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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 28, 1996
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
------------- --------------------
COMMISSION FILE NUMBER 1-7685
AVERY DENNISON CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 95-1492269
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
150 NORTH ORANGE GROVE BOULEVARD 91103
PASADENA, CALIFORNIA (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
Registrant's telephone number, including area code: (818) 304-2000
Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH
EXCHANGE ON WHICH
TITLE OF EACH CLASS REGISTERED
------------------- -----------------
Common stock, $1 par value New York Stock Exchange
Pacific Stock Exchange
Preferred Share Purchase Rights New York Stock Exchange
Pacific Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
Not applicable.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [_]
The aggregate market value of voting stock held by non-affiliates as of
February 25, 1997, was approximately $4,130,961,063.
Number of shares of common stock, $1 par value, outstanding as of February
25, 1997: 121,126,532.
The following documents are incorporated by reference into the Parts of this
report below indicated:
DOCUMENT INCORPORATED BY REFERENCE INTO:
-------- -------------------------------
Annual Report to Shareholders for fiscal
year ended December 28, 1996 (the "1996
Annual Report")........................ PARTS I, II
Definitive Proxy Statement for Annual
Meeting of Stockholders to be held
April 24, 1997 (the "1997 Proxy
Statement")............................ PARTS III, IV
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PART I
ITEM 1. BUSINESS
Avery Dennison Corporation ("Registrant") was incorporated in 1977 in the
state of Delaware as Avery International Corporation, the successor
corporation to a California corporation of the same name which was
incorporated in 1946. In 1990, Registrant merged one of its subsidiaries into
Dennison Manufacturing Company ("Dennison"), as a result of which Dennison
became a wholly owned subsidiary of Registrant, and in connection with which
Registrant's name was changed to Avery Dennison Corporation.
The business of Registrant and its subsidiaries (Registrant and its
subsidiaries are sometimes hereinafter referred to as the "Company") include
the production of pressure-sensitive adhesives and materials and the
production of consumer and converted products. Some pressure-sensitive
adhesives and materials are "converted" into labels and other products through
embossing, printing, stamping and die-cutting, and some are sold in
unconverted form as base materials, tapes and reflective sheeting. The Company
also manufactures and sells a variety of consumer and converted products and
other items not involving pressure-sensitive components, such as notebooks,
three-ring binders, organizing systems, markers, glues, fasteners, business
forms, tickets, tags, and imprinting equipment.
A self-adhesive material is one that adheres to a surface by mere press-on
contact. It consists of four elements--a face material, which may be paper,
metal foil, plastic film or fabric; an adhesive which may be permanent or
removable; a release coating; and a backing material to protect the adhesive
against premature contact with other surfaces, and which can also serve as the
carrier for supporting and dispensing individual labels. When the products are
to be used, the release coating and protective backing are removed, exposing
the adhesive, and the label or other device is pressed or rolled into place.
Self-adhesive materials may initially cost more than materials using heat or
moisture activated adhesives, but their use often effects substantial cost
savings because of their easy and instant application, without the need for
adhesive activation. They also provide consistent and versatile adhesion,
minimum adhesive deterioration and are available in a large selection of
materials in nearly any size, shape or color.
International operations, principally in Western Europe, constitute a
significant portion of the Company's business. In addition, the Company is
currently expanding its operations in Asia Pacific, Latin America and Eastern
Europe. The Company is subject to certain risks referred to in Exhibit 99
hereto, including those normally attending international operations, such as
changes in economic conditions, currency fluctuation, exchange control
regulations and the effect of international relations and domestic affairs of
international countries on the conduct of business.
The Company manufactures and sells its products from 200 manufacturing
facilities and sales offices located in 36 countries, and employs a total of
approximately 15,800 persons worldwide.
No material part of the Company's business is dependent upon a single
customer or a few customers and the loss of a particular customer or a few
customers would not have a material adverse effect on the Company's business.
However, sales of the Company's U.S. office and consumer products business is
increasingly concentrated in a small number of major customers, principally
discount office products superstores and distributors (see Note 4 of Notes to
Consolidated Financial Statements on page 49 of the 1996 Annual Report, which
is incorporated by reference). United States export sales are an insignificant
part of the Company's business. Backlogs are not considered material in the
industries in which the Company competes.
Effective fourth quarter 1996, the Company realigned the reporting of its
businesses from three sectors to two Pressure-sensitive adhesives and
materials, and Consumer and converted products. The realignment reflects the
broadening and related scope of the Company's consumer businesses to include
products such as battery labels, postage stamps and children's school
supplies. In addition, certain businesses previously in the Pressure-sensitive
adhesives and materials sector that emphasize converting technology were
reclassified into the
1
Consumer and converted products sector. This change more effectively aligns
the Company's financial reporting with manufacturing processes and end
markets. The Company's operations within each of the two sectors are divided
organizationally into various groups, each consisting of divisions which
manufacture products similar in nature or sell to similar markets.
PRESSURE-SENSITIVE ADHESIVES AND MATERIALS SECTOR
These units manufacture and sell Fasson- and Avery Dennison-brand pressure-
sensitive base materials generally in unconverted form, and include Materials-
Americas and Asia, Materials Europe, Specialty Tape, Marking Films, and
Chemical Division. Base materials consist primarily of papers, fabrics,
plastic films and metal foils which are primed and coated with Company-
developed and purchased adhesives and laminated with specially coated backing
papers and films for protection. They can be sold in roll or sheet form with
either solid or patterned adhesive coatings, and are available in a wide range
of face materials, sizes, thicknesses and adhesive properties. The business of
these units is not seasonal.
Materials-Americas and Asia (including units in the United States, Canada,
Mexico, South America, Australia and Asia Pacific) and Materials-Europe
(including units in the major European Union countries and a unit in South
Africa) manufacture and sell a wide range of pressure-sensitive coated papers,
films and foils, in roll and sheet form, to label printers and converters for
labeling, decorating, fastening, electronic data processing and special
applications, and also provide paper and film stock for use in a variety of
industrial, commercial and consumer applications. Certain units also
manufacture and sell proprietary film face stocks, release-coated materials
and specialty insulation paper.
Specialty Tape units produce single- and double-coated tapes and transfer
adhesives for use in non-mechanical fastening systems in various industries
and are sold to industrial and medical converters, original equipment
manufacturers and disposable-diaper producers worldwide.
Marking Films units manufacture and sell a variety of films and other
products to the worldwide automotive, architectural, commercial sign, digital,
printing and graphics markets. These units sell durable cast and reflective
films to the construction, automotive after-market, fleet transportation, sign
and industrial equipment markets, and reflective films for government and
traffic applications. In addition, these units sell specialty print-receptive
films to the industrial label market, metallic dispersion products to the
packaging industry and proprietary woodgrain film laminates for housing
exteriors and automotive applications.
During 1996, the Company acquired base materials manufacturing capabilities
in Thailand, and established distribution centers in several new countries
including Argentina, India, Indonesia, Poland and Thailand to market and sell
a variety of pressure-sensitive materials.
The Chemical Division produces a range of solvent and emulsion-based acrylic
polymer adhesives, protective coatings and binders for internal uses as well
as for other companies.
The Company competes, both domestically and internationally, with a number
of medium to large firms. Entry of competitors into the field of pressure-
sensitive adhesives and materials is limited by high capital requirements and
a need for sophisticated technical know-how.
CONSUMER AND CONVERTED PRODUCTS SECTOR
The units in this sector primarily manufacture and sell a wide range of
Avery-brand office products, custom label products, specialty automotive films
and labels and fastening devices. Operations include Office and Consumer
Products, Converted Products--North America and Europe, VIP Converted Products
North America and Fastener Worldwide, Security Printing, Automotive and
Merchant Products. The business of these units is not seasonal except for
certain office and consumer products sold during the back-to-school season.
2
Office and Consumer Products units manufacture stock products which are sold
primarily through office products wholesalers and dealers, through mass market
channels of distribution, and through discount office products superstores.
Operations in North America and Europe manufacture and sell a wide range of
Avery-brand products for home, school and office uses, including copier, laser
and ink-jet printer labels, related computer software, presentation and
organizing systems, laser-printer card and index products; data-processing
labels; notebooks; notebook and presentation dividers; three-ring binders;
sheet protectors; and various vinyl and heat-sealed products. U.S. operations
also manufacture and sell a wide range of other stationery products, including
children's laser and ink-jet labels, markers, adhesives and specialty products
under brand names such as Avery, Marks-A-Lot and HI-LITER, and accounting
products, note pads and business forms under the Avery and National brand
names. Other units in the United Kingdom also manufacture and distribute
office products and accessories under the Avery, Myers and Guidex brand names.
Office products units in France produce a line of Doret- and Cheval-brand
binder and document protection products. Other units in Latin America, Asia
Pacific and Europe have been established to market and distribute the Avery-
brand line of stock self-adhesive products, including copier, laser and ink-
jet labels and related software; laser printed card products and other
unprinted labels.
Converted Products--North America and Europe: North American operations
produce custom pressure-sensitive and heat-transfer labels for automotive and
durable goods industries and custom pressure-sensitive labels and specialty
combination products for the electronic data-processing market. These products
are sold directly to manufacturers and packagers and retailers, as well as
through international subsidiaries, distributors and licensees. European
operations produce custom and stock labels, labeling machinery and data
printing systems, which are marketed to a wide range of industrial users.
VIP Converted Products North America and Fastener Worldwide units design,
fabricate and sell a wide variety of tags and labels and an established line
of machines for imprinting, dispensing and attaching preprinted roll tags and
labels. The machine products are designed for use with tags as a complete
system. These units also design, assemble and sell integrated shipping and
receiving systems. Principal markets include apparel, retail and industrial
companies for identification, tracking and control applications principally in
North America, Europe and Asia Pacific. The Fastener business produces plastic
tying and attaching products for retail and industrial users. Products are
sold directly to end users and internationally through subsidiaries, as well
as through distributors and licensees in other countries.
The Security Printing business manufactures and sells on-battery testing
labels to battery manufacturers, and self-adhesive stamps to the U.S. and
international postal services. The Company is an integrated supplier of
adhesive coating, security printing and converting technologies for postage
stamp production. Automotive operations manufacture and convert films for
vehicle finishes, striping decoration and identification. Avloy Dry Paint film
laminates are supplied to automotive suppliers and original equipment
manufacturers. Merchant Products businesses manufacture pressure-sensitive
sheeted and die-cut papers and films, which are sold through fine-paper
merchants.
Office and Consumer Products units are generally leaders in most markets in
which they compete even though they must compete with other large
manufacturers on a global basis. Among the principal competitors in the office
and consumer products business are Esselte AB, American Brands, Inc. and
Minnesota Mining and Manufacturing Co. The Company believes that its ability
to service its customers with an extensive product line, its distribution
strength, and its ability to develop internally and to commercialize
successfully new products are probably the most important factors in
developing and maintaining the various units' competitive position. The
Converted Products business units usually occupy a solid position in most
markets in which they compete, although many face strong local competition.
The Company believes that its diverse technical foundation, including a
significant range of electronic imprinting and data control systems, high
speed printers, automatic labeling systems and fastening devices are probably
the most important factors in developing and maintaining the various units'
competitive position.
3
RESEARCH AND DEVELOPMENT
Many of the Company's current products are the result of its own research
and development efforts. The Company expended $54.6 million, $52.7 million,
and $49.1 million in 1996, 1995 and 1994, respectively, on research related
activities by operating units and the Avery Research Center (the "Research
Center"), located in Pasadena, California. A substantial amount of the
Company's research and development activities are conducted at the Research
Center. Much of the effort of the Research Center applies to both the
Company's industry sectors.
The operating units' research efforts are directed primarily toward
developing new products and processing techniques and improving product
performance, often in close association with customers. The Research Center
supports the units' patent and product development work, and focuses on
research and development in new adhesives, materials and coating processes.
Research and development generally focuses on projects affecting more than one
industry sector in such areas as printing and coating technologies, and
adhesive, release, coating and ink chemistries.
The loss of any of the Company's individual patents, trademarks or licenses,
or any group of related patents, trademarks or licenses, would not be material
to the business of the Company taken as a whole, nor to either one of the
Company's industry sectors except those referred to above.
THREE-YEAR SUMMARY OF SECTOR INFORMATION
The Business Sector Information attributable to the Company's operations for
the three years ended December 28, 1996, which appears in Note 10 of Notes to
Consolidated Financial Statements on pages 54 through 56 of the 1996 Annual
Report, is incorporated herein by reference.
OTHER MATTERS
At present, the Company produces a majority of its self-adhesive materials
using non-solvent technology. However, a significant portion of the Company's
manufacturing process for self-adhesive materials utilizes certain evaporative
organic solvents which, unless controlled, would be emitted into the
atmosphere. Emissions of these substances are regulated by instrumentalities
of federal, state, local and foreign governments. During the past several
years, the Company has made a substantial investment in solvent capture and
control units and solvent-free systems. Installation of these units and
systems has reduced atmospheric emissions and the Company's requirements for
solvents.
Major research efforts have been directed toward development of new
adhesives and solvent-free adhesive processing systems. Emulsion and hot-melt
adhesives and solventless silicone systems have been installed at the
Company's Peachtree City, Georgia; Fort Wayne and Greenfield, Indiana; Rancho
Cucamonga, California; Quakertown, Pennsylvania; Rodange, Luxembourg;
Turnhout, Belgium; Hazerswoude, The Netherlands; and Cramlington, England
facilities, as well as other plants in the United States, Australia, Brazil,
France, Germany, Korea and China.
The Company does not believe that the costs of complying with applicable
laws enacted or adopted regulating the discharge of materials into the
environment, or otherwise relating to the protection of the environment, will
have a material effect upon the capital expenditures, earnings or competitive
position of the Company.
The Company wishes to take advantage of the "safe harbor" provisions of the
Private Securities Litigation Reform Act of 1995, and is including Exhibit 99
to this filing to incorporate this safe harbor statement.
For information regarding the Company's potential responsibility for cleanup
costs at certain hazardous waste sites, see "Legal Proceedings" (Part I, Item
3) and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" (Part II, Item 7).
4
ITEM 2. PROPERTIES
The Company operates 30 principal manufacturing facilities ranging in size
from approximately 100,000 square feet to approximately 370,000 square feet
and totaling over 5 million square feet. The following sets forth the
locations of such principal facilities and the business sectors for which they
are presently used:
PRESSURE-SENSITIVE ADHESIVES AND MATERIALS SECTOR
Domestic--Painesville and Fairport, Ohio; Peachtree City, Georgia;
Quakertown, Pennsylvania; Rancho Cucamonga, California; Greenfield,
Fort Wayne, Lowell and Schererville, Indiana.
Foreign--Hazerswoude, The Netherlands; Cramlington, England; Champ-sur-
Drac, France; Turnhout, Belgium; Ajax, Canada; Rodange, Luxembourg;
and Haan, Germany.
CONSUMER AND CONVERTED PRODUCTS SECTOR
Domestic--Gainesville, Georgia; Rochelle and Rolling Meadows, Illinois;
Chicopee, Framingham and Springfield, Massachusetts; Meridian,
Mississippi; Philadelphia, Pennsylvania; Clinton, South Carolina
and Crossville, Tennessee.
Foreign--Bowmanville, Canada; and La Monnerie, Troyes, France; and Utrecht,
The Netherlands.
In addition to the Company's principal manufacturing facilities described
above, the Company's principal facilities include its corporate headquarters
facility and Research Center in Pasadena, California, and offices located in
Maidenhead, England; Leiden, The Netherlands; Concord, Ohio and Framingham,
Massachusetts.
All of the Company's principal properties identified above are owned in fee
except Rolling Meadows, Illinois; Springfield, Massachusetts; Ajax, Canada;
Haan, Germany and small portions of the Framingham, Massachusetts; and La
Monnerie, France facilities, all of which are leased.
All of the buildings comprising the facilities identified above were
constructed after 1954, except parts of the Framingham, Massachusetts plant
and office complex. All buildings owned or leased are well maintained and of
sound construction, and are considered suitable and generally adequate for the
Company's present needs. The Company intends to expand capacity and provide
facilities to meet future increased demand. Owned buildings and plant
equipment are insured against major losses from fire and other usual business
risks. The Company knows of no material defects in title to, or encumbrances
on, any of its properties except for mortgage liens against the Meridian,
Mississippi; and Turnhout, Belgium plants and three other facilities not
listed separately above.
ITEM 3. LEGAL PROCEEDINGS
The Company, like other U.S. corporations, has periodically received notices
from the U.S. Environmental Protection Agency ("EPA") and state environmental
agencies alleging that the Company is a potentially responsible party ("PRP")
for past and future cleanup costs at hazardous waste sites. The Company has
been designated by the EPA and/or other responsible state agencies as a PRP at
17 waste disposal or waste recycling sites which are the subject of separate
investigations or proceedings concerning alleged soil and/or groundwater
contamination and for which no settlement of the Company's liability has been
agreed upon. Litigation has been initiated by a governmental authority with
respect to four of these sites, but the Company does not believe that any such
proceedings will result in the imposition of monetary sanctions. The Company
is participating with other PRPs at all such sites, and anticipates that its
share of cleanup costs will be determined pursuant to remedial agreements
entered into in the normal course of negotiations with the EPA or other
governmental authorities. The Company has accrued liabilities for all sites,
including sites in which governmental agencies have designated the Company as
a PRP, where it is probable that a loss will be incurred and the amount of the
loss can be
5
reasonably estimated. However, because of the uncertainties associated with
environmental assessment and remediation activities, future expense to
remediate the currently identified sites, and sites which could be identified
in the future for cleanup, could be higher than the liability currently
accrued. Based on current site assessments, management believes the potential
liability over the amounts currently accrued would not materially affect the
Company.
The Registrant and its subsidiaries are involved in various other lawsuits,
claims and inquiries, most of which are routine to the nature of the business.
In the opinion of the Company's management, the resolution of these matters
will not materially affect the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report.
6
EXECUTIVE OFFICERS OF THE REGISTRANT*
SERVED AS FORMER POSITIONS AND
NAME AGE OFFICER SINCE OFFICES WITH REGISTRANT
- - ---- --- ------------- -----------------------
Charles D. Miller....... 69 May 1965 1964-1983 Various positions of
Chairman and Chief increasing responsibility
Executive Officer (Also
Director of Registrant)
Philip M. Neal.......... 56 January 1974 1974-1990 Various positions of
President and Chief increasing responsibility
Operating Officer (Also
Director of Registrant)
R. Gregory Jenkins...... 60 July 1981 1974-1988 Various positions of
Senior Vice President, increasing responsibility
Finance and Chief
Financial Officer
Alan J. Gotcher......... 47 November 1984 1984-1990 Vice President, Corporate
Senior Vice President, Research
Manufacturing and
Technology
Robert G. van 50 December 1981 1981-1996 Vice President, General
Schoonenberg........... Counsel and Secretary
Senior Vice President,
General Counsel and
Secretary
Wayne H. Smith.......... 55 June 1979 None
Vice President and
Treasurer
Thomas E. Miller........ 49 March 1994 1973-1993 Various positions of
Vice President and increasing responsibility
Controller
1993-1994 V.P. and Assistant
Controller
Diane B. Dixon.......... 45 December 1985 1982-1985 Director of Communications
Vice President,
Corporate
Communications
Susan B. Garelli........ 45 October 1994 **1991-1993 Senior V.P., Human Resources
Vice President, Human and Corporate
Resources Communications, JWP, Inc.
**1993-1994 Consultant, JWP, Inc.
Paul B. Germeraad....... 49 May 1991 None
Vice President and
Director,
Corporate Research
Johan J. Goemans........ 53 October 1992 1975-1990 Various positions of
Vice President, increasing
Management responsibility
Information Systems 1991-1992 Director of Distribution and
Logistics, Fasson Roll
Division U.S.
Daniel R. O'Bryant...... 39 March 1996 1990-1993 Various positions of
Vice President, increasing
Operations Audit and responsibility
Business Consulting 1994 Vice President, Finance, and
Administrative Services,
Europe
1995 Vice President, Operations
Planning
7
SERVED AS FORMER POSITIONS AND
NAME AGE OFFICER SINCE OFFICES WITH REGISTRANT
- - ---- --- ------------- -----------------------
James L. Fletcher....... 55 June 1993 1988-1991 Various positions of
Vice President, increasing
Customer 1991-1993 responsibility
Service and Logistics V.P., Customer Logistics
Gary A. McCue........... 60 November 1987 1987-1994 Vice President and
Vice President, 1994 Controller
Strategic Value Vice President, Corporate
Development Value Planning and
Development
Kim. A. Caldwell........ 49 June 1990 1974-1990 Various positions of
Senior Group Vice increasing
President, responsibility
Worldwide Materials--
Americas and Asia
Geoffrey T. Martin...... 42 January 1994 1986-1988 Managing Director, Label
Senior Vice President, 1988-1992 Systems
Worldwide Tape & V.P. and General Manager,
Converting and 1992-1993 Label Systems UK and
Materials--Europe Ireland
1993-1994 V.P., Office Products Group
Europe
Group Vice President,
Converting and Office
Products Europe
Stephanie A. Streeter... 39 March 1996 1985-1991 Various positions of
Group Vice President, increasing
Worldwide Office 1991-1993 responsibility
Products 1993-1994 V.P. and General Manager,
Avery Office Labels
V.P. and General Manager,
Avery Dennison Brands
James E. Shaw........... 65 February 1994 1986-1991 Various positions of
Group Vice President, increasing
Automotive and Graphic responsibility
Systems 1991-1994 V.P. and General Manager,
Automotive and Graphic
System Division
Robert D. Fletcher...... 61 March 1976 1967-1988 Various positions of
Group Vice President, increasing
Asia Pacific responsibility
1988-1993 Group Vice President,
International Converting
Group
Flavio T. Lacerda....... 50 May 1996 **1991-1994 Latin America Regional
Group Vice President, Manager,
Latin America **1995-1996 Loctite Corporation
America President for Latin America
and South Africa, Loctite
Corporation
Donald R. McKee......... 60 December 1995 1971-1993 Various positions of
Vice President, Label increasing
Ventures responsibility
1993-1995 Vice President and General
Manager, Soabar Systems
Division
1995 Vice President, Soabar
Products and Fastener
Divisions
1996 Group Vice President,
Converted and Fastener
Products North
America
- - --------
* All officers are elected to serve a one year term and until their successors
are elected and quality.
** Business experience prior to service with Registrant.
8
PART II
ITEM 5. MARKET FOR COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The information called for by this item appears on page 60 of Registrant's
1996 Annual Report and is incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
Selected financial data for each of Registrant's last five fiscal years
appears on pages 36 and 37 of Registrant's 1996 Annual Report and is
incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
RESULTS OF OPERATIONS
1996 1995 1994
-------- -------- --------
(DOLLARS IN MILLIONS)
Net sales........................................ $3,222.5 $3,113.9 $2,856.7
Cost of products sold............................ 2,204.2 2,156.6 1,948.9
-------- -------- --------
Gross profit..................................... 1,018.3 957.3 907.8
Marketing, general and administrative expense.... 712.4 689.8 691.9
Net gain on divestitures and restructuring
charges.......................................... 2.1 1.5 --
-------- -------- --------
Earnings before interest and taxes............... $ 308.0 $ 269.0 $ 215.9
Sales increased 3.5 percent to $3.22 billion in 1996, compared to $3.11
billion in 1995. Excluding the impact of business divestitures and changes in
foreign currency exchange rates, sales increased 6.4 percent. In 1995, sales
increased 9 percent over 1994 sales of $2.86 billion. Excluding the impact of
sales from the divested operations and changes in foreign currency exchange
rates for 1995, sales increased approximately 7 percent. During the fourth
quarter of 1995, the Company sold a portion of its North American label
converting operations. These businesses accounted for approximately 2 percent
of the Company's 1995 total sales. Each of the Company's 1996, 1995 and 1994
fiscal years consisted of 52 weeks.
Gross profit margins for the years ended 1996, 1995 and 1994 were 31.6
percent, 30.7 percent and 31.8 percent, respectively. Gross profit margins
during 1996 improved compared to 1995 due primarily to an improved product
mix, new products, cost reduction and control programs and increased capacity
utilization. There was also a $3.2 million LIFO benefit reported during 1996.
The decline in the gross profit percentage during 1995 was primarily due to a
shift in product mix, plant and major production line start-ups, and
$1.6 million in expense related to LIFO inventories compared to a benefit of
$400,000 for 1994.
Marketing, general and administrative expense as a percent of sales was 22.1
percent in 1996, 22.2 percent in 1995 and 24.2 percent in 1994. The
improvement in 1996 over 1995 was primarily attributable to cost control and
reduction efforts throughout the Company and was achieved despite major
investments in geographic expansion, business realignment and new product
programs. The improvement during 1995 was primarily attributable to benefits
from the Company's cost reduction programs, a shift in product mix and
increased sales.
During the third quarter of 1996, restructuring actions were taken,
resulting in a net pretax gain of $2.1 million. The Company sold its equity
interest in a label operation in Japan for $28.4 million, resulting in a
pretax gain of $17.9 million. The Company also recorded $15.8 million of
restructuring charges, which included an asset impairment write-down of $6.3
million for long-lived assets held in the Company's Consumer and converted
products sector. The restructuring program also included the reorganization of
certain manufacturing, distribution and administrative sites. These costs
consisted of severance and related costs for approximately 200 positions
worldwide ($7.4 million) and the discontinuance of product lines and related
asset write-offs ($2.1 million). These actions are expected to be completed
during 1997 and are expected to result in estimated annual savings of
approximately $9 million to $11 million when fully implemented.
9
Business restructuring actions taken during the fourth quarter of 1995
resulted in a net pretax gain of $1.5 million. Certain businesses which no
longer met the Company's strategy for converting technology were sold for $95
million. A $40.7 million pretax gain on the sale of these businesses was
offset by restructuring charges of $39.2 million which included the closure of
four plants and the reorganization of certain manufacturing, distribution and
administrative sites. These costs consisted of severance and related costs for
approximately 400 positions worldwide ($16.2 million), discontinuance of
product lines and related asset write-offs ($13.1 million), and plant closure
and other costs ($9.9 million). This program is also expected to be completed
during 1997 and is expected to result in estimated annual savings of $14
million to $17 million when fully implemented. The 1996 and 1995 programs are
an integral part of the Company's ongoing effort to identify opportunities to
improve its administrative and manufacturing cost structures.
Interest expense as a percent of sales was 1.2 percent in 1996, 1.4 percent
in 1995 and 1.5 percent in 1994. The decrease in 1996 was primarily due to the
expiration of interest rate swap agreements during the fourth quarter of 1995
and an overall lower cost of borrowing. Interest expense increased in 1995 due
to higher debt levels, but was more than offset by the impact of increased
sales.
Income before taxes, as a percent of sales, was 8.4 percent for 1996, 7.2
percent for 1995 and 6.1 percent for 1994. The improvement during 1996 was
primarily due to higher gross profit margins and lower interest expense as a
percent of sales. The improvement during 1995 was primarily due to lower
operating and interest expenses as a percent of sales. The effective tax rate
was 35 percent in 1996, 36 percent in 1995, and 36.7 percent in 1994.
1996 1995 1994
------ ------ ------
(IN MILLIONS, EXCEPT
PER COMMON SHARE
AMOUNTS)
Net income............................................. $175.9 $143.7 $109.4
Net income per common share............................ 1.68 1.35 .98
Net income per fully-diluted common share.............. 1.62 1.31 .96
Average common shares outstanding...................... 105.0 106.5 111.1
Average fully-diluted common shares outstanding........ 108.3 109.3 113.7
Net income increased to $175.9 million in 1996 compared to $143.7 million in
1995, reflecting a 22 percent increase over 1995. Net income in 1994 was
$109.4 million. Net income, as a percent of sales, was 5.5 percent, 4.6
percent and 3.8 percent in 1996, 1995 and 1994, respectively.
Net income per common share reached $1.68 in 1996 compared to $1.35 in 1995,
a 24 percent increase over prior year. Net income per common share was $.98 in
1994. Primarily due to the significant increase in the Company's stock price
during 1996 and share repurchases, the Company is now required to report net
income per share on a fully-diluted basis. Net income per fully-diluted common
share was $1.62 in 1996, $1.31 in 1995 and $.96 in 1994.
RESULTS OF OPERATIONS BY BUSINESS SECTOR
Effective fourth quarter 1996, the Company realigned the reporting of its
businesses from three sectors to two--Pressure-sensitive adhesives and
materials, and Consumer and converted products. The realignment reflects the
broadening and related scope of the Company's consumer businesses to include
products such as battery labels, postage stamps and children's school
supplies. In addition, certain businesses previously in the Pressure-sensitive
adhesives and materials sector that emphasize converting technology were
reclassified into the Consumer and converted products sector. This change more
effectively aligns the Company's financial reporting with manufacturing
processes and end markets. Sector information for 1995 and 1994 has been
reclassified to conform with the 1996 sector presentation.
10
PRESSURE-SENSITIVE ADHESIVES AND MATERIALS:
1996 1995 1994
-------- -------- --------
(IN MILLIONS)
Net sales........................................ $1,693.5 $1,589.7 $1,389.7
Income from operations before interest and taxes. 157.7 144.8 138.8
The Pressure-sensitive adhesives and materials sector reported increased
sales and profits for 1996 compared to 1995. The sector's income results
include restructuring charges of $7.1 million in 1996 and $15.1 million in
1995. The U.S. operations reported sales growth for the year primarily due to
increased volume and new products. Profitability improved as a result of cost
reduction actions, increased capacity utilization and improved operating
efficiencies. The international businesses reported increased sales primarily
due to its geographic expansion in emerging markets and increased volume.
Profitability for the international businesses increased primarily due to the
extent of restructuring charges taken in 1995 compared to 1996. This increase
was partially offset by costs related to continued investments in geographic
expansion and major equipment start-up costs.
The Pressure-sensitive adhesives and materials sector reported increased
sales and profitability for 1995 compared to 1994. Profitability for the
sector increased despite the $15.1 million in restructuring charges taken in
1995. The U.S. operations reported a significant increase in sales due to unit
volume growth and pricing actions. Profitability improvement was primarily due
to sales growth and lower operating expenses as a percent of sales, but was
partially offset by plant and major equipment start-up costs for capacity
expansion, and the reorganization of certain manufacturing sites. Sales for
the European operations increased significantly primarily as a result of
volume growth from improved economic conditions over 1994, pricing actions and
changes in foreign currency rates. Profitability increased, despite costs
taken for restructuring programs, primarily as a result of sales growth, lower
operating expenses as a percent of sales and a more favorable product mix.
CONSUMER AND CONVERTED PRODUCTS:
1996 1995 1994
-------- -------- --------
(IN MILLIONS)
Net sales........................................ $1,670.5 $1,588.6 $1,488.6
Income from operations before interest and taxes. 159.0 147.8 102.1
The Consumer and converted products sector reported increased sales and
profitability for 1996 compared to 1995. The sector's income results include
restructuring charges of $8.7 million for 1996 compared to a $16.6 million net
gain on divestitures and restructuring charges in 1995. The U.S. operations
reported increased sales primarily due to the growth of its battery label
business and for its Avery-brand products. Profitability improved primarily
due to increased sales volume, new products and operating improvements,
including improved logistics. The international businesses reported higher
sales due to geographic expansion and growth of its office label businesses;
however, this sales increase was partially offset by sales declines in a
portion of the French operations. Profitability in 1996 for the international
businesses was comparable to 1995. Profit improvements from cost control
programs and product pruning were offset by lower sales in one of the French
operations and start-up costs related to geographic expansion.
The Consumer and converted products sector reported increased sales and
profits for 1995 compared to 1994. Profits in 1995 included a $40.7 million
gain from the sale of certain nonstrategic North American label converting
operations, which was partially offset by $24.1 million in restructuring
charges. The U.S. operations reported increased sales for 1995 primarily due
to sales growth of its Avery-brand and postage stamp businesses. Profitability
increased for the U.S. operations due to successful new products, an improved
product mix and cost reduction actions, including the consolidations of
distribution warehouses and sales forces in the United States. The
international businesses reported increased sales as a result of new products,
an improved European economy and changes in foreign currency rates. A more
favorable product mix coupled with cost reduction actions taken in previous
years and lower operating expenses as a percent of sales resulted in
significantly higher profitability over 1994.
11
FINANCIAL CONDITION
Average working capital, excluding short-term debt, as a percent of sales
was 9.1 percent in 1996, 9.6 percent in 1995 and 10 percent in 1994. The
decrease in 1996 was primarily due to higher sales and an increase in current
liabilities. Average inventory turnover was 9.3 in 1996, 9.0 in 1995 and 9.3
in 1994; the average number of days sales outstanding in accounts receivable
was 55 days in 1996, 1995 and 1994.
Net cash flow from operating activities was $304 million in 1996, $187.9
million in 1995 and $265 million in 1994. The increase in net cash flow in
1996 was due primarily to the change in working capital requirements and the
Company's improved profitability. The decrease in 1995 was primarily due to a
change in working capital requirements which was partially offset by the
increase in net income.
Total debt increased $17.5 million to $466.9 million compared to year end
1995. Total debt to total capital was 35.9 percent at year end 1996 compared
to 35.5 percent at year end 1995. Long-term debt as a percent of total long-
term capital increased to 30.8 percent from 29 percent at year end 1995.
In October 1996, the Company established the Avery Dennison Corporation
Employee Stock Benefit Trust (the "Trust") to fund a portion of the Company's
obligations arising from various current and future employee benefit plans. As
a result, the Company sold 18 million shares of treasury stock to the Trust at
fair market value. This transaction had no impact on the Company's financial
condition. The Trust has a 15-year life during which it will utilize the stock
to satisfy certain Company obligations.
Shareholders' equity increased to $832 million from $815.8 million at year
end 1995. During 1996, the Company repurchased 3.8 million shares of common
stock at a cost of $109.3 million. The cost of treasury stock held, after the
sale of shares to the Trust and net of shares reissued under the Company's
stock option and incentive plans, at year end 1996 decreased $212.4 million to
$67.5 million from year end 1995. In January 1995, the Board of Directors
authorized the repurchase of an additional ten million shares of the Company's
outstanding common stock for an aggregate of 30.4 million shares authorized
for repurchase. As of year end 1996, a cumulative 25.4 million shares of
common stock had been purchased under this authorization.
The return on average shareholders' equity was 21.4 percent in 1996, 18.6
percent in 1995 and 14.8 percent in 1994. The improvements during 1996 and
1995 were primarily due to a significant increase in profitability and the
impact from share repurchases. The return on average total capital for those
three years was 16.4 percent, 14.4 percent and 12.1 percent, respectively. The
increases during those years were primarily due to profitability improvements
and more effective utilization of the Company's assets.
The Company, like other U.S. corporations, has periodically received notices
from the U.S. Environmental Protection Agency and state environmental agencies
alleging that the Company is a potentially responsible party (PRP) for past
and future cleanup costs at hazardous waste sites. The Company has received
requests for information, notices and/or claims with respect to 17 waste sites
in which the Company has no ownership interest. Litigation has been initiated
by a governmental authority with respect to four of these sites, but the
Company does not believe that any such proceedings will result in the
imposition of monetary sanctions. Environmental investigatory and remediation
projects are also being undertaken on property presently owned by the Company.
The Company has accrued liabilities for all sites where it is probable that a
loss will be incurred and the minimum cost or amount of the loss can be
reasonably estimated. However, because of the uncertainties associated with
environmental assessments and remediation activities, future expense to
remediate the currently identified sites, and sites which could be identified
in the future for cleanup, could be higher than the liability currently
accrued. Based on current site assessments, management believes that the
potential liability over the amounts currently accrued would not materially
affect the Company.
LIQUIDITY AND CAPITAL RESOURCES
In addition to cash flow from operations, the Company has more than adequate
financing arrangements, at competitive rates, to conduct its operations.
12
During the fourth quarter of 1996, the Company registered with the
Securities and Exchange Commission $150 million in principal amount of medium-
term notes. As of year end 1996, no notes had been issued. Proceeds from the
medium-term notes will be used to reduce debt and for other general corporate
purposes. The Company's currently outstanding medium-term notes have
maturities from 1997 through 2025 and have a weighted-average interest rate of
7.2 percent.
The Company's restructuring programs included the 1996 $28.4 million sale of
its equity interest in a label operation in Japan and the 1995 $95 million
sale of certain non-strategic label converting businesses. The restructuring
programs had an estimated cost of $15.8 million and $39.2 million for 1996 and
1995, respectively. At year end 1996 and 1995, $16 million and $24.5 million,
respectively, remained accrued for both programs and related primarily to
employee severance and plant closure costs. By year end 1996 and 1995, total
cash expenditures paid for both restructuring programs totalled $14.5 million
and $1.5 million, respectively, and related primarily to employee severance
and plant closure costs.
Capital expenditures were $187.6 million in 1996 and $190.3 million in 1995.
Capital expenditures for 1997 are expected to be approximately $190 to $200
million.
The annual dividend rate per share increased to $.62 in 1996 from $.55 in
1995 and $.50 in 1994.
The Company continues to expand its operations in Asia Pacific, Latin
America and Europe. The Company's future results are subject to changes in
economic conditions and the impact of fluctuations in foreign currency
exchange and interest rates. To manage its exposure to these fluctuations, the
Company may enter into forward exchange and interest rate contracts, where
appropriate.
Effective 1997, Mexico will be treated as a hyperinflationary economy for
accounting purposes due to the cumulative inflation rate over the past three
years. As a result, the functional currency of subsidiaries operating in
Mexico will change from the peso to the dollar and translation gains and
losses will be included in net income. These operations, including those
located in Brazil which also operate in a hyperinflationary economy, are not
significant to the Company's consolidated financial position.
