<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_]Preliminary Proxy Statement [_]CONFIDENTIAL, FOR USE OF THE COMMISSION
ONLY (AS PERMITTED BY RULE 14a-6(e)(2))
[X]Definitive Proxy Statement
[_]Definitive Additional Materials
[_]Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
AVERY DENNISON CORPORATION
(Name of Registrant as Specified In Its Charter)
AVERY DENNISON CORPORATION
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE>
- - ----------------- -----------------------------------------------------------
[LOGO OF Avery Dennison Corporation
AVERY 150 North Orange Grove Boulevard
DENNISON] Pasadena, California 91103
- - ----------------- -----------------------------------------------------------
Notice of To the Stockholders:
Annual Meeting
of Stockholders The Annual Meeting of Stockholders of Avery Dennison
Corporation will be held at 150 North Orange Grove
Boulevard, Pasadena, California, on Thursday, April 29,
To be held 1999, at 1:30 P.M. for the following purposes:
April 29, 1999
1. To elect four directors to hold office for a term of
three years and until their successors are elected and
have qualified;
2. To consider and vote upon a proposal to reapprove the
Senior Executive Leadership Compensation Plan; and
3. To consider and vote upon a proposal to reapprove the
Executive Long-Term Incentive Plan; and
4. To transact such other business as may properly come
before the meeting and any adjournments thereof.
In accordance with the Bylaws, the Board of Directors has
fixed the close of business on Monday, March 1, 1999, as
the record date for the determination of stockholders
entitled to vote at the Annual Meeting and to receive
notice thereof.
All stockholders are cordially invited to attend the
meeting.
BY ORDER OF THE BOARD OF DIRECTORS
Robert G. van Schoonenberg
Secretary
Pasadena, California
Dated: March 8, 1999
-----------------------------------------------------------
Whether or not you presently plan to attend the Annual
Meeting, in order to ensure your representation please
complete, sign and date the enclosed proxy as promptly as
possible and return it in the enclosed envelope (to which
no postage need be affixed if mailed in the United
States). If you attend the meeting and wish to vote in
person, your proxy will not be used.
-----------------------------------------------------------
<PAGE>
AVERY DENNISON CORPORATION
150 North Orange Grove Boulevard
Pasadena, California 91103
PROXY STATEMENT
This proxy statement is furnished to the stockholders on behalf of the Board
of Directors of Avery Dennison Corporation, a Delaware corporation
(hereinafter called the "Company"), for solicitation of proxies for use at the
Annual Meeting of Stockholders to be held on Thursday, April 29, 1999 at 1:30
P.M. and at any and all adjournments thereof. A stockholder giving a proxy
pursuant to the present solicitation may revoke it at any time before it is
exercised by giving a subsequent proxy or by delivering to the Secretary of
the Company a written notice of revocation prior to the voting of the proxy at
the Annual Meeting. If you attend the meeting and wish to vote your shares in
person, your proxy will not be used. Votes cast by proxy or in person at the
Annual Meeting will be tabulated by the election inspectors appointed for the
meeting and will determine whether or not a quorum is present. Under the
Company's Bylaws and Delaware law: (1) shares represented by proxies that
reflect abstentions or "broker non-votes" (i.e., shares held by a broker or
nominee which are represented at the meeting, but with respect to which such
broker or nominee is not empowered to vote on a particular proposal) will be
counted as shares that are present and entitled to vote for purposes of
determining the presence of a quorum; (2) there is no cumulative voting and
the director nominees receiving the highest number of votes, up to the number
of directors to be elected, are elected and, accordingly, abstentions, broker
non-votes and withholding of authority to vote will not affect the election of
directors; and (3) proxies that reflect abstentions as to a particular
proposal will be treated as voted for purposes of determining the approval of
that proposal and will have the same effect as a vote against that proposal,
while proxies that reflect broker non-votes will be treated as unvoted for
purposes of determining approval of that proposal and will not be counted as
votes for or against that proposal. The Company has retained D. F. King & Co.,
Inc. to assist in soliciting proxies for this meeting at a fee estimated at
$10,000 plus out of pocket expenses. Expenses incident to the preparation and
mailing of the notice of meeting, proxy statement and form of proxy are to be
paid by the Company. This proxy statement is to be mailed to stockholders on
or about March 8, 1999.
The purpose of the meeting and the matters to be acted upon are set forth in
the foregoing attached Notice of Annual Meeting. In addition to the election
of directors, two incentive compensation plans will be submitted for
reapproval by the Company s stockholders. The two plans, the Senior Executive
Leadership Compensation Plan and the Executive Long-Term Incentive Plan, have
previously been approved by the Company's stockholders but are now being
submitted for reapproval for the purpose of complying with the requirements of
the "performance-based" compensation exclusion under the Internal Revenue Code
of 1986, as amended and related regulations (the "Code") which requires
reapproval every five years. Absent such exclusion, the Code generally denies
a deduction to a publicly held corporation for compensation paid to a covered
employee in a taxable year to the extent that compensation exceeds $1 million.
See "Report of Compensation -- Overall Policy" below. As of the date of this
statement, management knows of no other business which will be presented for
consideration at the meeting. However, if any such other business shall
properly come before the meeting, votes will be cast pursuant to said proxies
in respect of any such other business in accordance with the best judgment of
the persons acting under said proxies. See "GENERAL -- Stockholder Proposals"
below.
ELECTION OF DIRECTORS (Proxy Item 1)
The Bylaws of the Company presently provide for eleven directors, divided
into three classes. Four directors are to be elected at the 1999 Annual
Meeting and will hold office until the Annual Meeting in 2002 and until their
successors are elected and have qualified. It is intended that the persons so
appointed in the enclosed proxy will, unless authority is withheld, vote for
the election of the four nominees proposed by the Board of Directors, all of
whom are presently directors of the Company. In voting for the election of
directors, each share has one vote for each position to be filled. All of the
nominees have consented to being named herein and to serve if
1
<PAGE>
elected. In the event that any of them should become unavailable prior to the
Annual Meeting, the proxy will be voted for a substitute nominee or nominees
designated by the Board of Directors, or the number of directors may be
reduced accordingly.
The following information, which has been provided by the directors, shows
for each of the nominees for election to the Board of Directors and for each
director whose term continues, his or her name, age, and principal occupation
or employment during the past five years, the name of the corporation or other
organization, if any, in which such occupation or employment is or was carried
on, the period during which such person has served as a director of the
Company and the year in which each continuing director's present term as
director expires.
1999 NOMINEES
Charles D. Miller, age 71. Since May 1998, Mr. Miller has served as
Chairman of Avery Dennison Corporation. From November 1983 through
[PHOTO] April 1998, Mr. Miller was Chairman and Chief Executive Officer of
Avery Dennison Corporation. Prior to 1983, he served as President
and Chief Executive Officer. He is Chairman of Nationwide Health
Properties, Inc., and also is a director of Edison International and
Pacific Life Insurance Company. He has been a director of Avery
Dennison Corporation since January 1975.
Richard M. Ferry, age 61. Since May 1997, he has been Chairman of
Korn/Ferry International, an international executive search firm.
[PHOTO] During the period May 1991 through May 1997, Mr. Ferry was Chairman
and Chief Executive Officer of Korn/Ferry International. Prior to
1991, he served as President of Korn/Ferry International. He is also
a director of Dole Food Company, Mrs. Fields Original Cookies, Inc.,
and Pacific Life Insurance Company. He has been a director of Avery
Dennison Corporation since December 1985.
Dwight L. Allison, Jr., age 69. Since October 1986, Mr. Allison has
been a private investor. From January 1977 to September 1986, Mr.
[PHOTO] Allison served in various senior executive positions (including
Chairman and Chief Executive Officer, Vice Chairman and President)
with The Boston Company, a trust, banking and financial management
firm. He is also a director of Mellon Bank Corporation. He has been a
director of Avery Dennison Corporation since October 1990. Mr.
Allison also served as a director of Dennison Manufacturing Company
from 1974 to October 1990.
Kent Kresa, age 61. Since October 1990, Mr. Kresa has been Chairman,
President and Chief Executive Officer of Northrop Grumman
[PHOTO] Corporation, an aeronautical and defense systems manufacturer. From
1987 to September 1990, Mr. Kresa served as President and Chief
Operations Officer of Northrop Corporation. He is also a director of
Atlantic Richfield Corporation. He has been a director of Avery
Dennison Corporation since February 1999.
The Board of Directors recommends a vote FOR the above nominees.
2
<PAGE>
CONTINUING DIRECTORS
Sidney R. Petersen, age 68. During the past five years, Mr. Petersen
has been a private investor. In 1984, he retired as Chairman and
[PHOTO] Chief Executive Officer of Getty Oil Company, a position which he had
held since 1980. He is also a director of NICOR, Inc., Seagull Energy
Corporation, Sypris Solutions, Inc., and UnionBanCal Corp. He has
been a director of Avery Dennison Corporation since December 1981.
His present term expires in the year 2000.
John C. Argue, age 67. During the past five years, Mr. Argue has been
Of Counsel and formerly Senior Partner of the law firm of Argue
[PHOTO] Pearson Harbison & Myers. Mr. Argue is chairman of The Rio Hondo
Memorial Foundation. Mr. Argue is also a director of Apex Mortgage
Capital, Inc., Nationwide Health Properties, Inc., and
TCW/Convertible Securities Fund, Inc., a registered investment
company. He is a trustee of the TCW/DW and TCW Galileo families of
funds and the TCW/DW Term Trust 2000, TCW/DW Term Trust 2002 and
TCW/DW Term Trust 2003. Mr. Argue is an advisory director (Chairman
of advisory directors) of LAACO Ltd. He has been a director of Avery
Dennison Corporation since January 1988. His present term expires in
the year 2000.
John B. Slaughter, age 65. Since August 1988, Dr. Slaughter has
served as President of Occidental College. Dr. Slaughter is also a
[PHOTO] director of Atlantic Richfield Company, International Business
Machines Corporation, Northrop Grumman Corporation, and Solutia, Inc.
He has been a director of Avery Dennison Corporation since December
1988. His present term expires in the year 2000.
Frank V. Cahouet, age 66. In December 1998, Mr. Cahouet retired as
Chairman, President and Chief Executive Officer of Mellon Bank
[PHOTO] Corporation, a position which he had held since June 1987. From
September 1986 through June 1987, Mr. Cahouet served as President of
the Federal National Mortgage Association. He is also a director of
Allegheny Teledyne, Inc., Mellon Bank Corporation, USEC Inc., and
Saint Gobain Corporation. Mr. Cahouet has been a director of Avery
Dennison Corporation since February 1983. His present term expires in
the year 2001.
3
<PAGE>
Peter W. Mullin, age 58. During the past five years, Mr. Mullin has
been Chairman and Chief Executive Officer of Mullin Consulting, Inc.,
[PHOTO] formerly known as Management Compensation Group, Los Angeles, Inc.,
an executive compensation, benefit planning, and corporate insurance
consulting firm, and related entities. He is also a director of
Golden State Vintners, Inc. and Mrs. Fields Original Cookies, Inc. He
has been a director of Avery Dennison Corporation since January 1988.
His present term expires in the year 2001.
