Document:

exv10wxhhy

 

Exhibit 10(hh)

SETTLEMENT AGREEMENT

     This Settlement Agreement (this “Agreement”) is made and entered into as of the 8th
day of July, 2005, by and among Shamrock Holdings of California, Inc., Roy E. Disney and Stanley P.
Gold (collectively, the “Shamrock Plaintiffs”) and The Walt Disney Company, a Delaware corporation
(the “Company”). The Shamrock Plaintiffs and the Company are referred to collectively as the
“Parties,” and each individually as a “Party”.

     WHEREAS, the Shamrock Plaintiffs currently have pending against the Company in the Delaware
Court of Chancery the following litigation: (i) Roy E. Disney v. The Walt Disney Company – Civil
Action No. 234-N (the “Books and Records Litigation”) and (ii) Shamrock Holdings of California,
Inc., Roy E. Disney and Stanley P. Gold v. Robert A. Iger, Michael D. Eisner, Judith L. Estrin,
John S. Chen, Aylwin B. Lewis, Monica C. Lozano, George J. Mitchell, Leo J. O’Donovan, S.J., and
The Walt Disney Company – Civil Action No. 1330-N (the “Disclosure Litigation” and, collectively
with the books and Records Litigation, the “Litigation”); and

     WHEREAS, the Shamrock Plaintiffs and the Company have determined that the interests of the
Company and its stockholders would best be served by settlement of the Litigation on the terms and
under the conditions set forth herein;

     NOW THEREFORE, in consideration of the mutual agreements herein set forth, the Parties do
hereby agree as follows:

     1. Litigation. As promptly as practicable after the execution and delivery of this
Agreement, each of the Shamrock Plaintiffs shall take all steps necessary to seek the dismissal
with prejudice of the Litigation.

     2. Standstill. The Shamrock Plaintiffs agree that from the date hereof through and
including the date of the Company’s 2010 annual meeting (the “Term”), they will not, directly or
indirectly, make any “solicitation” of “proxies” (as such terms are used in the proxy rules of the
Securities and Exchange Commission (the “Proxy Rules”)) to vote, or seek to influence any person
with respect to the voting of, any securities of the Company or of shareholder consents with
respect to the election of the Board of Directors of the Company. For avoidance of doubt, during
the Term, the Shamrock Plaintiffs will not, directly or indirectly, engage in any solicitation
exempt from the Proxy Rules under Section 14a-2(b)(1) of the Proxy Rules with respect to the
election of the Board of Directors of the Company. During the Term, the Shamrock Plaintiffs agree
not to submit, directly or indirectly, any resolutions or proposals, whether binding or precatory,
to the Company for inclusion in the Company’s proxy statement or consideration at any meeting of
the Company’s shareholders or for action by consent of the shareholders.

     3. SaveDisney.com. The Shamrock Plaintiffs agree that, effective immediately, they
will cease adding new materials (other than the Joint Press Release defined in Section 9 below and
the materials described in the last sentence of this Section 3) to the savedisney.com website and,
within thirty (30) days of the date hereof, they will shut down their savedisney.com website for
the duration of the Term. They further agree that they will not establish, sponsor, support or

 

 

authorize any similar website for the duration of the Term. Notwithstanding the foregoing, the
Shamrock Plaintiffs shall be entitled to email the Joint Press Release (defined in Section 9 below)
to all savedisney.com subscribers. During the thirty (30) day period following the date hereof,
the Shamrock Plaintiffs shall be permitted to make such new postings to the savedisney.com website
as (i) are consistent with the orderly winding up of the website and (ii) are not inconsistent
with, or otherwise contrary to, the Joint Press Release and do not otherwise characterize or
comment on any past disputes between the Parties.

     4. Board of Directors. Concurrently with the execution of this Agreement, the Board
of Directors of the Company shall publicly reaffirm its commitment to the provisions in the
“Committee Membership” section of the Company’s Corporate Governance Guidelines that relate to the
rotation of chairpersons and members of the Board’s committees.

