Exhibit 10.19.7

 

AVERY DENNISON CORPORATION

NON-QUALIFIED STOCK OPTION AGREEMENT

 

THIS AGREEMENT, dated December 2, 2004, is made by and between Avery Dennison
Corporation, a Delaware corporation, hereinafter referred to as the “Company,”
and *, an employee of Company or a Subsidiary of Company, hereinafter referred
to as “Employee.”

 

WHEREAS, Company wishes to afford Employee the opportunity to purchase shares of
its $1.00 par value common stock under the terms of the Employee Stock Option
and Incentive Plan; and

 

WHEREAS, the Compensation and Executive Personnel Committee of the Company’s
Board of Directors (hereinafter referred to as the “Committee”), appointed to
administer said Plan, has determined that it would be to the advantage and best
interest of Company and its shareholders to grant the Option provided for herein
to Employee as an inducement to remain in the service of Company or its
Subsidiaries and as an incentive for increased efforts during such service;

 

WHEREAS, the Committee has advised the Company of its determination and
instructed the undersigned officers to issue said Option, which the Committee
has determined should be a Non-Qualified Stock Option, as authorized under the
Plan;

 

NOW, THEREFORE, in consideration of the mutual covenants herein contained and
other good and valuable consideration, the receipt of which is hereby
acknowledged, Company and Employee do hereby agree as follows:

 

ARTICLE I - DEFINITIONS

 

Whenever the following terms are used in this Agreement they shall have the
meaning specified below unless the context clearly indicates to the contrary.

 

1.1 Beneficiary

 

“Beneficiary” shall mean a person properly designated by the Employee, including
his/her spouse or heirs at law, to exercise such Employee’s rights under the
Plan. Designation, revocation and redesignation of Beneficiaries must be made in
writing in accordance with procedures established by the Committee or the
Company, and shall be effective upon delivery to the Company.

 

1.2 Change of Control

 

“Change of Control” shall have the same meaning given in Article 10.2 of the
Plan.

 

1.3 Option

 

“Option” shall mean the option to purchase common stock of the Company granted
under this Agreement.

 

1.4 Plan

 

The “Plan” shall mean the Employee Stock Option and Incentive Plan, as amended
and restated.

 

1.5 Pronouns

 

The masculine pronoun shall include the feminine and neuter, and the singular
and plural, where the context so indicates.

 

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* Refer to attached Notice

 

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1.6 Secretary

 

“Secretary” shall mean the Secretary of the Company.

 

1.7 Subsidiary

 

“Subsidiary” shall mean any corporation in an unbroken chain of corporations
beginning with the Company if each of the corporations other than the last
corporation in the unbroken chain then owns stock possessing 33 percent or more
of the total combined voting power of all classes of stock in one of the other
corporations in such chain.

 

1.8 Termination of Employment

 

“Termination of Employment” shall mean the time when the employee-employer
relationship between the Employee and the Company or a Subsidiary is terminated
for any reason, including, but not limited to, a termination by resignation,
discharge, death or retirement, but excluding terminations where there is a
simultaneous reemployment or continuing employment by the Company or a
Subsidiary, and, at the discretion of the Committee or the Company, terminations
which result in the severance of the employee-employer relationship that do not
exceed one year. The Committee or the Company shall determine the effect of all
other matters and questions relating to Termination of Employment.

 

ARTICLE II - GRANT OF OPTION

 

2.1 Grant of Option

 

In consideration of Employee’s agreement to remain in the employ of Company or
its subsidiaries and for other good and valuable consideration, on the date
hereof the Company irrevocably grants to Employee the option to purchase any
part or all of an aggregate of * shares of its $1.00 par value common stock upon
the terms and conditions set forth in this Agreement. Such Option is granted
pursuant to the Plan and shall also be subject to the terms and conditions set
forth in the Plan.

 

2.2 Purchase Price

 

The purchase price of the shares of stock covered by the Option shall be fifty
nine and 18500/10000 dollars ($59.185) per share without commission or other
charge.

 

2.3 Consideration to Company

 

In consideration of the granting of this Option by the Company, the Employee
agrees to render faithful and efficient service to the Company or a Subsidiary,
with such duties and responsibilities as the Company shall from time to time
prescribe, for a period of at least one (1) year from the date this Option is
granted (unless the Employee retires before the end of such period and the
Employee satisfies the requirements of the last paragraph of Subsection 3.1(a)).
Nothing in this Agreement or in the Plan shall confer upon the Employee any
right to continue in the employ of the Company or any Subsidiary or shall
interfere with or restrict in any way the rights of the Company and its
Subsidiaries, which are hereby expressly reserved, to discharge the Employee at
any time for any reason whatsoever, with or without good cause. Nor shall it
interfere with or restrict in any way, other than the forfeiture of all rights
under this Agreement, the right of the Employee voluntarily to terminate his
employment with the Company or a Subsidiary.

 

2.4 Adjustments in Option

 

In the event that the outstanding shares of the stock subject to the Option are
changed into or exchanged for a different number or kind of shares of the
Company or other securities of the Company by reason of merger, consolidation,
recapitalization, reclassification, stock split-up, stock dividend, or
combination of shares, the Committee or the Company shall make an appropriate
and equitable adjustment in the number and kind of shares as to which the
Option, or portions thereof then unexercised, shall be exercisable. Such
adjustment shall be made with

 

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* Refer to attached Notice

 

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the intent that after the change or exchange of shares, the Employee’s
proportionate interest shall be maintained as before the occurrence of such
event. Such adjustment in the Option may include a necessary corresponding
adjustment in the option price per share, but shall be made without change in
the total price applicable to the unexercised portion of the Option (except for
any change in the aggregate price resulting from rounding-off of share
quantities or prices).

 

ARTICLE III - PERIOD OF EXERCISABILITY

 

3.1 Commencement of Exercisability

 

  (a) The Option will vest (become available for exercise) nine years and nine
months from the date the Option was granted. However, if certain conditions are
met, the Option will become eligible for accelerated or early vesting three
years from the date the Option was granted or on subsequent anniversary dates
thereafter.

 

Such early or accelerated vesting will occur provided that the Company’s return
on total capital as reported in the annual report to shareholders (or other
report) for the most recently completed fiscal year equals or exceeds the
sixty-seventh (67%) percentile of the return on total capital for the peer group
companies (as listed in the Company’s proxy statement) for such third year (the
performance test). (For example, the performance test for accelerated vesting
for options granted in December 2003 will be based on the return on total
capital for 2006).

 

To facilitate the peer group performance comparison needed to determine whether
option vesting is accelerated, the figures for peer group companies return on
total capital will be based upon the twelve-month performance for each company
in the peer group closest to the Company’s fiscal year end, using the most
recent publicly available financial information for such companies.

 

If the Company meets the performance test described above, all prior non-vested
Options eligible for accelerated vesting will become available for exercise as
soon as possible following the Committee’s certifications of the Company’s
performance as compared to the performance of the peer group companies.

 

If the Company fails to meet the performance test described above, all prior
non-vested Options eligible for accelerated vesting will be subject to a similar
performance test following the end of the next fiscal year. The test for
accelerated vesting of Options will continue to “roll” forward in the manner
described above until the Company passes the performance test, until nine years
and nine months have elapsed from the date of grant, or until such Options
otherwise vest as described herein.

 

Alternatively, Options, granted to employees as participants in the Long Term
Incentive Plan, who (i) retire under the Company’s retirement plan within sixty
(60) days of the date of Termination of Employment, (ii) have worked for the
Company for ten (10) or more years, and (iii) have a combination of age and
service with the Company of seventy five (75) or more, will vest as of the date
of Termination of Employment, provided that the Company has met the performance
test (as described above) for the fiscal year ending prior to the employee’s
retirement.

