Exhibit 10.1
AVERY DENNISON CORPORATION
EMPLOYEE STOCK BENEFIT TRUST
Effective as of October 24, 1996
TABLE OF CONTENTS
PAGE
ARTICLE 1.
Trust, Trustee and Trust Fund ............................. 2
1.1. Trust ........................................... 2
1.2. Trustee ......................................... 2
1.3. Trust Fund ...................................... 2
1.4. Trust Fund Subject to Claims .................... 2
1.5. Definitions ..................................... 3
ARTICLE 2.
Contributions and Dividends ............................... 6
2.1. Contributions ................................... 6
2.2. Dividends ....................................... 6
ARTICLE 3.
Release and Allocation of Company Stock ................... 7
3.1. Release of Shares ............................... 7
3.2. Allocations ..................................... 7
3.3. Excess Shares ................................... 7
ARTICLE 4.
Compensation, Expenses and Tax Withholding ............... 8
4.1. Compensation and Expenses ...................... 8
4.2. Withholding of Taxes ........................... 8
ARTICLE 5.
Administration of Trust Fund ............................. 9
5.1. Management and Control of Trust Fund ........... 9
5.2. Investment of Funds ............................ 9
5.3. Trustee's Administrative Powers ................ 9
5.4. Voting and Tendering of Company Stock .......... 11
5.5. Indemnification ................................ 13
5.6. General Duty to Communicate to Committee ....... 14
ARTICLE 6.
Accounts and Reports of Trustee .......................... 14
6.1. Records and Accounts of Trustee ................ 14
6.2. Fiscal Year .................................... 14
6.3. Reports of Trustee ............................. 14
6.4. Final Report ................................... 14
ARTICLE 7.
Succession of Trustee .................................... 15
7.1. Resignation of Trustee ......................... 15
7.2. Removal of Trustee ............................. 15
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7.3. Appointment of Successor Trustee ............... 15
7.4. Succession to Trust Fund Assets ................ 15
7.5. Continuation of Trust .......................... 16
7.6. Changes in Organization of Trustee ............. 16
7.7. Continuance of Trustee's Powers in Event of
Termination of the Trust ....................... 16
ARTICLE 8.
Amendment or Termination ................................. 16
8.1. Amendments ..................................... 16
8.2. Termination .................................... 17
8.3. Form of Amendment or Termination ............... 17
ARTICLE 9.
Miscellaneous ............................................ 18
9.1. Controlling Law ................................ 18
9.2. Committee Action ............................... 18
9.3. Notices ........................................ 18
9.4. Severability ................................... 18
9.5. Protection of Persons Dealing with
the Trust ...................................... 19
9.6. Tax Status of Trust ............................ 19
9.7. Participants to Have No Interest in the
Company by Reason of the Trust ................. 19
9.8. Nonassignability ............................... 19
9.9. Gender and Plurals ............................. 19
9.10. Counterparts ................................... 19
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AVERY DENNISON CORPORATION
EMPLOYEE STOCK BENEFIT TRUST
THIS TRUST AGREEMENT (the "Agreement") made effec-
tive as of October 24, 1996, between Avery Dennison Corpo-
ration, a Delaware corporation, and Wachovia Bank of North
Carolina N.A., a national banking association, as trustee.
W I T N E S S E T H :
WHEREAS, the Company (as defined below) desires to
establish a trust (the "Trust") in accordance with the laws
of the State of Delaware and for the purposes stated in this
Agreement;
WHEREAS, the Trustee (as defined below) desires to
act as trustee of the Trust, and to hold legal title to the
assets of the Trust, in trust, for the purposes hereinafter
stated and in accordance with the terms hereof;
WHEREAS, the Company or its subsidiaries have pre-
viously adopted the Plans (as defined below);
WHEREAS, the Company desires to provide assurance
of the availability of the shares of its common stock neces-
sary to satisfy certain of its obligations or those of its
subsidiaries under the Plans (as defined below);
WHEREAS, the Company desires that the assets to be
held in the Trust Fund (as defined below) should be princi-
pally or exclusively securities of the Company and, there-
fore, expressly waives any diversification of investments
that might otherwise be necessary, appropriate, or required
pursuant to applicable provisions of law; and
WHEREAS, Wachovia Bank of North Carolina N.A. has
been appointed as trustee and has accepted such appointment
as of the date set forth first above;
NOW, THEREFORE, the parties hereto hereby establish
the Trust and agree that the Trust will be comprised, held
and disposed of as follows:
ARTICLE 1.
Trust, Trustee and Trust Fund
1.1. Trust. This Agreement and the Trust shall be
known as the Avery Dennison Corporation Employee Stock Ben-
efit Trust. The parties intend that the Trust will be an
independent legal entity with title to and power to convey
all of its assets. The parties hereto further intend that
the Trust not be subject to the Employee Retirement Income
Security Act of 1974, as amended. The assets of the Trust
will be held, invested and disposed of by the Trustee, in
accordance with the terms of the Trust.
1.2. Trustee. The trustee named above, and its
successor or successors, is hereby designated as the trustee
hereunder, to receive, hold, invest, administer and distrib-
ute the Trust Fund in accordance with this Agreement, the
provisions of which shall govern the power, duties and re-
sponsibilities of the Trustee.
