SEC Filing | Avery Dennison Corporation

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Form 10-K for fiscal year ended December 28, 2002

U. S. SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

(Mark One)

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 28, 2002

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 incorporation or organization)		(I.R.S. Employer Identification No.)

150 North Orange Grove Boulevard Pasadena, California		91103
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (626) 304-2000

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class

Name of each exchange on which registered

Common stock, $1 par value

New York Stock Exchange

Pacific Exchange

Preferred Share Purchase Rights

New York Stock Exchange

Pacific 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. x

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the act). Yes x No ¨

The aggregate market value of voting stock held by non-affiliates as of June 28, 2002, was approximately $6,154,583,378.

Number of shares of common stock, $1 par value, outstanding as of February 24, 2003: 110,465,810.

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, 2002 (the “2002 Annual Report”)		Parts I, II
Definitive Proxy Statement for Annual Meeting of Stockholders to be held April 24, 2003 (the “2003 Proxy Statement”)		Parts III, IV

AVERY DENNISON CORPORATION

FISCAL YEAR 2002 FORM 10-K ANNUAL REPORT

TABLE OF CONTENTS

		Page
PART I

Item 1.	Business	1

Item 2.	Properties	5

Item 3.	Legal Proceedings	6

Item 4.	Submission of Matters to a Vote of Security Holders	6

	List of Executive Officers	7

PART II

Item 5.	Market for Registrant’s Common Equity and Related Stockholder Matters	8

Item 6.	Selected Financial Data	8

Item 7.	Management’s Discussion and Analysis of Results of Operation and Financial Condition	9

Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	25

Item 8.	Financial Statements and Supplementary Data	26

Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	26

PART III

Item 10.	Directors and Executive Officers of the Registrant	27

Item 11.	Executive Compensation	27

Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	27

Item 13.	Certain Relationships and Related Transactions	27

Item 14.	Controls and Procedures	27

PART IV

Item 15.	Exhibits, Financial Statement Schedules, and Reports on Form 8-K	28

Signatures		29

Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002		31

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”) includes 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, fasteners, business forms, reflective highway safety products, tickets, tags, and imprinting equipment.

A pressure-sensitive, or self-adhesive, material is one that adheres to a surface by mere press-on contact. It generally consists of four elements—a face material, which may include 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 face material is pressed or rolled into place.

Self-adhesive materials may initially cost more than materials using heat or moisture activated adhesives, but the use of self-adhesive materials often effects 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 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. As of December 28, 2002, the Company manufactured and sold its products from over 200 sales offices and distribution and manufacturing facilities located in 42 countries, and employed a total of approximately 20,500 persons worldwide.

On May 17, 2002, the Company acquired Jackstädt GmbH (“Jackstädt”), a manufacturer of pressure-sensitive adhesive materials based in Germany. Jackstädt has an international customer base, and had consolidated revenues of approximately $400 million in 2001. This acquisition was the Company’s largest in over a decade. Jackstädt strengthens the Company’s pressure-sensitive business in many developing markets and other growth areas around the world, including Asia, Latin America and Eastern Europe. Integration of the Jackstädt business is progressing and the majority of the integration actions, including cost and headcount reductions, are expected to be completed by the end of the second quarter 2004.

On November 5, 2002, the Company acquired RVL Packaging, Inc. (“RVL”), a California-based provider of brand identification products to apparel manufacturers and retailers. On the same day, the Company also acquired the assets of L&E Packaging (“L&E”), one of RVL’s suppliers, based in North Carolina. On a combined basis, unaudited revenues for RVL and L&E and affiliated companies were approximately $175 million for 2001.

The Company wishes to take advantage of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, and is subject to certain risks referred to in Exhibit 99.1 hereto, including those normally

attending international and domestic operations, such as changes in economic or political conditions, currency fluctuations, exchange control regulations and the effect of international relations and domestic affairs of foreign countries on the conduct of business, legal proceedings, and the availability and pricing of raw materials.

Except as set forth below, no material part of the Company’s business is dependent upon a single customer or a few customers. However, sales and related accounts receivable of the Company’s U.S. consumer products business are concentrated in a small number of major customers, principally discount office products superstores, mass marketers and distributors (see Note 5 of Notes to Consolidated Financial Statements beginning on page 49 of the 2002 Annual Report, which is incorporated by reference). United States export sales are not a significant part of the Company’s business. Backlogs are not considered material in the industries in which the Company competes.

Available information

The Company electronically files with the Securities and Exchange Commission (“SEC”) its annual reports on Form 10-K, its quarterly reports on Form 10-Q, its periodic reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) of the Securities Exchange Act of 1934. The SEC maintains a site on the internet, www.sec.gov, that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. Avery Dennison Corporation also makes these filings available free of charge by way of a third-party hyperlink service through the Company’s internet site, www.averydennison.com (under the “Investors” tab), as soon as reasonably practical after electronic filing of such material with the SEC.

Pressure-sensitive Adhesives and Materials Segment

The Pressure-sensitive Adhesives and Materials segment manufactures and sells Fasson-, JAC- and Avery Dennison-brand pressure-sensitive base materials, specialty tapes, graphic films, reflective highway safety products, and chemicals. Base materials consist primarily of papers, plastic films, metal foils and fabrics, which are primed and coated with Company-developed and purchased adhesives, and then laminated with specially coated backing papers and films. They are 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 this segment is generally not seasonal, except for certain highway safety products.

Base material products, which consist of a wide range of pressure-sensitive coated papers, films and foils, are sold to label printers and converters for labeling, decorating, fastening, electronic data processing and special applications. Other product offerings include paper and film materials for use in a variety of industrial, commercial and consumer applications. The Company also manufactures and sells proprietary film face materials that are converted into labels generally for consumer applications.

Specialty tape products are single- and double-coated tapes and adhesive transfer tapes 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.

Graphic products consist of a variety of films and other products sold to the worldwide automotive, architectural, commercial sign, digital printing, and other related markets. The Company also sells durable cast and reflective films to the construction, automotive, fleet transportation, sign and industrial equipment markets, and reflective films and highway safety products for traffic and safety applications. In addition, the Company sells 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. The Company’s graphics businesses are organized on a worldwide basis to serve the expanding commercial graphic arts market, including wide-format digital printing applications.

Chemical products include a range of solvent- and emulsion-based acrylic polymer adhesives, top coats, protective coatings and other polymer additives for internal uses, as well as for sale to other companies.

On May 17, 2002, the Company acquired Jackstädt, a manufacturer of pressure-sensitive adhesive materials based in Germany. Jackstädt has an international customer base and had consolidated revenues of approximately $400 million in 2001. Jackstädt strengthens the Company’s pressure-sensitive business in many developing markets and other growth areas around the world, including Asia, Latin America and Eastern Europe.

In this segment, 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 certain capital requirements and a need for sophisticated technical know-how. The Company believes that its ability to serve its customers with a broad line of quality products and service programs, its distribution and brand strength, and the development and commercialization of new products are among the more significant factors in developing and maintaining its competitive position.

Consumer and Converted Products Segment

The Consumer and Converted Products segment manufactures and sells a wide range of Avery-brand consumer products, custom label products, high performance specialty films and labels, automotive applications and fasteners. The business of this segment is generally not seasonal, except for certain consumer products sold during the back-to-school season.

The Company’s principal consumer products are generally sold worldwide through wholesalers and dealers, mass market channels of distribution, and superstores. The Company manufactures and sells a wide range of Avery-brand products for home, school and office uses, including copier, ink-jet and laser printer labels, related computer software, presentation and organizing systems, ink-jet and 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. A wide range of other stationery products is offered, including writing instruments, markers, adhesives and specialty products under brand names such as Avery, Stabilo, Marks-A-Lot and HI-LITER, Index Maker and accounting products, note pads and presentation products under the National brand name. The extent of product offerings varies by geographic market. Operations in Europe distribute a broad range of these types of products under the Avery and Zweckform brands. Operations in Latin America and Asia Pacific have been established to market and distribute the Avery-brand line of stock self-adhesive products, including copier, ink-jet and laser labels and related software, laser printed card products and other unprinted labels.

Custom label products in North America primarily consist of custom pressure-sensitive and heat-seal 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, packagers and retailers, as well as through international subsidiaries and distributors. Label products in Europe include custom and stock labels, labeling machinery and data printing systems, which are marketed to a wide range of industrial and retail users.

The Company designs, fabricates and sells a wide variety of tags and labels, including bar-coded tags and labels, and a line of machines for imprinting, dispensing and attaching preprinted roll tags and labels. The machine products are generally designed for use with tags and labels as a complete system. The Company also designs, assembles and sells labeling systems for integration into a customer’s shipping and receiving operations. Principal markets include apparel, retail and industrial for identification, tracking and control applications principally in North America, Europe and Asia Pacific. Fastener products include plastic tying and attaching products for retail and industrial users.

The Company also manufactures and sells self-adhesive battery labels to battery manufacturers, and self-adhesive stamps to the postal service in the U.S. and certain other countries. The Company is an integrated supplier of adhesive coating, security printing and converting technologies for postage stamp production. Specialty automotive film products are used for interior and exterior vehicle finishes, striping decoration and identification. Other products include pressure-sensitive sheeted and die-cut papers and films, which are sold through distributors.

On November 5, 2002, the Company acquired RVL, a California-based provider of brand identification products to apparel manufacturers and retailers. On the same day, the Company also acquired the assets of L&E, one of RVL’s suppliers, based in North Carolina. On a combined basis, unaudited revenues for RVL and L&E and affiliated companies were approximately $175 million for 2001.

In this segment, the Company competes, both domestically and internationally, with a number of small to large firms (among the principal competitors are Esselte AB, Fortune Brands, Inc., and 3M Co.). The Company believes that its ability to serve its customers with an extensive product line, its distribution and brand strength, its ability to develop and to commercialize new products, and its diverse technical foundation, including a range of electronic imprinting systems, are among the more significant factors in developing and maintaining its competitive position.

Research and Development

Many of the Company’s current products are the result of its own research and development efforts. The Company expended $74.5 million, $69.9 million and $67.8 million, in 2002, 2001 and 2000, respectively, on research-related activities by operating units and the Avery Research Center (the “Research Center”), located in Pasadena, California. A significant 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 of the Company’s operating segments.

The operating units’ research efforts are directed primarily toward developing new products and processing operating techniques and improving product performance, often in close association with customers. The Research Center supports the operating units’ patent and product development work, and focuses on research and development in new adhesives, materials and coating processes, as well as new product applications and ventures. Research and development often focuses on projects affecting both operating segments in areas such as printing and coating technologies, and adhesive, release and ink chemistries.

The loss of the Company’s individual patents or licenses would not be material to the business of the Company taken as a whole, nor to either one of the Company’s operating segments. The Company’s principal trademarks are Avery, Fasson and Avery Dennison. These trademarks are significant in the markets in which the Company’s products compete.

Three-Year Summary of Segment Information

The Business Segment Information and financial information by geographical areas of the Company’s operations for the three years ended December 28, 2002, which appear in Note 12 of Notes to Consolidated Financial Statements on pages 55 and 56 of the 2002 Annual Report, are incorporated herein by reference.

Other Matters

The raw materials used by the Company are primarily paper, plastic and chemicals, which are purchased from a variety of commercial and industrial sources and are subject to pricing fluctuations. Although from time to time shortages could occur, these raw materials currently are generally available.

At present, the Company produces a majority of its self-adhesive materials using water-based emulsion and hot-melt adhesive technologies. However, a portion of the Company’s manufacturing process for self-adhesive materials utilizes certain organic solvents which, unless controlled, would be emitted into the atmosphere. Emissions of these substances are regulated by agencies of federal, state, local and foreign governments. The Company invests in solvent capture and control units, as well as solvent-free systems to regulate emissions in connection with the acquisition of new manufacturing equipment and facilities.

Efforts have been directed toward development of new adhesives and adhesive processing systems. Emulsion adhesives, hot-melt adhesives or solventless silicone systems have been installed in the Company’s facilities in Peachtree City, Georgia; Fort Wayne and Greenfield, Indiana; Quakertown, Pennsylvania; Rodange, Luxembourg; Turnhout, Belgium; Hazerswoude, the Netherlands; Cramlington, England; and Gotha, Germany, as well as other plants in the United States, Argentina, Australia, Brazil, China, Colombia, France, Germany, India, Korea, and Thailand.

Based on current information, the Company does not believe that the costs of complying with applicable laws 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, consolidated financial position and operations of the Company.

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 Results of Operations and Financial Condition” (Part II, Item 7).

Item 2.

PROPERTIES

At December 28, 2002, the Company operated approximately 34 principal manufacturing facilities in excess of 100,000 square feet and totaling approximately 5 million square feet. The following sets forth the locations of such principal facilities and the operating segments for which they are presently used:

Pressure-sensitive Adhesives and Materials Segment

Domestic—		Peachtree City, Georgia; Greenfield, Fort Wayne, Lowell, and Schererville, Indiana; Fairport Harbor, Mentor and Painesville Ohio; Quakertown, Pennsylvania; and Neenah, Wisconsin.

Foreign—		Turnhout, Belgium; Vinhedo, Brazil; Ajax, Canada; Kunshan, China; Cramlington, United Kingdom; Champ-sur-Drac and Valenciennes, France; Gotha and Schwelm, Germany; Bonoporto, Italy; Rodange, Luxembourg; Johannesburg, South Africa; Rayong, Thailand; and Hazerswoude, the Netherlands.

Consumer and Converted Products Segment

Domestic—		Flowery Branch, Georgia; Chicopee and Fitchburg, Massachusetts; Meridian, Mississippi; Strongsville, Ohio; and Clinton, South Carolina.

Foreign—		Hong Kong, China; and Juarez and Tijuana, Mexico.

In addition to the Company’s principal manufacturing facilities described above, the Company’s other principal facilities include its corporate headquarters facility and research center in Pasadena, California, and offices located in Brea, California; Leiden, the Netherlands; Concord, Ohio; Framingham, Massachusetts; and Wuppertal, Germany

All of the Company’s principal properties identified above are owned except the facilities in Brea, California, and Juarez, Mexico, which are leased.

All of the buildings comprising the facilities identified above were constructed after 1954, except parts of the Framingham, Massachusetts office. 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 plans to expand capacity and provide facilities to meet future increased demand as needed. 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 significant encumbrances on its properties except for certain mortgage liens.

Item 3.

LEGAL PROCEEDINGS

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 eight 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. 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 the 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. Amounts currently accrued are not significant to the consolidated financial position of the Company and, based upon current information, management believes that it is unlikely that final resolution of these matters will significantly impact the consolidated financial position and operations of 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 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.

EXECUTIVE OFFICERS OF THE REGISTRANT(1)

Name	Age	Served as Executive Officer since	Former Positions and Offices with Registrant
Philip M. Neal Chairman and Chief Executive Officer (also Director of Registrant	62	January 1974	1990-1998 1998-2000	President and Chief Operating Officer President and Chief Executive Officer

Dean A. Scarborough President and Operating Officer (also Director of Registrant)	47	August 1997	1997-1999	Group V.P., Fasson Roll North America and Europe
			1999-2000	Group V.P., Fasson Roll Worldwide

Robert G. van Schoonenberg Executive Vice President, General Counsel and Secretary	56	December 1981	1997-2000	S.V.P., General Counsel and Secretary

Daniel R. O’Bryant Senior Vice President, Finance and Chief Financial Officer	45	January 2001	1997-1999	General Manager, Business Forms Division, Fasson Roll N.A.
			1999-2000	V.P. and General Manager, Product Identification Division, Fasson Roll N.A.
			2000-2001	V.P. and General Manager, Fasson Roll N.A.

Diane B. Dixon Senior Vice President, Worldwide Communications and Advertising	51	December 1985	1997-2000	V.P., Worldwide Communications and Advertising

Robert M. Malchione Senior Vice President, Corporate Strategy and Technology	45	August 2000	1997-2000	V.P., Boston Consulting Group(2)
			2000-2001	S.V.P., Corporate Strategy

Karyn E. Rodriguez Vice President and Treasurer	43	June 2001	1997-1999	Director, Corporate Finance and Investments
Karyn E. Rodriguez Vice President and Treasurer			1999-2001	Assistant Treasurer, Corporate Finance and Investments

Michael A. Skovran Vice President and Controller	44	January 2002	1998-2001	V.P., Finance, Worldwide Office Products

Christian A. Simcic Group Vice President, Roll Materials Worldwide	46	May 2000	1997-2000	V.P. and Managing Director, Asia Pacific

Timothy S. Clyde Group Vice President, Worldwide Office Products	40	February 2001	1998-1999	General Manager, OF&P Division, Office Products N.A.
			1999-2000	V.P. and General Manager OF&P Division, Office Products N.A.
			2000-2001	V.P. and General Manager Office Products N.A.

(1)

All officers are elected to serve a one-year term and until their successors are elected and qualify.

(2)

Business experience during past 5 years prior to service with Registrant.

PART II

Item 5.

MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTER

The information called for by this item appears on page 60 of Registrant’s 2002 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 page 26 of Registrant’s 2002 Annual Report and is incorporated herein by reference.

ITEM 7.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATION AND FINANCIAL CONDITION

Overview and Outlook

The Company’s results for 2002 reflect growth from the completion of three acquisitions, as well as sales from new products and applications in a variety of consumer and industrial markets. Improved profitability was achieved from cost reduction and productivity improvement programs such as Six Sigma, a program designed to improve productivity and quality.

The Pressure-sensitive Adhesives and Materials segment reported increased sales for 2002 compared to 2001. The worldwide Roll Materials business, the Graphics and Reflective business outside the U.S. and the domestic and international Specialty Tapes business reported sales growth. The Graphics and Reflective business in the U.S., however, continued to be negatively impacted by generally weak economic conditions. Contributing to the growth in the segment was the acquisition in May 2002 of Jackstädt GmbH (“Jackstädt”), a manufacturer of pressure-sensitive materials based in Germany. This acquisition was the Company’s largest in over a decade. Jackstädt strengthens the Company’s business in many developing markets and other growth areas around the world, including Asia, Latin America and Eastern Europe. Integration of the Jackstädt business is progressing and the majority of the integration actions, including cost and headcount reductions, are expected to be completed by the end of the second quarter 2004.

The Consumer and Converted Products segment reported increased sales for 2002 compared to 2001. Retail Information Services reported increased sales in 2002 compared with 2001 primarily as a result of the fourth quarter acquisitions of RVL Packaging, Inc. (“RVL”), a provider of brand identification products to apparel manufacturers and retailers, and L&E Packaging (“L&E”), one of RVL’s suppliers, as well as from worldwide Ticketing. Industrial and Automotive Products also reported increased sales in 2002 compared to 2001. Although the Office Products business in North America posted modest sales growth in 2002, the European Office Products business reported a slight downturn in sales relative to the prior year. The office products environment has been challenging over the past two years, with superstores closing stores and reducing inventory, while white collar layoffs have reduced end-user demand.

The Company recorded charges totaling $32.1 million in the third and fourth quarters of 2002 for severance ($10.7 million), the impairment of property, plant and equipment ($17.5 million) and lease cancellation costs ($3.9 million). Approximately 40 percent of the $10.7 million severance charge was related to the elimination of Avery Dennison positions as a result of the Jackstädt integration, while the remainder was associated with the announcement of the closure of an Office Products’ manufacturing facility and other cost reduction actions. Approximately 50 percent of the $21.4 million charge for asset impairments and lease cancellation costs related to the integration of Jackstädt. The remainder of the charge primarily related to the Reflective business. The Company expects additional headcount reductions of approximately 700 positions during 2003 and 2004. The Company expects to take charges totaling approximately $20 million in the first quarter of 2004 for the balance of severance costs related to the Jackstädt acquisition.

Interest expense was $43.7 million for 2002, compared to $50.2 million in 2001, reflecting lower interest rates on the Company’s short-term, floating rate debt. The Company entered into a forward starting interest rate swap in May 2002 to secure the interest rate on the Company’s anticipated long-term debt issuance to finance the acquisition of Jackstädt. The principal amount hedged was $250 million. Because of a shift in interest rates, an unrealized loss of approximately $37.4 million related to the swap was included in other comprehensive loss at the end of 2002. In January 2003, the Company issued $250 million of 10-year and $150 million of 30-year notes for the purpose of refinancing the short-term obligations on a long-term basis. In connection with the issuance of the notes, the Company settled the interest rate swap at a loss of approximately $32.5 million. The loss will be amortized to interest expense over the term of the debt. Interest expense will increase as a result of the refinancing.