 

  (b) No portion of the Option which is unexercisable under Subsection (a) above
at Termination of Employment shall thereafter become exercisable, unless
otherwise determined by the Committee.

 

  (c) Notwithstanding Subsections 3.1(a) and 3.1(b) above, upon a Change of
Control, all Option installments not yet exercisable shall become immediately
exercisable.

 

3.2 Term of Option

 

The Option will expire and will not, under any condition, be exercisable after
the tenth (10th) anniversary of the date the Option was granted. Such date shall
be the Option’s Expiration Date.

 

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3.3 Exercise of Option after Termination of Employment

 

This Option is exercisable by the Employee only while he is employed by the
Company or a Subsidiary, subject to the following exceptions:

 

  (a) If the Employee dies while the Option is exercisable under the terms of
this Agreement, the Employee’s Beneficiary may exercise such rights, subject to
the limitation in Subsection 3.1(b). The Option must be exercised within twelve
(12) months after the Employee’s death, and the Committee or the Company may in
its discretion extend the Expiration Date of the Option to accommodate such
exercise.

 

  (b) If the Employee’s employment is terminated due to his permanent and total
disability, as defined in Section 22(c)(3) of the Code, the Employee may
exercise the Option, subject to the limitation in Subsection 3.1(b), within
thirty six (36) months after Termination of Employment, but not later than the
Option’s Expiration Date.

 

  (c) If the Employee’s employment is terminated due to his retirement, the
Employee may exercise the Option, subject to the limitations of Subsection
3.1(b), within sixty (60) months after Termination of Employment, but not later
than the Option’s Expiration Date.

 

  (d) If the Employee’s employment is terminated other than for good cause or
the reasons set forth in Subsections (a) through (c) above, the Employee may
exercise the Option, subject to the limitations of Subsection 3.1(b), within six
(6) months after Termination of Employment, but not later than the Option’s
Expiration Date.

 

ARTICLE IV - EXERCISE OF OPTIONS

 

4.1 Partial Exercise

 

Any exercisable portion of the Option or the entire Option, if then wholly
exercisable, may be exercised in whole or in part at any time prior to the time
when the Option or portion thereof becomes unexercisable under Section 3.2. Each
partial exercise shall be for not less than twenty-five (25) shares (or a
smaller number, if it is the maximum number which may be exercised under Section
3.1), and shall be for whole shares only.

 

4.2 Manner of Exercise

 

The Option, or any exercisable portion thereof, may be exercised by delivery
(hard copy, fax or e-mail, as appropriate) to the Secretary or to the Company’s
Securities Administrator of all of the following:

 

  (a) A written notice, complying with the applicable procedures established by
the Committee or the Company, stating that the Option or portion is thereby
exercised; the notice shall be signed by the Employee or the other person then
entitled to exercise the Option, or alternatively, if the option exercise is
executed through the Company’s designated broker (including execution of stock
option exercise electronically through the Web site of the Company’s designated
broker), then such notice shall not be required; and

 

  (b) Full payment for the shares with respect to which the option or portion
thereof is exercised. Payment may be made (i) in cash (or by certified or bank
cashier’s check), or (ii) by actual or constructive delivery to the Company, in
accordance with the procedures established by the Company, of Company Common
Stock then owned by the Employee with a fair market value on the date the option
is exercised equal to the aggregate exercise purchase price of the shares with
respect to which the option or portion thereof is exercised, or (iii) by a
combination of cash and surrender of stock in the manner herein specified, or
(iv) irrevocable instructions to a broker, acceptable to the Company, to deliver
promptly to the Company the amount of the sale or the loan proceeds necessary to
pay the option price; or (v) by instructing the Company to withhold a number of
such shares having a Fair Market Value on the date of the exercise equal to the
aggregate exercise price of such Option; and

 

  (c) Full payment to the Company of any federal, state, local or foreign taxes
required to be withheld in connection with the exercise. Payment may be made (i)
in cash (or by certified or bank cashier’s check), or (ii) by actual or
constructive delivery to the Company, in accordance with the procedures
established by the Company, of Company Common Stock then owned by the Employee
with a fair market value on the date the option is exercised equal to the tax
liability with respect to which the option or portion thereof is

 

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exercised, or (iii) by a combination of cash and surrender of stock in the
manner herein specified, or (iv) irrevocable instructions to a broker,
acceptable to the Company, to deliver promptly to the Company the amount of the
sale or the loan proceeds necessary to pay the tax liability; or (v) by
instructing the Company to withhold a number of such shares having a Fair Market
Value on the date of the exercise equal to the tax liability (and provided that
in any event Employee is responsible for the payment of any and all applicable
taxes related to this stock option grant and any exercise of stock options
hereunder); and

 

  (d) In the event the Option or portion thereof shall be exercised by any
person or persons other than the Employee, appropriate proof of the right of
such person or persons to exercise the Option.

 

4.3 Conditions to Issuance of Stock Certificates

 

The shares of stock deliverable upon the exercise of the Option, or any part
thereof, may be either previously authorized but unissued shares or issued
shares which have then been reacquired by the Company. Such shares shall be
fully paid and nonassessable. The Company shall not be required to issue or
deliver any certificate or certificates for shares of stock purchased upon the
exercise of the Option or part thereof prior to fulfillment of all of the
following conditions:

 

  (a) The admission of such shares to listing on all stock exchanges on which
such class of stock is then listed;

 

  (b) The completion of any registration or other qualification of such shares
under any state or federal law, or under rulings or regulations of the
Securities and Exchange Commission or any other governmental regulatory body
which the Committee or the Company shall, in its absolute discretion, deem
necessary or advisable;

 

  (c) The obtaining of any approval or other clearance from any state or federal
governmental agency which the Committee or the Company shall, in its absolute
discretion, determine to be necessary or advisable;

 

  (d) The lapse of such reasonable period of time following the exercise of the
Option as the Committee or the Company may from time to time establish for
reasons of administrative convenience; and

 

  (e) The receipt by the Company of full payment for such shares.

 

4.4 Rights as Shareholders

 

The holder of the Option shall not be, nor have any of the rights or privileges
of, a shareholder of the Company in respect of any shares purchasable upon the
exercise of any part of the Option unless and until certificates or book entries
representing such shares shall have been issued or made by the Company, or the
Company’s transfer agent, to or for such holder.

 

ARTICLE V – MISCELLANEOUS

 

5.1 Option Subject to Plan

 

The Option is subject to the terms of the Plan, and in the event of any conflict
between this Agreement and the Plan, the Plan shall control.

 

5.2 Administration

 

The Committee or the Company shall have the power to interpret the Plan and this
Agreement and to adopt such procedures for the administration, interpretation
and application of the Plan as are consistent therewith and to interpret or
revoke any such procedures.

 

5.3 Option Not Transferable

 

Neither the Option nor any interest or right therein or part thereof may be
sold, pledged, assigned or transferred in any manner other than by will or by
the applicable laws of descent and distribution. The Option shall be exercised
during the Employee’s lifetime only by the Employee, or his guardian or legal
representative.

 

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5.4 Notices

 

Any notice to be given under the terms of this Agreement to the Company shall be
addressed to the Company in care of its Secretary and any notice to be given to
the Employee shall be addressed to him at the address given beneath his
signature hereto. By a notice given pursuant to this Section, either party may
hereafter designate a different address for notices to be given to him. Any
notice that is required to be given to Employee shall, if Employee is then
deceased, be given to Employee’s personal representative if such representative
has previously informed the Company of his status and address by written notice
under this Section.

