Director Equity Plan [Amended and Restated] (2003)Full Document 

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                           AVERY DENNISON CORPORATION

                              DIRECTOR EQUITY PLAN
                              amended and restated

1.       Purpose; Eligibility

         The Directors Equity Plan (formerly the 1988 Stock Option Plan for
Non-Employee Directors), as amended and restated, herein (the "Plan") is
intended to attract and retain the services of experienced and knowledgeable
non-employee directors of Avery Dennison Corporation (the "Company") for the
benefit of the Company and its stockholders and to provide additional incentive
for such directors to continue to work for the best interests of the Company and
its stockholders. The individuals eligible to receive Awards (as defined below)
under the Plan shall be those individuals who are members of the Board of
Directors of the Company (the "Board"), who are not employees of the Company or
any of its subsidiaries (each, a "Director").

2.       Stock Subject to the Plan

         As of December 31, 2002, there were reserved for issuance upon the
exercise of stock options ("Options") granted under the Plan 265,000 shares of
Common Stock of the Company (the "Common Stock"); as of December 31, 2002, there
were 65,000 shares available for future Awards under the Plan. As of the
Effective Date, as defined in Paragraph 12 below, the aggregate number of shares
deliverable pursuant to Awards (as defined in Paragraph 4(a) below) under the
Plan shall be increased by 250,000 for a total of 515,000 shares. Shares of
Common Stock issued under the Plan may be authorized and unissued shares of
Common Stock, previously outstanding shares of Common Stock held as treasury
shares, or treasury shares that have been transferred to and held in a grantor
trust of the Company. If any Option granted under the Plan shall expire or
terminate for any reason without having been exercised in full, the shares
subject thereto shall again be available for the purposes of issuance upon the
exercise of Options granted under the Plan.

3.       Administration

         The Plan shall be administered by the Compensation and Executive
Personnel Committee ("Committee") (or other committee of the Board as designated
by the Board). Subject to the express provisions of the Plan, the Board shall
have authority to interpret the Plan, to prescribe, amend and rescind rules and
regulations relating to it, to determine the terms and provisions of Awards
(which shall comply with and be subject to the terms and conditions of the Plan)
and to make all other determinations necessary or advisable for the
administration of the Plan; such determinations of the matters referred to in
this Paragraph 3 shall be conclusive.

4.       Awards

         (a) The following types of Awards may be made to Directors under the
Plan: (i) Options granted automatically pursuant to Paragraph 4(b); and (ii)
Stock Units granted upon a Director's election as contemplated by Paragraph
4(c), and (iii) Stock Awards referred to in paragraph 4(d).

         (b) During the term of the Plan, at every regular December meeting of
the Board (or such other Board meeting when annual grants of options are made to
employees) each Director shall automatically be granted an Option for 2,000
shares of Common Stock (subject to adjustment as provided in Paragraph 8). Each
individual who is newly elected as a Director shall also be automatically
granted an initial Option for 5,000 shares of Common Stock as of the date of his
or her election, subject to



adjustment as provided in Paragraph 8. An individual who is a member of the
Board and an employee of the Company or one of its subsidiaries and becomes a
Director as a result of retiring from such employment while remaining a member
of the Board shall not receive an initial Option for 5,000 shares of Common
Stock, but, to the extent he or she is otherwise eligible after becoming a
Director, shall receive annual Options pursuant to the first sentence of this
Paragraph 4(b). Directors who receive Options are sometimes referred to below as

         Each Option shall be evidenced by a written Stock Option Agreement
("Agreement"), which shall be executed by the Optionee and an authorized officer
of the Company and which shall contain such other terms and conditions as the
Board shall determine, consistent with the Plan.

         Only non-qualified stock options (options, which do not qualify as
"incentive stock options" under Section 422A of the Internal Revenue Code of
1986, as amended), shall be granted under the Plan.

         (c) The Company has established the Non-Employee Director Deferred
Equity Compensation Program under the Plan, pursuant to which Directors are
permitted to elect to receive, in lieu of cash meeting and retainer fees, "Stock
Units" (each of which represents one hypothetical share of Common Stock) to be
paid to the director in the form of Common Stock at Retirement, together with
additional shares representing dividends and other distributions thereon. All
Stock Units granted to any Directors under such program, or any successor
thereto, at any time on or after the Effective Date, and all such additional
shares, shall be settled with shares of Common Stock issued pursuant to this
Plan, subject to the limitation set forth in Paragraph 2.

         (d) The Board or Committee may approve awards of stock ("Stock Awards"
or stock payments) to Directors as a portion of the directors' compensation

5.       Additional Terms and Conditions of Options

         (a) The per-share price ("Option Price") to be paid for the Common
Stock under each Option shall be 100% of the Fair Market Value of a share of the
Common Stock on the date such Option is granted. Options granted may not be
repriced. "Fair Market Value" of a share of Common Stock as of a given date
shall be (i) the mean between the highest and lowest selling price of a share of
Common Stock during normal business hours on the principal exchange on which
shares of Common Stock are then trading, if any, on such date, or if shares were
not traded on such date, then the weighted average of the means between the
highest and lowest sales upon the nearest date before and the nearest date after
such valuation date; or (ii) if Common Stock is not traded on an exchange, the
mean between the closing representative bid and asked prices for the Common
Stock during normal business hours on such date as reported by NASDAQ or, if
NASDAQ is not then in existence, by its successor quotation system; or (iii) if
Common Stock is not publicly traded, the Fair Market Value of a share of Common
Stock as established by the Board acting in good faith.

         (b) Options shall become exercisable in installments of 50% of the
number of shares initially granted, commencing on the first anniversary of the
grant date, such installments to be cumulative; provided, however, that all
Options held by a Director that are not yet exercisable on the date of such
director's Retirement (as defined in Paragraph 5(d) below)at or after age
seventy-two shall become fully exercisable on that date. In no case may an
Option be exercised as to fewer than 100 shares at anyone time (or the remaining
shares covered by the Option if fewer than 100 during the term of the Option).
The term of each Option shall be ten (10) years from the date of grant thereof,
or such shorter period as is prescribed below in this Paragraph 5. Except as
provided below in this Paragraph 5, no Option may be exercised at any time when
the Optionee is not a member of the Board. In the event that an Option shall be
exercised by any person or persons other than the Optionee as permitted by

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