     5. Director Emeritus. The Company agrees that from and after the date hereof, Roy E.
Disney shall hold the position of Director Emeritus of the Company, subject to the Company’s policy
on Directors Emeritus, which is attached hereto as Exhibit A. The Company shall reimburse Mr.
Disney for his out-of-pocket expenses incurred in serving as Director Emeritus (in accordance with
paragraph 3 of the Company’s policy attached hereto as Exhibit A) to the same extent the Company
reimburses its Board of Directors for similar out-of-pocket expenses.

     6. Consultant. The Company agrees that, from the date hereof until the Company’s 2008
annual meeting, Roy E. Disney shall be employed as a consultant to the CEO of the Company on a
non-exclusive basis to perform such tasks as the CEO may from time to time request (subject to Roy
E. Disney’s consent), with respect to the heritage, culture, and vision of the Company
(“Consultant”). The CEO of the Company shall meet at least quarterly with Consultant to discuss
strategic direction and operations. As long as Roy E. Disney is acting as Consultant, the Company
shall pay him $150,000 annually as consideration for his services, and the Company shall provide
Mr. Disney with an office at the studio at the Company’s headquarters in Burbank, California to be
selected by Robert Iger or his successor, and Mr. Disney shall be granted access to facilitate his
meeting with persons at Company facilities as Consultant. From and after the Company’s 2008 annual
meeting, Roy P. Disney, as the representative of the Roy E. Disney family, shall take over the
position of Consultant from Roy E. Disney for a minimum additional three year term at no annual
compensation and with no right to the use of an office. If Roy P. Disney is unable or unwilling to
serve or continue serving as Consultant, such position shall be offered to another member of the
Roy E. Disney family as reasonably mutually agreeable. The Company shall give Consultant
reasonable access to the Company’s parks and other facilities as appropriate to carry out his
duties hereunder and shall provide Consultant with appropriate indemnification in connection with
the provision of Consultant’s services hereunder. Consultant shall also be reimbursed for his
reasonable out-of-pocket expenses incurred in connection with the provision of his services. After
the Company’s 2008 annual meeting, Roy P. Disney (or the member of the Roy E. Disney family then
serving as Consultant) will be invited to attend Company events to the same extent as if he were a
Director Emeritus of the Company.

     7. Company Events. The Company shall invite the immediate members of the Roy E.
Disney family to public Company functions and, to the extent that Robert Iger deems

 

 

appropriate,
to non-public Company functions of a ceremonial, heritage or social nature, including without
limitation, employee recognition events and other major Company events and milestones.

     8. Pending Derivative Litigation. Nothing in this Agreement shall be deemed to limit
or otherwise change or alter the rights, obligations or defenses that any Party may have in
connection with the litigation currently pending in the Delaware Court of Chancery entitled: In re
The Walt Disney Company Derivative Litigation, C.A. 15452.

     9. Joint Press Release. Upon execution of this Agreement by all Parties hereto, the
Shamrock Plaintiffs and the Company shall issue a joint press release in the form attached hereto
as Exhibit B (the “Joint Press Release”). During the Term, neither the Shamrock Plaintiffs, on the
one hand, nor the Company, on the other hand, will make any public statements that are inconsistent
with, or are otherwise contrary to, the statements in such Joint Press Release.

     10. Confidentiality. Each Party agrees that it will not publicly disclose this
Agreement or its terms except (i) as set forth in the Joint Press Release and (ii) as may be
required by law or as may be reasonably necessary to enforce its rights hereunder. Notwithstanding
anything herein to the contrary, the Shamrock Plaintiffs shall be permitted to publicly disclose
that Roy E. Disney is being provided with an office at the studio at the Company’s headquarters in
Burbank, California.