FUTURE ACCOUNTING REQUIREMENTS
In July 1996, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities". The
standard revised the guidelines for recognition, measurement and disclosure of
transfers and servicing of financial assets and extinguishment of debt. It
will be effective for transactions occurring after December 31, 1996. The
Company will implement the standard during the first quarter of 1997, if
applicable; however, the impact has yet to be determined.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information called for by this item is contained in Registrant's
Consolidated Financial Statements and the Notes thereto appearing on pages 42
through 56, and in the Report of Independent Certified Public Accountants on
page 57 of Registrant's 1996 Annual Report and is incorporated herein by
reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
13
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information concerning directors called for by this item is incorporated
by reference from pages 2, 3 and 4 of the 1997 Proxy Statement which is to be
filed with the Securities and Exchange Commission pursuant to Regulation 14A
within 120 days of the end of the fiscal year covered by this report.
Information concerning executive officers called for by this item appears in
Part I of this report. The information concerning late filings under Section
16(a) of the Securities Exchange Act of 1934, as amended, is incorporated by
reference from page 15 of the 1996 Proxy Statement.
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information called for by items 11, 12 and 13 is incorporated by
reference from pages 5 through 21 of the 1997 Proxy Statement which is to be
filed with the Securities and Exchange Commission pursuant to Regulation 14A
within 120 days of the end of the fiscal year covered by this report.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Financial Statements, Financial Statement Schedules and Exhibits
(1) (2) Financial statements and financial statement schedules filed as
part of this report are listed in the accompanying Index to Financial
Statements and Financial Statement Schedules.
(3) Exhibits filed as a part of this report are listed in the Exhibit
Index, which follows the financial statements and schedules referred to
above. Each management contract or compensatory plan or arrangement
required to be filed as an exhibit to this Form 10-K pursuant to Item 14(c)
is identified in the Exhibit Index.
(b) Reports on Form 8-K: Registrant filed two Reports on Form 8-K for the
three months ended December 28, 1996:
Form 8-K dated December 16, 1996, with respect to its execution of
certain agreements in connection with Medium Term Notes, Series D
(Registration No. 333-16375).
Form 8-K dated October 24, 1996, with respect to its execution of certain
agreements in connection with the Employee Stock Benefit Trust.
(c) Those Exhibits, and the Index thereto, required to be filed by Item 601
of Regulation S-K are attached hereto.
(d) Those financial statement schedules required by Regulation S-X which are
excluded from Registrant's 1996 Annual Report by Rule 14a-3(b)(1), and which
are required to be filed as financial statement schedules to this report, are
indicated in the accompanying Index to Financial Statements and Financial
Statement Schedules.
14
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
Avery Dennison Corporation
By /s/ R. Gregory Jenkins
___________________________________
R. Gregory Jenkins
Senior Vice President, Finance and
Chief Financial Officer
Dated: March 27, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Charles D. Miller Chairman and Chief Executive March 27, 1997
____________________________________ Officer; Director
Charles D. Miller
/s/ Philip M. Neal President and Chief March 27, 1997
____________________________________ Operating Officer; Director
Philip M. Neal
/s/ R. Gregory Jenkins Senior Vice President, March 27, 1997
____________________________________ Finance and Chief Financial
R. Gregory Jenkins Officer (Principal
Financial Officer)
/s/ Thomas E. Miller Vice President and March 27, 1997
____________________________________ Controller (Principal
Thomas E. Miller Accounting Officer)
15
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Dwight L. Allison, Jr. Director March 27, 1997
____________________________________
Dwight L. Allison, Jr.
/s/ John C. Argue Director March 27, 1997
____________________________________
John C. Argue
/s/ Joan T. Bok Director March 27, 1997
____________________________________
Joan T. Bok
/s/ Frank V. Cahouet Director March 27, 1997
____________________________________
Frank V. Cahouet
/s/ Richard M. Ferry Director March 27, 1997
____________________________________
Richard M. Ferry
/s/ Peter W. Mullin Director March 27, 1997
____________________________________
Peter W. Mullin
/s/ Sidney R. Petersen Director March 27, 1997
____________________________________
Sidney R. Petersen
/s/ John B. Slaughter Director March 27, 1997
____________________________________
John B. Slaughter
16
AVERY DENNISON CORPORATION
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL
STATEMENT SCHEDULES
REFERENCE (PAGE)
-------------------
FORM
10-K ANNUAL
ANNUAL REPORT TO
REPORT SHAREHOLDERS
------ ------------
Data incorporated by reference from the attached portions
of the 1996 Annual Report to Shareholders of Avery
Dennison Corporation:
Report of Independent Certified Public Accountants....... -- 57
Consolidated Balance Sheet at December 28, 1996 and
December 30, 1995...................................... -- 42
Consolidated Statement of Income for 1996, 1995 and
1994................................................... -- 43
Consolidated Statement of Shareholders' Equity for 1996,
1995 and 1994.......................................... -- 44
Consolidated Statement of Cash Flows for 1996, 1995 and
1994................................................... -- 45
Notes to Consolidated Financial Statements.............. -- 46-56
Individual financial statements of 50% or less owned entities accounted for by
the equity method have been omitted because, considered in the aggregate or as a
single subsidiary, they do not constitute a significant subsidiary.
With the exception of the consolidated financial statements and the
accountants' report thereon listed in the above index, and the information
referred to in Items 1, 5 and 6, which is included in the 1996 Annual Report and
incorporated herein by reference, the 1996 Annual Report is not to be deemed
"filed" as part of this report.
Data submitted herewith:
Report of Independent Certified Public Accountants...... S-2 --
Financial Statement Schedules (for 1996, 1995 and 1994):
II--Valuation and Qualifying Accounts and Reserves.... S-3 --
Consent of Independent Accountants...................... S-4 --
All other schedules are omitted since the required information is not present
or is not present in amounts sufficient to require submission of the schedule,
or because the information required is included in the consolidated financial
statements and notes thereto.
S-1
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders
of Avery Dennison Corporation
Our report on the consolidated financial statements of Avery Dennison
Corporation and subsidiaries has been incorporated by reference in this Form
10-K from page 57 of the 1996 Annual Report to Shareholders of Avery Dennison
Corporation. In connection with our audits of such financial statements, we
have also audited the related financial statement schedule listed in the index
on page S-1 of this Form 10-K.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
COOPERS & LYBRAND L.L.P.
Los Angeles, California
January 28, 1997
S-2
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(IN MILLIONS)
ADDITIONS
---------------------
BALANCE CHARGED DEDUCTIONS--
AT TO COSTS UNCOLLECTIBLE BALANCE
BEGINNING AND FROM ACCOUNTS AT END
OF YEAR EXPENSES ACQUISITIONS WRITTEN OFF OF YEAR
--------- -------- ------------ ------------- -------
1996
Allowance for doubtful
accounts.............. $17.6 $4.1 $-- $4.2 $17.5
===== ==== === ==== =====
1995
Allowance for doubtful
accounts.............. $18.5 $4.7 $-- $5.6 $17.6
===== ==== === ==== =====
1994
Allowance for doubtful
accounts.............. $16.7 $7.5 $-- $5.7 $18.5
===== ==== === ==== =====
S-3
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statements
of Avery Dennison Corporation on Form S-8 (File Nos. 2-47617, 2-60937, 2-
82207, 33-1132, 33-3645, 33-3637, 33-27275, 33-35995-01,33-41238, 33-45376,
33-54411, 33-58921 and 33-63979) of our report, which appears on page 57 of
the 1996 Annual Report to Shareholders and is incorporated by reference in
this Annual Report on Form 10-K. We also consent to the incorporation by
reference of our report on the financial statement schedule listed in the
index on page S-1.
COOPERS & LYBRAND L.L.P.
Los Angeles, California
March 28, 1997
S-4
AVERY DENNISON CORPORATION
EXHIBIT INDEX
FOR THE YEAR ENDED DECEMBER 28, 1996
INCORPORATED BY REFERENCE:
ORIGINALLY
FILED AS
EXHIBIT EXHIBIT
NO. ITEM NO. DOCUMENT
------- ---- ---------- --------
(3.1) Restated Articles of B
Incorporation.......... Proxy Statement dated February 28,
1977 for Annual Meeting of
Stockholders March 30, 1977;
located in
File No. 0-225 at Securities and
Exchange Commission, 450 5th St.,
N.W., Washington, D.C.
(3.1.1) Amendment to Certificate
of Incorporation, filed
April 10, 1984 with
Office of Delaware
Secretary of State..... 3.1.1 1983 Annual Report on Form 10-K
(3.1.2) Amendment to Certificate
of Incorporation, filed
April 11, 1985 with
Office of Delaware
Secretary of State..... 3.1.2 1984 Annual Report on Form 10-K
(3.1.3) Amendment to Certificate
of Incorporation filed
April 6, 1987 with
Office of Delaware
Secretary of State..... 3.1.3 1986 Annual Report on Form 10-K
(3.1.4) Amendment to Certificate
of Incorporation filed
October 17, 1990 with
Office of Delaware
Secretary of State..... Current Report on Form 8-K filed
October 31, 1990
(3.2) By-laws, as amended..... 3(ii) First Quarterly Report for 1996 on
Form 10-Q
(4.1) Rights Agreement dated
as of June 30, 1988.... Current Report on Form 8-K filed
July 9, 1988
(4.1.1) Amendment to Rights
Agreement dated as of
December 9, 1994....... Current Report on Form 8-K filed
December 14, 1994
(4.2) Indenture, dated as of
March 15, 1991, between
Registrant and Security
Pacific National Bank,
as Trustee (the
"Indenture")........... Registration Statement on Form S-3
(File No. 33-39491)
(4.3) Officers' Certificate
establishing a series
of Securities entitled
"Medium-Term Notes"
under the Indenture.... Current Report on Form 8-K filed
March 25, 1991
(4.4) First Supplemental
Indenture, dated as of
March 16, 1993, between
Registrant and
BankAmerica National
Trust Company, as
successor Trustee (the
"Supplemental
Indenture")............ Registration Statement on Form S-3
(File No. 33-59642)
1
ORIGINALLY
FILED AS
EXHIBIT EXHIBIT
NO. ITEM NO. DOCUMENT
------- ---- ---------- --------
(4.5) Officers' Certificate
establishing a series of
Securities entitled
"Medium-Term
Notes" under the
Indenture, as amended by
the Supplemental
Indenture............... Current Report on Form 8-K filed
April 7, 1993
(4.6) Officers' Certificate
establishing a series of
Securities entitled
"Medium-Term Notes,
Series B" under the
Indenture, as amended by
the Supplemental
Indenture............... Current Report on Form 8-K filed
March 29, 1994
(4.7) Officers' Certificate
establishing a series of
Securities entitled
"Medium-Term Notes,
Series C" under the
Indenture, as amended by
the Supplemental
Indenture............... Current Report on Form 8-K filed
May 12, 1995
(4.8) Officers' Certificate
establishing a series of
Securities entitled
"Medium-Term Notes,
Series D" under the
Indenture, as amended by
the Supplemental
Indenture............... Current Report on Form 8-K filed
December 16, 1996
(10.1) *Amended 1973 Stock
Option and Stock
Appreciation Rights Plan
for Key Employees of
Avery International
Corporation ("1973
Plan").................. 10.1 1987 Annual Report on Form 10-K
(10.1.1) *Form of Incentive Stock
Option Agreement for use
under 1973 Plan......... 10.1.3 1984 Annual Report on Form 10-K
(10.1.2) *Form of Non-Qualified
Stock Option Agreement
for use under 1973 Plan. 10.1.4 1987 Annual Report on Form 10-K
(10.1.3) *Form of coupled Stock
Appreciation Right
Agreement for use under
1973 Plan............... 10.1.5 1985 Annual Report on Form 10-K
(10.1.4) 1985 U.K. Stock Option
Scheme.................. 10.1.7 1985 Annual Report on Form 10-K
(10.1.5) Form of Incentive Stock
Option Agreement for use
under U.K. Stock Option
Scheme.................. 10.1.8 1985 Annual Report on Form 10-K
(10.1.6) Form of Stock Option
Agreement for use under
U.K. Stock Option
Scheme.................. 10.1.9 1985 Annual Report on Form 10-K
(10.2.2) *Form of Incentive Stock
Option Agreement for use
under 1988 Plan......... 10.2.2 1991 Annual Report on Form 10-K
(10.3) *Deferred Compensation
Plan for Directors...... 10.3 1981 Annual Report on Form 10-K
(10.5) *Executive Medical and
Dental Plan (description). 10.5 1981 Annual Report on Form 10-K
(10.6) *Executive Financial
Counseling Service
(description)............. 10.6 1981 Annual Report on Form 10-K
(10.7.1) *Executive Employment
Security Policy dated
February 1, 1983........ 10.7.1 1982 Annual Report on Form 10-K
2
ORIGINALLY
FILED AS
EXHIBIT EXHIBIT
NO. ITEM NO. DOCUMENT
------- ---- ---------- --------
(10.7.2) *Executive Employment
Security Policy dated
February 1, 1985........ 10.13 1984 Annual Report on Form 10-K
(10.7.3) *Executive Employment
Security Policy dated
November 19, 1987....... 10.7.3 1993 Annual Report on Form 10-K
(10.8.1) *Agreement dated October
24, 1990 with Charles D.
Miller.................. 10.8.1 1990 Annual Report on Form 10-K
(10.8.2) *Agreement dated October
23, 1990 with Philip M.
Neal.................... 10.8.2 1990 Annual Report on Form 10-K
(10.9) *Executive Group Life
Insurance Plan.......... 10.9 1982 Annual Report on Form 10-K
(10.10) *Form of Indemnity
Agreements between
Registrant and certain
directors and officers.. 10.10 1986 Annual Report on Form 10-K
(10.10.1) *Form of Indemnity
Agreement between
Registrant and certain
directors and officers.. 10.10.1 1993 Annual Report on Form 10-K
(10.11) *Supplemental Executive
Retirement Plan......... 10.11 1983 Annual Report on Form 10-K
(10.11.1) *Amended Letter of Grant
to C.D. Miller under
Supplemental Executive
Retirement Plan......... 10.11.2 1992 Annual Report on Form 10-K
(10.12) *Complete Restatement and
Amendment of Avery
Dennison Corporation
Executive Deferred
Compensation Plan....... 10.12 1994 Annual Report on Form 10-K
(10.12.1) *Form of Enrollment
Agreement for use under
Executive Deferred
Compensation Plan....... 10.13.2 1985 Annual Report on Form 10-K
(10.13) *Fourth Amended Avery
Dennison Retirement Plan
for Directors........... 10.13.2 1992 Annual Report on Form 10-K
(10.15) *1988 Stock Option Plan
for Non-Employee
Directors ("Director
Plan").................. 10.15 1987 Annual Report on Form 10-K
(10.15.1) *Amendment No. 1 to 1988
Stock Option Plan for
Non-Employee Directors
("Director Plan")......... 10.15.1 1994 Annual Report on Form 10-K
(10.15.2) *Form of Non-Employee
Director Stock Option
Agreement for use under
Director Plan........... 10.15.2 1994 Annual Report on Form 10-K
(10.16) *Complete Restatement and
Amendment of Avery
Dennison Corporation
Executive Variable
Deferred Compensation
Plan.................... 10.16 1994 Annual Report on Form 10-K
(10.16.1) *Form of Enrollment
Agreement for use under
Executive Variable
Deferred Compensation
Plan.................... 10.16.1 1987 Annual Report on Form 10-K
(10.17) *Complete Restatement and
Amendment of Avery
Dennison Corporation
Directors Deferred
Compensation Plan....... 10.17 1994 Annual Report on Form 10-K
3
ORIGINALLY
FILED AS
EXHIBIT EXHIBIT
NO. ITEM NO. DOCUMENT
------- ---- ---------- --------
(10.17.1) *Form of Enrollment
Agreement for use under
Directors Deferred
Compensation Plan....... 10.17.2 1985 Annual Report on Form 10-K
(10.18) *Complete Restatement and
Amendment of Avery
Dennison Corporation
Directors Variable
Deferred Compensation
Plan.................... 10.18 1994 Annual Report on Form 10-K
(10.18.1) *Form of Enrollment
Agreement for use under
Directors Variable
Deferred Compensation
Plan.................... 10.18.1 1989 Annual Report on Form 10-K
(10.19) *1990 Stock Option and
Incentive Plan for Key
Employees of Avery
International
Corporation ("1990
Plan").................. 10.19 1989 Annual Report on Form 10-K
(10.19.1) *Amendment No. 1 to 1990
Plan.................... 10.19.1 1993 Annual Report on Form 10-K
(10.19.2) *Form of Incentive Stock
Option Agreement for use
under 1990 Plan......... 10.19.2 1991 Annual Report on Form 10-K
(10.19.3) *Form of Non-Qualified
Stock Option Agreement
for use under 1990 Plan. 10.19.3 1994 Annual Report on Form 10-K
(10.19.4) *Form of Non-Qualified
Stock Option Agreement
for use under 1990 Plan
(for LTIP Participants)... 10.19.4 1994 Annual Report on Form 10-K
(10.20.1) *1982 Incentive Stock
Option Plan of Dennison Registration Statement on Form S-8
Manufacturing Company... (File No. 33-35995-01)
(10.20.2) *1985 Incentive Stock
Option Plan of Dennison Registration Statement on Form S-8
Manufacturing Company... (File No. 33-35995-01)
(10.20.3) *1988 Stock Option Plan
of Dennison Registration Statement on Form S-8
Manufacturing Company... (File No. 33-35995-01)
(10.20.4) *Amendments effective as
of October 16, 1990 to
the 1982 Incentive Stock
Option Plan, 1985
Incentive Stock Option
Plan and 1988 Stock
Option Plan of Dennison Registration Statement on Form S-8
Manufacturing Company... (File No. 33-35995-01)
(10.27.1) *Amended and Restated Key
Executive Long-Term
Incentive Plan ("LTIP")... 10.27.1 1993 Annual Report on Form 10-K
(10.27.2) *Second Amended and
Restated
Key Executive Long-Term
Incentive Plan.......... 1995 Annual Report on Form 10-K
(10.28) *Complete Restatement and
Amendment of Avery
Dennison Corporation
Executive Deferred
Retirement Plan......... 10.28 1994 Annual Report on Form 10-K
(10.28.1) *Form of Enrollment
Agreement for use under
Executive Deferred
Retirement Plan......... 10.28.1 1992 Annual Report on Form 10-K
4
ORIGINALLY
FILED AS
EXHIBIT EXHIBIT
NO. ITEM NO. DOCUMENT
------- ---- ---------- --------
(10.29) *Executive Incentive
Compensation
Plan................... 10.29 1993 Annual Report on Form 10-K
(10.30) *Senior Executive
Incentive Compensation
Plan................... 10.30 1993 Annual Report on Form 10-K
(10.31) *Executive Variable
Deferred Retirement 10.31 Registration Statement on Form S-8
Plan................... (File No. 33-63979)
(10.31.1) *Amended and Restated
Executive Variable
Deferred Retirement
Plan................... 10.31.1 1995 Annual Report on Form 10-K
(10.32) *Benefit Restoration
Plan................... 10.32 1995 Annual Report on Form 10-K
(10.33.1) *Trust Agreement for
Employee Stock Benefit 10.1 Current Report on Form 8-K filed
Trust.................. October 24, 1996
(10.33.2) *Common Stock Purchase Current Report on Form 8-K filed
Agreement.............. 10.2 October 24, 1996
(10.33.3) *Promissory Note........ 10.3 Current Report on Form 8-K filed
October 24, 1996
- - --------
* Management contract or compensatory plan or arrangement required to be filed
as an Exhibit to this Form 10-K pursuant to Item 14(c).
5
SUBMITTED HEREWITH:
EXHIBIT
NO. ITEM
------- ----
3.2 Bylaws, as amended
10.8.3 *Agreement dated March 16, 1996 with R.G. van Schoonenberg
10.19.5 *Amendment No. 2 to 1990 Plan
10.21 *1996 Stock Incentive Plan of Avery Dennison Corporation
10.27.3 *Third Amended and Restated Key Executive Long-Term Incentive Plan
11 Statement re Computation of Net Income Per Share Amounts
13 Portions of Annual Report to Shareholders for fiscal year ended
December 28, 1996
21 List of Subsidiaries
23 Consent of Independent Accountants (see page S-4)
27 Financial Data Schedule
99 Cautionary Statement for Purposes of the "Safe Harbor" Provisions of
the Private Securities Litigation Reform Act of 1995
- - --------
* Management contract or compensatory plan or arrangement required to be filed
as an Exhibit to this Form 10-K pursuant to Item 14(c).
STATEMENT AND AGREEMENT REGARDING
LONG-TERM DEBT OF REGISTRANT
Except as indicated above, Registrant has no instrument with respect to
long-term debt under which securities authorized thereunder equal or exceed
10% of the total assets of Registrant and its subsidiaries on a consolidated
basis. Registrant agrees to furnish a copy of its long-term debt instruments
to the Commission upon request.
6
EXHIBIT 3.2
BYLAWS
OF
AVERY DENNISON CORPORATION
ARTICLE I
---------
OFFICES
Section 1. Registered Office. The registered office of Avery Dennison
Corporation (hereinafter called the "corporation") in the State of Delaware
shall be at 1013 Centre Road, City of Wilmington, County of New Castle, and the
name of the registered agent at that address shall be United States Corporation
Company.
Section 2. Principal Office. The principal executive office for the
transaction of the business of the corporation is hereby fixed and located in
Los Angeles County, California. The board of directors is hereby granted full
power and authority to change said principal executive office from one location
to another within or without the State of California.
Section 3. Other Offices. The corporation may also have offices at such
other places within or without the State of Delaware as the board of directors
may from time to time determine, or the business of the corporation may require.
ARTICLE II
----------
STOCKHOLDERS
Section 1. Place of Meetings. Meetings of stockholders shall be held at
any place within or outside the State of Delaware designated by the board of
directors. In the absence of any such designation, stockholders' meetings shall
be held at the principal executive office of the corporation.
Section 2. Annual Meetings of Stockholders. The annual meeting of
stockholders shall be held on the last Thursday in April of each year at 1:30
p.m. of said day, or on such other day, which shall not be a legal holiday, as
shall be determined by the board of directors. Any previously scheduled annual
meeting of stockholders may be postponed by resolution of the board of directors
upon public notice given prior to the date previously scheduled for such annual
meeting of stockholders.
Section 3. Special Meetings. A special meeting of the stockholders may be
called at any time by the board of directors, or by a majority of the directors
or by a committee authorized by the board to do so. Any previously scheduled
special meeting of the stockholders may be postponed by resolution of the board
of directors upon public notice given prior to the date previously scheduled for
such special meeting of the stockholders.
1
Section 4. Notice of Stockholders' Meetings. All notices of meetings of
stockholders shall be sent or otherwise given in accordance with Section 5 of
this Article II not less than ten (10) nor more than sixty (60) days before the
date of the meeting being noticed. The notice shall specify the place, date and
hour of the meeting and (i) in case of a special meeting, the general nature of
the business to be transacted, or (ii) in the case of the annual meeting, those
matters which the board of directors, at the time of giving the notice, intends
to present for action by the stockholders. The notice of any meeting at which
directors are to be elected shall include the name of any nominee or nominees
who, at the time of the notice, management intends to present for election.
Section 5. Manner of Giving Notice; Affidavit of Notice. Notice of any
meeting of stockholders shall be given either personally or by mail or
telegraphic or other written communication, charges prepaid, addressed to the
stockholder at the address of such stockholder appearing on the books of the
corporation or given by the stockholder to the corporation for the purpose of
notice. If no such address appears on the corporation's books or has been so
given, notice shall be deemed to have been given if sent by mail or telegraphic
or other written communication to the corporation's principal executive office,
or if published at least once in a newspaper of general circulation in the
county where such office is located. Notice shall be deemed to have been given
at the time when delivered personally or deposited in the mail or sent by
telegram or other means of written communication.
An affidavit of the mailing or other means of giving any notice
of any stockholders' meeting shall be executed by the secretary, assistant
secretary or any transfer agent of the corporation giving such notice, and shall
be filed and maintained in the minute book of the corporation.
Section 6. Quorum. The presence in person or by proxy of the holders of a
majority of the shares entitled to vote at any meeting of stockholders shall
constitute a quorum for the transaction of business. The stockholders present
at a duly called or held meeting at which a quorum is present may continue to do
business until adjournment, notwithstanding the withdrawal of enough
stockholders to leave less than a quorum, if any action taken (other than
adjournment) is approved by at least a majority of the shares required to
constitute a quorum.
Section 7. Adjourned Meeting and Notice Thereof. Any stockholders'
meeting, annual or special, whether or not a quorum is present, may be adjourned
from time to time by the Chairman of the meeting, but in the absence of a
quorum, no other business may be transacted at such meeting, except as provided
in Section 6 of this Article II.
When any meeting of stockholders, either annual or special, is
adjourned to another time or place, notice need not be given of the adjourned
meeting if the time and place thereof are announced at a meeting at which the
adjournment is taken, unless a new record date for the adjourned meeting is
fixed, or unless the adjournment is for more than thirty (30) days from the date
set for the original meeting. Notice of any such adjourned meeting, if
required, shall be given to each stockholder of record entitled to vote at the
adjourned meeting in accordance with the provisions of Sections 4 and 5 of this
Article II. At any adjourned meeting the corporation may transact any business
which might have been transacted at the original meeting.
2
Section 8. Voting. The stockholders entitled to vote at any meeting of
stockholders shall be determined in accordance with the provisions of Section 11
of this Article II. Such vote may be by voice vote or by ballot, at the
discretion of the Chairman of the meeting. Any stockholder entitled to vote on
any matter (other than the election of directors) may vote part of the shares in
favor of the proposal and refrain from voting the remaining shares or vote them
against the proposal; but, if the stockholder fails to specify the number of
shares such stockholder is voting affirmatively, it will be conclusively
presumed that the stockholder's approving vote is with respect to all shares
such stockholder is entitled to vote. If a quorum is present, the affirmative
vote of the majority of the shares represented at the meeting and entitled to
vote on any matter shall be the act of the stockholders, unless the vote of a
greater number or voting by classes is required by the Delaware General
Corporation Law or the certificate of incorporation or the certificate of
determination of preferences as to any preferred stock.
At a stockholders' meeting involving the election of directors,
no stockholder shall be entitled to cumulate (i.e., cast for any one or more
candidates a number of votes greater than the number of the stockholder's
shares). The candidates receiving the highest number of votes, up to the number
of directors to be elected, shall be elected.
Section 9. Waiver of Notice or Consent by Absent Stockholders. The
transactions of any meeting of stockholders, either annual or special, however
called and noticed, and wherever held, shall be as valid as though had at a
meeting duly held after regular call and notice, if a quorum be present either
in person or by proxy, and if, either before or after the meeting, each person
entitled to vote, not present in person or by proxy, signs a written waiver of
notice or a consent to the holding of the meeting, or an approval of the minutes
thereof. The waiver of notice or consent need not specify either the business
to be transacted or the purpose of any annual or special meeting of
stockholders. All such waivers, consents or approvals shall be filed with the
corporate records or made part of the minutes of the meeting.
Attendance of a person at a meeting shall also constitute a
waiver of notice of such meeting, except when the person objects, at the
beginning of the meeting, to the transaction of any business because the meeting
is not lawfully called or convened, and except that attendance at a meeting is
not a waiver of any right to object to the consideration of matters not included
in the notice of the meeting if such objection is expressly made at the meeting.
Section 10. No Stockholder Action by Written Consent Without a Meeting.
Stockholders may take action only at a regular or special meeting of
stockholders.
Section 11. Record Date for Stockholder Notice and Voting. For purposes
of determining the holders entitled to notice of any meeting or to vote, the
board of directors may fix, in advance, a record date, which shall not be more
than sixty (60) days nor less than ten (10) days prior to the date of any such
meeting, and in such case only stockholders of record on the date so fixed are
entitled to notice and to vote, notwithstanding any transfer of any shares on
the books of the corporation after the record date fixed as aforesaid, except as
otherwise provided in the Delaware General Corporation Law.
If the board of directors does not so fix a record date, the
record date for determining stockholders entitled to notice of or to vote at a
meeting of stockholders shall be at the close of business on the business day
next preceding the day on which notice is given or, if notice is waived, at the
close of business on the business day next preceding the day on which the
meeting is held.
3
Section 12. Proxies. Every person entitled to vote for directors or on
any other matter shall have the right to do so either in person or by one or
more agents authorized by a written proxy signed by the person and filed with
the secretary of the corporation. A proxy shall be deemed signed if the
stockholder's name is placed on the proxy (whether by manual signature,
typewriting, telegraphic transmission or otherwise) by the stockholder or the
stockholder's attorney in fact. A validly executed proxy which does not state
that it is irrevocable shall continue in full force and effect unless (i)
revoked by the person executing it, prior to the vote pursuant thereto, by a
writing delivered to the corporation stating that the proxy is revoked or by a
subsequent proxy executed by, or attendance at the meeting and voting in person
by, the person executing the proxy, or (ii) written notice of the death or
incapacity of the maker of such proxy is received by the corporation before the
vote pursuant thereto is counted; provided, however, that no such proxy shall be
valid after the expiration of eleven (11) months from the date of such proxy,
unless otherwise provided in the proxy.
Section 13. Inspectors of Election; Opening and Closing the Polls. The
board of directors by resolution shall appoint one or more inspectors, which
inspector or inspectors may include individuals who serve the corporation in
other capacities, including, without limitation, as officers, employees, agents
or representatives, to act at the meetings of stockholders and make a written
report thereof. One or more persons may be designated as alternate inspectors
to replace any inspector who fails to act. If no inspector or alternate has
been appointed to act or is able to act at a meeting of stockholders, the
chairman of the meeting shall appoint one or more inspectors to act at the
meeting. Each inspector, before discharging his or her duties, shall take and
sign an oath faithfully to execute the duties of inspector with strict
impartiality and according to the best of his or her ability. The inspectors
shall have the duties prescribed by law.
The chairman of the meeting shall fix and announce at the
meeting the date and time of the opening and the closing of the polls for each
matter upon which the stockholders will vote at a meeting.
Section 14. Nomination and Stockholder Business Bylaw..
(A) Annual Meetings of Stockholders. (1) Nominations of persons for
election to the board of directors of the corporation and the proposal of
business to be considered by the stockholders may be made at an annual meeting
of stockholders (a) pursuant to the corporation's notice of meeting, (b) by or
at the direction of the board of directors or (c) by any stockholder of the
corporation who was a stockholder of record at the time of giving of notice
provided for in this Bylaw, who is entitled to vote at the meeting and who
complies with the notice procedures set forth in this Bylaw.
(2) For nominations or other business to be properly brought
before an annual meeting by a stockholder pursuant to clause (c) of paragraph
(A) (1) of this Bylaw, the stockholder must have given timely notice thereof in
writing to the secretary of the corporation and such other business must
otherwise be a proper matter for stockholder action. To be timely, a
stockholder's notice shall be delivered to the secretary at the principal
executive offices of the corporation not later than the close of business on the
60th day nor earlier than the close of business on the 90th day prior to the
first anniversary of the preceding year's annual meeting; provided, however,
that in the event that the date of the annual meeting is more than 30 days
before or more than 60 days after such anniversary date, notice by the
stockholder to be timely must be so delivered not earlier than the close of
business on the 90th day prior to such annual meeting and not later than the
close of business on the later of the 60th day prior to such annual meeting or
the 10th day
4
following the day on which public announcement of the date of such meeting is
first made by the corporation. In no event shall the public announcement of an
adjournment of an annual meeting commence a new time period for the giving of a
stockholder's notice as described above. Such stockholder's notice shall set
forth (a) as to each person whom the stockholder proposes to nominate for
election or reelection as a director all information relating to such person
that is required to be disclosed in solicitations of proxies for election of
directors in an election contest, or is otherwise required, in each case
pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended
(the "Exchange Act") and Rule 14a-11 thereunder (including such person's written
consent to being named in the proxy statement as a nominee and to serving as a
director if elected); (b) as to any other business that the stockholder proposes
to bring before the meeting, a brief description of the business desired to be
brought before the meeting, the reasons for conducting such business at the
meeting and any material interest in such business of such stockholder and the
beneficial owner, if any, on whose behalf the proposal is made; and (c) as to
the stockholder giving the notice and the beneficial owner, if any, on whose
behalf the nomination or proposal is made (i) the name and address of such
stockholder, as they appear on the corporation's books, and of such beneficial
owner and (ii) the class and number of shares of the corporation which are owned
beneficially and of record by such stockholder and such beneficial owner.
(3) Notwithstanding anything in the second sentence of
paragraph (A)(2) of this Bylaw to the contrary, in the event that the number of
directors to be elected to the board of directors of the corporation is
increased and there is no public announcement by the corporation naming all of
the nominees for director or specifying the size of the increased board of
directors at least 70 days prior to the first anniversary of the preceding
year's annual meeting, a stockholder's notice required by this Bylaw shall also
be considered timely, but only with respect to nominees for any new positions
created by such increase, if it shall be delivered to the secretary at the
principal executive offices of the corporation not later than the close of
business on the 10th day following the day on which such public announcement is
first made by the corporation.
(B) Special Meetings of Stockholders. Only such business shall be
conducted at a special meeting of stockholders as shall have been brought before
the meeting pursuant to the corporation's notice of meeting. Nominations of
persons for election to the board of directors may be made at a special meeting
of stockholders at which directors are to be elected pursuant to the
corporation's notice of meeting (a) by or at the direction of the board of
directors or (b) provided that the board of directors has determined that
directors shall be elected at such meeting, by any stockholder of the
corporation who is a stockholder of record at the time of giving of notice
provided for in this Bylaw, who shall be entitled to vote at the meeting and who
complies with the notice procedures set forth in this Bylaw. In the event the
corporation calls a special meeting of stockholders for the purpose of electing
one or more directors to the board of directors, any such stockholder may
nominate a person or persons (as the case may be), for election to such
position(s) as specified in the corporation's notice of meeting, if the
stockholder's notice required by paragraph (A) (2) of this Bylaw shall be
delivered to the secretary at the principal executive offices of the corporation
not earlier than the close of business on the 90th day prior to such special
meeting and not later than the close of business on the later of the 60th day
prior to such special meeting or the 10th day following the day on which public
announcement is first made of the date of the special meeting and of the
nominees proposed by the board of directors to be elected at such meeting. In
no event shall the public announcement of an adjournment of a special meeting
commence a new time period for the giving of a stockholder's notice as described
above.
5
(C) General. (1) Only such persons who are nominated in accordance with
the procedures set forth in this Bylaw shall be eligible to serve as directors
and only such business shall be conducted at a meeting of stockholders as shall
have been brought before the meeting in accordance with the procedures set forth
in this Bylaw. Except as otherwise provided by law, the Certificate of
Incorporation or these Bylaws, the chairman of the meeting shall have the power
and duty to determine whether a nomination or any business proposed to be
brought before the meeting was made or proposed, as the case may be, in
accordance with the procedures set forth in this Bylaw and, if any proposed
nomination or business is not in compliance with this Bylaw, to declare that
such defective proposal or nomination shall be disregarded.
(2) For purposes of this Bylaw, "public announcement" shall
mean disclosure in a press release reported by the Dow Jones News Service,
Associated Press or comparable national news service or in a document publicly
filed by the corporation with the Securities and Exchange Commission pursuant to
Section 13, 14 or 15(d) of the Exchange Act.
(3) Notwithstanding the foregoing provisions of this Bylaw, a
stockholder shall also comply with all applicable requirements of the Exchange
Act and the rules and regulations thereunder with respect to the matters set
forth in this Bylaw. Nothing in this Bylaw shall be deemed to affect any rights
(i) of stockholders to request inclusion of proposals in the corporation's proxy
statement pursuant to Rule 14a-8 under the Exchange Act or (ii) of the holders
of any series of Preferred Stock, if any, to elect directors under certain
circumstances.
ARTICLE III
-----------
DIRECTORS
Section 1. Powers. Subject to the provisions of the Delaware General
Corporation Law and any limitations in the certificate of incorporation and
these bylaws relating to action required to be approved by the stockholders or
by the outstanding shares, the business and affairs of the corporation shall be
managed and all corporate powers shall be exercised by or under the direction of
the board of directors.
Without prejudice to such general powers, but subject to the
same limitations, it is hereby expressly declared that the directors shall have
the power and authority to:
(a) Select and remove all officers, agents and employees of the
corporation, prescribe such powers and duties for them as may not be
inconsistent with law, the certificate of incorporation or these bylaws,
fix their compensation, and require from them security for faithful
service.
(b) Change the principal executive office or the principal business
office in the State of California from one location to another; cause the
corporation to be qualified to do business in any other state, territory,
dependency, or foreign country and conduct business within or outside the
State of California; designate any place within or without the State of
California for the holding of any stockholders' meeting or meetings,
including annual meetings; adopt, make and use a corporate seal, and
prescribe the forms of certificates of stock, and alter the form of such
seal and of such certificates from time to time as in their judgment they
may deem best, provided that such forms shall at all times comply with the
provisions of law.
6
(c) Authorize the issuance of shares of stock of the corporation
from time to time, upon such terms as may be lawful, in consideration of
money paid, labor done or services actually rendered, debts or securities
canceled or tangible or intangible property actually received.
(d) Borrow money and incur indebtedness for the purpose of the
corporation, and cause to be executed and delivered therefor, in the
corporate name, promissory notes, bonds, debentures, deeds of trust,
mortgages, pledges, hypothecations, or other evidences of debt and
securities therefor.