 

5.5 Titles

 

Titles are provided herein for convenience only and are not to serve as a basis
for interpretation or construction of this Agreement.

 

5.6 Construction

 

This Agreement and the Plan and all actions taken thereunder shall be governed
by and construed in accordance with the laws of the State of Delaware, without
reference to principles of conflict of laws.

 

IN WITNESS WHEREOF, this Agreement has been executed and delivered by the
parties hereto.

 

           

AVERY DENNISON CORPORATION

By:  

*

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      By:  

*

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Optionee           Chairman and Chief Executive Officer Address*:  

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      By:  

*

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          Secretary

 

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* Refer to attached Notice.

 

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AVERY DENNISON CORPORATION

NON-QUALIFIED STOCK OPTION AGREEMENT

 

THIS AGREEMENT, dated December 2, 2004, is made by and between Avery Dennison
Corporation, a Delaware corporation, hereinafter referred to as the “Company,”
and *, an employee of Company or a Subsidiary of Company, hereinafter referred
to as “Employee.”

 

WHEREAS, Company wishes to afford Employee the opportunity to purchase shares of
its $1.00 par value common stock under the terms of the Employee Stock Option
and Incentive Plan; and

 

WHEREAS, the Compensation and Executive Personnel Committee of the Company’s
Board of Directors (hereinafter referred to as the “Committee”), appointed to
administer said Plan, has determined that it would be to the advantage and best
interest of Company and its shareholders to grant the Option provided for herein
to Employee as an inducement to remain in the service of Company or its
Subsidiaries and as an incentive for increased efforts during such service;

 

WHEREAS, the Committee has advised the Company of its determination and
instructed the undersigned officers to issue said Option, which the Committee
has determined should be a Non-Qualified Stock Option, as authorized under the
Plan;

 

NOW, THEREFORE, in consideration of the mutual covenants herein contained and
other good and valuable consideration, the receipt of which is hereby
acknowledged, Company and Employee do hereby agree as follows:

 

ARTICLE I - DEFINITIONS

 

Whenever the following terms are used in this Agreement they shall have the
meaning specified below unless the context clearly indicates to the contrary.

 

1.1 Beneficiary

 

“Beneficiary” shall mean a person properly designated by the Employee, including
his/her spouse or heirs at law, to exercise such Employee’s rights under the
Plan. Designation, revocation and redesignation of Beneficiaries must be made in
writing in accordance with procedures established by the Committee or the
Company, and shall be effective upon delivery to the Company.

 

1.2 Change of Control

 

“Change of Control” shall have the same meaning given in Article 10.2 of the
Plan.

 

1.3 Option

 

“Option” shall mean the option to purchase common stock of the Company granted
under this Agreement.

 

1.4 Plan

 

The “Plan” shall mean the Employee Stock Option and Incentive Plan, as amended
and restated.

 

1.5 Pronouns

 

The masculine pronoun shall include the feminine and neuter, and the singular
and plural, where the context so indicates.

 

1.6 Secretary

 

“Secretary” shall mean the Secretary of the Company.

 

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* Refer to attached Notice.

 

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1.7 Subsidiary

 

“Subsidiary” shall mean any corporation in an unbroken chain of corporations
beginning with the Company if each of the corporations other than the last
corporation in the unbroken chain then owns stock possessing 33 percent or more
of the total combined voting power of all classes of stock in one of the other
corporations in such chain.

 

1.8 Termination of Employment

 

“Termination of Employment” shall mean the time when the employee-employer
relationship between the Employee and the Company or a Subsidiary is terminated
for any reason, including, but not limited to, a termination by resignation,
discharge, death or retirement, but excluding terminations where there is a
simultaneous reemployment or continuing employment by the Company or a
Subsidiary, and, at the discretion of the Committee or the Company, terminations
which result in the severance of the employee-employer relationship that do not
exceed one year. The Committee or the Company shall determine the effect of all
other matters and questions relating to Termination of Employment.

 

ARTICLE II - GRANT OF OPTION

 

2.1 Grant of Option

 

In consideration of Employee’s agreement to remain in the employ of Company or
its subsidiaries and for other good and valuable consideration, on the date
hereof the Company irrevocably grants to Employee the option to purchase any
part or all of an aggregate of * shares of its $1.00 par value common stock upon
the terms and conditions set forth in this Agreement. Such Option is granted
pursuant to the Plan and shall also be subject to the terms and conditions set
forth in the Plan.

 

2.2 Purchase Price

 

The purchase price of the shares of stock covered by the Option shall be fifty
nine and 18500/10000 dollars ($59.185) per share without commission or other
charge.

 

2.3 Consideration to Company

 

In consideration of the granting of this Option by the Company, the Employee
agrees to render faithful and efficient service to the Company or a Subsidiary,
with such duties and responsibilities as the Company shall from time to time
prescribe, for a period of at least one (1) year from the date this Option is
granted (unless the Employee retires before the end of such period and the
Employee satisfies the requirements of the last paragraph of Subsection 3.1(a)).
Nothing in this Agreement or in the Plan shall confer upon the Employee any
right to continue in the employ of the Company or any Subsidiary or shall
interfere with or restrict in any way the rights of the Company and its
Subsidiaries, which are hereby expressly reserved, to discharge the Employee at
any time for any reason whatsoever, with or without good cause. Nor shall it
interfere with or restrict in any way, other than the forfeiture of all rights
under this Agreement, the right of the Employee voluntarily to terminate his
employment with the Company or a Subsidiary.

 

2.4 Adjustments in Option

 

In the event that the outstanding shares of the stock subject to the Option are
changed into or exchanged for a different number or kind of shares of the
Company or other securities of the Company by reason of merger, consolidation,
recapitalization, reclassification, stock split-up, stock dividend, or
combination of shares, the Committee or the Company shall make an appropriate
and equitable adjustment in the number and kind of shares as to which the
Option, or portions thereof then unexercised, shall be exercisable. Such
adjustment shall be made with the intent that after the change or exchange of
shares, the Employee’s proportionate interest shall be maintained as before the
occurrence of such event. Such adjustment in the Option may include a necessary
corresponding adjustment in the option price per share, but shall be made
without change in the total price applicable to the unexercised portion of the
Option (except for any change in the aggregate price resulting from rounding-off
of share quantities or prices).

 

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* Refer to attached Notice.

 

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ARTICLE III - PERIOD OF EXERCISABILITY

 

3.1 Commencement of Exercisability

 

  (a) The Option will vest (become available for exercise) nine years and nine
months from the date the Option was granted. However, if certain conditions are
met, the Option will become eligible for accelerated or early vesting three
years from the date the Option was granted or on subsequent anniversary dates
thereafter.

 

Such early or accelerated vesting will occur provided that the Company’s return
on total capital as reported in the annual report to shareholders (or other
report) for the most recently completed fiscal year equals or exceeds the
sixty-seventh (67%) percentile of the return on total capital for the peer group
companies (as listed in the Company’s proxy statement) for such third year (the
performance test). (For example, the performance test for accelerated vesting
for options granted in December 2003 will be based on the return on total
capital for 2006).

 

To facilitate the peer group performance comparison needed to determine whether
option vesting is accelerated, the figures for peer group companies return on
total capital will be based upon the twelve-month performance for each company
in the peer group closest to the Company’s fiscal year end, using the most
recent publicly available financial information for such companies.

 

If the Company meets the performance test described above, all prior non-vested
Options eligible for accelerated vesting will become available for exercise as
soon as possible following the Committee’s certifications of the Company’s
performance as compared to the performance of the peer group companies.