1.3. Trust Fund. The assets held at any time and
from time to time under the Trust collectively are herein
referred to as the "Trust Fund" and shall consist of contri-
butions received by the Trustee, proceeds of any loans, in-
vestments and reinvestment thereof, the earnings and income
thereon, less disbursements therefrom. Except as herein oth-
erwise provided, title to the assets of the Trust Fund shall
at all times be vested in the Trustee and securities that are
part of the Trust Fund shall be held in such manner that the
Trustee's name and the fiduciary capacity in which the secu-
rities are held are fully disclosed, subject to the right of
the Trustee to hold title in bearer form or in the name of a
nominee, and the interests of others in the Trust Fund shall
be only the right to have such assets received, held, in-
vested, administered and distributed in accordance with the
provisions of the Trust.
1.4. Trust Fund Subject to Claims. Notwithstanding
any provision of this Agreement to the contrary, the Trust
Fund shall at all times remain subject to the claims of the
Company's general creditors under federal and state law.
In addition, the Board of Directors and Chief Exec-
utive Officer of the Company shall have the duty to inform
the Trustee in writing of the Company's Insolvency. If a
person claiming to be a creditor of the Company alleges in
writing to the Trustee that the Company has become Insolvent,
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the Trustee shall determine whether the Company is Insolvent
and, pending such determination, the Trustee shall discon-
tinue allocations pursuant to Article 3.
Unless the Trustee has actual knowledge of the Com-
pany's Insolvency, or has received notice from the Company or
a person claiming to be a creditor alleging that the Company
is Insolvent, the Trustee shall have no duty to inquire
whether the Company is Insolvent. The Trustee may in all
events rely on such evidence concerning the Company's sol-
vency as may be furnished to the Trustee and that provides
the Trustee with a reasonable basis for making a determina-
tion concerning the Company's Insolvency.
If at any time the Trustee has determined that the
Company is Insolvent, the Trustee shall discontinue alloca-
tions pursuant to Article 3 and shall hold the Trust Fund for
the benefit of the Company's general creditors. Nothing in
this Trust Agreement shall in any way diminish any rights of
employees as general creditors of the Company with respect to
benefits due under the Plan(s) or otherwise.
The Trustee shall resume allocations pursuant to
Article 3 only after the Trustee has determined that the Com-
pany is not Insolvent (or is no longer Insolvent).
1.5. Definitions. In addition to the terms defined
in the preceding portions of the Trust, certain capitalized
terms have the meanings set forth below:
Board of Directors. "Board of Directors" means the
board of directors of the Company.
Calculation Period. "Calculation Period" means a
period consisting of calendar years (or portions thereof)
1996-2001, 2002-2006, or 2007-2011.
Change of Control. "Change of Control" means any
of the following events:
(a) an acquisition by any individual, entity or
group (within the meaning of Section 13(d)(3) or 14(d)(2) of
the Securities Exchange Act of 1934, as amended (the "Ex-
change Act")) of beneficial ownership (within the meaning of
Rule 13d-3 promulgated under the Exchange Act) of 50% or more
of the combined voting power of the then outstanding voting
securities of the Company; provided, however, that the fol-
lowing acquisitions shall not constitute a Change of Control:
(i) an acquisition by or directly from the Company, (ii) an
acquisition by any employee benefit plan or trust sponsored
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or maintained by the Company; and (iii) any acquisition de-
scribed in subclauses (A) or (B) of subsection (b) below; or
(b) approval by the stockholders of the Company of
(i) a complete dissolution or liquidation of the Company,
(ii) a sale or other disposition of all or substantially all
of the Company's assets or (iii) a reorganization, merger, or
consolidation ("Business Combination") unless either (A) all
or substantially all of the stockholders of the Company im-
mediately prior to the Business Combination own more than 50%
of the voting securities of the entity surviving the Business
Combination, or the entity which directly or indirectly con-
trols such surviving entity, in substantially the same pro-
portion as they owned the voting securities of the Company
immediately prior thereto, or (B) the consideration (other
than cash paid in lieu of fractional shares or payment upon
perfection of appraisal rights) issued to stockholders of the
Company in the Business Combination is solely common stock
which is publicly traded on an established securities ex-
change in the United States.
Code. "Code" means the Internal Revenue Code of
1986, as amended.
Committee. "Committee" means a committee of the
Company which is charged by the Board of Directors with ad-
ministration of the Trust.
Company. "Company" means Avery Dennison Corpora-
tion, a Delaware corporation, or any successor thereto. Ref-
erences to the Company shall include its subsidiaries where
appropriate.
Company Stock. "Company Stock" means shares of
common stock, par value $1.00 per share, issued by the Com-
pany or any successor securities.
Extraordinary Dividend. "Extraordinary Dividend"
means any dividend or other distribution of cash or other
property (other than Company Stock) made with respect to Com-
pany Stock, which the Board of Directors declares generally
to be other than an ordinary dividend.