Joan T. Bok, age 69. Since April 1998, Mrs. Bok has been Chairman
Emeritus of the Board of NEES Companies, a public utility holding
[PHOTO] company and supplier of electricity. From February 1984 through April
1998, Mrs. Bok was Chairman of the Board of NEES Companies, and from
July 1988 to February 1989, she served as Chairman, President and
Chief Executive Officer. She is also a director of John Hancock
Mutual Life Insurance Company and Solutia, Inc. Mrs. Bok has been a
director of Avery Dennison Corporation since October 1990. She served
as a director of Dennison Manufacturing Company from 1984 to October
1990. Her present term expires in the year 2001.
Philip M. Neal, age 58. Since May 1998, Mr. Neal has served as
President and Chief Executive Officer of Avery Dennison Corporation.
[PHOTO] From December 1990 through April 1998, Mr. Neal was President and
Chief Operating Officer of Avery Dennison Corporation. Prior to
December 1990, he served as Executive Vice President, Group Vice
President, and Senior Vice President, Finance, respectively. He has
been a director of Avery Dennison Corporation since December 1990.
His term expires in the year 2001.
4
<PAGE>
SECURITY OWNERSHIP OF MANAGEMENT
The following table shows the number of shares of the Company's common stock
beneficially owned by each director of the Company and each of the executive
officers named in the table on page 9, and the aggregate number of such shares
beneficially owned by all directors and executive officers as of December 31,
1998.
<TABLE>
<CAPTION>
Amount and
Nature of
Beneficial Percent
Name Ownership(1) of Class
---- ---------------- --------
<S> <C> <C>
Charles D. Miller.................................. 830,045 (3) (2)
Sidney R. Petersen................................. 44,087 (4)(5) (2)
Frank V. Cahouet................................... 66,549 (4)(6) (2)
Richard M. Ferry................................... 44,862 (4) (2)
John C. Argue...................................... 46,930 (4)(7) (2)
Peter W. Mullin.................................... 50,600 (4)(8) (2)
John B. Slaughter.................................. 28,198 (9) (2)
Philip M. Neal..................................... 441,429 (10) (2)
Dwight L. Allison, Jr. ............................ 89,864 (11) (2)
Joan T. Bok........................................ 36,404 (12) (2)
Kent Kresa......................................... -- --
Kim A. Caldwell.................................... 189,016 (13) (2)
Robert M. Calderoni................................ 11,000 (14) (2)
Geoffrey T. Martin................................. 78,800 (15) (2)
Robert G. van Schoonenberg......................... 68,658 (16) (2)
All Directors and Executive Officers as a Group
(20 persons, including those named)............... 2,224,109 (17) 1.9%
</TABLE>
- - --------
(1) Except as otherwise indicated and subject to applicable community
property and similar statutes, the persons listed as beneficial owners of
the shares have sole voting and/or investment power with respect to such
shares.
(2) Less than 1%.
(3) Includes 550,800 shares with respect to which Mr. Miller holds options
exercisable within 60 days from December 31, 1998. Also includes 267,033
shares held in the Miller Family Trust, as to which Mr. Miller has sole
authority to vote and to dispose of the shares. Also includes 7,133
shares held in The Candyman Trust, as to which Mr. Miller, as co-trustee,
shares the authority to vote and to dispose of the shares. Also includes
5,079 shares held by Mrs. Miller, as to which Mr. Miller disclaims
beneficial ownership.
(4) Includes 33,000 shares with respect to which each of Messrs. Petersen,
Cahouet, Ferry, Argue and Mullin holds options exercisable within 60 days
from December 31, 1998.
(5) Includes 11,087 shares held in the Petersen Family Trust, as to which Mr.
Petersen, as co-trustee, shares the authority to vote and to dispose of
the shares.
(6) Includes 16,972 shares held in trust with respect to which Mr. Cahouet
has sole voting and disposition power. Also includes 16,447 shares held
in trust by Mrs. Cahouet, as to which Mr. Cahouet disclaims any
beneficial ownership. Does not include 1,105 shares issuable under
phantom stock units designated for Mr. Cahouet under the Company's
Capital Accumulation Plan ("CAP") trust.
(7) Includes 3,300 shares held in trust with respect to which Mr. Argue has
sole voting power but no disposition power. Also includes 1,650 shares
held in trust with respect to which Mr. Argue has the authority to vote
and dispose of the shares.
(8) Does not include 573 shares issuable under phantom stock units designated
for Mr. Mullin under the CAP trust.
(9) Includes 24,500 shares with respect to which Dr. Slaughter holds options
exercisable within 60 days from December 31, 1998. Also includes 218
shares held by Mrs. Slaughter, as to which Dr. Slaughter disclaims any
beneficial ownership.
5
<PAGE>
(10) Includes 96,929 shares held in trust in which Mr. Neal has sole voting
and disposition power. Includes 344,400 shares with respect to which Mr.
Neal holds options exercisable within 60 days from December 31, 1998.
Also includes 100 shares held by Mrs. Neal, as to which Mr. Neal
disclaims beneficial ownership.
(11) Includes 61,184 shares held in a trust in which Mr. Allison is the
primary beneficiary and Mr. and Mrs. Allison are co-trustees with shared
voting power. Also includes 1,680 shares held in a trust in which
Mrs. Allison is the primary beneficiary and Mr. and Mrs. Allison are co-
trustees with shared voting power. Includes 27,000 shares with respect to
which Mr. Allison holds options exercisable within 60 days from December
31, 1998.
(12) Includes 27,500 shares with respect to which Mrs. Bok holds options
exercisable within 60 days from December 31, 1998. Does not include 278
shares issuable under phantom stock units designated for Mrs. Bok under
the CAP trust.
(13) Includes 163,150 shares with respect to which Mr. Caldwell holds options
exercisable within 60 days from December 31, 1998. Also includes 50
shares each held by Mr. Caldwell's daughter and son, as to which Mr.
Caldwell disclaims beneficial ownership.
(14) Includes 10,000 shares with respect to which Mr. Calderoni holds options
exercisable within 60 days from December 31, 1998.
(15) Includes 63,800 shares with respect to which Mr. Martin holds options
exercisable within 60 days from December 31, 1998.
(16) Includes 48,800 shares with respect to which Mr. van Schoonenberg holds
options exercisable within 60 days from December 31, 1998.
(17) Includes 1,574,507 shares with respect to which all executive officers
and directors as a group hold options exercisable within 60 days from
December 31, 1998.
BOARD OF DIRECTORS AND COMMITTEE MEETINGS
During 1998, there were seven meetings of the full Board of Directors and
nine meetings of committees of the Board. All directors of the Company
attended at least 75% of the aggregate number of meetings of the Board and
meetings of Board committees of which they were members held during the time
they served on the Board or Committee.
Standing committees of the Board of Directors include the following:
The Audit Committee, which is composed of the following directors: Sidney R.
Petersen (Chairman), Dwight L. Allison, Jr., Joan T. Bok, Richard M. Ferry and
Peter W. Mullin, met twice during 1998. The functions of the Audit Committee
are to aid the directors in undertaking and fulfilling their responsibilities
for financial reporting to the stockholders; to support and encourage efforts
to improve the financial controls exercised by management and to ensure their
adequacy for purposes of public reporting; and to provide better avenues of
communication between the Board of Directors, management and the external and
internal auditors.
The Compensation and Executive Personnel Committee, which is composed of the
following directors: John C. Argue (Chairman), Sidney R. Petersen and Frank V.
Cahouet, met three times during 1998. The functions of the Compensation and
Executive Personnel Committee are to review new or modified programs in the
areas of executive salary and incentive compensation, deferred compensation,
and stock plans; to review and make recommendations to the Board concerning
management's proposed option grants, cash incentive awards and other direct
and indirect compensation matters; and to monitor equal opportunity and
affirmative action programs and practices.
The Ethics and Conflict of Interest Committee, which is composed of the
following directors: Joan T. Bok (Chairman), John B. Slaughter and Sidney R.
Petersen, met once during 1998. The functions of the Ethics and Conflict of
Interest Committee are to survey, monitor and provide counsel on an ongoing
basis as to the business relationships, affiliations and financial
transactions of directors, officers and key employees, as they may relate to
possible conflicts of interest or the Company's Legal and Ethical Conduct
Policy; to monitor the Company's
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<PAGE>
ethics and business conduct program, and to report and make recommendations to
the full Board in instances where it is believed that possible violations of
Company policy could exist.
The Finance Committee, which is composed of the following directors: Frank
V. Cahouet (Chairman), Charles D. Miller, Peter W. Mullin, Dwight L. Allison,
Jr., Philip M. Neal, Sidney R. Petersen and Joan T. Bok, met once during 1998.
The functions of the Finance Committee are to assist the Board in
consideration of matters relating to the financial affairs and capital
requirements of the Company; to provide an overview of the financial planning
and policies of the Company; and to review proposed budgets, proposed
acquisitions, bank loans and changes in the financial structure of the
Company.
The Nominating Committee, which is composed of the following directors:
Richard M. Ferry (Chairman), Charles D. Miller, John C. Argue, Peter W. Mullin
and Philip M. Neal, met once during 1998. The functions of the Nominating
Committee are to review the qualifications of candidates for board membership,
to review the status of a director when his or her principal position and/or
primary affiliation changes, to recommend to the Board of Directors candidates
for election by stockholders at annual meetings, to recommend candidates to
fill vacancies in directorships, to recommend to the Board of Directors the
removal of a director, if in the Company's best interest, and to make
recommendations to the Board of Directors concerning selection, tenure,
retirement, and composition of the Board of Directors. Stockholders desiring
to make recommendations concerning new directors must submit the candidate's
name, together with biographical information and the candidate's written
consent to nomination, to: Secretary, Nominating Committee of the Board of
Directors, Avery Dennison Corporation, 150 North Orange Grove Boulevard,
Pasadena, California 91103. Stockholders wishing to nominate new directors for
election at an annual meeting must comply with the requirements described
under the heading "GENERAL -- Stockholder Proposals" on p. 25.
The Strategic Planning Committee, which is composed of the following
directors: Philip M. Neal (Chairman), Charles D. Miller, John C. Argue, Peter
W. Mullin, Richard M. Ferry, John B. Slaughter and Dwight L. Allison, Jr., met
once during 1998. The functions of the Strategic Planning Committee are to
review the Company's long-term strategic plan, objectives, programs, and
proposed acquisition candidates and divestitures; to review steps being taken
to improve shareholder value; and to make recommendations to the Board of
Directors on any of these matters.
The Executive Committee, which is composed of the following directors:
Charles D. Miller (Chairman), Richard M. Ferry, Philip M. Neal, John C. Argue
and Frank V. Cahouet, did not meet during 1998. The function of the Executive
Committee is to act on an interim basis for the full Board and to report all
such actions to the Board for ratification at its next meeting.