     11. Representations. Each of the Shamrock Plaintiffs, on the one hand, and the
Company, on the other hand, represents and warrants with respect to itself that such Party is duly
authorized to execute, deliver and perform this Agreement, that this Agreement has been duly
executed by such Party, and that this Agreement is a valid and binding agreement of such Party,
enforceable against such Party in accordance with its terms.

     12. Notice. All notices, requests and other communications to any person named
hereunder shall be in writing and shall be given to such person at its address or telecopy number
set forth below or such address or telecopy number as such person may hereafter specify for the
purpose by notice to the other person:

If to any Shamrock Plaintiff:

Shamrock Holdings of California, Inc.

4444 Lakeside Drive

Burbank, California 91505

Telecopy: 818-559-7320

Attn: Stanley P. Gold

If to the Company:

The Walt Disney Company

500 S. Buena Vista Street

Burbank, California 91521

 

 

Telecopy: (818) 569-5146

Attn: General Counsel

     Each such notice, request or other communication shall be effective when received, provided a
notice given other than during normal business hours on a business day at the place of receipt
shall not be effective until the opening of business on the next business day.

     13. Governing Law. This Agreement shall be construed in accordance with and governed
by the laws of the State of Delaware (without regard to the principles of conflict of laws
thereof).

     14. Amendment. This Agreement may be amended, modified or supplemented only by
written agreement of the Parties.

     15. Waiver. Any failure of any Party to comply with any obligation, covenant,
agreement or condition herein may be waived by the Party entitled to the benefit of such
obligation, covenant, agreement or condition only by a written instrument signed by such Party, but
such waiver or failure to insist upon strict compliance with such obligation, covenant, agreement
or condition shall not operate as a waiver of, or estoppel with respect to, any subsequent or other
failure. Whenever this Agreement requires or permits consent by or on behalf of any Party hereto,
such consent shall be effective only if given in writing in a manner consistent with the
requirements for a waiver of compliance as set forth in this Section.

     16. Successors and Assigns. This Agreement and all of the provisions hereof shall be
binding upon and inure to the benefit of the Parties hereto and their respective successors and
permitted assigns.

     17. Counterparts. This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute one and the same
instrument.

     18. Severability. If any provision of this Agreement shall be deemed or declared to
be unenforceable, invalid or void, the same shall not impair any of the other provisions of this
Agreement.

     19. Injunctive Relief. Each of the Shamrock Plaintiffs, on the one hand, and the
Company, on the other hand, acknowledges and agrees that irreparable injury to the other Parties
would occur in the event any of the provisions of this Agreement were not performed in accordance
with their specific terms or were otherwise breached and that such injury would not be compensable
in damages. It is accordingly agreed that each Party hereto (the “Moving Party”) shall be entitled
to specific enforcement of, and injunctive relief to prevent any violation of, the terms hereof,
and the other Parties hereto will not take action, directly or indirectly, in opposition to the
Moving Party seeking such relief on the grounds that any other remedy or relief is available at law
or in equity, and the other Parties shall waive any requirement that the Moving Party post a bond
in connection with the seeking of such injunctive relief.

 

 

     20. Breach of agreement. If either Party materially breaches this Agreement, the
non-breaching Party may deliver written notice to the breaching Party to terminate this Agreement.
Such notice shall include a reasonably detailed description of the alleged breach. Except as set
forth in Section 21 below, the other Party shall have thirty (30) days to cure such breach. During
such period, the Company’s CEO and Stanley P. Gold (or such other person as may be so designated in
writing from time to time by Mr. Gold or Shamrock Holdings of California, Inc.) shall promptly meet
and confer in good faith to resolve the breach. If, at the end of such thirty (30) day period, the
Parties have not reached resolution, the non-breaching Party may terminate this Agreement.