Section 2. Number and Qualification of Directors. The number of directors
of the corporation shall be ten (10) until changed by a bylaw amending this
Section 2, duly adopted by the board of directors or by the stockholders.
Section 3. Election and Term of Office of Directors. Subject to Section
15 below, one class of the directors shall be elected at each annual meeting of
the stockholders, but if any such annual meeting is not held or the directors
are not elected thereat, the directors may be elected at any special meeting of
stockholders held for that purpose. All directors shall hold office until their
respective successors are elected. Irrespective of the provisions of Section 15
of this Article III and of the preceding sentence, a director shall
automatically be retired on the date of the expiration of the first annual
meeting following his 72nd birthday.
Section 4. Vacancies. Vacancies in the board of directors may be filled
by a majority of the remaining directors, though less than a quorum, or by a
sole remaining director. Each director elected to fill a vacancy shall hold
office for the remainder of the term of the person whom he succeeds, and until a
successor has been elected and qualified.
A vacancy or vacancies in the board of directors shall be
deemed to exist in the case of the death, retirement, resignation or removal of
any director, or if the board of directors by resolution declares vacant the
office of a director who has been declared of unsound mind by an order of court
or convicted of a felony, or if the authorized number of directors be increased,
or if the stockholders fail at any meeting of stockholders at which any director
or directors are elected, to elect the full authorized number of directors to be
voted for at that meeting.
Any director may resign or voluntarily retire upon giving
written notice to the chairman of the board, the president, the secretary or the
board of directors. Such retirement or resignation shall be effective upon the
giving of the notice, unless the notice specifies a later time for its
effectiveness. If such retirement or resignation is effective at a future time,
the board of directors may elect a successor to take office when the retirement
or resignation becomes effective.
No reduction of the authorized number of directors shall have
the effect of removing any director prior to the expiration of his term of
office. No director may be removed during his term except for cause.
Section 5. Place of Meetings and Telephonic Meetings. Regular meetings of
the board of directors may be held at any place within or without the State of
Delaware that has been designated from time to time by resolution of the board.
In the absence of such designation, regular meetings shall be held
7
at the principal executive office of the corporation. Special meetings of the
board shall be held at any place within or without the State of Delaware that
has been designated in the notice of the meeting or, if not stated in the notice
or there is no notice, at the principal executive office of the corporation.
Any meeting, regular or special, may be held by conference telephone or similar
communication equipment, so long as all directors participating in such meeting
can hear one another, and all such directors shall be deemed to be present in
person at such meeting.
Section 6. Annual Meetings. Immediately following each annual meeting of
stockholders, the board of directors shall hold a regular meeting for the
purpose of organization, any desired election of officers and transaction of
other business. Notice of this meeting shall not be required.
Section 7. Other Regular Meetings. Other regular meetings of the board of
directors shall be held at such time as shall from time to time be determined by
the board of directors. Such regular meetings may be held without notice
provided that notice of any change in the determination of time of such meeting
shall be sent to all of the directors. Notice of a change in the determination
of the time shall be given to each director in the same manner as for special
meetings of the board of directors.
Section 8. Special Meetings. Special meetings of the board of directors
for any purpose or purposes may be called at any time by the chairman of the
board or the president or any vice president or the secretary or any two
directors.
Notice of the time and place of special meetings shall be
delivered personally or by telephone to each director or sent by first-class
mail or telegram, charges prepaid, addressed to each director at his or her
address as it is shown upon the records of the corporation. In case such notice
is mailed, it shall be deposited in the United States mail at least four (4)
days prior to the time of the holding of the meeting. In case such notice is
delivered personally, or by telephone or telegram, it shall be delivered
personally, or by telephone or to the telegraph company at least forty-eight
(48) hours prior to the time of the holding of the meeting. Any oral notice
given personally or by telephone may be communicated to either the director or
to a person at the office of the director who the person giving the notice has
reason to believe will promptly communicate it to the director. The notice need
not specify the purpose of the meeting nor the place if the meeting is to be
held at the principal executive office of the corporation.
Section 9. Quorum. A majority of the authorized number of directors shall
constitute a quorum for the transaction of business, except to adjourn as
hereinafter provided. Every act or decision done or made by a majority of the
directors present at a meeting duly held at which a quorum is present shall be
regarded as the act of the board of directors. A meeting at which a quorum is
initially present may continue to transact business notwithstanding the
withdrawal of directors, if any action taken is approved by at least a majority
of the required quorum for such meeting.
Section 10. Waiver of Notice. The transactions of any meeting of the
board of directors, however called and noticed or wherever held, shall be as
valid as though had at a meeting duly held after regular call and notice if a
quorum be present and if, either before or after the meeting, each of the
directors not present signs a written waiver of notice, a consent to holding the
meeting or an approval of the minutes thereof. The waiver of notice or consent
need not specify the purpose of the meeting. All such waivers, consents and
approvals shall be filed with the corporate records or made a part of the
minutes of the meeting. Notice of a meeting shall also be deemed given to any
director who attends the meeting without protesting, prior thereto or at its
commencement, the lack of notice to such director.
8
Section 11. Adjournment. A majority of the directors present, whether or
not constituting a quorum, may adjourn any meeting to another time and place.
Section 12. Notice of Adjournment. Notice of the time and place of an
adjourned meeting need not be given, unless the meeting is adjourned for more
than twenty-four (24) hours, in which case notice of such time and place shall
be given prior to the time of the adjourned meeting, in the manner specified in
Section 8 of this Article III, to the directors who were not present at the time
of the adjournment.
Section 13. Action Without Meeting. Any action required or permitted to
be taken by the board of directors may be taken without a meeting, if all
members of the board shall individually or collectively consent in writing to
such action. Such action by written consent shall have the same force and
effect as a unanimous vote of the board of directors. Such written consent or
consents shall be filed with the minutes of the proceedings of the board.
Section 14. Fees and Compensation of Directors. Directors and members of
committees may receive such compensation, if any, for their services and such
reimbursement of expenses, as may be fixed or determined by resolution of the
board of directors. Nothing herein contained shall be construed to preclude any
director from serving the corporation in any other capacity as an officer,
agent, employee, or otherwise, and receiving compensation for such services.
Section 15. Classification of Directors. The board of directors shall be
and is divided into three classes, Class I, Class II and Class III. The number
of directors in each class shall be the whole number contained in the quotient
arrived at by dividing the authorized number of directors by three, and if a
fraction is also contained in such quotient then if such fraction is one-third
(1/3) the extra director shall be a member of Class III and if the fraction is
two-thirds (2/3) one of the extra directors shall be a member of Class III and
the other shall be a member of Class II. Each director shall serve for a term
ending on the date of the third annual meeting following the annual meeting at
which such director was elected.
In the event of any increase or decrease in the authorized
number of directors, (a) each director then serving as such shall nevertheless
continue as a director of the class of which he is a member until the expiration
of his current term, or his prior death, resignation or removal, and (b) the
newly created or eliminated directorships resulting from such increase or
decrease shall be apportioned by the board of directors to such class or classes
as shall, so far as possible, bring the number of directors in the respective
classes into conformity with the formula in this Section 15, as applied to the
new authorized number of directors.
9
ARTICLE IV
----------
COMMITTEES
Section 1. Committees of Directors. The board of directors may, by
resolution adopted by a majority of the authorized number of directors,
designate one or more committees, including an executive committee, each
consisting of two or more directors, to serve at the pleasure of the board. The
board may designate one or more directors as alternate members of any committee,
who may replace any absent member at any meeting of the committee. Any such
committee, to the extent provided in the resolution of the board, shall have all
the authority of the board, except with respect to:
(a) the approval of any action which, under the General Corporation
Law of Delaware, also requires stockholders' approval or approval of the
outstanding shares;
(b) the filling of vacancies on the board of directors or in any
committee;
(c) the fixing of compensation of the directors for serving on the
board or on any committee;
(d) the amendment or repeal of bylaws or the adoption of new
bylaws;
(e) the amendment or repeal of any resolution of the board of
directors which by its express terms is not so amendable or repealable;
(f) a distribution to the stockholders of the corporation, except
at a rate or in a periodic amount or within a price range determined by the
board of directors; or
(g) the appointment of any other committees of the board of
directors or the members thereof.
Section 2. Meetings and Action of Committees. Meetings and action of
committees shall be governed by, and held and taken in accordance with, the
provisions of Article III of these bylaws, Sections 5 (place of meetings), 7
(regular meetings), 8 (special meetings and notice), 9 (quorum), 10 (waiver of
notice), 11 (adjournment), 12 (notice of adjournment) and 13 (action without
meetings), with such changes in the context of those bylaws as are necessary to
substitute the committee and its members for the board of directors and its
members, except that the time of regular meetings of committees may be
determined by resolution of the board of directors as well as the committee,
special meetings of committees may also be called by resolution of the board of
directors, and notice of special meetings of committees shall also be given to
all alternate members, who shall have the right to attend all meetings of the
committee. The board of directors may adopt rules for the government of any
committee not inconsistent with the provisions of these bylaws.
10
ARTICLE V
---------
OFFICERS
Section 1. Officers. The officers of the corporation shall be the
chairman of the board, the president, a vice president, a secretary and a
treasurer. The corporation may also have, at the discretion of the board of
directors, one or more additional vice presidents, one or more assistant
secretaries, one or more assistant treasurers, and such other officers as may be
appointed in accordance with the provisions of Section 3 of this Article V. Any
number of offices may be held by the same person.
Section 2. Election of Officers. The officers of the corporation, except
such officers as may be appointed in accordance with the provisions of Section 3
or Section 5 of this Article V, shall be chosen annually by the board of
directors, and each shall hold his office until he shall resign or be removed or
otherwise disqualified to serve or his successor shall be elected and qualified.
Section 3. Subordinate Officers, etc. The board of directors may appoint,
and may empower the chairman of the board to appoint, such other officers as the
business of the corporation may require, each of whom shall hold office for such
period, have such authority and perform such duties as are provided in the
bylaws or as the board of directors may from time to time determine.
Section 4. Removal and Resignation of Officers. Any officer may be
removed, either with or without cause, by the board of directors, at any regular
or special meeting thereof, or, except in case of an officer chosen by the board
of directors, by any officer upon whom such power of removal may be conferred by
the board of directors.
Any officer may resign at any time by giving written notice to
the corporation. Any such resignation shall take effect at the date of the
receipt of such notice or at any later time specified therein; and, unless
otherwise specified therein, the acceptance of such resignation shall not be
necessary to make it effective.
Section 5. Vacancies in Office. A vacancy in any office because of death,
resignation, removal, disqualification, or any other cause shall be filled in
the manner prescribed in these bylaws for regular appointments to such office.
Section 6. Chairman of the Board. The chairman of the board shall be the
chief executive officer of the corporation and shall, subject to the control of
the board of directors, have general supervision, direction and control of the
business and affairs of the corporation.
Section 7. President. The president shall be the chief operating officer
of the corporation and shall exercise and perform such powers and duties with
respect to the administration of the business and affairs of the corporation as
may from time to time be assigned to him by the chairman of the board or by the
board of directors, or as may be prescribed by the bylaws.
Section 8. Vice Presidents. In the absence or disability of the
president, a vice president designated by the board of directors shall perform
all the duties of the president, and when so acting shall have all the powers
of, and be subject to all the restrictions upon, the president. The vice
presidents shall
11
have such other powers and perform such other duties as from
time to time may be prescribed for them respectively by the board of directors
or the bylaws.
Section 9. Secretary. The secretary shall keep or cause to be kept, at
the principal executive office or such other place as the board of directors may
order, a book of minutes of all meetings and actions of directors, committees of
directors and stockholders, with the time and place of holding, whether regular
or special, and, if special, how authorized, the notice thereof given, the names
of those present at directors' and committee meetings, the number of shares
present or represented at stockholders' meetings, and the proceedings thereof.
The secretary shall keep, or cause to be kept, at the principal
executive office or at the office of the corporation's transfer agent or
registrar, as determined by resolution of the board of directors, a stock
register, or a duplicate register, showing the names of all stockholders and
their addresses, the number and classes of shares held by each, the number and
date of certificates issued for the same, and the number and date of
cancellation of every certificate surrendered for cancellation.
The secretary shall give, or cause to be given, notice of all
meetings of the stockholders and of the board of directors required by the
bylaws or by law to be given, and he shall keep the seal of the corporation in
safe custody, and shall have such other powers and perform such other duties as
may be prescribed by the board of directors or by the bylaws.
Section 10. Treasurer. The treasurer shall keep and maintain, or cause to
be kept and maintained, adequate and correct books and records of accounts of
the properties and business transactions of the corporation, including accounts
of its assets, liabilities, receipts, disbursements, gains, losses, capital,
retained earnings and shares. The books of account shall be open at all
reasonable times to inspection by any director.
The treasurer shall deposit all monies and other valuables in
the name and to the credit of the corporation with such depositories as may be
designated by the board of directors. He shall disburse the funds of the
corporation as may be ordered by the board of directors, shall render to the
chairman of the board and directors, whenever they request it, an account of all
of his transactions as treasurer and of the financial condition of the
corporation, and shall have other powers and perform such other duties as may be
prescribed by the board of directors or the bylaws.
Section 11. Assistant Secretaries and Assistant Treasurers. Any assistant
secretary may perform any act within the power of the secretary, and any
assistant treasurer may perform any act within the power of the treasurer,
subject to any limitations which may be imposed in these bylaws or in board
resolutions.
ARTICLE VI
----------
INDEMNIFICATION OF DIRECTORS, OFFICERS,
EMPLOYEES AND OTHER AGENTS
Section 1. Indemnification. The corporation shall indemnify, in the
manner and to the full extent permitted by law, any person (or the estate of any
person) who was or is a party to, or is threatened to be made a party to, any
threatened, pending or completed action, suit or proceeding, whether or not by
or in the right of the corporation, and whether civil, criminal, administrative,
investigative or otherwise, by reason of
12
the fact that such person is a director or officer of the corporation, and at
the discretion of the board of directors may indemnify any person (or the estate
of any person) who is such a party or threatened to be made such a party by
reason of the fact that such person is or was an employee or agent of the
corporation or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise. Unless otherwise permitted by law, the
indemnification provided for herein shall be made only as authorized in the
specific case upon a determination, in the manner provided by law, that
indemnification of the director, officer, employee or agent is proper in the
circumstances. The corporation may, to the full extent permitted by law,
purchase and maintain insurance on behalf of any such person against any
liability which may be asserted against him. To the full extent permitted by
law, the indemnification provided herein shall include expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement, and, in the
manner provided by law, any such expenses may be paid by the corporation in
advance of the final disposition of such action, suit or proceeding. The
indemnification provided herein shall not be deemed to limit the right of the
corporation to indemnify any other person for any such expenses to the full
extent permitted by law, nor shall it be deemed exclusive of any other rights to
which any person seeking indemnification from the corporation may be entitled
under any agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding such office.
Section 2. Fiduciaries of Corporate Employee Benefit Plan. This Article
VI does not apply to any proceeding against any trustee, investment manager or
other fiduciary of an employee benefit plan in such person's capacity as such,
even though such person may also be an agent of the corporation as defined in
Section 1 of this Article VI. Nothing contained in this Article VI shall limit
any right to indemnification to which such a trustee, investment manager or
other fiduciary may be entitled by contract or otherwise, which shall be
enforceable to the extent permitted by Section 410 of the Employee Retirement
Income Security Act of 1974, as amended, other than this Article VI.
ARTICLE VII
-----------
RECORDS AND REPORTS
Section 1. Maintenance and Inspection of Stock Register. The corporation
shall keep at its principal executive office, or at the office of its transfer
agent or registrar, if either be appointed, and as determined by resolution of
the board of directors, a record of its stockholders, giving the names and
addresses of all stockholders and the number and class of shares held by each
stockholder.
A stockholder or stockholders of the corporation holding at
least five percent (5%) in the aggregate of the outstanding voting shares of the
corporation may (i) inspect and copy the records of stockholders' names and
addresses and stockholders during usual business hours upon five days prior
written demand upon the corporation, and/or (ii) obtain from the transfer agent
of the corporation, upon written demand and upon the tender of such transfer
agent's usual charges for such list, a list of the stockholders' names and
addresses, who are entitled to vote for the election of directors, and their
shareholdings as of the most recent record date for which such list has been
compiled or as of a date specified by the stockholder subsequent to the date of
demand. Such list shall be made available to such stockholder or stockholders by
the transfer agent on or before the later of five (5) days after the demand is
received or the date specified therein as the date as of which the list is to be
compiled.
13
The record of stockholders shall be open to inspection upon the
written demand of any stockholder or holder of a voting trust certificate, at
any time during usual business hours, for a purpose reasonably related to such
holder's interests as a stockholder or as the holder of a voting trust
certificate. Any inspection and copying under this Section 1 may be made in
person or by an agent or attorney of the stockholder or holder of a voting trust
certificate making such demand.
Section 2. Maintenance and Inspection of Bylaws. The corporation shall
keep at its principal executive office the original or a copy of the bylaws as
amended to date, which shall be open to inspection by the stockholders at all
reasonable times during office hours.
Section 3. Maintenance and Inspection of Other Corporate Records. The
accounting books and records and minutes of proceedings of the stockholders and
the board of directors and any committee or committees of the board of directors
shall be kept at such place or places designated by the board of directors, or,
in the absence of such designation, at the principal executive office of the
corporation. The minutes shall be kept in written form and the accounting books
and records shall be kept either in written form or in any other form capable of
being converted into written form. Such minutes and accounting books and
records shall be open to inspection upon the written demand of any stockholder
or holder of a voting trust certificate, at any reasonable time during usual
business hours, for a purpose reasonably related to such holder's interests as a
stockholder or as a holder of a voting trust certificate. Such inspection may
be made in person or by an agent or attorney, and shall include the right to
copy and make extracts. The foregoing rights of inspection shall extend to the
records of each subsidiary corporation of the corporation.
Section 4. Inspection by Directors. Every director shall have the
absolute right at any reasonable time to inspect all books, records and
documents of every kind and the physical properties of the corporation and each
of its subsidiary corporations. Such inspection by a director may be made in
person or by agent or attorney and the right of inspection includes the right to
copy and make extracts.
Section 5. Annual Report to Stockholders. The board of directors shall
cause an annual report to be sent to the stockholders not later than one hundred
twenty (120) days after the close of the fiscal year adopted by the corporation.
Such report shall be sent at least fifteen (15) days prior to the annual meeting
of stockholders to be held during the next fiscal year and in the manner
specified in Section 5 of Article II of these bylaws for giving notice to
stockholders of the corporation. The annual report shall contain a balance
sheet and statement of changes in financial position for such fiscal year,
accompanied by any report thereon of independent accountants.
Section 6. Financial Statements. A copy of any annual financial statement
and any income statement of the corporation for each quarterly period of each
fiscal year, and any accompanying balance sheet for the corporation as of the
end of each such period, that has been prepared by the corporation shall be kept
on file in the principal executive office of the corporation for twelve (12)
months and each such statement shall be exhibited at all reasonable times to any
stockholder demanding an examination of any such statement or a copy shall be
mailed to any such stockholder.
If a stockholder or stockholders holding at least five percent
(5%) of the outstanding shares of any class of stock of the corporation make a
written request to the corporation for an income statement of the corporation
for the three-month, six-month or nine-month period of the current fiscal year
ended more than thirty (30) days prior to the date of the request, and a balance
sheet of the corporation as of the end of such period, the treasurer shall cause
such statement to be prepared, if not already prepared, and
14
shall deliver personally or mail such statement or statements to the person
making the request within thirty (30) days after the receipt of such request. If
the corporation has not sent to the stockholders its annual report for the last
fiscal year, this report shall likewise be delivered or mailed to such
stockholder or stockholders within thirty (30) days after such request.
The corporation also shall, upon the written request of any
stockholder, mail to the stockholder a copy of the last annual, semi-annual or
quarterly income statement which it has prepared and a balance sheet as of the
end of such period.
The quarterly income statements and balance sheets referred to
in this section shall be accompanied by the report thereon, if any, of any
independent accountants engaged by the corporation, or the certificate of an
authorized officer of the corporation that such financial statements were
prepared without audit from the books and records of the corporation.
ARTICLE VIII
------------
GENERAL CORPORATE MATTERS
Section 1. Record Date for Purposes Other Than Notice and Voting. For
purposes of determining the stockholders entitled to receive payment of any
dividend or other distribution or allotment of any rights or entitled to
exercise any rights in respect of any other lawful action, the board of
directors may fix, in advance, a record date, which shall not be more than sixty
(60) days prior to any such action, and in such case only stockholders of record
on the date so fixed are entitled to receive the dividend, distribution or
allotment of rights or to exercise the rights, as the case may be,
notwithstanding any transfer of any shares on the books of the corporation after
the record date fixed as aforesaid, except as otherwise provided in the Delaware
General Corporation Law.
If the board of directors does not so fix a record date, the
record date for determining stockholders for any such purpose shall be at the
close of business on the day on which the board adopts the resolution relating
thereto, or the sixtieth (60th) day prior to the date of such action, whichever
is later.
Section 2. Checks, Drafts, Evidences of Indebtedness. All checks, drafts
or other orders for payment of money, notes or other evidences of indebtedness,
issued in the name of or payable to the corporation shall be signed or endorsed
by such person or persons and in such manner as, from time to time, shall be
determined by resolution of the board of directors.
Section 3. Corporate Contracts and Instruments; How Executed. The board
of directors, except as otherwise provided in these bylaws, may authorize any
officer or officers, agent or agents, to enter into any contract or execute any
instrument in the name of and on behalf of the corporation, and such authority
may be general or confined to specific instances; and, unless so authorized or
ratified by the board of directors or within the agency power of an officer, no
officer, agent or employee shall have any power or authority to bind the
corporation by any contract or engagement or to pledge its credit or to render
it liable for any purpose or to any amount.
15
Section 4. Stock Certificates. A certificate or certificates for shares
of the capital stock of the corporation shall be issued to each stockholder when
any such shares are fully paid. All certificates shall be signed in the name of
the corporation by the chairman of the board or the president or vice president
and by the treasurer or an assistant treasurer or the secretary or any assistant
secretary, certifying the number of shares and the class or series of shares
owned by the stockholder. Any or all of the signatures on the certificate may
be facsimile. In case any officer, transfer agent or registrar who has signed
or whose facsimile signature has been placed upon a certificate shall have
ceased to be such officer, transfer agent or registrar before such certificate
is issued, it may be issued by the corporation with the same effect as if such
person were an officer, transfer agent or registrar at the date of issue.
Section 5. Lost Certificates. Except as hereinafter in this Section 5
provided, no new stock certificate shall be issued in lieu of an old certificate
unless the latter is surrendered to the corporation and canceled at the same
time. The board of directors may in case any stock certificate or certificate
for any other security is lost, stolen or destroyed, authorize the issuance of a
new certificate in lieu thereof, upon such terms and conditions as the board of
directors may require, including provision for indemnification of the
corporation secured by a bond or other adequate security sufficient to protect
the corporation against any claim that may be made against it, including any
expense or liability, on account of the alleged loss, theft or destruction of
such certificate or the issuance of such new certificate.
Section 6. Representation of Stock of Other Corporations. The chairman of
the board, the president, or any vice president, or any other person authorized
by resolution of the board of directors by any of the foregoing designated
officers, is authorized to vote on behalf of the corporation any and all stock
of any other corporation or corporations, foreign or domestic, standing in the
name of the corporation. The authority herein granted to said officers to vote
or represent on behalf of the corporation any and all stock by the corporation
in any other corporation or corporations may be exercised by any such officer in
person or by any person authorized to do so by proxy duly executed by said
officer.
Section 7. Construction and Definitions. Unless the context requires
otherwise, the general provisions, rules of construction, and definitions in the
Delaware General Corporation Law shall govern the construction of the bylaws.
Without limiting the generality of the foregoing, the singular number includes
the plural, the plural number includes the singular, and the term "person"
includes both a corporation and a natural person.
Section 8. Fiscal Year. The fiscal year of the corporation shall commence
the first day of the calendar year.
Section 9. Seal. The seal of the corporation shall be round and shall
bear the name of the corporation and words and figures denoting its organization
under the laws of the State of Delaware and year thereof, and otherwise shall be
in such form as shall be approved from time to time by the board of directors.
16
ARTICLE IX
----------
AMENDMENTS
Section 1. Amendment by Stockholders. New bylaws may be adopted or these
bylaws may be amended or repealed by the vote of not less than 80% of the total
voting power of all shares of stock of the corporation entitled to vote in the
election of directors, considered for purposes of this Section 1 as one class.
Section 2. Amendment by Directors. Subject to the rights of the
stockholders as provided in Section 1 of this Article IX, to adopt, amend or
repeal bylaws, bylaws may be adopted, amended or repealed by the board of
directors.
As Amended 12/05/96
17
Exhibit 10.8.3
--------------
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") between Avery Dennison
Corporation, a Delaware corporation ("Avery" or the "Company") and Robert G. van
Schoonenberg (the "Executive"), dated as of the 16th day of March, 1996.
1. Employment Period. Avery hereby agrees to continue the Executive
-----------------
in its employ, and the Executive hereby agrees to remain in the employ of Avery
for the period commencing on the date of this Agreement and ending on the second
anniversary of such date (the "Employment Period"); provided, however, that
commencing on the first day of the month next following the effective date
hereof, and on the first day of each month hereafter (the most recent of such
dates is hereinafter referred to as the "Renewal Date"), the Employment Period
shall be automatically extended so as to terminate two years from such Renewal
Date, unless at least 60 days prior to any Renewal Date Avery or the Executive
shall give notice to the other than the Employment Period shall not be so
extended, provided, further, however, that upon a Change of Control, if the
Executive is an employee of the Company at such time, the Employment Period
shall be extended until the second anniversary of the Change of Control.
2. Duties. (a) Executive's Position and Duties. During the
------ -------------------------------
Employment Period, the Executive's position (including titles and reporting
relationship to the Chief Executive Officer of Avery), authority and
responsibilities shall be similar to those held by the Executive on the date
hereof with such additions and modifications, and consistent with
responsibilities generally assigned to executive officers of Avery as the Chief
Executive Officer of Avery may in his discretion and acting in good faith from
time to time assign to Executive. During the Employment Period, the Executive
shall report directly to the Chief Executive Officer of the Company. The
Executive's services shall be performed in the general area in which Executive
was employed on the date of this Agreement and Executive will not be transferred
outside the area without Executive's consent, other than for normal business
travel and temporary assignments.
(b) Full Time. The Executive agrees to devote his full business time
---------
to the business and affairs of Avery and to use his best efforts to perform
faithfully and efficiently the responsibilities assigned to him hereunder to the
extent necessary to discharge such responsibilities, except for (i) services on
corporate, civic or charitable boards or committees not significantly
interfering with the performance of such responsibilities; (ii) periods of
vacation and sick leave to which he is entitled; and (iii) the management of his
personal investments and affairs. Executive will not engage
-2-
in any outside business activity including, but not limited to, activity as a
consultant, agent, partner or officer or provide services of any nature directly
or indirectly to a corporation or other business enterprise.
3. Compensation. (a) Base Salary. During the Employment Period,
------------ -----------
the Executive shall receive a base salary ("Base Salary") at a monthly rate at
least equal to the monthly salary agreed to be paid to Executive by Avery on the
date of this Agreement. The Base Salary shall be reviewed at least every year
and may be increased at any time and from time to time by action of the Board of
Directors of Avery (the "Board") or any committee thereof or any individual
having authority to take such action in accordance with Avery's regular
practices. Any increase in the Base Salary shall not serve to limit or reduce
any other obligation of Avery hereunder, and after any such increase, the Base
Salary shall not be reduced.
(b) Bonus Programs. In addition to the Base Salary, the Executive
--------------
shall continue to participate in Avery's cash and deferred bonus or incentive
plans or programs ("Bonus Programs") as may be in effect from time to time with
respect to executives employed by Avery at a participation level reflecting
Executive's responsibilities, including but not limited to, the Executive
Leadership Compensation Plan ("ELCP") and the Amended and Restated Long-Term
Incentive Plan
-3-
("LTIP") as they may be modified from time to time and including any plans
substituted therefore, provided, however, except as provided in Section 5(f)
hereof, the determination of the amounts to be paid pursuant to such plans shall
be made by the Board or a committee thereof authorized to take such action and
shall be made in accordance with Avery's compensation practice and the terms and
provisions of such plans or programs.
(c) Incentive and Savings Plans. In addition to the Base Salary and
---------------------------
participation in the Bonus Programs, during the Employment Period the Executive
shall continue to be entitled to participate in all incentive and savings plans
and programs, including stock option plans, as well as in all retirement plans
as may be in effect from time to time with respect to executives employed by
Avery at Executive's level reflecting Executive's responsibilities.
(d) Benefit Plans. The Executive and/or her family, as the case may
-------------
be, shall be entitled to receive all amounts which she or her family is or would
have been entitled to receive as benefits under all medical, dental, disability,
group life, accidental death and travel accident insurance plans and programs of
Avery in which Executive is a participant as in effect from time to time with
respect to executives employed by Avery. Eligibility for continued
participation in such benefit plans shall remain in effect up through the ear-
-4-
lier of: the date Executive commences a position with a new employer where the
overall content and value of the benefit plans available are either
substantially similar to or more favorable to Executive than the Company's
plans; or, at the conclusion of the two year life of this Agreement, which
follows the tender of appropriate notice or is pursuant to an applicable
termination under Sections 5(d) and 5(e).
(e) Expenses. During the Employment Period, the Executive shall be
--------
entitled to receive prompt reimbursement for all reasonable expenses incurred by
the Executive in accordance with the policies and practices of Avery as in
effect from time to time with respect to executives employed by Avery.
(f) Fringe Benefits. The Executive shall be entitled to fringe
---------------
benefits, commensurate with those available to comparable level executives, to
include an automobile and related expenses, and financial counseling in
accordance with the policies of Avery as in effect from time to time with
respect to executives employed by Avery for the full duration of the Agreement,
including the two year period from date of Executive's termination as governed
by the provisions of 5(d) and 5(e). Further in the event of Executive's
termination under the provisions of 5(d) and 5(e), Executive shall be entitled
to company-paid outplacement services commensurate with those provided to
terminated executives of comparable
-5-
level and made available through and at the facilities of a reputable and
experienced vendor.
(g) Vacation. During the Employment Period, the Executive shall be
--------
entitled to paid vacation in accordance with the policies of Avery as in effect
from time to time with respect to executives employed by Avery.
(h) Certain Amendments. Nothing herein shall be construed to prevent
------------------
Avery from amending, altering, eliminating or reducing any plans, benefits or
programs so long as the Executive continues to have the opportunity to receive
compensation and benefits consistent with Sections 3(a) through (g).
4. Termination. (a) Death or Disability. This Agreement shall
----------- -------------------
terminate automatically upon the Executive's death. Avery may terminate this
Agreement, after having established the Executive's Disability, by giving to the
Executive written notice of its intention to terminate his employment, and his
employment with Avery shall terminate effective on the 90th day after receipt of
such notice (the "Disability Effective Date"). For purposes of this Agreement,
an Executive's Disability shall be deemed to have occurred when the Executive
becomes entitled to receive disability benefits under the Avery Long-Term
Disability Plan for exempt employees.
-6-
(b) Cause. Avery may terminate the Executive's employment for
-----
"Cause" if a majority of the Board determines that "Cause" exists. For purposes
of this Agreement, "Cause" means (i) an act or acts of dishonesty on the
Executive's part which are intended to result in his substantial personal
enrichment at the expense of Avery or (ii) repeated violations by the Executive
of his obligations under Section 2 of this Agreement which are demonstrably
willful and deliberate on the Executive's part and which resulted in material
injury to Avery, (iii) conduct of a criminal nature which may or which is likely
to have an adverse impact on Avery's reputation or standing in the community or
on its relationship with its customers or those who purchase or use its products
or (iv) fraudulent conduct in connection with the business or affairs of Avery
regardless of whether said conduct is designed to defraud Avery or others.
For purposes of this provision, no act or failure to act, on the part
of the Executive, shall be considered "willful" unless it is done, or omitted to
be done, by the Executive in bad faith or without reasonable belief that the
Executive's action or omission was in the best interests of the Company. Any
act, or failure to act, based upon authority given pursuant to a resolution duly
adopted by the Board or based upon the advice of counsel for the Company shall
be conclusively presumed to be done, or omitted to be done, by
-7-
the Executive in good faith and in the best interests of the Company. The
cessation of employment of the Executive shall not be deemed to be for Cause
unless and until there shall have been delivered to the Executive a copy of a
resolution duly adopted by the affirmative vote of a majority of the entire
membership of the Board at a meeting of the Board called and held for such
purpose (after reasonable notice is provided to the Executive and the Executive
is given an opportunity, together with counsel, to be heard before the Board),
finding that, in the good faith opinion of the Board, the Executive is guilty of
the conduct described in subparagraphs (i), (ii), (iii) or (iv) above, and
specifying the particulars thereof in detail.
(c) Good Reason. This Executive may terminate his employment for
-----------
Good Reason. For purposes of this Agreement, "Good Reason" means:
(i) Without the express written consent of the Executive, the
assignment to the Executive of any duties inconsistent in any material respect
with the Executive's position, reporting lines, authority or responsibilities as
contemplated by Section 2 of this Agreement;
(ii) any failure by Avery to comply with any of the provisions of
Section 3 of this Agreement, other than an insubstantial and inadvertent failure
remedied by Avery
-8-
promptly after receipt of notice thereof given by the Executive;
(iii) Avery requires the Executive without his consent to be based
at any office or location other than an office or location in the general area
where Executive was based on the date of this Agreement, except for travel
reasonably required in the performance of the Executive's responsibilities;
(iv) any proposed termination by Avery of the Executive's employment
otherwise than as permitted by this Agreement; or
(v) any failure by Avery to obtain the assumption and agreement to
perform this Agreement by a successor as contemplated by Section 11(b).
Anything to the contrary in this Agreement notwithstanding, any
termination by the Executive for whatever reason during the 30-day period
following the first anniversary of a Change of Control shall constitute a
termination for Good Reason for all purposes of this Agreement.
(d) Change of Control. A "Change of Control" shall be deemed to have
-----------------
occurred if:
-9-
(i) any "Person", which shall mean a "person" as such term is used in
Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") (other than Avery, any trustee or other fiduciary holding
securities under an employee benefit plan of Avery) is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, or securities of Avery representing 30% or more of the combined
voting power of Avery's then outstanding voting securities;
(ii) during any period of 24 consecutive months, individuals, who at
the beginning of such period constitute the Board of Avery, and any new director
whose election by the Board, or whose nomination for election by Avery's
stockholders, was approved by a vote of at least one-half ( 1/2) of the
directors (other than in connection with an actual or threatened election
contest) (the "Incumbent Board") cease for any reason to constitute at least a
majority thereof;
(iii) the stockholders of Avery approve (I) a plan of complete
liquidation of Avery or (II) the sale or disposition by Avery for all or
substantially all of Avery's assets unless the acquirer of the assets or its
board of directors shall meet the conditions for a merger or consolidation in
subparagraphs (iv)(I) or (iv)(II) below; or
-10-
(iv) the consummation of a merger or consolidation of Avery with any
other company other than:
(I) such a merger or consolidation which would result in the
voting securities of Avery outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or by being converted into voting
securities of the surviving entity) more than 50% of the combined voting power
of Avery's or such surviving entity's outstanding voting securities immediately
after such merger or consolidation; and
(II) such a merger or consolidation, which would result in the
Incumbent Board immediately prior to the execution of the initial agreement, or
other action providing for such merger or consolidation, continuing to
constitute at least 50% of the directors of the surviving entity immediately
after such merger or consolidation.
In this paragraph (iv), "surviving entity" shall mean only an entity in which
all of Avery's stockholders immediately before such merger or consolidation
become stockholders by the terms of such merger or consolidation.
(e) Notice of Termination. Any termination by Avery for Cause or
---------------------
following a Change of Control or by the Executive for Good Reason shall be
communicated by Notice of
-11-
Termination to the other party hereto given in accordance with Section 13(b).
Any termination by Avery due to Disability shall be given in accordance with
Section 4(a). For purposes of this Agreement, a "Notice of Termination" means a
written notice which (i) indicates the specific termination provision in this
Agreement relied upon, (ii) and except in the event of a termination as a result
of a Change of Control, sets forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the Executive's
employment under the provision so indicated, and (iii) if the termination date
is other than the date of receipt of such notice, specifies the termination date
of this Agreement (which date shall be not more than 15 days after the giving of
such notice).
(f) Date of Termination. "Date of Termination" means the fifth day
-------------------
following the mailing (or if personally delivered, the date of delivery) of the
Notice of Termination or any later date specified therein, as the case may be.
Notwithstanding any contrary provision in Section 4(e), if the Executive's
employment is terminated by Avery for any reason other than Cause, Death, or
Disability, the Date of Termination is the date on which Avery notifies the
Executive of such termination; if the Executive's employment is terminated due
to Disability, the Date of Termination is the Disability Effective Date, and if
the Executive's employment
-12-
is terminated due to the Executive's death, the Date of Termination shall be the
date of death.
5. Obligations of Avery upon Termination.
-------------------------------------
(a) Death. If the Executive's employment is terminated by reason of
-----
the Executive's death, this Agreement shall terminate without further
obligations to the Executive's legal representatives under this Agreement other
than those obligations accrued hereunder at the date of his death. Anything in
this Agreement to the contrary notwithstanding, the Executive's family shall be
entitled to receive benefits at least equal to those provided by Avery to
surviving families of executives of Avery under the plan, programs and policies
described in Sections 3(d) and 3(f) of this Agreement, if any, as in effect from
time to time with respect to executives employed by Avery with comparable
responsibilities and their families.