Each director who is not an officer of the Company is paid an annual
retainer fee of $32,000 and attendance fees of $1,200 per Board meeting
attended, and $1,200 per committee meeting attended as Chairman of the
committee or $1,000 per committee meeting attended as a member of the
committee. The Chairmen of the Audit and Compensation and Executive Personnel
Committees are each also paid an annual retainer fee of $4,000, and the
Chairmen of the Finance, Nominating and the Ethics and Conflict of Interest
Committees are each paid an annual retainer fee of $3,000. Under the Directors
Variable Deferred Compensation Plan, fees which are deferred either accrue
interest at a fixed rate based on the 120-month rolling average of ten-year
U.S. Treasury Notes (plus, if the director ceases to be a director by reason
of death, disability or normal retirement, 25% of such rate per annum), or
accrue at the actual rate of return (less an administrative fee) of one of
four investment funds managed by an insurance company. Benefits payable by the
Company under these plans are secured with assets placed in an irrevocable
trust. In addition, each non-employee director (except for Mr. Kresa, who
joined the Board in February 1999) received a gift of 100 shares of the
Company's common stock on April 23, 1998.
Directors are also eligible to participate in the Retirement Plan for
Directors, whereby individuals who serve on the Company's Board of Directors
after 1982 and subsequently terminate their service as a director with at
least five years' tenure, are entitled to receive an annual benefit from the
Company equal to the annual director retainer fee plus 12 times the regular
meeting fee, as such fees are in effect on the date of termination, payable
7
<PAGE>
to the director (or to the director's surviving spouse of at least one year or
other designated beneficiary) for the number of full or partial years the
director served on the Company's Board. Following the death of the director's
surviving spouse, or if there is no surviving spouse living at the time of the
death of the director, any benefits will be paid to one or more secondary
beneficiaries designated by the director prior to his or her death until the
first to occur of (i) receipt of the maximum benefit to which the director
would have been entitled had he or she survived, (ii) the death of the
secondary beneficiaries, if natural persons or (iii) benefits have been paid
under the plan to the director, surviving spouse, and/or the secondary
beneficiaries for a combined period of ten years.
Non-employee directors also participate in the 1988 Stock Option Plan for
Non-Employee Directors ("1988 Plan"), pursuant to which options to purchase a
total of 16,000 shares (2,000 shares for each non-employee director) of
Company common stock were granted in 1998 to the non-employee directors
eligible to receive grants under such plan. The option price for each such
option granted is 100% of the fair market value of Company common stock on the
date of grant. All options granted have a term of ten years, and become
exercisable in two cumulative installments of 50% of the number of shares with
respect to which the option was initially granted, on each of the first and
second anniversaries of the grant date, except that all options owned by a
director which are unexercisable on the date the director retires at or after
age 72 will become fully exercisable on the date of such retirement. Under the
CAP, non-employee directors have the opportunity to defer until retirement the
receipt of gain realized on exercise of stock options. The 1988 Plan calls for
each non-employee director to receive an option grant with respect to 5,000
shares upon joining the Board of Directors, and automatic annual grants of
2,000 shares thereafter to each continuing non-employee director.
8
<PAGE>
EXECUTIVE COMPENSATION AND OTHER INFORMATION
Executive Compensation
The following table and accompanying notes show for the two Chief Executive
Officers and the other four most highly compensated executive officers of the
Company for 1998, the compensation paid by the Company to such persons for
services in all capacities during 1998 and the preceding two fiscal years.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term Compensation
--------------------------------
Annual Compensation Awards Payouts
------------------------------- --------------------- ----------
Restricted Securities
Other Annual Stock Underlying LTIP All Other
Name and Salary Bonus Compensation Award(s) Options Payouts Compensation
Principal Position Year ($)(1) ($)(1) ($)(2) ($) (#) ($)(3) ($)(4)
------------------ ---- -------- --------- ------------ ---------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Philip M. Neal(5) 1998 $658,333 $800,000 -- -- 150,000 $428,000 $54,006
President and Chief 1997 558,333 725,000 -- -- 55,000 428,000 63,079
Executive Officer 1996 519,000 650,000 -- -- 90,000 813,500 56,198
Charles D. Miller(5) 1998 $880,000 -- -- -- 125,000 $656,000 $121,416
Chairman 1997 855,000 1,249,600 -- -- 122,000 656,000 163,073
1996 796,667 1,080,000 -- -- 180,000 1,253,000 121,535
Kim A. Caldwell 1998 $393,333 $265,000 $77,792 -- 28,000 $252,000 $23,388
Executive Vice
President, 1997 346,917 308,000 -- -- 43,000 252,000 124,463
Global Technology and 1996 315,000 175,000 -- -- 38,000 513,000 14,005
New Business
Development
Robert M. Calderoni 1998 $360,000 $260,000 -- -- 40,000 -- $7,463
Senior Vice President,
and 1997 58,333 50,000 -- -- 61,500 -- 18,914
Chief Financial Officer 1996 -- -- -- -- -- -- --
Geoffrey T. Martin 1998 $341,667 $265,000 -- -- 28,000 -- $12,888
Senior Group Vice 1997 310,417 250,000 -- -- 123,500 464,000 13,722
President, Worldwide 1996 278,300 175,000 -- -- 34,000 417,500 --
Converting, Graphic
Systems and Specialty
Tapes
Robert G. van
Schoonenberg 1998 $332,667 $310,000 -- -- 27,000 $240,000 $23,137
Senior Vice President, 1997 310,500 250,000 -- -- 22,000 240,000 30,628
General Counsel and 1996 282,500 230,000 -- -- 74,200 384,500 26,352
Secretary
</TABLE>
- - --------
(1) Amounts shown include amounts earned but deferred at the election of
executive officers under the Company's deferred compensation plans and
Employee Savings Plan, a qualified defined contribution plan under Section
401(k) of the Code.
(2) Amount paid to Mr. Caldwell includes $58,092 for mortgage differential
payments related to relocation expenses.
(3) Amounts for 1996 and 1997 consist of cash payments under the Company's
Executive Long-Term Incentive Plan ("LTIP") for the cycles which were
completed on December 31, 1995 and December 31, 1996, respectively. For
the cycle completed in 1996, half was paid in 1997, and the second half in
1998, except for Mr. Martin who was paid in 1997.
(4) Amounts consist of (i) Company contributions to deferred compensation
plans and Company contributions to the Company's Employee Savings Plan, a
401(k) plan ("Savings Plan"); and (ii) interest earned on deferred
compensation accounts above 120% of the applicable federal rate ("above
market interest"). These amounts for 1998 are $41,187 and $12,819,
respectively for Mr. Neal; $63,838 and $57,578, respectively for Mr.
Miller; $20,990 and $2,398 respectively for Mr. Caldwell; $7,463 and $0,
respectively for Mr. Calderoni; $12,888 and $0, respectively for Mr.
Martin, and $17,425 and $5,712 respectively for Mr. van Schoonenberg.
(5) Mr. Miller served as Chief Executive Officer from January through April
1998, and Mr. Neal served as Chief Executive Officer from May through
December 1998.
9
<PAGE>
Option Grants
The following table shows information regarding options granted in 1998 to
each of the named executive officers under the 1990 Stock Option and Incentive
Plan (the "1990 Plan" or "1990 Stock Option Plan") and 1996 Stock Incentive
Plan (the "1996 Plan").
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Individual Grants
---------------------------------------------
Number of
Securities % of
Underlying Total Options Exercise
Options Granted to or Base
Granted Employees in Price Expiration Grant Date
Name (#)(1)(2) Fiscal Year ($/Share) Date Present Value ($)(3)
- - ---- ---------- ------------- --------- ---------- --------------------
<S> <C> <C> <C> <C> <C>
Philip M. Neal 50,000 4.62% $52.3438 5/1/2008 $773,600
100,000 9.24 45.1875 12/3/2008 1,144,800
Charles D. Miller 125,000 11.55 45.1875 12/3/2008 1,431,000
Kim A. Caldwell 28,000 2.59 45.1875 12/3/2008 320,544
Robert M. Calderoni 40,000 3.70 45.1875 12/3/2008 457,920
Geoffrey T. Martin 28,000 2.59 45.1875 12/3/2008 320,544
Robert G. van
Schoonenberg 27,000 2.44 45.1875 12/3/2008 309,096
</TABLE>
- - --------
(1) Non-qualified stock options were granted at fair market value for a term
of ten years under the 1990 or the 1996 Plan. With the exception of Mr.
Neal's first grant which vests ratably over 4 years, the options vest nine
years and nine months from the date of grant, but are eligible for
accelerated vesting, beginning three years from the date of grant, if the
Company meets the "return on total capital" test set forth in the LTIP.
This test generally measures the Company's return on total capital against
that of a specified group of other companies approved by the Compensation
and Executive Personnel Committee.
(2) The Compensation and Executive Personnel Committee may accelerate the time
at which an option becomes exercisable, and in the event of a "change of
control" of the Company (as defined in the option agreement) options
become immediately exercisable.
(3) Option grant date values were determined using a Black-Scholes option
pricing model adapted for use in valuing executive stock options. In
determining the Black-Scholes value, the following underlying assumptions
were used: (i) stock price volatility is measured as the standard
deviation of the Company's stock price over the three years prior to grant
(ranges from .1796 to .2434); (ii) dividend yield is measured as the
cumulative dividends paid the last twelve months as a percentage of the
twelve month average of the month-end closing prices (for the month in
which the dividend was declared) prior to grant of the option (ranges from
1.687% to 2.18%); (iii) the risk-free rate of return represents the weekly
average of the ten-year Treasury bond rates for the 52 weeks immediately
preceding the grant date of the options (ranges from 5.37% to 5.77%); (iv)
option term represents the period from the date of grant of each option to
the expiration of the term of each option (10 years); (v) vesting
restrictions are reflected by reducing the value of the option determined
by the Black-Scholes model by 5% for each full year of vesting
restrictions, assuming that exercisability of the options was accelerated
to the fifth anniversary of the option grant date as a result of meeting
the performance condition described in footnote (1) as of that date (i.e.,
25%). In the event that the performance condition described in footnote
(1) is met later than the fifth anniversary of the grant date, or is not
met during the term of the options, the grant date present value of the
options would be lower. In the event that such performance condition is
not met at all and the options become exercisable nine years and nine
months after the options are granted, the grant date present value of the
options would be $442,000 and 782,300, respectively, for Mr. Neal;
$977,875 for Mr. Miller; $219,044 for Mr. Caldwell; $312,920 for Mr.
Calderoni; $219,044 for Mr. Martin; and $211,221 for Mr. van Schoonenberg.
The Black-Scholes option pricing model calculates a cash equivalent value
for an option on the date of grant. The Company's use of such model is not
intended to forecast any future appreciation in the price of the Company's
stock. In addition, no gain to the optionees is possible without
appreciation in the price of the Company's common stock, which will
benefit all stockholders. If the market price of the stock does not exceed
the exercise price of the options at some time after the options become
exercisable or if they terminate unvested or unexercised, the value of the
options will ultimately be zero.