Fair Market Value. "Fair Market Value" means as of
any date the average of the highest and lowest reported sales
price regular way on such date (or if such date is not a
trading day, then on the most recent prior date which is a
trading day) of a share of Company Stock as reported on the
composite tape, or similar reporting system, for issues
listed on the New York Stock Exchange (or, if the Company
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Stock is no longer traded on the New York Stock Exchange, on
such other national securities exchange on which the Company
Stock is listed or national securities or central market sys-
tem upon which transactions in Company Stock are reported, as
either shall be designated by the Committee for the purposes
hereof) or if sales of Common Stock are not reported in any
manner specified above, the average of the high bid and low
asked quotations on such date (or if such date is not a trad-
ing day, then on the most recent prior date which is a trad-
ing day) in the over-the-counter market as reported by the
National Association of Securities Dealers' Automated Quota-
tion System or, if not so reported, by National Quotation
Bureau, Incorporated or similar organization selected by the
Committee.
Insolvent. "Insolvent" means as to the Company,
(i) the inability of the Company to pay its debts as they
come due, or (ii) the Company being subject to a pending pro-
ceeding as debtor under the provisions of Title 11 of the
United States Code.
Loan. "Loan" means the loan and extension of
credit to the Trust evidenced by the promissory note made by
the Trustee dated October 24, 1996, with which the Trustee
purchased Company Stock.
Option Plans. "Option Plans" means the Company's
1973, 1988 and 1990 Stock Incentive Plans and any successor
plans or other stock-based incentive plans of the Company.
Plans. "Plans" means the Option Plans and the em-
ployee benefit plans listed on Schedule A hereto and any
other employee benefit plan of the Company or its subsidiar-
ies designated as such by the Committee.
Plan Participant. "Plan Participant" means a par-
ticipant in any of the Plans.
Suspense Account. "Suspense Account" means a sepa-
rate account to be maintained by the Trustee to hold Excess
Shares pursuant to the terms of Article 3 hereof.
Target Value. "Target Value" means with respect to
each Trust Year the amount set forth on Schedule B hereto.
Trustee. "Trustee" means Wachovia Bank of North
Carolina N.A. (not in its corporate capacity but as trustee
of the Trust) or any successor trustee.
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Trust Year. "Trust Year" means the period begin-
ning on the date hereof and ending on December 31, 1996 and
each 12-month period beginning on January 1 and ending on
December 31 thereafter.
ARTICLE 2.
Contributions and Dividends
2.1. Contributions. For each Trust Year, the Com-
pany shall contribute to the Trust in cash such amount, which
together with dividends, as provided in Section 2.2, and any
other earnings of the Trust, shall enable the Trustee to make
all payments of principal and interest due under the Loan on
a timely basis. Unless otherwise expressly provided herein,
the Trustee shall apply all such contributions, dividends and
earnings to the payment of principal and interest due under
the Loan. If, at the end of any Trust Year, no such contri-
bution has been made in cash, such contribution shall be
deemed to have been made in the form of forgiveness of prin-
cipal and interest on the Loan to the extent of the Company's
failure to make contributions as required by this Section
2.1. All contributions made under the Trust shall be deliv-
ered to the Trustee. The Trustee shall be accountable for
all contributions received by it, but shall have no duty to
require any contributions to be made to it.
2.2. Dividends. Except as otherwise provided here-
in, dividends paid in cash on Company Stock held by the
Trust, including Company Stock held in the Suspense Account,
shall be applied to pay interest and repay scheduled princi-
pal due under the Loan. Extraordinary Dividends shall not be
used to pay interest on or principal of the Loan, but shall
be invested in additional Company Stock as soon as practi-
cable. Dividends which are not in cash or in Company Stock
(including Extraordinary Dividends, or portions thereof)
shall be reduced to cash by the Trustee and reinvested in
Company Stock as soon as practicable, provided that an Ex-
traordinary Dividend constituting a spin-off, split-off or
similar transaction may be transferred to a trust sponsored
by the spun-off company or dealt with in another equitable
manner as determined in good faith by the Committee. For
purposes of this Agreement, Company Stock purchased with the
proceeds of an Extraordinary Dividend or with the proceeds of
a non-cash dividend shall be deemed to have been acquired
with the proceeds of the Loan. In the Trustee's discretion,
investments in Company Stock may be made through open-market
purchases, private transactions or (with the Company's con-
sent) purchases from the Company.
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ARTICLE 3.
Release and Allocation of Company Stock
3.1. Release of Shares. Subject to the other pro-
visions of this Article 3, upon the payment or forgiveness in
any Trust Year of any principal on the Loan (a "Principal
Payment"), the following number of shares of Company Stock
acquired with the proceeds of the Loan shall be available for
allocation ("Available Shares") as provided in this Article
3: the number of shares so acquired and held in the Trust
immediately before such payment or forgiveness, multiplied by
a fraction the numerator of which is the amount of the Prin-
cipal Payment and the denominator of which is the sum of such
Principal Payment and the remaining principal of the Loan
outstanding after such Principal Payment.
3.2. Allocations. Subject to the provisions of
Section 3.3, Available Shares shall be allocated as directed
by the Committee to the Plans no less frequently than an-
nually. The Committee's discretion shall be limited to the
amounts allocated among Plans, with the allocation itself
being mandatory. Subject to Section 3.3, in the event that
any Available Shares remain after satisfaction of all benefit
obligations under each of the Plans for a given Trust Year,
all remaining Available Shares shall be contributed by the
Trustee to such other plans of the Company or its subsidiar-
ies covering a broad cross-section of individuals employed by
the Company as the Committee shall direct.