     21. Certain Breaches. Notwithstanding Section 20 hereof, in the event that (a) the
announced transition to a new CEO does not occur by October 1, 2005, the timetable previously
announced by the Company or (b) a former CEO is nominated or appointed to serve on the Board or
given a new officer position with the Company or any of its subsidiaries (other than the position
of Director Emeritus pursuant to the Company’s policy attached hereto as Exhibit A and appointment
as a consultant to the Company), the Shamrock Plaintiffs will have an option to immediately
terminate this Agreement upon the public announcement of any of such events (the “Public
Announcement”). Upon such termination under this Section (or a termination under Section 20
above), all parties will be relieved of all ongoing obligations under this Agreement except as
provided in this Section 21. Inasmuch as the Shamrock Plaintiffs are relying on the events
referred to in subpart (a) of the first sentence of this paragraph occurring and the events
referred to in subpart (b) of the first sentence of this paragraph not occurring, it shall be a
breach of this Agreement if the events referred to in subpart (a) do not occur or either of the
events in subpart (b) does occur. If either of the events in subpart (b) occur, the Shamrock
Plaintiffs shall be entitled to injunctive relief to (i) postpone the date of the next Company
annual meeting to a date at least ninety (90) days from the date of the related Public
Announcement and (ii) render the Company’s advance notice bylaws inapplicable to any director
nominations by the Shamrock Plaintiffs with respect to such annual meeting. The Company will not
take action, directly or indirectly, in opposition to the Shamrock Plaintiffs’ seeking such relief
on the grounds that any other remedy or relief is available at law or in equity and shall waive any
requirement that the Shamrock Plaintiffs post a bond in connection with the seeking of such
injunctive relief.

 

 

     IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed on the
day and year first written above.

	 	 	 	 	 
	 	SHAMROCK HOLDINGS OF CALIFORNIA, INC.

 
 	 
	 	/s/ STANLEY P. GOLD
 	 
	 	By:  	Stanley P. Gold 	 
	 	Title:  	President 	 
	 
	 	 	 
	 	/s/ ROY E. DISNEY
 	 
	 	Roy E. Disney 	 
	 
	 	 	 
	 	/s/ STANLEY P. GOLD
 	 
	 	Stanley P. Gold 	 
	 
	 	 	 
	 	/s/ DAVID K. THOMPSON
 	 
	 	By:  	David K. Thompson 	 
	 	Title:  	Senior Vice President – Deputy General Counsel – Corporate and
Corporate Secretary 	 

 

 

EXHIBIT A

DIRECTOR EMERITUS POLICY

 

 

Exhibit A

BOARD OF DIRECTORS

RETIREMENT POLICY

OF THE WALT DISNEY COMPANY

	History:  	 	The Board of Directors adopted a retirement policy on May 28, 1974
as recommended to it by the Executive Committee; it was revised in
November 1983 by the Board of Directors upon the recommendation of
the Corporate Governance Committee and was further revised on June
23, 1997 by the Compensation Committee.
	 
	Policy: 	 	 
	 
	1.	 	That no Director may stand for reelection following the calendar year the
year in which that Director turned 72 years of age; provided, however,
that any Director who had previously held the office of Chief Executive Officer shall
be eligible to serve as a Director through the year during which such Director turned
75 years of age.
	 
	2.	 	The each of those Directors who retire in accordance with the policy set
forth in paragraph 1 above be elected a Director Emeritus.
	 
	3.	 	That Directors Emeritus who retire after June 23, 1997, no longer be
privileged to attend Board meetings or to serve on Board Committees but shall continue
to be invited to social events such as movie openings, theme park anniversaries, etc.,
to which all then current Directors are invited.

 

 

	4.	 	That all accruals of future retirement benefits for Directors retiring after
June 23, 1997 (including Directors Emeritus), be terminated, effective from December
31, 1994, and for all periods thereafter (the “Accrual Termination Date”).
	 
	5.	 	That upon retirement (regardless of whether or not Director Emeritus status
has been reached) each Director who has served five or more years as of the Accrual
Termination Date shall receive annual retirement benefits for the same number of years
that such Director has actively served on the Board, calculated as follows:

	 	 	 	(a) for retired Directors with ten years or more of active Board service
accrued through the Accrual Termination Date, the same yearly retainer as paid
to active non-management Directors;
	 
	 	 	 	(b) for retired Directors with five through nine years of active Board service
accrued through the Accrual Termination Date, fifty percent (50%) of an active
non-management Director’s yearly retainer plus an additional ten percent (10%)
thereof for each year of active Board service in excess of five years.