 

If the Company fails to meet the performance test described above, all prior
non-vested Options eligible for accelerated vesting will be subject to a similar
performance test following the end of the next fiscal year. The test for
accelerated vesting of Options will continue to “roll” forward in the manner
described above until the Company passes the performance test, until nine years
and nine months have elapsed from the date of grant, or until such Options
otherwise vest as described herein.

 

Alternatively, Options, granted to employees as participants in the Long Term
Incentive Plan, who (i) retire under the Company’s retirement plan within sixty
(60) days of the date of Termination of Employment, (ii) have worked for the
Company for ten (10) or more years, and (iii) have a combination of age and
service with the Company of seventy five (75) or more, will vest as of the date
of Termination of Employment, provided that the Company has met the performance
test (as described above) for the fiscal year ending prior to the employee’s
retirement.

 

  (b) No portion of the Option which is unexercisable under Subsection (a) above
at Termination of Employment shall thereafter become exercisable, unless
otherwise determined by the Committee.

 

  (c) Notwithstanding Subsections 3.1(a) and 3.1(b) above, upon a Change of
Control, all Option installments not yet exercisable shall become immediately
exercisable.

 

3.2 Term of Option

 

The Option will expire and will not, under any condition, be exercisable after
the tenth (10th) anniversary of the date the Option was granted. Such date shall
be the Option’s Expiration Date.

 

3.3 Exercise of Option after Termination of Employment

 

This Option is exercisable by the Employee only while he is employed by the
Company or a Subsidiary, subject to the following exceptions:

 

  (a) If the Employee dies while the Option is exercisable under the terms of
this Agreement, the Employee’s Beneficiary may exercise such rights, subject to
the limitation in Subsection 3.1(b). The Option must be exercised within twelve
(12) months after the Employee’s death, and the Committee or the Company may in
its discretion extend the Expiration Date of the Option to accommodate such
exercise.

 

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  (b) If the Employee’s employment is terminated due to his permanent and total
disability, as defined in Section 22(c)(3) of the Code, the Employee may
exercise the Option, subject to the limitation in Subsection 3.1(b), within
thirty six (36) months after Termination of Employment, but not later than the
Option’s Expiration Date.

 

  (c) If the Employee’s employment is terminated due to his retirement, the
Employee may exercise the Option, subject to the limitations of Subsection
3.1(b), to the full term of the option, but not later than the Option’s
Expiration Date.

 

  (d) If the Employee’s employment is terminated other than for good cause or
the reasons set forth in Subsections (a) through (c) above, the Employee may
exercise the Option, subject to the limitations of Subsection 3.1(b), within six
(6) months after Termination of Employment, but not later than the Option’s
Expiration Date.

 

ARTICLE IV - EXERCISE OF OPTIONS

 

4.1 Partial Exercise

 

Any exercisable portion of the Option or the entire Option, if then wholly
exercisable, may be exercised in whole or in part at any time prior to the time
when the Option or portion thereof becomes unexercisable under Section 3.2. Each
partial exercise shall be for not less than twenty-five (25) shares (or a
smaller number, if it is the maximum number which may be exercised under Section
3.1), and shall be for whole shares only.

 

4.2 Manner of Exercise

 

The Option, or any exercisable portion thereof, may be exercised by delivery
(hard copy, fax or e-mail, as appropriate) to the Secretary or to the Company’s
Securities Administrator of all of the following:

 

  (a) A written notice, complying with the applicable procedures established by
the Committee or the Company, stating that the Option or portion is thereby
exercised; the notice shall be signed by the Employee or the other person then
entitled to exercise the Option, or alternatively, if the option exercise is
executed through the Company’s designated broker (including execution of stock
option exercise electronically through the Web site of the Company’s designated
broker), then such notice shall not be required; and

 

  (b) Full payment for the shares with respect to which the option or portion
thereof is exercised. Payment may be made (i) in cash (or by certified or bank
cashier’s check), or (ii) by actual or constructive delivery to the Company, in
accordance with the procedures established by the Company, of Company Common
Stock then owned by the Employee with a fair market value on the date the option
is exercised equal to the aggregate exercise purchase price of the shares with
respect to which the option or portion thereof is exercised, or (iii) by a
combination of cash and surrender of stock in the manner herein specified, or
(iv) irrevocable instructions to a broker, acceptable to the Company, to deliver
promptly to the Company the amount of the sale or the loan proceeds necessary to
pay the option price; or (v) by instructing the Company to withhold a number of
such shares having a Fair Market Value on the date of the exercise equal to the
aggregate exercise price of such Option; and

 

  (c) Full payment to the Company of any federal, state, local or foreign taxes
required to be withheld in connection with the exercise. Payment may be made (i)
in cash (or by certified or bank cashier’s check), or (ii) by actual or
constructive delivery to the Company, in accordance with the procedures
established by the Company, of Company Common Stock then owned by the Employee
with a fair market value on the date the option is exercised equal to the tax
liability with respect to which the option or portion thereof is exercised, or
(iii) by a combination of cash and surrender of stock in the manner herein
specified, or (iv) irrevocable instructions to a broker, acceptable to the
Company, to deliver promptly to the Company the amount of the sale or the loan
proceeds necessary to pay the tax liability; or (v) by instructing the Company
to withhold a number of such shares having a Fair Market Value on the date of
the exercise equal to the tax liability (and provided that in any event Employee
is responsible for the payment of any and all applicable taxes related to this
stock option grant and any exercise of stock options hereunder); and

 

10

--------------------------------------------------------------------------------

  (d) In the event the Option or portion thereof shall be exercised by any
person or persons other than the Employee, appropriate proof of the right of
such person or persons to exercise the Option.

 

4.3 Conditions to Issuance of Stock Certificates

 

The shares of stock deliverable upon the exercise of the Option, or any part
thereof, may be either previously authorized but unissued shares or issued
shares which have then been reacquired by the Company. Such shares shall be
fully paid and nonassessable. The Company shall not be required to issue or
deliver any certificate or certificates for shares of stock purchased upon the
exercise of the Option or part thereof prior to fulfillment of all of the
following conditions:

 

  (a) The admission of such shares to listing on all stock exchanges on which
such class of stock is then listed;

 

  (b) The completion of any registration or other qualification of such shares
under any state or federal law, or under rulings or regulations of the
Securities and Exchange Commission or any other governmental regulatory body
which the Committee or the Company shall, in its absolute discretion, deem
necessary or advisable;

 

  (c) The obtaining of any approval or other clearance from any state or federal
governmental agency which the Committee or the Company shall, in its absolute
discretion, determine to be necessary or advisable;

 

  (d) The lapse of such reasonable period of time following the exercise of the
Option as the Committee or the Company may from time to time establish for
reasons of administrative convenience; and

 

  (e) The receipt by the Company of full payment for such shares.

 

4.4 Rights as Shareholders

 

The holder of the Option shall not be, nor have any of the rights or privileges
of, a shareholder of the Company in respect of any shares purchasable upon the
exercise of any part of the Option unless and until certificates or book entries
representing such shares shall have been issued or made by the Company, or the
Company’s transfer agent, to or for such holder.

 

ARTICLE V - MISCELLANEOUS

 

5.1 Option Subject to Plan

 

The Option is subject to the terms of the Plan, and in the event of any conflict
between this Agreement and the Plan, the Plan shall control.

 

5.2 Administration

 

The Committee or the Company shall have the power to interpret the Plan and this
Agreement and to adopt such procedures for the administration, interpretation
and application of the Plan as are consistent therewith and to interpret or
revoke any such procedures.

 

5.3 Option Not Transferable

 

Neither the Option nor any interest or right therein or part thereof may be
sold, pledged, assigned or transferred in any manner other than by will or by
the applicable laws of descent and distribution. The Option shall be exercised
during the Employee’s lifetime only by the Employee, or his guardian or legal
representative.