(b) Disability. If the Executive's employment is terminated by
----------
reason of the Executive's Disability, the Executive shall be entitled to receive
after the Disability Effective Date disability and other benefits at least equal
to those provided by Avery to disabled employees and/or their families in
accordance with the plans, programs and policies described in Sections 3(d) and
3(f) of this Agreement if and as in effect on the Disability Effective Date with
respect to
-13-
executives with comparable responsibilities and their families.
(c) Cause. If the Executive's employment shall be terminated for
-----
Cause or if the Executive terminates his employment without Good Reason, Avery
shall pay the Executive his full Base Salary through the Date of Termination at
the rate in effect at the time Notice of Termination is given, and Avery shall
have no further obligations to the Executive under this Agreement.
(d) Good Reason, Other Than for Cause or Disability.
-----------------------------------------------
(i) Lump Sum Payments. If during the Employment Period Avery shall
-----------------
terminate the Executive's employment other than for Cause or Disability, or the
Executive shall terminate his employment for Good Reason prior to a Change of
Control as provided in Section 5(e):
(I) Avery shall pay to the Executive in a lump sum in cash within 30
days after the Date of Termination the aggregate of the following amounts:
(A) if not theretofore paid, the Executive's Base Salary through the
Date of Termination at the rate in effect at the time of Notice of Termination
was given;
-14-
(B) a current year ELCP bonus equal to the average of the greatest
two out of the three most recent annual ELCP bonuses received by Executive
(which two greatest ELCP bonuses need not represent consecutive years) and
prorated to reflect the total number of full months Executive is employed in the
year in which termination occurs;
(C) an LTIP payment reflective of the Executive's full participation
in the three-year plan, so that at the time that final performance under the
Plan is determinable and individual payouts calculated, Executive shall promptly
receive an amount equivalent to what he would have received if he had remained
employed through the date of such payouts.
(D) two times the sum of (x) the Executive's annual Base Salary at
the rate in effect at the time the Notice of Termination is given and (y) the
Annual Bonus defined in Section 5(d)(i)(I)(B), but without proration.
(II) Options granted to Executive under Avery's stock option plans
(the "Stock Option Plan") which options have been outstanding for more than six
months shall become immediately exercisable and Executive shall have for a
period of not less than 2 years following such Date of Termination to exercise
all options granted under the Stock
-15-
Option Plans then exercisable, but not to exceed the term of the grant, or which
become exercisable pursuant to this clause (II). For options granted to
Executive on and after November 30, 1995, in the event Executive is age 55 or
older on the Date of Termination, he will be treated as a retiree under the
Stock Option Plan, which will enable Executive to vest in and exercise stock
options theretofore granted under that plan, for a period of up to five years
(but in no event past the expiration of the term of the option grant).
(III) In addition, Avery shall, promptly upon submission by the
Executive of supporting documentation, pay or reimburse to the Executive any
costs and expenses paid or incurred by the Executive which would have been
payable under Section 3(e) if his employment had not terminated; and
(IV) Until the earlier of (i) the second anniversary of the Date of
Termination referred to in this Section, or (ii) the date Executive accepts
other employment, Avery shall continue benefits to the Executive and/or his
family at least equal to those which would have been provided to them in
accordance with the plans, programs and policies described in Sections 3(d) and
3(f) of this Agreement if the Executive's employment had not been terminated, if
and as in effect from time to time with respect to executives employed by Avery
with comparable responsibilities and their families. The last 18 months of
Executive's participation shall be
-16-
deemed to be participation under an election to continue such benefits under the
Consolidated Omnibus Budget Reconciliation Act.
(V) For purposes of the Avery nonqualified deferred compensation and
qualified and nonqualified retirement plans, Executive shall be credited with
two years of service in addition to his years of service actually accrued
through the Date of Termination and Executive shall also be credited with (i)
the number of years of attained age in addition to his actual age attained upon
the Date of Termination, and (ii) the number of years of service, minimally
required in order to satisfy the requirements for "early retirement" benefits
eligibility under both the Avery deferred compensation and qualified and
nonqualified retirement plans. The crediting of age and service to the
Executive shall be taken into account for all purposes of the plans. During the
two-year period immediately succeeding Executive's termination date, Executive
shall participate in any enhancements or improvements to Avery benefit plans
available to Avery executives, including extensions to the duration of receipt
of payments, increased payment amounts, or any other similar changes which may
ensue during the applicable period. In the event that the benefits described
above cannot be provided by the terms of the plans referred to herein, Avery
shall provide the Executive with identical benefits outside of such plans.
Commencement of benefits under
-17-
the foregoing plans shall be subject to the Executive's ability to defer such
benefits as provided pursuant to such plans as of the date hereof.
(e) Change of Control. If during the Employment Period and within 24
-----------------
months following a Change of Control, Executive shall terminate his employment
for Good Reason as defined in Section 4(c) or if Avery terminates the
Executive's employment other than for Cause or Disability:
(i) Avery shall pay to the Executive in a lump sum in cash within 30
days after the Date of Termination the aggregate of the following amounts:
(A) if not theretofore paid, the Executive's Base Salary through the
Date of Termination at the rate in effect at the time of Notice of Termination
was given; and
(B) an amount equal to the ELCP bonus that would have been payable to
executives of Avery in the same bonus category as Executive pursuant to the
Bonus Programs provided in Section 3(b) assuming, for purposes of calculating
the amount of the bonus pool under the plan, that the "maximum" amount, as that
term is used in the plan, were achieved, ("Annual Bonus") multiplied by a
fraction whose numerator shall be the number of full months that have elapsed
from the end of the last fiscal year with respect to which an
-18-
ELCP bonus calculation was made, and ending on the Date of Termination and the
denominator shall be 12. The year on which the computation is based shall be the
year in which the Date of Termination occurred;
(C) three times the sum of (x) the Executive's annual Base Salary at
the rate in effect at the time the Notice of Termination is given, and (y) the
Executive's Annual ELCP Bonus based upon the formula described in 5.(d)(i)(I)(B)
but without proration, and assuming a maximum bonus pool and payout for the
year; and
(D) the full term payment for the three-year period of the LTIP,
assuming for purposes of calculating the amount earned under this plan,
achievement of the three-year maximum award, less any interim payments
previously received by Executive.
(ii) If it is determined that any payment or distribution by Avery to
Executive, whether pursuant to this Agreement or otherwise (determined without
regard to any additional payments required pursuant to this sentence) (a
"Payment") would be subject to the excise tax imposed by Section 4999 of the
Internal Revenue Code of 1986 (the "Code") or any interest or penalties are
incurred by Executive with respect to such excise tax (such excise tax, together
with any such interest and penalties, are hereinafter collectively referred
-19-
to as the "Excise Tax"), then Executive shall be entitled to receive an
additional payment (a "Gross-Up Payment") in an amount such that after payment
by Executive of all taxes (including any interest or penalties imposed with
respect to such taxes), including, without limitation, any income taxes (and any
interest and penalties imposed with respect thereto) and Excise Tax imposed upon
the Gross-Up Payment, Executive retains an amount of the Gross-Up Payment equal
to the Excise Tax imposed upon the Payments.
(iii) In addition, Executive shall receive the amounts and be entitled
to the benefits provided in clauses (II), (III), (IV) and (V) of Section
5(d)(i).
(f) Bonus During Cancellation Period. If Avery notifies the
--------------------------------
Executive that the Employment Period provided in Section 1 hereof will not be
automatically extended as provided therein, the compensation of Executive shall
continue as provided in this Agreement for the period provided therein, except
that the amount of short-term incentive compensation payable under the Bonus
Programs with respect to each fiscal year during such period (including the year
in which the notice was given) shall be the Annual Bonus as determined in
Section 5(d)(I)(B). Amounts payable with respect to the year in which the term
specified in Section 1 expires shall be prorated based on a fraction the
numerator of which is the number of full months from the beginning of such year
until
-20-
the date of the expiration of this Agreement and denominator is 12.
6. Non-exclusivity of Rights. Nothing in this Agreement shall
-------------------------
prevent or limit the Executive's continuing or future participating in any
benefit, bonus, incentive or other plan or program provided by Avery and for
which the Executive may qualify, nor shall anything herein limit or otherwise
affect such rights as the Executive may have under any stock option or other
agreements with Avery or any of its affiliated companies. Except as otherwise
provided herein, amounts which are vested benefits or which the Executive is
otherwise entitled to receive under any plan or program of Avery at or
subsequent to the Date of Termination shall be payable in accordance with such
plan or program.
7. No Set Off, Payment of Fees. Except as provided herein, Avery's
---------------------------
obligation to make the payments provided for in this Agreement and otherwise to
perform its obligations hereunder shall not be affected by any circumstances,
including without limitation any set-off, counterclaim, recoupment, defense or
other right which Avery may have against the Executive or others. Avery agrees
to pay, to the full extent permitted by law, all legal fees and expenses which
the Executive may reasonably incur as a result of any contest (regardless or the
outcome thereof) by Avery or others of the validity or enforceability of, or
liability under, any
-21-
provision of this Agreement other than expenses relating to a claim by Executive
that he terminated for Good Reason or that the termination for Cause was
improper, in which case such fees and expenses shall be paid only if Executive
prevails in whole or in part. All amounts provided herein shall include, in each
case, interest, compounded quarterly, on the total unpaid amount determined to
be payable under this Agreement, such interest to be calculated on the basis of
the prime commercial lending rate announced by Bank of American National Trust
and Savings Association in effect from time to time during the period of such
nonpayment. In the event that the Executive shall in good faith give a Notice of
Termination for Good Reason and it shall thereafter be determined that Good
Reason did not exist, the employment of the Executive shall, unless Avery and
the Executive shall otherwise mutually agree, be deemed to have terminated at
the date of giving such purported Notice of Termination by mutual consent of
Avery and the Executive shall be entitled to receive only those payments and
benefits which he would have been entitled to receive at such date.
8. Arbitration of Disputes. (a) The parties agree that any
-----------------------
disputes, controversies or claims which arise out of or related to this
Agreement, Executive's employment or the termination of his employment,
including, but not limited to, any claim relating to the purported validity,
interpretation, enforceability or breach of this Agreement, and/or any other
-22-
claim or controversy arising out of the relationship between the Executive and
Avery (or the nature of the relationship) or the continuation or termination of
that relationship, including, but not limited to, claims that a termination was
for Cause, including the Board's determination in accordance with Section 4(b),
or for Good Reason, claims for breach of covenant, breach of an implied covenant
of good faith and fair dealing, wrongful termination, breach of contract, or
intentional infliction of emotional distress, defamation, breach of right of
privacy, interference with advantageous or contractual relations, fraud,
conspiracy or other tort or property claims of any kind, which are not settled
by agreement between the parties, shall be settled by arbitration before a board
of three arbitrators.
One arbitrator shall be selected by the Executive, one by Avery and
the third by the two persons so selected, all in accordance with the labor
arbitration rules of the American Arbitration Association then in effect. In
the event that the arbitrator selected by the Executive and the arbitrator
selected by Avery are unable to agree upon a third arbitrator, then the third
arbitrator shall be selected from a list of seven provided by the office of the
American Arbitration Association nearest to the employee's residence with the
parties striking names in order and the party striking first to be determined by
the flip of a coin. The arbitration shall be held in a location to be mutually
agreed upon by the parties. In
-23-
the absence of agreement, the Chairman of the Board of Avery shall determine the
location.
(b) In consideration of the parties' agreement to submit to
arbitration all disputes with regard to this Agreement and/or with regard to any
alleged contract, or any other claim arising out of their conduct, the
relationship existing hereunder or the continuation or termination of that
relationship, and in further consideration of the anticipated expedition and the
minimizing of expense of this arbitration remedy, the arbitration provisions of
this Agreement shall provide the exclusive remedy, and each party expressly
waives any right he or it may have to seek redress in any other forum.
(c) Any claim which either party has against the other party could be
submitted for resolution pursuant to this Section must be presented in writing
by the claiming party to the other within one year of the date the claiming
party knew or should have known of the facts giving rise to the claim, except
that claim arising out of or related to the termination of the Executive's
employment must be presented by him within one year of the Date of Termination.
Unless the party against whom any claim is asserted waives the time limits set
forth above, any claim not brought within the time periods specified shall be
waived and forever barred.
-24-
(d) Avery will pay all costs and expenses of the arbitration to the
extent provided in Section 8, hereof. In the event expenses are not paid by
Avery, and without diminishing the Executive's right to reimbursement as
provided in this Section costs and expenses shall be paid as follows: (x) the
expenses of the neutral arbitrator and of a transcript of any arbitration
proceeding shall be divided equally between the Executive and Avery; and (y)
each party shall bear the expenses of the arbitrator selected by it and of the
witnesses it calls.
(e) Any decision and award or order of the majority of the
arbitrators shall be binding upon the parties hereto and judgment thereon may be
entered in the Superior Court of the State of California or any other court
having jurisdiction.
(f) Each of the above terms and conditions shall have separate
validity and the invalidity of any part thereof shall not affect the remaining
parts.
(g) Any decision and award or order of the majority of the
arbitrators shall be final and binding between the parties as to all claims
which were or could have been raised in connection with the dispute to the full
extent permitted by law. In all other cases the parties agree that the decision
of the board of arbitrators shall be a condition precedent to
-25-
the institution or maintenance of any legal, equitable, administrative, or other
formal proceeding by the employee in connection with the dispute, and that the
decision and opinion of the board of arbitrators may be presented in any other
forum on the merits of the dispute.
9. General Release. Executive acknowledges and agrees that this
---------------
Agreement includes the entire agreement and understanding between the parties
with regard to Executive's employment or the termination thereof during the
Employment Period and all amounts to which Executive shall be entitled whether
during the term of employment or upon termination thereof. Accordingly, upon
Avery's fulfilling its obligations to Executive hereunder, Executive, on behalf
of himself and his related individuals and entities, if any, including, but not
limited to, any predecessors, successors/assigns, and any and all other related
individuals and entities, if any, and each of them, shall and does hereby
forever relieve, release, and discharge Avery and its respective predecessors,
successors, assigns, owners, attorneys representatives, affiliates, parent
corporations, subsidiaries (whether or not wholly-owned), divisions, partners
and their officers, directors, agents, employees, servants, executors,
administrators, accountants, investigators, insurers, and any and all other
related individuals and entities, if any, and each of them, in any and all
capacities, from any and all claims, debts, liabilities, demands, obligations,
liens,
-26-
promises, acts, agreements, costs and expenses (including, but not limited to,
attorneys' fees), damages, actions and causes of action, of whatever kind or
nature, including, without limitation, any statutory, civil or administrative
claim, or any claim, arising out of acts or omissions occurring before the
execution of this Agreement, whether known or unknown, suspected or unsuspected,
fixed or contingent, apparent or concealed (collectively referred to as
"claims"), including, but not limited to, any claims based on, arising out of,
related to or connected with the subject matter of this Agreement, Executive's
employment or the termination thereof, and any and all facts in any manner
arising out of, related to or connected with Executive's employment with, or
termination of employment from, Avery or any of its related entities, including,
but not limited to, any claims arising from rights under federal, state, and
local laws prohibiting discrimination on the basis of race, national origin,
sex, religion, age, marital status, pregnancy, handicap, ancestry, sexual
orientation, or any other form of discrimination, and any common law claims of
any kind, including, but not limited to, contact, tort, and property rights
including, but not limited to, breach of contract, breach of the implied
covenant of good faith and fair dealing, tortious interference with contract or
current or prospective economic advantage, fraud, deceit, misrepresentation,
defamation, wrongful termination, infliction of emotional distress, breach of
fiduciary duty, and any other common law claim of any kind whatever.
-27-
Upon Avery's fulfilling its obligations to Executive hereunder,
Executive expressly waives any and all rights under Section 1542 of the Civil
Code of the State of California, or any other federal or state statutory rights
or rules, or principles of common law or equity, or those of any jurisdiction,
government, or political subdivision thereof, similar to Section 1542 ("similar
provision"). Thus Executive may not invoke the benefits of Section 1542 or any
similar provision in order to prosecute or assert in any manner any claims
released hereunder. Section 1542 provides as follows:
"A general release does not extend to claims which the creditor does
not know or suspect to exist in his favor at the time of executing the
release, which if known by him must have materially affected his
settlement with the debtor."
10. Confidential Information. The Executive shall hold in a
------------------------
fiduciary capacity for the benefit of Avery all secret or confidential
information, knowledge or data relating to Avery or any of its affiliated
companies, and their respective businesses, which shall have been obtained by
the Executive during his employment by Avery or any of its affiliated companies
and which shall not be public knowledge and will continue to be bound by the
provisions of the Patent and
-28-
Confidence Agreement previously executed by Executive. After termination of the
Executive's employment with Avery, he shall not, without the prior written
consent of Avery, communicate or divulge any such information, knowledge or data
to anyone other than Avery and those designated by it.
11. Successors. (a) This Agreement is personal to the Executive and
----------
without the prior written consent of Avery shall not be assignable by the
Executive otherwise than by will or the laws of descent and distribution. This
Agreement shall inure to the benefit of and be enforceable by the Executive's
legal representatives.
(b) This Agreement shall inure to the benefit of and be binding upon
Avery and its successors. Avery shall require any successor to all or
substantially all of the business and/or assets of Avery, whether direct or
indirect, by purchase, merger, consolidation, acquisition of stock, or
otherwise, by an agreement in form and substance satisfactory to the Executive,
expressly to assume and agree to perform this Agreement in the same manner and
to the same extent as Avery would be required to perform if no such succession
had taken place.
12. Amendment. This Agreement contains the entire agreement between
---------
the parties with respect to the subject mat-
-29-
ter hereof and may be amended or modified only by a written instruction executed
by Executive and Avery.
13. Miscellaneous. (a) This Agreement shall be governed by and
-------------
construed in accordance with the laws of the State of California, without
reference to principles of conflict of laws. The captions of this Agreement are
not part of the provisions hereof and shall have no force or effect. This
Agreement may not be amended or modified otherwise than by a written agreement
executed by the parties hereto or their respective successors and legal
representatives.
(b) All notices and other communications hereunder shall be in
writing and shall be given by hand delivery to the other party or by registered
or certified mail, return receipt requested, postage prepaid, addressed as
follows:
If to the Executive:
-------------------
Robert G. van Schoonenberg
524 Dartmouth Place
La Canada Flintridge, CA 91011
If to the Corporation:
---------------------
Avery Dennison Corp.
150 N. Orange Grove Blvd.
Pasadena, CA 91103
-30-
or to such other address as either party shall have furnished to the other in
writing in accordance herewith.
(c) The invalidity of unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement.
(d) Avery may withhold from any amounts payable under this Agreement
such Federal, state or local taxes as shall be required to be withheld pursuant
to any applicable law or regulation.
(e) This Agreement supersedes all other agreements and arrangements
between the parties with respect to the subject matter hereof.
IN WITNESS WHEREOF, the Executive has hereunto set hand and, pursuant
to the authorization from the Board of Directors, Avery has caused these
presents to be executed in its name on its behalf, and its corporate seal to be
hereunto affixed and attested by its Secretary, all as of the date and year
first above written.
/s/ Robert G. van Schoonenberg
______________________________
Robert G. van Schoonenberg
-31-
AVERY DENNISON CORPORATION
By: /s/ Charles D. Miller
---------------------------
Charles D. Miller
Chairman of the Board and
Chief Executive Officer
-32-
Exhibit 10.19.5
---------------
AMENDMENT NO. 2
TO THE 1990 STOCK OPTION AND INCENTIVE PLAN
FOR KEY EMPLOYEES OF AVERY DENNISON CORPORATION
WHEREAS, Section 11.2 of the 1990 Stock Option and Incentive Plan for Key
Employees of Avery Dennison Corporation (the "Plan") provides that the Plan may
be amended by the Board of Directors of Avery Dennison Corporation (the
"Company"), subject to shareholder approval in certain circumstances; and
WHEREAS, the Board of Directors of the Company has determined that it is
advisable to amend the Plan in certain respects and to submit this amendment to
the Company's shareholders for approval.
NOW, THEREFORE, the Plan is hereby amended effective as of September 28, 1995,
subject to shareholder approval at the annual meeting of stockholders on April
25, 1996, in the following respects:
Section 4.5 Exercise of Option after Termination of Employment
--------------------------------------------------
1. The first paragraph is hereby amended and revised to read as follows:
"An Option is exercisable by an Optionee while he is an Employee. The
preceding notwithstanding, an Option may be exercised subsequent to an
Optionee's Termination of Employment, subject to the following
limitations:"
2. Section 4.5(c) is hereby deleted in its entirety and the following is
inserted in lieu thereof:
"(c) For Options granted before November 30, 1995, if the Optionee's
employment is terminated due to his retirement, the Optionee may exercise
his Options, to the extent exercisable as of his Termination of Employment,
within twenty-four (24) months after termination, but not later than the
Option's Expiration Date. For Options granted on or after November 30,
1995, if the Optionee's employment is terminated due to his retirement, the
Optionee may exercise his Options, to the extent exercisable as of his
Termination of Employment, as follows, (i) in the case of any Option
granted to the Chief Executive Officer or the Chief Operating Officer, on
any date prior to or on the Option's Expiration Date; (ii) in the case of
any Option granted to a participant, other than the Chief Executive Officer
or the Chief Operating Officer, in the Company's Long Term Incentive
Program or any successor plan, within sixty (60) months after termination,
but not later than the Option's Expiration Date; and (iii) in the case of
an Option granted to any other Optionee, within thirty-six (36) months
after termination, but not later than the Option's Expiration Date.
Approved: /s/ Charles D. Miller
----------------------------
Charles D. Miller
Chairman and Chief Executive Officer
Avery Dennison Corporation
Exhibit 10.21
-------------
AVERY DENNISON CORPORATION
1996 STOCK INCENTIVE PLAN
SECTION 1. Purpose; Definitions
The purpose of the Plan is to give the Company a competitive advantage in
attracting, retaining and motivating officers and employees and to provide the
Company and its subsidiaries with a stock plan providing incentives more
directly linked to the profitability of the Company businesses and increases in
shareholder value.
For purposes of the Plan, the following terms are defined as set forth below:
a. "Affiliate" means a subsidiary of the Company.
b. "Award" means a Stock Appreciation Right, Stock Option, Restricted Stock,
Performance Unit, Stock Payment or Dividend Equivalent.
c. "Awardee" means a person granted an Award.
d. "Award Cycle" shall mean a period of consecutive fiscal years or portions
thereof designated by the Committee over which Performance Units are to be
earned.
e. "Board" means the Board of Directors of the Company.
f. "Cause" means (1) conviction of a participant for committing a felony
under federal law or the law of the state in which such action occurred, (2)
dishonesty in the course of fulfilling a participant's employment duties or (3)
willful and deliberate failure on the part of a participant to perform his
employment duties in any material respect, or such other events as shall be
determined by the Committee. The Committee shall have the sole discretion to
determine whether "Cause" exists, and its determination shall be final.
g. "Change in Control" and "Change in Control Price" have the meanings set
forth in Sections 10(b) and (c), respectively.
h. "CEO" means the Chief Executive Officer of the Company.
i. "Code" means the Internal Revenue Code of 1986, as amended from time to
time, and any successor thereto. References to Sections of the Code shall be
deemed to include any successors to such Sections.
j. "Commission" means the Securities and Exchange Commission or any successor
agency.
k. "Committee" means the Committee referred to in Section 2.
l. "Common Stock" means common stock, par value $1.00 per share, of the
Company, as presently constituted and any equity security of the Company issued
or authorized to be issued in the future.
m. "Company" means Avery Dennison Corporation, a Delaware corporation.
n. "COO" means the Chief Operating Officer of the Company.
o. "Covered Employee" means a participant designated prior to the grant of
shares of Restricted Stock or Performance Units by the Committee who is or may
be a "covered employee" within the meaning of Section 162(m)(3) of the Code in
the year in which Restricted Stock or Performance Units are expected to be
taxable to such participant.
p. "Disability" means permanent and total disability as determined under
procedures established by the Committee for purposes of the Plan.
q. "Dividend Equivalent" means an Award made pursuant to Section 9.
r. "Early Retirement" means retirement from active employment with the
Company, or an Affiliate pursuant to the early retirement provisions of the
applicable pension plan of such employer or as otherwise determined by the
Committee.
s. "Exchange Act" means the Securities Exchange Act of 1934, as amended from
time to time, and any successor thereto.
t. "Fair Market Value" means, as of any given date, the mean between the
highest and lowest reported sales prices of the Common Stock on the New York
Stock Exchange Composite Tape or, if not listed on such exchange, on any other
national securities exchange on which the Common Stock is listed or on NASDAQ.
If there is no regular public trading market for such Common Stock, the Fair
Market Value of the Common Stock shall be determined by the Committee in good
faith.
u. "Non-Employee Director" means a member of the Board who qualifies as a
Non-Employee Director as defined in Rule 16b-3(b)(3), as promulgated by the
Commission under the Exchange Act, or any successor definition adopted by the
Commission.
v. "Non-qualified Stock Option" means a Stock Option, which is not an
incentive stock option under Section 422 of the Code.
w. "Normal Retirement" means retirement from active employment with the
Company, or an Affiliate at or after age 65.
x. "Optionee" means an individual granted a Stock Option under this Plan.
y. "Qualified Performance-Based Award" means an Award of Stock Options, Stock
Appreciation Rights, Restricted Stock or Performance Units designated as such by
the Committee at the time of grant, based upon a determination that (i) the
recipient is or may be a "covered employee" within the meaning of Section
162(m)(3) of the Code in the year in which the Company would expect to be able
to claim a tax deduction with respect to such Stock Options, Stock Appreciation
Rights, Restricted Stock or Performance Units and (ii) the Committee wishes such
Award to qualify for the Section 162(m) Exemption. Notwithstanding any other
provision of the Plan, no Award shall be considered a Qualified Performance-
2
Based Award unless it is granted subject to or after obtaining shareholder
approval satisfying the requirements of Section 162(m)(4)(C)(ii) of the Code and
the Treasury Regulations thereunder.
z. "Performance Goals" means the performance goals established by the
Committee in connection with the grant of Restricted Stock or Performance Units.
In the case of Qualified Performance-Based Awards, (i) such goals shall be based
on the attainment of specified levels of one or more of the following measures:
earnings per share, sales, net income, net income after tax, gross income,
operating income, cash generation, economic value added, unit volume, return on
equity, change in working capital, return on capital or shareholder return, and
(ii) such Performance Goals shall be set by the Committee within the time period
prescribed by Section 162(m) of the Code and related regulations.
aa. "Performance Units" means an award made pursuant to Section 8.
bb. "Plan" means the Avery Dennison Corp. 1996 Stock Incentive Plan, as set
forth herein and as hereinafter amended from time to time.
cc. "Restricted Stock" means an award granted under Section 7.
dd. "Retirement" means Normal or Early Retirement.
ee. "Rule 16b-3" means Rule 16b-3, as promulgated by the Commission under
Section 16(b) of the Exchange Act, as amended from time to time.
ff. "Secretary" means the Secretary of the Company.
gg. "Section 162(m) Exemption" means the exemption from the limitation on
deductibility imposed by Section 162(m) of the Code that is set forth in Section
162(m)(4)(C) of the Code.
hh. "Stock Appreciation Right" means a right granted under Section 6.
ii. "Stock Option" means an option granted under Section 5.
jj. "Stock Payments" means (a) a payment in the form of shares of Common
Stock, or (b) an option or other right to purchase shares of Common Stock, as
part of a deferred compensation arrangement, made in lieu of all or any portion
of the compensation, including without limitation, salary, bonuses and
commissions, that would otherwise become payable to an employee in cash.
kk. "Termination of Employment" means the termination of the participant's
employment with the Company or an Affiliate. A participant employed by an
Affiliate shall also be deemed to incur a Termination of Employment if the
Affiliate ceases to be a subsidiary, as the case may be, and the participant
does not immediately thereafter become an employee of the Company or an
Affiliate. Temporary absences from employment because of illness, vacation or
leave of absence and transfers among the Company and and Affiliates shall not be
considered Terminations of Employment. The Committee, in its absolute
discretion, shall determine the effect of all other matters and questions
relating to Termination of Employment.
In addition, certain other terms used herein have definitions given to them in
the first place in which they are used.
3
SECTION 2. Administration
The Plan shall be administered by the Compensation and Executive Personnel
Committee or such other committee of the Board as the Board may from time to
time designate (the "Committee"), which shall be composed of not less than two
Non-Employee Directors, each of whom shall be an "outside director" for purposes
of Section 162(m)(4) of the Code, and shall be appointed by and serve at the
pleasure of the Board.
The Committee shall have plenary authority to grant Awards pursuant to the terms
of the Plan to officers and employees of the Company and its Affiliates.
Among other things, the Committee shall have the authority, subject to the terms
of the Plan:
(a) To select the officers and employees to whom Awards may from time to time
be granted;
(b) To determine whether and to what extent Stock Options, Stock Appreciation
Rights, Restricted Stock, Performance Units, Stock Payments or Dividend
Equivalents or any combination thereof are to be granted hereunder;
(c) To determine the number of shares of Common Stock to be covered by each
Award granted hereunder;
(d) To determine the terms and conditions of any Award granted hereunder
(including, but not limited to, the option price (subject to Section 5(a)),
any vesting condition, restriction or limitation (which may be related to
the performance of the participant, the Company or any Affiliate) and any
vesting acceleration or forfeiture waiver regarding any Award and the
shares of Common Stock relating thereto, based on such factors as the
Committee shall determine;
(e) To modify, amend or adjust the terms and conditions of any Award, at any
time or from time to time, including but not limited to Performance Goals;
provided, however, that the Committee may not adjust upwards the amount
payable with respect to a Qualified Performance-Based Award or waive or
alter the Performance Goals associated therewith;
(f) To determine to what extent and under what circumstances Common Stock and
other amounts payable with respect to an Award shall be deferred; and
(g) To determine under what circumstances an Award may be settled in cash or
Common Stock under Sections 5(j), 6(b)(ii), 8(b)(v) and 9.
The Committee shall have the authority to adopt, alter and repeal such
administrative rules, guidelines and practices governing the Plan as it shall
from time to time deem advisable, to interpret the terms and provisions of the
Plan and any Award issued under the Plan (and any agreement relating thereto)
and to otherwise supervise the administration of the Plan.
The Committee may act only by a majority of its members then in office, except
that the members thereof may delegate to (i) the CEO the authority to make
decisions pursuant to, and interpretations of, the Plan (provided that no such
delegation may be made that would cause Awards or other transactions under the
Plan to cease to be exempt from Section 16(b) of the Exchange Act or cease to be
Qualified Performance-Based Awards), including, but not limited to, the
authority to make grants of Stock Options
4
and other Awards with respect to any employee who is not an "officer" of the
Company (within the meaning of Rule 16a-1(f) promulgated under the Exchange Act,
as amended), subject to any limitations the Committee may impose, and (ii) the
CEO or Secretary, or both, or any or all of the administrative duties and
authority of the Committee under the Plan, other than the authority to make
grants or awards under the Plan except as set forth above.
Any determination made by the Committee or pursuant to delegated authority
pursuant to the provisions of the Plan with respect to any Award shall be made
in the sole discretion of the Committee or such delegate at the time of the
grant of the Award or, unless in contravention of any express term of the Plan,
at any time thereafter. All decisions made by the Committee or any
appropriately delegated officer pursuant to the provisions of the Plan shall be
final and binding on all persons, including the Company and Plan participants.
Any authority granted to the Committee may also be exercised by the full Board,
except to the extent that the grant or exercise of such authority would cause
any Award or transaction to become subject to (or lose an exemption under) the
short-swing profit recovery provisions of Section 16 of the Exchange Act or
cause an award designated as a Qualified Performance-Based Award not to qualify
for, or to cease to qualify for, the Section 162(m) Exemption. To the extent
that any permitted action taken by the Board conflicts with action taken by the
Committee, the Board action shall control.
SECTION 3. Common Stock Subject to Plan
The total number of shares of Common Stock reserved and available for grant
under the Plan during each calendar year shall be (i) 1.75 percent of the number
of outstanding shares on the date of the annual grant plus (ii) the number of
shares repurchased by the Company from shareholders on or after January 1, 1996,
minus the number of shares granted from the repurchased shares. Shares subject
to an Award under the Plan may be treasury shares held by the Company or
treasury shares that have been transferred to and that are held in a grantor
trust of the Company (including without limitation, the Employee Stock Benefit
Trust).
If any shares of Restricted Stock are forfeited, or if any Stock Option (and
related Stock Appreciation Right, if any) terminates, expires or is canceled
without being exercised, or if any Stock Appreciation Right is exercised for
cash, shares subject to such Awards shall again be available for distribution in
connection with Awards under the Plan.
In the event of any change in corporate capitalization, such as a stock split
(whether or not effected in the form of a dividend), or a corporate transaction,
such as any merger, consolidation, separation, including a spin-off, or other
distribution of stock or property of the Company, any reorganization (whether or
not such reorganization comes within the definition of such term in Section 368
of the Code) or any partial or complete liquidation of the Company, the
Committee or Board shall make such substitution or adjustments in the aggregate
number and kind of shares reserved for issuance under the Plan, in the number,
kind and option price of shares subject to outstanding Stock Options and Stock
Appreciation Rights, in the number and kind of shares subject to other
outstanding Awards granted under the Plan and/or such other equitable
substitution or adjustments as it may determine to be appropriate in its
discretion with the intent that, after such substitution or adjustments, the
value of each Optionee's and each Awardee's interest shall be maintained as
before the occurrence of such event; provided, however, that the number of
shares subject to any Award shall always be a whole number. Such adjusted
option price shall also be used to determine the amount payable by the Company
upon the exercise of any Stock Appreciation Right associated with any Stock
Option.
5
SECTION 4. Eligibility
Directors, officers and employees of the Company, its subsidiaries and
Affiliates who are responsible for or contribute to the management, growth and
profitability of the business of the Company, and its Affiliates are eligible to
be granted Awards under the Plan.
SECTION 5. Stock Options
The Committee shall have the authority to grant Stock Options to any eligible
individual, either alone or in addition to other Awards granted under the Plan,
in such form and subject to such conditions as the Committee may determine (and
which may differ for separate Stock Options). Such terms and conditions may
include, without limitation, restrictions on the transferability of the shares
of Common Stock received upon exercise of Stock Options. All Stock Options
granted hereunder shall be Non-qualified Stock Options.
The grant of a Stock Option shall be considered to occur on the date the
Committee by resolution selects an individual participant to receive such grant,
determines the number of shares of Common Stock to be subject to such Stock
Option, and specifies the terms and provisions of the Stock Option. Upon grant
of a Stock Option, the Committee shall instruct the Secretary to issue an option
agreement evidencing such option, and to deliver such option agreement to the
Optionee. Such agreement shall become effective upon execution by the Company
and the Optionee.
Stock Options granted under the Plan shall be subject to the following terms and
conditions and shall contain such additional terms and conditions as the
Committee shall deem desirable:
(a) Option Price. The option price per share of Common Stock purchasable under
a Stock Option shall be determined by the Committee and set forth in the
option agreement.
(b) Option Term. The term of each Stock Option shall be fixed by the Committee.
(c) Exercisability. Except as otherwise provided herein, Stock Options shall be
exercisable at such time or times and subject to such terms and conditions
as shall be determined by the Committee. If the Committee provides that any
Stock Option is exercisable only in installments, the Committee may at any
time waive or modify such installment exercise provisions, in whole or in
part, based on such factors as the Committee may determine. In addition,
the Committee may at any time accelerate the exercisability of any Stock
Option or extend the period during which it may be exercised (but not
beyond the expiration of the term thereof).
(d) Method of Exercise. Subject to the provisions of this Section 5, Stock
Options may be exercised, in whole or in part, at any time during the
option term by giving written notice of exercise to the Company specifying
the number of shares of Common Stock subject to the Stock Option to be
purchased.
Except as specified below, such notice shall be accompanied by payment in full
of the option price by certified or bank check or such other instrument as the
Company may accept. Payment, in full or in part, may also be made in the form
of unrestricted Common Stock already owned by the Optionee of the same class as
the Common Stock subject to the Stock Option (based on the Fair Market Value of
the Common Stock on the date the Stock Option is exercised); provided, however,
that such already owned shares have been held by the Optionee for at least six
months at the time of exercise. The Committee may also per-
6
mit a delay in payment of all or a portion of the option price for up to 30
days, on such terms and conditions as it may specify.
Payment of the option price for any shares subject to a Stock Option may also be
made by delivering a properly executed exercise notice to the Company, together
with a copy of irrevocable instructions to a broker acceptable to the Company to
deliver promptly to the Company the amount of sale or loan proceeds necessary to
pay the option price, and, if requested, by the amount of any federal, state,
local or foreign withholding taxes. To facilitate the foregoing, the Company
may enter into agreements for coordinated procedures with one or more brokerage
firms.
In addition, payment of the option price for any shares subject to a Stock
Option may also be made by instructing the Company to withhold a number of such
shares having a Fair Market Value on the date of exercise equal to the aggregate
exercise price of such Stock Option plus any amounts required to be withheld
pursuant to Section 13(d).
No shares of Common Stock shall be issued until full payment therefor has been
made. On exercise of a Stock Option, delivery of Common Stock may be made by
delivery of Common Stock certificates or through a book-entry system (such as a
direct registration system). Except as otherwise provided in Section 5(l) below
and in the terms and conditions of the relevant Stock Option as determined by
the Committee, an Optionee shall have all of the rights of a shareholder of the
Company holding the class or series of Common Stock that is subject to such
Stock Option (including, if applicable, the right to vote the shares and the
right to receive dividends), when the Optionee has given written notice of
exercise, has paid in full for such shares and, if requested, has given the
representation described in Section 13(a).