	6.	 	That management Directors are not eligible for retirement benefits for any
years that they serve The Walt Disney Company or any of its affiliates in dual roles
(management and director).
	 
	7.	 	That any Director Emeritus who has retired prior to June 23, 1997, shall be
unaffected by any changes in the Board of Directors Retirement Policy effected on June
23, 1997, and shall continue to be covered by the Policy as previously in effect.

2

 

EXHIBIT B

JOINT PRESS RELEASE

 

 

	 	 	 
	FOR IMMEDIATE RELEASE
	 	CONTACTS:
	July 8, 2005
	 	The Walt Disney Company:
	 
	 	Zenia Mucha, 818-560-5300
	 
	 
	 	Shamrock Holdings:
Clifford Miller, 818-973-4297

Michael Sitrick, 310-788-2850

JOINT STATEMENT FROM THE WALT DISNEY COMPANY AND

ROY E. DISNEY AND STANLEY P. GOLD

     BURBANK, Calif. — The Walt Disney Company, Roy E. Disney and Stanley P. Gold announced today
that they have agreed to put aside the differences that have characterized their relationship over
the past several years. Messrs. Disney and Gold have agreed not to run a rival slate of directors
or submit shareholder resolutions for the next five years. Messrs. Disney and Gold have also
agreed to dismiss all their pending lawsuits against the Company. In reestablishing ties with him
and his family, the Company has named Roy E. Disney Director Emeritus and a consultant. The
Company also reaffirmed its commitment to the rotation of committee members and chairpersons on its
Board committees as currently required by the Company’s Corporate Governance Guidelines. In
putting aside their differences, the Company noted Mr. Disney’s long time devotion to the Company
and welcomed the reestablishment of a relationship with him and his family. Messrs. Disney and
Gold expressed confidence in Mr. Iger’s leadership, and as Mr. Eisner retires after 21 years with
the Company, they acknowledged his contribution to the Company over the years.

Note:

There will be no additional comment regarding this statement.exv10w19w1

 

Exhibit 10.19.1

AVERY DENNISON CORPORATION

NON-QUALIFIED STOCK OPTION AGREEMENT

THIS AGREEMENT, dated * , 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.

 

* Refer to attached Notice

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	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.
	 
	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 * dollars per share without commission or other charge.

 

* Refer to attached Notice

-2-

 

	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).

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

-3-

 

the date the Option was granted.

The installments provided for in this Subsection (a) are cumulative. Each
installment that 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, but not later than the Option’s Expiration Date.
	 
	 	(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.

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

-4-

 

becomes unexercisable under Section 3.2. Each partial exercise shall be for not less than
one hundred (100) 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; 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; 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; (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

-5-

 

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 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 or as a
result of marital dissolution involving a qualified domestic relations
order (or a similar determination or settlement). The Option shall be
exercised during the Employee’s lifetime only by the Employee, or his
guardian or legal representative.

-6-

 

	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 Beneficiary or personal representative if such
individual 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:
	 	*   	 	 
	 

	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	President & Chief Executive Officer	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	By:	 	 	 	 
	 

	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	Secretary	 	 
	 
	 	 	 	 	 	 	 	 
	*   

	 	 	 	 	 	 	 	 
	 

	 	 	 	 
	 	 	 	 
	Optionee
	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	*   

	 	 	 	 	 	 	 	 
	 

	 	 	 	 
	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	*   

	 	 	 	 	 	 	 	 
	 

	 	 	 	 
	 	 	 	 
	Address
	 	 	 	 	 	 	 	 

 

			
	* Refer to attached Notice.