 

11

--------------------------------------------------------------------------------

5.4 Notices

 

Any notice to be given under the terms of this Agreement to the Company shall be
addressed to the Company in care of its Secretary and any notice to be given to
the Employee shall be addressed to him at the address given beneath his
signature hereto. By a notice given pursuant to this Section, either party may
hereafter designate a different address for notices to be given to him. Any
notice that is required to be given to Employee shall, if Employee is then
deceased, be given to Employee’s personal representative if such representative
has previously informed the Company of his status and address by written notice
under this Section.

 

5.5 Titles

 

Titles are provided herein for convenience only and are not to serve as a basis
for interpretation or construction of this Agreement.

 

5.6 Construction

 

This Agreement and the Plan and all actions taken thereunder shall be governed
by and construed in accordance with the laws of the State of Delaware, without
reference to principles of conflict of laws.

 

IN WITNESS WHEREOF, this Agreement has been executed and delivered by the
parties hereto.

 

            AVERY DENNISON CORPORATION By:  

*

--------------------------------------------------------------------------------

      By:  

*

--------------------------------------------------------------------------------

Optionee           Chairman and Chief Executive Officer Address*:  

 

--------------------------------------------------------------------------------

      By:  

*

--------------------------------------------------------------------------------

 

--------------------------------------------------------------------------------

          Secretary

 

--------------------------------------------------------------------------------

           

--------------------------------------------------------------------------------

* Refer to attached Notice.

 

12

--------------------------------------------------------------------------------

AVERY DENNISON CORPORATION

NON-QUALIFIED STOCK OPTION AGREEMENT

 

THIS AGREEMENT, dated December 2, 2004, is made by and between Avery Dennison
Corporation, a Delaware corporation, hereinafter referred to as the “Company,”
and *, an employee of Company or a Subsidiary of Company, hereinafter referred
to as “Employee.”

 

WHEREAS, Company wishes to afford Employee the opportunity to purchase shares of
its $1.00 par value common stock under the terms of the Employee Stock Option
and Incentive Plan; and

 

WHEREAS, the Compensation and Executive Personnel Committee of the Company’s
Board of Directors (hereinafter referred to as the “Committee”), appointed to
administer said Plan, has determined that it would be to the advantage and best
interest of Company and its shareholders to grant the Option provided for herein
to Employee as an inducement to remain in the service of Company or its
Subsidiaries and as an incentive for increased efforts during such service;

 

WHEREAS, the Committee has advised the Company of its determination and
instructed the undersigned officers to issue said Option, which the Committee
has determined should be a Non-Qualified Stock Option, as authorized under the
Plan;

 

NOW, THEREFORE, in consideration of the mutual covenants herein contained and
other good and valuable consideration, the receipt of which is hereby
acknowledged, Company and Employee do hereby agree as follows:

 

ARTICLE I - DEFINITIONS

 

Whenever the following terms are used in this Agreement they shall have the
meaning specified below unless the context clearly indicates to the contrary.

 

1.1 Beneficiary

 

“Beneficiary” shall mean a person properly designated by the Employee, including
his/her spouse or heirs at law, to exercise such Employee’s rights under the
Plan. Designation, revocation and redesignation of Beneficiaries must be made in
writing in accordance with procedures established by the Committee or the
Company, and shall be effective upon delivery to the Company.

 

1.2 Change of Control

 

“Change of Control” shall have the same meaning given in Article 10.2 of the
Plan.

 

1.3 Option

 

“Option” shall mean the option to purchase common stock of the Company granted
under this Agreement.

 

1.4 Plan

 

The “Plan” shall mean the Employee Stock Option and Incentive Plan, as amended
and restated.

 

1.5 Pronouns

 

The masculine pronoun shall include the feminine and neuter, and the singular
and plural, where the context so indicates.

 

1.6 Secretary

 

“Secretary” shall mean the Secretary of the Company.

 

--------------------------------------------------------------------------------

* Refer to attached Notice.

 

13

--------------------------------------------------------------------------------

1.7 Subsidiary

 

“Subsidiary” shall mean any corporation in an unbroken chain of corporations
beginning with the Company if each of the corporations other than the last
corporation in the unbroken chain then owns stock possessing 33 percent or more
of the total combined voting power of all classes of stock in one of the other
corporations in such chain.

 

1.8 Termination of Employment

 

“Termination of Employment” shall mean the time when the employee-employer
relationship between the Employee and the Company or a Subsidiary is terminated
for any reason, including, but not limited to, a termination by resignation,
discharge, death or retirement, but excluding terminations where there is a
simultaneous reemployment or continuing employment by the Company or a
Subsidiary, and, at the discretion of the Committee or the Company, terminations
which result in the severance of the employee-employer relationship that do not
exceed one year. The Committee or the Company shall determine the effect of all
other matters and questions relating to Termination of Employment.

 

ARTICLE II - GRANT OF OPTION

 

2.1 Grant of Option

 

In consideration of Employee’s agreement to remain in the employ of Company or
its subsidiaries and for other good and valuable consideration, on the date
hereof the Company irrevocably grants to Employee the option to purchase any
part or all of an aggregate of * shares of its $1.00 par value common stock upon
the terms and conditions set forth in this Agreement. Such Option is granted
pursuant to the Plan and shall also be subject to the terms and conditions set
forth in the Plan.

 

2.2 Purchase Price

 

The purchase price of the shares of stock covered by the Option shall be fifty
nine and 18500/10000 dollars ($59.185) per share without commission or other
charge.

 

2.3 Consideration to Company

 

In consideration of the granting of this Option by the Company, the Employee
agrees to render faithful and efficient service to the Company or a Subsidiary,
with such duties and responsibilities as the Company shall from time to time
prescribe, for a period of at least one (1) year from the date this Option is
granted. Nothing in this Agreement or in the Plan shall confer upon the Employee
any right to continue in the employ of the Company or any Subsidiary or shall
interfere with or restrict in any way the rights of the Company and its
Subsidiaries, which are hereby expressly reserved, to discharge the Employee at
any time for any reason whatsoever, with or without good cause. Nor shall it
interfere with or restrict in any way, other than the forfeiture of all rights
under this Agreement, the right of the Employee voluntarily to terminate his
employment with the Company or a Subsidiary.

 

2.4 Adjustments in Option

 

In the event that the outstanding shares of the stock subject to the Option are
changed into or exchanged for a different number or kind of shares of the
Company or other securities of the Company by reason of merger, consolidation,
recapitalization, reclassification, stock split-up, stock dividend, or
combination of shares, the Committee or the Company shall make an appropriate
and equitable adjustment in the number and kind of shares as to which the
Option, or portions thereof then unexercised, shall be exercisable. Such
adjustment shall be made with the intent that after the change or exchange of
shares, the Employee’s proportionate interest shall be maintained as before the
occurrence of such event. Such adjustment in the Option may include a necessary
corresponding adjustment in the option price per share, but shall be made
without change in the total price applicable to the unexercised portion of the
Option (except for any change in the aggregate price resulting from rounding-off
of share quantities or prices).

 

--------------------------------------------------------------------------------

* Refer to attached Notice.

 

14

--------------------------------------------------------------------------------

ARTICLE III - PERIOD OF EXERCISABILITY

 

3.1 Commencement of Exercisability

 

  (a) The Option shall become exercisable in four cumulative installments as
follows:

 

  (i) The first installment shall consist of twenty-five percent (25%) of the
shares covered by the Option and shall become exercisable on the first
anniversary of the date the Option was granted.