Subsequent to the announcement of the RVL and L&E acquisitions, Standard & Poor’s Rating Services (“S&P”) and Moody’s Investors Service (“Moody’s”) reviewed the Company’s debt ratings. S&P reaffirmed the Company’s “A-1” short-term rating, “A” long-term rating and “negative” outlook. Moody’s downgraded the Company’s short-term rating from “P1” to “P2” and its long-term rating from “A2” to “A3,” and changed the outlook for the Company from “negative” to “stable.” The downgrade will increase interest rates on the Company’s debt. Beginning in 2003, based on current interest rates and the current level of debt, the increased interest cost associated with the downgrade is estimated to have an after-tax impact in the range of approximately $1 million to $3 million per year.

The effective tax rate was 29.5 percent for 2002. The Company estimates the effective tax rate will be approximately 29.5 percent during 2003, subject to structural and operational changes, the impact of acquisitions and the geographic mix of income.

International operations constitute approximately 45 percent of the Company’s business. The Company is exposed to foreign currency exchange rate risk, and changes to foreign exchange rates will impact the Company’s financial results.

Weakness in the equity markets and the lower interest rate environment resulted in modifications to the Company’s 2002 pension assumptions, negatively impacting pretax operating income by $4 million in 2002 compared with 2001. Continued weakness in the equity markets and the lower interest rate environment have resulted in adjustments of the 2003 pension assumptions, and as a result of these changes, forecasted pension expense for 2003 is expected to negatively impact pretax operating income by approximately $10 million relative to 2002.

The 2003 weighted-average assumptions for return on plan assets and discount rate for U.S. pension plans are 9 percent and 7 percent, respectively. The 2003 weighted-average assumptions for return on plan assets and discount rate for international plans are 6.6 percent and 5.5 percent, respectively.

The adoption of Statement of Financial Accounting Standards (SFAS) No. 142, “Goodwill and Other Intangibles,” at the beginning of fiscal 2002 benefited earnings per share, assuming dilution, by approximately $.14 in 2002. Under this accounting standard, the Company no longer amortizes goodwill. Amortization expense related to intangible and other assets increased approximately $9 million in fiscal 2002 as a result of increases in capitalized software, deferred charges and from identifiable intangibles resulting from the 2002 acquisitions. A full year of amortization expense for the identifiable intangibles from the 2002 acquisitions is expected to be approximately $4 million in 2003.

The Company expects continued growth in 2003. During the year, the Company will be introducing new products in both the Pressure-sensitive Adhesives and Materials and the Consumer and Converted Products segments. The Company also expects growth from acquisitions completed in 2002. The Company has reduced costs and will continue its cost management initiatives designed to improve margins. The Company continues to pursue long-term growth initiatives, with emphasis on new product development and growth in emerging markets, particularly in the Asia Pacific, Latin American and Eastern European regions.

Results of Operations

	2002		2001			2000
	(In millions)
Net sales	$	4,206.9	$	3,803.3		$	3,893.5
Cost of products sold		2,853.2		2,563.1			2,561.3

Gross profit		1,353.7		1,240.2			1,332.2
Marketing, general and administrative expense		913.1		830.5			851.3
Interest expense		43.7		50.2			54.6
Other expense (income), net		32.1		(.3	)		—

Income before taxes and accounting change		364.8		359.8			426.3
Taxes on income		107.6		116.4			142.8

Income before accounting change		257.2		243.4			283.5
Cumulative effect of accounting change, net of tax		—		(.2	)		—

Net income	$	257.2	$	243.2		$	283.5

Sales increased 10.6 percent to $4.21 billion in 2002, compared to $3.8 billion in 2001. Excluding changes in foreign currency exchange rates, sales increased 10 percent. In 2001, sales decreased 2.3 percent over 2000 sales of $3.89 billion. Excluding the impact of currency, sales decreased .6 percent in 2001. Acquisitions made in each of the years 2002, 2001 and 2000 contributed additional sales of approximately $270 million in 2002, $84.3 million in 2001 and $97.1 million in 2000. The contribution from acquisitions in 2002 can only be estimated given the integration of the Jackstädt acquisition with the Company’s existing business.

Gross profit margins for the years ended 2002, 2001 and 2000 were 32.2 percent, 32.6 percent and 34.2 percent, respectively. The Company’s gross profit margins for individual products within business units can vary significantly. The decrease in 2002 was due to the lower gross profit margin on the Jackstädt business, partially offset by reduced expenses from the cost reduction programs and productivity initiatives. The decrease in 2001 was due to lower sales in the higher-margin Office Products business, a shift in sales within the Roll Materials business to lower-margin products, as well as a resulting increase in fixed costs as a percentage of sales across most of the Company’s businesses because fixed costs were not reduced commensurate with the overall decline in sales.

Marketing, general and administrative expense as a percent of sales was 21.7 percent in 2002, 21.8 percent in 2001 and 21.9 percent in 2000.

On November 5, 2002, the Company acquired RVL, a provider of brand identification products to apparel manufacturers and retailers. RVL designs, markets and distributes woven and printed labels, graphic tags and specialty packaging products. On the same day, the Company also acquired the assets of L&E, one of RVL’s suppliers. L&E offers a broad range of printing products tailored to the specific needs of the apparel and retail industries. Both transactions included the acquisition of certain related entities. The purchase price, net of cash acquired, for these transactions was approximately $222 million, consisting of approximately $175 million in cash and approximately $47 million in shares of Avery Dennison common stock. Funds to complete the acquisitions were derived from short-term borrowings. On a combined basis, unaudited revenues for RVL, L&E and affiliated companies were approximately $175 million for 2001. The operations of the acquired companies are included in the Company’s Consumer and Converted Products segment.

On May 17, 2002, the Company acquired Jackstädt, a manufacturer of pressure-sensitive adhesive materials based in Germany. Jackstädt has an international customer base and had consolidated revenues of approximately $400 million in 2001. The purchase price, net of cash acquired, was approximately $311 million, which included approximately $211 million in cash and assumed debt of approximately $100 million. The Jackstädt business is included in the Company’s Pressure-sensitive Adhesives and Materials segment. Jackstädt complements the

Company’s operations in Europe, Latin America, Asia and North America. Jackstädt enhances the Company’s international presence and enables it to offer a broader selection of products and services. Integration of the Jackstädt business is progressing with the reduction at year end of approximately 315 of the estimated 1,000 positions to be eliminated.

The Company recorded a charge in the fourth quarter of 2002 relating to cost reduction actions. The 2002 charge involved cost reduction programs and the reorganization of manufacturing and administrative facilities in both of the Company’s operating segments. The cost reduction efforts resulted in a pretax charge of $10.7 million, which consisted of employee severance and related costs for approximately 300 positions worldwide. This charge is shown in the “Other expense” line in the Consolidated Statement of Income. The positions eliminated included approximately 80 employees in the Pressure-sensitive Adhesives and Materials segment and approximately 220 employees in the Consumer and Converted Products segment. Severance and related costs represented cash paid or to be paid to employees terminated under the program. At year end 2002, $9.8 million remained accrued for severance and related costs (included in “Accrued payroll and employee benefits” in the Consolidated Balance Sheet). At the end of 2002, of the approximate 300 positions affected by these actions, approximately 50 employees (10 employees from the Consumer and Converted Products segment and 40 employees from the Pressure-sensitive Adhesives and Materials segment) had left the Company. The Company expects to complete this cost reduction program in 2003.

In the fourth quarter of 2002, the Company recorded a $6.2 million pretax charge for the planned disposition of fixed assets (comprised of machinery and equipment) related to a reduction of costs in the Reflective business, as well as the Jackstädt integration. The charge, shown in the “Other expense” line in the Consolidated Statement of Income, related entirely to assets owned by the Company prior to the acquisition of Jackstädt.

In the third quarter of 2002, the Company recorded a $15.2 million pretax charge for the disposition of fixed assets (land, buildings, machinery and equipment) and lease cancellation costs associated with the integration of the Jackstädt operations, as well as the planned closure of a plant facility, costs to exit leases and other asset impairments related to other businesses. Approximately 60 percent of the charge related to the integration of Jackstädt. The charge, shown in the “Other expense” line in the Consolidated Statement of Income, related entirely to assets and leases owned by the Company prior to the acquisition of Jackstädt. Of the $15.2 million charge, approximately $11.3 million related to asset impairments for property, plant and equipment ($1.3 million for buildings and $10 million for machinery and equipment) and $3.9 million related to lease cancellation costs. The Company expects to pay the lease cancellation costs through 2011. The lease contracts extend for a period of up to eight years at which time the accruals for these leases will be fully utilized.

The table below details the lease cancellation cost activity:

	(In millions)
Accrued lease cancellation costs	$	3.9
Cancellation costs paid		(.2	)

Accrued lease cancellation costs, end of period	$	3.7

In the fourth quarter of 2001, the Company sold its specialty coatings business, reported within the Pressure-sensitive Adhesives and Materials segment. Cash proceeds and $11.5 million in notes and receivables were received as part of the sale, which resulted in a pretax gain of approximately $20.2 million. Net sales from this business were $26.7 million for ten months in 2001 and $37.7 million in 2000.

The Company also recorded a charge in the fourth quarter of 2001 relating to cost reduction actions. The 2001 charge involved cost reduction programs and the reorganization of manufacturing and administrative facilities in both of the Company’s operating segments. The cost reduction efforts resulted in a pretax charge of $19.9 million, which consisted of employee severance and related costs of $13.1 million for approximately

400 positions worldwide, and asset impairments of $6.8 million. The positions eliminated included approximately 170 employees in the Pressure-sensitive Adhesives and Materials segment, 210 employees in the Consumer and Converted Products segment and 20 Corporate employees. Severance and related costs represented cash paid or to be paid to employees terminated under the program. Asset impairments represented non-cash charges required to reduce the carrying value of the assets that were disposed of to net realizable value as of the planned date of disposal. At year end 2002, $1.9 million remained accrued for severance and related costs (included in “Accrued payroll and employee benefits” in the Consolidated Balance Sheet), associated with long-term severance contracts, which will be paid through 2004. All amounts related to asset impairments were utilized.

Interest expense for the years ended 2002, 2001 and 2000 was $43.7 million, $50.2 million and $54.6 million, respectively. The decrease in 2002 was due to lower interest rates on short-term, floating rate debt, partially offset by the additional interest on the debt used to fund the Jackstädt acquisition in the second quarter, as well as the RVL and L&E acquisitions in the fourth quarter. The decrease in 2001 was due to the impact of lower interest rates on the Company’s short-term debt.

Income before taxes, as a percent of sales, was 8.7 percent in 2002, 9.5 percent in 2001 and 10.9 percent in 2000. The percentage decrease in 2002 reflected the total third and fourth quarter pretax charges of $32.1 million and lower gross profit margin as a percent of sales. The decrease was partially offset by lower interest expense, the elimination of goodwill amortization and lower marketing, general and administrative expenses as a percent of sales. The percentage decrease in 2001 was primarily due to the lower gross profit margin.

The effective tax rate was 29.5 percent in 2002, 32.4 percent in 2001 and 33.5 percent in 2000. The decrease in the effective tax rate in 2002 was principally due to structural and other operational changes, the impact of acquisitions, the geographic mix of income and the change in accounting for goodwill. The percentage decrease in 2001 reflected a change in geographic mix of profits, utilization of various tax credits worldwide and both structural and operational changes that reduced taxes. The Company estimates that the effective tax rate for 2003 will be approximately 29.5 percent.

	2002		2001		2000
	(In millions, except per share amounts)
Net income	$	257.2	$	243.2	$	283.5
Net income per common share		2.61		2.49		2.88
Net income per common share, assuming dilution		2.59		2.47		2.84

Net income totaled $257.2 million in 2002, $243.2 million in 2001 and $283.5 million in 2000. Net income for 2002 increased 5.8 percent from 2001. Net income for 2001 decreased 14.2 percent from 2000. Net income, as a percent of sales, was 6.1 percent, 6.4 percent and 7.3 percent in 2002, 2001 and 2000, respectively.

Net income per common share was $2.61 in 2002 compared to $2.49 in 2001 and $2.88 in 2000. Net income per common share for 2002 increased 4.8 percent from 2001. Net income per common share for 2001 decreased 13.5 percent from 2000.

Net income per common share, assuming dilution, was $2.59 in 2002 compared to $2.47 in 2001 and $2.84 in 2000. Net income per common share, assuming dilution, for 2002 increased 4.9 percent from 2001. Net income per common share, assuming dilution, for 2001 decreased 13 percent from 2000.

Results of Operations by Operating Segment

Pressure-sensitive Adhesives and Materials:

	2002		2001		2000
	(In millions)
Net sales	$	2,568.0	$	2,188.8	$	2,136.4
Income from operations before interest and taxes		198.0		192.1		212.4

The Pressure sensitive Adhesives and Materials segment reported increased sales and income for 2002 compared to 2001. Sales increased approximately $379 million or 17.3 percent to $2.57 billion in 2002 compared to $2.19 billion in 2001 driven by strong sales in both the domestic and international operations. Domestic sales, including intrasegment sales, increased approximately $56 million or 4 percent due to strong sales in the Roll Materials business (approximately $92 million). The increase resulted, in part, from market share gain from business obtained from the closure of a competitor’s plant (estimated to be $11 million) and a supply agreement with a company that outsourced its manufacturing of certain roll label materials (estimated to be $23 million), as well as other factors including industry consolidation, new products and service programs and new applications. Additionally, domestic sales increased due to an increase in the Specialty Tapes business (approximately $8 million) driven by the introduction of new applications and products for the medical and industrial markets. Increases in 2002 sales were partially offset by a reduction in sales from the sale of the specialty coatings business in the fourth quarter of 2001 (2001 sales of approximately $27 million), as well as sales declines in the Graphics and Reflective business of approximately $10 million. Sales increased internationally including intrasegment sales, approximately $344 million or 34 percent, principally due to the acquisition of Jackstädt in the second quarter of 2002 (total 2002 impact on sales estimated to be approximately $262 million). In addition, excluding sales from the Jackstädt business, international sales reflected strong sales growth in Roll Materials Asia (approximately $34 million) and higher sales in the Roll Materials and Graphics businesses in Europe (approximately $33 million) due to a favorable impact of changes in foreign currency exchange rates.

The segment’s income increased 3.1 percent to $198 million compared to 2001. Income from domestic operations was down slightly (approximately $4 million) compared to 2001. The decrease in income from domestic operations in 2002 reflected a charge of approximately $9 million related to the 2002 restructuring, asset impairments and lease cancellation costs, compared to a charge of $3.9 million for cost reduction actions in 2001, and a $20.2 million pretax gain on the sale of a business in 2001. Excluding the impact of these items, income from domestic operations increased approximately $21 million or 20 percent. This was primarily due to higher income in the Roll Materials business driven by volume growth and profitability achieved through cost reduction and productivity improvement programs. Additionally, domestic income reflected the benefit from the change in accounting for goodwill (approximately $4 million). Income from international operations increased approximately $10 million due to sales growth, improved profitability achieved through cost reductions and productivity gains and the positive impact from the change in accounting for goodwill amortization (approximately $2 million). International income was reduced by a charge of approximately $13 million related to the 2002 restructuring, asset impairments and lease cancellation costs.

The Pressure-sensitive Adhesives and Materials segment reported an increase in sales and a decrease in income for 2001 compared to 2000. Sales increased 2.5 percent to $2.19 billion in 2001, compared to $2.14 billion in 2000, driven by market share gain in the U.S. and growth in international markets. Sales increased in the U.S. operations due to the acquisition of Dunsirn Industries, Inc. (“Dunsirn”) as discussed below (approximately $48 million), the benefit of new business obtained from the closure of a competitor’s plant (estimated to be $10 million) and a new supply agreement with a company that outsourced its manufacturing of certain roll label materials (estimated to be $12 million) and other factors. The domestic sales increase was partially offset by the slowdown in the North American economy, and the resulting negative impact on sales in the Graphics and Specialty Tapes businesses (approximately $31 million). Sales increased internationally, primarily as a result of the Adespan acquisition in 2000 as discussed below (approximately $19 million) and unit

volume growth in the Roll Materials business in Europe and Asia Pacific. This increase was partially offset by a slowdown in certain European markets served by the Company’s Graphics and Specialty Tapes businesses, sales declines in Latin America and the negative impact of foreign currency exchange rates (approximately $46 million).

The segment’s 2001 income decreased 9.6 percent to $192.1 million from 2000. Income for 2001 was impacted by three non-recurring items in the fourth quarter: a pretax gain of approximately $20.2 million on the sale of a business in the U.S., a $7.6 million charge relating to cost reduction actions ($3.9 million in the U.S. operations and $3.7 million in the international operations) and a $2.3 million charge related to the currency devaluation in Argentina. Income in the U.S. and international operations also decreased due to the economic slowdown which impacted sales across most of the segment’s businesses. In addition, integration costs associated with the Dunsirn acquisition, the negative impact on gross profit margins from a reduced ratio of sales to fixed costs in a more competitive pricing environment and one-time costs associated with the start-up of a new coater in the U.S. also contributed to the income reduction. Savings from cost reduction actions taken throughout the year, as well as from Six Sigma partially offset the negative effects of these factors.

In the fourth quarter of 2001, the Company sold its specialty coatings business. Cash proceeds and $11.5 million in notes and receivables were received in conjunction with the sale, which resulted in a pretax gain of approximately $20.2 million. Net sales from this business were $26.7 million for ten months in 2001 and $37.7 million in 2000.

In the first quarter of 2001, the Company acquired Dunsirn, a supplier of non-adhesive materials to the narrow-web printing industry, as well as a provider of customized slitting and distribution services for pressure-sensitive roll materials manufacturers. Customized slitting and distribution services refer to the process of cutting bulk rolls of material into sizes requested by customers and then shipping these materials to customers. Sales in 2000 for Dunsirn were approximately $68 million, including sales to the Company. The excess of the cost basis over the fair value of net tangible assets acquired was $30.8 million, which included identified intangible assets of $5.5 million.

In the first quarter of 2000, the Company acquired the Adespan pressure-sensitive materials operation of Panini S.p.A., a European printing and publishing company based in Italy. Adespan had sales of approximately $75 million in 1999. The excess of the cost basis over the fair value of net tangible assets acquired was $25.4 million, which included identified intangible assets of $12.4 million.

Consumer and Converted Products:

	2002		2001		2000
	(In millions)
Net sales	$	1,811.7	$	1,783.8	$	1,898.3
Income from operations before interest and taxes		245.5		244.4		293.2

The Consumer and Converted Products segment reported increased sales and income for 2002 compared to 2001. Sales increased approximately $28 million or 1.6 percent to $1.81 billion compared to $1.78 billion in 2001. Sales in the domestic operations including intrasegment sales increased approximately $22 million, principally due to increases in the Retail Information Services group (approximately $13 million), including the operations of RVL and L&E acquired in the fourth quarter, which contributed approximately $9 million in sales, and strong sales in the Industrial and Automotive products business (approximately $7.5 million). Sales from the U.S. Office Products business were flat in 2002 compared to 2001. The office products environment has been challenging over the past two years, with superstores closing stores and reducing inventory, while white collar layoffs have reduced end-user demand. Sales from international operations including intrasegment sales increased approximately $24 million or 4 percent, principally due to the acquisitions of RVL and L&E in the fourth quarter, which contributed incremental sales of approximately $26 million. Additionally, the international businesses benefited from strong sales growth in the Ticketing business in Asia (approximately $15 million).

The segment’s 2002 income was comparable to 2001. Income from domestic operations decreased approximately $4 million, which included a charge of $6 million related to restructuring, asset impairments and lease cancellation costs in 2002 and a benefit from the change in accounting for goodwill (approximately $5 million). Income from international operations increased approximately $5 million driven principally by strong sales in the Ticketing business in Asia (approximately $7 million). Results from the international operations also included a charge of $4 million related to restructuring, asset impairments and lease cancellation costs in 2002 and the positive impact from the change in accounting for goodwill (approximately $4 million).