3.3. Excess Shares. (a) Notwithstanding the pro-
visions of Section 3.2, Available Shares shall not be re-
leased from the Trust and allocated pursuant to Section 3.2
to the extent that the Fair Market Value of the Available
Shares in a Trust Year exceeds the Target Value. Available
Shares which are not allocated pursuant to the preceding sen-
tence ("Excess Shares") shall be held by the Trustee in the
Suspense Account and allocated in accordance with the provi-
sions of this Section 3.3.
(b) In the event that there are any Excess Shares
created in any Trust Year within a Calculation Period, such
Excess Shares shall be released from the Suspense Account
pursuant to Section 3.2 to the extent that but for such re-
lease the Fair Market Value of the Available Shares in a sub-
sequent Trust Year within the same Calculation Period would
be less than the Target Value. In the event that in any
Trust Year the value of the Available Shares was less than
the Target Value for such Trust Year (such amount being re-
ferred to as the "Shortfall") and Excess Shares are created
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in a subsequent Trust Year within the same Calculation Pe-
riod, Excess Shares with a value equal to the Shortfall shall
be transferred by the Trustee to such Plans as directed by
the Committee; provided, however, that such shares may not be
transferred to the Company.
(c) In the event that at the end of any Calcula-
tion Period there are Excess Shares that have not been al-
located pursuant to Section 3.3(b), such Excess Shares shall,
subject to the provisions of this subsection (c), be distrib-
uted in equal amounts of shares in each Trust Year in the
next Calculation Period to individuals employed by the Com-
pany or plans in which they participate, as directed by the
Committee taking into account the best interest of a broad
cross-section of the individuals employed by the Company and
its subsidiaries. However, Excess Shares which would have
been allocated in a Trust Year pursuant to the preceding sen-
tence shall instead be allocated pursuant to Section 3.2 to
the extent that there is a Shortfall with respect to such
Trust Year. Any Excess Shares remaining in the Trust at the
beginning of the final Calculation Period of the Trust shall
be contributed in equal amounts of shares in each Trust Year
during such Calculation Period to individuals employed by the
Company or plans in which they participate, as directed by
the Committee taking into account the best interest of a
broad cross-section of the individuals employed by the Com-
pany and its subsidiaries, and the Trust shall not terminate
until such Excess Shares have been so contributed.
ARTICLE 4.
Compensation, Expenses and Tax Withholding
4.1. Compensation and Expenses. The Trustee shall
be entitled to such reasonable compensation for its services
as may be agreed upon from time to time by the Company and
the Trustee and to be reimbursed for its reasonable legal,
accounting and appraisal fees, expenses and other charges
reasonably incurred in connection with the administration,
management, investment and distribution of the Trust Fund.
Such compensation shall be paid, and such reimbursement shall
be made out of the Trust Fund. The Company agrees to make
sufficient contributions to the Trust to pay such amounts
owing the Trustee in addition to those contributions required
by Section 2.1.
4.2. Withholding of Taxes. The Trustee may with-
hold, require withholding, or otherwise satisfy its withhold-
ing obligation, on any distribution which it is directed to
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make, such amount as it may reasonably estimate to be neces-
sary to comply with applicable federal, state and local with-
holding requirements. Upon settlement of such tax liability,
the Trustee shall distribute the balance of such amount.
Prior to making any distribution hereunder, the Trustee may
require such release or documents from any taxing authority,
or may require such indemnity, as the Trustee shall reason-
ably deem necessary for its protection.
ARTICLE 5.
Administration of Trust Fund
5.1. Management and Control of Trust Fund. Subject
to the terms of this Agreement, the Trustee shall have exclu-
sive authority, discretion and responsibility to manage and
control the assets of the Trust Fund.
5.2. Investment of Funds.
Except as otherwise provided in Section 2.2 and in
this Section 5.2, the Trustee shall invest and reinvest the
Trust Fund exclusively in Company Stock, including any ac-
cretions thereto resulting from the proceeds of a tender of-
fer, recapitalization or similar transaction which, if not in
Company Stock, shall be reduced to cash as soon as practi-
cable. The Trustee may invest any portion of the Trust Fund
temporarily pending investment in Company Stock, distribution
or payment of expenses in (i) investments in United States
Government obligations with maturities of less than one year,
(ii) interest-bearing accounts including but not limited to
certificates of deposit, time deposits, saving accounts and
money market accounts with maturities of less than one year
in any bank, including the Trustee's, with aggregate capital
in excess of $1,000,000,000 and a Moody's Investor Services
rating of at least P1, or an equivalent rating from a nation-
ally recognized ratings agency, which accounts are insured by
the Federal Deposit Insurance Corporation or other similar
federal agency, (iii) obligations issued or guaranteed by any
agency or instrumentality of the United States of America
with maturities of less than one year or (iv) short-term dis-
count obligations of the Federal National Mortgage Associa-
tion.