 

  (ii) The second installment shall consist of an additional twenty five percent
(25%) of the shares covered by the Option and shall become exercisable on the
second anniversary of the date the Option was granted.

 

  (iii) The third installment shall consist of an additional twenty five percent
(25%) of the shares covered by the Option and shall become exercisable on the
third anniversary of the date the Option was granted.

 

  (iv) The fourth installment shall consist of twenty five percent (25%) of the
shares covered by the Option and shall become exercisable on the fourth
anniversary of the date the Option was granted.

 

The installments provided for in this Subsection (a) are cumulative. Each
installment which becomes exercisable shall remain exercisable during the term
of the Option, except as otherwise provided in this Agreement.

 

  (b) No portion of the Option, which is an unexercisable installment under
Subsection (a) above at Termination of Employment, shall thereafter become
exercisable, unless otherwise determined by the Committee.

 

  (c) Notwithstanding Subsections 3.1(a) and 3.1(b) above, upon a Change of
Control, all Option installments not yet exercisable shall become immediately
exercisable.

 

3.2 Term of Option

 

The Option will expire and will not, under any condition, be exercisable after
the tenth (10th) anniversary of the date the Option was granted. Such date shall
be the Option’s Expiration Date.

 

3.3 Exercise of Option after Termination of Employment

 

This Option is exercisable by the Employee only while he is employed by the
Company or a Subsidiary, subject to the following exceptions:

 

  (a) If the Employee dies while the Option is exercisable under the terms of
this Agreement, the Employee’s Beneficiary may exercise such rights, subject to
the limitation in Subsection 3.1(b). The Option must be exercised within twelve
(12) months after the Employee’s death, and the Committee or the Company may in
its discretion extend the Expiration Date of the Option to accommodate such
exercise.

 

  (b) If the Employee’s employment is terminated due to his permanent and total
disability, as defined in Section 22(c)(3) of the Code, the Employee may
exercise the Option, subject to the limitation in Subsection 3.1(b), within
thirty six (36) months after Termination of Employment, but not later than the
Option’s Expiration Date.

 

  (c) If the Employee’s employment is terminated due to his retirement, the
Employee may exercise the Option, subject to the limitations of Subsection
3.1(b), within thirty-six (36) months after Termination of Employment, but not
later than the Option’s Expiration Date.

 

  (d) If the Employee’s employment is terminated other than for good cause or
the reasons set forth in Subsections (a) through (c) above, the Employee may
exercise the Option, subject to the limitations of Subsection 3.1(b), within six
(6) months after Termination of Employment, but not later than the Option’s
Expiration Date.

 

15

--------------------------------------------------------------------------------

ARTICLE IV - EXERCISE OF OPTIONS

 

4.1 Partial Exercise

 

Any exercisable portion of the Option or the entire Option, if then wholly
exercisable, may be exercised in whole or in part at any time prior to the time
when the Option or portion thereof becomes unexercisable under Section 3.2. Each
partial exercise shall be for not less than twenty-five (25) shares (or a
smaller number, if it is the maximum number which may be exercised under Section
3.1), and shall be for whole shares only.

 

4.2 Manner of Exercise

 

The Option, or any exercisable portion thereof, may be exercised by delivery
(hard copy, fax or e-mail, as appropriate) to the Secretary or to the Company’s
Securities Administrator of all of the following:

 

  (a) A written notice, complying with the applicable procedures established by
the Committee or the Company, stating that the Option or portion is thereby
exercised; the notice shall be signed by the Employee or the other person then
entitled to exercise the Option, or alternatively, if the option exercise is
executed through the Company’s designated broker (including execution of stock
option exercise electronically through the Web site of the Company’s designated
broker), then such notice shall not be required; and

 

  (b) Full payment for the shares with respect to which the option or portion
thereof is exercised. Payment may be made (i) in cash (or by certified or bank
cashier’s check), or (ii) by actual or constructive delivery to the Company, in
accordance with the procedures established by the Company, of Company Common
Stock then owned by the Employee with a fair market value on the date the option
is exercised equal to the aggregate exercise purchase price of the shares with
respect to which the option or portion thereof is exercised, or (iii) by a
combination of cash and surrender of stock in the manner herein specified, or
(iv) irrevocable instructions to a broker, acceptable to the Company, to deliver
promptly to the Company the amount of the sale or the loan proceeds necessary to
pay the option price; or (v) by instructing the Company to withhold a number of
such shares having a Fair Market Value on the date of the exercise equal to the
aggregate exercise price of such Option; and

 

  (c) Full payment to the Company of any federal, state, local or foreign taxes
required to be withheld in connection with the exercise. Payment may be made (i)
in cash (or by certified or bank cashier’s check), or (ii) by actual or
constructive delivery to the Company, in accordance with the procedures
established by the Company, of Company Common Stock then owned by the Employee
with a fair market value on the date the option is exercised equal to the tax
liability with respect to which the option or portion thereof is exercised, or
(iii) by a combination of cash and surrender of stock in the manner herein
specified, or (iv) irrevocable instructions to a broker, acceptable to the
Company, to deliver promptly to the Company the amount of the sale or the loan
proceeds necessary to pay the tax liability; or (v) by instructing the Company
to withhold a number of such shares having a Fair Market Value on the date of
the exercise equal to the tax liability; (and provided that in any event
Employee is responsible for the payment of any and all applicable taxes related
to this stock option grant and any exercise of stock options hereunder); and

 

  (d) In the event the Option or portion thereof shall be exercised by any
person or persons other than the Employee, appropriate proof of the right of
such person or persons to exercise the Option.

 

4.3 Conditions to Issuance of Stock Certificates

 

The shares of stock deliverable upon the exercise of the Option, or any part
thereof, may be either previously authorized but unissued shares or issued
shares which have then been reacquired by the Company. Such shares shall be
fully paid and nonassessable. The Company shall not be required to issue or
deliver any certificate or certificates for shares of stock purchased upon the
exercise of the Option or part thereof prior to fulfillment of all of the
following conditions:

 

  (a) The admission of such shares to listing on all stock exchanges on which
such class of stock is then listed;

 

16

--------------------------------------------------------------------------------

  (b) The completion of any registration or other qualification of such shares
under any state or federal law, or under rulings or regulations of the
Securities and Exchange Commission or any other governmental regulatory body
which the Committee or the Company shall, in its absolute discretion, deem
necessary or advisable;

 

  (c) The obtaining of any approval or other clearance from any state or federal
governmental agency which the Committee or the Company shall, in its absolute
discretion, determine to be necessary or advisable;

 

  (d) The lapse of such reasonable period of time following the exercise of the
Option as the Committee or the Company may from time to time establish for
reasons of administrative convenience; and

 

  (e) The receipt by the Company of full payment of the exercise price and all
taxes related to the exercise of the Option.

 

4.4 Rights as Shareholders

 

The holder of the Option shall not be, nor have any of the rights or privileges
of, a shareholder of the Company in respect of any shares purchasable upon the
exercise of any part of the Option unless and until certificates or book entries
representing such shares shall have been issued or made by the Company, or the
Company’s transfer agent, to or for such holder.

 

ARTICLE V - MISCELLANEOUS

 

5.1 Option Subject to Plan

 

The Option is subject to the terms of the Plan, and in the event of any conflict
between this Agreement and the Plan, the Plan shall control.

 

5.2 Administration

 

The Committee or the Company shall have the power to interpret the Plan and this
Agreement and to adopt such procedures for the administration, interpretation
and application of the Plan as are consistent therewith and to interpret or
revoke any such procedures.