-7-

 

AVERY DENNISON CORPORATION

NON-QUALIFIED STOCK OPTION AGREEMENT

THIS AGREEMENT, dated * , 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.

 

* Refer to attached Notice

-8-

 

	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.
	 
	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 * dollars per share without commission or other charge.

 

* Refer to attached Notice

-9-

 

	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).

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.

-10-

 

	 	(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 that becomes exercisable shall remain exercisable during the term of the
Option, except as otherwise provided in this Agreement.

Alternatively, Options, granted under this Agreement to employees participating in
the Senior Executive or the Executive Leadership Compensation Plans (annual bonus
plans), who (i) die, (ii) become disabled (as described in Subsection 3.3(b) below)
or (iii) retire under the Company’s retirement plan, have worked for the Company for
ten (10) or more years, and have a combination of age and service with the Company
of seventy five (75) or more, will vest as of the date of death, disability or
Termination of Employment, as applicable.

	 	(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, but not later than the Option’s Expiration Date.
	 
	 	(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 Cause or the reasons
set forth

-11-

 

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 one hundred (100) 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; 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; 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 (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

-12-

 

	 	(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

-13-

 

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 or as a
result of marital dissolution involving a qualified domestic relations
order (or a similar determination or settlement). 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 Beneficiary or personal representative if such
individual 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:
	 	*   	 	 
	 

	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	President & Chief Executive Officer	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	By:	 	 	 	 
	 

	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	Secretary	 	 
	 
	 	 	 	 	 	 	 	 
	*   

	 	 	 	 	 	 	 	 
	 

	 	 	 	 
	 	 	 	 
	Optionee
	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	*   

	 	 	 	 	 	 	 	 
	 

	 	 	 	 
	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	*   

	 	 	 	 	 	 	 	 
	 

	 	 	 	 
	 	 	 	 
	Address
	 	 	 	 	 	 	 	 

 

* Refer to attached Notice.

-14-

 

AVERY DENNISON CORPORATION

NON-QUALIFIED STOCK OPTION AGREEMENT

THIS AGREEMENT, dated * , 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.

 

*Refer to attached Notice

-15-

 

	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.
	 
	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 * dollars per share without commission or other charge.

 

*Refer to attached Notice

-16-

 

	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).

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

-17-

 

the date the Option was granted.

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

Alternatively, Options, granted under this Agreement to employees participating in
the Senior Executive Leadership Compensation Plan (annual bonus plan), who (i) die,
(ii) become disabled (as described in Subsection 3.3(b) below) or (iii) retire under
the Company’s retirement plan, have worked for the Company for ten (10) or more
years, and have a combination of age and service with the Company of seventy five
(75) or more, will vest as of the date of death, disability or Termination of
Employment, as applicable.

	 	(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, but not later than the Option’s Expiration Date.
	 
	 	(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 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.

-18-

 

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 one hundred (100) 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; 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; 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 (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.

-19-

 

	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

-20-

 

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 or as a
result of marital dissolution involving a qualified domestic relations
order (or a similar determination or settlement). 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 Beneficiary or personal representative if such
individual 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: 
	 	*   	 	 
	 

	 	 	 	 	 	 	 	 
	 	 	 	 	 	President & Chief Executive Officer	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	By: 	 	 	 	 
	 

	 	 	 	 	 	 	 	 
	 

	 	 	 	 	Secretary	 	 
	 
	 	 	 	 	 	 	 	 
	*   

	 	 	 	 	 	 	 	 
	 

	 	 	 	 
	 	 	 	 
	Optionee
	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	*   

	 	 	 	 	 	 	 	 
	 

	 	 	 	 
	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	*   

	 	 	 	 	 	 	 	 
	 

	 	 	 	 
	 	 	 	 
	Address
	 	 	 	 	 	 	 	 

 

* Refer to attached Notice.

-21-

 

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 *, 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”) and the 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.