5.3. Trustee's Administrative Powers.
Except as otherwise provided herein, and subject to
the Trustee's duties hereunder, the Trustee shall have the
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following powers and rights, in addition to those provided
elsewhere in this Agreement or by law:
(a) to retain any asset of the Trust Fund;
(b) subject to Section 5.4(b), Section 8.2 and
Articles 2 and 3, to sell, transfer, mortgage, pledge,
lease or otherwise dispose of, or grant options with
respect to any Trust Fund assets at public or private
sale;
(c) upon direction from the Company, to borrow
from any lender (including the Company pursuant to the
Loan), to acquire Company Stock as authorized by this
Agreement, to enter into lending agreements upon such
terms (including reasonable interest and security for
the loan and rights to renegotiate and prepay such loan)
as may be determined by the Committee; provided, how-
ever, that any collateral given by the Trustee for the
Loan shall be limited to cash and property contributed
by the Company to the Trust and dividends paid on Com-
pany Stock held in the Trust Fund and shall not include
Company Stock acquired with the proceeds of Loan;
(d) with the consent of the Committee, to settle,
submit to arbitration, compromise, contest, prosecute or
abandon claims and demands in favor of or against the
Trust Fund;
(e) to vote or to give any consent with respect to
any securities, including any Company Stock, held by the
Trust either in person or by proxy for any purpose, pro-
vided that the Trustee shall vote, tender or exchange
all shares of Company Stock as provided in Section 5.4;
(f) to exercise any of the powers and rights of an
individual owner with respect to any asset of the Trust
Fund and to perform any and all other acts that in its
judgment are necessary or appropriate for the proper
administration of the Trust Fund, even though such pow-
ers, rights and acts are not specifically enumerated in
this Agreement;
(g) to employ such accountants, actuaries, invest-
ment bankers, appraisers, other advisors and agents as
may be reasonably necessary in collecting, managing,
administering, investing, valuing, distributing and pro-
tecting the Trust Fund or the assets thereof or any bor-
rowings of the Trustee made in accordance with Section
5.3(c); and to pay their reasonable fees and expenses,
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which shall be deemed to be expenses of the Trust and
for which the Trustee shall be reimbursed in accordance
with Section 4.1;
(h) to cause any asset of the Trust Fund to be
issued, held or registered in the Trustee's name or in
the name of its nominee, or in such form that title will
pass by delivery, provided that the records of the Trus-
tee shall indicate the true ownership of such asset;
(i) to utilize another entity as custodian to
hold, but not invest or otherwise manage or control,
some or all of the assets of the Trust Fund; and
(j) to consult with legal counsel (who may also be
counsel for the Trustee generally) with respect to any
of its duties or obligations hereunder; and to pay the
reasonable fees and expenses of such counsel, which
shall be deemed to be expenses of the Trust and for
which the Trustee shall be reimbursed in accordance with
Section 4.1.
Notwithstanding the foregoing, neither the Trust nor the
Trustee shall have any power to, and shall not, engage
in any trade or business.
5.4. Voting and Tendering of Company Stock.
(a) Voting of Company Stock. The Trustee shall
follow the directions of participants in the Option Plans as
to the manner in which shares of Company Stock held by the
Trust are to be voted on each matter brought before an annual
or special stockholders' meeting of the Company or the manner
in which any consent is to be executed, in each case as pro-
vided below. Before each such meeting of stockholders, the
Trustee shall cause to be furnished to each active employee
of the Company who holds a vested award under any of the Op-
tion Plans ("Active Option Plan Participant") a copy of the
proxy solicitation material received by the Trustee, together
with a form requesting confidential instructions ("Instruc-
tion Form") as to how to vote the shares of Company Stock
held by the Trustee. Each Active Option Plan Participant
shall have 30 days to return the Instruction Form to the
Trustee. Upon the expiration of the period for the return of
Instruction Forms, the Trustee shall on each such matter vote
the number of shares (including fractional shares) of Company
Stock held by the Trust as follows:
The Trustee shall assign to each Active Option Plan
Participant, a number of shares (the "Participant Directed
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Amount") equal to the product of (x) the total number of
shares of Common Stock held in the Trust Fund, and (y) a
fraction, the numerator of which is one (1) and the denomina-
tor of which is the total number of Active Option Plan Par-
ticipants in such year. Each share assigned to each Active
Option Plan Participant in accordance with the previous sen-
tence shall be voted in accordance with such participant's
Instruction Form. Any shares of Company Stock which remain
undirected pursuant to the foregoing provisions shall be
voted for, against or to abstain in the same proportions as
the shares of Company Stock for which the Trustee is directed
as provided above.
(b) Tender or Exchange of Company Stock. The
Trustee shall use its best efforts timely to distribute or
cause to be distributed to Active Option Plan Participants
any written materials distributed to stockholders of the Com-
pany generally in connection with any tender offer or ex-
change offer for Company Stock, together with a form request-
ing confidential instructions on whether or not to tender or
exchange shares of Company Stock held in the Trust (the "Ten-
der Form"). Each Active Option Plan Participant shall have
until 4 days prior to the expiration of the relevant tender
or exchange offer to return the Tender Form. Upon expiration
of the period for return of Tender Forms, the Trustee shall
tender or not tender the Participant Directed Amount for each
Active Option Plan Participant in accordance with such
participant's Tender Form. Each Active Option Plan Partici-
pant shall not be limited in the number of instructions to
tender or withdraw from tender which he/she may give but
shall not have the right to give instructions to tender or
withdraw from tender after expiration of the period for re-
turn of Tender Forms. If the Trustee shall not receive
timely instruction by means of a Tender Form as to the manner
in which to respond to such a tender or exchange offer, the
Trustee shall tender or exchange or not tender or exchange
any shares of Company Stock with respect to which an Active
Option Plan Participant has the right of direction, in the
same proportion as the shares of Company Stock for which the
Trustee is directed as provided above.