(e) Nontransferability of Stock Options. No Stock Option shall be transferable
by the Optionee other than (i) by will or by the laws of descent and
distribution or (ii) as otherwise expressly permitted under the applicable
option agreement including, if so permitted, pursuant to a gift to such
Optionee's family, whether directly or indirectly or by means of a trust or
partnership or otherwise. All Stock Options shall be exercisable, subject
to the terms of this Plan, only by the Optionee, the guardian or legal
representative of the Optionee, or any person to whom such option is
transferred pursuant to the preceding sentence, it being understood that
the term "holder" and "Optionee" include such guardian, legal
representative and other transferee.
(f) Termination by Death. Unless otherwise determined by the Committee, if an
Optionee's employment terminates by reason of death, any Stock Option held
by such Optionee may thereafter be exercised, to the extent then
exercisable, or on such accelerated basis as the Committee may determine,
for a period of 12 months (or such other period as the Committee may
specify in the option agreement) from the date of such death or until the
expiration of the stated term of such Stock Option, whichever period is the
shorter.
(g) Termination by Reason of Disability. Unless otherwise determined by the
Committee, if an Optionee's employment terminates by reason of Disability,
any Stock Option held by such Optionee may thereafter be exercised by the
Optionee, to the extent it was exercisable at the time of termination, or
on such accelerated basis as the Committee may determine, for a period of
three years (or such shorter period as the Committee may specify in the
option agreement) from the date of such termination of employment or until
the expiration of the stated term of such Stock Option, whichever period is
the shorter; provided, however, that if the Optionee dies within such
period, any unexercised Stock Option held by such Optionee shall,
notwithstanding the expiration of such period, continue to be exercisable
to the ex-
7
tent to which it was exercisable at the time of death for a period of 12
months from the date of such death or until the expiration of the stated
term of such Stock Option, whichever period is the shorter.
(h) Termination by Reason of Retirement. Unless otherwise determined by the
Committee, if an Optionee's employment terminates by reason of Retirement,
any Stock Option held by such Optionee may thereafter be exercised by the
Optionee, to the extent it was exercisable at the time of such Retirement,
or on such accelerated basis as the Committee may determine, as follows:
(i) if the Optionee is, immediately before such Retirement, the CEO or the
COO, for the period ending upon the expiration of the stated term of such
Stock Option; (ii) if the Optionee is, immediately before such Retirement,
a participant in the Company's Long Term Incentive Program or any successor
thereto, other than the CEO or the COO, for the period ending on the
earlier of the fifth anniversary of such Retirement or the expiration of
the stated term of such Stock Option; and (iii) in all other cases, for a
period ending on the earlier of the third anniversary of such Retirement or
the expiration of the stated term of such Stock Option; provided, however,
that if the Optionee dies within such period any unexercised Stock Option
held by such Optionee shall, notwithstanding the expiration of such period,
continue to be exercisable to the extent to which it was exercisable at the
time of death for a period of 12 months from the date of such death or
until the expiration of the stated term of such Stock Option, whichever
period is the shorter.
(i) Other Termination. Unless otherwise determined by the Committee: (A) if
an Optionee incurs a Termination of Employment for Cause, all Stock Options
held by such Optionee shall thereupon terminate; and (B) if an Optionee
incurs a Termination of Employment for any reason other than death,
Disability or Retirement or for Cause, any Stock Option held by such
Optionee, to the extent then exercisable, or on such accelerated basis as
the Committee may determine, may be exercised for the lesser of 6 months
from the date of such Termination of Employment or the balance of such
Stock Option's term; provided, however, that if the Optionee dies within
such six-month period, any unexercised Stock Option held by such Optionee
shall, notwithstanding the expiration of such three-month period, continue
to be exercisable to the extent to which it was exercisable at the time of
death for a period of 12 months from the date of such death or until the
expiration of the stated term of such Stock Option, whichever period is the
shorter.
(j) Cashing Out of Stock Option. On receipt of written notice of exercise, the
Committee may elect to cash out all or part of the portion of the shares of
Common Stock for which a Stock Option is being exercised by paying the
Optionee an amount, in cash or Common Stock, equal to the excess of the
Fair Market Value of the Common Stock over the option price times the
number of shares of Common Stock for which the Option is being exercised on
the effective date of such cash-out.
(k) Change in Control Cash-Out. Notwithstanding any other provision of the
Plan, during the 60-day period from and after a Change in Control (the
"Exercise Period"), unless the Committee shall determine otherwise at the
time of grant, an Optionee shall have the right, whether or not the Stock
Option is fully exercisable and in lieu of the payment of the exercise
price for the shares of Common Stock being purchased under the Stock Option
and by giving notice to the Company, to elect (within the Exercise Period)
to surrender all or part of the Stock Option to the Company and to receive
cash, within 30 days of such notice, in an amount equal to the amount by
which the Change in Control Price per share of Common Stock on the date of
such election shall exceed the exercise price per share of Common Stock
under the Stock Option (the "Spread") multiplied by the number of shares of
Common Stock granted under the Stock Option as to which the right granted
under this Section 5(k) shall have been exercised. Notwithstanding the
foregoing, if any right granted pursuant to this Section 5(k) would make a
Change in Control transaction ineligible for pooling-of-interests
accounting under APB No. 16 that but for the nature of such grant would
otherwise be eligible for such accounting treatment, the Committee shall
have
8
the ability to substitute for the cash payable pursuant to such right
Common Stock with a Fair Market Value equal to the cash that would
otherwise be payable hereunder.
(l) Deferral of Option Shares. The Committee may from time to time establish
procedures pursuant to which an Optionee may elect to defer, until a time
or times later than the exercise of an Option, receipt of all or a portion
of the Shares subject to such Option and/or to receive cash at such later
time or times in lieu of such deferred Shares, all on such terms and
conditions as the Committee shall determine. If any such deferrals are
permitted, then notwithstanding Section 5(d) above, an Optionee who elects
such deferral shall not have any rights as a stockholder with respect to
such deferred Shares unless and until Shares are actually delivered to the
Optionee with respect thereto, except to the extent otherwise determined by
the Committee.
SECTION 6. Stock Appreciation Rights
(a) Grant and Exercise. Stock Appreciation Rights may be granted in conjunction
with all or part of any Stock Option granted under the Plan, either at or
after the time of grant of such Stock Option. A Stock Appreciation Right
shall terminate and no longer be exercisable upon the termination or
exercise of the related Stock Option.
A Stock Appreciation Right may be exercised by an Optionee in accordance with
Section 6(b) by surrendering the applicable portion of the related Stock Option
in accordance with procedures established by the Committee. Upon such exercise
and surrender, the Optionee shall be entitled to receive an amount determined in
the manner prescribed in Section 6(b). Stock Options which have been so
surrendered shall no longer be exercisable to the extent the related Stock
Appreciation Rights have been exercised.
(b) Terms and Conditions. Stock Appreciation Rights shall be subject to such
terms and conditions as shall be determined by the Committee, including the
following:
(i) Stock Appreciation Rights shall be exercisable only at such time or
times and to the extent that the Stock Options to which they relate are
exercisable in accordance with the provisions of Section 5 and this Section
6.
(ii) Upon the exercise of a Stock Appreciation Right, an Optionee shall be
entitled to receive an amount in cash, shares of Common Stock or both, in
value equal to the excess of the Fair Market Value of one share of Common
Stock over the option price per share specified in the related Stock Option
multiplied by the number of shares in respect of which the Stock
Appreciation Right shall have been exercised, with the Committee having the
right to determine the form of payment.
(iii) Stock Appreciation Rights shall be transferable only to permitted
transferees of the underlying Stock Option in accordance with Section 5(e).
(iv) Upon the exercise of a Stock Appreciation Right, the Stock Option or
part thereof to which such Stock Appreciation Right is related shall be
deemed to have been exercised for the purpose of the limitation set forth
in Section 3 on the number of shares of Common Stock to be issued under the
Plan, but only to the extent of the number of shares covered by the Stock
Appreciation Right at the time of exercise based on the value of the Stock
Appreciation Right at such time.
9
SECTION 7. Restricted Stock
(a) Administration. Shares of Restricted Stock may be awarded either alone or
in addition to other Awards granted under the Plan. The Committee shall
determine the officers and employees to whom and the time or times at which
grants of Restricted Stock will be awarded, the number of shares to be
awarded to any participant (subject to the aggregate limit on grants to
individual participants set forth in Section 3), the conditions for
vesting, the time or times within which such Awards may be subject to
forfeiture and any other terms and conditions of the Awards, in addition to
those contained in Section 7(c).
(b) Awards and Certificates. Shares of Restricted Stock shall be evidenced in
such manner as the Committee may deem appropriate, including book-entry
registration or issuance of one or more stock certificates. Any certificate
issued in respect of shares of Restricted Stock shall be registered in the
name of such participant and shall bear an appropriate legend referring to
the terms, conditions, and restrictions applicable to such Award,
substantially in the following form:
"The transferability of this certificate and the shares of stock
represented hereby are subject to the terms and conditions (including
forfeiture) of the Avery Dennison Corporation 1996 Stock Incentive Plan
and a Restricted Stock Agreement. Copies of such Plan and Agreement are
on file at the offices of Avery Dennison Corporation, 150 North Orange
Grove Boulevard, Pasadena, CA 91103."
The Committee may require that the certificates evidencing such shares be held
in custody by the Company until the restrictions thereon shall have lapsed and
that, as a condition of any Award of Restricted Stock, the participant shall
have delivered a stock power, endorsed in blank, relating to the Common Stock
covered by such Award.
(c) Terms and Conditions. Shares of Restricted Stock shall be subject to the
following terms and conditions:
(i) The Committee may, prior to or at the time of grant, designate an Award
of Restricted Stock as a Qualified Performance-Based Award, in which event
it shall condition the grant or vesting, as applicable, of such Restricted
Stock upon the attainment of Performance Goals. If the Committee does not
designate an Award of Restricted Stock as a Qualified Performance-Based
Award, it may also condition the grant or vesting thereof upon the
attainment of Performance Goals. Regardless of whether an Award of
Restricted Stock is a Qualified Performance-Based Award, the Committee may
also condition the grant or vesting thereof upon the continued service of
the participant. The conditions for grant or vesting and the other
provisions of Restricted Stock Awards (including without limitation any
applicable Performance Goals) need not be the same with respect to each
recipient. The Committee may at any time, in its sole discretion,
accelerate or waive, in whole or in part, any of the foregoing
restrictions; provided, however, that in the case of Restricted Stock that
is a Qualified Performance-Based Award, the applicable Performance Goals
have been satisfied.
(ii) Subject to the provisions of the Plan and the Restricted Stock
Agreement referred to in Section 7(c)(vi), during the period, if any, set
by the Committee, commencing with the date of such Award for which such
participant's continued service is required (the "Restriction Period"), and
until the later of (i) the expiration of the Restriction Period and (ii)
the date the applicable Performance Goals (if any) are satisfied, the
participant shall not be permitted to sell, assign, transfer, pledge or
otherwise encumber shares of Restricted Stock; provided that the foregoing
shall
10
not prevent a participant from pledging Restricted Stock as security
for a loan, the sole purpose of which is to provide funds to pay the option
price for Stock Options.
(iii) Except as provided in this paragraph (iii) and Sections 7(c)(i) and
7(c)(ii) and the Restricted Stock Agreement, the participant shall have,
with respect to the shares of Restricted Stock, all of the rights of a
stockholder of the Company holding the class or series of Common Stock that
is the subject of the Restricted Stock, including, if applicable, the right
to vote the shares and the right to receive any cash dividends. If so
determined by the Committee in the applicable Restricted Stock Agreement
and subject to Section 13(e) of the Plan, (A) cash dividends on the class
or series of Common Stock that is the subject of the Restricted Stock Award
shall be automatically deferred and reinvested in additional Restricted
Stock, held subject to the vesting of the underlying Restricted Stock, or
held subject to meeting Performance Goals applicable only to dividends, and
(B) dividends payable in Common Stock shall be paid in the form of
Restricted Stock of the same class as the Common Stock with which such
dividend was paid, held subject to the vesting of the underlying Restricted
Stock, or held subject to meeting Performance Goals applicable only to
dividends.
(iv) Except to the extent otherwise provided in the applicable Restricted
Stock Agreement and Sections 7(c)(i), 7(c)(ii), 7(c)(v) and 10(a)(ii), upon
a participant's Termination of Employment for any reason during the
Restriction Period or before the applicable Performance Goals are
satisfied, all shares still subject to restriction shall be forfeited by
the participant.
(v) Except to the extent otherwise provided in Section 10(a)(ii), in the
event that a participant retires or such participant's employment is
involuntarily terminated (other than for Cause), the Committee shall have
the discretion to waive, in whole or in part, any or all remaining
restrictions (other than, in the case of Restricted Stock with respect to
which a participant is a Covered Employee, satisfaction of the applicable
Performance Goals unless the participant's employment is terminated by
reason of death or Disability) with respect to any or all of such
participant's shares of Restricted Stock.
(vi) If and when any applicable Performance Goals are satisfied and the
Restriction Period expires without a prior forfeiture of the Restricted
Stock, unlegended certificates for such shares shall be delivered to the
participant upon surrender of the legended certificates.
(vii) Each Award shall be confirmed by, and be subject to, the terms of a
Restricted Stock Agreement.
SECTION 8. Performance Units
(a) Administration. Performance Units may be awarded either alone or in
addition to other Awards granted under the Plan. The Committee shall
determine the officers and employees to whom and the time or times at which
Performance Units shall be awarded, the number of Performance Units to be
awarded to any participant (subject to the aggregate limit on grants to
individual participants set forth in Section 3), the duration of the Award
Cycle and any other terms and conditions of the Award, in addition to those
contained in Section 8(b).
(b) Terms and Conditions. Performance Units Awards shall be subject to the
following terms and conditions:
11
(i) The Committee may, prior to or at the time of the grant, designate
Performance Units as Qualified Performance-Based Awards, in which event it
shall condition the settlement thereof upon the attainment of Performance
Goals. If the Committee does not designate Performance Units as Performance
Based Awards, it may also condition the settlement thereof upon the
attainment of Performance Goals. Regardless of whether Performance Units
are Qualified Performance-Based Awards, the Committee may also condition
the settlement thereof upon the continued service of the participant. The
provisions of such Awards (including without limitation any applicable
Performance Goals) need not be the same with respect to each recipient.
Subject to the provisions of the Plan and the Performance Units Agreement
referred to in Section 8(b)(vi), Performance Units may not be sold,
assigned, transferred, pledged or otherwise encumbered during the Award
Cycle.
(ii) Except to the extent otherwise provided in the applicable Performance
Unit Agreement and Sections 8(b)(iii) and 10(a)(iii), upon a participant's
Termination of Employment for any reason during the Award Cycle or before
any applicable Performance Goals are satisfied, all rights to receive cash
or stock in settlement of the Performance Units shall be forfeited by the
participant.
(iii) Except to the extent otherwise provided in Section 10(a)(iii), in
the event that a participant's employment is terminated (other than for
Cause), or in the event a participant retires, the Committee shall have the
discretion to waive, in whole or in part, any or all remaining payment
limitations (other than, in the case of Performance Units that are
Qualified Performance-Based Awards, satisfaction of the applicable
Performance Goals unless the participant's employment is terminated by
reason of death or Disability) with respect to any or all of such
participant's Performance Units.
(iv) A participant may elect to further defer receipt of cash or shares
in settlement of Performance Units for a specified period or until a
specified event, subject in each case to the Committee's approval and to
such terms as are determined by the Committee (the "Elective Deferral
Period"). Subject to any exceptions adopted by the Committee, such
election must generally be made prior to commencement of the Award Cycle
for the Performance Units in question.
(v) At the expiration of the Award Cycle, the Committee shall evaluate the
Company's performance in light of any Performance Goals for such Award, and
shall determine the number of Performance Units granted to the participant
which have been earned, and the Committee shall then cause to be delivered
(A) a number of shares of Common Stock equal to the number of Performance
Units determined by the Committee to have been earned, or (B) cash equal to
the Fair Market Value of such number of shares of Common Stock to the
participant, as the Committee shall elect (subject to any deferral pursuant
to Section 8(b)(iv)).
(vi) Each Award shall be confirmed by, and be subject to, the terms of a
Performance Unit Agreement.
SECTION 9. Stock Payments; Dividend Equivalents
(a) Stock Payments may be granted under this Plan either alone or in
conjunction with any other Award. The number of shares shall be determined
by the Committee and may be based upon the Fair Market Value, book value or
other measure of the value of Common Stock on the date such Stock Payment
is made or on any date thereafter, and subject to such other terms and
conditions as the Committee may determine.
12
Dividend Equivalents may be granted under this Plan either alone or in
conjunction with any other Award. Dividend Equivalents shall represent the right
to receive cash payments, shares of Common Stock, or a combination thereof,
having a value equal to the dividends declared on Common Stock during a
specified period, and subject to such other terms and conditions as the
Committee shall determine.
SECTION 10. Change in Control Provisions
(a) Impact of Event. Notwithstanding any other provision of the Plan to the
contrary, in the event of a Change in Control:
(i) Any Stock Options and Stock Appreciation Rights outstanding as of the
date such Change in Control is determined to have occurred, and which are
not then exercisable and vested, shall become fully exercisable and vested
to the full extent of the original grant.
(ii) The restrictions and deferral limitations applicable to any
Restricted Stock shall lapse, and such Restricted Stock shall become free
of all restrictions and become fully vested and transferable to the full
extent of the original grant.
(iii) All Performance Units shall be considered to be earned and payable
in full, and any deferral or other restriction shall lapse and such
Performance Units shall be settled in cash as promptly as is practicable.
(iv) Any restrictions or deferral or forfeiture limitations applicable to
any Dividend Equivalents shall lapse.
(b) Definition of Change in Control. For purposes of the Plan, a "Change in
Control" shall mean the happening of any of the following events:
(i) An acquisition by any individual, entity or group (within the meaning
of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a "Person") of
beneficial ownership (within the meaning of Rule 13d-3 promulgated under
the Exchange Act) of 20% or more of either (1) the then outstanding shares
of common stock of the Company (the "Outstanding Company Common Stock") or
(2) the combined voting power of the then outstanding voting securities of
the Company entitled to vote generally in the election of directors (the
"Outstanding Company Voting Securities"); excluding, however, the
following: (1) any acquisition directly from the Company, other than an
acquisition by virtue of the exercise of a conversion privilege unless the
security being so converted was itself acquired directly from the Company,
(2) any acquisition by the Company, (3) any acquisition by any employee
benefit plan (or related trust) sponsored or maintained by the Company or
any corporation controlled by the Company, or (4) any acquisition by any
corporation pursuant to a transaction which complies with clauses (1), (2)
and (3) of subsection (iii) of this Section 9(b); or
(ii) A change in the composition of the Board such that the individuals
who, as of the effective date of the Plan, constitute the Board (such Board
shall be hereinafter referred to as the "Incumbent Board") cease for any
reason to constitute at least a majority of the Board; provided, however,
for purposes of this Section 9(b), that any individual who becomes a member
of the Board subsequent to the effective date of the Plan, whose election,
or nomination for election by the Company's shareholders, was approved by a
vote of at least a majority of those individuals
13
who are members of the Board and who were also members of the Incumbent
Board (or deemed to be such pursuant to this proviso) shall be considered
as though such individual were a member of the Incumbent Board; but,
provided further, that any such individual whose initial assumption of
office occurs as a result of either an actual or threatened election
contest (as such terms are used in Rule 14a-11 of Regulation 14A
promulgated under the Exchange Act) or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person other than
the Board shall not be so considered as a member of the Incumbent Board; or
(iii) The approval by the shareholders of the Company of a reorganization,
merger or consolidation or sale or other disposition of all or
substantially all of the assets of the Company ("Corporate Transaction")
or, if consummation of such Corporate Transaction is subject, at the time
of such approval by shareholders, to the consent of any government or
governmental agency, obtaining of such consent (either explicitly or
implicitly by consummation); excluding however, such a Corporate
Transaction pursuant to which (1) all or substantially all of the
individuals and entities who are the beneficial owners, respectively, of
the Outstanding Company Common Stock and Outstanding Company Voting
Securities immediately prior to such Corporate Transaction will
beneficially own, directly or indirectly, more than 60% of, respectively,
the outstanding shares of common stock, and the combined voting power of
the then outstanding voting securities entitled to vote generally in the
election of directors, as the case may be, of the corporation resulting
from such Corporate Transaction (including, without limitation, a
corporation which as a result of such transaction owns the Company or all
or substantially all of the Company's assets either directly or through one
or more subsidiaries) in substantially the same proportions as their
ownership, immediately prior to such Corporate Transaction, of the
Outstanding Company Common Stock and Outstanding Company Voting Securities,
as the case may be, (2) no Person (other than the Company, any employee
benefit plan (or related trust) of the Company or such corporation
resulting from such Corporate Transaction) will beneficially own, directly
or indirectly, 20% or more of, respectively, the outstanding shares of
common stock of the corporation resulting from such Corporate Transaction
or the combined voting power of the outstanding voting securities of such
corporation entitled to vote generally in the election of directors except
to the extent that such ownership existed prior to the Corporate
Transaction, and (3) individuals who were members of the Incumbent Board
will constitute at least a majority of the members of the board of
directors of the corporation resulting from such Corporate Transaction; or
(iv) The approval by the stockholders of the Company of a complete
liquidation or dissolution of the Company.
(c) Change in Control Price. For purposes of the Plan, "Change in Control
Price" means the higher of (i) the highest reported sales price, regular way, of
a share of Common Stock in any transaction reported on the New York Stock
Exchange Composite Tape or other national exchange on which such shares are
listed or on NASDAQ during the 60-day period prior to and including the date of
a Change in Control or (ii) if the Change in Control is the result of a tender
or exchange offer or a Corporate Transaction, the highest price per share of
Common Stock paid in such tender or exchange offer or Corporate Transaction. To
the extent that the consideration paid in any such transaction described above
consists all or in part of securities or other noncash consideration, the value
of such securities or other noncash consideration shall be determined in the
sole discretion of the Board.
14
SECTION 11. Term, Amendment and Termination
The Plan will continue in existence until it is terminated by the Board. Under
the Plan, Awards outstanding as of such date shall not be affected or impaired
by the termination of the Plan.
The Board may amend, alter, or discontinue the Plan, but no amendment,
alteration or discontinuation shall be made which would impair the rights of an
Optionee under a Stock Option or a recipient of a Stock Appreciation Right,
Restricted Stock Award or Performance Unit Award theretofore granted without the
Optionee's or recipient's consent, except such an amendment made to cause the
Plan to qualify for any exemption provided by Rule 16b-3. In addition, no such
amendment shall be made without the approval of the Company's shareholders to
the extent such approval is required by law, rule or agreement.
The Committee may amend the terms of any Stock Option or other Award theretofore
granted, prospectively or retroactively, but no such amendment shall cause a
Qualified Performance-Based Award to cease to qualify for the Section 162(m)
Exemption or impair the rights of any holder without the holder's consent except
such an amendment made to cause the Plan or Award to qualify for any exemption
provided by Rule 16b-3.
Subject to the above provisions, the Board shall have authority to amend the
Plan to take into account changes in law and tax and accounting rules as well as
other developments, and to grant Awards which qualify for beneficial treatment
under such rules without stockholder approval.
SECTION 12. Unfunded Status of Plan
It is presently intended that the Plan constitute an "unfunded" plan for
incentive and deferred compensation. The Committee may authorize the creation of
trusts or other arrangements to meet the obligations created under the Plan to
deliver Common Stock or make payments; provided, however, that unless the
Committee otherwise determines, the existence of such trusts or other
arrangements is consistent with the "unfunded" status of the Plan.
SECTION 13. General Provisions
(a) The Committee may require each person purchasing or receiving shares
pursuant to an Award to represent to and agree with the Company in writing
that such person is acquiring the shares without a view to the distribution
thereof. The certificates for such shares may include any legend which the
Committee deems appropriate to reflect any restrictions on transfer.
Notwithstanding any other provision of the Plan or agreements made pursuant
thereto, the Company shall not be required to issue or deliver any certificate
or certificates for shares of Common Stock under the Plan prior to fulfillment
of all of the following conditions:
(1) Listing or approval for listing upon notice of issuance, of such shares
on the New York Stock Exchange, Inc., or such other securities exchange
as may at the time be the principal market for the Common Stock;
(2) Any registration or other qualification of such shares of the Company
under any state or federal law or regulation, or the maintaining in
effect of any such registration or other qualification which the
Committee shall, in its absolute discretion upon the advice of counsel,
deem necessary or advisable; and
15
(3) Obtaining any other consent, approval, or permit from any state or
federal governmental agency which the Committee shall, in its absolute
discretion after receiving the advice of counsel, determine to be
necessary or advisable.
(b) Nothing contained in the Plan shall prevent the Company or any subsidiary
or Affiliate from adopting other or additional compensation arrangements
for its employees.
(c) Adoption of the Plan shall not confer upon any employee any right to
continued employment, nor shall it interfere in any way with the right of
the Company or any Affiliate to terminate the employment of any employee at
any time.
(d) No later than the date as of which an amount first becomes includible in
the gross income of the participant for federal income tax purposes with
respect to any Award under the Plan, the participant shall pay to the
Company, or make arrangements satisfactory to the Company regarding the
payment of, any federal, state, local or foreign taxes of any kind required
by law to be withheld with respect to such amount. Unless otherwise
determined by the Company, withholding obligations may be settled with
Common Stock, including Common Stock that is part of the Award that gives
rise to the withholding requirement. The obligations of the Company under
the Plan shall be conditional on such payment or arrangements, and the
Company and its Affiliates shall, to the extent permitted by law, have the
right to deduct any such taxes from any payment otherwise due to the
participant. The Committee may establish such procedures as it deems
appropriate, including making irrevocable elections, for the settlement of
withholding obligations with Common Stock.
(e) Reinvestment of dividends in additional Restricted Stock at the time of any
dividend payment shall only be permissible if sufficient shares of Common
Stock are available under Section 3 for such reinvestment (taking into
account then outstanding Stock Options and other Awards).
(f) The Committee shall establish such procedures as it deems appropriate for a
participant to designate a beneficiary to whom any amounts payable in the
event of the participant's death are to be paid or by whom any rights of
the participant, after the participant's death, may be exercised.
(g) In the case of a grant of an Award to any employee of a an Affiliate of the
Company, the Company may, if the Committee so directs, issue or transfer
the shares of Common Stock, if any, covered by the Award to the Affiliate,
for such lawful consideration as the Committee may specify, upon the
condition or understanding that the Affiliate will transfer the shares of
Common Stock to the employee in accordance with the terms of the Award
specified by the Committee pursuant to the provisions of the Plan.
(h) The Plan and all Awards made and 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.
(i) At the time an Award is made hereunder or at any time thereafter, the
Committee may grant to the participant receiving such Award the right to
receive a cash payment in an amount specified by the Committee, to be paid
at such time or times (if ever) as the Award results in compensation income
to the participant, for the purpose of assisting the participant to pay the
resulting taxes, all as determined by the Committee and on such other terms
and conditions as the Committee shall determine.
16
(j) The Committee may, in its discretion, extend one or more loans to
participants in connection with the exercise or vesting of, or receipt of
payments or other property pursuant to, Awards under this Plan, on such
terms and conditions as the Committee shall determine.
SECTION 14. Director Stock Options
(a) After all of the available shares in the Company's 1988 Stock Option Plan
for Non-Employee Directors have been exhausted, each director of the
Company who is not otherwise an employee of the Company or an Affiliate,
shall, on the first Tuesday following his or her first election as a
director of the Company, be granted a Stock Option for 5,000 shares, and
thereafter on the day of the regular meeting of the Board when employee
directors and other Company employees receive annual stock option grants,
each non-employee director shall automatically receive a Stock Option for
2,000 shares. Each such Stock Option shall have an exercise price equal to
Fair Market Value of the Common Stock at the date of grant of such Stock
Option.
(b) An automatic director Stock Option shall be granted hereunder only if as of
each date of grant the director (i) is not otherwise an employee of the
Company or an Affiliate, and (ii) has served on the Board continuously
since the commencement of his term.
(c) Each holder of a Stock Option granted pursuant to this Section 14 shall
also have the rights specified in Section 5(k).
(d) In the event that the number of shares of Common Stock available for future
grant under the Plan is insufficient to make all automatic grants required
to be made on such date, then all non-employee directors entitled to a
grant on such date shall share ratably in the number of options on shares
available for grant under the Plan.
(e) Except as expressly provided in this Section 14, any Stock Option granted
hereunder shall be subject to the terms and conditions of the Plan as if
the grant were made pursuant to Section 5 hereof.
SECTION 15. Effective Date of Plan
The Plan shall be effective as of December 5, 1996.
17
EXHIBIT 10.27.3
AVERY DENNISON
--------------
THIRD AMENDED AND RESTATED
--------------------------
KEY EXECUTIVE LONG-TERM INCENTIVE PLAN
--------------------------------------
1. PURPOSE
-------
The purpose of the Third Amended and Restated Key Executive Long-Term Incentive
Plan (the "Plan") is to focus key executives of Avery Dennison Corporation (the
"Company") on factors that influence the Company's long-term growth and success.
The Plan provides a means whereby Participants are given an opportunity to share
financially in the future value they help to create for the Company and its
stockholders.
2. PARTICIPATION
-------------
Participation in the Plan is limited to key executives of the Company who, in
the opinion of the Compensation Committee of the Board of Directors, have the
responsibility to influence the Company's long-range performance materially, and
who have been recommended for participation by the Chief Executive Officer of
the Company and designated as Participants by the Compensation Committee.
3. DEFINITIONS
-----------
"ACHIEVEMENT FACTOR" means the percentage to be used in determining a
Participant's deferred cash incentive Award for achieving a specified percentage
of the pre-established Performance Objectives.
"AFTER-TAX INTEREST EXPENSE" means total interest expense as disclosed in the
Company's annual reports to shareholders and Peer Group companies' annual
reports to shareholders and quarterly reports on Form 10-Q, if applicable,
multiplied by one (1) minus the Tax Rate.
"AVERAGE CAPITAL" means the numerical average for a given year of ending Capital
for the five most recently completed fiscal quarters, including the last quarter
of that year.
"AVERAGE SHAREHOLDERS' EQUITY" means the numerical average for a given year of
ending Shareholders' Equity for the five most recently completed fiscal
quarters, including the last quarter of that year.
"AWARD" refers to either (a) a Stock Option granted under the Stock Plans
evidenced by an Option Agreement which generally incorporates the terms and
provisions of the Plan relating to Stock Options, or (b) a deferred cash
incentive earned by a Participant based on the achievement of Company and, in
some cases, Business Unit financial objectives.
"BASE SALARY" means the annual base salary rate in effect for a Participant as
of the end of a Performance Cycle.
"BUSINESS UNIT" or "UNIT" refers to a group, division or subsidiary of the
Company.
1
"BUSINESS UNIT CUMULATIVE ECONOMIC VALUE ADDED" or "BUSINESS UNIT CEVA" means
the Cumulative Economic Value Added of a Business Unit as reported in the
Company's internally prepared Summary of Operations, or other similar report.
"BUSINESS UNIT NET INCOME" means net income of a Business Unit as reported in
the Company's internally prepared Summary of Operations.
"BUSINESS UNIT ROTC" means the return on total capital of a Business Unit as
reported in the Company's internally prepared Summary of Operations, or other
similar report.
"CAPITAL" refers to the sum of Shareholders' Equity and Long-Term Debt.
"CASH FLOW FROM OPERATIONS" means net cash provided by operating activities as
disclosed in the Company's annual reports to shareholders and quarterly reports
on Form 10-Q.
"CAUSE" means (i) continued failure by a Participant to perform his or her
duties (except as a direct result of the Participant's incapacity due to
physical or mental illness) after receiving notification by the Chief Executive
Officer or an individual designated by the Chief Executive Officer (or the Board
of Directors in the case of the Chief Executive Officer) identifying the manner
in which the Participant has failed to perform his or her duties, (ii) engaging
in conduct, which, in the opinion of a majority of the Board of Directors, is
materially injurious to the Company, or (iii) conviction of the Participant of
any felony involving moral turpitude.
"CHANGE OF CONTROL" shall mean a change in control of the Company of a nature
that would be required to be reported in response to Item 6(e) of Schedule 14A,
Regulation 240.14a-101, promulgated under the Securities Exchange Act of 1934 as
now in effect or, if Item 6(e) is no longer in effect, any regulations issued by
the Securities and Exchange Commission pursuant to the Securities Exchange Act
of 1934 which serve similar purposes; provided that, without limitation, a
Change of Control shall be deemed to have occurred if and when (a) any "person"
(as such term is used in Sections 13(d) and 14(d)(2) of the Securities Exchange
Act of 1934) is or becomes a beneficial owner, directly or indirectly, of
securities of the Company representing thirty-three percent (33%) or more of the
combined voting power of the Company's then outstanding securities, or (b)
individuals who were members of the Board of Directors of the Company
immediately prior to a meeting of the stockholders of the Company involving a
contest for the election of directors shall not constitute a majority of the
Board of Directors following such election.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMPANY CUMULATIVE ECONOMIC VALUE ADDED" or "COMPANY CEVA" means the Cumulative
Economic Value Added of the Company as reported in the Company's internally
prepared Summary of Operations, or other similar report.
2
"COMPANY ROTC" means the return on total capital of the Company as reported in
the Company's internally prepared Summary of Operations, or other similar
report.
"COMPENSATION COMMITTEE" or "COMMITTEE" refers to the Compensation Committee of
the Board of Directors of the Company.
"CUMULATIVE ECONOMIC VALUE ADDED" or "CEVA" means the Economic Value Added over
a defined period of time (for example: over 12 months or over the Performance
Cycle, as the context requires).
"DISABILITY" refers to a physical or mental condition that prevents a
Participant from performing his or her normal duties of employment. If a
Participant makes application for disability benefits under the Company's long-
term disability program and qualifies for such benefits, the Participant shall
be presumed to qualify as totally and permanently disabled under the Plan.
"DISCRETIONARY POOL" or "POOL" refers to the sum of cash payments made available
by the Compensation Committee to Participants who have achieved exceptional
performance and to other Company employees who have made significant
contributions to the achievement of Performance Objectives.
"EARNINGS PER SHARE" or "EPS" means earnings per share, including extraordinary
gains and losses, divested operations and changes in accounting principles as
disclosed in the Company's annual reports to shareholders.
"ECONOMIC VALUE ADDED" means operating profit after taxes on income minus a
capital charge based upon the Company's weighted average cost of capital.
"EFFECTIVE DATE" means January 1, 1996, which is the first day of the initial
Performance Cycle.
"FAIR MARKET VALUE" means the average of the high and low trading price of the
Company's common stock on a given day, as reported on the New York Stock
Exchange Composite Tape.
"GAAP" means generally accepted accounting principles.
"LONG-TERM DEBT" means long-term debt as disclosed in the Company's annual
reports to shareholders and Peer Group companies' annual reports to shareholders
and quarterly reports on Form 10-Q, if applicable.
"NET INCOME" refers to after-tax net income, including extraordinary items,
discontinued operations and changes in accounting principles, as disclosed in
the Company's annual reports to shareholders and Peer Group companies' annual
reports to shareholders and quarterly reports on Form 10-Q, if applicable.
"NET SALES" means net sales as disclosed in the Company's annual reports to
shareholders and quarterly reports on Form 10-Q.
3
"1990 PLAN" refers to the 1990 Stock Option and Incentive Plan for Key
Employees of Avery Dennison Corporation (formerly named Avery International
Corporation), or any successor plan.
"1996 PLAN" refers to the 1996 Stock Option and Incentive Plan for Key
Employees of Avery Dennison Corporation, or any successor plan.
"OPTION AGREEMENT" means a written stock option agreement evidencing options
granted under the 1990 Plan which generally incorporates the terms and
provisions of the Plan relating to Stock Options.
"PARTICIPANT" means an executive of the Company designated by the Compensation
Committee to participate in the Plan.
"PEER GROUP" refers to a specified group of companies approved by the
Compensation Committee against which the financial performance of the Company
will be compared for purposes of the Plan.
"PERFORMANCE CYCLE" or "CYCLE" refers to the three-year period over which
performance is measured for purposes of determining cash Awards under the Plan.
The initial Performance Cycle will cover the Company's 1996 through 1998 fiscal
years.
"PERFORMANCE OBJECTIVE" means one of the pre-established performance objectives
for the Company and its Business Units for a Performance Cycle including,
without limitation, ROTC, EPS, ROS, ROE, Net Income, Net Sales, Cash Flow from
Operations and Economic Value Added.
"RETIREMENT" means a termination of service in accordance with the retirement
provisions of either (a) the Company sponsored tax qualified defined benefit
retirement plan in which a Participant is participating immediately prior to the
date of such termination of service, or (b) the Company-sponsored Supplemental
Retirement Plan (SERP) in which the Participant is participating immediately
prior to the date of such termination of service. If the Participant does not
participate in either of the above retirement plans, then Retirement means a
termination of service in accordance with the retirement provisions of the
Company's tax-qualified defined contribution retirement plan in which the
Participant then participates.
"ROE" means the percentage determined by dividing "Net Income" by "Average
Shareholders' Equity."
"ROS" means the percentage determined by dividing Net Income by Net Sales.
"ROTC" means the percentage determined by dividing (a) the sum of Net Income
plus After-Tax Interest Expense by (b) Average Capital.