 

5.3 Option Not Transferable

 

Neither the Option nor any interest or right therein or part thereof may be
sold, pledged, assigned or transferred in any manner other than by will or by
the applicable laws of descent and distribution. The Option shall be exercised
during the Employee’s lifetime only by the Employee, or his guardian or legal
representative.

 

5.4 Notices

 

Any notice to be given under the terms of this Agreement to the Company shall be
addressed to the Company in care of its Secretary and any notice to be given to
the Employee shall be addressed to him at the address given beneath his
signature hereto. By a notice given pursuant to this Section, either party may
hereafter designate a different address for notices to be given to him. Any
notice that is required to be given to Employee shall, if Employee is then
deceased, be given to Employee’s personal representative if such representative
has previously informed the Company of his status and address by written notice
under this Section.

 

5.5 Titles

 

Titles are provided herein for convenience only and are not to serve as a basis
for interpretation or construction of this Agreement.

 

17

--------------------------------------------------------------------------------

5.6 Construction

 

This Agreement and the Plan and all actions taken thereunder shall be governed
by and construed in accordance with the laws of the State of Delaware, without
reference to principles of conflict of laws.

 

IN WITNESS WHEREOF, this Agreement has been executed and delivered by the
parties hereto.

 

            AVERY DENNISON CORPORATION By:  

*

--------------------------------------------------------------------------------

      By:  

*

--------------------------------------------------------------------------------

Optionee           Chairman and Chief Executive Officer Address*:  

 

--------------------------------------------------------------------------------

      By:  

*

--------------------------------------------------------------------------------

 

--------------------------------------------------------------------------------

          Secretary

 

--------------------------------------------------------------------------------

           

--------------------------------------------------------------------------------

* Refer to attached Notice.

 

18

--------------------------------------------------------------------------------

AVERY DENNISON CORPORATION EMPLOYEE STOCK OPTION AND INCENTIVE PLAN (as amended
effective

April 24, 2003) - 2003 UK APPROVED RULES

 

AWARD AGREEMENT (“THE AGREEMENT”)

 

THIS AGREEMENT, dated December 2, 2004, is made by and between Avery Dennison
Corporation, a Delaware corporation, hereinafter referred to as the “Company,”
and * an employee of a Constituent Company, hereinafter referred to as
“Employee.”

 

WHEREAS, the Company wishes to afford the Employee the opportunity to purchase
shares of its $1.00 par value common stock under the terms of the Avery Dennison
Corporation Employee Stock Option and Incentive Plan (as amended and restated
effective April 24, 2003) (“the Plan”) 2003 UK Approved Rules (“the Sub-Plan”);
and

 

WHEREAS, the Compensation and Executive Personnel Committee of the Company’s
Board of Directors (hereinafter referred to as the “Committee”), appointed to
administer said Plan, has determined that it would be to the advantage and best
interest of Company and its shareholders to grant the Option provided for herein
to Employee as an inducement to remain in the service of the Company or a
Constituent Company and as an incentive for increased efforts during such
service;

 

WHEREAS, the Committee has advised the Company of its determination and
instructed the undersigned officers to issue said Option, which the Committee
has determined should be a Non-Qualified Stock Option grant, granted under the
Sub-Plan.

 

NOW, THEREFORE, in consideration of the mutual covenants herein contained and
other good and valuable consideration, the receipt of which is hereby
acknowledged, Company and Employee do hereby agree as follows:

 

ARTICLE I - DEFINITIONS

 

Whenever the following terms are used in this Agreement they shall have the
meaning specified below unless the context clearly indicates to the contrary.

 

1.1 Change of Control

 

“Change of Control” shall have the same meaning given in Article 10.2 of the
Plan, as supplemented and amended by Rule 9 of the Sub-Plan.

 

1.2 Constituent Company

 

“Constituent Company” shall have the meaning given in Rule 1.1 of the Sub-Plan
(as defined in Schedule 4 paragraph 3(3) of the Income Tax (Earnings and
Pensions) Act 2003).

 

1.3 Option

 

“Option” shall mean the option to purchase common stock of the Company granted
under the Agreement.

 

1.5 Pronouns

 

The masculine pronoun shall include the feminine and neuter, and the singular
and plural, where the context so indicates.

 

1.6 Secretary

 

“Secretary” shall mean the Secretary of the Company.

 

--------------------------------------------------------------------------------

* Refer to attached Notice.

 

19

--------------------------------------------------------------------------------

1.7 Termination of Employment

 

“Termination of Employment” shall mean the time when the employee-employer
relationship between the Employee and the Company or a Constituent Company is
terminated for any reason, including, but not limited to, a termination by
resignation, discharge, death or retirement, but excluding terminations where
there is a simultaneous reemployment or continuing employment by the Company a
Constituent Company or another company in the same group as the Company, and, at
the discretion of the Committee or the Company, terminations which result in the
severance of the employee-employer relationship that do not exceed one year. The
Committee or the Company shall determine the effect of all other matters and
questions relating to Termination of Employment.

 

ARTICLE II - GRANT OF OPTION

 

2.1 Grant of Option

 

In consideration of Employee’s agreement to remain in the employ of Company or
its subsidiaries and for other good and valuable consideration, on the date
hereof the Company irrevocably grants to Employee the option to purchase any
part or all of an aggregate of * shares of its $1.00 par value common stock upon
the terms and conditions set forth in this Agreement. Such Option is granted
pursuant to the Sub-Plan and shall also be subject to the terms and conditions
set forth in the Plan and the Sub-Plan.

 

2.2 Option Price

 

The option price of the shares of stock shall be fifty nine and 18500/10000
dollars (US$59.185) per share without commission or other charge, which was the
equivalent of £30.751. (For informational purposes, on December 2, 2004 the
exchange rate of £ to US$, as reported by Bloomberg L.P., was £1.00 equals
US$1.9246).

 

2.3 Consideration to Company

 

In consideration of the granting of this Option by the Company, the Employee
agrees to render faithful and efficient service to the Company a Constituent
Company or another group company, with such duties and responsibilities as the
Company shall from time to time prescribe, for a period of at least twelve
months from the date this Option is granted. Nothing in this Agreement or in the
Plan or Sub-Plan shall confer upon the Employee any right to continue in the
employment of the Company, a Constituent Company or another group company or
shall interfere with or restrict in any way the rights of the Company,
Constituent Company or another group company, which are hereby expressly
reserved, to discharge the Employee at any time for any reason whatsoever, with
or without good cause. Nor shall it interfere with or restrict in any way, other
than the forfeiture of all rights under this Agreement, the right of the
Employee voluntarily to terminate his employment with the Company, Constituent
Company or another group company.

 

2.4 Adjustments in Option

 

The Committee or the Company shall make an appropriate and equitable adjustment
to the Option only in circumstances specified in Rule 6 of the Sub-Plan. Such
adjustment shall be made with the intent that after the change or exchange of
shares, the Employee’s proportionate interest shall be maintained as before the
occurrence of such event. Such adjustment in the Option may include a necessary
corresponding adjustment in the option price per share, but shall be made
without change in the total price applicable to the unexercised portion of the
Option (except for any change in the aggregate price resulting from rounding-off
of share quantities or prices).

 

ARTICLE III - PERIOD OF EXERCISABILITY

 

3.1 Commencement of Exercisability

 

  (a) The Option shall become exercisable as follows:

 

  (i) The first installment shall consist of twenty-five percent (25%) of the
shares covered by the Option and shall become exercisable on the first
anniversary of the date the Option was granted.

 

--------------------------------------------------------------------------------

* Refer to attached Notice.

 

20

--------------------------------------------------------------------------------

  (ii) The second installment shall consist of an additional twenty five percent
(25%) of the shares covered by the Option and shall become exercisable on the
second anniversary of the date the Option was granted.