(c) The Company shall maintain appropriate proce-
dures to ensure that all instructions by Active Option Plan
Participants are collected, tabulated, and transmitted to the
Trustee without being divulged or released to any person af-
filiated with the Company or its affiliates. All actions
taken by Active Option Plan Participants and the contents of
the Instruction Forms and Tender Forms shall be held con-
fidential by the Trustee and shall not be divulged or re-
leased to any person, other than (i) agents of the Trustee
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who are not affiliated with the Company or its affiliates or
(ii) by virtue of the execution by the Trustee of any proxy,
consent or letter of transmittal for the shares of Company
Stock held in the Trust, or (iii) or as required by court
order.
5.5. Indemnification.
(a) To the extent lawfully allowable, the Company
shall and hereby does indemnify and hold harmless the Trustee
from and against any claims, demands, actions, administrative
or other proceedings, causes of action, liability, loss,
cost, damage or expense (including reasonable attorneys'
fees), which may be asserted against it, in any way arising
out of or incurred as a result of its action or failure to
act in connection with the operation and administration of
the Trust; provided that such indemnification shall not apply
to the extent that the Trustee has acted in willful or negli-
gent violation of applicable law or its duties under this
Trust or in bad faith. The Trustee shall be under no liabil-
ity to any person for any loss of any kind which may result
(i) by reason of any action taken by it in accordance with
any direction of the Committee or any Active Option Plan Par-
ticipant acting pursuant to Section 5.4(b) (hereinafter col-
lectively referred to as the "directing participants"), (ii)
by reason of its failure to exercise any power or authority
or to take any action hereunder because of the failure of any
such directing participant to give directions to the Trustee,
as provided for in this Agreement, or (iii) by reason of any
act or omission of any of the directing participants with
respect to its duties under this Trust. The Trustee shall be
fully protected in acting upon any instrument, certificate,
or paper delivered by the Committee or any Active Option Plan
Participant or beneficiary and believed in good faith by the
Trustee to be genuine and to be signed or presented by the
proper person or persons, and the Trustee shall be under no
duty to make any investigation or inquiry as to any statement
contained in any such writing, but may accept the same as
conclusive evidence of the truth and accuracy of the state-
ments therein contained.
(b) The Company may, but shall not be required to,
maintain liability insurance to insure its obligations here-
under. If any payments made by the Company or the Trust pur-
suant to this indemnity are covered by insurance, the Company
or the Trust (as applicable) shall be subrogated to the
rights of the indemnified party against the insurance com-
pany.
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(c) Without limiting the generality of the fore-
going, the Company may, at the request of the Trustee, ad-
vance to the Trustee reasonable amounts of expenses, includ-
ing reasonable attorneys' fees and expenses, which the Trus-
tee advised have been incurred in connection with its inves-
tigation or defense of any claim, demand, action, cause of
action, administrative or other proceeding arising out of or
in connection with the Trustee's performance of its duties
under this Agreement.
5.6. General Duty to Communicate to Committee. The
Trustee shall promptly notify the Committee of all commu-
nications with or from any government agency or with respect
to any legal proceeding with regard to the Trust and with or
from any Plan Participants concerning their entitlements un-
der the Plans or the Trust.
ARTICLE 6.
Accounts and Reports of Trustee
6.1. Records and Accounts of Trustee. The Trustee
shall maintain accurate and detailed records and accounts of
all transactions of the Trust, which shall be available at
all reasonable times for inspection or audit by any person
designated by the Company and which shall be retained as re-
quired by applicable law.
6.2. Fiscal Year. The fiscal year of the Trust
shall be the twelve month period beginning on January 1 and
ending on December 31.
6.3. Reports of Trustee. The Trustee shall prepare
and present to the Committee a report for the period ending
on the last day of each fiscal year, and for such shorter
periods as the Committee may reasonably request, listing all
securities and other property acquired and disposed of and
all receipts, disbursements and other transactions effected
by the Trust after the date of the Trustee's last account,
and further listing all cash, securities, and other property
held by the Trust, together with the fair market value there-
of, as of the end of such period. In addition to the fore-
going, the report shall contain such information regarding
the Trust Fund's assets and transactions as the Committee in
its discretion may reasonably request.
6.4. Final Report. In the event of the resignation
or removal of a Trustee hereunder, the Committee may request
and the Trustee shall then with reasonable promptness submit,
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for the period ending on the effective date of such resigna-
tion or removal, a report similar in form and purpose to that
described in Section 6.3.
ARTICLE 7.