"SERVICE" means continuous and substantially full-time employment with the
Company.
4
"SHAREHOLDERS' EQUITY" means total shareholders' equity, as disclosed in the
Company's annual reports to shareholders and Peer Group companies' annual
reports to shareholders and quarterly reports on Form 10-Q, if applicable.
"STOCK OPTION" or "OPTION" refers to an option to purchase common stock of the
Company at a fixed price for a specified period granted pursuant to the Stock
Plans and evidenced by an Option Agreement which generally incorporates the
terms and provisions of the Plan relating to Stock Options.
"STOCK PLANS" refers to the 1990 Plan and the 1996 Plan.
"SUCCESS FACTOR AWARD" refers to the additional deferred cash incentive Award
earned for achieving greater than the Target Performance Objectives established
for a Performance Cycle.
"SUCCESS FACTOR PERFORMANCE OBJECTIVE" means one of the pre-established Company
Performance Objectives used to determine the Success Factor Award.
"TARGET AWARD" refers to the deferred cash incentive Award earned for achieving
the Target Performance Objectives established for a Performance Cycle.
"TARGET PERFORMANCE OBJECTIVE" means one of the pre-established Performance
Objectives used to determine the Target Award.
"TAX RATE" refers to taxes on income divided by income before taxes on income,
each as disclosed in the Company's annual reports to shareholders and Peer Group
companies' annual reports to shareholders and quarterly reports on Form 10-Q, if
applicable, subject to adjustments to exclude the effect of unusual, non-
recurring items, as described in the Company's annual reports to shareholders
and Peer Group companies' annual reports to shareholders and quarterly reports
on Form 10-Q, if applicable.
"TERMINATION OF SERVICE" means a termination of Service from the Company for any
reason, whether voluntary or involuntary, including death, Retirement and
Disability.
"TRANSFER" means the appointment of a Participant to a new position within the
Company which may either be within the same position classification under the
Plan or in a different position classification under the Plan.
"WEIGHTING FACTOR" means the percentage of a Participant's Target Award or
Success Factor Award which will be calculated based on the achievement of a
particular Performance Objective.
5
4. GENERAL PLAN DESCRIPTION
------------------------
A. OVERVIEW
--------
Commencing as of the Effective Date, the Plan provides for each Participant (a)
the opportunity to receive an annual grant of Stock Options, and (b) the
opportunity to earn a deferred cash incentive Award based on the financial
performance of the Company and, in some cases, its Business Units.
B. STOCK OPTIONS
-------------
(1) SIZE OF GRANT
-------------
Annual Stock Option grants will be determined by the Committee.
(2) EXERCISE PRICE AND EXERCISE PERIOD
----------------------------------
The exercise price for Options will equal 100% of the Fair Market Value of
the Company's common stock as of the date of grant. Options will have a
maximum exercise period ("Term") of ten (10) years from the date of grant.
(3) VESTING PROVISIONS
------------------
Options will vest (become available for exercise) nine years and nine
months from their date of grant.
However, if certain conditions are met, Options will become eligible for
accelerated or early vesting three years from their date of grant. Such
early vesting will occur provided that the Company ROTC for the Company's
most recently completed fiscal year equals or exceeds the ROTC of the
median company among the Peer Group for that year (e.g., the performance
test for accelerated vesting for Options granted in 1996 will be based on
ROTC for the 1999 fiscal year).
If the Company meets the performance test described above, all prior non-
vested Options eligible for early vesting will become available for
exercise as soon as possible following certification of the Company's
performance and the performance of the median company among the Peer Group
by the Committee.
If the Company fails to meet the performance test described above, all
prior non-vested Options eligible for early vesting will be subject to a
similar performance test following the end of the next fiscal year. The
test for early vesting of Options will continue to "roll" in the manner
described above until the Company passes the performance test or nine years
and nine months have elapsed from the date of grant.
(4) OTHER PROVISIONS
----------------
6
All Options granted as contemplated by the Plan will be granted under the
Stock Plans. Each Option granted under the Stock Plans will be evidenced
by an Option Agreement specifying the terms and conditions of the Option.
In the event of any inconsistency between the Plan and an Option Agreement,
the terms and conditions of the Option Agreement shall control.
C. DEFERRED CASH INCENTIVE AWARDS
------------------------------
In addition to the opportunity for annual Option grants described in Section
IV.B. above, each Participant will be provided with the opportunity to earn a
deferred cash incentive Award after the end of a three-year Performance Cycle
equal to the Target Award plus the Success Factor Award.
(1) PERFORMANCE CYCLE
-----------------
The initial Performance Cycle will cover the period beginning with the
Company's 1996 fiscal year and ending with the Company's 1998 fiscal year.
Subsequent three-year Performance Cycles will begin every two years,
starting with the Company's 1998 fiscal year.
(2) RANGE OF TARGET AND SUCCESS FACTOR AWARD OPPORTUNITIES
------------------------------------------------------
The deferred cash incentive Target Award opportunity for each Participant
during each Performance Cycle ranges from 30% to 80% of Base Salary
depending upon position classification as illustrated in Table 1 below.
The deferred cash incentive Success Factor Award opportunity for each
Participant during each Performance Cycle also ranges from 30% to 80%.
Classification of Participants into the categories listed in Table 1 will
be recommended by the Chief Executive Officer of the Company and approved
by the Compensation Committee.
7
TABLE 1
DEFERRED CASH INCENTIVE AWARD RANGE
BY POSITION CLASSIFICATION
TOTAL AWARD SUCCESS FACTOR
RANGE AS % TARGET AWARD AS AWARD AS % OF
CATEGORY POSITION CLASSIFICATION OF BASE SALARY % OF BASE SALARY BASE SALARY
-------- ------------------------ --------------- ---------------- --------------
1 Senior Executive Officers 0% - 160% 80% 80%
1 Corporate & Staff Officers 0% - 60% 30% 30%
2 Division VP/GM's and Officers 0% - 90% 30% - 45% 30% - 45%
2 Group and Sub-Group VP's 0% - 120% 45% - 60% 45% - 60%
The actual Total Award earned within the above range will depend upon the
level of achievement versus specific Performance Objectives established
under the Plan for each Performance Cycle.
(3) PERFORMANCE MEASUREMENT AND CALCULATION OF TARGET AWARDS
--------------------------------------------------------
(a) CALCULATION FORMULA
-------------------
Target Awards will be determined based upon the Company's, or in some
cases, Business Unit's achievement versus pre-established Target
Performance Objectives. The total Target Award will equal the sum of the
Awards for each Target Performance Objective. The Target Award for each
Target Performance Objective will equal the product of the Base Salary
times the Target Award as a percent of Base Salary times the Weighting
Factor (set forth in (b) and (c) below) times the Achievement Factor (set
forth in (d) below) for that Target Performance Objective.
The foregoing formula can be expressed as the following mathematical
equation:
Total Target Award = [Target Award (Base Salary x Target Award as % of Base
Salary) x Weighting Factor x Achievement Factor for first Target
Performance Objective] + [Target Award (Base Salary x Target Award as % of
Base Salary) x Weighting Factor x Achievement Factor for second Target
Performance Objective] + [Target Award (Base Salary x Target Award as % of
Base Salary) x Weighting Factor x Achievement Factor for third Target
Performance Objective, if any] + [Target Award (Base Salary x Target Award
as % of Base Salary) x Weighting Factor x Achievement Factor for fourth
Target Performance Objective, if any].
(b) WEIGHTING FACTORS - CATEGORY 1
------------------------------
For Participants classified in Category 1, Target Awards will be determined
based upon the Company's achievement versus pre-established Company Target
Performance Objectives.
For the initial Performance Cycle, the Company Target Performance
Objectives will be weighted as follows in determining the Target Award:
8
[TARGET] PERFORMANCE OBJECTIVE WEIGHTING FACTOR
- - --------------------------------- -----------------
Company ROTC 33.3%
EPS 33.3%
Company CEVA 33.3%
In subsequent Performance Cycles, the Compensation Committee may select
different measures (including, without limitation, ROS, ROE, Net Income,
Net Sales, Cash Flow from Operations and Economic Value Added) and
weightings to determine such Target Awards.
(c) WEIGHTING FACTORS - CATEGORY 2
------------------------------
For Participants classified in Category 2, deferred cash incentive Target
Awards will be determined based upon the performance of the Participant's
Business Unit against pre-established Business Unit Target Performance
Objectives.
For the initial Performance Cycle, the Business Unit Target Performance
Objectives will have the following Weighting Factors:
TARGET PERFORMANCE OBJECTIVE WEIGHTING FACTOR
- - -------------------------------- -----------------
Business Unit ROTC 33.3%
Business Unit Net Income 33.3%
Business Unit CEVA 33.3%
In subsequent Performance Cycles, the Compensation Committee may select
different measures (including, without limitation, ROS, ROE, Net Income,
Net Sales, Cash Flow from Operations and Economic Value Added) and
weightings to determine such Target Awards.
(d) ACHIEVEMENT FACTOR
------------------
The Achievement Factor for each Target Performance Objective will be
between a threshold Achievement Factor of 70% (for achieving 80% of the
Target Performance Objective) and a maximum Achievement Factor of 100%
(for achieving the Target Performance Objective) as illustrated in the
table below. The Achievement Factors for performance between the threshold
and 100% Achievement Factors will be linearly interpolated.
9
% ACHIEVEMENT OF TARGET
-----------------------
PERFORMANCE OBJECTIVE ACHIEVEMENT FACTOR
--------------------- ------------------
Less than 80% 0
80% 70%
85% 77.5%
90% 85.0%
95% 92.5%
100% 100%
(e) MEASUREMENT PROCESS
-------------------
For the initial Performance Cycle, the measurement of Company and Business
Unit Target Performance Objectives will be based upon performance during
the final year of the Cycle, except for CEVA which will be measured at the
end of each year of the Cycle and totaled at the end of the Cycle. For
subsequent Performance Cycles, performance measurement may be based upon
different criteria (e.g., average performance over the Cycle) at the
discretion of the Compensation Committee.
(4) PERFORMANCE MEASUREMENT AND CALCULATION OF SUCCESS FACTOR AWARDS
----------------------------------------------------------------
(a) CALCULATION FORMULA
-------------------
Participants in Category 2 are eligible for a Success Factor Award only if
the percentage of achievement of each of their Business Unit Target
Performance Objectives equals or exceeds 80% and only if the average of the
percentages of achievement of their Business Unit Target Performance
Objectives equals or exceeds 100%.
Success Factor Awards will be determined based on the Company's achievement
versus pre-established Success Factor Performance Objectives which exceed
the Target Performance Objectives. The total Success Factor Award will
equal the sum of the Success Factor Awards for each Success Factor
Performance Objective. The Success Factor Award for each Success Factor
Performance Objective will equal the product of the Base Salary times the
Success Factor Award as a percent of Base Salary times the Weighting Factor
(set forth in (b) below) times the Achievement Factor (set forth in (c)
below) for that Success Factor Performance Objective.
The foregoing formula can be expressed as the following mathematical
equation:
Total Success Factor Award = [Success Factor Award (Base Salary x Success
Factor Award as % of Base Salary) x Weighting Factor x Achievement Factor
for first Success Factor Performance Objective] + [Success Factor Award
(Base Salary x Success Factor Award as % of Base Salary) x Weighting Factor
x Achievement Factor for second Success Factor Performance Objective] +
[Success Factor Award (Base Salary x Success Factor Award as % of Base
Salary) x Weighting Factor x Achievement Factor for third Success Factor
Performance Objective, if any] + [Success Factor Award
10
(Base Salary x Success Factor Award as % of Base Salary) x Weighting Factor
x Achievement Factor for fourth Success Factor Performance Objective, if
any].
(b) WEIGHTING FACTORS
-----------------
For Participants in both Category 1 and Category 2, Success Factor Awards
will be determined based upon the Company's achievement versus pre-
established Company ROTC, EPS and Company CEVA Success Factor Performance
Objectives which exceed the Target Performance Objectives.
For the initial Performance Cycle, the Success Factor Performance
Objectives will be weighted as follows in determining the Success Factor
Award:
SUCCESS FACTOR PERFORMANCE OBJECTIVE WEIGHTING FACTOR
------------------------------------ ----------------
Company ROTC 33.3%
EPS 33.3%
Company CEVA 33.3%
In subsequent Performance Cycles, the Compensation Committee may select
different measures (including, without limitation, ROS, ROE, Net Income,
Net Sales, Cash Flow from Operations and Economic Value Added) and
weighting to determine such Success Factor Awards.
(c) ACHIEVEMENT FACTOR
------------------
At the beginning of each Performance Cycle, the Compensation Committee will
establish two levels of Success Factor Performance Objectives which are in
excess of the Target Performance Objectives.
If the Company's performance is between the Target Performance Objective
and the first level Success Factor Performance Objective, then the
Achievement Factor for that Success Factor Performance Objective will be
between 0% and 50%. The Achievement Factor for performance between the
Target Performance Objective and the first level Success Factor Performance
Objective will be linearly interpolated.
If the Company's performance is between the first level Success Factor
Performance Objective and the second level Success Factor Performance
Objective then the Achievement Factor for that Success Factor Performance
Objective will be between 50% and 100%. The Achievement Factor for
performance between the first level Success Factor Performance Objective
and the second level Success Factor Performance Objective will be linearly
interpolated.
(d) MEASUREMENT PROCESS
-------------------
11
The measurement of Company Success Factor Performance Objectives will be
based upon performance during the final year of the Performance Cycle,
except for Company CEVA which will be measured at the end of each year of
the Cycle and totaled at the end of the Cycle. For subsequent Performance
Cycles, performance measurement may be based upon different criteria (e.g.,
average performance over the Cycle) at the discretion of the Compensation
Committee.
(5) DISCRETIONARY POOL PARTICIPATION
--------------------------------
A Discretionary Pool will be available for each Performance Cycle to
provide the opportunity for Participants (other than those Participants
whose Target Award is 80%) who have achieved exceptional performance to
earn more than the Target Award plus the Success Factor Award, or for
individuals who are not selected to be Participants in the Plan but who
have made significant contributions to the achievement of Performance
Objectives to earn cash payments. A "target" Discretionary Pool will be
determined by the Compensation Committee prior to the beginning of each
Performance Cycle. The actual Discretionary Pool made available will be
determined by the Committee at the end of the Performance Cycle and may
exceed or fall below the "target" Pool based upon the Committee's
assessment of (i) overall Company performance during the Cycle and (ii) the
performance of the individual Business Units.
The actual Discretionary Pool approved by the Compensation Committee will
be allocated among individuals recommended by the Chief Executive Officer
and approved by the Compensation Committee; provided, however, that
Participants whose Target Award is 80% will not be eligible for
participation in the Discretionary Pool. No payments will be made from the
Discretionary Pool unless at least one of the Company ROTC, EPS , or
Company CEVA threshold Target Performance Objectives (i.e., 80% of the
Target Performance Objective) for the Performance Cycle has been met.
5. PEER GROUP PERFORMANCE MEASUREMENT
----------------------------------
In order to facilitate the Peer Group performance comparison needed to determine
the accelerated Option vesting, the Peer Group ROTC figures for the individual
years used to determine accelerated Option vesting will be based upon the twelve
months performance for each company in the Peer Group closest to the Company's
fiscal year end, based on the most recent publicly available financial
information for such company.
12
6. NEW PARTICIPANTS
----------------
New Participants may be added to the Plan at any time at the discretion of the
Compensation Committee. The timing and performance test for determining
accelerated vesting for the grant will be identical to the test and timing
associated with the regular Option grant made to other Participants for that
fiscal year. If an executive becomes a Participant, he or she will be eligible
to receive an Option grant at the time of the next regular Option grant.
For the deferred cash incentive portion of the Plan, the Award opportunity of a
new Participant will be prorated for each Performance Cycle based on the number
of months of participation in the Plan divided by 36. Notwithstanding the
above, an individual must participate in the Plan for at least 12 months during
any Performance Cycle to be eligible to receive a deferred cash incentive Award
for that Cycle.
7. TERMINATION OF SERVICE
----------------------
A. STOCK OPTIONS
-------------
Options may be exercised following a Termination of Service in the manner and to
the extent provided for in the Option Agreement which governs the grant.
B. DEFERRED CASH INCENTIVE AWARDS
------------------------------
If a Participant terminates Service with the Company prior to the end of a
Performance Cycle due to voluntary termination or termination for Cause, the
Participant will not receive any deferred cash incentive Award for that
Performance Cycle.
Upon a Termination of Service during a Performance Cycle due to death or
Disability, a Participant's deferred cash incentive Award opportunity for that
Cycle will be prorated by dividing the number of full months of participation in
the Cycle by thirty-six (36).
If a Participant's Service is terminated involuntarily without Cause prior to
the completion of a Performance Cycle, the Participant will be entitled to
receive the following percentage of his or her earned deferred cash incentive
Award for the Cycle:
IF TERMINATION OCCURS BETWEEN % OF EARNED
X MONTHS FROM START OF CYCLE AWARD TO BE PAID
- - ----------------------------- ----------------
0 - 27 Months 0%
27 - 36 Months 33 1/3%
Upon a Termination of Service due to Retirement prior to the completion of a
Performance Cycle, the Participant will be entitled to receive the following
percentage of his or her earned deferred cash incentive Award for the Cycle:
13
IF TERMINATION OCCURS BETWEEN % OF EARNED
X MONTHS FROM START OF CYCLE AWARD TO BE PAID
- - ----------------------------- ----------------
0 - 3 Months 0%
3 - 12 Months 33 1/3%
12 - 15 Months 50%
15 - 24 Months 66 2/3%
24 - 27 Months Prorate to 100%
27 - 36 Months 100%
8. PAYMENT OF EARNED DEFERRED CASH INCENTIVE
-----------------------------------------
Earned Awards under the deferred cash incentive portion of the Plan (net of any
applicable taxes) will be paid in cash as soon as possible following the
determination of Company and Business Unit performance for the Performance
Cycle. Upon the death of a Participant, the Compensation Committee may elect to
provide early payment in order to facilitate the settlement of the Participant's
estate.
9. TRANSFERS
---------
Upon a Transfer prior to the completion of a Performance Cycle, the Participant
will earn his or her deferred cash incentive Award for the Cycle based on his or
her old and/or new positions, as follows:
IF TRANSFER OCCURS BETWEEN
X MONTHS FROM START OF CYCLE AWARD EARNED IN OLD/NEW POSITION
- - ---------------------------- --------------------------------
0 - 6 Months 100% in new position
6 - 30 Months Prorated between old and new positions
30 - 36 Months 100% in old position
10. PLAN ADMINISTRATION
-------------------
A. GENERAL ADMINISTRATION
----------------------
The Compensation Committee will administer the Plan, and will interpret the
provisions of the Plan. The interpretation and application of these terms by
the Compensation Committee shall be binding and conclusive. The Committee's
authority will include, but is not limited to:
. The selection of Participants;
. The establishment and modification of performance measures,
Performance Objectives and weighting of objectives;
. The determination of performance results and Awards;
14
. Exceptions to the provisions of the Plan made in good faith and for
the benefit of the Company.
B. ADJUSTMENTS FOR EXTRAORDINARY EVENTS
------------------------------------
If an event occurs during a Performance Cycle that materially influences Company
or Business Unit financial performance and is deemed by the Compensation
Committee to be extraordinary and out of the control of management, the
Committee may, in its sole discretion, increase or decrease the Performance
Objectives used to determine deferred cash incentive Awards or Option vesting.
Events warranting such action may include, but are not limited to, changes in
accounting, tax or regulatory rulings and significant changes in economic
conditions resulting in "windfall" gains or losses.
C. AMENDMENT, SUSPENSION OR TERMINATION OF THE PLAN
------------------------------------------------
The Committee may amend, suspend or terminate the Plan, whole or in part, at any
time, if, in the sole judgment of the Committee, such action is in the best
interests of the Company. Notwithstanding the above, any such amendment,
suspension or termination must be prospective in that it may not deprive
Participants of that which they otherwise would have received under the Plan for
the current Performance Cycle had the Plan not been amended, suspended or
terminated.
D. DESIGNATION OF BENEFICIARIES
----------------------------
Each Participant shall have the right at any time to designate any person or
persons as beneficiary(ies) to whom any cash payments earned under the Plan
shall be made in the event of the Participant's death prior to the distribution
of all benefits due the Participant under the Plan. Each beneficiary
designation shall be effective only when filed in writing with the Company
during the Participant's lifetime, on a Beneficiary Designation Form approved by
the Compensation Committee.
The filing of a new Beneficiary Designation Form will cancel all designations
previously filed. Any finalized divorce or marriage (other than a common law
marriage) of a Participant subsequent to the date of filing of a Beneficiary
Designation Form shall revoke such designation unless:
. In the case of divorce, the previous spouse was not designated as
beneficiary, and
. In the case of marriage, the Participant's new spouse had previously
been designated as beneficiary.
The spouse of a married Participant shall join in any designation of a
beneficiary other than the spouse on a form prescribed by the Compensation
Committee.
If a Participant fails to designate a beneficiary as provided for above, or if
the beneficiary designation is revoked by marriage, divorce or otherwise without
execution of a new designation, then the Compensation Committee shall direct the
distribution of Plan benefits to the Participant's estate.
15
11. CHANGE OF CONTROL
-----------------
A. Upon a Change of Control: (i) each Participant shall receive a cash
payment equal to his or her Target Award under the deferred cash incentive
portion of the Plan for each Performance Cycle that begins on or before the date
of the Change of Control and ends after the date of the Change of Control, based
on the Participant's annual base salary rate in effect at the time of the Change
of Control; and (ii) treatment of Options upon a Change of Control will be
governed by the provisions of the relevant Option Agreement.
B. Following a Change of Control, each Participant shall continue to be
entitled to receive payments under the deferred cash incentive portion of the
Plan for each Performance Cycle that begins on or before the date of the Change
of Control and ends after the date of the Change of Control, as earned in
accordance with the terms of the Plan, to the extent such Participant has not
already received such payment for that Performance Cycle pursuant to paragraph
(A) of this Section 11.
12. PRIOR PLANS
-----------
The Company's Key Executive Long-Term Incentive Plan, effective as of January 1,
1991, the Company's Amended and Restated Key Executive Long-Term Incentive Plan
effective as of January 3, 1993, and the Company's Second Amended and Restated
Key Executive Long-Term Incentive Plan effective as of January 1, 1995 (the
"Prior Plans") shall remain in effect as to all Participants therein for the
balance of the initial Performance Cycles thereunder (1991 to 1993, 1993 to
1995, and 1995 to 1996, respectively) and for Options granted thereunder.
Nothing contained in this Plan shall affect the calculation or payment of
benefits under the Prior Plans as to such initial Performance Cycles, or the
vesting of Options granted under the Prior Plans.
16
13. MISCELLANEOUS PROVISIONS
------------------------
A. UNSECURED STATUS OF CLAIM
-------------------------
Participants and their beneficiaries, heirs, successors and assigns shall have
no legal or equitable rights, interests or claims in any specific property or
assets of the Company. No assets of the Company shall be held under any trust
for the benefit of Participants, their beneficiaries, heirs, successors or
assigns, or held in any way as collateral security for the fulfillment of the
Company's obligations under the Plan.
Any and all of the Company's assets shall be, and shall remain, the general
unpledged and unrestricted assets of the Company. The Company's obligations
under the Plan shall be merely that of an unfunded and unsecured promise of the
Company to pay benefits in the future.
B. EMPLOYMENT NOT GUARANTEED
-------------------------
Nothing contained in the Plan nor any action taken in the administration of the
Plan shall be construed as a contract of employment or as giving a Participant
any right to be retained in the Service of the Company.
C. RIGHT OF OFFSET
---------------
If a Participant becomes entitled to a payment under the deferred cash incentive
portion of the Plan, and if at such time the Participant has outstanding any
debt, obligation or other liability representing any amount owing to the
Company, then the Company may offset such amount against the amount of the
payment otherwise due the Participant under the Plan.
D. NONASSIGNABILITY
----------------
No person shall have any right to commute, sell, assign, transfer, pledge,
anticipate, mortgage or otherwise encumber, hypothecate or convey, in advance of
actual receipt, the benefits, if any, payable under the Plan, or any part
thereof, or any interest therein, which are, and all rights to which are,
expressly declared to be unassignable and non-transferable. No portion of the
amounts payable shall, prior to actual payment, be subject to seizure,
attachment, lien or sequestration for the payment of any debts, judgments,
alimony or separate maintenance owed by a Participant or any other person, nor
be transferable by operation of law in the event of the Participant's or any
other person's bankruptcy or insolvency. Any such transfer or attempted
transfer in violation of the preceding provisions shall be null and void.
17
E. VALIDITY
--------
In the event that any provision of the Plan is held to be invalid, void or
unenforceable, the same shall not effect, in any respect whatsoever, the
validity of any other provision of the Plan.
F. WITHHOLDING-TAX
---------------
The Company shall withhold from all benefits due under the Plan an amount
sufficient to satisfy any federal, state and local tax withholding requirements.
G. APPLICABLE LAW
--------------
The Plan shall be governed in accordance with the laws of the State of Delaware.
H. INUREMENT OF RIGHTS AND OBLIGATIONS
-----------------------------------
The rights and obligations under the Plan shall inure to the benefit of, and
shall be binding upon the Company, its successors and assigns, and the
Participants and their beneficiaries.
18
EXHIBIT 11
AVERY DENNISON CORPORATION AND SUBSIDIARIES
COMPUTATION OF NET INCOME PER SHARE AMOUNTS
1996 1995 1994
------------------------------------------
(A) Weighted average number of common
shares outstanding............................... 104,966,213 106,502,916 111,118,636
Additional common shares
issuable under employee stock
options using the treasury
stock method..................................... 3,352,450 2,788,528 2,581,212
------------ ------------ ------------
(B) Weighted average number of common
shares outstanding
assuming the exercise of
stock options.................................... 108,318,663 109,291,444 113,699,848
============ ============ ============
(C) Net income applicable to common
stock............................................ $175,890,000 $143,702,000 $109,400,000
============ ============ ============
Net income per share as reported (C / A)............... $ 1.68 $ 1.35 $ .98
============ ============ ============
Net income per share giving effect to
the exercise of outstanding
stock options (C / B)................................. $ 1.62 $ 1.31 $ .96
============ ============ ============
1
EXHIBIT 13
Avery Dennison Corporation
ELEVEN-YEAR SUMMARY
Compound Growth Rate
--------------------
(Dollars and shares in millions) 5 Year 10 Year 1996 1995
- - ---------------------------------------------------------------------------------------------------------------
FOR THE YEAR
Net sales 4.8% 5.8% $3,222.5 $3,113.9
Gross profit 5.0 5.1 1,018.3 957.3
Marketing, general and administrative expense (2),(3) 1.7 4.5 712.4 689.8
Interest expense (.1) 3.5 37.4 44.3
Income before taxes 20.9 7.4 270.6 224.7
Taxes on income 17.8 4.5 94.7 81.0
Net income 22.8 9.4 175.9 143.7
Research and development expense 2.3 3.9 54.6 52.7
Depreciation 3.8 7.2 100.2 95.3
Average common shares outstanding(1) (3.3) (.9) 105.0 106.5
- - ---------------------------------------------------------------------------------------------------------------
PER COMMON SHARE INFORMATION(1)
Net income per common share 26.9% 10.3% $ 1.68 $ 1.35
Dividends per common share 10.3 13.8 .62 .55
Book value at fiscal year end 3.6 4.6 8.03 7.69
Market price at fiscal year end 23.1 14.4 35.88 25.07
Market price range 23.88 to 16.63 to
35.88 25.07
- - ---------------------------------------------------------------------------------------------------------------
AT YEAR END
Working capital $ 110.6 $ 127.6
Property, plant and equipment, net 962.7 907.4
Total assets 2,036.7 1,963.6
Long-term debt 370.7 334.0
Total debt 466.9 449.4
Shareholders' equity 832.0 815.8
Number of employees 15,800 15,500
- - ---------------------------------------------------------------------------------------------------------------
STATISTICS
Gross profit margin 31.6% 30.7%
Marketing, general and administrative expense as a
percent of sales 22.1 22.2
Income before taxes as a percent of sales 8.4 7.2
Net income as a percent of sales 5.5 4.6
Effective tax rate 35.0 36.0
Research and development expense as a percent of
sales 1.7 1.7
Long-term debt as a percent of total long-term capital 30.8 29.0
Total debt as a percent of total capital 35.9 35.5
Return on average shareholders' equity 21.4 18.6
Return on average total capital 16.4 14.4
- - ---------------------------------------------------------------------------------------------------------------
(1) Per common share amounts and average common shares outstanding for years
prior to 1996 have been restated to reflect the December 1996
two-for-one common stock split.
(2) In 1990, the Company incurred $85.2 million in pretax charges related to
the merger of Avery International Corporation and Dennison Manufacturing
Company and $13.8 million of merger-related costs. After adjusting for
these charges, 1990 net income was $71.7 million, or $.58 per common share.
(3) In 1987, a restructuring resulted in pretax charges of $25.2 million, which
decreased net income by $25 million, or $.21 per common share.
1
Avery Dennison Corporation
1994 1993 1992 1991 1990(2) 1989 1988 1987(3) 1986
- - ------------------------------------------------------------------------------------------------------------------------------
$2,856.7 $2,608.7 $2,622.9 $2,545.1 $2,590.2 $2,490.9 $2,291.4 $2,165.1 $1,828.4
907.8 818.1 838.2 796.2 808.3 806.7 780.2 734.6 620.1
691.9 642.7 665.7 653.9 752.7 591.0 554.7 571.2 460.6
43.0 43.2 42.3 37.5 40.0 35.1 35.5 32.4 26.6
172.9 132.2 130.2 104.8 15.6 180.6 190.0 131.0 132.9
63.5 48.9 50.1 41.8 9.7 66.4 73.0 60.8 61.0
109.4 84.4 80.1 63.0 5.9 114.2 117.0 70.2 71.9
49.1 45.5 46.7 48.7 53.7 51.0 47.4 41.5 37.3
87.9 84.1 83.8 83.1 80.8 71.5 63.8 58.8 49.9
111.1 115.9 120.8 123.9 123.9 124.2 123.4 120.6 114.6
- - ------------------------------------------------------------------------------------------------------------------------------
$ .98 $ .73 $ .66 $ .51 $ .05 $ .92 $ .95 $ .58 $ .63
.50 .45 .41 .38 .32 .27 .23 .21 .17
6.81 6.40 6.82 6.73 6.83 6.55 6.25 5.75 5.13
17.75 14.69 14.38 12.69 10.75 15.94 11.00 9.32 9.35
13.32 to 12.75 to 11.63 to 9.69 to 7.82 to 10.50 to 8.57 to 8.00 to 8.63 to
17.88 15.57 14.44 12.75 16.50 15.94 13.00 14.57 11.88
- - ------------------------------------------------------------------------------------------------------------------------------
$ 122.8 $ 141.6 $ 222.6 $ 226.0 $ 298.8 $ 323.9 $ 314.3 $ 325.8 $ 319.8
831.6 758.5 779.9 814.2 821.7 714.1 667.3 574.2 512.8
1,763.1 1,639.0 1,684.0 1,740.4 1,890.3 1,715.9 1,652.2 1,558.5 1,352.4
347.3 311.0 334.8 329.5 376.0 317.8 298.8 301.0 320.3
420.7 397.5 427.5 424.0 510.4 418.9 411.3 393.2 384.3
729.0 719.1 802.6 825.0 846.3 811.3 769.6 705.9 585.8
15,400 15,750 16,550 17,095 18,816 19,215 19,114 19,360 19,156
- - ------------------------------------------------------------------------------------------------------------------------------
31.8% 31.4% 32.0% 31.3% 31.2% 32.4% 34.0% 33.9% 33.9%
24.2 24.6 25.4 25.7 25.2 23.7 24.2 26.4 25.2
6.1 5.1 5.0 4.1 .6 7.3 8.3 6.1 7.3
3.8 3.2 3.1 2.5 .2 4.6 5.1 3.2 3.9
36.7 37.0 38.5 39.9 62.2 36.8 38.4 46.4 45.9
1.7 1.7 1.8 1.9 2.1 2.0 2.1 1.9 2.0
32.3 30.2 29.4 28.5 30.8 28.1 28.0 29.9 35.3
36.6 35.6 34.8 33.9 37.6 34.1 34.8 35.8 39.6
14.8 11.0 9.7 7.7 .7 14.7 16.0 10.5 12.8
12.1 9.3 8.3 6.7 1.5 12.0 12.7 8.3 10.6
- - ------------------------------------------------------------------------------------------------------------------------------
2
Avery Dennison Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
(In millions) 1996 1995 1994
- - ----------------------------------------------------------------------
Net sales $3,222.5 $3,113.9 $2,856.7
Cost of products sold 2,204.2 2,156.6 1,948.9
- - ----------------------------------------------------------------------
Gross profit 1,018.3 957.3 907.8
Marketing, general and
administrative expense 712.4 689.8 691.9
Net gain on divestitures
and restructuring charges 2.1 1.5 --
- - ----------------------------------------------------------------------
Earnings before interest and taxes $ 308.0 $ 269.0 $ 215.9
======================================================================
Sales increased 3.5 percent to $3.22 billion in 1996, compared to $3.11
billion in 1995. Excluding the impact of business divestitures and changes in
foreign currency exchange rates, sales increased 6.4 percent. In 1995, sales
increased 9 percent over 1994 sales of $2.86 billion. Excluding the impact of
sales from the divested operations and changes in foreign currency exchange
rates for 1995, sales increased approximately 7 percent. During the fourth
quarter of 1995, the Company sold a portion of its North American label
converting operations. These businesses accounted for approximately 2 percent
of the Company's 1995 total sales. Each of the Company's 1996, 1995 and 1994
fiscal years consisted of 52 weeks.
Gross profit margins for the years ended 1996, 1995 and 1994 were 31.6
percent, 30.7 percent and 31.8 percent, respectively. Gross profit margins
during 1996 improved compared to 1995 due primarily to an improved product mix,
new products, cost reduction and control programs and increased capacity
utilization. There was also a $3.2 million LIFO benefit reported during 1996.
The decline in the gross profit percentage during 1995 was primarily due to a
shift in product mix, plant and major production line start-ups, and $1.6
million in expense related to LIFO inventories compared to a benefit of $400,000
for 1994.
Marketing, general and administrative expense as a percent of sales was
22.1 percent in 1996, 22.2 percent in 1995 and 24.2 percent in 1994. The
improvement in 1996 over 1995 was primarily attributable to cost control and
reduction efforts throughout the Company and was achieved despite major
investments in geographic expansion, business realignment and new product
programs. The improvement during 1995 was primarily attributable to benefits
from the Company's cost reduction programs, a shift in product mix and increased
sales.
During the third quarter of 1996, restructuring actions were taken,
resulting in a net pretax gain of $2.1 million. The Company sold its equity
interest in a label operation in Japan for $28.4 million, resulting in a pretax
gain of $17.9 million. The Company also recorded $15.8 million of restructuring
charges, which included an asset impairment write-down of $6.3 million for long-
lived assets held in the Company's Consumer and converted products sector. The
restructuring program also included the reorganization of certain manufacturing,
distribution and administrative sites. These costs consisted of severance and
related costs for approximately 200 positions worldwide ($7.4 million) and the
discontinuance of product lines and related asset write-offs ($2.1 million).
These actions are expected to be completed during 1997 and are expected to
result in estimated annual savings of approximately $9 million to $11 million
when fully implemented.
Business restructuring actions taken during the fourth quarter of 1995
resulted in a net pretax gain of $1.5 million. Certain businesses which no
longer met the Company's strategy for converting technology were sold for $95
million. A $40.7 million pretax gain on the sale of these businesses was offset
by restructuring charges of $39.2 million which included the closure of four
plants and the reorganization of certain manufacturing, distribution and
administrative sites. These costs consisted of severance and related costs for
approximately 400 positions worldwide ($16.2 million), discontinuance of product
lines and related asset write-offs ($13.1 million), and plant closure and other
costs ($9.9 million). This program is also expected to be completed during 1997
and is expected to result in estimated annual savings of $14 million to $17
million when fully implemented. The 1996 and 1995 programs are an integral part
of the Company's ongoing effort to identify opportunities to improve its
administrative and manufacturing cost structures.
Interest expense as a percent of sales was 1.2 percent in 1996, 1.4 percent
in 1995 and 1.5 percent in 1994. The decrease in 1996 was primarily due to the
expiration of interest rate swap agreements during the fourth quarter of 1995
and an overall lower cost of borrowing. Interest expense increased in 1995 due
to higher debt levels, but was more than offset by the impact of increased
sales.
Income before taxes, as a percent of sales, was 8.4 percent for 1996, 7.2
percent for 1995 and 6.1 percent for 1994. The improvement during 1996 was
primarily due to higher gross profit margins and lower interest expense as a
percent of sales. The improvement during 1995 was primarily due to lower
operating and interest expenses as a percent of sales. The effective tax rate
was 35 percent in 1996, 36 percent in 1995, and 36.7 percent in 1994.
3
Avery Dennison Corporation
(In millions, except per common share amounts) 1996 1995 1994
- - ----------------------------------------------------------------------------
Net income $175.9 $143.7 $109.4
Net income per common share 1.68 1.35 .98
Net income per fully-diluted common share 1.62 1.31 .96
Average common shares outstanding 105.0 106.5 111.1
Average fully-diluted common
shares outstanding 108.3 109.3 113.7
============================================================================
Net income increased to $175.9 million in 1996 compared to $143.7 million
in 1995, reflecting a 22 percent increase over 1995. Net income in 1994 was
$109.4 million. Net income, as a percent of sales, was 5.5 percent, 4.6 percent
and 3.8 percent in 1996, 1995 and 1994, respectively.