10
<PAGE>
Option Exercises and Fiscal Year-End Values
The following table shows for each of the named executive officers the
shares acquired on exercise of options during 1998, the difference between the
option exercise price and the market value of the underlying shares on the
date of such exercise, and (as to outstanding options at December 31, 1998)
the number of unexercised options and the aggregate unrealized appreciation on
"in-the-money," unexercised options held at such date.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options at Options at
Fiscal Year-End (#) Fiscal Year-End ($)(2)
------------------- ----------------------
Shares Acquired Value Exercisable/ Exercisable/
Name on Exercise (#) Realized ($)(1) Unexercisable Unexercisable
- - ---- --------------- --------------- ------------------- ----------------------
<S> <C> <C> <C> <C>
Philip M. Neal 134,000 $5,884,373 344,400/395,000 $10,647,970/3,210,798
Charles D. Miller 440,000 16,636,250 550,800/627,000 16,840,878/6,437,437
Kim A. Caldwell 56,000 2,475,750 163,150/151,250 4,897,153/1,466,350
Robert M. Calderoni -- -- 10,000/ 91,500 50,625/196,612
Geoffrey T. Martin -- -- 63,800/219,500 1,913,645/1,832,307
Robert G. van
Schoonenberg 59,200 2,334,700 48,800/119,200 1,208,951/1,102,855
</TABLE>
- - --------
(1) Market value of the common stock at the exercise date minus the exercise
price of the options exercised. Amounts in this column represent the value
realized by the named executive upon the exercise of stock options granted
in prior years. All options had exercise prices equal to the market price
of the Company's stock on the date the options were granted, and vested on
the basis of the executive's continued employment with the Company. Thus,
the amount realized upon exercise of the options resulted directly from
appreciation in the Company's stock price during the executives' tenure
with the Company.
(2) Market value of the common stock at December 31, 1998 minus the exercise
price of "in-the-money" options.
Long-Term Incentive Plan Awards
Under the Long-Term Incentive Plan (the "LTIP"), key executives recommended
by the Company's Chief Executive Officer and designated by the Compensation
and Executive Personnel Committee of the Board of Directors (the "Committee")
are eligible to receive annual grants of stock options and to earn a deferred
cash incentive award based on the financial performance of the Company and, in
some cases, its business units. Participants in the LTIP are eligible to earn
a deferred cash incentive award after the end of each three-year performance
cycle, which cycles generally begin every other year (e.g., 1996 and 1998). A
new cycle commenced in 1998 (1998-2000) and future cycles will commence every
other year (e.g., 2000 and 2002).
11
<PAGE>
The following table shows, for each of the named executive officers, the
estimated future payouts, if any, under the LTIP for the performance cycle
which began in 1998. Threshold amounts are the minimum amounts which could be
paid under the LTIP and assume that the minimum level of performance is
achieved with respect to only one of the three pre-established performance
objectives (return on total capital, earnings per share and cumulative
economic value added) during the performance cycle. If such performance is not
achieved, amounts would be zero. In addition, maximum awards would not be paid
unless the Company achieved pre-established objectives substantially in excess
of these objectives.
LONG-TERM INCENTIVE PLANS -- AWARDS IN LAST FISCAL YEAR(1)
<TABLE>
<CAPTION>
Performance or Estimated Future Payout Under
Number of Shares, Other Period Until Non-Stock Price Based Plans(3) (4)
Units or Other Maturation or ------------------------------------
Name Rights (#) Payout(2) Threshold ($) Target ($) Maximum ($)
- - ---- ----------------- ------------------ ------------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Philip M. Neal(5) -- 3 years $143,592 $617,600 $1,235,200
Charles D. Miller(5) -- 3 years 111,600 480,000 960,000
Kim A. Caldwell -- 3 years 82,026 352,800 705,600
Robert M. Calderoni -- 3 years 74,772 321,600 643,200
Geoffrey T. Martin -- 3 years 71,796 308,800 617,600
Robert G. van
Schoonenberg -- 3 years 76,818 330,400 660,800
All other executive
officers as a group(6) -- 3 years 199,506 790,520 1,581,040
All other participants
as a group(6) -- 3 years 782,593 3,353,969 6,707,938
</TABLE>
- - --------
(1) Each listed executive officer has been designated by the Committee as a
participant in the LTIP for the performance cycle which began in 1998 and
is eligible to receive a deferred cash incentive award after the end of
that cycle of a percentage of the named executive's base salary in effect
at the end of the performance cycle. The threshold (minimum), target and
maximum awards are 18.6 percent, 80 percent and 160 percent of the
executive's base salary, respectively. The amount of the executive's award
will depend on the Company's actual performance during the performance
cycle versus the pre-established performance objectives. See "Report of
Compensation and Executive Personnel Committee on Executive Compensation"
for a more detailed description of the LTIP.
(2) The performance cycle began on January 1, 1998 and ends on December 31,
2000.
(3) Estimated future payouts under the LTIP are calculated using projected
salaries for the executive officers as of the end of the performance
cycle.
(4) Upon a "change of control" (as defined in the LTIP) of the Company, each
executive will be entitled to receive a cash payment equal to the named
executive's target award based on his or her annual base salary rate in
effect at the time of the change of control.
(5) These awards are subject to stockholder approval of the LTIP. See "The
Executive Long-Term Incentive Plan" (Proxy Item 3).
(6) This information is being supplied for purposes of Proxy Item 3.
Retirement Plan
The Company provides retirement benefits for employees under the Retirement
Plan for Employees of Avery Dennison Corporation (the "Retirement Plan") and
the Benefit Restoration Plan (the "BRP"), described below. Benefits under the
Retirement Plan are based on compensation and are calculated separately for
each year of service using the formula 1.25% times compensation up to the
breakpoint (currently $29,304, which is the average of the Social Security
wage bases for the preceding 35 years) plus 1.75% times compensation in excess
of the breakpoint. The results of the calculation for each year of service are
added together to determine the annual single life annuity Retirement Plan
benefit for an employee at normal retirement (age 65). The benefit is not
subject to deductions for Social Security payments or other offsets.
12
<PAGE>
Amounts payable under the Retirement Plan may be reduced in accordance with
certain Code provisions which, as applied to plan years beginning on or after
December 1, 1994, limited the amount of compensation used to determine annual
benefit accruals under the Retirement Plan to the first $150,000 of covered
compensation and which limited the annual pension benefit payable under the
Retirement Plan to $120,000. The Company established the BRP in 1995 to
provide for the payment of supplemental retirement benefits to eligible
employees, including each of the individuals listed in the table on page 9,
whose Retirement Plan benefits are limited under the foregoing Code
provisions. The BRP is an unfunded excess benefit plan which is administered
by the Company. Benefits are payable under the BRP in amounts equal to the
amount by which a participant's benefits otherwise payable under the
Retirement Plan, with respect to periods from and after December 1, 1994, are
reduced under the applicable provisions of the Code.
Compensation covered by the Retirement Plan includes both salary and bonus
amounts, less amounts deferred at the election of employees under the
Company's deferred compensation plans and the Company's Employee Savings Plan.
However, the BRP covers compensation without deduction of amounts deferred
under such plans. Hence the retirement benefits payable to each of the
individuals listed in the table on page 9 under the Retirement Plan and the
BRP, taken together, will be based (for each year of service from and after
December 1, 1994) on the sum of the salary and bonus amounts (including all
deferred amounts), earned in each such year. The estimated annual benefits
payable to each of these individuals at normal retirement are $287,409 for
Mr. Miller, $323,371 for Mr. Neal, $274,458 for Mr. Caldwell, $235,394 for Mr.
Calderoni, $427,229 for Mr. Martin, and $199,357 for Mr. van Schoonenberg,
respectively. These estimated benefits do not include any assumption for
annual increases in compensation.
The Supplemental Executive Retirement Plan (the "SERP"), adopted in 1983, is
designed to provide its participants with additional incentives to further the
Company's growth and development and as an inducement to remain in its
service. Participants designated by the Committee of the Board of Directors
are offered benefits under this plan to supplement those to which they may be
entitled at the time of their retirement. The Committee has designated Mr.
Miller and Mr. Neal as participants in this plan. Mr. Miller's and Mr. Neal's
benefits will commence upon their retirement at a benefit level which, when
added to the benefits to which they will be entitled from the Retirement Plan,
the BRP and the SHARE Plan at the time of their retirement, Company
contributions to the Employee Savings Plan and Social Security, will equal
62.5% of their final average compensation (average salary for three highest 12
month periods out of their last 60 months of employment plus the average of
the three highest annual bonuses during their last 60 months of employment),
plus for Mr. Miller an additional 1.5% of such compensation for each year of
employment from age 66 through 70. Assuming benefits commence in 1999 and
2005, respectively, Mr. Miller's and Mr. Neal's estimated annual retirement
benefit under the SERP would be $639,338 and 566,500, respectively. Survivor
and disability benefits are also payable under the SERP under certain
circumstances. Benefits payable under the SERP are secured with assets placed
in an irrevocable trust. The cost of benefits payable under the SERP will be
recovered from the proceeds of life insurance purchased by the Company, if
assumptions made as to life expectancy, policy dividends, and other factors
are realized.
Other Information
On April 15, 1997, the Company entered into an agreement with Mr. Neal,
which agreement was amended on May 1, 1998, providing that, if his employment
is terminated for any reason other than for death, disability, cause or
voluntary resignation without good reason (as such terms are defined in the
agreement), he (i) will receive a payment equivalent to a pro-rated annual
bonus for the year of termination; salary and bonus (based on his highest
combined annual base salary plus bonus in any of the three previous years) for
three years or until he reaches age 65 (the "severance period"); and
additional retirement and supplemental retirement benefits which would have
accrued during the severance period; (ii) will continue to participate in
welfare benefit plans (such as medical, dental, and life insurance) for three
years (but reduced to the extent such benefits are provided by another
employer); (iii) will receive three additional years of age and service credit
under the Company's deferred compensation plans; (iv) will receive payments
under the LTIP for performance cycles which commence
13
<PAGE>
during his employment as if he had remained employed with the Company during
the severance period; and (v) his unvested stock options will be accelerated.
Upon any such termination, Mr. Neal will be entitled to purchase the Company
automobile, if any, then being provided for his use at its depreciated book
value, and to have assigned to him at no cost (although Mr. Neal must
reimburse the Company for the cash value of the policy, if any) and with no
apportionment of prepaid premiums, any assignable insurance policy then owned
by the Company specifically relating to him. If such termination occurs after
a change of control, the Company will pay for outplacement services not to
exceed $50,000. Amounts to which Mr. Neal would be entitled under the
agreement are reduced to the extent of any compensation which he earns from
any new employment or services performed during the severance period. Mr. Neal
will be reimbursed for any excise taxes which are imposed under Section 4999
of the Code.
On April 15, 1997, the Company entered into agreements with Mr. Caldwell and
Mr. Martin, and on October 29, 1997 with Mr. Calderoni which are substantially
the same as that of Mr. Neal described above, except (i) the severance period
following termination is one year before a change of control and three years
after a change of control; (ii) coverage under welfare benefit plans and
additional age and service credit under the Company's deferred compensation
plans following termination is one year before a change of control and three
years (or the minimum age and service credit required for early retirement
benefits and the retirement interest rate) after a change of control; and
(iii) there are no comparable provisions relating to payments under the LTIP
or assumption of insurance policies. On March 16, 1996, the Company entered
into an agreement with Mr. van Schoonenberg providing that, if his employment
with the Company is terminated for any reason other than for death,
disability, cause, or voluntary resignation without good reason (as such terms
are defined in the agreement), he will receive a payment equivalent to two
years salary and bonus, continue to participate in benefit and incentive plans
for a two-year period, his unvested options will be accelerated, and he will
receive the minimum age and service credit required for early retirement
eligibility and other purposes; in the event of such termination within two
years of a change of control, he will receive a payment equal to three times
salary and bonus, payment for LTIP and reimbursement for excise taxes.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended (the "1934
Act") requires the Company's officers and directors, and persons who own more
than ten percent of a registered class of the Company's equity securities
(collectively, "Insiders"), to file initial reports of ownership and reports
of changes in ownership with the Securities and Exchange Commission (the
"SEC") and the New York Stock Exchange. Insiders are required by SEC
regulations to furnish the Company with copies of all Section 16(a) forms they
file. To the Company's knowledge, based solely on its review of the copies of
such reports furnished to the Company and written representations from certain
Insiders that no other reports were required for such Insiders, the Company
believes that, during the 1998 fiscal year, Insiders complied with all Section
16(a) filing requirements applicable to Insiders, except that one report,
covering a gift, was filed late by Mr. Caldwell.