The Consumer and Converted Products segment reported decreased sales and income for 2001 compared to 2000. Sales decreased 6 percent to $1.78 billion in 2001, compared to $1.9 billion in 2000. Sales in the U.S. operations were negatively impacted by several factors. The slowdown in the North American economy particularly affected the Company’s Office Products business and the Industrial and Automotive business. Customer inventory reductions, consolidation of office product retail stores by the Company’s customers and a weak retail environment also negatively impacted sales in 2001. Domestic sales for the Office Products business were also negatively impacted by purchases of approximately $14 million made by major customers in December 2000 in order to increase the payout under rebate programs, which accelerated sales that normally would have occurred in the first quarter of 2001. In addition, domestic sales growth was negatively impacted by decreased volume and a shift to sales of lower-margin products in the Company’s converting businesses. Sales in international operations decreased primarily due to the negative impact of foreign currency exchange rates and the economic slowdown impacting some of the Company’s businesses in Europe.

The segment’s 2001 income decreased 16.6 percent to $244.4 million. Income for 2001 was impacted by a $9.4 million charge relating to cost reduction actions ($5.4 million in the U.S. operations and $4 million in the international operations). The decline in operating income was disproportionate to the decline in sales, after the cost reduction charge, because fixed costs were not reduced commensurate with the overall decline in sales. Cost reduction actions and productivity initiatives partially offset the negative impact of the sales decline.

In the first quarter of 2001, the Company acquired CD Stomper, a product line consisting of CD and DVD labels, software and a label applicator, from Stomp Inc., a software developer and manufacturer based in California. Sales in 2000 for the CD Stomper product line were approximately $20 million. The excess of the cost-basis over the fair value of net tangible assets acquired was $22.6 million, which included identified intangible assets of $9.7 million.

Financial Condition

The discussion of working capital in this section is based upon average working capital employed during the year. In the “Liquidity and Capital Resources” section below, the discussion of working capital changes is based upon the beginning and ending balances for the year.

Average working capital, excluding short-term debt, as a percent of sales was 7.1 percent in 2002, 7.9 percent in 2001 and 6.4 percent in 2000. The decrease in 2002 was principally due to higher balances in accounts payable and other current liabilities (approximately $270 million), including amounts resulting from acquisitions (approximately $105 million), increased balances in accounts payable (approximately $64 million), hedge liabilities (approximately $38 million), accrued payroll and benefits (approximately $34 million) and accrued rebates (approximately $18 million). The increase in 2001 reflected the increase in cash and the decrease in accounts payable and other accrued liabilities. Average inventory turnover was 8.6 turns in 2002 and 8.8 turns in 2001 and 2000. The decrease in inventory turns in 2002 was due to higher inventory levels driven by the 2002 acquisitions and higher inventory levels in response to stronger sales during the year. The average number of days sales outstanding in accounts receivable was 61 days in 2002, 58 days in 2001 and 56 days in 2000. The increase in 2002 and 2001 reflected longer payment terms associated with increased international sales. The increase in 2002 was also due in part to the longer payment terms associated with the newly acquired businesses. Although the average number of days sales outstanding in accounts receivable has been increasing, the Company does not anticipate this trend to continue.

Several of the Company’s largest domestic customers operate in a competitive retail business environment, which has been impacted by the economic conditions in North America. As of year end 2002 and 2001, approximately 17 percent and 23 percent, respectively, of trade accounts receivable were from nine retail customers of the Company’s Office Products business. The Company does not require its customers to provide collateral, but the financial position and operations of these customers are monitored on an ongoing basis.

Goodwill, net of accumulated amortization, increased $335.5 million during 2002 principally due to the acquisitions of Jackstädt (approximately $141 million) and RVL and L&E (approximately $170 million). In addition, the increase also reflected a foreign currency exchange impact (approximately $9 million).

Other intangibles resulting from business acquisitions, net of accumulated amortization, increased $27.9 million during 2002 due to the acquisitions of Jackstädt (approximately $11 million) and RVL and L&E (approximately $20 million). The increase also reflected a foreign currency exchange impact (approximately $6 million). These increases were partially offset by the amortization expense recorded during 2002 (approximately $9.7 million).

The Company’s “Other assets” balance increased during 2002 due to increases in the cash surrender value of corporate owned life insurance contracts (approximately $11 million), capitalized software, net of accumulated amortization (approximately $11 million) and pension assets (approximately $5 million).

Total debt increased by $294.5 million to $1.14 billion compared to year end 2001 due to debt incurred to fund acquisitions. The ratio of total debt to total capital increased to 52 percent at year end 2002 compared to 47.8 percent at year end 2001. Long-term debt as a percent of total long-term capital increased to 44.2 percent from 40.3 percent at year end 2001.

Shareholders’ equity increased to $1.06 billion from $929.4 million at year end 2001. During 2002, the Company issued approximately 743,000 shares of the Company’s common stock for approximately $47 million in connection with the acquisition of L&E. In addition, the Company repurchased approximately 173,000 shares of Company’s common stock at a cost of $10.8 million. As of year end 2002, a cumulative 37.2 million shares of the Company’s common stock had been repurchased since 1991 and 3.2 million shares remained available for repurchase under the Board of Directors’ authorization.

Accumulated other comprehensive loss increased $68.5 million in 2002 due to an additional pension liability of $87.2 million for both the U.S. and international pension plans, as a result of changes in assumptions and the negative return on plan assets during 2002. In addition, accumulated other comprehensive loss reflected an unrealized loss of approximately $37.4 million that resulted from a shift in interest rates on a forward starting interest rate swap, which was used to secure the interest rate on the Company’s anticipated long-term debt issuance to finance the acquisition of Jackstädt. In connection with the issuance of the $250 million Senior Notes in January 2003, the Company settled the interest rate swap at a loss of approximately $32.5 million. These losses were partially offset by the benefit from the change in foreign currency translation during 2002 of approximately $11.7 million.

Return on average shareholders’ equity was 25.7 percent in 2002, 27.4 percent in 2001 and 34.6 percent in 2000. Return on average total capital was 15.8 percent in 2002, 16.2 percent in 2001 and 19.6 percent in 2000, respectively. The decrease in these returns in 2002 was primarily due to an increase in shareholders’ equity. Decreases in these returns for 2001 compared to 2000 was primarily due to a decrease in profitability.

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 eight 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. 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. Amounts currently accrued are not significant to the consolidated financial position of the Company, and based upon current information, management believes that it is unlikely that final resolution of these matters will significantly impact the consolidated financial position and operations of the Company.

The Company participates in an international receivable financing program with a financial institution whereby advances may be requested from the financial institution. All advances are guaranteed by the Company. At December 28, 2002, the Company had guaranteed $1.8 million.

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.

The Company provides for an estimate of costs that may be incurred under its basic limited warranty at the time product revenue is recognized. These costs primarily include materials and labor associated with the service or sale of the product. Factors that affect the Company’s warranty liability include the number of units installed or sold, historical and anticipated rate of warranty claims on those units and cost per claim to satisfy the Company’s warranty obligation. As these factors are impacted by actual experience and future expectations, the Company assesses the adequacy of its recorded warranty liability and adjusts the amounts as necessary.

Liquidity and Capital Resources

As described in the “Financial Condition” section above, the discussion of working capital changes in this section is based upon the beginning and ending balances for the year. As such, this section compares working capital at two distinct points in time rather than the average amounts employed during the year.

Historically, the Company’s primary source of capital resources has been cash flows from operations and debt financing, augmented in 2002 by a limited stock issuance in conjunction with the L&E acquisition.

The Company continues to maintain adequate financing arrangements at competitive rates. These financing arrangements consist of commercial paper, bank lines of credit, callable commercial notes and long-term debt, including medium-term notes. In January 2003, the Company refinanced $400 million of commercial paper borrowings through the offering of $250 million of Senior Notes due 2013 and $150 million of Senior Notes due 2033.

Net cash flow from operating activities was $522.8 million in 2002, $375.5 million in 2001 and $409.9 million in 2000. The increase in cash flows from operating activities in 2002 was due to increases in net income and changes in working capital balances, reflecting increases in accounts payable and accrued liability balances, partially offset by increases in accounts receivable and inventory balances. The increase in accounts payable and accrued liabilities was primarily associated with increases in accounts payable balances ($64 million) as a result of negotiating longer payment terms with vendors, increases in payroll and benefits ($34 million) as a result of higher bonus accruals and the timing of payroll payments and increases in accrued trade rebates ($18 million) as a result of increased sales. The increase in accounts receivable was driven by higher sales levels and an increase in the average number of days sales outstanding from 58 in 2001 to 61 in 2002. The increase in inventory balances was associated with higher sales levels in 2002 and a slight reduction in inventory turnover due to integration complexities of the acquired businesses. The decrease in cash flows for 2001 was primarily due to a decrease in net income. While the average number of days sales outstanding in receivables increased during 2001, the ending balance of receivables was lower than the prior year due to unusual customer purchasing patterns in late 2000 that were not repeated during 2001.

Capital expenditures were $151.8 million in 2002 and $135.4 million in 2001 and were funded primarily through cash flows from operations. Capital expenditures for 2003 are expected to be in the range of $175 million to $200 million. The projected increase in capital expenditures is expected to be funded through operating cash flows.

In 2002, the Company continued its plan of implementing new information systems software in the Company’s existing businesses. Expenditures related to capitalized software were $20.1 million in 2002 and $50.3 million in 2001. Expenditures in 2003 related to capitalized software are expected to remain at or below 2002 levels.

In 2002, the Company completed acquisitions resulting in total cash payments of $397.4 million. The payments were funded through commercial paper borrowings. Total commercial paper borrowings at December 28, 2002, were $512.2 million with a weighted-average interest rate of 1.87 percent. In January 2003, the Company refinanced $400 million of these commercial paper borrowings through the offering of $250 million of 4.875 percent Senior Notes due 2013 and $150 million of 6 percent Senior Notes due 2033. The aggregate $400 million refinancing was issued under the Company’s existing shelf registration statement filed with the Securities and Exchange Commission in the third quarter of 2001, permitting the Company to issue up to $600 million in debt and equity securities. After the issuance of the $400 million, there is a remaining $200 million available for general corporate purposes including acquisitions and capital expenditures, repaying, redeeming or repurchasing existing debt and for working capital. Remaining commercial paper borrowings that the Company does not intend to repay within the next year and had the ability to refinance under its long-term revolving credit agreement, discussed below, are classified as long-term liabilities.

The Company had $80.5 million of borrowings outstanding under short-term lines of credit with a weighted-average interest rate of 7.7 percent for 2002.

In December 2002, the Company issued $150 million one-year callable commercial notes at a weighted-average interest rate of 2.5 percent. The issuance replaced the December 2001 issuance of $150 million of one-year callable commercial notes at a weighted-average interest rate of 2.1 percent.

The Company’s long-term debt, including medium-term notes, was $913.7 million and $647.1 million at the end of 2002 and 2001, respectively. Maturities of long-term debt during the years 2003 through 2007 are $76.5 million (classified as current), $86.5 million, $76.1 million, $112.6 million and $60.4 million, respectively, with $501.6 million maturing thereafter.

The Company had medium-term notes of $388 million and $448 million at year end 2002 and 2001, respectively. Medium-term notes have maturities from 2003 through 2025 and accrue interest at fixed rates.

The terms of various loan agreements in effect at year end require that the Company maintain specified ratios on consolidated debt and consolidated interest expense in relation to certain measures of income. Under the loan agreements, consolidated debt as a ratio to consolidated earnings before interest, taxes, depreciation and amortization may not exceed 3.5 to 1.0. The Company’s ratio at year end 2002 was 2.0 to 1.0. Consolidated earnings before interest and taxes, as a ratio to consolidated interest may not be less than 3.5 to 1.0. The Company’s ratio at year end 2002 was 9.3 to 1.0.

The Company has a revolving credit agreement with four domestic banks to provide up to $250 million in borrowings through July 1, 2006. The Company may annually extend the revolving period and due date with the approval of the banks. Financing available under this agreement will be used as a commercial paper back-up facility and to finance other corporate requirements. There was no debt outstanding under this agreement as of year end 2002.

Other available financing arrangements with no debt outstanding as of year end 2002 included additional short-term lines of credit totaling $558.1 million. These available lines of credit included a 364-day revolving credit facility with eight domestic and foreign banks to provide up to $200 million in borrowings through December 5, 2003. The Company may annually extend the revolving period and due date with the approval of the banks or may convert the loan to a one-year term loan at the Company’s option. Financing available under this agreement will be used as a commercial paper back-up facility and to finance other corporate requirements. The Company also has a bridge credit agreement with two domestic financial institutions to provide up to $200 million in borrowings through January 31, 2003.

Commitment fees relating to financing arrangements are not significant. The debt assumed in connection with the acquisition of Jackstädt is securitized by the acquired assets. At December 28, 2002, the total Jackstädt debt balance was approximately $33.2 million.

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 debts of the same remaining maturities. At year end 2002 and 2001, the fair value of the Company’s total debt, including short-term borrowings, was $1.18 billion and $857.6 million, respectively.

The Company had standby letters of credit outstanding of $182.7 million and $217.9 million at the end of 2002 and 2001, respectively. The aggregate contract amount of all outstanding standby letters of credit approximated fair value.

The Company guaranteed $349.3 million of its foreign subsidiaries’ lines of credit and foreign exchange lines, as well as $15.9 million of its foreign subsidiaries’ certain obligations to their suppliers as of December 28, 2002.

Credit ratings are a significant factor in the Company’s ability to raise short-term and long-term financing. When determining a credit rating, the rating agencies place significant weight on the Company’s competitive position, consistency of cash flows, debt level, geographic dispersion and management team.

The ratings assigned to the Company also impact the interest rates on its commercial paper and other borrowings. Subsequent to the announcement of the RVL and L&E acquisitions, Standard & Poor’s Rating Services (“S&P”) and Moody’s Investors Service (“Moody’s”) reviewed the Company’s debt ratings. S&P reaffirmed the Company’s “A-1” short-term rating, “A” long-term rating and “negative” outlook. Moody’s downgraded the Company’s short-term rating from “P1” to “P2” and its long-term rating from “A2” to “A3,” and changed the outlook for the Company from “negative” to “stable.” The downgrade will increase interest rates on the Company’s debt. Beginning in 2003, based on current interest rates and the current level of debt, the increased interest cost associated with the downgrade is estimated to have an after-tax impact in the range of approximately $1 million to $3 million per year.

In the first quarter of 1999, the Company recorded an obligation associated with the transaction with Steinbeis Holding GmbH, which combined substantially all of the Company’s Office Products businesses in Europe with Zweckform Büro-Produkte GmbH, a German office products supplier. The obligation of $84.5 million is the only amount reported in the “Other long-term obligation” line in the Consolidated Balance Sheet. The obligation is guaranteed by a standby letter of credit and it is the intention of the Company to pay the entire obligation in early 2004.

The Company enters into operating leases primarily for office and warehouse space, electronic data processing and transportation equipment. The terms of these leases do not impose significant restrictions or unusual obligations. Minimum annual rental commitments on operating leases, having initial or remaining noncancellable lease terms in excess of one year during the years 2003 through 2007 and thereafter, are included in the following table.

The Company’s obligations relating to debt and leases at year end 2002 were as follows:

	Payments Due by Period
Contractual Obligations	Total		2003		2004		2005		2006		2007		Thereafter
	(In millions)
Short-term lines of credit	$	80.5	$	80.5		—		—		—		—		—
Callable commercial notes		150.0		150.0		—		—		—		—		—
Long-term debt(1)		913.7		76.5	$	86.5	$	76.1	$	112.6	$	60.4	$	501.6
Operating leases		172.2		41.0		32.8		25.1		15.6		12.1		45.6
Other long-term obligation		84.5		—		84.5		—		—		—		—

Total contractual cash obligations	$	1,400.9	$	348.0	$	203.8	$	101.2	$	128.2	$	72.5	$	547.2

(1)

In January 2003, the Company refinanced $400 million of its commercial paper borrowings through the offering of $250 million of 4.875 percent Senior Notes due 2013 and $150 million of 6 percent Senior Notes due 2033. The aggregate $400 million refinancing is reflected in the “Thereafter” payment period above. Remaining short-term borrowings that the Company does not intend to repay within the next year and has the ability to refinance under its long-term revolving credit agreement are classified as long-term liabilities and reflected in the 2006 payment period consistent with the current expiration of the Company’s long-term credit agreement and the timing of the Company’s current repayment intentions.

The Company’s committed credit availability at year end 2002 was as follows:

			Amount of Commitment Expiration
	Total Amounts Committed		2003		2004		2005	2006		2007
	(In millions)
Lines of credit – committed, unused	$	650.0	$	400.0		—	—	$	250.0		—
Standby letters of credit outstanding:
General		15.7		15.7		—	—		—		—
Deferred compensation		82.5		—		—	—		—	$	82.5
Zweckform obligation		84.5		—	$	84.5	—		—		—

Total	$	832.7	$	415.7	$	84.5	—	$	250.0	$	82.5

In addition, the Company had uncommitted lines of credit of approximately $237.4 million at year end 2002. The Company’s uncommitted lines of credit do not have a commitment expiration date, and may be cancelled at any time by the Company or the banks.

The annual dividend per share increased to $1.35 in 2002 from $1.23 in 2001. This was the 27^th consecutive year the Company increased dividends per share.

The Company continues to expand its operations in Europe, Latin America and Asia Pacific. The Company’s future results are subject to changes in political and economic conditions and the impact of fluctuations in foreign currency exchange and interest rates. In 2002, sales were favorably impacted by currency fluctuations (approximately $20 million). In 2001, changes in exchange rates, such as for the Euro and Pound Sterling, negatively impacted the Company. The impact of foreign currency fluctuations on net income is smaller than the impact on net sales, because the Company’s products are generally sourced in the currencies in which they are sold. Specifically, a negative impact of foreign rates on sales would be matched with a partially offsetting positive impact on reported expenses, thereby reducing the impact of foreign currency fluctuations on net income. To reduce its exposure to currency fluctuations, the Company may enter into foreign exchange forward, option and swap contracts, and interest rate contracts, where appropriate and available.

All translation gains and losses for operations in hyperinflationary economies were included in net income. Operations are treated as being in a hyperinflationary economy for accounting purposes, based on the cumulative inflation rate over the past three years. Operations in hyperinflationary economies consist of the Company’s operations in Turkey for 2002, 2001 and 2000. These operations were not significant to the Company’s consolidated financial position or results of operations.

Related Party Transactions

From time to time, the Company enters into transactions in the normal course of business with related parties. The Company believes that such transactions are at arm’s-length and for terms that would have been obtained from unaffiliated third parties. One of the Company’s directors, Mr. Peter W. Mullin, is the chairman and chief executive officer and a director of MC Insurance Services, Inc. (“MC”), Mullin Insurance Services, Inc. (“MINC”) and PWM Insurance Services, Inc. (“PWM”), executive compensation and benefit consultants and insurance agents. Mr. Mullin is also the majority stockholder of MC, MINC and PWM. During 2002 and 2001, the Company paid insurance companies premiums for life insurance placed by MC, MINC and PWM in connection with various Company employee benefit plans. In 2002, 2001 and 2000, MC, MINC and PWM earned commissions from such insurance companies in aggregate amounts of approximately $1.3 million, $1.7 million and $1.6 million, respectively, for the placement and renewal of this insurance. Mr. Mullin had direct and indirect interests related to these commissions of approximately $.9 million in 2002 and $1 million in each of the years 2001 and 2000. The majority of these commissions were allocated to and used by MCP Insurance Services, LLC (an affiliate of MC), and another affiliate, to administer benefit plans and provide benefit statements to participants under various Company employee benefit plans. None of these transactions are significant to the financial position or results of operations of the Company.

Critical Accounting Policies and 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 amounts.