Net income per common share reached $1.68 in 1996 compared to $1.35 in
1995, a 24 percent increase over prior year. Net income per common share was
$.98 in 1994. Primarily due to the significant increase in the Company's stock
price during 1996 and share repurchases, the Company is now required to report
net income per share on a fully-diluted basis. Net income per fully-diluted
common share was $1.62 in 1996, $1.31 in 1995 and $.96 in 1994.
RESULTS OF OPERATIONS
BY BUSINESS SECTOR
Effective fourth quarter 1996, the Company realigned the reporting of its
businesses from three sectors to two -- Pressure-sensitive adhesives and
materials, and Consumer and converted products. The realignment reflects the
broadening and related scope of the Company's consumer businesses to include
products such as battery labels, postage stamps and children's school supplies.
In addition, certain businesses previously in the Pressure-sensitive adhesives
and materials sector that emphasize converting technology were reclassified into
the Consumer and converted products sector. This change more effectively aligns
the Company's financial reporting with manufacturing processes and end markets.
Sector information for 1995 and 1994 has been reclassified to conform with the
1996 sector presentation.
Pressure-sensitive adhesives and materials:
(In millions) 1996 1995 1994
- - -------------------------------------------------------------------------------
Net sales $1,693.5 $1,589.7 $1,389.7
Income from operations
before interest and taxes 157.7 144.8 138.8
===============================================================================
The Pressure-sensitive adhesives and materials sector reported increased
sales and profits for 1996 compared to 1995. The sector's income results include
restructuring charges of $7.1 million in 1996 and $15.1 million in 1995. The
U.S. operations reported sales growth for the year primarily due to increased
volume and new products. Profitability improved as a result of cost reduction
actions, increased capacity utilization and improved operating efficiencies. The
international businesses reported increased sales primarily due to its
geographic expansion in emerging markets and increased volume. Profitability for
the international businesses increased primarily due to the extent of
restructuring charges taken in 1995 compared to 1996. This increase was
partially offset by costs related to continued investments in geographic
expansion and major equipment start-up costs.
The Pressure-sensitive adhesives and materials sector reported increased
sales and profitability for 1995 compared to 1994. Profitability for the sector
increased despite the $15.1 million in restructuring charges taken in 1995. The
U.S. operations reported a significant increase in sales due to unit volume
growth and pricing actions. Profitability improvement was primarily due to sales
growth and lower operating expenses as a percent of sales, but was partially
offset by plant and major equipment start-up costs for capacity expansion, and
the reorganization of certain manufacturing sites. Sales for the European
operations increased significantly primarily as a result of volume growth from
improved economic conditions over 1994, pricing actions and changes in foreign
currency rates. Profitability increased, despite costs taken for restructuring
programs, primarily as a result of sales growth, lower operating expenses as a
percent of sales and a more favorable product mix.
Consumer and converted products:
(In millions) 1996 1995 1994
- - --------------------------------------------------------------------
Net sales $1,670.5 $1,588.6 $1,488.6
Income from operations
before interest and taxes 159.0 147.8 102.1
====================================================================
The Consumer and converted products sector reported increased sales and
profitability for 1996 compared to 1995. The sector's income results include
restructuring charges of $8.7 million for 1996 compared to a $16.6 million net
gain on divestitures and restructuring charges in 1995. The U.S. operations
reported increased sales primarily due to the growth of its battery label
business and for its Avery-brand products. Profitability improved primarily due
to increased sales volume, new products and operating improvements, including
improved logistics. The international businesses reported higher sales due to
geographic expansion and growth of its office label businesses; however, this
sales increase was partially offset by sales declines in a portion of the French
operations. Profitability in 1996 for the international businesses was
comparable to 1995. Profit improvements from cost control programs and product
pruning were offset by lower sales in one of the French operations and start-up
costs related to geographic expansion.
The Consumer and converted products sector reported increased sales and
profits for 1995 compared to 1994. Profits in 1995 included a $40.7 million gain
from the sale of certain nonstrategic North American label converting
operations, which was partially offset by $24.1 million in restructuring
charges. The U.S. operations reported increased sales for 1995 primarily due to
sales growth of its Avery-brand and postage stamp
4
Avery Dennison Corporation
businesses. Profitability increased for the U.S. operations due to successful
new products, an improved product mix and cost reduction actions, including the
consolidations of distribution warehouses and sales forces in the United States.
The international businesses reported increased sales as a result of new
products, an improved European economy and changes in foreign currency rates. A
more favorable product mix coupled with cost reduction actions taken in previous
years and lower operating expenses as a percent of sales resulted in
significantly higher profitability over 1994.
FINANCIAL CONDITION
Average working capital, excluding short-term debt, as a percent of sales was
9.1 percent in 1996, 9.6 percent in 1995 and 10 percent in 1994. The decrease in
1996 was primarily due to higher sales and an increase in current liabilities.
Average inventory turnover was 9.3 in 1996, 9.0 in 1995 and 9.3 in 1994; the
average number of days sales outstanding in accounts receivable was 55 days in
1996, 1995 and 1994.
Net cash flow from operating activities was $304 million in 1996, $187.9
million in 1995 and $265 million in 1994. The increase in net cash flow in 1996
was due primarily to the change in working capital requirements and the
Company's improved profitability. The decrease in 1995 was primarily due to a
change in working capital requirements which was partially offset by the
increase in net income.
Total debt increased $17.5 million to $466.9 million compared to year end
1995. Total debt to total capital was 35.9 percent at year end 1996 compared to
35.5 percent at year end 1995. Long-term debt as a percent of total long-term
capital increased to 30.8 percent from 29 percent at year end 1995.
In October 1996, the Company established the Avery Dennison Corporation
Employee Stock Benefit Trust (the "Trust") to fund a portion of the Company's
obligations arising from various current and future employee benefit plans. As a
result, the Company sold 18 million shares of treasury stock to the Trust at
fair market value. This transaction had no impact on the Company's financial
condition. The Trust has a 15-year life during which it will utilize the stock
to satisfy certain Company obligations.
Shareholders' equity increased to $832 million from $815.8 million at year
end 1995. During 1996, the Company repurchased 3.8 million shares of common
stock at a cost of $109.3 million. The cost of treasury stock held, after the
sale of shares to the Trust and net of shares reissued under the Company's stock
option and incentive plans, at year end 1996 decreased $212.4 million to $67.5
million from year end 1995. In January 1995, the Board of Directors authorized
the repurchase of an additional ten million shares of the Company's outstanding
common stock for an aggregate of 30.4 million shares authorized for repurchase.
As of year end 1996, a cumulative 25.4 million shares of common stock had been
purchased under this authorization.
The return on average shareholders' equity was 21.4 percent in 1996, 18.6
percent in 1995 and 14.8 percent in 1994. The improvements during 1996 and 1995
were primarily due to a significant increase in profitability and the impact
from share repurchases. The return on average total capital for those three
years was 16.4 percent, 14.4 percent and 12.1 percent, respectively. The
increases during those years were primarily due to profitability improvements
and more effective utilization of the Company's assets.
The Company, like other U.S. corporations, has periodically received
notices from the U.S. Environmental Protection Agency and state environmental
agencies alleging that the Company is a potentially responsible party (PRP) for
past and future cleanup costs at hazardous waste sites. The Company has received
requests for information, notices and/or claims with respect to 17 waste sites
in which the Company has no ownership
AVERAGE WORKING
CAPITAL, EXCLUDING COMMON SHARES
SHORT-TERM DEBT, AS A OUTSTANDING AT YEAR END
PERCENT OF SALES (IN MILLIONS)
[BAR GRAPH APPEARS HERE] [BAR GRAPH APPEARS HERE]
15.2% 12.3% 10.0% 9.6% 9.1% 117.7 112.4 107.1 106.1 103.6
1992 1993 1994 1995 1996 1992 1993 1994 1995 1996
5
Avery Dennison Corporation
interest. Litigation has been initiated by a governmental authority with respect
to four of these sites, but the Company does not believe that any such
proceedings will result in the imposition of monetary sanctions. Environmental
investigatory and remediation projects are also being undertaken on property
presently owned by the Company. The Company has accrued liabilities for all
sites where it is probable that a loss will be incurred and the minimum cost or
amount of the loss can be reasonably estimated. However, because of the
uncertainties associated with environmental assessments and remediation
activities, future expense to remediate the currently identified sites, and
sites which could be identified in the future for cleanup, could be higher than
the liability currently accrued. Based on current site assessments, management
believes that the potential liability over the amounts currently accrued would
not materially affect the Company.
LIQUIDITY AND CAPITAL RESOURCES
In addition to cash flow from operations, the Company has more than adequate
financing arrangements, at competitive rates, to conduct its operations.
During the fourth quarter of 1996, the Company registered with the
Securities and Exchange Commission $150 million in principal amount of medium-
term notes. As of year end 1996, no notes had been issued. Proceeds from the
medium-term notes will be used to reduce debt and for other general corporate
purposes. The Company's currently outstanding medium-term notes have maturities
from 1997 through 2025 and have a weighted-average interest rate of 7.2 percent.
The Company's restructuring programs included the 1996 $28.4 million sale
of its equity interest in a label operation in Japan and the 1995 $95 million
sale of certain non-strategic label converting businesses. The restructuring
programs had an estimated cost of $15.8 million and $39.2 million for 1996 and
1995, respectively. At year end 1996 and 1995, $16 million and $24.5 million,
respectively, remained accrued for both programs and related primarily to
employee severance and plant closure costs. By year end 1996 and 1995, total
cash expenditures paid for both restructuring programs totalled $14.5 million
and $1.5 million, respectively, and related primarily to employee severance and
plant closure costs.
Capital expenditures were $187.6 million in 1996 and $190.3 million in
1995. Capital expenditures for 1997 are expected to be approximately $190 to
$200 million.
The annual dividend rate per share increased to $.62 in 1996 from $.55 in
1995 and $.50 in 1994.
The Company continues to expand its operations in Asia Pacific, Latin
America and Europe. The Company's future results are subject to changes in
economic conditions and the impact of fluctuations in foreign currency exchange
and interest rates. To manage its exposure to these fluctuations, the Company
may enter into forward exchange and interest rate contracts, where appropriate.
Effective 1997, Mexico will be treated as a hyperinflationary economy for
accounting purposes due to the cumulative inflation rate over the past three
years. As a result, the functional currency of subsidiaries operating in Mexico
will change from the peso to the dollar and translation gains and losses will be
included in net income. These operations, including those located in Brazil
which also operate in a hyperinflationary economy, are not significant to the
Company's consolidated financial position.
FUTURE ACCOUNTING REQUIREMENTS
In July 1996, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 125, "Accounting for Transfers and Servicing
of Financial Assets and Extinguishments of Liabilities". The standard revised
the guidelines for recognition, measurement and disclosure of transfers and
servicing of financial assets and extinguishment of debt. It will be effective
for transactions occurring after December 31, 1996. The Company will implement
the standard during the first quarter of 1997, if applicable; however, the
impact has yet to be determined.
RETURN ON AVERAGE RETURN ON AVERAGE
SHAREHOLDERS' EQUITY TOTAL CAPITAL
[BAR GRAPH APPEARS HERE] [BAR GRAPH APPEARS HERE]
9.7% 11.0% 14.8% 18.6% 21.4% 8.3% 9.3% 12.1% 14.4% 16.4%
1992 1993 1994 1995 1996 1992 1993 1994 1995 1996
6
Avery Dennison Corporation
CONSOLIDATED BALANCE SHEET
(Dollars in millions) 1996 1995
- - ---------------------------------------------------------------------------------------------------
A S S E T S
Current assets:
Cash and cash equivalents $ 3.8 $ 27.0
Trade accounts receivable, less allowance for doubtful accounts
of $17.5 and $17.6 for 1996 and 1995, respectively 448.5 444.1
Inventories, net 244.4 223.2
Other receivables 25.7 24.8
Prepaid expenses 17.8 21.9
Deferred taxes 64.3 59.1
- - ---------------------------------------------------------------------------------------------------
Total current assets 804.5 800.1
Property, plant and equipment, at cost:
Land 37.7 37.8
Buildings 405.3 388.9
Machinery and equipment 1,180.3 1,089.1
Construction-in-progress 144.6 136.3
- - ---------------------------------------------------------------------------------------------------
1,767.9 1,652.1
Accumulated depreciation 805.2 744.7
- - ---------------------------------------------------------------------------------------------------
962.7 907.4
Intangibles resulting from business acquisitions, net 135.9 124.3
Non-current deferred taxes 7.1 5.8
Other assets 126.5 126.0
- - ---------------------------------------------------------------------------------------------------
$2,036.7 $1,963.6
L I A B I L I T I E S A N D S H A R E H O L D E R S ' E Q U I T Y
Current liabilities:
Short-term and current portion of long-term debt $ 96.2 $ 115.4
Accounts payable 230.7 169.9
Accrued payroll and employee benefits 134.3 132.2
Other accrued liabilities 208.2 215.1
Income taxes payable 23.0 39.0
Deferred taxes 1.5 .9
- - ---------------------------------------------------------------------------------------------------
Total current liabilities 693.9 672.5
Long-term debt 370.7 334.0
Long-term retirement benefits and other accrued liabilities 96.6 99.8
Non-current deferred taxes 43.5 41.5
Shareholders' equity
Common stock, $1 par value, authorized - 200,000,000 shares;
issued - 124,126,624 shares at year end 1996 and 1995 124.1 124.1
Capital in excess of par value 475.4 129.6
Retained earnings 945.6 837.8
Cumulative foreign currency translation adjustment 28.3 33.8
Cost of unallocated ESOP shares (29.4) (27.0)
Minimum pension liability (.2) (2.6)
Employee stock benefit trust, 17,959,358 shares (644.3) --
Treasury stock at cost, 2,551,808 shares and 18,007,526 shares
at year end 1996 and 1995, respectively (67.5) (279.9)
- - ---------------------------------------------------------------------------------------------------
Total shareholders' equity 832.0 815.8
- - ---------------------------------------------------------------------------------------------------
$2,036.7 $1,963.6
===================================================================================================
See Notes to Consolidated Financial Statements
7
Avery Dennison Corporation
CONSOLIDATED STATEMENT OF INCOME
(In millions, except per share amounts) 1996 1995 1994
- - ---------------------------------------------------------------------------------------------------------------
Net sales $3,222.5 $3,113.9 $2,856.7
Cost of products sold 2,204.2 2,156.6 1,948.9
- - ---------------------------------------------------------------------------------------------------------------
Gross profit 1,018.3 957.3 907.8
Marketing, general and administrative expense 712.4 689.8 691.9
Net gain on divestitures and restructuring charges 2.1 1.5 --
Interest expense 37.4 44.3 43.0
- - ---------------------------------------------------------------------------------------------------------------
Income before taxes 270.6 224.7 172.9
Taxes on income 94.7 81.0 63.5
- - ---------------------------------------------------------------------------------------------------------------
Net income $ 175.9 $ 143.7 $ 109.4
===============================================================================================================
Net income per common share $ 1.68 $ 1.35 $ .98
Net income per fully-diluted common share 1.62 1.31 .96
===============================================================================================================
Average shares outstanding:
Common shares 105.0 106.5 111.1
Fully-diluted common shares 108.3 109.3 113.7
===============================================================================================================
Common shares outstanding at year end 103.6 106.1 107.1
===============================================================================================================
See Notes to Consolidated Financial Statements
8
Avery Dennison Corporation
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
Cumulative
foreign Cost of Employee
Common Capital in currency unallocated Minimum stock
stock, $1 excess of Retained translation ESOP pension benefit Treasury
(Dollars in millions) par value par value earnings adjustment shares liability trust stock
- - ----------------------------------------------------------------------------------------------------------------------------
Fiscal year ended 1993 $ 124.1 $ 132.4 $ 698.9 $ (10.1) $(53.2) $(8.9) -- $(164.1)
Repurchase of 6.4 million
shares for treasury (105.7)
Stock issued under option
plans, net of tax and
dividends paid on stock
held by leveraged ESOPs (1.4) 16.4
Net income 109.4
Dividends: $.50 per share (55.1)
Translation adjustments, net
of tax 26.8
ESOP transactions, net 15.6
Minimum pension liability 3.9
- - ----------------------------------------------------------------------------------------------------------------------------
Fiscal year ended 1994 124.1 131.0 753.2 16.7 (37.6) (5.0) -- (253.4)
Repurchase of 1.7 million
shares for treasury (35.1)
Stock issued under option
plans, net of tax and
dividends paid on stock held
by leveraged ESOPs (1.4) 8.6
Net income 143.7
Dividends: $.55 per share (59.1)
Translation adjustments, net
of tax 17.1
ESOP transactions, net 10.6
Minimum pension liability 2.4
- - ----------------------------------------------------------------------------------------------------------------------------
Fiscal year ended 1995 124.1 129.6 837.8 33.8 (27.0) (2.6) -- (279.9)
Repurchase of 3.8 million
shares for treasury (109.3)
Stock issued under option
plans, net of tax and
dividends paid on stock
held by leveraged ESOPs 9.0 11.2
Net income 175.9
Dividends: $.62 per share (68.1)
Translation adjustments, net
of tax (5.5)
Employee stock benefit trust
transactions, net 336.8 (644.3) 310.5
ESOP transactions, net (2.4)
Minimum pension liability 2.4
- - ----------------------------------------------------------------------------------------------------------------------------
Fiscal year ended 1996 $ 124.1 $ 475.4 $ 945.6 $ 28.3 $(29.4) $ (.2) $(644.3) $ (67.5)
============================================================================================================================
See Notes to Consolidated Financial Statements
9
Avery Dennison Corporation
CONSOLIDATED STATEMENT OF CASH FLOWS
(In millions) 1996 1995 1994
- - ---------------------------------------------------------------------------------------------------------------------------
Operating Activities
Net income $ 175.9 $ 143.7 $ 109.4
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation 100.2 95.3 87.9
Amortization 13.2 12.6 14.6
Net gain on divestitures and restructuring charges (2.1) (1.5) --
Deferred taxes .8 (17.6) (6.7)
Changes in assets and liabilities, net of the effect of foreign
currency translation, business acquisitions and divestitures, and
restructuring charges:
Trade accounts receivable, net (.9) (52.5) (24.6)
Inventories, net (18.1) (18.5) (19.2)
Other receivables 1.2 1.8 2.8
Prepaid expenses 3.7 (5.3) (2.6)
Accounts payable and accrued liabilities 45.7 18.6 96.4
Taxes on income (12.4) 11.4 (.8)
Long-term retirement benefits and other accrued liabilities (3.2) (.1) 7.8
- - ---------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 304.0 187.9 265.0
- - ---------------------------------------------------------------------------------------------------------------------------
I N V E S T I N G A C T I V I T I E S
Purchase of property, plant and equipment (187.6) (190.3) (163.3)
Acquisitions, sale of assets and business divestitures 12.1 96.7 16.2
Other (2.1) (19.1) (10.2)
- - ---------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (177.6) (112.7) (157.3)
- - ---------------------------------------------------------------------------------------------------------------------------
F I N A N C I N G A C T I V I T I E S
Increase in long-term debt 51.0 100.0 100.5
Decrease in long-term debt (14.3) (107.9) (49.3)
Net (decrease) increase in short-term debt (18.8) 40.5 (16.0)
Dividends paid (68.1) (59.1) (55.1)
Purchase of treasury stock (109.3) (35.1) (105.7)
Other 9.9 10.2 15.0
- - ---------------------------------------------------------------------------------------------------------------------------
Net cash used in financing activities (149.6) (51.4) (110.6)
- - ---------------------------------------------------------------------------------------------------------------------------
Effect of foreign currency translation on cash balances -- .1 .2
- - ---------------------------------------------------------------------------------------------------------------------------
(Decrease) increase in cash and cash equivalents (23.2) 23.9 (2.7)
- - ---------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, beginning of year 27.0 3.1 5.8
- - ---------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year $ 3.8 $ 27.0 $ 3.1
===========================================================================================================================
See Notes to Consolidated Financial Statements
10
Avery Dennison Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
The Company is a worldwide manufacturer of pressure-sensitive adhesives and
materials, and consumer and converted products. The Company's major markets are
in office products, data processing, health care, retail, transportation,
industrial and durable goods, food and apparel. The Pressure-sensitive adhesives
and materials sector and the Consumer and converted products sector each
contribute approximately 50 percent of the Company's total sales. Sales are
generated primarily in the United States, continental Europe and the United
Kingdom.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
all of its majority-owned subsidiaries. Investments in certain affiliates (20
percent to 50 percent ownership) are accounted for by the equity method of
accounting. Certain prior year amounts have been reclassified to conform with
current year presentation. In addition, all per common share amounts and average
common shares outstanding have been restated to reflect the December 1996 two-
for-one common stock split effected in the form of a stock dividend.
Fiscal Year
The Company's financial reporting calendar for fiscal years 1996, 1995 and 1994
reflected 52-week periods ending December 28, 1996, December 30, 1995 and
December 31, 1994, respectively. Generally each fiscal year consists of 52
weeks, but every fifth or sixth fiscal year consists of 53 weeks.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions for
the reporting period and as of the financial statement date. These estimates and
assumptions affect the reported amounts of assets and liabilities, the
disclosure of contingent liabilities, and the reported amounts of revenues and
expenses. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers cash on hand, deposits in banks and short-term
investments, with maturities of three months or less when purchased, as cash and
cash equivalents. The carrying amounts of these assets approximate fair value
due to the short maturity of the instruments. At year end 1995, $23.6 million
was held in short-term investments. Cash paid for interest and taxes was as
follows:
(In millions) 1996 1995 1994
- - ----------------------------------------------------------------
Interest, net of capitalized amounts $ 40.0 $46.7 $42.7
Income taxes, net of refunds 115.9 87.2 70.6
================================================================
Inventories
Inventories are stated at the lower of cost or market value. Cost is determined
using both the first-in, first-out (FIFO) and last-in, first-out (LIFO) methods.
Inventories valued using the LIFO method comprised 37 percent, 40 percent and 41
percent of inventories before LIFO adjustment at year end 1996, 1995 and 1994,
respectively.
During 1996, certain inventories were reduced resulting in the liquidation
of LIFO inventory carried at lower costs prevailing in prior years as compared
with current costs. The effect was to reduce 1996 cost of products sold by $3.2
million. Inventories at year end were as follows:
(In millions) 1996 1995
- - -------------------------------------
Raw materials $ 82.7 $ 78.5
Work-in-process 72.4 72.4
Finished goods 123.4 109.6
LIFO adjustment (34.1) (37.3)
- - -------------------------------------
$244.4 $223.2
=====================================
Property, Plant and Equipment
Depreciation is generally computed using the straight-line method over the
estimated useful lives of the assets. Maintenance and repair costs are expensed
as incurred; renewals and betterments are capitalized. Upon the sale or
retirement of properties, the accounts are relieved of the cost and the related
accumulated depreciation, with any resulting profit or loss included in income.
Intangibles Resulting From Business Acquisitions
Intangibles resulting from business acquisitions consist primarily of the excess
of the acquisition cost over the fair value of net assets acquired and are
amortized over a 25-to-40 year period using the straight-line method.
11
Avery Dennison Corporation
The Company evaluates the carrying value of its goodwill on an ongoing basis and
recognizes an impairment when the estimated future undiscounted cash flows from
operations are less than the carrying value of the goodwill. Accumulated
amortization at year end 1996 and 1995 was $46.6 million and $40.3 million,
respectively.
Foreign Currency Translation
Financial statements of international operations are translated into U.S.
dollars at current rates, except for revenue, costs and expenses which are
translated at average current rates during each reporting period. Gains and
losses resulting from foreign currency transactions, other than those
transactions described below, are included in income currently. Gains and losses
resulting from hedging the value of investments in certain international
operations and from translation of financial statements are excluded from the
statement of income and are recorded directly to a separate component of
shareholders' equity. Translation gains and losses of subsidiaries operating in
hyperinflationary economies are included in net income currently.
Transaction and translation losses decreased net income in 1996, 1995 and
1994, by $1.6 million, $1.8 million, and $1.5 million, respectively.
Financial Instruments
The Company enters into forward exchange and interest rate contracts to manage
exposure to fluctuations in foreign currency exchange and interest rates. Gains
and losses on contracts that hedge specific foreign currency commitments are
deferred and subsequently recognized in net income in the period in which the
underlying transaction is consummated. The net amounts paid or received on
interest rate agreements are recognized as adjustments to interest expense over
the terms of the agreements. Contract premiums paid, if any, are amortized to
interest expense over the terms of the underlying instruments.
Revenue Recognition
Sales, provisions for estimated sales returns, and the cost of products sold are
recorded at the time of shipment.
Research and Development
Research and development costs are expensed as incurred. Research and
development expense for 1996, 1995 and 1994 was $54.6 million, $52.7 million and
$49.1 million, respectively.
Stock-Based Compensation
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based
Compensation". The Company has adopted the disclosure-only provisions of SFAS
No. 123. As a result, the Company has disclosed the pro forma amounts of net
income and net income per common share as if the compensation cost for the stock
option plans had been determined based on the fair value of the outstanding
options (see Note 7).
Environmental Expenditures
Environmental expenditures that do not contribute to current or future revenue
generation are expensed. Expenditures for newly acquired assets and those which
extend or improve the economic useful life of existing assets are capitalized
and amortized over the remaining asset life. The Company reviews, on a quarterly
basis, its estimates of costs of compliance with environmental laws and the
cleanup of various sites, including sites in which governmental agencies have
designated the Company as a potentially responsible party. When it is probable
that obligations have been incurred and where a minimum cost or a reasonable
estimate of the cost of compliance or remediation can be determined, the
applicable amount is accrued. For other potential liabilities, the timing of
accruals coincides with the related ongoing site assessments. Potential
insurance reimbursements are not recorded or offset against the liabilities
until received, and liabilities are not discounted.
Net Income Per Share
Net income per common share is computed by dividing net income by the weighted-
average number of common shares outstanding. Common share equivalents
outstanding were excluded from the computation as they were not dilutive. Net
income per fully-diluted common share is computed by dividing net income by the
weighted-average number of common and common share equivalents outstanding.
Common share equivalents include shares issuable upon the assumed exercise of
outstanding stock options and stock warrants.
12
Avery Dennison Corporation
Future Accounting Requirements
In June 1996, the Financial Accounting Standards Board issued SFAS No. 125,
"Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities". The standard revised the guidelines for recognition,
measurement and disclosure of transfers and servicing of financial assets and
extinguishment of debt. It will be effective for transactions occurring after
December 31, 1996.
NOTE 2. DIVESTITURES AND RESTRUCTURING
During the third quarter of 1996, business restructuring actions resulted in a
net pretax gain of $2.1 million. The Company sold its equity interest in a label
operation in Japan for $28.4 million, resulting in a net gain of $17.9 million.
The Company also recorded charges for certain restructuring actions which had an
estimated cost of $15.8 million.
The 1996 restructuring actions included the reorganization of certain
manufacturing, distribution and administrative sites. These costs consisted of
severance and related costs for approximately 200 positions worldwide ($7.4
million) and the discontinuance of product lines and related asset disposals
($2.1 million). In addition, an asset impairment write-down of $6.3 million was
recognized for long-lived assets held in the Company's Consumer and converted
products sector.
Total cash expenditures for the 1996 restructuring program are estimated at
$7.4 million of which $5.5 million had been paid by year end 1996; $1.9 million
in employee severance costs remained accrued. The Company's 1996 restructuring
program is expected to be completed during 1997 and result in estimated annual
savings of $9 million to $11 million when fully implemented.
During 1995, the Company took specific actions to restructure certain
businesses to improve future profitability. These actions, which included the
sale of non-strategic businesses and restructuring programs, resulted in a net
pretax gain of $1.5 million.
The portion of the North American label converting operations which no
longer met the Company's strategy for converting technology was sold during the
fourth quarter of 1995 for $95 million. These businesses accounted for
approximately 2 percent of the Company's 1995 total sales. The $40.7 million
pretax gain on the sale of these businesses was offset by charges related to the
Company's 1995 restructuring program.
The Company's 1995 restructuring program resulted in a one-time pretax
charge of $39.2 million and included the closure of four plants and the
reorganization of certain manufacturing, distribution and administrative sites.
The costs consisted primarily of employee severance and related costs ($16.2
million) for approximately 400 positions worldwide, discontinuance of product
lines and related asset write-offs ($13.1 million) and plant closure and other
costs ($9.9 million). At year end 1996, $14.1 million remained accrued which
related mainly to employee severance and plant closure costs. During 1996, cash
expenditures and non-cash charges totaled $9 million and $1.4 million,
respectively. The Company's 1995 restructuring program is expected to result in
annual savings of $14 million to $17 million when fully implemented.
NOTE 3. DEBT
Long-term debt at year end was as follows:
(In millions) 1996 1995
- - ---------------------------------------------------------------------
Medium-term notes (6.1% to 8.0% at year end) $300.0 $365.0
Domestic variable-rate short-term borrowings
refinanced on a long-term basis 51.0 --
Industrial Revenue Bonds (3.7% to 9.9% at
year end) 22.0 22.0
Other long-term debt (7.0% to 8.5% at year end) 20.2 25.9
- - ---------------------------------------------------------------------
393.2 412.9
Less: Amount classified as current (22.5) (78.9)
- - ---------------------------------------------------------------------
$370.7 $334.0
=====================================================================
The Company has a revolving credit agreement with four domestic banks to
provide up to $250 million in borrowings through July 1, 2001, with all amounts
borrowed under this agreement due on the same date. The Company may annually
extend the revolving period and due date under certain conditions with approval
of the banks. The financing available under this revolving credit agreement will
be used, as needed, to repay short-term and currently maturing long-term debt,
and to finance other corporate requirements.
In addition to the above revolving credit agreement, the Company had short-
term lines of credit available aggregating $305.7 million at the end of 1996, of
which $73.7 million was utilized at variable interest rates ranging from 4 to 14
percent.
During the fourth quarter of 1996, the Company registered with the
Securities and Exchange Commission $150 million in principal amount of medium-
term notes. At year end 1996, no notes had been issued. Proceeds from the
medium-term notes will be used to reduce debt and for other general corporate
purposes.
13
Avery Dennison Corporation
The Company's currently outstanding medium-term notes have maturities
from 1997 through 2025 and have a weighted-average interest rate of 7.2 percent.
The amount of long-term debt outstanding at the end of 1996, which matures
during 1997 through 2001, is $22.5 million, $6.2 million, $1 million, $2.1
million and $4.7 million, respectively.
The fair value of the Company's debt is estimated based on the discounted
amount of future cash flows using the current rates offered to the Company for
debt of the same remaining maturities. At year end 1996 and 1995, the fair value
of the Company's total debt was $408.3 million and $456.1 million, respectively.
The terms of the various loan agreements in effect at year end require
maintenance of specified amounts of consolidated tangible net worth and
consolidated net income before interest and taxes to consolidated interest.
Under the most restrictive provisions, $163.5 million of retained earnings was
not restricted at year end 1996.
The Company's total interest expense in 1996, 1995 and 1994 was $40.9
million, $47.5 million and $45.7 million, respectively, of which $3.5 million,
$3.2 million and $2.7 million, respectively, was capitalized as part of the cost
of assets constructed for the Company's use. Included in interest expense was
$.4 million for 1996, $.3 million for 1995 and $5.6 million for 1994 relating to
the Company's operations in Brazil. The 1994 amount reflects extraordinarily
high nominal rates of interest resulting from hyperinflationary conditions in
that country, prior to July, 1994.
NOTE 4. FINANCIAL INSTRUMENTS
The Company enters into forward exchange contracts to reduce risk from exchange
rate fluctuations associated with receivables, payables, loans and commitments
denominated in foreign currencies that arise primarily as a result of its
operations outside the United States. At the end of 1996 and 1995, the Company
had forward exchange contracts with a notional value of $166.7 million and
$221.2 million, respectively, substantially all of which were denominated in
European currencies. In general, the maturities of the contracts coincide with
the underlying exposure positions they are intended to hedge. All contracts
outstanding have maturities within 12 months. The carrying value approximates
the fair value, which, based on quoted market prices of comparable instruments,
was a net liability of approximately $4.5 million and $.2 million at the end of
1996 and 1995, respectively.
The counterparties to forward exchange contracts and interest rate
agreements consist of a large number of major international financial
institutions. The Company centrally monitors its positions and the financial
strength of its counterparties. Therefore, while the Company may be exposed to
losses in the event of nonperformance by these counterparties, it does not
anticipate losses.
At the end of 1996, the Company had letters of credit outstanding totaling
$22.6 million which guaranteed various trade activities. The aggregate contract
amount of all outstanding letters of credit approximates fair value.
As of year end 1996 and 1995, approximately 26 percent and 20 percent of
trade accounts receivables, respectively, were from 7 domestic customers. While
the Company does not require its customers to provide collateral, the financial
position and operations of these customers are monitored on an ongoing basis.
Although the Company may be exposed to losses in the event of nonpayment, it
does not anticipate such losses.
The Company has an agreement with a bank whereby it has the right to sell
certain accounts receivable. The available commitment of this agreement at the
end of 1996 was $70 million, subject to limited recourse provisions. At the end
of 1996 and 1995, no trade receivables had been sold. Should the agreement be
utilized during 1997, the contract will be modified to comply with the future
requirements of SFAS No. 125.
NOTE 5. COMMITMENTS
Minimum annual rentals on operating leases for the years 1997 to 2001 are $28.1
million, $24.6 million, $20.8 million, $19.3 million and $18 million,
respectively. Operating leases relate primarily to office and warehouse space,
EDP and transportation equipment.
The Company has an agreement to purchase certain information technology
services through June 30, 2002; however, the agreement may be terminated at the
Company's option on June 30, 2000. Total commitments remaining under the
agreement approximated $17.4 million as of December 28, 1996.
Rent expense for 1996, 1995 and 1994 was $39 million, $39.4 million and
$39.7 million, respectively.
14
Avery Dennison Corporation
NOTE 6. TAXES BASED ON INCOME
Taxes based on income were as follows:
(In millions) 1996 1995 1994
- - -------------------------------------------------------
Current:
U.S. Federal tax $ 55.9 $ 51.8 $34.9
State taxes 12.3 10.2 6.8
International taxes 28.1 34.6 28.0
- - -------------------------------------------------------
96.3 96.6 69.7
- - -------------------------------------------------------
Deferred:
U.S. taxes (4.7) (4.4) (2.1)
International taxes 3.1 (11.2) (4.1)
- - -------------------------------------------------------
(1.6) (15.6) (6.2)
- - -------------------------------------------------------
Taxes on income $ 94.7 $ 81.0 $63.5
=======================================================
The principal items accounting for the difference in taxes as computed at
the U.S. statutory rate and as recorded were as follows:
(In millions) 1996 1995 1994
- - -----------------------------------------------------------------
Computed tax at 35% of income
before taxes $ 94.7 $ 78.7 $60.5
Increase (decrease) in taxes
resulting from:
State taxes, net of federal
tax benefits 8.0 6.6 4.4
Other items, net (8.0) (4.3) (1.4)
- - -----------------------------------------------------------------
Taxes on income $ 94.7 $ 81.0 $63.5
=================================================================
Consolidated income before taxes for U.S. and international operations
was as follows:
(In millions) 1996 1995 1994
- - -------------------------------------------------
U.S. $176.4 $145.3 $97.6
International 94.2 79.4 75.3
- - -------------------------------------------------
$270.6 $224.7 $172.9
=================================================
U.S. income taxes have not been provided on undistributed earnings of
international subsidiaries ($350.5 million at year end 1996) because such
earnings are considered to be reinvested indefinitely or because U.S. income
taxes on dividends would be substantially offset by foreign tax credits.
Operating loss carryforwards for international subsidiaries aggregating
$48.6 million are available to reduce income taxes payable, of which $19.8
million will expire over the period from 1997 through 2002, while $28.8 million
can be carried forward indefinitely.
Deferred income taxes reflect the temporary differences between the amounts
at which assets and liabilities are recorded for financial reporting purposes
and the amounts utilized for tax purposes. The primary components of the
temporary differences which give rise to the Company's deferred tax assets and
liabilities were as follows:
(In millions) 1996 1995
- - ----------------------------------------------------------------
Accrued expenses not currently deductible $ 76.7 $ 71.2
Net operating losses and foreign tax
credit carryforwards 23.2 17.7
Postretirement and postemployment benefits 11.1 10.6
Pension costs (3.9) 3.3
Valuation allowance (6.5) (8.9)
Depreciation (74.2) (68.6)
Other items, net -- (2.8)
- - ----------------------------------------------------------------
Total net deferred tax assets $ 26.4 $ 22.5
================================================================
NOTE 7. SHAREHOLDERS' EQUITY
Common Stock and Common Stock
Repurchase Program
The Company's Certificate of Incorporation authorizes five million shares of $1
par value preferred stock, with respect to which the Board of Directors may fix
the series and terms of issuance, and 200 million shares of $1 par value voting
common stock.
On October 24, 1996, the Company's Board of Directors authorized a two-for-
one stock split of the Company's common stock effected in the form of a 100
percent stock dividend to shareholders of record as of December 6, 1996. Par
value of $1 per share remained unchanged. An amount equal to the $1 par value of
the additional common shares was transferred from capital in excess of par value
to common stock. Accordingly, all weighted-average share and per common share
amounts, as well as stock plan data, have been restated to reflect the stock
split.