REPORT OF COMPENSATION AND EXECUTIVE PERSONNEL COMMITTEE
ON EXECUTIVE COMPENSATION
The Committee has furnished the following report on executive compensation.
Overall Policy
The Company's executive compensation program is designed to be closely
linked to Company performance and returns to stockholders. To this end, the
Company developed several years ago overall compensation strategy and specific
compensation plans that tie a significant portion of executive compensation to
the Company's success in meeting specified performance goals and to
appreciation in the Company's stock price. The overall objectives of this
strategy are to attract and retain the best possible executive talent, to
motivate these executives to achieve the goals inherent in the Company's
business strategy, to link executive and stockholders interests' through
equity based plans and finally to provide a compensation package that
recognizes individual contributions as well as overall business results.
14
<PAGE>
Each year the Committee, which is comprised exclusively of non-employee
directors, conducts a review of the Company's executive compensation program.
This review includes an assessment of the effectiveness of the Company's
compensation program and a comparison of the Company's executive compensation
and performance to comparable public corporations, including companies within
the Peer Group described under "Stockholder Return Performance." The Company
retains from time to time the services of executive compensation consultants
to provide to the Company and the Committee comparative data, benefit design
advice and analysis of the cost of incentives provided.
The Committee determines the compensation of the Company's 11 executive
officers, including the individuals whose compensation is detailed in this
proxy statement, and sets policies for and reviews the compensation awarded to
another approximately 51 highly compensated executives. This is designed to
ensure consistency throughout the executive compensation program. In reviewing
the individual performance of the 9 executive officers (other than Mr. Miller
and Mr. Neal), the Committee takes into account the detailed performance
reviews and recommendations of Mr. Neal.
The key elements of the Company's executive compensation program consist of
base salary, annual bonus, stock options, and, for certain executives,
participation in the LTIP. The Committee's policies with respect to each of
these elements, including the basis for the compensation paid and awarded to
Mr. Miller, Chairman, and Mr. Neal, President and Chief Executive Officer, are
discussed below. In addition, while the elements of compensation described
below are considered separately, the Committee takes into account the full
compensation package afforded by the Company to the individual executive.
Under the 1993 Omnibus Budget Reconciliation Act ("OBRA") and Section 162(m)
of the Code, income tax deductions of publicly-traded companies may be limited
to the extent total compensation for certain executive officers exceeds $1
million (less the amount of any "excess parachute payments" as defined in
Section 280G of the Code) in any one year, except for compensation payments
which qualify as "performance-based." To qualify as "performance-based,"
compensation payments must be based solely upon the achievement of objective
performance goals and made under a plan that is administered by a committee of
outside directors. In addition, the material terms of the plan must be
disclosed to and approved by stockholders, and the compensation committee must
certify that the performance goals were achieved before payments can be made.
The Committee has designed certain of the Company's compensation programs to
conform with the Section 162(m) of the Code and related regulations so that
total compensation paid to any employee covered by the Section 162(m) should
not exceed $1 million in any one year, except for compensation payments which
qualify as "performance-based." However, the Company may pay compensation,
which is not deductible in certain circumstances, when sound management of the
Company so requires. In furtherance of the Company's intention to design
compensation programs to conform with the OBRA legislation, the Company is
requesting that its stockholders reapprove the Senior Executive Leadership
Compensation Plan and the LTIP, both of which were approved by the
stockholders in 1994. See Proxy Items 2 and 3.
Base Salaries
Base salaries for new executive officers are initially determined by
evaluating the responsibilities of the position to be held and the experience
of the individual, and by reference to the competitive marketplace for
executive talent, including a comparison to base salaries for comparable
positions at other companies. The Company participates each year in two
nationwide salary surveys of between approximately 350 and 400 large public
companies performed by nationally recognized compensation consulting firms.
The Committee uses the data compiled from these surveys to assist it in
establishing base salaries. In general, base salaries and total compensation
for executives are targeted to a range that is within the third quartile (the
fourth quartile being the highest) of the compensation paid by such other
companies. Mr. Miller's and Mr. Neal's base salaries are also targeted in this
range, and their total compensation is targeted to a range within the fourth
quartile. In addition, in establishing salary levels within that range, the
Committee considers the competitiveness of the executives' entire compensation
package. For 1998, salary levels were within or below this range, based on
competitive salary data compiled in 1997 and updated for use in 1998.
15
<PAGE>
Annual salary adjustments are determined by evaluating the performance of
the Company and of each executive officer, reviewing base salaries for
comparable positions at other companies contained in the salary surveys
described above, and, for selected senior executives, including Mr. Miller and
Mr. Neal, comparing the total compensation packages of the executives,
including base salary, with those of the companies in the Peer Group described
under "Stockholder Return Performance." In addition, the Committee takes into
account any new responsibilities. In the case of executive officers with
responsibility for a particular business unit, such unit's financial results
are also considered. The Committee, where appropriate, also considers non-
financial performance measures. These include increases in market share,
manufacturing efficiency gains, improvements in product quality, customer
service, working capital management, employee safety, relations with employees
and leadership development.
With respect to the base salaries granted to Mr. Miller and Mr. Neal in
1998, the Committee took into account a comparison of base salaries of chief
executive officers of the other companies contained in the salary surveys
described above; the total compensation packages of the executives, including
base salary, of the companies in the Peer Group described under "Stockholder
Return Performance," the Company's success in exceeding several financial
goals in 1998, including return on total capital ("ROTC") and earnings per
share ("EPS"); the performance of the Company's common stock against the Peer
Group; and the assessment by the Committee of Mr. Miller's and Mr. Neal's
performance, including their individual leadership with respect to the
development of long-term business strategies for the Company to improve its
economic value, leadership development, succession planning and management
continuity. The Committee also took into account the longevity of Mr. Miller's
and Mr. Neal's service to the Company and its belief that they are excellent
representatives of the Company to the public by virtue of their stature in the
community and the industries in which the Company operates. Because of Mr.
Miller's change in role from Chairman and Chief Executive Officer to Chairman
in May of 1998, he did not receive an increase in base salary for 1998; his
base salary remained $880,000 for 1998. Mr. Neal was granted a base salary of
$700,000 for 1998 (effective May 1998 when he became Chief Executive Officer),
an increase of 21.7% over his $575,000 base salary for 1997.
Annual Bonus
The Company's executive officers, other than Messrs. Miller and Neal, are
eligible for an annual cash bonus under the Company's Executive Leadership
Compensation Plan (the "Executive Bonus Plan"). Under the Executive Bonus
Plan, individual and corporate performance objectives are established at the
beginning of each year. Eligible executives are assigned threshold, target and
maximum bonus levels. The Company performance measure for bonus payments is
based on several financial goals, including, in 1998, ROTC and EPS. For
executive officers with responsibility for a particular group, each of which
consists of several business units, the performance measure is based on the
group's net income, economic value added and ROTC. The Committee weighs these
financial goals very heavily. Each of the specified financial performance
measures is given approximately equal weight. In 1998, the Company exceeded
each of its targeted financial goals. The Committee also considers the
individual non-financial performance measures described above under "Base
Salaries" in determining bonuses under the Executive Bonus Plan, but to a much
lesser extent than the financial goals described above.
Messrs. Miller and Neal are eligible for an annual cash bonus under the
Company's Senior Executive Leadership Compensation Plan (the "Senior Executive
Bonus Plan") which was approved by stockholders in 1994 as part of the
Company's policy to design certain of the Company's compensation programs to
conform with Section 162(m) of the Code and related regulations. Payments
under the Senior Executive Bonus Plan are based solely on the achievement of
one or more of the following pre-established objective performance goals:
ROTC, EPS, return on sales ("ROS"), economic value added ("EVA"), return on
equity ("ROE"), net income, cash flow, sales and total shareholder return
(defined as cumulative shareholder return, including the reinvestment of
dividends, on the Company's common stock), subject to the Committee's
discretion to decrease awards which would otherwise be payable under the
Senior Executive Bonus Plan. In addition, no bonuses are payable to the
chairman, chief executive officer or chief financial officer (who is currently
a participant in the Executive Bonus Plan) unless the Company's pre-tax return
on stockholders' equity exceeds a minimum threshold and, in such
16
<PAGE>
event, the total of such executives' bonuses may not exceed a specified
percentage of the Company's pre-tax return on stockholders' equity in excess
of that minimum threshold. In 1998, the Company substantially exceeded each of
its targeted performance goals (ROTC and EPS) under the Senior Executive Bonus
Plan. Based on this performance, Mr. Neal was awarded a cash bonus of
$800,000, which represents a 10.3% over the bonus paid in 1997. For 1998, the
Committee awarded Mr. Miller a stock option grant of 63,000 shares in
consideration for his agreement to forgo a cash bonus; this grant was made on
February 25, 1999.
Stock Options
Under the 1990 Plan and 1996 Plan, stock options are granted to the
Company's executive officers. The size of stock option awards is determined by
the Committee using as a guideline a formula which takes into account
competitive compensation data and the executive's total cash compensation
opportunity (base salary and bonus opportunity). The formula does not take
into account the amount of stock options previously awarded to the executive
officers, although the Committee may do so. In the event of poor Company or
individual performance, the Committee can elect not to award options or grant
options on fewer shares.
Stock options are designed to align the interests of executives with those
of the stockholders. The Committee believes that significant equity interests
in the Company held by the Company's management align the interests of
stockholders and management. The Company has adopted a stock ownership
philosophy for officers and directors, which encourages each officer and
director to achieve and maintain certain specified levels of stock ownership
during his or her tenure with the Company.
Stock options are granted with an exercise price equal to the market price
of the common stock on the date of grant and with a ten-year term. Except for
special grants and for Mr. Neal's grant of 50,000 options in 1998 which vests
25% per year, options for LTIP participants (including the individuals whose
compensation is detailed in this proxy statement) vest nine years and nine
months from the date of grant, subject to accelerated vesting beginning three
years from the date of grant if the Company meets the ROTC test set forth in
the LTIP. Options for the rest of the Company's executives vest 25% per year
over four years. This approach is designed to promote the creation of
stockholder value over the long-term since the full benefit of the
compensation package cannot be realized unless stock price appreciation occurs
over a number of years.