Critical accounting policies are those that are important to the portrayal of the Company’s financial condition and results, and which require management to make difficult, subjective and/or complex judgements. Critical accounting policies cover accounting matters that are inherently uncertain because the future resolution of such matters is unknown. The Company believes that critical accounting policies include accounting for sales rebates, accounting for allowances for doubtful accounts and accounting for inventory reserves.

Sales rebates and discounts are common practice in the industries in which the Company operates. Volume, promotional, price, cash and other discounts and customer incentives are accounted for as a reduction to gross sales. Rebates and discounts are recorded based upon management’s best estimates when products are sold. These estimates are based upon historical experience for similar programs and products. Management reviews such rebates and discounts on an ongoing basis and accruals for rebates and discounts are adjusted, if necessary, as additional information becomes available.

Management is required to make judgements, based on historical experience and future expectations, as to the collectibility of accounts receivable. The allowances for doubtful accounts and sales returns represent allowances for customer trade accounts receivable that are estimated to be partially or entirely uncollectible. These allowances are used to reduce gross trade receivables to their net realizable value. The Company records these allowances based on estimates related to the following factors: i) customer specific allowances; ii) amounts based upon an aging schedule; and iii) an estimated amount, based on the Company’s historical experience, for issues not yet identified. In addition, approximately 17 percent and 23 percent of trade receivables were from nine retail customers of the Company’s Office Products business in 2002 and 2001, respectively. The financial position and operations of these customers are monitored on an ongoing basis.

Inventories are stated at the lower of cost or market value and are categorized as raw materials, work-in-progress or finished goods. Inventory reserves are recorded for damaged, obsolete, excess and slow-moving inventory. Management uses estimates to record these reserves. Slow-moving inventory is reviewed by category and may be partially or fully reserved for depending on the type of product and the length of time the product has been included in inventory.

Future Accounting Requirements

In January 2003, the Financial Accounting Standards Board (FASB) issued Interpretation No. 46, “Consolidation of Variable Interest Entities—an interpretation of ARB No. 51.” The Interpretation clarifies the application of Accounting Research Bulletin No. 51, “Consolidated Financial Statements,” to certain entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. The provisions of this Interpretation are effective for all enterprises with variable interests in variable interest entities created after January 31, 2003. The adoption of this Interpretation is not expected to have a significant impact on the Company’s financial results.

In December 2002, the FASB issued SFAS No. 148, “Accounting for Stock-Based Compensation—Transition and Disclosure.” This Statement amends SFAS No. 123, “Accounting for Stock-Based Compensation,” to provide alternative methods of transition for an entity that voluntarily changes to the fair value-based method of accounting for stock-based employee compensation. It also amends the disclosure provisions of that Statement to require prominent disclosure about the effects on reported net income of an entity’s accounting policy decisions with respect to stock-based employee compensation. Finally, this Statement amends Accounting Principles Board (APB) Opinion No. 28, “Interim Financial Reporting,” to require disclosure about those effects in interim financial information. The provisions of this Statement are effective for financial statements of interim or annual periods ending after December 15, 2002. The Company has continued to use the intrinsic value method of accounting for stock-based compensation in 2002 in accordance with APB Opinion No. 25. The Company, however, has adopted the disclosure provisions of SFAS No. 148 as presented in Note 1 of the consolidated financial statements at and for the year ended December 28, 2002.

In November 2002, the FASB issued Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others.” This Interpretation clarifies the requirements for a guarantor’s accounting for and disclosures of certain guarantees issued and outstanding. This Interpretation also clarifies the requirements related to the recognition of a liability by a guarantor at the inception of a guarantee for the obligations the guarantor has undertaken in issuing that guarantee. The disclosure provisions of the Interpretation are effective for financial statements of interim or annual periods ending after December 15, 2002. The Company has adopted the disclosure provisions of this Interpretation as disclosed in Notes 1, 4 and 8 to the consolidated financial statements. The initial recognition and initial measurement provisions of this Interpretation are applicable on a prospective basis to guarantees issued or modified after December 31, 2002. The Company is currently in the process of determining the impact of this Interpretation on the Company’s financial results for those provisions effective in 2003.

In July 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities.” This Statement addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force (EITF) Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring).” Under EITF Issue No. 94-3, a liability for an exit cost is recognized at the date an entity commits to an exit plan. SFAS No. 146 eliminates the definition and requirements for recognition of exit costs in EITF Issue No. 94-3 and requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. This Statement also establishes that fair value is the objective for initial measurement of the liability. The provisions of this Statement will be effective after December 31, 2002. The adoption of SFAS No. 146 will affect the timing of the recognition of future costs associated with exit or disposal activities and will not affect previous charges related to such activities.

In May 2002, the FASB issued SFAS No. 145, “Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections.” This Statement rescinds SFAS No. 4, “Reporting Gains and Losses from Extinguishment of Debt,” and an amendment of that Statement, SFAS No. 64, “Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements.” This Statement amends SFAS No. 13, “Accounting for Leases,” to eliminate an inconsistency between the required accounting for sale-leaseback transactions and the required accounting for certain lease modifications that have economic effects that are similar to sale-leaseback transactions. This Statement also amends other existing authoritative pronouncements to make various technical corrections, clarify meanings or describe their applicability under changed conditions. The provisions of this Statement related to the rescission of SFAS No. 4 are effective beginning in 2003. All other provisions were effective May 16, 2002. The provisions adopted, effective May 16, 2002, did not have a significant impact on the Company’s financial results. The adoption of this Statement for those provisions effective in 2003 is not expected to have a significant impact on the Company’s financial results.

In August 2001, the FASB issued SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” This Statement was effective for the Company on December 30, 2001, and supersedes SFAS No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,” and amends APB Opinion No. 30, “Reporting the Results of Operations—Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions.” This Statement requires that long-lived assets that are to be disposed of by sale be measured at the lower of book value or fair value less costs to sell. SFAS No. 144 retains the fundamental provisions of SFAS No. 121 for (a) recognition and measurement of the impairment of long-lived assets to be held and used, and (b) measurement of long-lived assets to be disposed of by sale. This Statement also retains APB Opinion No. 30’s requirement that companies report discontinued operations separately from continuing operations. For the year ended December 28, 2002, the Company divested operations whose results, including the gain/loss on asset sales, did not have a significant impact on the income statement and were, therefore, not reflected as discontinued operations in the Company’s Consolidated Statement of Income.

In August 2001, the FASB issued SFAS No. 143, “Accounting for Asset Retirement Obligations,” which addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. This Statement requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. The associated asset retirement costs are capitalized as part of the carrying amount of the long-lived asset. All provisions of this Statement will be effective at the beginning of fiscal 2003. The adoption of this Statement is not expected to have a significant impact on the Company’s financial results.

The Company is currently reviewing the requirements of EITF Issue No. 00-21, “Accounting for Revenue Arrangements with Multiple Deliverables.” EITF Issue No. 00-21 addresses certain aspects of the accounting by a vendor for arrangements under which it will perform multiple revenue-generating activities. Specifically, EITF Issue No. 00-21 addresses how to determine whether an arrangement involving multiple deliverables contains more than one unit of accounting. The provisions of EITF Issue No. 00-21 will be effective in fiscal periods beginning after June 15, 2003. The Company is in the process of determining the impact of EITF Issue No. 00-21 on the Company’s financial results when effective.

Safe Harbor Statement

Except for historical information contained herein, the matters discussed in the Management’s Discussion and Analysis of Results of Operations and Financial Condition and other sections of this annual report contain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These statements, which are not statements of historical fact, may contain estimates, assumptions, projections and/or expectations regarding future events. Words such as “anticipate,” “assume,” “believe,” “estimate,” “expect,” “plan,” “project,” “will,” and other expressions, which refer to future events and trends, identify forward-looking statements. Such forward-looking statements, and financial or other business targets, are subject to certain risks

and uncertainties which could cause actual results to differ materially from future results, performance or achievements of the Company expressed or implied by such forward-looking statements. Certain of such risks and uncertainties are described in Exhibit 99.1 to the Company’s Annual Report on Form 10-K for the year ended December 28, 2002 and include, but are not limited to, risks and uncertainties relating to investment in new production facilities, timely development and successful market acceptance of new products, price and availability of raw materials, impact of competitive products and pricing, business mix shift, credit risks, successful integration of new acquisitions, customer and supplier and manufacturing concentrations, financial condition and inventory strategies of customers, changes in customer order patterns, increased competition, loss of significant contract(s) or customer(s), legal proceedings, fluctuations in foreign exchange rates and other risks associated with foreign operations, changes in economic or political conditions, acts of war, terrorism, natural disasters and other factors.

Any forward-looking statements should also be considered in light of the factors detailed in Exhibit 99 in the Company’s Annual Report on Form 10-K for the years ended December 28, 2002 and December 29, 2001.

The Company’s forward-looking statements represent its judgment only on the dates such statements were made. By making any forward-looking statements, the Company assumes no duty to update them to reflect new, changed or unanticipated events or circumstances, other than as may be required by law.

ITEM 7A.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market-sensitive Instruments and Risk Management

The Company is exposed to the impact of interest rate and foreign currency exchange rate changes.

The Company’s policy is not to hold or purchase foreign currency or interest rate contracts for trading purposes.

The Company’s objective in managing the exposure to foreign currency changes is to reduce the risk on earnings and cash flow associated with foreign exchange rate changes. As a result, the Company enters into foreign exchange forward, option and swap contracts to reduce risks associated with the value of its existing foreign currency assets, liabilities, firm commitments and anticipated foreign revenues and costs. The gains and losses on these contracts are intended to offset changes in the related exposures. The Company does not hedge its foreign currency exposure in a manner that would entirely eliminate the effects of changes in foreign exchange rates on the Company’s consolidated net income.

The Company’s objective in managing its exposure to interest rate changes is to limit the impact of interest rate changes on earnings and cash flows. To achieve its objectives, the Company will periodically use interest rate contracts to manage net exposure to interest rate changes related to its borrowings. The Company entered into a forward starting interest rate swap in May 2002 to secure the interest rate on the Company’s anticipated long-term debt issuance. The principal amount hedged was $250 million. Because of a shift in interest rates, an unrealized loss of approximately $37.4 million was included in other comprehensive loss at the end of 2002. In connection with the issuance of the $250 million 10-year Senior Notes, the Company settled the interest rate swap at a loss of approximately $32.5 million. The loss will be amortized to interest expense over 10 years, which corresponds to the term of the related debt.

In the normal course of operations, the Company also faces other risks that are either nonfinancial or nonquantifiable. Such risks principally include changes in economic or political conditions, other risks associated with foreign operations, commodity price risk and litigation risks, which are not represented in the analyses that follow.

Foreign Exchange Value-at-Risk

The Company uses a “Value-at-Risk” (VAR) model to determine the estimated maximum potential one-day loss in earnings associated with both its foreign exchange positions and contracts. This approach assumes that market rates or prices for foreign exchange positions and contracts are normally distributed. The VAR model estimates were made assuming normal market conditions. Firm commitments, receivables and accounts payable denominated in foreign currencies, which certain of these instruments are intended to hedge, were included in the model. Forecasted transactions, which certain of these instruments are intended to hedge, were excluded from the model. The VAR was estimated using a variance-covariance methodology based on historical volatility for each currency. The volatility and correlation used in the calculation were based on two-year historical data obtained from one of the Company’s domestic banks. A 95 percent confidence level was used for a one-day time horizon.

The VAR model is a risk analysis tool and does not purport to represent actual losses in fair value that could be incurred by the Company, nor does it consider the potential effect of favorable changes in market factors.

The estimated maximum potential one-day loss in earnings for the Company’s foreign exchange positions and contracts was $1.4 million at year end 2002.

Interest Rate Sensitivity

An assumed 38 basis point move in interest rates (10 percent of the Company’s weighted-average floating rate interest rate) affecting the Company’s variable-rate borrowings would have had an immaterial effect on the Company’s 2002 earnings.

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 38 through 56, and in the Report of Independent Accountants on page 57 of Registrant’s 2002 Annual Report and is incorporated herein by reference.

ITEM 9.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

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 2003 Proxy Statement, filed with the SEC 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 2003 Proxy Statement.

Item 11.

EXECUTIVE COMPENSATION

Item 12.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

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 23 of the 2003 Proxy Statement, 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.

Item 14.

CONTROLS AND PROCEDURES

The Company maintains disclosure controls and procedures (as defined in Exchange Act Rule 13a – 14(c)) that are designed to ensure that information required to be disclosed in the Company’s Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding the required disclosure.

In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily is required to apply its judgement in evaluating the cost-benefit relationship of possible controls and procedures.

The Company’s disclosure controls system is based upon a global chain of financial and general business reporting lines that converge in the Company’s headquarters in Pasadena, California. Within 90 days prior to the filing date of this report, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and the Company’s Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures.

Based on the foregoing, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures are functioning effectively to provide reasonable assurance that the Company can meet its disclosure requirements.

There have been no significant changes in the Company’s internal controls or in other factors that could significantly affect the internal controls subsequent to the date the Company completed its evaluation.

PART IV

Item 15.

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 15(c) is identified in the Exhibit Index.

(b) Reports on Form 8-K:

Form 8-K dated November 12, 2002, containing information pursuant to 18 U.S.C. Section 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, related to the Company’s Chief Executive Officer and Chief Financial Officer certifications.

(d) Those financial statement schedules required by Regulation S-X which are excluded from Registrant’s 2002 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.

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/ DANIEL R. O’BRYANT
		Daniel R. O’Bryant Senior Vice President, Finance and Chief Financial Officer

Dated: March 28, 2003

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 as of the dates indicated.

Signature	Title	Date

/s/ PHILIP M. NEAL Philip M. Neal	Chairman and Chief Executive Officer, Director	March 28, 2003

/s/ DEAN A. SCARBOROUGH Dean A. Scarborough	President and Chief Operating Officer, Director	March 28, 2003

/s/ DANIEL R. O’BRYANT Daniel R. O’Bryant	Senior Vice President, Finance and Chief Financial Officer (Principal Financial Officer)	March 28, 2003

/s/ MICHAEL A. SKOVRAN Michael A. Skovran	Vice President and Controller (Principal Accounting Officer)	March 28, 2003

/s/ PETER K. BARKER Peter K. Barker	Director	March 28, 2003

/s/ FRANK V. CAHOUET Frank V. Cahouet	Director	March 28, 2003

/s/ RICHARD M. FERRY Richard M. Ferry	Director	March 28, 2003

/s/ BRUCE E. KARATZ Bruce E. Karatz	Director	March 28, 2003

/s/ KENT KRESA Kent Kresa	Director	March 28, 2003

/s/ CHARLES D. MILLER Charles D. Miller	Director	March 28, 2003

/s/ PETER W. MULLIN Peter W. Mullin	Director	March 28, 2003

Signature	Title	Date

/s/ SIDNEY R. PETERSEN Sidney R. Petersen	Director	March 28, 2003

/s/ DAVID E. I. PYOTT David E. I. Pyott	Director	March 28, 2003

/s/ JULIA A. STEWART Julia A. Stewart	Director	March 28, 2003

CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

CERTIFICATION

I, Philip M. Neal, certify that:

I have reviewed this annual report on Form 10-K of Avery Dennison Corporation;

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this report (the “Evaluation Date”); and

presented in this report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

The registrant’s other certifying officers and I have indicated in this report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

/s/ PHILIP M. NEAL

Philip M. Neal

Chairman and

Chief Executive Officer

March 28, 2003

CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

CERTIFICATION

I, Daniel R. O’Bryant, certify that:

I have reviewed this annual report on Form 10-K of Avery Dennison Corporation;

evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this report (the “Evaluation Date”); and

presented in this report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

/s/ DANIEL R. O’BRYANT

Daniel R. O’Bryant

Senior Vice President, Finance, and

Chief Financial Officer

March 28, 2003

AVERY DENNISON CORPORATION

INDEX TO FINANCIAL STATEMENTS AND FINANCIAL

STATEMENT SCHEDULES

	Reference (page)
	Form 10-K Annual Report	Annual Report to Shareholders
Data incorporated by reference from the attached portions of the 2002 Annual Report to Shareholders of Avery Dennison Corporation:
Report of Independent Accountants	—	57
Consolidated Balance Sheet at December 28, 2002 and December 29, 2001	—	38
Consolidated Statement of Income for 2002, 2001 and 2000	—	39
Consolidated Statement of Shareholders’ for 2002, 2001 and 2000	—	40
Consolidated Statement of Cash Flows for 2002, 2001 and 2000	—	41
Notes to Consolidated Financial Statements	—	42-56

The consolidated financial statements include the accounts of all majority-owned subsidiaries. Investments representing less than 20 percent are accounted for using the cost method of accounting.

With the exception of the consolidated financial statements and the accountants’ report thereon listed in the above index, and certain information referred to in Items 1, 5 and 6, which information is included in the 2002 Annual Report and is incorporated herein by reference, the 2002 Annual Report is not to be deemed “filed” as part of this report.

	Form 10-K Annual Report	Annual Report to Shareholders
Data submitted herewith:
Report of Independent Accountants on Financial Statement Schedule	S-2	—
Financial Statement Schedules (for 2002, 2001 and 2000):
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 ACCOUNTANTS

ON FINANCIAL STATEMENT SCHEDULE

To the Board of Directors

of Avery Dennison Corporation:

Our audits of the consolidated financial statements referred to in our report dated January 27, 2003 appearing in the 2002 Annual Report to Shareholders of Avery Dennison Corporation (which report and consolidated financial statements are incorporated by reference in this Annual Report on Form 10-K) also included an audit of the financial statement schedule listed in Item 15(a)(2) of this Form 10-K. In our opinion, this financial statement schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements.

PricewaterhouseCoopers LLP

Los Angeles, California

January 27, 2003

S-2

SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS AND RESERVES

(In millions)

			Additions
	Balance at Beginning of Year		Charged to Costs and Expenses		From Acquisitions		Deductions From Reserves			Balance at End of Year
2002
Allowance for doubtful accounts	$	17.9	$	13.5	$	5.6	$	(11.7	)	$	25.3
Allowance for sales returns		19.6		17.2		.6		(16.6	)		20.8
Inventory reserve		34.9		14.9		7.9		(16.9	)		40.8
2001
Allowance for doubtful accounts	$	19.4	$	11.3	$	0.3	$	(13.1	)	$	17.9
Allowance for sales returns		18.0		9.8		—		(8.2	)		19.6
Inventory reserve		30.4		15.5		1.0		(12.0	)		34.9
2000
Allowance for doubtful accounts	$	19.5	$	7.6	$	0.2	$	(7.9	)	$	19.4
Allowance for sales returns		21.6		8.6		0.7		(12.9	)		18.0
Inventory reserve		28.6		10.9		0.8		(9.9	)		30.4

S-3

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (File Nos. 333-38905, 333-64558 and 333-103204) and Form S-8 (File Nos. 33-1132, 33-3645, 33-41238, 33-45376, 33-54411, 33-58921, 33-63979, 333-38707 and 333-38709) of Avery Dennison Corporation of our report dated January 27, 2003 relating to the financial statements, which appears in the 2002 Annual Report to Shareholders, which is incorporated by reference in this Annual Report on Form 10-K. We also consent to the incorporation by reference of our report dated January 27, 2003 relating to the financial statement schedule, which appears in this Form 10-K.