During 1988, the Company issued preferred stock purchase rights, declaring
a dividend of one such right on each outstanding share of common stock and since
such time the Company has issued such rights with each share of common stock
that has been subsequently issued. When exercisable, each new right will entitle
its holder to buy one one-hundredth of a share of Series A Junior Participating
Preferred Stock at a price of $47.50 per one one-hundredth of a share until July
1998. The rights will become exercisable if a person acquires 20 percent or more
of the Company's common stock or makes an offer, the consummation of which will
result
15
Avery Dennison Corporation
in the person's owning 20 percent or more of the Company's common stock. In the
event the Company is acquired in a merger, each right entitles the holder to
purchase common stock of the acquiring company having a market value of twice
the exercise price of the right. If a person or group acquires 20 percent or
more of the Company's common stock, each right entitles the holder to purchase
the Company common stock with a market value equal to twice the exercise price
of the right. The rights may be redeemed by the Company at a price of half a
cent per right at any time prior to a person's or group's acquiring 20 percent
of the Company's common stock. The 20 percent threshold may be reduced by the
Company to as low as 10 percent at any time prior to a person's acquiring a
percent of Company stock equal to the lowered threshold.
The Board of Directors has authorized the repurchase of an aggregate 30.4
million shares of the Company's outstanding common stock. The acquired shares
may be reissued under the Company's stock option and incentive plans. At year
end 1996, approximately 25.4 million shares had been repurchased pursuant to
this authorization.
Stock Option and Incentive Plans
In October 1996, the Company established the Avery Dennison Corporation Employee
Stock Benefit Trust (the "Trust") to fund a portion of the Company's obligations
arising from various employee benefit plans. The Company sold 18 million shares
of treasury stock to the Trust in exchange for a promissory note of $564.8
million that bears an interest rate of 8 percent per annum. The Trust has a
15-year life during which it will utilize the common stock to satisfy certain
Company obligations. The common stock in the Trust is carried at market value
with changes in share price from prior reporting periods reflected as an
adjustment to capital in excess of par value.
The Company maintains various stock option and incentive plans which are
fixed employee stock-based compensation plans. Under the plans, incentive stock
options and stock options granted to directors may be granted at not less than
100 percent of the fair market value of the Company's common stock on the date
of the grant, whereas nonqualified options granted to executives may be issued
at prices no less than par value. Options granted generally vest ratably over a
four year period. Unexercised options expire ten years from the date of grant.
The following table sets forth stock option information relative to all plans:
1996 1995 1994
---------------------------- ----------------------
Weighted-average Number of Number of Number of
(Options in thousands) exercise price options options options
- - ------------------------------------------------------------------------------------------
Outstanding at beginning of year $15.03 10,224.6 9,650.2 8,796.7
Granted 34.67 1,623.0 1,792.1 2,783.0
Exercised 11.96 (1,778.9) (955.3) (1,565.1)
Forfeited or expired 18.23 (293.0) (262.4) (364.4)
- - ------------------------------------------------------------------------------------------
Outstanding at end of year 18.76 9,775.7 10,224.6 9,650.2
Options exercisable at year end 4,670.4 5,309.7 4,964.7
=========================================================================================
The following table summarizes information on fixed stock options
outstanding at December 28, 1996 (options in thousands):
Options outstanding Options exercisable
-------------------------------------------------- ------------------------------
Weighted-
Number average remaining Weighted-average Number Weighted-average
Range of exercise prices outstanding contractual life exercise price exercisable exercise price
- - ------------------------------------------------------------------------------------------------------------------
$ 7.54 - $14.00 4,101.6 4.1 years $12.24 3,972.5 $12.22
$15.28 - $16.25 2,382.2 7.6 years 15.79 470.8 15.81
$23.63 - $34.94 3,291.9 9.4 years 29.03 227.1 23.77
- - ------------------------------------------------------------------------------------------------------------------
9,775.7 4,670.4
==================================================================================================================
16
Avery Dennison Corporation
Pursuant to SFAS No. 123, no compensation cost was recognized in the
Consolidated Statement of Income for the Company's stock option and incentive
plans. Had compensation cost for the Company's stock-based compensation plans
been recognized, the Company's pro forma net income and net income per common
share would have been $165.8 million and $1.58, respectively for 1996 and $137
million and $1.29 for 1995, respectively. Net income per fully-diluted common
share would have been $1.53 and $1.25 for 1996 and 1995, respectively.
The weighted-average fair value of options granted during 1996 and 1995
were $9.51 and $5.87, respectively. Option grant date fair values were
determined using a Black-Scholes option pricing value. The underlying
assumptions used were:
1996 1995
- - ---------------------------------------------------------
Risk-free interest rate 6.40% 6.75%
Expected stock price volatility 18.57 17.99
Expected dividend yield 2.09 2.67
Expected option term 10 years 10 years
=========================================================
NOTE 8. CONTINGENCIES
The Company has been designated by the U.S. Environmental Protection Agency
(EPA) and/or other responsible state agencies as a potentially responsible party
(PRP) at 17 waste disposal or waste recycling sites which are the subject of
separate investigations or proceedings concerning alleged soil and/or
groundwater contamination and for which no settlement of the Company's liability
has been agreed upon. Litigation has been initiated by a governmental authority
with respect to four of these sites, but the Company does not believe that any
such proceedings will result in the imposition of monetary sanctions. The
Company is participating with other PRPs at all such sites, and anticipates that
its share of cleanup costs will be determined pursuant to remedial agreements
entered into in the normal course of negotiations with the EPA or other
governmental authorities.
The Company has accrued liabilities for all sites, including sites in which
governmental agencies have designated the Company as a PRP, where it is probable
that a loss will be incurred and the minimum cost or amount of loss can be
reasonably estimated. However, because of the uncertainties associated with
environmental assessment and remediation activities, future expense to remediate
the currently identified sites, and sites which could be identified in the
future for cleanup, could be higher than the liability currently accrued. Based
on current site assessments, management believes the potential liability over
the amounts currently accrued would not materially affect the Company.
The Company and its subsidiaries are involved in various other lawsuits,
claims and inquiries, most of which are routine to the nature of the business.
In the opinion of management, the resolution of these matters will not
materially affect the Company.
NOTE 9. EMPLOYEE RETIREMENT PLANS
Defined Benefit Plans
The Company sponsors a number of defined benefit plans covering substantially
all U.S. employees, employees in certain other countries and non-employee
directors. It is the Company's policy to make contributions to these plans
sufficient to meet the minimum funding requirements of applicable laws and
regulations, plus such additional amounts, if any, as the Company's actuarial
consultants advise to be appropriate. Plan assets are invested in a diversified
portfolio that consists primarily of equity securities. Benefits payable to
employees are based primarily on years of service and employees' pay during
their employment with the Company. Certain benefits provided by the Company's
U.S. defined benefit plan are paid, in part, from an employee stock ownership
plan.
The net pension cost and the funded status of the defined benefit plans are
summarized as follows:
N E T P E N S I O N C O S T
(In millions) 1996 1995 1994
- - -------------------------------------------------------------------------------------------------------
Service cost $ 9.1 $ 8.7 $ 9.5
Interest cost 27.0 26.4 24.5
Return on plan assets (67.3) (69.9) (14.0)
Net amortization and deferral 28.8 34.6 (20.1)
- - -------------------------------------------------------------------------------------------------------
Net pension income $ (2.4) $ (.2) $ (.1)
- - -------------------------------------------------------------------------------------------------------
Assumptions used:
Weighted-average discount rate 7.4% 7.4% 8.0%
Weighted-average rate of increase in future compensation levels 5.0 5.3 5.4
Weighted-average expected long-term rate of return on assets 9.7 9.7 9.7
=======================================================================================================
17
Avery Dennison Corporation
F U N D E D S T A T U S O F P E N S I O N P L A N S
Fully-funded plans Underfunded plans
- - ------------------------------------------------------------------------------------------------------------------
(In millions) 1996 1995 1996 1995
- - ------------------------------------------------------------------------------------------------------------------
Actuarial present value of:
Vested benefits $207.2 $196.0 $150.5 $132.3
Non-vested benefits .4 .1 .2 .2
- - ------------------------------------------------------------------------------------------------------------------
Accumulated benefit obligation 207.6 196.1 150.7 132.5
Effect of projected future salary increases 27.8 29.2 15.0 14.9
- - ------------------------------------------------------------------------------------------------------------------
Projected benefit obligation 235.4 225.3 165.7 147.4
Plan assets at fair value 339.2 304.6 132.3 109.3
- - ------------------------------------------------------------------------------------------------------------------
Plan assets in excess of (less than) projected benefit obligation 103.8 79.3 (33.4) (38.1)
Unrecognized net (gain) loss (16.4) .7 16.5 19.3
Unrecognized prior service cost (13.6) (14.6) 7.7 8.0
Unrecognized net asset at year end (22.6) (24.8) (1.4) (1.6)
Adjustment to recognize minimum liability -- -- (7.8) (10.8)
- - ------------------------------------------------------------------------------------------------------------------
Prepaid (accrued) pension cost $ 51.2 $ 40.6 $(18.4) $(23.2)
==================================================================================================================
As a result of changes in assumptions used during 1996 and 1995, an
additional liability of $7.8 million and $10.8 million, respectively, is
reflected in the Company's balance sheet. These amounts are offset in 1996 and
1995 by a charge to equity of $.2 million and $2.6 million, respectively, and
the recording of an intangible pension asset of $7.6 million and $8.2 million,
respectively. Consolidated pension expense for 1996, 1995 and 1994 was $1.5
million, $2 million and $2.4 million, respectively.
Defined Contribution Plans
The Company sponsors various defined contribution plans covering its U.S.
employees, including a 401(k) savings plan. The Company matches participant
contributions to the 401(k) savings plan based on a formula within the plan. The
Avery Dennison Corporation Employee Savings Plan (Savings Plan) has a leveraged
employee stock ownership plan (ESOP) feature which allows the plan to borrow
funds to purchase shares of the Company's common stock at market prices. Savings
Plan expense consists primarily of stock contributions from the ESOP feature to
participant accounts.
The Company also maintains another leveraged ESOP for employees not covered
by a collective bargaining agreement. This ESOP also borrowed funds to purchase
shares of the Company's common stock at market prices.
ESOP expense is accounted for under three different methodologies: the cost
of shares allocated method, the cash flow method and the fair value method. The
following table sets forth certain information relating to the Company's ESOPs
on a combined basis.
(In millions) 1996 1995 1994
- - ---------------------------------------------------------------
Interest expense $ 2.7 $ 3.4 $ 2.3
Dividends on unallocated ESOP
shares used for debt service 1.7 1.9 2.3
Total ESOP expense 8.9 7.5 10.5
Contributions to pay interest and
principal on ESOP borrowings 8.8 7.4 10.1
===============================================================
Consolidated expense for all defined contribution plans, including total
ESOP expense, for 1996, 1995 and 1994 was $9.3 million, $8.2 million and $11.2
million, respectively. The ESOP shares for 1996 and 1995 were as follows:
(In millions) 1996 1995
- - -----------------------------------------
Allocated shares 6.7 6.8
Unallocated shares 2.5 2.9
- - -----------------------------------------
Total ESOP shares held 9.2 9.7
=========================================
18
Avery Dennison Corporation
Of the total ESOP shares held, shares accounted for under the fair value
method comprised of 167,800 allocated shares and 169,600 unallocated shares at
year end 1996. Under the fair value method, unallocated shares were valued at
$6.1 million at year end 1996.
Other Postretirement Benefits
The Company provides postretirement health benefits to its retired employees up
to the age of 65 under a cost-sharing arrangement, and supplemental Medicare
benefits to certain U.S. retirees over the age of 65. The Company's policy is to
fund the cost of the postretirement benefits on a cash basis. The following
table sets forth the Company's unfunded obligation and amount recognized in the
Consolidated Balance Sheet:
(In millions) 1996 1995
- - -----------------------------------------------------------------------
Actuarial present value of benefit obligation:
Retirees $10.0 $ 5.8
Fully eligible participants 4.9 7.8
Other active participants 13.5 19.9
- - -----------------------------------------------------------------------
Accumulated postretirement benefit obligation 28.4 33.5
Plan assets -- --
- - -----------------------------------------------------------------------
Accumulated postretirement benefit
obligation in excess of plan assets 28.4 33.5
Unrecognized net gain (loss) 3.0 (3.3)
Unrecognized prior service cost (1.2) (1.3)
- - -----------------------------------------------------------------------
Accrued postretirement benefit obligation $30.2 $28.9
=======================================================================
Net periodic postretirement benefit costs included the following components:
(In millions) 1996 1995 1994
- - --------------------------------------------------------------------------
Service cost $ 0.9 $ 1.1 $ 1.2
Interest cost 1.8 2.2 2.1
Net amortization and deferral -- .1 .1
- - --------------------------------------------------------------------------
Net periodic postretirement expense $ 2.7 $ 3.4 $ 3.4
==========================================================================
A health care cost trend rate of 11 percent was assumed for 1996 and will
decline 1 percent annually to 6 percent by 2001 and remain at that level. The
discount rates assumed for 1996 and 1995 was 7.25 percent. A 1 percent increase
in the health care cost trend rate would cause the accumulated postretirement
benefit obligation to increase by $3.7 million and service and interest cost to
increase by $.4 million for 1996.
Other Retirement Plans
The Company has deferred compensation plans which permit eligible employees and
directors to defer a specific portion of their compensation. The deferred
compensation, together with certain Company contributions, earn a specified rate
of return. As of year end 1996 and 1995, the Company had accrued $57.9 million
and $48.2 million, respectively, for its obligations under these plans. The
Company's expense, which includes Company contributions and interest expense,
was $6 million, $5.6 million and $4 million for 1996, 1995 and 1994,
respectively. A portion of the interest may be forfeited by participants in the
event employment is terminated before age 55 other than by reason of death,
disability or retirement.
To assist in the funding of these plans, the Company purchases corporate-
owned life insurance contracts. Proceeds from the insurance policies are payable
to the Company upon the death of the participant. The cash surrender value of
these policies, net of outstanding loans, included in "Other assets" was $21.6
million and $16.4 million as of year end 1996 and 1995, respectively.
NOTE 10. SECTORS OF BUSINESS OPERATIONS
Effective in the fourth quarter of 1996, the Company realigned the reporting of
its businesses from three sectors to two in an effort to better align its
reporting with manufacturing processes and end markets. Accordingly, all prior
year data has been reclassified to conform with the current realignment of the
businesses.
The Company reports its operations as the production of pressure-sensitive
adhesives and materials and the production of consumer and converted products.
Operations in the Pressure-sensitive adhesives and materials sector sell
primarily to converters and label printers, and includes the Fasson-brand
papers, films and foils, specialty tape and specialty chemical businesses.
Operations in the Consumer and converted products sector sell primarily to the
retail industry and original equipment manufacturers, and includes the Avery-
brand labels and other office products, customer label converters, high-
performance specialty films and labels, merchant distributors, automotive and
fastener businesses.
19
Avery Dennison Corporation
During the third quarter of 1996, the Company sold its equity interest in a
label operation in Japan. A $17.9 million gain was recorded in Corporate
administrative and research and development expenses during 1996. In addition,
the Company recorded an impairment for long-lived assets and restructuring
actions, which combined, had an estimated pretax cost of $15.8 million.
During the fourth quarter of 1995, the Company sold a portion of its North
American label converting operations. These businesses accounted for
approximately 4 percent, or $63 million, of the 1995 Consumer and converted
products' sector sales. A $40.7 million gain from restructuring activities was
recorded in the Consumer and converted products sector's income from operations
before interest and taxes during 1995. The businesses sold, excluding the gain
on sale and restructuring charges, accounted for $2.6 million of the Consumer
and converted products sector's profitability for 1995.
Intersector sales are recorded at or near market prices and are eliminated
in determining consolidated sales. Income from operations represents total
revenue less operating expenses. General corporate expenses, interest expense
and taxes on income are excluded from the computation of income from operations.
Beginning in 1996, the Company adopted a revised allocation methodology which
more appropriately allocates corporate administrative expenses to each sector.
The effect of this revised methodology increased expenses allocated to the two
sectors by $7.8 million and $6.6 million for 1995 and 1994, respectively.
Financial information by industry and geographic sectors is set forth
below:
(In millions) 1996(1) 1995(2) 1994
- - ---------------------------------------------------------------------------
Sales by industry sector:
Pressure-sensitive adhesives
and materials $1,693.5 $1,589.7 $1,389.7
Consumer and converted
products 1,670.5 1,588.6 1,488.6
Intersector (141.5) (128.1) (106.8)
Divested operations -- 63.7 85.2
- - ---------------------------------------------------------------------------
Net sales $3,222.5 $3,113.9 $2,856.7
===========================================================================
Income (loss) from operations
before interest and taxes:
Pressure-sensitive adhesives
and materials $ 157.7 $ 144.8 $ 138.8
Consumer and converted
products 159.0 147.8 102.1
Divested operations -- .1 (3.0)
- - ---------------------------------------------------------------------------
316.7 292.7 237.9
Corporate administrative and
research and development
expenses (8.7) (23.7) (22.0)
Interest expense (37.4) (44.3) (43.0)
- - ---------------------------------------------------------------------------
Income before taxes $ 270.6 $ 224.7 $ 172.9
===========================================================================
Identifiable assets by
industry sector:
Pressure-sensitive adhesives
and materials $ 970.4 $ 886.5 $ 789.8
Consumer and converted
products 883.0 857.3 796.9
Intersector (30.0) (26.6) (24.5)
Corporate and divested
operations 213.3 246.4 200.9
- - ---------------------------------------------------------------------------
Total assets $2,036.7 $1,963.6 $1,763.1
===========================================================================
(1) Fiscal 1996 results include a pretax gain of $17.9 million from the sale of
its equity interest in a label operation in Japan which was included in
Corporate's administrative expense. Fiscal 1996 results also include pretax
restructuring charges of $15.8 million. The restructuring charges were
allocated as follows: $7.1 million to the Pressure-sensitive adhesives and
materials sector and $8.7 million to the Consumer and converted products
sector.
(2) Fiscal 1995 results include a pretax gain of $40.7 million from the sale of
a portion of its North American label converting operations and was
included in the Consumer and converted products 1995 operating results.
Fiscal 1995 results also include pretax restructuring charges of $39.2
million. The restructuring charges were allocated as follows: $15.1 million
to the Pressure-sensitive adhesives and materials sector and $24.1 million
to the Consumer and converted products sector.
The 1996 and 1995 restructuring charges, along with the gains on
divestiture, were reported in the "Net gain on divestitures and restructuring
charges" line of the Consolidated Statement of Income.
20
Avery Dennison Corporation
(In millions) 1996(1) 1995(2) 1994
- - -----------------------------------------------------------------------------
Sales by geographic sector:
U.S. $2,056.1 $1,946.4 $1,800.1
International 1,206.7 1,143.1 997.2
Intersector (40.3) (39.3) (25.8)
Divested operations -- 63.7 85.2
- - -----------------------------------------------------------------------------
Net sales $3,222.5 $3,113.9 $2,856.7
=============================================================================
Income (loss) from operations
before interest and taxes:
U.S. $ 232.3 $ 214.1 $ 182.7
International 84.4 78.5 58.2
Divested operations -- .1 (3.0)
- - -----------------------------------------------------------------------------
316.7 292.7 237.9
Corporate administrative and
research and development
expenses (8.7) (23.7) (22.0)
Interest expense (37.4) (44.3) (43.0)
- - -----------------------------------------------------------------------------
Income before taxes $ 270.6 $ 224.7 $ 172.9
=============================================================================
Identifiable assets by
geographic sector:
U.S. $1,051.9 $1,009.5 $ 906.1
International 792.6 723.1 666.0
Intersector (21.1) (15.4) (9.9)
Corporate and divested
operations 213.3 246.4 200.9
- - -----------------------------------------------------------------------------
Total assets $2,036.7 $1,963.6 $1,763.1
=============================================================================
(1) The 1996 restructuring charges were allocated as follows: $13.8 million to
the U.S. sector and $2 million to the International sector. In addition,
the 1996 pretax gain of $17.9 million from the sale of its equity interest
in a label operation in Japan, was included in Corporate's administrative
expense.
(2) The 1995 restructuring charges were allocated as follows: $18.8 million to
the U.S. sector and $20.4 million to the International sector. In addition,
the 1995 pretax gain from the sale of its North American label converting
operations was allocated as follows: $38.4 million to the U.S. sector and
$2.3 million to the International sector.
The Company's international operations, conducted primarily in continental
Europe and the United Kingdom, are on the FIFO basis of inventory cost
accounting. U.S. operations use both FIFO and LIFO. Export sales from the United
States to unaffiliated customers are not a material factor in the Company's
business.
Identifiable assets are those assets of the Company which are identifiable
with the operations in each industry or geographic sector. Corporate assets
consist principally of Corporate property, plant and equipment, tax related
asset accounts and other non-operating assets. Intersector receivables are
eliminated in determining consolidated identifiable assets.
Capital expenditures and depreciation expense by industry sector are set
forth below:
(In millions) 1996 1995 1994
- - -----------------------------------------------------------------
Capital expenditures:
Pressure-sensitive adhesives
and materials $100.8 $100.5 $104.3
Consumer and converted
products 79.8 78.7 45.1
Corporate and divested
operations 7.0 11.1 13.9
- - -----------------------------------------------------------------
$187.6 $190.3 $163.3
=================================================================
Depreciation expense:
Pressure-sensitive adhesives
and materials $ 49.4 $ 40.9 $ 36.7
Consumer and converted
products 41.2 42.5 39.8
Corporate and divested
operations 9.6 11.9 11.4
- - -----------------------------------------------------------------
$100.2 $ 95.3 $ 87.9
=================================================================
NOTE 11. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
(In millions, except First Second Third Fourth
per common share data) Quarter Quarter Quarter(1) Quarter(2), (3)
- - --------------------------------------------------------------------------
1996(1), (3)
Net sales $796.6 $797.7 $819.3 $808.9
Gross profit 246.7 248.4 260.5 262.7
Net income 40.0 41.6 46.6 47.7
Net income per
common share .38 .39 .45 .46
- - --------------------------------------------------------------------------
1995(2)
Net sales $773.2 $780.5 $783.5 $776.7
Gross profit 244.8 239.0 235.0 238.5
Net income 34.5 35.7 35.8 37.7
Net income per
common share .32 .34 .34 .35
- - --------------------------------------------------------------------------
1994
Net sales $667.7 $718.6 $733.7 $736.7
Gross profit 212.5 227.7 232.6 235.0
Net income 25.2 27.9 27.8 28.5
Net income per
common share .22 .25 .25 .26
==========================================================================
Per common share amounts for all periods shown have been restated to reflect the
December 1996 two-for-one common stock split.
(1) Net income for the third quarter of 1996 includes income of $1.4 million,
or $.01 per common share, related to the net gain on divestiture and
restructuring charges.
(2) Net income for the fourth quarter of 1995 includes income of $1 million,
or $.01 per common share, related to the net gain on divestitures and
restructuring charges.
(3) During the fourth quarter of 1996, certain inventories were reduced,
resulting in the liquidation of LIFO inventory. The effect was to reduce
cost of products sold by $1.7 million.
21
Avery Dennison Corporation
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of Avery Dennison:
We have audited the accompanying consolidated balance sheet of Avery Dennison
Corporation and subsidiaries as of December 28, 1996 and December 30, 1995, and
the related consolidated statements of income, shareholders' equity and cash
flows for each of the three years in the period ended December 28, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion the financial statements referred to above, which appear on
pages 42 through 56 of this Annual Report, present fairly, in all material
respects, the consolidated financial position of Avery Dennison Corporation and
subsidiaries as of December 28, 1996 and December 30, 1995, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 28, 1996, in conformity with generally accepted
accounting principles.
/s/ COOPERS & LYBRAND L.L.P.
Coopers & Lybrand L.L.P.
Los Angeles, California
January 28, 1997
22
Avery Dennison Corporation
CORPORATE INFORMATION
C O U N S E L
Latham & Watkins
Los Angeles
I N D E P E N D E N T A C C O U N T A N T S
Coopers & Lybrand L.L.P.
Los Angeles
T R A N S F E R A G E N T - R E G I S T R A R
First Chicago Trust Company of New York
P.O. Box 2500
Jersey City, NJ 07303-2500
(800) 756-8200
A N N U A L M E E T I N G
The Annual Meeting of Shareholders will be held at 1:30 pm, Thursday, April 24,
1997, in the Conference Center of the Avery Dennison Corporate Center, 150 North
Orange Grove Boulevard, Pasadena, California.
D I V I D E N D R E I N V E S T M E N T P L A N
Shareholders of record may reinvest their cash dividends in additional shares of
Avery Dennison common stock at market price.
Shareholders can also invest optional cash payments of up to $3,000 per month in
Avery Dennison common stock at market price.
Avery Dennison investors not yet participating in the plan, as well as brokers
and custodians who hold Avery Dennison common stock for clients, may obtain a
copy of the plan by writing to First Chicago Trust Company of New York, Attn.
Avery Dennison Corporation Dividend Reinvestment Plan, P.O. Box 2598, Jersey
City, NJ 07303-2598, (800) 756-8200.
F O R M 1 0 - K
A copy of the Company's Annual Report on Form 10-K, as filed with the Securities
and Exchange Commission, will be furnished to shareholders and interested
investors free of charge upon written request to the Secretary of the
Corporation.
C O R P O R A T E H E A D Q U A R T E R S
150 North Orange Grove Boulevard
Pasadena, California 91103
(818) 304-2000
M A I L I N G A D D R E S S
P.O. Box 7090
Pasadena, California 91109-7090
Fax: (818) 792-7312
I N V E S T O R R E L A T I O N S C O N T A C T
Wayne H. Smith, Vice President and Treasurer
(818) 304-2000
investorcom@averydennison.com
Worldwide Web Sites
http: //www.averydennison.com
http: //www.avery.com (direct address for Avery-brand office and consumer
products)
http: //www.fasson.com (direct address for Fasson-brand products)
S T O C K A N D D I V I D E N D D A T A (1)
Common shares of Avery Dennison are listed on the New York and Pacific stock
exchanges. Ticker symbol: AVY.
1996 1995
------------------ -------------------
High Low High Low
- - -----------------------------------------------------------------------------
Market Price
First Quarter 28 1/2 23 7/8 20 3/16 16 5/8
Second Quarter 29 1/16 27 21 7/8 19 1/2
Third Quarter 27 3/4 25 21 19 5/8
Fourth Quarter 35 7/8 27 11/16 25 1/16 20 7/16
- - -----------------------------------------------------------------------------
Prices shown represent closing prices on the NYSE.
1996 1995
- - -----------------------------------------------------------------------------
Dividends Per Common Share
First Quarter .15 .135
Second Quarter .15 .135
Third Quarter .15 .135
Fourth Quarter .17 .150
- - -----------------------------------------------------------------------------
Number of shareholders of record as of year end 1996: 10,949
(1) Market price and dividend per common share amounts were restated to
reflect the December 1996 two-for-one common stock split.
The following products mentioned in this Annual Report are trademarks of Avery
Dennison Corporation: Avery, Avcoat, Avery Computer Central, Avery Dennison,
BinderPack, Direct Print, Avery Kids, Avery Wizard, Avloy, ClearADvantage, Dry
Paint, DualSharp, EXACT, FasClear, Fasson, Mirage, NotePack, PencilPack, PRIMAX,
SmartFolio, and StaySharp.
All other brands and product names are trademarks of their respective companies.
23
EXHIBIT 21
-----------
SUBSIDIARIES OF REGISTRANT
SUBSIDIARY JURISDICTION
---------- ------------
IN WHICH
--------
ORGANIZED
---------
1. A.V. Chemie A.G................................ Switzerland
2. A-D Holdings Argentina S.A..................... Argentina
3. AEAC, Inc...................................... Delaware
4. Avery Automotive Limited....................... United Kingdom
5. Avery China Company Limited.................... China
6. Avery Coordination Center N.V.................. Belgium
7. Avery Corp..................................... Delaware
8. Avery de Mexico S.A. de C.V.................... Mexico
9. Avery Dennison (Fiji) Limited.................. Fiji
10. Avery Dennison (Hong Kong) Limited............. Hong Kong
11. Avery Dennison (India) Private Limited......... India
12. Avery Dennison (Ireland) Limited............... Ireland
13. Avery Dennison (Retail) Limited................ Australia
14. Avery Dennison (Thailand) Ltd.................. Thailand
15. Avery Dennison Argentina S.A................... Argentina
16. Avery Dennison Australia Limited............... Australia
17. Avery Dennison C.A............................. Venezuela
18. Avery Dennison Canada Inc...................... Canada
19. Avery Dennison Chile S.A....................... Chile
20. Avery Dennison Columbia S.A.................... Columbia
21. Avery Dennison Danmark A/S..................... Denmark
22. Avery Dennison Deutschland GmbH................ Germany
23. Avery Dennison do Brasil Ltda.................. Brazil
24. Avery Dennison Foreign Sales Corporation....... Barbados
25. Avery Dennison France S.A...................... France
26. Avery Dennison Holding GmbH.................... Germany
27. Avery Dennison Holdings Limited................ Australia
28. Avery Dennison Italia S.p.A.................... Italy
29. Avery Dennison Korea Limited................... Korea
30. Avery Dennison Luxembourg S.A.................. Luxembourg
31. Avery Dennison Mexico S.A. de C.V.............. Mexico
32. Avery Dennison Office Products (Pty.) Ltd...... South Africa
33. Avery Dennison Office Products Company......... Nevada
1
SUBSIDIARY JURISDICTION
---------- ------------
IN WHICH
--------
ORGANIZED
---------
34. Avery Dennison Office Products U.K. Ltd........ United Kingdom
35. Avery Dennison Osterreich GmbH................. Austria
36. Avery Dennison Overseas Corporation............ Massachusetts
37. Avery Dennison Singapore (Pte) Ltd............. Singapore
38. Avery Dennison Materials U.K. Limited.......... United Kingdom
39. Avery Dennison U.K. Limited.................... United Kingdom
40. Avery Etiketsystemer A/S....................... Denmark
41. Avery Etiketten B.V............................ Netherlands
42. Avery Etiketten N.V............................ Belgium
43. Avery Etikettsystem Svenska AB................. Sweden
44. Avery Foreign Sales Corporation B.V............ Netherlands
45. Avery Graphic Systems, Inc..................... Delaware
46. Avery Guidex Limited........................... United Kingdom
47. Avery Holding AG............................... Switzerland
48. Avery Holding B.V.............................. Netherlands
49. Avery Holding Limited.......................... United Kingdom
50. Avery Holding S.A.............................. France
51. Avery International France S.A................. France
52. Avery Label (Northern Ireland) Limited......... United Kingdom
53. Avery Maschinen GmbH........................... Germany
54. Avery Pacific Corporation...................... California
55. Avery Properties Pty. Limited.................. Australia
56. Avery Specialty Tape Division N.V.............. Belgium
57. Avery, Inc..................................... California
58. Cardinal Insurance Limited..................... Bermuda
59. Dennison do Brasil Industria e Comercio Ltda... Brazil
60. Dennison International Company................. Massachusetts
61. Dennison International Holding B.V............. Netherlands
62. Dennison Ireland Limited....................... Ireland
63. Dennison Manufacturing (Trading) Ltd........... United Kingdom
64. Dennison Manufacturing Company................. Nevada
65. Dennison Monarch Systems, Inc.................. Delaware
66. Dennison Office Products Limited............... Ireland
67. DMC Development Corporation.................... Nevada
68. Dover S.A...................................... Argentina
69. Etikettrykkeriet A/S........................... Denmark
70. Fasson (Schweiz) A.G........................... Switzerland
2
SUBSIDIARY JURISDICTION
---------- ------------
IN WHICH
--------
ORGANIZED
---------
71. Fasson Belgie N.V.............................. Belgium
72. Fasson Canada Inc.............................. Canada
73. Fasson de Mexico S.A........................... Mexico
74. Fasson Deutschland GmbH........................ Germany
75. Fasson Espana S.A.............................. Spain
76. Fasson France S.a.r.L.......................... France
77. Fasson Ireland Limited......................... Ireland
78. Fasson Nederland B.V........................... Netherlands
79. Fasson Norge A/S............................... Norway
80. Fasson Polska Sp. Zo.o......................... Poland
81. Fasson Portugal Produtos Auto-Adesivos Lda..... Portugal
82. Fasson Products (Proprietary) Limited.......... South Africa
83. Fasson Pty. Limited............................ Australia
84. Fasson Scandinavia A/S......................... Denmark
85. Fasson Suomi OY................................ Finland
86. Fasson Sverige AB.............................. Sweden
87. LAC Retail Systems Limited..................... United Kingdom
88. LDNA Corporation............................... California
89. Metallised Films & Papers Ltd.................. United Kingdom
90. Monarch Industries, Inc........................ New Jersey
91. Novexx Modul Vertriebs GmbH.................... Germany
92. Plastimpres S.A................................ Argentina
93. Presto SarL.................................... France
94. Retail Products Limited........................ Ireland
95. Security Printing Division, Inc................ Delaware
96. Self Adhering Products & Associates (Pty.) Ltd. South Africa
97. Soabar Systems (Hong Kong) Limited............. Hong Kong
98. Soabar Systems (Philippines) Inc............... Philippines
99. Soabar Systems Hong Kong B.V................... Netherlands
100. Societe Civile Immobiliere Sarrail............. France
101. TIADECO Participacoes, Ltda.................... Brazil
All of the preceding subsidiaries have been consolidated in the
Registrant's financial statements and no separate financial statements have been
filed.
Registrant also owns 51% of Avery--Petofi KFT (Hungary), which company may
be deemed to be a subsidiary. Registrant's share of the profits and losses is
included on an equity basis in the Consolidated Statement of Income.
3
5
1,000
YEAR
DEC-28-1996
DEC-31-1995
DEC-28-1996
3,800
0
466,000
(17,500)
244,400
804,500
1,767,900
(805,200)
2,036,700
693,900
370,700
0
0
124,100
707,900
2,036,700
3,222,500
3,222,500
2,204,200
2,204,200
710,300
0
37,400
270,600
94,700
175,900
0
0
0
175,900
1.68
1.62
EXHIBIT 99
CAUTIONARY STATEMENT FOR PURPOSES OF THE
"SAFE HARBOR" PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Information provided by the Company may contain certain forward-looking
information, as defined by the Private Securities Litigation Reform Act of 1995
(the "Act"). This may relate to such matters as sales, income, margins,
earnings per share, return on equity, return on total capital, economic value
added, capital expenditures, dividends, cash flow, debt to capital ratios,
growth rates, future economic performance and trends, short and long term plans
(including financing, operating and strategic plans) and objectives for future
operations as well as assumptions relating to any of the forward-looking
information. This Statement is being made pursuant to the Act and with the
intention of obtaining the benefits of the so-called "safe harbor" provisions of
the Act. The Company cautions that forward-looking statements are not
guarantees because there are inherent and obvious difficulties in predicting the
outcome of future events. Therefore, actual results may differ materially from
those expressed or implied.
The ability of the Company to attain management's goals and objectives are
materially dependent on numerous factors, including those set forth herein.
Operating results are importantly influenced by general economic conditions and
growth (or contraction) of the principal economies in which the Company
operates, including the United States, Canada, Western Europe, Latin America and
the Asia-Pacific region. All economies in which the Company operates are
cyclical and the rates of growth (or contraction) can vary substantially. More
than one-third of the Company's sales and one-quarter of the income from
operations (before interest and taxes) are in foreign currencies, which
fluctuate in relation to one another and to the United States dollar.
Fluctuations in currencies can cause translation and other losses to the
Company. The Company's international operations are strongly influenced by the
political and regulatory environment (including tariffs) in the countries in
which the Company conducts its operations.
As a manufacturer, the Company's profitability is also dependent upon its
ability to control or pass on costs of raw materials and labor. Inflationary
increases in the costs of raw materials and labor have occurred in the past and
are expected to recur, and the Company's ability to reflect these costs in
increased selling prices for its products, increasing its productivity, and
focusing on higher profit businesses, has allowed the Company generally to
maintain its margins. Past performance may or may not be replicable in the
future.
The Company's customers are widely diversified, but in certain portions of its
business, industry concentration has increased the importance and decreased the
number of significant customers. In particular, sales of the Company's office
and consumer products in the United States are increasingly concentrated in a
few major customers, principally discount office product superstores and
distributors. These developments, including increased credit risks, may
increase pressures on the Company's margins.
A significant portion of the revenues in each of its recent fiscal years has
been represented by sales of products introduced by the Company within five
years prior to the period in question. The Company's ability to develop and
successfully market new products and to develop, acquire and retain necessary
intellectual property rights is therefore essential to maintaining the Company's
growth, which ability cannot be assured.
Other factors include costs and other effects of legal and administrative cases
and proceedings (whether civil, such as environment and product related, or
criminal), settlements and investigations, claims, and changes in those items;
developments or assertions by or against the Company relating to intellectual
property rights and intellectual property licenses; adoption of new, or change
in, accounting policies and practices and the application of such policies and
practices; changes in business mix, rates of growth and profitability may be
influenced by business reorganizations or combinations; general or specific
economic conditions and the ability and willingness of purchasers to substitute
other products for the products that the Company distributes; and pricing,
purchasing, financing and promotional decisions by intermediaries in the
distribution channel, which could affect orders, or end-user demand, for the
Company's products.
The factors identified in this statement are believed to be important factors
(but not necessarily all of the important factors) that could cause actual
results to be materially different from those that may be expressed or implied
in any forward-looking statement made by, or on behalf, of the Company. Other
factors not discussed in this statement could also have material adverse effects
concerning forward-looking objectives or estimates. The Company assumes no
obligation to update the information included in this statement.
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