In 1998, Mr. Miller received options to purchase 125,000 shares with an
exercise price of $45.1875 per share. As of December 31, 1998, Mr. Miller
owned directly 267,033 shares of the Company's common stock and, with the 1998
grant, holds options to purchase an additional 1,177,800 shares, of which
options to purchase 550,800 shares were exercisable at December 31, 1998. In
1998, Mr. Neal received options to purchase 100,000 shares with an exercise
price of $45.1875 per share and 50,000 shares with an exercise price of
$52.3438. As of December 31, 1998, Mr. Neal held in trust 96,929 shares of the
Company's common stock and, with the 1998 grant, holds options to purchase an
additional 739,400 shares, of which options to purchase 344,400 shares were
exercisable at December 31, 1998.
LTIP
Under the LTIP, key executives recommended by the Company's Chief Executive
Officer and designated by the Committee are eligible to earn a deferred cash
incentive award based on the financial performance of the Company and, in some
cases, its business units. Participants in the LTIP are eligible to earn a
deferred cash incentive award after the end of each multi-year performance
cycle, which cycles generally begin every other year (e.g., 1996 and 1998).
During 1998, the Committee designated each of the executive officers whose
compensation is detailed in this proxy statement, and certain other
executives, as participants in the LTIP for the performance cycle which began
in 1998. Payment of awards for this cycle to Mr. Miller and Mr. Neal are
subject to stockholder reapproval of the LTIP (See Proxy Item 3).
17
<PAGE>
Each of the most senior group of executives who is designated as a
participant in the LTIP (including Mr. Miller and Mr. Neal and the other
executives whose compensation is detailed in this proxy statement) ("Senior
Executives") will be eligible to receive (after the end of the performance
cycle (2000)) a deferred cash incentive award of a percentage of the
participant's base salary in effect at the end of the cycle. The threshold
(i.e., minimum), target and maximum awards are 18.6 percent, 80 percent and
160 percent of the executive's base salary, respectively. The award is based
on the Company's achievement of certain pre-established ROTC, EPS and
cumulative economic value added objectives, each of which is given equal
weight. The threshold award of 18.6 percent of base salary will be earned if
the Company meets at least 80 percent of the ROTC, EPS, or cumulative EVA
objective. The target award of 80 percent of base salary will be earned if the
Company achieves 100 percent of each of the ROTC, EPS and cumulative economic
value added objectives. The maximum award will be earned only if the Company
achieves pre-established objectives substantially in excess of these
objectives.
Participants other than Senior Executives ("Other Participants") are divided
into categories under the LTIP based on their positions with the Company.
Target and threshold awards are based on the Company's achievement of certain
pre-established ROTC, EPS and cumulative economic value added objectives (each
of which is given equal weight) or, for executives who are responsible for a
business unit, the unit's achievement of pre-established ROTC, net income and
cumulative business unit economic value added objectives (each of which is
given equal weight). Threshold awards for Other Participants, ranging from 7
percent to 14 percent of base salary (depending on the category) will be
earned if at least 80 percent of one of the applicable objectives is met.
Target awards ranging from 30 percent to 60 percent of base salary will be
earned if 100 percent of all three objectives are achieved. Maximum awards
ranging from 60 percent to 120 percent of base salary, depending on the
category, will be earned only if the Company achieves pre-established
objectives substantially in excess of these objectives and, for executives who
are responsible for a business unit, such business unit reaches certain levels
of achievement of its ROTC, net income and cumulative business unit economic
value added objectives. In addition, for Other Participants, the Committee
may, in its discretion, provide for deferred cash incentive awards in excess
of the awards which would be made based on the formulas contained in the LTIP.
Conclusion
Through the programs described above, a very significant portion of the
Company's executive compensation is linked directly to individual and Company
performance and stock price appreciation. In 1998, approximately 50% of the
Company's executive compensation (over 65% for the individuals listed in the
table on page 9) consisted of these performance-based variable elements. For
Mr. Miller and Mr. Neal, approximately 78% and 77%, respectively, of their
1998 compensation consisted of performance-based variable elements. The
Committee intends to continue the policy of linking executive compensation to
Company performance and returns to stockholders, recognizing that the ups and
downs of the business cycle from time to time may result in an imbalance for a
particular period.
February 25, 1999
John C. Argue, Chairman
Frank V. Cahouet
Sidney R. Petersen
18
<PAGE>
STOCKHOLDER RETURN PERFORMANCE
The graph on the next page compares the Company's cumulative stockholder
return on its common stock, including the reinvestment of dividends, with the
return on the Standard & Poor's 500 Stock Index (the "S&P 500 Index") and the
average return, weighted by market capitalization, of a peer group of
companies (the "Peer Group"). In addition, the Company has included the median
return of the Peer Group in the graph because, under the Company's LTIP,
Company performance is measured against the performance of other companies
using a percentile approach in which each company is given equal weight
regardless of its size.
The Peer Group is comprised of Air Products & Chemicals Inc., Armstrong
World Industries Inc., Arvin Industries Inc., Baker-Hughes, Inc., Bemis
Company, Inc., Black & Decker Corporation, Boise Cascade Corporation, Cabot
Corporation, Crane Co., Dana Corporation, Danaher Corporation, Eaton
Corporation, Ecolab Inc., Engelhard Corporation, Ethyl Corporation, Federal-
Mogul Corporation, Ferro Corporation, H. B. Fuller Company, The B. F. Goodrich
Co., W. R. Grace & Co., Great Lakes Chemical Corporation, Harris Corporation,
Harsco Corporation, Hercules Inc., Illinois Tool Works Inc., Ingersoll-Rand
Co., Mark IV Industries Inc., The Mead Corporation, Moore Corporation Ltd.,
Morton International Inc., Nacco Industries, Nalco Chemical Co., Newell Co.,
Olin Corporation, P.P.G. Industries Inc., Parker-Hannifin Corporation, Pentair
Inc., Pitney Bowes Inc., Premark International Inc., Rubbermaid Inc., Sequa
Corporation, The Sherwin-Williams Co., Snap-On Tools Corp., Sonoco Products
Co., Stanley Works, Tecumseh Products Co., Union Camp Corporation, Union
Carbide Corporation, Westvaco Corporation, and Witco Corporation. Dresser
Industries, Inc., which merged with Halliburton during 1998, has been removed
from the Peer Group for all periods, and Dana Corporation has been included
for all periods.
19
<PAGE>
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN(1)
OF AVERY DENNISON, S&P 500 INDEX AND PEER GROUP,
WEIGHTED AVERAGE(2) AND MEDIAN
as of December 31, 1998
[PERFORMANCE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
12/93 12/94 12/95 12/96 12/97 12/98
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Avery Dennison $100 $125 $181 $261 $335 $343
------------------------------------------------------------------
S&P 500 Index $100 $101 $139 $171 $228 $293
------------------------------------------------------------------
Peer Group (Wt. Average)(2) $100 $98 $127 $152 $198 $209
------------------------------------------------------------------
Peer Group (Median) $100 $100 $124 $144 $187 $169
</TABLE>
- - --------
(1) Assumes $100 invested on December 31, 1993, and the reinvestment of
dividends; chart reflects performance on a calendar year basis.
(2) Weighted average is weighted by market capitalization.
Stock price performance of the Company reflected in the above graph is not
necessarily indicative of future price performance.
20
<PAGE>
CERTAIN TRANSACTIONS
Peter W. Mullin is the chairman and chief executive officer and a director
of Mullin Insurance Services, Inc. ("MINC") and PWM Insurance Services, Inc.
("PWM"), executive compensation and benefit consultants and insurance agents.
Mr. Mullin is also the majority stockholder of MINC and the principal
stockholder of PWM. During 1998, the Company paid insurance companies premiums
for life insurance placed by MINC and PWM in 1998 and prior years in
connection with various Company employee benefit plans. In 1998, MINC and PWM
earned commissions from such insurance companies in an aggregate amount of
approximately $1,022,500 for the placement and renewal of this insurance, in
which Mr. Mullin had direct and indirect interests approximating $679,200. In
addition, in 1998 PWM had an interest in SCA Consulting, L.L.C. ("SCA").
During 1998, the Company paid SCA a total of $34,300 for consulting
assignments, in which Mr. Mullin had an indirect interest approximating
$7,000.
Richard M. Ferry is co-founder, chairman, a director and stockholder of
Korn/Ferry International ("Korn/Ferry"), an executive search firm. During
1998, Korn/Ferry received an aggregate of approximately $297,000 in payments
from the Company for worldwide executive search services, in which Mr. Ferry
had an indirect interest approximating $11,500.
VOTING SHARES
Stockholders of record at the close of business on March 1, 1999, are
entitled to notice of, and to vote at, the Annual Meeting. There were
113,813,785 shares of common stock of the Company outstanding on March 1,
1999.
Principal Stockholders
Whenever in this proxy statement information is presented as to "beneficial
ownership", please note that such ownership indicates only that the person
shown, directly or indirectly, has or shares with others the power to vote (or
to direct the voting of) or the power to dispose of (or to direct the
disposition of) such shares; such person may or may not have any economic
interest in the shares. The reporting of information herein does not
constitute an admission that any such person is, for the purpose of Section 13
or 16 of the 1934 Act, the "beneficial owner" of the shares shown herein.
To the knowledge of the Company, the following were the only persons who, as
of December 31, 1998, owned beneficially 5% or more of the outstanding common
stock of the Company.
<TABLE>
<CAPTION>
Name and Address Number of Shares Percent
of Beneficial Owner Beneficially Owned of Class
- - ------------------- ------------------ --------
<S> <C> <C>
Avery Dennison Corporation
Employee Stock Benefit Trust ("ESBT").............. 15,036,525(1) 13.1%
Wachovia Bank, N.A., Trustee
101 North Main Street
Winston-Salem, NC 27150-3099
</TABLE>
- - --------
(1) The ESBT and Wachovia Bank, N.A., as Trustee, disclaim beneficial
ownership of these shares.
The Company's Employee Savings Plan, SHARE Plan and Retirement Plan (the
"Plans") together owned a total of 10,291,063 shares of Company common stock
on December 31, 1998, or 8.9 % of the common stock then outstanding. Although
the Company is the Administrator of the Plans, each plan was established and
is administered to achieve the different purposes for which it was created for
the exclusive benefit of its participants, and employees participating in the
Plans are entitled to vote all shares allocated to their accounts.
Accordingly, such plans do not constitute a "group" within the meaning of
Section 13(d) of the 1934 Act.
21
<PAGE>
THE SENIOR EXECUTIVE LEADERSHIP COMPENSATION PLAN (Proxy Item 2)
Description of the Bonus Plan
In January 1994, the Committee approved the Senior Executive Incentive
Compensation Plan (which was subsequently renamed "Senior Executive Leadership
Compensation Plan" or the "Bonus Plan"), and which was approved by the
stockholders in April 1994, as part of the Company's policy to design the
Company's compensation programs to conform with Section 162(m) of the Code and
related regulations so that total compensation paid to any employee should not
exceed $1 million in any one year, except for compensation payments in excess
of $1 million which qualify as "performance-based." Section 162(m) requires
that such plans be reapproved by the stockholders every five years. Payments
under the Bonus Plan are based solely on objective performance criteria.
Accordingly, it is expected that such payments will not be subject to the
deduction limit if, among other things, stockholders reapprove the Bonus Plan
at the Annual Meeting. Participants in the Bonus Plan are not eligible to
participate in the Company's general bonus plan for other executives.
