts receivable are shown net of any allowances.
<F2>Earnings per share amounts were recalculated in accordance with Statement of
Financial Accounting Standards No. 128, "Earnings Per Share". Basic and diluted
amounts are shown in place of primary and fully diluted, respectively, and
reflect the December 1996 two-for-one stock split effected in the form of a
stock dividend.
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET AND THE CONSOLIDATED STATEMENT OF INCOME
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-28-1996
<PERIOD-START> DEC-31-1995
<PERIOD-END> JUN-29-1996
<CASH> 5,100
<SECURITIES> 0
<RECEIVABLES> 451,700<F1>
<ALLOWANCES> 0<F1>
<INVENTORY> 230,400
<CURRENT-ASSETS> 784,400
<PP&E> 1,686,100
<DEPRECIATION> 770,000
<TOTAL-ASSETS> 1,960,200
<CURRENT-LIABILITIES> 588,600
<BONDS> 404,600
0
0
<COMMON> 62,100
<OTHER-SE> 753,300
<TOTAL-LIABILITY-AND-EQUITY> 1,960,200
<SALES> 1,594,300
<TOTAL-REVENUES> 1,594,300
<CGS> 1,099,200
<TOTAL-COSTS> 1,099,200
<OTHER-EXPENSES> 350,200
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 18,300
<INCOME-PRETAX> 126,600
<INCOME-TAX> 45,000
<INCOME-CONTINUING> 81,600
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 81,600
<EPS-PRIMARY> .77<F2>
<EPS-DILUTED> .76<F2>
<FN>
<F1>Accounts receivable are shown net of any allowances.
<F2>Earnings per share amounts were recalculated in accordance with Statement of
Financial Accounting Standards No. 128, "Earnings Per Share". Basic and diluted
amounts are shown in place of primary and fully diluted, respectively, and
reflect the December 1996 two-for-one stock split effected in the form of a
stock dividend.
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET AND THE CONSOLIDATED STATEMENT OF INCOME
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-28-1996
<PERIOD-START> DEC-31-1995
<PERIOD-END> SEP-28-1996
<CASH> 5,300
<SECURITIES> 0
<RECEIVABLES> 470,700<F1>
<ALLOWANCES> 0<F1>
<INVENTORY> 242,700
<CURRENT-ASSETS> 826,800
<PP&E> 1,713,200
<DEPRECIATION> 789,500
<TOTAL-ASSETS> 2,016,300
<CURRENT-LIABILITIES> 652,600
<BONDS> 394,500
0
0
<COMMON> 62,100
<OTHER-SE> 765,200
<TOTAL-LIABILITY-AND-EQUITY> 2,016,300
<SALES> 2,413,600
<TOTAL-REVENUES> 2,413,600
<CGS> 1,658,000
<TOTAL-COSTS> 1,658,000
<OTHER-EXPENSES> 529,200
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 28,400
<INCOME-PRETAX> 198,000
<INCOME-TAX> 69,800
<INCOME-CONTINUING> 128,200
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 128,200
<EPS-PRIMARY> 1.22<F2>
<EPS-DILUTED> 1.19<F2>
<FN>
<F1>Accounts receivable are shown net of any allowances.
<F2>Earnings per share amounts were recalculated in accordance with Statement of
Financial Accounting Standards No. 128, "Earnings Per Share". Basic and diluted
amounts are shown in place of primary and fully diluted, respectively, and
reflect the December 1996 two-for-one stock split effected in the form of a
stock dividend.
</FN>
</TABLE>
<PAGE>
EXHIBIT 99
----------
Exhibit 99
CAUTIONARY STATEMENT FOR PURPOSES OF THE
"SAFE HARBOR" PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Information provided by the Company may contain certain forward-looking
information, as defined by the Private Securities Litigation Reform Act of 1995
(the "Act"). This may relate to such matters as sales, unit volume, income,
margins, earnings per share, return on equity, return on total capital, economic
value added, capital expenditures, dividends, cash flow, debt to capital ratios,
growth rates, future economic performance and trends, short- and long-term plans
(including financing, operating and strategic plans) and objectives for future
operations as well as assumptions relating to any of the forward-looking
information. This Statement is being made pursuant to the Act and with the
intention of obtaining the benefits of the so-called "safe harbor" provisions of
the Act. The Company cautions that forward-looking statements are not
guarantees because there are inherent and obvious difficulties in predicting the
outcome of future events. Therefore, actual results may differ materially from
those expressed or implied.
The ability of the Company to attain management's goals and objectives are
materially dependent on numerous factors, including those set forth herein.
Operating results are importantly influenced by general economic conditions and
growth (or contraction) of the principal economies in which the Company
operates, including the United States, Canada, Europe, Latin America and the
Asia-Pacific region. All economies in which the Company operates are cyclical
and the rates of growth (or contraction) can vary substantially. More than one-
third of the Company's sales and one-quarter of the income from operations
(before interest and taxes) are in foreign currencies, which fluctuate in
relation to one another and to the United States dollar. Fluctuations in
currencies can cause transaction, translation and other losses to the Company.
The Company's international operations are strongly influenced by the political
and regulatory environment (including tariffs) in the countries in which the
Company conducts its operations.
As a manufacturer, the Company's sales and profitability are also dependent upon
availability of raw materials and the ability to control or pass on costs of raw
materials and labor. Inflationary and other increases in the costs of raw
materials and labor have occurred in the past and are expected to recur, and the
Company's ability to reflect these costs in increased selling prices for its
products, increasing its productivity, and focusing on higher profit businesses,
has allowed the Company generally to maintain its margins. Past performance may
or may not be replicable in the future.
The Company's customers are widely diversified, but in certain portions of its
business, industry concentration has increased the importance and decreased the
number of significant customers. In particular, sales of the Company's consumer
products in the United States are increasingly concentrated in a few major
customers, principally discount office product superstores and distributors.
These developments, including increased credit risks, may increase pressures on
the Company's margins.
A significant portion of the revenues in each of its recent fiscal years has
been represented by sales of products introduced by the Company within five
years prior to the period in question. The Company's ability to develop and
successfully market new products and to develop, acquire and retain necessary
intellectual property rights is therefore essential to maintaining the Company's
growth, which ability cannot be assured.
Other factors include costs and other effects of interest rate increases, legal
and administrative cases and proceedings (whether civil, such as environment and
product related, or criminal), settlements and investigations, claims, and
changes in those items; developments or assertions by or against the Company
relating to intellectual property rights and intellectual property licenses;
adoption of new, or change in, accounting policies and practices and the
application of such policies and practices; changes in business mix, rates of
growth and profitability may be influenced by business reorganizations or
combinations; general or specific economic conditions and the ability and
willingness of purchasers to substitute other products for the products that the
Company distributes; and pricing, purchasing, financing and promotional
decisions by intermediaries in the distribution channel, which could affect
orders, or end-user demand, for the Company's products.
The factors identified in this statement are believed to be important factors
(but not necessarily all of the important factors) that could cause actual
results to be materially different from those that may be expressed or implied
in any forward-looking statement made by, or on behalf, of the Company. Other
factors not discussed in this statement could also have material adverse effects
concerning forward-looking objectives or estimates. The Company assumes no
obligation to update the information included in this statement.
1