PricewaterhouseCoopers LLP

Los Angeles, California

March 28, 2003

S-4

AVERY DENNISON CORPORATION

EXHIBIT INDEX

For the Year Ended December 28, 2002

INCORPORATED BY REFERENCE:

Exhibit No.	Item	Originally Filed as Exhibit No.	Document(1)

(3.1)	Restated Certificate of Incorporation, filed August 2, 2002 with Office of Delaware Secretary of State	3(i)	Third Quarterly report for 2002 on Form 10-Q, filed November 12, 2002

(3.2)	By-laws, as amended	3(ii)	Second Quarterly report for 2002 on Form 10-Q, filed August 13, 2002

(4.1)	Rights Agreement dated as of October 23, 1997		Current Report on Form 8-K, filed October 23, 1997

(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), filed March 19, 1991

(4.2.1)	Officers’ Certificate establishing a series of Securities entitled “Medium-Term Notes” under the Indenture	4.3	Current Report on Form 8-K, filed March 25, 1991

(4.2.2)	First Supplemental Indenture, dated as of March 16, 1993, between Registrant and BankAmerica National Trust Company, as successor Trustee (the “Supplemental Indenture”)	4.4	Registration Statement on Form S-3 (File No. 33-59642), filed March 17, 1993

(4.2.3)	Officers’ Certificate establishing a series of Securities entitled “Medium-Term Notes” under the Indenture, as amended by the Supplemental Indenture	4.5	Current Report on Form 8-K, filed April 7, 1993

(4.2.4)	Officers’ Certificate establishing a series of Securities entitled “Medium-Term Notes, Series B” under the Indenture, as amended by the Supplemental Indenture	4.6	Current Report on Form 8-K, filed March 29, 1994

(4.2.5)	Officers’ Certificate establishing a series of Securities entitled “Medium-Term Notes, Series C” under the Indenture, as amended by the Supplemental Indenture	4.7	Current Report on Form 8-K, filed May 12, 1995

(4.2.6)	Officers’ Certificate establishing a series of Securities entitled “Medium-Term Notes, Series D” under the Indenture, as amended by the Supplemental Indenture	4.8	Current Report on Form 8-K, filed December 16, 1996

Exhibit No.	Item	Originally Filed as Exhibit No.	Document(1)
(4.3)	Indenture dated July 3, 2001 between Registrant and J.P.Morgan Trust Company, National Association (successor to Chase Manhattan Bank and Trust Company, National Association), as trustee (“2001 Indenture”)	4.1	Registration Statement on Form S-3 (File No. 333-64558), filed July 3, 2001

(4.3.1)	Officers’ Certificate establishing two series of Securities entitled “4.875% Notes due 2013” and “6.000% Notes due 2033”, respectively, each under the 2001 Indenture	4.2	Current Report on Form 8-K, filed January 16, 2003

(4.3.2)	4.875% Notes Due 2013	4.3	Current Report on Form 8-K, filed January 16, 2003

(4.3.3)	6.000% Notes Due 2033	4.4	Current Report on Form 8-K, filed January 16, 2003

(10.3)	*Deferred Compensation Plan for Directors	10.3	1981 Annual Report on Form 10-K, filed February 29, 1982

(10.5)	*Executive Medical and Dental Plan (description)	10.5	1981 Annual Report on Form 10-K, filed February 29, 1982

(10.6)	*Executive Financial Counseling Service (description)	10.6	1981 Annual Report on Form 10-K, filed February 29, 1982

(10.8.2)	*Agreement with P.M. Neal	10.8.2	1998 Annual Report on Form 10-K, filed March 31, 1999

(10.8.3)	*Agreement with R.G. van Schoonenberg	10.8.3	1996 Annual Report on Form 10-K, filed March 28, 1997

(10.8.4)	*Form of Employment Agreement	10.8.4	1997 Annual Report on Form 10-K, filed March 26, 1998

(10.9)	*Executive Group Life Insurance Plan	10.9	1982 Annual Report on Form 10-K, filed February 25, 1983

(10.10)	*Form of Indemnity Agreement between Registrant and certain directors and officers	10.10	1986 Annual Report on Form 10-K, filed on February 27, 1987

(10.10.1)	*Form of Indemnity Agreement between Registrant and certain directors and officers	10.10.1	1993 Annual Report on Form 10-K, filed March 18, 1994

(10.11)	*Amended and Restated Supplemental Executive Retirement Plan (“SERP”)	10.11.1	1998 Annual Report on From 10-K, filed March 31, 1999

(10.11.2)	*Letter of Grant to Philip M. Neal under SERP	10.11.2	1998 Annual Report on From 10-K, filed March 31, 1999

(10.12)	*Complete Restatement and Amendment of Executive Deferred Compensation Plan	10.12	1994 Annual Report on Form 10-K, filed March 30, 1995

(10.13)	*Fourth Amended Avery Dennison Retirement Plan for Directors	10.13.2	1992 Annual Report on Form 10-K405, filed March 17, 1993

Exhibit No.	Item	Originally Filed as Exhibit No.	Document(1)
(10.15)	*1988 Stock Option Plan for Non-Employee Directors (“Director Plan”)	10.15	1987 Annual Report on Form 10-K, filed February 17, 1988

(10.15.1)	*Amendment No. 1 to Director Plan	10.15.1	1994 Annual Report on Form 10-K, filed March 30, 1995

(10.15.2)	*Form of Non-Employee Director Stock Option Agreement under Director Plan	10.15.2	1994 Annual Report on Form 10-K, filed March 30, 1995

(10.15.3)	*Amendment No. 2 to Director Plan	10.15.3	2000 Annual Report on Form 10-K, filed March 29, 2001

(10.16)	*Complete Restatement and Amendment of Executive Variable Deferred Compensation Plan (“EVDCP”)	10.16	1994 Annual Report on Form 10-K, filed March 30, 1995

(10.16.1)	*Amendment No. 1 to EVDCP	10.16.1	1999 Annual Report on Form 10-K, filed March 30, 2000

(10.17)	*Complete Restatement and Amendment of Directors Deferred Compensation Plan	10.17	1994 Annual Report on Form 10-K, filed March 30, 1995

(10.18)	*Complete Restatement and Amendment of Directors Variable Deferred Compensation Plan (“DVDCP”)	10.18	1994 Annual Report on Form 10-K, filed March 30, 1995

(10.18.1)	*Amendment No. 1 to DVDCP	10.18.1	1999 Annual Report on Form 10-K, filed March 30, 2000

(10.19)	*1990 Stock Option and Incentive Plan (“1990 Plan”)	10.19	1989 Annual Report on Form 10-K, filed February 27, 1990

(10.19.1)	*Amendment No. 1 to 1990 Plan	10.19.1	1993 Annual Report on Form 10-K, filed March 18, 1994

(10.19.2)	*Form of Incentive Stock Option Agreement for use under 1990 Plan	10.19.2	1991 Annual Report on Form 10-K, filed March 25, 1992

(10.19.3)	*Form of Non-Qualified Stock Option (“NSO”) Agreement under 1990 Plan	10.19.3	1994 Annual Report on Form 10-K, filed March 30, 1995

(10.19.4)	*Form of NQSO Agreement under 1990 Plan	10.19.4	1999 Annual Report on Form 10-K, filed March 30, 2000

(10.19.5)	*Amendment No. 2 to 1990 Plan	10.19.5	1996 Annual Report on Form 10-K, filed March 28, 1997

(10.21)	*Amended and Restated 1996 Stock Incentive Plan (“1996 Plan”)	10.21	1999 Annual Report on Form 10-K, filed March 30, 2000

(10.21.1)	*Form of NQSO Agreement under 1996 Plan	10.21.1	1999 Annual Report on Form 10-K, filed March 30, 2000

(10.27)	*Executive Long-Term Incentive Plan	10.27	1999 Annual Report on Form 10-K, filed March 30, 2000

(10.28)	*Complete Restatement and Amendment of Executive Deferred Retirement Plan (“EDRP”)	10.28	1994 Annual Report on Form 10-K, filed March 30, 1995

Exhibit No.	Item	Originally Filed as Exhibit No.	Document(1)
(10.28.1)	*Amendment No. 1 to EDRP	10.28.1	1999 Annual Report on Form 10-K, filed March 30, 2000

(10.28.2)	*Amendment No. 2 to EDRP	10.28.2	2001 Annual Report on Form 10-K, filed March 4, 2002

(10.29)	*Executive Leadership Compensation Plan (“ELCP”)	10.29	1999 Annual Report on Form 10-K, filed March 30, 2000

(10.29.1)	*Amendment No. 1 to ELCP	10.29.1	2001 Annual Report on Form 10-K, filed March 4, 2002

(10.30)	*Senior Executive Leadership Compensation Plan (“SELCP”)	10.30	1999 Annual Report on Form 10-K, filed March 30, 2000

(10.30.1)	*Amendment No. 1 to SELCP	10.30.1	2001 Annual Report on Form 10-K, filed March 4, 2002

(10.31)	*Executive Variable Deferred Retirement Plan (“EVDRP”)	10.31	Registration Statement on Form S-8 (File No. 33-63979), filed November 3, 1995

(10.31.1)	*Amended and Restated EVDRP	10.31.1	1997 Annual Report on Form 10-K, filed March 26, 1998

(10.31.2)	*Amendment No. 1 to EVDRP	10.31.2	1999 Annual Report on Form 10-K, filed March 30, 2000

(10.31.3)	*Amendment No. 2 to EVDRP	10.31.3	2001 Annual Report on Form 10-K, filed March 4, 2002

(10.32)	*Amended and Restated Benefit Restoration Plan (“BRP”)	10.32.1	1995 Annual Report on Form 10-K, filed March 29, 1996

(10.33)	*Restated Trust Agreement for Employee Stock Benefit Trust	10.33.1	1997 Annual Report on Form 10-K, filed March 26, 1998

(10.33.1)	*Common Stock Purchase Agreement	10.2	Current Report on Form 8-K, filed October 25, 1996

(10.33.2)	*Restated Promissory Note	10.33.3	1997 Annual Report on Form 10-K, filed March 26, 1998

(10.34)	*Amended and Restated Capital Accumulation Plan (“CAP”)	10.34	1999 Annual Report on Form 10-K, filed March 30, 2000

(10.34.1)	*Trust under CAP	4.2	Registration Statement on Form S-8 (File No. 333-38707), filed October 24, 1997

(10.34.2)	*Amendment No. 1 to CAP	10.34.2	1999 Annual Report on Form 10-K, filed March 30, 2000

(10.34.3)	*Amendment No. 2 to CAP	10.34.3	2001 Annual Report on Form 10-K, filed March 4, 2002

Unless otherwise noted, the File Number for all documents is File No. 1-7685.

Management contract or compensatory plan or arrangement required to be filed as an Exhibit to this Form 10-K pursuant to Item 15(c).

SUBMITTED HEREWITH:

Exhibit No.		Item

3.2		Bylaws, as amended on December 5, 2002

10.13.1		* Retirement Plan for Directors, amended and restated

10.15.4		*Director Equity Plan, amended and restated

10.19.6		*Employee Stock Option and Incentive Plan, amended and restated

10.19.7		*Forms of NQSO Agreement under 1990 Plan

10.21.2		*Stock Incentive Plan, amended and restated

10.21.3		*Forms of NQSO Agreement under 1996 Plan

10.32.1		*BRP, amended and restated

12		Computation of Ratio of Earnings to Fixed Changes

13		Portions of Annual Report to Shareholders for fiscal year ended December 28, 2002

21		List of Subsidiaries

23		Consent of Independent Accountants (see page S-4)

99.1		Cautionary Statement for Purposes of the “Safe Harbor” Provisions of the Private Securities Litigation Reform Act of 1995

99.2		Philip M. Neal Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

99.3		Daniel R. O’Bryant Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Management contract or compensatory plan or arrangement required to be filed as an Exhibit to this Form 10-K pursuant to Item 15(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.



                                                                     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 2711 Centerville Road,
Suite 400, 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, if any, 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, and at such other time 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. Business transacted at any special meeting of the
stockholders shall be limited to the purpose stated in the notice of meeting.



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 purpose or purposes for which the meeting is called, 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 or by electronic
transmission, 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. Whenever notice is
required to be given to any stockholder to whom (1) notice of 2 consecutive
annual meetings, and all notices of meetings or of the taking of action by
written consent without a meeting to such person during the period between such
2 consecutive annual meetings, or (2) all, and at least 2, payments (if sent by
first-class mail) of dividends or interests or securities during a 12 month
period, have been mailed addressed to such person at such person's address as
shown on the records of the corporation and have been returned undeliverable,
the giving of such notice shall not be required. If any such person shall
deliver to the corporation a written notice setting forth such person's then
current address, the requirement that notice be given to such person shall be
reinstated. If mailed, notice shall be deemed to have been given at the time
when delivered personally or deposited in the United States 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
voting power of the outstanding 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
voting power 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
percentage or voting by classes is required by the General Corporation Law of
the State of Delaware (the "General Corporation Law") or the certificate of
incorporation or the certificate of designations of preferences as to any
preferred stock, or the rules and regulations of any stock exchange applicable
to the corporation, or applicable law or pursuant to any rule or regulation
applicable to the corporation or its securities.

         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, gives
a 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 proxy. Without limiting the manner in which a proxy may be
granted, a stockholder may grant a proxy in the following manners: (i) by
executing a writing authorizing another person or persons to act for such
stockholder as proxy or (ii) by transmitting or authorizing the transmission of
a telegram, cablegram, or other means of electronic transmission to a person who
will be the holder of the proxy or to a proxy solicitation firm, proxy support
service organization or like agent duly authorized by the person who will be the
holder of the proxy to receive such transmission, provided however that any such
telegram, cablegram or other means of electronic transmission must either set
forth or be submitted with information from which it can be determined that the
telegram, cablegram or other electronic transmission was authorized by the
stockholder. A written proxy shall be deemed signed if the stockholder's name is
placed on the proxy (whether by manual signature, typewriting, telegraphic
transmission or electronic transmission or otherwise) by the stockholder or the
stockholder's attorney in fact. A 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 or
electronic transmission 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) 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 three years 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 90th day nor earlier
than the close of business on the 120th 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

                                        4



30 days before or more than 70 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 120th day prior to such annual meeting and not later than the
close of business on the later of the 90th day prior to such annual meeting or
the 10th day 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 or postponement of an annual meeting commence a
new time period (or extend any 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") (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 (including the text of any resolutions proposed for consideration and in
the event that such business includes an amendment to the Bylaws, the language
of the proposed amendment); 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, (ii) the class and number of
shares of the corporation which are owned beneficially and of record by such
stockholder and such beneficial owner, (iii) a representation that the
stockholder is a holder of record of stock of the corporation entitled to vote
at such meeting and intends to appear in person or by proxy at the meeting to
propose such business or nomination, and (iv) a representation whether the
stockholder or the beneficial owner, if any, intends or is part of a group which
intends (a) to deliver a proxy statement and/or form of proxy to holders of at
least the percentage of the corporation's outstanding capital stock required to
approve or adopt the proposal or elect the nominee and/or (b) otherwise to
solicit proxies from stockholders in support of such proposal or nomination. The
foregoing notice requirements shall be deemed satisfied by a stockholder if the
stockholder has notified the corporation of his or her intention to present a
proposal at an annual meeting in compliance with Rule 14a-8 (or any successor
thereof) promulgated under the Exchange Act and such stockholder's proposal has
been included in a proxy statement that has been prepared by the corporation to
solicit proxies for such annual meeting. The corporation may require any
proposed nominee to furnish such other information as the corporation may
reasonably require to determine the eligibility of such proposed nominee to
serve as a director of the corporation.

         (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 100
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

                                        5



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 120th day prior to such special meeting and not later than the
close of business on the later of the 90th 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 or postponement of a special meeting commence a
new time period (or extend any time period) for the giving of a stockholder's
notice as described above.

         (C) General.

         (1) Only such persons who are nominated in accordance with the
procedures set forth in this Bylaw shall be eligible to be elected at an annual
or special meeting of stockholders 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
(including whether the stockholder or beneficial owner, if any, on whose behalf
the nomination or proposal is made solicited (or is part of a group which
solicited) or did not so solicit, as the case may be, proxies in support of such
stockholder's nominee or proposal in compliance with such stockholder's
representation as required by clause (A)(2)(c)(iv) of this Bylaw), to declare
that such defective proposal or nomination shall be disregarded. Notwithstanding
the foregoing provisions of this Bylaw, if the stockholder (or a qualified
representative of the stockholder) does not appear at the annual or special
meeting of stockholders of the corporation to present a nomination or business,
such nomination shall be disregarded and such proposed business shall not be
transacted, notwithstanding that proxies in respect of such vote may have been
received by the corporation.

         (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 pursuant to any
applicable provision of the certificate of incorporation.

                                   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.

                                        6



         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.

                  (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 Twelve (12) 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 AND NEWLY CREATED DIRECTORSHIPS.

         Vacancies and newly created directorships 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 or she succeeds,
unless otherwise determined by the board of directors, 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, disqualification or
removal of any director, or if the authorized number of directors be increased.

         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.

                                        7



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 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 other 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 or by electronic transmission 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, telegram
or other form of electronic transmission, it shall be delivered personally, or
by telephone or to the telegraph company or transmitted by other electronic
transmission 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 gives a
waiver of notice, a consent to holding the meeting or an approval of the minutes
thereof. The waiver of notice or consent need

                                        8



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.

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
if the time and place thereof are announced at the adjourned meeting, 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 to such action in compliance with applicable law.

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.

                                   ARTICLE IV

                                   COMMITTEES

SECTION 1.   COMMITTEES OF DIRECTORS.

         The board of directors may, by resolution adopted by the board 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

                                        9



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) approving or adopting, or recommending to the
stockholders, any action or matter expressly required by the General Corporation
Law to be submitted to the stockholders for approval; or

                  (b) adopting, amending or repealing any bylaw of the
corporation.

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.

                                    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;

                                       10



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 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

                                       11



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 AND INSURANCE.

         (A) Each person who was or is made a party or is threatened to be made
a party to or is involved in any action, suit, or proceeding, whether civil,
criminal, administrative or investigative (hereinafter a "proceeding"), by
reason of the fact that he or she or a person of whom he or she is the legal
representative is or was a director or officer of the corporation or is or was
serving at the request of the corporation as a director, officer, employee or
agent of another corporation or of a partnership, joint venture, trust or other
enterprise, including service with respect to employee benefit plans maintained
or sponsored by the corporation, whether the basis of such proceeding is alleged
action in an official capacity as a director, officer, employee or agent or in
any other capacity while serving as a director, officer, employee of agent,
shall be indemnified and held harmless by the corporation to the fullest extent
authorized by the General Corporation Law as the same exists or may hereafter be
amended (but, in the case of any such amendment, only to the extent that such
amendment permits the corporation to provide broader indemnification rights than
said law permitted the corporation to provide prior to such amendment), against
all expenses, liability and loss (including attorneys' fees, judgements, fines,
ERISA excise taxes or penalties and amounts paid or to be paid in settlement)
reasonably incurred or suffered by such person in connection therewith and such
indemnification shall continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of his or her heirs,
executors and administrators; provided, however, that except as provided in
paragraph (C) of this Bylaw, the corporation shall indemnify any such person
seeking indemnification in connection with a proceeding (or part thereof)
initiated by such person only if such proceeding (or part thereof) was
authorized by the Board of Directors. The right to indemnification conferred in
this Bylaw shall be a contract right and shall include the right to be paid by
the corporation the expenses incurred in defending any such proceeding in
advance of its final disposition, such advances to be paid by the corporation
within 20 days after the receipt by the corporation of a statement or statements
from the claimant requesting such advance or advances from time to time;
provided, however, that if the General Corporation Law requires, the payment of
such expenses incurred by a director or officer in his or her capacity as a
director or officer (and not in any other capacity in which service was or is
rendered by such person while a director or officer, including, without
limitation, service to an employee benefit plan) in advance of the final
disposition of a proceeding, shall be made only upon delivery to the corporation
of an undertaking by or on behalf of such director or officer, to repay all
amounts so advanced if it shall ultimately be determined that such director or
officer is not entitled to be indemnified under this Bylaw or otherwise.

         (B) To obtain indemnification under this Bylaw, a claimant shall submit
to the corporation a written request, including therein or therewith such
documentation and information as is reasonably available to the claimant and
reasonably necessary to determine whether and to what extent the claimant is
entitled to indemnification. Upon written request by a claimant for
indemnification pursuant to the first sentence of this paragraph (B), a
determination, if required by applicable law, with respect to the claimant's

                                       12



entitlement thereto shall be made as follows: (1) if requested by the claimant,
by Independent Counsel (as hereinafter defined), or (2) if no request is made by
the claimant for a determination by Independent Counsel, (i) by the Board of
Directors by a majority vote of a quorum consisting of Disinterested Directors
(as hereinafter defined), or (ii) by a committee of Disinterested Directors
designated by Disinterested Directors, even though less than a quorum, or (iii)
if a quorum of the Board of Directors consisting of Disinterested Directors is
not obtained or even if obtainable, such quorum of Disinterested Directors so
directs, by Independent Counsel in a written opinion to the Board of Directors,
a copy of which shall be delivered to the claimant, or (iv) if a quorum of
Disinterested Directors so directs, by the stockholders of the corporation. In
the event the determination of entitlement to indemnification is to be made by
Independent Counsel at the request of the claimant, the Independent Counsel
shall be selected by the Board of Directors unless there shall have occurred
within two years prior to the date of the commencement of the action, suit or
proceeding for which indemnification is claimed a "Change of Control" as defined
in the 1996 Stock Incentive Plan, in which case the Independent Counsel shall be
selected by the claimant unless the claimant shall request that such selection
be made by the Board of Directors. If it is so determined that the claimant is
entitled to indemnification, payment to the claimant shall be made within 10
days after such determination.