Under the Bonus Plan, key executives designated by the Committee are
eligible to receive annual cash bonus payments based on the financial
performance of the Company. Senior executives, including Messrs. Miller and
Neal, are eligible to participate in the Bonus Plan. The purposes of the Bonus
Plan are to attract and retain the best possible executive talent, to permit
executives of the Company to share in its profits, to promote the success of
the Company and to closely link executive rewards to Company performance.
The principal features and material terms of the Bonus Plan are summarized
below, but the summary is qualified in its entirety by reference to the Bonus
Plan itself. Copies of the Bonus Plan will be available at the Annual Meeting
and can also be obtained by making written request of the Company's Secretary.
Each participant in the Bonus Plan is eligible to receive an annual bonus of
up to a maximum of 150% of the participant's base salary in effect at the end
of the year, with a maximum annual payment of $1.8 million. The award is based
on the Company's achievement of pre-established performance objectives based
on one or more of the following: ROS, ROTC, EPS, ROE, net income, net sales,
cash flow from operations, EVA, sales growth and total shareholder return
(defined as cumulative shareholder return, including the reinvestment of
dividends, on the Company's common stock). The threshold and targeted awards
under the Bonus Plan are 25% and 100% of the executive's base salary,
respectively. The threshold award is not earned unless the Company meets at
least 75% of the performance goal. If the Company meets between 75% and 100%
of performance objective(s), the bonus will range from 50% to 100% of base
salary on a prorated basis depending on actual results, and if the Company
exceeds the performance goal, the executive will receive a bonus of between
100% to 150% of base salary on a prorated basis depending on actual results.
The Committee also has the discretion to decrease the amounts of awards which
would otherwise be payable under the Bonus Plan.
No bonuses are payable to senior executives unless the Company's pre-tax
return on stockholders' equity exceeds a minimum threshold and, in such event,
the total of such executives' bonuses may not exceed a specified percentage of
the Company's pre-tax return on stockholders' equity in excess of that minimum
threshold.
Bonuses for 1998, set forth in the table on page 9, were paid to senior
executives in accordance with the criteria described above under "Report of
Compensation Committee -- Annual Bonus." If stockholders approve the Bonus
Plan above, bonuses for 1999 (and subsequent years) will be paid under the
Bonus Plan described above and will be based on the Company's 1999 financial
results which are not yet determinable; however, if the Company's performance
in 1999 is comparable to the performance in 1998, then the bonus amounts that
would be payable in 2000 would also be comparable.
Miscellaneous Provisions
Upon a "change of control" (as defined in the Bonus Plan), participants in
the Bonus Plan will be entitled to receive bonuses equal to their target award
based on the participant's annual base salary rate in effect at the
22
<PAGE>
time of the change of control. The Committee may amend, suspend or terminate
the Bonus Plan, but only prospectively to the extent such action would deprive
participants of benefits.
Federal Income Tax Consequences
The tax consequences of the Bonus Plan under current federal law are
summarized in the following discussion, which deals with the general tax
principles applicable to the Bonus Plan, and is intended for general
information only. Alternative minimum tax and state and local income taxes are
not discussed, and may vary depending on individual circumstances and from
locality to locality.
A participant who becomes eligible to receive a bonus under the Bonus Plan
will not realize taxable income at that time, nor will the Company be entitled
to a deduction at that time. When a bonus is paid, the participant will have
ordinary income equal to the amount paid, and the Company is expected to be
entitled to a corresponding deduction, subject to the Section 162(m) discussed
in "Reasons for Stockholder Approval" below. However, if bonuses were paid
under the Bonus Plan upon a change of control, some or all of the bonuses
could be "excess parachute payments" which would be nondeductible.
Reasons for Stockholder Approval
As described above under Proxy Item 2, it is the Company's policy generally
to design the Company's compensation programs to conform with the Section
162(m) and related regulations so that total compensation paid to any employee
will not exceed $1 million in any one year, except for compensation payments
in excess of $1 million which qualify as "performance-based." The approval of
the Bonus Plan by stockholders is being sought so that bonuses paid under the
Bonus Plan will not be subject to this deduction limit.
Required Vote for Approval and Recommendation of the Board of Directors
The affirmative vote of a majority of the shares present or represented and
entitled to vote at the Annual Meeting is required to approve the Bonus Plan.
A vote in favor of the Bonus Plan will also constitute approval of the
material terms of the performance goals thereunder for purposes of Section
162(m). Your Board of Directors recommends a vote FOR approval of the Bonus
Plan.
THE EXECUTIVE LONG-TERM INCENTIVE PLAN (Proxy Item 3)
Description of the LTIP
During 1991, the Company's Board of Directors approved the Executive Long-
Term Incentive Plan (the "LTIP") as part of an executive compensation program
that is designed to be closely linked to Company performance and returns to
stockholders. The LTIP was approved by the stockholders in April 1994, as part
of the Company's policy to design the Company's compensation programs to
conform with Section 162(m) of the Code and related regulations so that total
compensation paid to any employee should not exceed $1 million in any one
year, except for compensation payments in excess of $1 million which qualify
as "performance-based." Section 162(m) requires that such plans be reapproved
by the stockholders every five years. Payments under the LTIP are based solely
on objective performance criteria. Accordingly, it is expected that such
payments will not be subject to the deduction limit if, among other things,
stockholders reapprove the LTIP at the Annual Meeting.
Under the LTIP, key executives recommended by the Company's Chief Executive
Officer and designated by the Committee are eligible to earn deferred cash
incentive awards based on the financial performance of the Company and, in
some cases, its business units. Approximately 55 officers and other employees
are currently eligible to participate in the LTIP. The purpose of the LTIP is
to focus key executives of the Company on factors that influence the Company's
long-term growth and success by providing a means whereby participants are
given an opportunity to share financially in the future value they help to
create for the Company and its stockholders.
23
<PAGE>
The principal features of the LTIP are summarized below, but the summary is
qualified in its entirety by reference to the LTIP itself. Copies of the LTIP
will be available at the Annual Meeting and can also be obtained by making
written request of the Company's Secretary.
Deferred Cash Incentive Awards
Participants in the LTIP are eligible to earn a deferred cash incentive
award after the end of each three-year performance cycle. The maximum cash
payout to the participant for a performance cycle is $2.2 million. A
performance cycle under the LTIP began in 1998. Subsequent performance cycles
begin every two years. The amount of an individual's award depends on the
participant's position with the Company, the participant's base salary in
effect at the end of the cycle and the Company's actual performance during the
performance cycle versus pre-established objectives based on or more of the
following: ROS, ROTC, EPS, return on equity, net income, cash flow from
operations, net sales, economic value added, total shareholder return and,
additionally, in the case of certain executives who are responsible for a
business unit of the Company, the unit's performance versus pre-established
objectives including ROTC, net sales, net income and economic value added for
the unit. For the 1998 performance cycle, the measurement of performance
objectives will be based upon performance during the final year of the cycle
(2000, except for cumulative economic value added which will be measured at
the end of each year of the cycle and totaled at the end). For subsequent
performance cycles, performance measurement may be based upon different
criteria (e.g., average performance of the cycle) at the discretion of the
Committee. For a description of the LTIP Awards that have been made for the
1998-2000 cycle, see page 12 and for a description of the calculation of
awards under the LTIP, see "Report of Compensation Committee -- LTIP" on page
17. The amounts of awards for cycles after 1998-2000 are not determinable.
Miscellaneous Provisions
Upon a "change of control" of the Company (as defined in the LTIP),
participants in the LTIP will be entitled to receive cash payments equal to
their target award under the deferred cash incentive of the LTIP based on the
participant's annual base salary rate in effect at the time of the change of
control. However (unless the Company has an agreement with the participant to
pay any excise tax related to such payment), no payments of deferred cash
incentive awards will be made to participants under these change of control
provisions to the extent that such payments would be subject to the excise tax
on excess parachute payments under Section 4999 of the Code. The Committee may
amend, suspend or terminate the LTIP, but only prospectively to the extent
such action would deprive participants of benefits.
Federal Income Tax Consequences
The tax consequences of the LTIP under current federal law are summarized in
the following discussion, which deals with the general tax principles
applicable to the LTIP, and is intended for general information only.
Alternative minimum tax and state and local income taxes are not discussed,
and may vary depending on individual circumstances and from locality to
locality.
A participant who becomes eligible to receive a deferred cash incentive
under the LTIP will not realize taxable income at that time, nor will the
Company be entitled to a deduction at that time. When a cash incentive is
paid, the participant will have ordinary income equal to the amount paid, and
the Company is expected to be entitled to a corresponding deduction, subject
to the Section 162(m) discussed in "Reasons for Stockholder Approval" below.
However, if payments were paid under the LTIP upon a change of control, some
or all of the bonuses could be "excess parachute payments" which would be
nondeductible.
Reasons for Stockholder Approval
As described above under Proxy Item 2, it is the Company's policy generally
to design the Company's compensation programs to conform with the Section
162(m) and related regulations so that total compensation paid to any employee
will not exceed $1 million in any one year, except for compensation payments
in excess of
24
<PAGE>
$1 million which qualify as "performance-based." The approval of the LTIP by
stockholders is being sought so that payments under the LTIP for the 1998-2000
cycle to Messrs. Neal and Miller (which are subject to stockholder approval of
the LTIP), and all payments for subsequent performance cycles, will not be
subject to this deduction limit.
Required Vote for Approval and Recommendation of the Board of Directors
The affirmative vote of a majority of the shares present or represented and
entitled to vote at the Annual Meeting is required to approve the LTIP. A vote
in favor of the LTIP will also constitute approval of the material terms of
the performance goals thereunder for purposes of Section 162(m). Your Board of
Directors recommends a vote FOR approval of the LTIP.
GENERAL
Independent Accountants
The Board of Directors has selected PricewaterhouseCoopers L.L.P. to serve
as the Company's independent accountants for the 1999 fiscal year. One or more
representatives of PricewaterhouseCoopers L.L.P. will be present at the Annual
Meeting to respond to appropriate questions and will be given an opportunity
to make a statement if they so desire.
Stockholder Proposals
Stockholder proposals for presentation at the annual meeting scheduled to be
held on April 27, 2000, must be received at the Company's principal executive
offices on or before November 6, 1999. The Company's Bylaws provide that
stockholders desiring to nominate persons for election to the Board of
Directors or to bring any other business before the stockholders at an annual
meeting must notify the Secretary of the Company thereof in writing 60 to 90
days prior to the first anniversary of the preceding year's annual meeting
(or, if the date of the annual meeting is more than 30 days before or more
than 60 days after such anniversary date, 60 to 90 days prior to such annual
meeting or within 10 days after the public announcement of the date of such
meeting is first made by the Company; or, if the number of directors to be
elected to the Board of Directors is increased and the Company does not make a
public announcement naming all of the nominees for director or specifying the
size of the increased Board of Directors at least 70 days prior to the first
anniversary of the preceding year's annual meeting, within 10 days after such
public announcement is first made by the Company (with respect to nominees for
any newly created positions only). Such notice must include (a) as to each
person whom the stockholder proposes to nominate for election or reelection as
a director, all information relating to such person that is required to be
disclosed in solicitations of proxies for election of directors in an election
contest, or is otherwise required, in each case pursuant to Regulation 14A
under the 1934 Act and Rule 14a-11 thereunder, (b) as to any other business
that the stockholder proposes to bring before the meeting, a brief description
of such business, the reasons for conducting such business at the meeting and
any material interest in such business of such stockholder and the beneficial
owner, if any, on whose behalf the proposal is made, and (c) the name and
record address, and class and number of shares owned beneficially and of
record, of such stockholder and any such beneficial owner.