Succession of Trustee
7.1. Resignation of Trustee. The Trustee or any
successor thereto may resign as Trustee hereunder at any time
upon delivering a written notice of such resignation, to take
effect ninety (90) days after the delivery thereof to the
Committee, unless the Committee accepts shorter notice; pro-
vided, however, that no such resignation shall be effective
until a successor Trustee has assumed the office of Trustee
hereunder.
7.2. Removal of Trustee. The Trustee or any suc-
cessor thereto may be removed by the Company by delivering to
the Trustee so removed an instrument executed by the Commit-
tee. Such removal shall take effect at the date specified in
such instrument, which shall not be less than sixty (60) days
after delivery of the instrument, unless the Trustee accepts
shorter notice; provided, however, that no such removal shall
be effective until a successor Trustee has assumed the office
of Trustee hereunder.
7.3. Appointment of Successor Trustee. Whenever
the Trustee or any successor thereto shall resign or be re-
moved or a vacancy in the position shall otherwise occur, the
Committee shall use its best efforts to appoint a successor
Trustee as soon as practicable after receipt by the Committee
of a notice described in Section 7.1, or the delivery to the
Trustee of a notice described in Section 7.2, as the case may
be, but in no event more than one hundred eighty (180) days
after receipt or delivery, as the case may be, of such no-
tice. A successor Trustee's appointment shall not become
effective until such successor shall accept such appointment
by delivering its acceptance in writing to the Company. If a
successor is not appointed within such 180 day period, the
Trustee, at the Company's expense, may petition a court of
competent jurisdiction for appointment of a successor. Any
successor Trustee shall be an institutional trustee not af-
filiated with the Company.
7.4. Succession to Trust Fund Assets. The title to
all property held hereunder shall vest in any successor Trus-
tee acting pursuant to the provisions hereof without the ex-
ecution or filing of any further instrument, but a resigning
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or removed Trustee shall execute all instruments and do all
acts necessary to vest title in the successor Trustee. Each
successor Trustee shall have, exercise and enjoy all of the
powers, both discretionary and ministerial, herein conferred
upon its predecessors. A successor Trustee shall not be
obliged to examine or review the accounts, records, or acts
of, or property delivered by, any previous Trustee and shall
not be responsible for any action or any failure to act on
the part of any previous Trustee.
7.5. Continuation of Trust. In no event shall the
legal disability, resignation or removal of a Trustee termi-
nate the Trust, but the Board of Directors shall forthwith
appoint a successor Trustee in accordance with Section 7.3 to
carry out the terms of the Trust.
7.6. Changes in Organization of Trustee. In the
event that any corporate Trustee hereunder shall be converted
into, shall merge or consolidate with, or shall sell or
transfer substantially all of its assets and business to,
another corporation, state or federal, the corporation re-
sulting from such conversion, merger or consolidation, or the
corporation to which such sale or transfer shall be made,
shall thereunder become and be the Trustee under the Trust
with the same effect as though originally so named.
7.7. Continuance of Trustee's Powers in Event of
Termination of the Trust. In the event of the termination of
the Trust, as provided herein, the Trustee shall dispose of
the Trust Fund in accordance with the provisions hereof. Un-
til the final distribution of the Trust Fund, the Trustee
shall continue to have all powers provided hereunder as nec-
essary or expedient for the orderly liquidation and distribu-
tion of the Trust Fund.
ARTICLE 8.
Amendment or Termination
8.1. Amendments. Except as otherwise provided
herein, the Company may amend the Trust at any time and from
time to time in any manner which it deems desirable, provided
that no amendment which would adversely effect the contingent
rights of Plan Participants may change (i) the allocation
formula contained in Section 3.1 or Section 3.2 so as to
change the Fair Market Value in any Trust Year of the Avail-
able Shares or the Excess Shares, (ii) the terms of Section
3.3, (iii) the Target Value reflected on Schedule B with re-
spect to any Trust Year, (iv) the provisions of Section 5.4,
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other than an amendment to reflect a change in the Plans
funded by this Trust, (v) the provisions of Section 8.2, (vi)
the provisions of this Section 8.1, or (vii) change the du-
ties of the Trustee without the Trustee's consent, which con-
sent shall not be unreasonably withheld. Notwithstanding the
foregoing, the Company shall retain the power under all cir-
cumstances to amend the Trust to correct any errors or
clarify any ambiguities or similar issues of interpretation
in this Agreement.
8.2. Termination. Subject to the terms of Section
3.3(c) and this Section 8.2, the Trust shall terminate on
January 1, 2011 or any earlier date on which the Loan is paid
in full (the "Termination Date"). The Board of Directors may
terminate the Trust at any time prior to the Termination
Date. The Trust shall also terminate automatically upon the
Company giving the Trustee notice of a Change of Control.
Immediately upon a termination of the Trust, the Company
shall be deemed to have forgiven all amounts then outstanding
under the Loan. As soon as practicable after receiving no-
tice from the Company of a Change of Control or upon any
other termination of the Trust, the Trustee shall sell all of
the Company Stock and other non-cash assets (if any) then
held in the Trust Fund as directed by the Committee in good
faith taking into account the interests of a broad cross-
section of individuals employed by the Company. The proceeds
of such sale shall first be returned to the Company up to an
amount equal to the principal amount, plus any accrued inter-
est of the Loan that was forgiven upon such termination.