         (C) If a claim under paragraph (A) of this Bylaw is not paid in full by
the corporation within 30 days after a written claim pursuant to paragraph (B)
of this Bylaw has been received by the corporation, the claimant may at any time
thereafter bring suit against the corporation to recover the unpaid amount of
the claim and, if successful in whole or in part, the claimant shall be entitled
to be paid also the expense of prosecuting such claim, including attorney's
fees. It shall be a defense to any such action (other than an action brought to
enforce a claim for expenses incurred in defending any proceeding in advance of
its final disposition where the required undertaking, if any is required, has
been tendered to the corporation) that the claimant has not met the standard of
conduct which makes it permissible under the General Corporation Law for the
corporation to indemnify the claimant for the amount claimed, but the burden of
proving such defense shall be on the corporation. Neither the failure of the
corporation (including its Board of Directors, Independent Counsel or
stockholders) to have made a determination prior to the commencement of such
action that indemnification of the claimant is proper in the circumstances
because he or she has met the applicable standard of conduct set forth in the
General Corporation Law, nor an actual determination by the corporation
(including its Board of Directors, Independent Counsel or stockholders) that the
claimant has not met such applicable standard of conduct, shall be a defense to
the action or create a presumption that the claimant has not met the applicable
standard of conduct.

         (D) If a determination shall have been made pursuant to paragraph (B)
of this Bylaw that the claimant is entitled to indemnification, the corporation
shall be bound by such determination in any judicial proceeding commenced
pursuant to paragraph (C) of this Bylaw.

         (E) The corporation shall be precluded from asserting in any judicial
proceeding commenced pursuant to paragraph (C) of this Bylaw that the procedures
and presumptions of this Bylaw are not valid, binding and enforceable and shall
stipulate in such proceeding that the corporation is bound by all the provisions
of this Bylaw.

         (F) The right to indemnification and the payment of expenses incurred
in defending a proceeding in advance of its final disposition conferred in this
Bylaw shall not be exclusive of any other right which any person may have or
hereafter acquire under any statute, provision of the Certificate of
Incorporation, Bylaws, agreement, vote of stockholders or Disinterested
Directors or otherwise. No repeal or modification of this Bylaw shall in any way
diminish or adversely affect the rights of any director, officer, employee or
agent of the corporation hereunder in respect of any occurrence or matter
arising prior to any such repeal or modification.

         (G) The corporation may maintain insurance, at its expense, to protect
itself and any director, officer, employee or agent of the corporation or
another corporation, partnership, joint venture, trust or other

                                       13



enterprise against any expense, liability or loss, whether or not the
corporation would have the power to indemnify such person against such expense,
liability or loss under the General Corporation Law. To the extent that the
corporation maintains any policy or policies providing such insurance, each such
director or officer, and each such agent or employee to which rights to
indemnification have been granted as provided in paragraph (H) of this Bylaw,
shall be covered by such policy or policies in accordance with its or their
terms to the maximum extent of the coverage thereunder for any such director,
officer, employee or agent.

         (H) The corporation may, to the extent authorized from time to time by
the Board of Directors or the Chief Executive Officer, grant rights to
indemnification, and rights to be paid by the corporation the expenses incurred
in defending any proceeding in advance of its final disposition, to any employee
or agent of the corporation to the fullest extent of the provisions of this
Bylaw with respect to the indemnification and advancement of expenses of
directors and officers of the corporation.

         (I) If any provision or provisions of this Bylaw shall be held to be
invalid, illegal or unenforceable for any reason whatsoever: (1) the validity,
legality and enforceability of the remaining provisions of this Bylaw
(including, without limitation, each portion of any paragraph of this Bylaw
containing any such provisions held to be invalid, illegal or unenforceable,
that is not itself held to be invalid, illegal or unenforceable) shall not in
any way be affected or impaired thereby; and (2) to the fullest extent possible,
the provisions of this Bylaw (including, without limitation, each such portion
of any paragraph of this Bylaw containing any such provision held to be invalid,
illegal or unenforceable) shall be construed so as to give effect to the intent
manifested by the provision held invalid, illegal or unenforceable.

         (J) For purposes of this Bylaw:

              (1) "Disinterested Director" means a director of the corporation
who is not and was not a party to the matter in respect of which indemnification
is sought by the claimant.

              (2) "Independent Counsel" means a law firm, a member of a law
firm, or an independent practitioner, that is experienced in matters of
corporation law and shall include any person who, under the applicable standards
of professional conduct then prevailing, would not have a conflict of interest
in representing either the corporation or the claimant in an action to determine
the claimant's rights under this Bylaw.

         (K) Any notice, request or other communication required or permitted to
be given to the corporation under this Bylaw shall be in writing and either
delivered in person or sent by telecopy, telex, telegram, overnight mail or
courier service, or certified or registered mail, postage prepaid, return
receipt requested, to the Secretary of the corporation and shall be effective
only upon receipt by the Secretary.

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

                                       14



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.

         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.

                                  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

                                       15



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 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.

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.

                                       16



SECTION 7.   CONSTRUCTION AND DEFINITIONS.

         Unless the context requires otherwise, the general provisions, rules of
construction, and definitions in the 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.

                                   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.




Amended December 5, 2002

                                       17



                                                                 EXHIBIT 10.13.1

                                 AVERY DENNISON
                          RETIREMENT PLAN FOR DIRECTORS
                              amended and restated

                                   I. Purpose

         The purpose of this Retirement Pan for Directors ("Plan") has been to
provide recognition and retirement compensation to eligible members of Avery
Dennison Corporation's ("Company") Board of Directors ("Board") to facilitate
the Company's ability to attract, retain and reward members of its Board. This
Plan is amended and restated as of December 5, 2002.

                                 II. Definitions

         As used in this Plan, the following terms shall have the meanings
specified:

         1.       "Benefit Commencement Quarter" shall mean the fiscal quarter
                  following the fiscal quarter during which an Eligible
                  Director's Termination from the Board occurs, or following the
                  fiscal quarter in which the Eligible Director becomes age 60,
                  whichever occurs later.

         2.       "Eligible Director" shall mean any non-employee individual who
                  is, or was as of January 1, 1983 through November 31, 2002, a
                  member of the Board, who has completed or completes at least
                  five years of total service on the Board at the time of his or
                  her Termination from the Board.

         3.       "Eligible Spouse" shall mean a current spouse to whom an
                  Eligible Director has been married for at least one year prior
                  to the Eligible Director's death.

         4.       "Secondary Beneficiaries" shall mean one or more beneficiaries
                  designated by an Eligible Director, prior to his or her death,
                  to receive benefits under the Plan upon the death of both the
                  Eligible Director and such Eligible Director's Eligible
                  Spouse. Such designation shall be made in writing and
                  delivered to the Chief Executive Officer or other designated
                  officer of the Company.

         5.       "Termination from the Board" of an Eligible Director shall
                  mean the effective date of the Eligible Director's resignation
                  or retirement from the Board, death while serving as a Board
                  member or failure to be reelected to the Board.

                               III. Participation

         All Eligible Directors shall be participants in this Plan.




                              IV. Amount of Benefit

         Each Eligible Director, who retired on or before April 25, 2002, shall
be entitled to an annual retirement benefit hereunder which shall be equal to
the sum of the annual retainer plus twelve times the monthly Board meeting fees
all as in effect at the time of the Eligible Director's Termination from the
Board. From and after July 23, 1992, increases in the amount of the annual
retainer and changes in the amount of the monthly Board meetings fees which take
effect after an Eligible Director's Termination from the Board shall not operate
to increase the annual retirement benefit hereunder. Each Eligible Director, who
retires after April 25, 2002, shall be entitled to an annual retirement benefit
hereunder, which shall be equal to the sum of the annual retainer plus twelve
time the monthly Board meeting fees in effect on April 25, 2002. These amounts
shall be paid quarterly in arrears in four equal payments. No additional amount
shall be paid for service on any of the committees of the Board, nor shall
interest be paid on these amounts.

                    V. Commencement and Duration of Benefits

         Benefit payments shall begin on the first day of the fiscal quarter
following the Benefit Commencement Quarter; however, in no event shall benefits
be paid for a period prior to the effective date hereof. Benefits will be paid
for a period equal to the number of years (rounding fractional years of service
up to the next higher whole year) for the years of service through December 31,
2002 that the Eligible Director served as a director on the Board; provided,
however, that there shall be no credit for service on the Board after December
31, 2002 and that as of December 31, 2002 all active Eligible Directors shall be
credited with a number of years of service such that they each have a minimum of
five years of service for purposes of determining the number of years for which
benefits will be paid. Upon the death of an Eligible Director, any benefits
under this Plan will be paid to his or her Eligible Spouse in accordance with
the same payment schedule set forth above until receipt of the maximum benefit
to which the Eligible Director would have been entitled had he or she survived
or until the death of the Eligible Spouse, whichever first occurs. If the
Eligible Director dies while serving on the Board, the Eligible Spouse's Benefit
Commencement Quarter shall be the fiscal quarter following the Eligible
Director's death. Following the death of the Eligible Spouse, or if there is no
Eligible Spouse living at the time of the death of the Eligible Director, any
benefits will be paid to the Eligible Director's Secondary Beneficiaries in
accordance with the same payment schedule set forth above until the first to
occur of (i) receipt of the maximum benefit to which the Eligible Director would
have been entitled had he or she survived, (ii) the death of the Secondary
Beneficiaries, if natural persons or (iii) benefits have been paid under this
Plan to the Eligible Director, the Eligible Spouse and/or the Secondary
Beneficiaries for a combined period of ten years.

         The Eligible Director may, prior to his or her death, designate in
writing (delivered to the Chief Executive Officer or other designated officer of
the Company) one or more beneficiaries to receive any benefits which would
otherwise be paid to such Director's Eligible Spouse during such Eligible
Spouse's lifetime pursuant to this Article V. In such event, the Company shall
make payments to any such designated beneficiaries in lieu of making payments to
the Eligible Spouse;




provided that the aggregate of such payments shall not exceed the amount of
payments which would otherwise be payable to the Eligible Spouse and the
Secondary Beneficiaries.

                               VI. Administration

         This Plan shall be a non-contributory, non-qualified, and unfunded Plan
and shall represent only an unsecured general obligation of the Company. No
special fund or trust shall be created, nor shall any notes or securities be
issued with respect to any retirement benefits. The Chief Executive Officer of
the Company or the Vice President of Human Resources, if authorized to act on
behalf of the Chief Executive Officer, shall have full and final authority to
interpret this Plan, to make determinations which he believes advisable for the
administration of the Plan, to interpret Plan provisions and to approve
ministerial changes or changes to the Plan required by law or regulation. All
decisions and determinations by the Chief Executive Officer shall be final and
binding upon all parties.

         If any person entitled to benefits under this Plan is so incapacitated
that a legal guardian or conservator has been appointed for that person,
benefits to be paid hereunder shall be paid directly to said legal guardian or
conservator.

                               VII. Non-Alienation

         No benefit under this Plan shall be liable at any time for the debts,
contracts or engagements of any Eligible Director or successor in interest, or
be taken in execution by levy, attachment, garnishment or by any other legal or
equitable proceeding, prior to payment hereunder, nor shall any such person have
any right to alienate, anticipate, commute, pledge, encumber or assign any
benefits or payments hereunder in any manner whatsoever, except as provided in
the Plan.

                               VII. Applicable Law

         This Plan shall be governed by and administered in accordance with the
laws of the State of California.



                                                                 EXHIBIT 10.15.4

                           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

                                        1




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
"Optionees."

         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
program.

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
Paragraph 7 below,

                                        2



appropriate proof of the right of such person or persons to exercise the Option
shall be provided to the Company.

         (c) Any person exercising an Option or portion of an Option shall do so
by delivering to the Secretary or his office of all of the following:

              (i) A written notice in a form supplied by the Secretary;

              (ii) Full payment for the shares with respect to which the Option,
         or portion thereof, is exercised in whole or in part by (A) cash; (B)
         certified or bank check or such other instrument as the Company may
         accept; or (C) delivery (either by surrender of the shares or by
         attestation) of shares 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 either were acquired by the Optionee in an
         open-market transaction or have been held by the Optionee for at least
         six months at the time of exercise; and

              (iii) In the event that the Option shall be exercised by any
         person or persons other than the Optionee, appropriate proof of the
         right of such person or persons to exercise the Option.

         (d) In the event that an Optionee shall cease to be a member of the
Board, other than by reason of retirement after age seventy-two (hereinafter
"Retirement") or death, he may exercise his Options within three months after
such termination, but not after the expiration of the Options, to the extent of
the number of shares exercisable by him at the date of termination of his
membership on the Board.

         (e) In the event that an Optionee shall cease to be a member of the
Board because of Retirement, he may exercise his Options within sixty months
after Retirement, but not after the expiration of the Options, to the extent of
the number of shares exercisable by him at the date of Retirement.

         (f) In the event of the death of an Optionee, any of his Options that
were outstanding at the time of his death that have not been previously
terminated pursuant to the provisions of Paragraph 5(d) or 5(e) may be exercised
at any time within twelve months of the date of the Optionee's death, but not
after the expiration of the Option, to the extent of the number of shares
exercisable by the Optionee at the date of his death. Designation, revocation
and redesignation of Beneficiaries must be made by notice in writing in
accordance with rules established by the Board or Committee and shall be
effective upon delivery of such notice to the Board.

         (g) Nothing in the Plan or in any Option granted pursuant to the Plan
shall confer on any individual any right to continue as a member of the Board or
interfere in any way with the right of the Company to terminate his membership
on the Board at any time.

6.       Conditions to Issuance of Stock Certificates

         (a) The Board may require each person purchasing or receiving shares of
Common Stock pursuant to an Award, as a condition to delivery of such shares, to
represent to and agree with the Company in writing that such person is acquiring
the shares without a view to the distribution thereof and to provide such other
representations and such documents as the Board, in its absolute discretion,
deems necessary or appropriate to effect compliance with all applicable laws.
Such shares may be delivered in

                                        3



by book entry or in certificate form, with such legends or other notations as
the Board deems appropriate to reflect any restrictions on transfer.

         (b) Notwithstanding any other provision of the Plan or any Agreement,
the Company shall not be required to issue or deliver any shares of Common Stock
under the Plan prior to fulfillment of all of the following conditions:

              (i) 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;

              (ii) Any registration or other qualification of such shares under
         any state or federal law or regulation, or the maintaining in effect of
         any such registration or other qualification which the Board shall, in
         its absolute discretion upon the advice of counsel, deem necessary or
         advisable;

              (iii) Obtaining any other consent, approval, or permit from any
         state or federal governmental agency, which the Board shall, in its
         absolute discretion after receiving the advice of counsel, determine to
         be necessary or advisable;

              (iv) The lapse of such reasonable period of time following the
         exercise of an Option or the event that results in the delivery of such
         Shares, as the Board may establish from time to time for reasons of
         administrative convenience; and

              (v) The receipt by the Company of full payment (if any) for such
         shares and the satisfaction of any tax withholding obligations relating
         thereto.

         A Director shall not be, nor have any of the rights or privileges of, a
stockholder of the Company in respect of any shares of Common Stock that may
become deliverable pursuant to the Plan unless and until such shares have been
delivered to the Director.

7.       Transferability and Stockholder Rights of Holders of Awards

         (a) Options granted under the Plan may be transferred to one or more
Transferees (as defined below) or to a Beneficiary (as defined below). Options
may be exercised (i) during the Optionee's lifetime, only by the Optionee or a
Transferee, and (ii) after the Optionee's death, only by a Transferee or a
Beneficiary. "Transferee" shall mean "family members" as defined in the
Securities and Exchange Commission Release No. 33-7646 and 34-41109, who have
acquired the Option through a gift or a domestic relations order, and includes
any child, stepchild, grandchild, parent, stepparent, grandparent, spouse,
sibling, niece, nephew, mother-in-law, father-in-law, son-in-law,
daughter-in-law, brother-in-law, or sister-in-law, including adoptive
relationships, any person sharing the employee's household (other than a tenant
or employee), a trust in which these persons have more than fifty percent of the
beneficial interest, a foundation in which these persons (or the employee)
control the management of assets, and any other entity in which these persons
(or the employee) own more than fifty percent of the voting interests.

         (b) Other Awards granted under the Plan may not be transferred, except
to a Beneficiary (as defined below).

         (c) Each Director shall be permitted to designate one or more
Beneficiaries to receive his Awards under the Plan upon his death, on such form
and in accordance with such procedures as the Board

                                        4



or Secretary may from time to time establish. If a Director dies at a time when
he has no Beneficiary designation in effect, his estate shall be his
Beneficiary.

         (d) References in the Plan to an Optionee or Director (other than such
references that relate to membership on the Board or termination thereof) shall
be deemed to refer to a Transferee or Beneficiary where appropriate.

8.       Adjustments upon Changes in Common Stock

         In the event of a stock dividend, stock split, reverse stock split,
share combination, recapitalization, merger, consolidation, acquisition of
property or shares, separation, spinoff, reorganization, stock rights offering,
liquidation, sale of a subsidiary or similar event, the Board or Committee shall
make such adjustments (if any) as it deems appropriate and equitable, in its
discretion, to the following:

         (a) the aggregate number of shares of Common Stock available under
         Paragraph 2;
         (b) the number of shares subject to automatic Option grants under
         Paragraph 4;
         (c) the number of shares of Common Stock covered by outstanding
         Awards;
         (d) the option price of outstanding Options; and
         (e) such other adjustments to outstanding Awards as the Board or
         Committee may determine to be appropriate and equitable.

         Such adjustments may include, without limitation, (i) the cancellation
of outstanding Awards in exchange for payments of cash, property or a
combination thereof having an aggregate value equal to the value of such Awards,
as determined by the Committee in its sole discretion, and (ii) the substitution
of other property (including, without limitation, other securities) for the
Stock covered by outstanding Awards.

9.       Change in Control

         (a)  Impact of Event

         Notwithstanding any other provision of the Plan to the contrary, in the
event of a Change in Control, any Options 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, and shall remain
exercisable until their expiration date notwithstanding any termination of the
Optionee's membership on the Board.

         (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 Article 13.4(a) or 14.4(b) of the Securities Exchange Act of
         1934, as amended (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 (A) the then outstanding shares
         of common stock of the Company (the "Outstanding Company Common Stock")
         or (B) 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: (I) 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

                                        5



         Company, (II) any acquisition by the Company, (III) any acquisition by
         any employee benefit plan (or related trust) sponsored or maintained by
         the Company or any corporation controlled by the Company, or (IV) any
         acquisition by any corporation pursuant to a transaction which complies
         with clauses (A), (B) and (C) of subsection (iii) of this Paragraph
         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 Article 10.2, 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 stockholders, was approved by a vote of at least a
         majority of those individuals 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 consummation of a reorganization, merger or
         consolidation or sale involving the Company or a disposition of all or
         substantially all of the assets of the Company ("Corporate
         Transaction") ; excluding however, such a Corporate Transaction
         pursuant to which (A) 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 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, (B) 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 (C)
         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.

10.      Amendment and Termination

         Unless the Plan shall theretofore have been terminated as hereinafter
provided, the Plan shall terminate on, and no Awards shall be made after,
January 31, 2010; provided, however, that such termination shall have no effect
on Awards granted prior thereto (and the provisions of the Plan shall continue
to apply thereto). The Board may amend, suspend or terminate the Plan at any
time, but no such

                                        6



amendment, suspension or termination shall impair the rights of Directors under
Awards previously granted without the Director's consent. In addition, no such
amendment shall be made without the approval of the Company's stockholders to
the extent such approval is required by applicable law or the rules of any
exchange on which the Common Shares are then listed.