Annual Report
The Company's 1998 Annual Report to Stockholders has recently been mailed to
all stockholders of record.
ALL STOCKHOLDERS ARE URGED TO COMPLETE, SIGN, AND RETURN THE ACCOMPANYING
PROXY SOLICITATION/VOTING INSTRUCTION CARD PROMPTLY IN THE ENCLOSED ENVELOPE.
Robert G. van Schoonenberg
Secretary
Dated: March 8, 1999
25
<PAGE>
[LOGO OF AVERY DENNISON] Avery Dennison Corporation
150 North Orange Grove Boulevard
Pasadena, California 91103
PROXY SOLICITATION/
VOTING INSTRUCTION CARD
ANNUAL MEETING - APRIL 29, 1999
PASADENA, CALIFORNIA
The undersigned hereby appoints John C. Argue, Philip M. Neal, and Sidney R.
Petersen, or each or any of them with power of substitution, proxies for the
undersigned to act and vote at the 1999 Annual Meeting of Stockholders of Avery
Dennison Corporation and at any adjournments thereof as indicated upon the
matters referred to on the reverse side and described in the proxy statement for
the meeting, and, in their discretion, upon any other matters which may properly
come before the meeting. This card provides voting instructions, as applicable,
to (i) the appointed proxies for shares held of record by the undersigned
including those held under the Company's DirectSERVICE(TM) Investment and Stock
Purchase Program, and (ii) the Trustee for shares held on behalf of the
undersigned in the Company's Savings Plan and SHARE Plan.
1. Election of Directors
Nominees: (1) Dwight L. Allison, Jr., (2) Richard M. Ferry,
(3) Kent Kresa and (4) Charles D. Miller
2. Reapproval of the Senior Executive Leadership Compensation Plan
3. Reapproval of the Executive Long-Term Incentive Plan
IF NO OTHER INDICATION IS MADE, THE PROXIES SHALL VOTE FOR THE ELECTION
OF THE DIRECTOR NOMINEES, AND PROPOSALS NOS. 2 AND 3
(OVER)
(continued and to be signed on other side)
PLEASE FOLD AND DETACH HERE
NOTICE
If you plan to attend the Annual Meeting of Stockholders, please so indicate by
marking the appropriate box on this card. Space limitations make it necessary
to limit attendance to stockholders. Registration for the Annual Meeting will
begin at 12:30 p.m. on April 29, 1999.
<PAGE>
Please mark
your votes as
indicated in [X]
this example
A vote FOR ALL nominees is recommended by
the Board of Directors.
1. Election of Directors (page 1)
FOR WITHHELD
ALL FROM ALL
FOR ALL EXCEPT the following nominee(s): [_] [_]
- - ----------------------------------------
A vote FOR is recommended by the Board of Directors.
2. Reapproval of the Senior Executive Leadership FOR AGAINST ABSTAIN
Compensation Plan (page 22) [_] [_] [_]
3. Reapproval of the Executive Long-Term Incentive FOR AGAINST ABSTAIN
Plan (page 23) [_] [_] [_]
PLEASE DO NOT FOLD OR
PERFORATE THIS CARD
IMPORTANT--PLEASE MARK, SIGN, DATE AND
RETURN THIS CARD PROMPTLY IN THE ENCLOSED
ENVELOPE. THANK YOU.
Send admission ticket for meeting [_]
Signature of Stockholder(s)/Plan Participant(s)________________ Date______, 1999
NOTE: If acting as attorney, executor, trustee, or in other representative
capacity, please sign name and title.
PLEASE FOLD AND DETACH HERE
Dear Stockholder/Plan Participant:
Please complete the card and return it promptly in the envelope provided so that
your vote can be tabulated prior to the Annual Meeting of Stockholders which
will be held on April 29, 1999.
Alternatively, you may vote your shares by telephone. Voting by telephone
eliminates the need to return the card. To vote by telephone, please follow the
steps below:
1) Have this card and your social security number available.
2) Using a touch-tone telephone, call 1-800-OK2-VOTE (1-800-652-8683)
24 hours a day, 7 days a week.
Your telephone vote authorizes the named proxies in the same manner as if you
marked, signed, dated and returned the card.
U.S. Trust Company, N.A., as Trustee of the Avery Dennison Corporation Savings
Plan and SHARE Plan, will vote shares of Company Stock that have not been
allocated to the account of any participant in proportion to the manner in which
allocated shares of Company Stock are voted by participants who timely furnish
voting instructions. The card should be returned no later than April 22, 1999.
YOUR VOTE IS IMPORTANT. THANK YOU FOR VOTING.
<PAGE>
[LOGO OF AVERY DENNISON]
CONFIDENTIAL VOTING INSTRUCTIONS
Avery Dennison Corporation
150 North Orange Grove Boulevard
Pasadena, California 91103
TO: FIRST CHICAGO TRUST COMPANY OF NEW YORK AS TABULATING AGENT FOR THE TRUSTEE
OF THE AVERY DENNISON CORPORATION EMPLOYEE STOCK BENEFIT TRUST
VOTING INSTRUCTIONS SOLICITED BY THE TRUSTEE ON BEHALF OF THE BOARD OF
DIRECTORS OF AVERY DENNISON CORPORATION FOR THE ANNUAL MEETING OF
STOCKHOLDERS, APRIL 29, 1999.
The undersigned hereby authorizes Wachovia Bank, N.A., as Trustee, to act
and vote at the 1999 annual meeting of stockholders of Avery Dennison
Corporation and at any adjournments thereof as indicated upon the matters
referred to on the reverse side and described in the proxy statement for the
meeting, and, in its discretion, upon any other matters which may properly come
before the meeting.
1. Election of Directors
Nominees: (1) Dwight L. Allison, Jr., (2) Richard M. Ferry,
(3) Kent Kresa and (4) Charles D. Miller
2. Reapproval of the Senior Executive Leadership Compensation Plan
3. Reapproval of the Executive Long-Term Incentive Plan
IF NO OTHER INDICATION IS MADE, THE PROXIES SHALL VOTE FOR THE ELECTION
OF THE DIRECTOR NOMINEES, AND PROPOSALS NOS. 2 AND 3
(OVER)
(continued and to be signed on other side)
PLEASE FOLD AND DETACH HERE
<PAGE>
Please mark
your votes as
indicated in [X]
this example
A vote FOR ALL nominees is recommended by
the Board of Directors.
1. Election of Directors (page 1)
FOR WITHHELD
ALL FROM ALL
FOR ALL EXCEPT the following nominee(s): [_] [_]
- - --------------------------------------------
A vote FOR is recommended by the Board of Directors.
2. Reapproval of the Senior Executive Leadership FOR AGAINST ABSTAIN
Compensation Plan (page 22) [_] [_] [_]
3. Reapproval of the Executive Long-Term Incentive FOR AGAINST ABSTAIN
Plan (page 23) [_] [_] [_]
PLEASE DO NOT FOLD OR
PERFORATE THIS CARD
IMPORTANT--PLEASE MARK, SIGN, DATE AND
RETURN THIS CARD PROMPTLY IN THE ENCLOSED
ENVELOPE. THANK YOU.
Signature of Optionee ______________________________ Date_________________, 1999
NOTE: If acting as attorney, executor, trustee, or in other representative
capacity, please sign name and title.
PLEASE FOLD AND DETACH HERE
Dear Avery Dennison Optionee:
Under the terms of the Avery Dennison Corporation Employee Stock Benefit Trust,
you are entitled, as an employee and a holder of vested stock options from Avery
Dennison, to instruct the Trustee how to vote shares held by the Trust.
Please complete the card and return it promptly in the envelope provided so that
your instructions can be tabulated prior to the Annual Meeting of Stockholders
which will be held on April 29, 1999.
Alternatively, you may vote your shares by telephone. Voting by telephone
eliminates the need to return the card. To vote by telephone, please follow the
steps below:
1) Have this card and your social security number available.
2) Using a touch-tone telephone, call 1-800-OK2-VOTE (1-800-652-8683)
24 hours a day, 7 days a week.
Your telephone vote authorizes the named proxies in the same manner as if you
marked, signed, dated and returned the card.
YOUR VOTE IS IMPORTANT. THANK YOU FOR VOTING.
<PAGE>
[LOGO OF AVERY DENNISON] Avery Dennison Corporation
150 North Orange Grove Boulevard
Pasadena, California 91103
PROXY
SOLICITED BY BOARD OF DIRECTORS
ANNUAL MEETING - APRIL 29, 1999
PASADENA, CALIFORNIA
The undersigned hereby appoints John C. Argue, Philip M. Neal and Sidney R.
Petersen, or each or any of them with power of substitution, proxies for the
undersigned to act and vote at the 1999 annual meeting of stockholders of Avery
Dennison Corporation and at any adjournments thereof as indicated upon the
matters referred to on the reverse side and described in the proxy statement for
the meeting, and, in their discretion, upon any other matters which may properly
come before the meeting.
1. Election of Directors
Nominees: (1) Dwight L. Allison, Jr., (2) Richard M. Ferry,
(3) Kent Kresa and (4) Charles D. Miller
2. Reapproval of the Senior Executive Leadership Compensation Plan
3. Reapproval of the Executive Long-Term Incentive Plan
IF NO OTHER INDICATION IS MADE, THE PROXIES SHALL VOTE FOR THE ELECTION
OF THE DIRECTOR NOMINEES, AND PROPOSALS NOS. 2 AND 3
(OVER)
(continued and to be signed on other side)
PLEASE FOLD AND DETACH HERE
<PAGE>
Please mark
your votes as
indicated in [X]
this example
A vote FOR ALL nominees is recommended by
the Board of Directors.
1. Election of Directors (page 1)
FOR WITHHELD
ALL FROM ALL
FOR ALL EXCEPT the following nominee(s): [_] [_]
- - ----------------------------------------
A vote FOR is recommended by the Board of Directors.
2. Reapproval of the Senior Executive Leadership FOR AGAINST ABSTAIN
Compensation Plan (page 22) [_] [_] [_]
3. Reapproval of the Executive Long-Term Incentive FOR AGAINST ABSTAIN
Plan (page 23) [_] [_] [_]
PLEASE DO NOT FOLD OR
PERFORATE THIS CARD
IMPORTANT--PLEASE MARK, SIGN, DATE AND
RETURN THIS CARD PROMPTLY IN THE ENCLOSED
ENVELOPE. THANK YOU.
Space limitations for the Annual
Meeting make it necessary to limit
attendance to stockholders. "Street
name" holders need to bring a copy of a
brokerage statement reflecting stock
ownership as of March 1, 1999.
Signature of Stockholder __________________________ Date_________________, 1999
NOTE: If acting as attorney, executor, trustee, or in other representative
capacity, please sign name and title.
PLEASE FOLD AND DETACH HERE