 

  (iii) The third installment shall consist of an additional twenty five percent
(25%) of the shares covered by the Option and shall become exercisable on the
third anniversary of the date the Option was granted.

 

  (iv) The fourth installment shall consist of twenty five percent (25%) of the
shares covered by the Option and shall become exercisable on the fourth
anniversary of the date the Option was granted.

 

The installments provided for in this Subsection (a) are cumulative. Each
installment which becomes exercisable shall remain exercisable during the term
of the Option, except as otherwise provided in this Agreement.

 

  (b) No portion of the Option, which is an unexercisable installment under
Subsection (a) above at Termination of Employment, shall thereafter become
exercisable, unless otherwise determined by the Committee.

 

  (c) Notwithstanding Subsections 3.1(a) and 3.1(b) above, upon a Change of
Control, all Option installments not yet exercisable shall become immediately
exercisable.

 

3.2 Term of Option

 

The Option will expire and will not, under any condition, be exercisable after
the tenth anniversary of the date the Option was granted. Such date shall be the
Option’s Expiration Date.

 

3.3 Exercise of Option after Termination of Employment

 

This Option is exercisable by the Employee only while he is employed by the
Company, Constituent Company or another group company, subject to the following
exceptions:

 

  (a) Termination by Death – if the Employee dies while the Option is
exercisable under the terms of this Agreement the Option may be exercised by the
Employee’s personal representatives, to the extent then exercisable, for a
period of 12 months from the date of death or until the expiration of the stated
term of the Option, whichever period is the shorter.

 

  (b) Termination by Reason of Disability - If the Employee’s employment is
terminated due to his permanent and total disability, as defined in Section
22(c)(3) of the Code, the Employee may exercise the Option, subject to the
limitation in Subsection 3.1(b), within thirty six (36) months after Termination
of Employment, but not later than the Option’s Expiration Date.

 

  (c) Termination by Reason of Retirement - If the Employee’s employment is
terminated due to his retirement the Employee may exercise the Option, subject
to the limitations of Subsection 3.1(b), within thirty-six (36) months after
Termination of Employment, but not later than the Option’s Expiration Date.

 

  (d) Other Termination - If the Employee’s employment is terminated other than
for good cause or the reasons set forth in Subsections (a) through (c) above,
the Employee may exercise the Option, subject to the limitations of Subsection
3.1(b), within six (6) months after Termination of Employment, but not later
than the Option’s Expiration Date.

 

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ARTICLE IV - EXERCISE OF OPTIONS

 

4.1 Partial Exercise

 

Any exercisable portion of the Option or the entire Option, if then wholly
exercisable, may be exercised in whole or in part at any time prior to the time
when the Option or portion thereof becomes unexercisable under Section 3.2. Each
partial exercise shall be for not less than twenty-five shares (or a smaller
number, if it is the maximum number which may be exercised under Section 3.1),
and shall be for whole shares only.

 

4.2 Manner of Exercise

 

  (a) A written notice, complying with the applicable procedures established by
the Committee or the Company, stating that the Option or portion is thereby
exercised; the notice shall be signed by the Employee or the other person then
entitled to exercise the Option, or alternatively, if the option exercise is
executed through the Company’s designated broker (including execution of stock
option exercise electronically through the Web site of the Company’s designated
broker), then such notice shall not be required; and

 

  (b) Full payment to the Company of the aggregate exercise price for the shares
with respect to which the Option or portion thereof is exercised must be made in
cash (or by certified or bank cashier’s check).

 

  (c) An exercise shall not be valid unless, in addition to receipt of a valid
notice of exercise (hard copy, fax or email, as appropriate) and payment of the
option price, the Company is satisfied that the Employee has entered into
arrangements which are satisfactory to the Company, to pay all or any part of
the British Federal, State, local and foreign taxes for which the Employee is
liable and which are required by law to be withheld by the Constituent Company
or any other member of the same group of companies as the Constituent Company on
the exercise of the Option in accordance with Rule 7.4 of the Sub-Plan.

 

In the event the Option or portion thereof shall be exercised by any person or
persons other than the Employee, appropriate proof of the right of such person
or persons to exercise the Option must be provided.

 

4.3 Conditions to Issuance of Stock Certificates

 

The shares of stock deliverable upon the exercise of the Option, or any part
thereof, may be either previously authorized but unissued shares or issued
shares which have then been reacquired by the Company. Such shares shall be
fully paid and non assessable and will be allotted to the Employee within 30
days from the effective date of exercise in accordance with Rule 7.2 of the
Sub-Plan. The Company shall not be required to issue or deliver any certificate
or certificates for shares of stock purchased upon the exercise of the Option or
part thereof prior to fulfillment of all of the following conditions:

 

  (a) The admission of such shares to listing on all stock exchanges on which
such class of stock is then listed;

 

  (b) The completion of any registration or other qualification of such shares
under any state or federal law, or under rulings or regulations of the
Securities and Exchange Commission or any other governmental regulatory body
which the Committee or the Company shall, in its absolute discretion, deem
necessary or advisable;

 

  (c) The obtaining of any approval or other clearance from any state or federal
governmental agency which the Committee or the Company shall, in its absolute
discretion, determine to be necessary or advisable;

 

  (d) The lapse of such reasonable period of time following the exercise of the
Option as the Committee or the Company may from time to time establish for
reasons of administrative convenience; and

 

  (e) The receipt by the Company of full payment for such shares.

 

4.4 Rights as Shareholders

 

The holder of the Option shall not be, nor have any of the rights or privileges
of, a shareholder of the Company in respect of any shares purchasable upon the
exercise of any part of the Option unless and until certificates or book entries
representing such shares shall have been issued or made by the Company, or the
Company’s transfer agent, to or for such holder.

 

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ARTICLE V - MISCELLANEOUS

 

5.1 Option Subject to Plan

 

The Option is subject to the terms of the Plan as amended by the Sub-Plan, and
in the event of any conflict between this Agreement, the Plan and the Sub-Plan,
the Sub-Plan shall prevail.

 

5.2 Administration

 

The Committee or the Company shall have the power to interpret the Plan, the
Sub-Plan and this Agreement and to adopt such procedures for the administration,
interpretation and application of the Plan as are consistent therewith and to
interpret or revoke any such procedures.

 

5.3 Option Not Transferable

 

Neither the Option nor any interest or right therein or part thereof may be
sold, pledged, assigned or transferred. The Option shall be exercised during the
Employee’s lifetime only by the Employee, or his guardian or legal
representative.

 

5.4 Notices

 

Any notice to be given under the terms of this Agreement to the Company shall be
addressed to the Company in care of its Secretary and any notice to be given to
the Employee shall be addressed to him at the address given beneath his
signature hereto. By a notice given pursuant to this Section, either party may
hereafter designate a different address for notices to be given to him. Any
notice that is required to be given to Employee shall, if Employee is then
deceased, be given to Employee’s personal representative if such representative
has previously informed the Company of his status and address by written notice
under this Section.

 

5.5 Titles

 

Titles are provided herein for convenience only and are not to serve as a basis
for interpretation or construction of this Agreement.

 

5.6 Construction

 

This Agreement and the Plan and Sub-Plan and all actions taken thereunder shall
be governed by and construed in accordance with the laws of the State of
Delaware, without reference to principles of conflict of laws.

 

IN WITNESS WHEREOF, this Agreement has been executed and delivered by the
parties hereto.

 

            AVERY DENNISON CORPORATION By:  

*

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      By:  

*

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Optionee           Chairman and Chief Executive Officer Address*:  

 

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      By:  

*

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          Secretary

 

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* Refer to attached Notice.

 

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