11.      Withholding

         Upon the transfer of Common Stock as a result of the exercise of an
Option or pursuant to another Award, the Company shall have the right to retain
or sell, without notice, sufficient shares of stock (taken at their Fair Market
Value, as defined in Paragraph 5(a) above, on the date of exercise or transfer)
to cover the amount of any tax required by any government to be withheld or
otherwise deducted and paid with respect to such payment, remitting any balance
to the Director; provided, however, that the Director shall have the right to
provide the Company with the funds to enable it to pay such tax.

12.      Approval by Stockholders

         The Plan, as amended and restated, was approved and adopted by the
Board on February 27, 2003, and shall be effective as of April 24, 2003, subject
to the approval of the Company's stockholders at the meeting of the stockholders
to be held on April 24, 2003. The Plan was originally approved by the
stockholders on January 28, 1988.

13.      Titles; Gender

         Titles are provided herein for convenience only and are not to serve as
a basis for interpretation or construction of the Plan. Whenever the masculine
gender is used, it shall include the feminine and neuter, and whenever a
singular pronoun is used it shall include the plural, unless the context clearly
indicates otherwise.

14.      Unfunded Status of Plan

         It is presently intended that the Plan constitutes an "unfunded" plan
for incentive and deferred compensation. The Board 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.

15.      Construction

         This Plan and any Agreements hereunder shall be administered and
interpreted under the laws of the State of Delaware.

                                        7



                                                                 EXHIBIT 10.19.6

                           AVERY DENNISON CORPORATION
                    EMPLOYEE STOCK OPTION AND INCENTIVE PLAN

                              AMENDED AND RESTATED

The purposes of this Plan are as follows:

(1) To provide additional incentive for Employees to further the growth,
development and financial success of the Company by personally benefiting
through the ownership of Company stock and/or rights, which recognize such
growth, development and financial success.

(2) To enable the Company to recruit and retain Employees considered essential
to the long range success of the Company by offering them an opportunity to own
stock in the Company and/or rights, which will reflect the growth, development
and financial success of the Company.

ARTICLE 1         DEFINITIONS

         Wherever the following terms are used in this Plan they shall have the
meaning specified below, unless the context clearly indicates otherwise.

1.1      Award

         "Award" shall mean a Dividend Equivalent, Option, Performance Unit,
Restricted Stock, Restricted Stock Unit, Stock Appreciation Right or Stock
Payment granted under this Plan.

1.2      Award Agreement

         "Award Agreement" shall mean an agreement setting forth the terms and
conditions of an Award.

1.3      Award Cycle

         "Award Cycle" shall mean a period of consecutive years or portions
thereof designated by the Committee over which Performance Units are to be
earned.

1.4      Awardee

         "Awardee" shall mean a person who has received an Award under the Plan.

1.5      Beneficiary

         "Beneficiary" shall have the meaning given in Article 12.8.

1.6      Board

         "Board" shall mean the Board of Directors of the Company.

1.7      Cause

         "Cause" shall mean, with respect to any Awardee's Termination of
Employment, unless otherwise provided by the Committee, (i) "Cause" as defined
in any Individual Agreement or Award Agreement to which the applicable Awardee
is a party, or (ii) if there is no such Individual Agreement or Award Agreement
or if it does not define Cause: (A) conviction of the Awardee for committing a
felony under federal law or the law of the state in which such action occurred,
(B) willful and deliberate failure on the part of the Awardee to perform his
employment duties in any material respect, or (C) prior to a Change in Control,
such other serious events as shall be determined by the Committee. Prior to a
Change of Control, the Committee shall, unless otherwise provided in an
Individual Agreement with a particular Awardee, have the discretion to determine
whether "Cause" exists, and its determination shall be final.



1.8      Change in Control

         "Change in Control" has the meanings set forth in Article 10.2.

1.9      CEO

         "CEO" shall mean the Chief Executive Officer of the Company.

1.10     Code

         "Code" shall mean the Internal Revenue Code of 1986, as amended.

1.10     Committee

         "Committee" shall mean committee of the Board designated to administer
the Plan as contemplated by Article 11.1.

1.11     Commission

         "Commission" shall mean the Securities and Exchange Commission or any
successor agency.

1.12     Common Stock

         "Common Stock" shall mean the common stock of the Company.

1.13     Company

         "Company" shall mean Avery Dennison Corporation or any successor
company.

1.14     COO

         "COO" shall mean the Chief Operating Officer of the Company.

1.15     Covered Employee

         "Covered Employee" shall mean an Awardee designated by the Committee in
connection with any Award as an individual who is or may be a "covered employee"
within the meaning of Section 162(m)(3) of the Code in the year in which an
Award is expected to be taxable to such Awardee.

1.16     Director

         "Director" shall mean a member of the Board.

1.17     Disability

         "Disability" shall mean, with respect to any Awardee, unless otherwise
provided by the Committee, (i) "Disability" as defined in any Individual
Agreement or Award Agreement to which the Awardee is a party, or (ii) if there
is no such Individual Agreement or it does not define "Disability," permanent
and total disability as as defined in Section 22(c)3 of the Code.

1.18     Disaffiliation

         "Disaffiliation" shall mean, with respect to any Subsidiary, the
Subsidiary's ceasing to be a Subsidiary for any reason (including, without
limitation, as a result of a public offering, or a spinoff or sale by the
Company, of the majority of the stock of the Subsidiary).

1.19     Dividend Equivalent

         "Dividend Equivalent" shall mean a right to receive a number of shares
of Common Stock or an amount of cash, determined as provided in Article 9.2
hereof.

1.20     Early Retirement

         "Early Retirement" shall mean retirement from active employment with
the Company, or a Subsidiary, pursuant to the early retirement provisions of the
applicable pension plan of such employer or as otherwise determined by the
Committee.

                                        2



1.21     Employee

         "Employee" shall mean any officer or other employee of the Company, or
of any corporation, which is then a Subsidiary.

1.22     Expiration Date

         "Expiration Date" shall have the meaning given in Article 4.3.

1.23     Exchange Act

         "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.

1.24     Fair Market Value

         "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 Committee acting in good faith.

1.25     Incentive Stock Option

         "Incentive Stock Option" shall mean an Option that both meets the
requirements to be an "incentive stock option" under Section 422A of the Code
and is designated as an Incentive Stock Option by the Committee.

1.26     including or includes
         "including" or "includes" shall mean including without limitation, or
includes, without limitation.

1.27     Individual Agreement

         "Individual Agreement" shall mean an employment, severance or similar
agreement between an Awardee and the Company or one of its Subsidiaries.

1.28     Non-Qualified Stock Option

         "Non-Qualified Stock Option" shall mean an Option that either is not an
Incentive Stock Option or is designated as a Non-Qualified Stock Option by the
Committee.

1.29     Normal Retirement

         "Normal Retirement" shall mean retirement from active employment with
the Company, or a Subsidiary at or after age 62.

1.30     Option

         "Option" shall mean a stock option granted pursuant to this Plan.

1.31     Optionee

         "Optionee" shall mean an Employee granted an Option under this Plan.

1.32     Performance Goals

         "Performance Goals" shall mean the performance goals established by the
Committee in connection with the grant of Restricted Stock, Restricted Stock
Units 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, return on assets, change in working
capital, return on capital or stockholder 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.

                                        3



1.33     Performance Unit

         "Performance Unit" shall mean a cash bonus, stock bonus or other
performance or incentive award that is paid in cash, stock or a combination of
both.

1.34     Plan

         "Plan" shall mean the Employee Stock Option and Incentive Plan, as
amended and restated, formerly called the 1990 Stock Option and Incentive Plan.

1.35     Qualified Performance-Based Award

         "Qualified Performance-Based Award" shall mean an Award of Restricted
Stock, Restricted Stock Units or Performance Units designated as such by the
Committee at the time of grant, based upon a determination that (i) the Awardee
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 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-Based Award unless it is granted subject to or after
obtaining stockholder approval satisfying the requirements of Section
162(m)(4)(C)(ii) of the Code and the Treasury Regulations thereunder.

1.36     Restricted Stock

         "Restricted Stock" shall mean Common Stock issued pursuant to Article
7.

1.37     Restricted Stock Unit

         "Restricted Stock Unit" shall mean a right to receive Common Stock or a
cash payment based on the value of Common Stock granted pursuant to Article 7.

1.38     Retirement

         "Retirement" shall mean Normal or Early Retirement.

1.39     Rule 16b-3

         "Rule 16b-3" shall mean Rule 16b-3, as promulgated by the Commission
under Section 16(b) of the Exchange Act, as amended from time to time.

1.40     Secretary

         "Secretary" shall mean the Secretary of the Company.

1.41     Section 162(m) Exemption

         "Section 162(m) Exemption" shall mean 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.

1.42     Stock Appreciation Right

         "Stock Appreciation Right" shall mean a stock appreciation right
granted under this Plan.

1.43     Stock Payment

         "Stock Payment" shall mean shares of Common Stock, or stock units (each
of which represents one hypothetical share of Common Stock to be paid to
Employee on a deferred basis), delivered or credited to an Employee in
satisfaction of an obligation to pay cash compensation that such Employee has
earned, whether on a current or a deferred basis, and whether at the Company's
election or the Employee's election, which shares of Common Stock have a fair
market value on the date the Stock Payment is awarded equal to the amount of
such compensation."

1.44     Subsidiary

         "Subsidiary" shall mean any corporation in an unbroken chain of
corporations beginning with the Company if each of the corporations other than
the last corporation in the unbroken chain then owns stock possessing

                                        4



33 percent or more of the total combined voting power of all classes of stock in
one of the other corporations in such chain, as well as partnerships and limited
liability companies, in which the Company holds a 33 percent or more interest.

1.45     Termination of Employment

         "Termination of Employment" of an Awardee shall mean the termination of
the employee-employer relationship between the Awardee and the Company or a
Subsidiary for any reason, including a termination by resignation, discharge,
death, Disability or Retirement; but excluding (a) terminations where there is a
simultaneous reemployment or continuing employment by the Company or a
Subsidiary and (b) temporary absences from employment because of illness,
vacation or leave of absence and transfers among the Company and Subsidiaries.
In addition, an Awardee employed by a Subsidiary shall be deemed to incur a
Termination of Employment upon a Disaffiliation of that Subsidiary, unless the
Awardee immediately thereafter becomes or remains an Employee of the Company or
one of its continuing Subsidiaries. The Committee, in its discretion, shall
determine the effect of all other matters and questions relating to Termination
of Employment.

1.46     Gender and Number

         "Gender and Number" Wherever the masculine gender is used it shall
include the feminine and neuter, and wherever a singular pronoun is used it
shall include the plural, unless the context clearly indicates otherwise.

ARTICLE 2         SHARES SUBJECT TO PLAN

2.1      Shares Subject to Plan

         As of December 31, 2002, there were reserved for issuance, upon the
exercise of Options or other Awards granted under the Plan 1,349,813, shares of
Common Stock of the Company; as of December 31, 2002, there were 965,587 shares
available for future Awards under the Plan. As of the Effective Date, as defined
in Article 12.13 below, the aggregate number of shares deliverable pursuant to
Awards shall be increased by 3,500,000 for a total of 5,815,400 shares. Shares
of Common Stock issued under the Plan may be authorized and unissued shares,
previously outstanding shares held as treasury shares, or treasury shares that
have been transferred to and held in a grantor trust of the Company.

2.2      Unexercised Options and Other Rights

         If any Option, or other right to acquire shares of Common Stock under
any other Award expires or is cancelled without having been fully exercised, the
number of shares subject to such Option or other right, but as to which such
Option or other right was not exercised prior to its expiration or cancellation,
may again be optioned, granted or awarded hereunder, subject to the limitations
of Article 2.1.

ARTICLE 3         GRANTING OF OPTIONS

3.1      Eligibility

         Options may be granted to Employees of the Company or of a Subsidiary.

3.2      Granting of Options

         The Committee shall from time to time, in its discretion:

                  (i) Select the Employees who will be granted Options;

                  (ii) Determine the number of shares to be subject to such
         Options granted to the selected Employees; provided, however, that no
         Employee shall be granted Options covering in excess of 400,000 shares
         during any calendar year; and

                  (iii) Determine the terms and conditions of such Options,
         consistent with this Plan (including whether they are Incentive Stock
         Options or Non-Qualified Stock Options).

                                        5



ARTICLE 4         TERMS OF OPTIONS

4.1      Option Agreement

         Each Option and the terms and conditions thereof shall be evidenced by
an Award Agreement, which shall be executed by the Optionee and an authorized
officer of the Company. Upon grant of an Option, the Committee shall instruct
the Secretary to issue an Award Agreement evidencing such Option, and to deliver
such Award Agreement to the Optionee.

4.2      Option Price

         The exercise price per share of the shares subject to each Option shall
be not less than 100% of the Fair Market Value of a share of Common Stock on the
date the Option is granted. Once Options are granted, they may not be repriced,
and this Article 4.2 may not be amended without the consent of the stockholders.

4.3      Option Term

         The term of an Option shall be set by the Committee in its discretion.
The last day of the term of the Option shall be the Option's "Expiration Date."

4.4      Option Vesting

         (a) The period during which the right to exercise an Option in whole or
in part vests in the Optionee shall be set by the Committee, and the Committee
may determine that an Option may not be exercised in whole or in part for a
specified period after it is granted. At any time after grant of an Option the
Committee may, in its sole discretion and subject to whatever terms and
conditions it selects, accelerate the period during which an Option vests or
extend the period during which it may be exercised (but not beyond the
Expiration Date thereof).

         (b) No portion of an Option, which is unexercisable at Termination of
Employment, shall thereafter become exercisable.

4.5      Exercise of Options after Termination of Employment

         (a)      Termination by Death. Unless otherwise determined by the
Committee, if an Optionee has a Termination of Employment by reason of the
Optionee's death, any Option held by such Optionee may thereafter be exercised
by the Optionee's Beneficiaries, 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 applicable Award
Agreement) from the date of such death or until the Expiration Date thereof,
whichever period is the shorter.

         (b) Termination by Reason of Disability. Unless otherwise determined by
the Committee, if an Optionee has a Termination of Employment by reason of the
Optionee's Disability, any Option held by such Optionee may thereafter be
exercised by the Optionee, to the extent it was exercisable immediately before
the Termination of Employment, 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 applicable Award Agreement) from the date of such Termination
of Employment or until the Expiration Date thereof, 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 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 Date thereof, whichever period is the
shorter.

         (d) Termination by Reason of Retirement. Unless otherwise determined by
the Committee in an Award Agreement, if an Optionee has a Termination of
Employment by reason of the Optionee's Retirement, any 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 has been before such
Retirement, the CEO or the COO, for the period ending on the Expiration Date of
such Option; (ii) if the Optionee has been 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 Date of such Option; and (iii)
in all other cases, for a

                                        6



period ending on the earlier of the third anniversary of such Retirement or the
Expiration Date of such Stock Option; provided, however, that if the Optionee
dies within such period any unexercised 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 Date of such Option,
whichever period is the shorter.

         (e) Other Termination. Unless otherwise determined by the Committee:
(i) if an Optionee incurs a Termination of Employment for Cause, all Options
held by such Optionee shall thereupon terminate; and (ii) 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 until the Expiration Date 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
Date of such Stock Option, whichever period is the shorter.

         (f) Transferability of Stock Options. No Option shall be transferable
by the Optionee other than (i) by designation of a Beneficiary, by will or by
the laws of descent and distribution, or (ii) as otherwise expressly permitted
under the applicable Award 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 Options shall be exercisable, subject to
the terms of this Plan, only by the Optionee, by the guardian or legal
representative of the Optionee if the Optionee is incapacitated, by the
Optionee's Beneficiaries, legal representative or heirs after the Optionee's
death, or any person to whom such option is transferred pursuant to clause (ii)
of the preceding sentence.

         (g) 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.

ARTICLE 5         EXERCISE OF OPTIONS

5.1      Partial Exercise

         An Option may be exercised in whole or in part at any time after it has
become vested and exercisable and before its Expiration Date, subject to Article
4. However, an Option shall not be exercisable with respect to fractional shares
and the Committee may impose a minimum number of shares for which a partial
exercise will be permitted.

5.2      Manner of Exercise

         All or a portion of an exercisable Option may be exercised upon
delivery to the Secretary or his office of all of the following:

         (a) A written notice complying with the applicable rules established by
the Committee or the Company, stating that the Option, or a portion thereof, is
being exercised, and signed by the Optionee or other person then entitled to
exercise the Option or such portion;

         (b) Full payment for the shares and taxes described in Article 12.7
with respect to which the Option, or portion thereof, is exercised in whole or
in part by (i) cash; (ii) certified or bank check or such other instrument as
the Company may accept; (iii) delivery (either by surrender of the shares or by
attestation) of shares 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 either were
acquired by the Optionee in an open-market transaction or have been held by the
Optionee for at least six months at the time of exercise; (iv) if permitted by
the Committee, the

                                        7



surrender of shares of Common Stock then issuable upon exercise of the Option;
or (v) if permitted by the Committee, 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.

         (c) In the event that the Option shall be exercised by any person or
persons other than the Optionee, appropriate proof of the right of such person
or persons to exercise the Option.

ARTICLE 6         STOCK APPRECIATION RIGHTS

6.1      Grant and Exercise

         (a) Stock Appreciation Rights may be granted in conjunction with all or
part of any Option granted under the Plan, either at or after the time of grant
of such Option. A Stock Appreciation Right shall terminate and no longer be
exercisable upon the termination or exercise of the related Option.

         (b) A Stock Appreciation Right may be exercised by an Optionee in
accordance with Article 6.2(b) by surrendering the applicable portion of the
related 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 Article 6.2(b). Options that have been so
surrendered shall no longer be exercisable to the extent the related Stock
Appreciation Rights have been exercised.

6.2      Terms and Conditions

         Stock Appreciation Rights shall be subject to such terms and conditions
as shall be determined by the Committee, including the following:

         (a) Stock Appreciation Rights shall be exercisable only at such time or
times and to the extent that the Options to which they relate are exercisable in
accordance with the provisions of the Plan.

         (b) 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 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.

         (c) Stock Appreciation Rights shall be transferable only to permitted
transferees of the underlying Option in accordance with the provisions of the
Plan.

ARTICLE 7         RESTRICTED STOCK AND RESTRICTED STOCK UNITS

7.1      Administration

         Shares of Restricted Stock and Awards of Restricted Stock Units may be
awarded either alone or in addition to other Awards granted under the Plan. The
Committee shall determine the Employees to whom and the time or times at which
grants of Restricted Stock and Restricted Stock Units will be awarded, the
number of shares to be awarded to any Awardee, 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
Article 7.3. The total number of shares of Restricted Stock and the total number
of shares represented by Restricted Stock Units granted under the Plan shall not
exceed 100,000.

7.2      Awards and Certificates

         (a) 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 Awardee and
shall bear an appropriate

                                        8



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 Employee Stock Option and
         Incentive Plan and an Award 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 Awardee shall have
delivered a stock power, endorsed in blank, relating to the Common Stock covered
by such Award.

         (b) Restricted Stock Units shall represent the right to receive, at a
specified time or times, either a specified number of shares of Common Stock, or
a cash payment equal to the Fair Market Value of a specified number of shares of
Common Stock, as the Committee shall determine.

7.3      Terms and Conditions

         The terms and conditions of an Award of Restricted Stock or Restricted
Stock Units as established by the Committee shall be set forth in an Award
Agreement, including the following:

         (a) The Committee may, in connection with the grant, designate an Award
of Restricted Stock or Restricted Stock Units as a Qualified Performance-Based
Award, in which event it shall condition the grant or vesting (generally, during
a period of three years), as applicable, of such Award upon the attainment of
Performance Goals. If the Committee does not designate an Award of Restricted
Stock or Restricted Stock Units 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 or Restricted Stock
Units is a Qualified Performance-Based Award, the Committee may also condition
the grant or vesting thereof upon the continued service of the Awardee. The
conditions for grant or vesting and the other provisions of Awards of Restricted
Stock or Restricted Stock Units (including any applicable Performance Goals)
need not be the same with respect to each Awardee. 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 an Award that
is a Qualified Performance-Based Award, the applicable Performance Goals have
been satisfied. The total number of shares represented by Qualified Performance
Based Award granted under the Plan shall not exceed 100,000.