 

* Refer to attached Notice

-22-

 

	1.4	 	Pronouns
	 
	 	 	The masculine pronoun shall include the feminine and neuter, and the
singular and plural, where the context so indicates.
	 
	1.5	 	Secretary
	 
	 	 	“Secretary” shall mean the Secretary of the Company.
	 
	1.6	 	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 ___and 00000/10000
dollars (US$___) per share without commission or other charge, which was the equivalent
of £___. (For informational purposes, on December 1, 2005 the exchange rate of £ to
US$, as reported by Bloomberg L.P., was £1.00 equals US$___).
	 
	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

 

* Refer to attached Notice

-23-

 

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.
	 
	 	(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

-24-

 

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.

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 one hundred (100) 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

-25-

 

	 	(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; 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 or wire payment).
	 
	 	(c)	 	An exercise shall not be valid unless, in addition to receipt of a valid notice
of exercise (hard copy, fax or e-mail, 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.

-26-

 

	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 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 Beneficiary or personal representative if such
individual 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.

-27-

 

	 	 	 	 	 	 	 

	 

	*
	 	 	AVERY DENNISON CORPORATION 
	 	 	 	 	 

	 	 	 	 	 	 	 
	 

	 	 	 	By: 	 	 
	 

	 	 	 	 	 	 
	Employee

	 	 	 	 	 	President & Chief Executive Officer
	 
	 	 	 	 	 	 
	 

	*
	 	 	By: 	 	 
	 	 	 	 	 
	 

	 	 	 	 	 	Secretary
	 
	 	 	 	 	 	 
	 

	*	 	 	 	 	 
	 	 	 	 	 
	Address	 	 	 	 

 

* Refer to attached
Notice

-28-

 

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 *, 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”) and the 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.

 

* Refer to attached Notice

- 29 -

 

	1.4	 	Pronouns
	 
	 	 	The masculine pronoun shall include the feminine and neuter, and the
singular and plural, where the context so indicates.
	 
	1.5	 	Secretary
	 
	 	 	“Secretary” shall mean the Secretary of the Company.
	 
	1.6	 	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              
                    
        and 0000/10000
dollars (US$                    ) per share without commission or other charge, which was the equivalent
of £                    . (For informational purposes, on December 1, 2005 the exchange rate of £ to
US$, as reported by Bloomberg L.P., was £1.00 equals US$                    ).
	 
	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

 

* Refer to attached Notice

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	 	 	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 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 that becomes exercisable shall remain exercisable during the term of
the Option, except as otherwise provided in this Agreement.
	 
	 	 	 	Alternatively, Options, granted to employees participating in the Executive Leadership Compensation Plan (annual
bonus plan), who (i) die, (ii) become disabled (as described in Subsection 3.3(b) below) or (iii) retire under
the Company’s retirement plan within

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	 	 	 	sixty (60) days of the date of Termination of Employment, have worked for
the Company for ten (10) or more years, and have a combination of age and service with the Company of seventy
five (75) or more, will vest as of the date of death, disability or Termination of Employment, as applicable.
	 
	 	(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 sixty (60) 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.

ARTICLE IV — EXERCISE OF OPTIONS

	4.1	 	Partial Exercise

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	 	 	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 one hundred (100) 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; 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 or wire payment).
	 
	 	(c)	 	An exercise shall not be valid unless, in addition to receipt of a valid notice
of exercise (hard copy, fax or e-mail, 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

- 33 -

 

	 	 	 	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 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 Beneficiary or personal representative if such
individual 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.

- 34 -

 

	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:
	 	*	 	 
	 

	 	 	 	 	 	 

President & Chief Executive Officer
	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	By:	 	 	 	 
	 

	 	 	 	 	 	 

          Secretary
	 	 
	 
	 	 	 	 	 	 	 	 
	*	 	 	 	 	 	 	 	 
	 

Employee

	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	*	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	*	 	 	 	 	 	 	 	 
	 

Address

	 	 	 	 	 	 	 	 

 

* Refer to attached Notice

- 35 -

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