Subject to the provisions of Section 3.3(c), any funds re-
maining in the Trust after such payment to the Company shall
be distributed with reasonable promptness to a broad cross-
section of Plan Participants or to individuals employed by
the Company generally or to any benefit plan or trust in
which a broad cross-section of individuals employed by the
Company participate, as the Committee may in good faith de-
termine taking into account the best interests of a broad
cross-section of the individuals employed by the Company.
8.3. Form of Amendment or Termination. Any amend-
ment or termination of the Trust shall be evidenced by an
instrument in writing signed by an authorized officer of the
Company, certifying that said amendment or termination has
been authorized and directed by the Company or the Board of
Directors, as applicable, and, in the case of any amendment,
shall be consented to by signature of an authorized officer
of the Trustee, if required by Section 8.1.
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ARTICLE 9.
Miscellaneous
9.1. Controlling Law. The laws of the State of
Delaware shall be the controlling law in all matters relating
to the Trust, without regard to conflicts of law.
9.2. Committee Action. Any action required or per-
mitted to be taken by the Committee may be taken on behalf of
the Committee by any individual so authorized. The Company
shall furnish to the Trustee the name and specimen signature
of each member of the Committee upon whose statement of a
decision or direction the Trustee is authorized to rely. Un-
til notified of a change in the identity of such person or
persons, the Trustee shall act upon the assumption that there
has been no change.
9.3. Notices. All notices, requests, or other com-
munications required or permitted to be delivered hereunder
shall be in writing, delivered by registered or certified
mail, return receipt requested as follows:
To the Company:
150 North Orange Grove Boulevard
Pasadena, California 91103
Attention: General Counsel
To the Trustee:
Post Office Box 3099
Winston Salem, North Carolina 27150
Attention: John N. Smith, III
Any party hereto may from time to time, by written notice
given as aforesaid, designate any other address to which no-
tices, requests or other communications addressed to it shall
be sent.
9.4. Severability. If any provision of the Trust
shall be held illegal, invalid or unenforceable for any rea-
son, such provision shall not affect the remaining parts
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hereof, but the Trust shall be construed and enforced as if
said provision had never been inserted herein.
9.5. Protection of Persons Dealing with the Trust.
No person dealing with the Trustee shall be required or en-
titled to monitor the application of any money paid or prop-
erty delivered to the Trustee, or determine whether or not
the Trustee is acting pursuant to authorities granted to it
hereunder or to authorizations or directions herein required.
9.6. Tax Status of Trust. It is intended that the
Company, as grantor hereunder, be treated for Federal income
tax purposes as the owner of the entire Trust and the trust
assets under Section 671, et seq. of the Code. Until advised
otherwise, the Trustee may presume that the Trust is so char-
acterized for federal income tax purposes and shall make all
filings of tax returns on that presumption.
9.7. Participants to Have No Interest in the Com-
pany by Reason of the Trust. Neither the creation of the
Trust nor anything contained in the Trust shall be construed
as giving any person, including any individual employed by
the Company or any subsidiary of the Company, any equity or
interest in the assets, business, or affairs of the Company
except to the extent that any such individuals are entitled
to exercise stockholder rights with respect to Company Stock
pursuant to Section 5.4.
9.8. Nonassignability. No right or interest of any
person to receive distributions from the Trust shall be as-
signable or transferable, in whole or in part, either di-
rectly or by operation of law or otherwise, including, but
not by way of limitation, execution, levy, garnishment, at-
tachment, pledge, or bankruptcy, but excluding death or men-
tal incompetency, and no right or interest of any person to
receive distributions from the Trust shall be subject to any
obligation or liability of any such person, including claims
for alimony or the support of any spouse or child.
9.9. Gender and Plurals. Whenever the context re-
quires or permits, the masculine gender shall include the
feminine gender and the singular form shall include the plu-
ral form and shall be interchangeable.
9.10. Counterparts. This Agreement may be exe-
cuted in any number of counterparts, each of which shall be
considered an original.
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IN WITNESS WHEREOF, the Company and the Trustee
have caused this Agreement to be signed, and their seals af-
fixed hereto, by their authorized officers all as of the day,
month and year first above written.
AVERY DENNISON CORPORATION
By /s/ R.G. Jenkins
Senior Vice President and
Chief Financial Officer
WACHOVIA BANK OF NORTH CAROLINA N.A.
By /s/ John N. Smith, III
Vice President
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SCHEDULE A
1. The 1973 Employee Stock Option and Stock Appreciation Rights
Plan
2. The 1988 Stock Option and Stock Appreciation Rights Plan
3. The 1990 Employee Stock Option and Incentive Plan
4. The 1985 Incentive Stock Option Plan of Dennison Manufactur-
ing Company
5. The 1988 Stock Option Plan of Dennison Manufacturing Company
6. The Employee Savings Plan
SCHEDULE B
Trust Year Target Value ($)
1997 33,616,071
1998 42,020,089
1999 52,525,112
2000 65,656,390
2001 82,070,487
2002 102,588,109
2003 128,235,136
2004 160,293,920
2005 200,367,400
2006 250,459,250
2007 313,074,062
2008 391,342,577
2009 489,178,222
2010 611,472,777
2011 5,350,386,800