         (b) Subject to the provisions of the Plan and the applicable Award
Agreement, during the period, if any, set by the Committee, commencing with the
date of such Award for which such Awardee'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 Awardee shall not be permitted to sell, assign, transfer,
pledge or otherwise encumber shares of Restricted Stock or an Award of
Restricted Stock Units; provided that the foregoing shall not prevent an Awardee
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.

         (c) Except as provided in this paragraph (c) and Articles 7.3(a) and
7.3(b) and the applicable Award Agreement, the Awardee shall have, with respect
to shares of Restricted Stock (but not Restricted Stock Units), 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. Unless
otherwise determined by the Committee and subject to the next sentence, (A) cash
dividends on the class or series of Common Stock that are the subject of the
Award of Restricted Stock or Restricted Stock Units shall be automatically
deferred and reinvested in additional Restricted Stock or Restricted Stock
Units, as applicable, held subject to the vesting of the underlying Award, and
(B) dividends payable in Common Stock shall be paid in the form of additional
Restricted Stock or Restricted Stock Units, as applicable, held subject to the
vesting of the underlying Award. Notwithstanding the foregoing or any provision
of an Award Agreement, reinvestment of dividends in additional Restricted Stock
or Restricted Stock Units shall only be permissible if sufficient shares of
Common Stock are available under the Plan for such reinvestment (taking into
account then outstanding Awards).

                                        9



         (d) Except to the extent otherwise provided in the applicable Award
Agreement and Articles 7.3(a), 7.3(b), 7.3(e) and 10.1(b), upon an Awardee's
Termination of Employment for any reason during the Restriction Period or before
the applicable Performance Goals are satisfied, all shares of Restricted Stock
and all Restricted Stock Units still subject to restriction shall be forfeited
by the Awardee.

         (e) Except to the extent otherwise provided in Article 10.1(b), in the
event an of an Awardee's Retirement or involuntary Termination of Employment
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 an Awardee is a Covered Employee,
satisfaction of the applicable Performance Goals unless the Termination of
Employment was by reason of the Awardee's death or Disability) with respect to
any or all of such Awardee's shares of Restricted Stock.

         (f) 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 Awardee upon
surrender of the legended certificates.

ARTICLE 8         PERFORMANCE UNITS

8.1      Administration

         Performance Units may be awarded either alone or in addition to other
Awards granted under the Plan. The Committee shall determine the 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 Awardee (subject to the
aggregate limit on grants to individual Awardees set forth in Article 3), the
duration of the Award Cycle and any other terms and conditions of the Award, in
addition to those contained in Article 8.2.

8.2      Terms and Conditions

         The terms and conditions of Performance Units as established by the
Committee shall be set forth in an Award Agreement, including the following:

         (a) 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 Awardee. The provisions of such Awards (including any
applicable Performance Goals) need not be the same with respect to each Awardee.
Subject to the provisions of the Plan and the applicable Award Agreement,
Performance Units may not be sold, assigned, transferred, pledged or otherwise
encumbered during the Award Cycle.

         (b) Except to the extent otherwise provided in the applicable Award
Agreement and Articles 8.2(c) and 10.1(c), upon an Awardee'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 Awardee.

         (c) Except to the extent otherwise provided in Article 10.1(c), in the
event of an Awardee's Termination of Employment for any reason other than

Cause, the Committee shall have the discretion to waive, in whole or in part,
any or all remaining payment limitations and other restrictions applicable to
any or all of such Awardee's Performance Units; provided, that in the case of
Performance Units that are Qualified Performance-Based Awards, the applicable
Performance Goals are satisfied unless the Awardee's Termination of Employment
occurred by reason of the Awardee's death or Disability).

         (d) 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

                                       10



Awardee which have been earned, and the Committee shall then cause to be
delivered (i) a number of shares of Common Stock equal to the number of
Performance Units determined by the Committee to have been earned, or (ii) cash
equal to the Fair Market Value of such number of shares of Common Stock to the
Awardee, as the Committee shall elect.

ARTICLE 9         STOCK PAYMENTS; DIVIDEND EQUIVALENTS

9.1      Stock Payments

         Stock Payments may be made under this Plan either alone or in
conjunction with any other Award, on such terms and conditions as the Committee
may determine.

9.2      Dividend Equivalents

         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.

ARTICLE 10        CHANGE IN CONTROL PROVISIONS

10.1     Impact of Event

         Notwithstanding any other provision of the Plan to the contrary, in the
event of a Change in Control:

         (a) Any 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, and
shall remain exercisable until their Expiration Date notwithstanding any
Termination of Employment of the relevant Optionee other than a Termination of
Employment for Cause.

         (b) The restrictions and deferral limitations applicable to any
Restricted Stock or Restricted Stock Units shall lapse, and such Restricted
Stock or Restricted Stock Units shall become free of all restrictions and become
fully vested and transferable.

         (c) 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.

         (d) Any restrictions or deferral or forfeiture limitations applicable
to any Stock Payment or Dividend Equivalents shall lapse.

10.2     Definition of Change in Control

         For purposes of the Plan, a "Change in Control" shall mean the
happening of any of the following events:

         (a) An acquisition by any individual, entity or group (within the
meaning of Article 13.4(a) or 14.4(b) 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 (i) the then outstanding shares of common
stock of the Company (the "Outstanding Company Common Stock") or (ii) 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: (A) 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, (B) any acquisition by the
Company, (C) any acquisition by any employee benefit plan (or related trust)
sponsored or maintained by the Company or any corporation controlled by the
Company, or (D) any acquisition by any corporation pursuant to a transaction
which complies with clauses (i), (ii) and (iii) of subsection (c) of this
Article 10.2; or

         (b) A change in the composition of the Board such that the individuals
who, as of the effective date of

                                       11



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 Article 10.2, 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
stockholders, was approved by a vote of at least a majority of those individuals
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

         (c) The consummation of a reorganization, merger or consolidation or
sale involving the Company or a disposition of all or substantially all of the
assets of the Company ("Corporate Transaction"); excluding however, such a
Corporate Transaction pursuant to which (i) 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 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, (ii)
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 (iii) 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

         (d) The approval by the stockholders of the Company of a complete
liquidation or dissolution of the Company.

ARTICLE 11        ADMINISTRATION

11.1     Committee

         The Plan shall be administered by the Compensation and Executive
Personnel Committee of the Board or such other committee of the Board, as may
from time to be selected by the Board.

11.2     Powers of Committee

         (a) The Committee shall have the authority to conduct the general
administration of this Plan in accordance with its provisions. The Committee
shall have the power to make Awards and set the terms and conditions for such
Awards (including the option price, any vesting condition, restriction or
limitation (which may be related to the performance of the Awardee, the Company
or any Subsidiary) 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; to modify, amend or adjust the terms and
conditions of any Award, at any time or from time to time, including 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 except as specifically permitted by
the Plan; to determine to what extent and under what circumstances Common Stock
and other amounts payable with respect to an Award shall be deferred; and to
determine under what circumstances an Award may be settled in cash or Common
Stock under Articles 5, 6, 8 and 9, as applicable. The Committee shall have the
power to interpret this Plan and the Awards made hereunder, to adopt such rules
and procedures for the administration, interpretation, and application of this
Plan as are consistent

                                       12



therewith, and to interpret, amend or revoke any such rules and procedures. Any
Award under this Plan need not be the same with respect to each Awardee.

         (b) 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, Awardees and
Beneficiaries.

11.3     Action by Committee

         (a) The Committee shall act by a majority of its members in office. The
Committee may act either by vote at a meeting, or by a memorandum or other
written instrument signed by a majority of the Committee. The Committee 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 cause Qualified Performance-Based
Awards to fail to qualify for the Section 162(m) exemption), including the
authority to grant Awards 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 and interpretive
duties and authority of the Committee under the Plan.

         (b) Any authority granted to the Committee under this Plan may also be
exercised by the full Board, except to the extent that the grant or exercise of
such authority would cause any 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.

11.4     Compensation; Professional Assistance; Good Faith Actions

         Expenses and liabilities which members of the Committee incur in
connection with the administration of this Plan shall be borne by the Company.
The Committee may employ attorneys, consultants, accountants, appraisers,
brokers, or other persons. The Committee, the Company, and its officers and
Directors shall be entitled to rely upon the advice, opinions or valuations of
any such persons. All actions taken and all interpretations and determinations
made by the Committee in good faith shall be final and binding upon all Awardees
and Beneficiaries, the Company, and all other interested persons. No members of
the Committee shall be personally liable for any action, determination, or
interpretation made in good faith with respect to this Plan, any Option, any
Stock Appreciation Right, any Performance Award, any Dividend Equivalent, any
Stock Payment, or any Restricted Stock, and all members of the Committee shall
be fully protected by the Company in respect of any such action, determination
or interpretation.

ARTICLE 12        MISCELLANEOUS PROVISIONS

12.1     Not Transferable

         Except as specifically provided in the Plan with respect to Options and
Stock Appreciation Rights, as provided in Article 12.8 regarding designation of
Beneficiaries, and as may be otherwise provided in the applicable Award
Agreement: (i) Awards may not be sold, pledged, assigned, or transferred in any
manner other than by will or the laws of descent and distribution; (ii) no Award
or interest or right therein shall be subject to the debts, contracts or
engagements of the Awardee or his Beneficiaries and successors in interest or
shall be subject to disposition by transfer, alienation, anticipation, pledge,
encumbrance, assignment or any other means whether such disposition be voluntary
or involuntary or by operation of law by judgment, levy, attachment, garnishment
or any other legal or equitable proceedings (including bankruptcy); and (iii)
any attempted disposition of an Award shall be null and void and of no effect.

12.2     Unfunded Status of Plan

         It is presently intended that the Plan constitutes an "unfunded" plan
for incentive and deferred compensation. The Committee may authorize the
creation of trusts or other arrangements to meet the obligations

                                       13



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.

12.3     General Provisions

         (a) The Committee may require each person purchasing or receiving
shares of Common Stock pursuant to an Award, as a condition to delivery of such
shares, to represent to and agree with the Company in writing that such person
is acquiring the shares without a view to the distribution thereof and to
provide such other representations and such documents as the Committee, in its
absolute discretion, deems necessary or appropriate to effect compliance with
all applicable laws. Such shares may be delivered in by book entry or in
certificate form, with such legends or other notations as the Committee deems
appropriate to reflect any restrictions on transfer.

         (b) Notwithstanding any other provision of the Plan or any Award
Agreement, the Company shall not be required to issue or deliver any shares of
Common Stock under the Plan prior to fulfillment of all of the following
conditions:

                  (i) 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;

                  (ii) 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;

                  (iii) 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;

                  (iv) The lapse of such reasonable period of time following the
         exercise of an Option or Stock Appreciation Right or the vesting or
         other event that results in the settlement of an Award, as the
         Committee may establish from time to time for reasons of administrative
         convenience; and

                  (v) The receipt by the Company of full payment (if any) for
         such shares and the satisfaction of any tax withholding obligations
         relating thereto.

An Awardee shall not be, nor have any of the rights or privileges of, a
stockholder of the Company in respect of any shares of Common Stock that may
become deliverable pursuant to an Award unless and until such shares have been
delivered to the Awardee.

         (c) In the event an Award is granted to an Employee who is employed
outside the United States and who is not compensated from a payroll maintained
in the United States, the Committee may, in its discretion, modify the
provisions of the Plan as they pertain to such Award or Awardee to comply with
applicable foreign law, and/or related regulations or requirements.

         (d) The Committee may (but need not) establish rules under which
Awardees may be permittd to elect to defer receipt of cash or shares in
settlement of Restricted Stock Units or Performance Units for a specified period
or until a specified event, either under an existing plan of the Company or
otherwise.

12.4     Amendment, Suspension, or Termination of this Plan
         The Board may amend, suspend or terminate the Plan at any time [prior
to a Change of Control], but no such amendment, suspension or termination shall
impair the rights of Awardees under Awards previously granted without the
Awardee's consent. In addition, no such amendment shall be made without the
approval of the Company's stockholders to the extent such approval is required
by applicable law or the rules of any exchange on which the Common Shares are
then listed.

                                       14



         The Committee may amend the terms of any Award after it is granted,
prospectively or retroactively, but no such amendment shall reprice an option,
cause a Qualified Performance-Based Award to cease to qualify for the Section
162(m) Exemption or impair the rights of the Awardee without the Awardee's
consent.

12.5     Adjustments upon Changes in Common Stock

         In the event of a stock dividend, stock split, reverse stock split,
share combination, recapitalization, merger, consolidation, acquisition of
property or shares, separation, spinoff, reorganization, stock rights offering,
liquidation, Disaffiliation of a Subsidiary or similar event, the Committee
shall make such adjustments (if any) as it deems appropriate and equitable, in
its discretion, to the following:

         (a) the aggregate number of shares of Common Stock available under
         Article 2.1 and Article 7.1, and the limits on grants of Options under
         Article 3.2 and grants of Qualifying Performance-Based Awards under
         Articles 7 and 8; (b) the number of shares of Common Stock covered by
         outstanding Awards; (c) the option price of outstanding Options, and
         (d) such other adjustments to outstanding Awards as the Committee may
         determine to be appropriate and equitable;

Such adjustments may include, without limitation, (i) the cancellation of
outstanding Awards in exchange for payments of cash, property or a combination
thereof having an aggregate value equal to the value of such Awards, as
determined by the Committee in its sole discretion, (ii) the substitution of
other property (including, without limitation, other securities) for the Stock
covered by outstanding Awards, and (iii) in connection with any Disaffiliation
of a Subsidiary, arranging for the assumption, or replacement with new awards,
of Awards held by Awardees employed by the affected Subsidiary by the Subsidiary
or an entity that controls the Subsidiary following the Disaffiliation.

12.6     Approval of Plan by Stockholders

         This Plan, as amended and restated, was approved by the Board on
February 27, 2003, and will be submitted for the approval by the Company's
stockholders at the annual meeting of stockholders on April 24, 2003.

12.7     Tax Withholding

         No later than the date as of which an amount first becomes includible
in the gross income of an Awardee for federal income tax purposes with respect
to any Award under the Plan, such an Awardee 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; provided,
however, that not more than the legally required minimum withholding may be
settled with Common Stock. The obligations of the Company under the Plan shall
be conditional on such payment or arrangements, and the Company and its
Subsidiaries shall, to the extent permitted by law, have the right to deduct any
such taxes from any payment otherwise due to such an Awardee. The Committee may
establish such procedures as it deems appropriate, including making irrevocable
elections, for the settlement of withholding obligations with Common Stock.

12.8     Beneficiaries

         The Committee or the Company shall establish such procedures as it
deems appropriate for Awardees to designate one or more persons (each, a
"Beneficiary") to whom any amounts payable under this Plan in the event of the
applicable Awardee's death are to be paid and/or by whom any rights of the
applicable Awardee's, after the Awardee's death, may be exercised. Designation,
revocation and redesignation of Beneficiaries must be made in writing in
accordance with procedures established by the Committee or the Company, and
shall be effective upon delivery to the Committee or the Company.

12.10    Effect of Plan

         The adoption of this Plan shall not affect any other compensation or
incentive plans in effect for the

                                       15



Company or any Subsidiary. Nothing in this Plan shall be construed to limit the
right of the Company (a) to establish any other forms of incentives or
compensation for employees of the Company or any Subsidiary, or (b) to grant or
assume options or other rights otherwise than under this Plan in connection with
any proper corporate purpose, including the grant or assumption of options in
connection with the acquisition by purchase, lease, merger, consolidation or
otherwise, of the business, stock or assets of any corporation, firm or
association. Nothing in this Plan or in any Award Agreement shall confer upon
any Awardee any right to continue in the employ of the Company or any Subsidiary
or interfere with or restrict in any way the rights of the Company and the
Subsidiaries, which are hereby expressly reserved, to discharge any Awardee at
any time for any reason whatsoever, with or without Cause.

12.11    Titles

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

12.12    Governing Law

         This Plan and any Award Agreements hereunder shall be administered,
interpreted and enforced under the laws of the State of Delaware, without
reference to the principle of conflict of laws.

12.13    Effective Date

         This Plan, as amended and restated, shall be effective as of April 24,
2003, subject to the approval of stockholders of the Company as contemplated by
Article 12.6. This Plan was originally approved by stockholders on March 29,
1990.

                                       16



                                                                 EXHIBIT 10.19.7

                           AVERY DENNISON CORPORATION
                      NON-QUALIFIED STOCK OPTION AGREEMENT

THIS AGREEMENT, dated ____________ ___, 2002, is made by and between Avery
Dennison Corporation, a Delaware corporation, hereinafter referred to as the
"Company," and *, an employee of Company or a Subsidiary of Company, hereinafter
referred to as "Employee".

WHEREAS, Company wishes to afford Employee the opportunity to purchase shares of
its $1.00 par value common stock under the terms of The 1990 Stock Option and
Incentive Plan for Key Employees of Avery Dennison Corporation; and

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

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

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

                                    ARTICLE I

                                   DEFINITIONS

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

1.1      Option

         "Option" shall mean the option to purchase common stock of the Company
         granted under the Stock Option Agreement.

1.2      Plan

         The "Plan" shall mean The 1990 Stock Option and Incentive Plan for Key
         Employees of Avery Dennison Corporation.

1.3      Pronouns

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

1.4      Secretary

         "Secretary" shall mean the Secretary of the Company.

- ----------
* Refer to the attached Notice.

                                        1



1.5      Subsidiary

         "Subsidiary" shall mean any corporation in an unbroken chain of
         corporations beginning with the Company if each of the corporations
         other than the last corporation in the unbroken chain then owns stock
         possessing 50 percent or more of the total combined voting power of all
         classes of stock in one of the other corporations in such chain.

1.6      Termination of Employment

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

1.7      Change of Control

         "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 in effect on the date of this
         Agreement or, if Item 6(e) is no longer in effect, any regulation
         issued by the Securities and Exchange Commission pursuant to the
         Securities Exchange Act of 1934 which serves 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 fifty percent (50%) 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 shareholders of
                  the Company involving a contest or the election of the
                  directors shall not constitute a majority of the Board of
                  Directors following such election.

1.8      Beneficiary

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

                                   ARTICLE II

                                 GRANT OF OPTION

2.1      Grant of Option

         In consideration of Employee's agreement to remain in the employ of
         Company or its subsidiaries and for other good and valuable
         consideration, on the date hereof the Company irrevocably

                                        2



         grants to Employee the option to purchase any part or all of an
         aggregate of * shares of its $1.00 par value common stock upon the
         terms and conditions set forth in this Agreement. Such Option is
         granted pursuant to the Plan and shall also be subject to the terms and
         conditions set forth in the Plan.

2.2      Purchase Price

         The purchase price of the shares of stock covered by the Option shall
         be __________ dollars ($_____) per share without commission or other
         charge.

2.3      Consideration to Company

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

2.4      Adjustments in Option

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

                                   ARTICLE III

                            PERIOD OF EXERCISABILITY

3.1      Commencement of Exercisability

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

- ----------
* Refer to the attached Notice.

                                        3



                  granted or on subsequent anniversary dates thereafter.

                  Such early or accelerated vesting will occur provided that the
                  Company's return on total capital as reported in the annual
                  report to shareholders (or other report) for the most recently
                  completed fiscal year equals or exceeds the sixty-seventh
                  (67%) percentile of the return on total capital for the peer
                  group companies (as listed in the Company's proxy statement)
                  for such third year (the performance test). (For example, the
                  performance test for accelerated vesting for options granted
                  in December 2002 will be based on the return on total capital
                  for 2005).

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

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

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

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

         (b)      No portion of the Option which is unexercisable under
                  Subsection (a) above at Termination of Employment shall
                  thereafter become exercisable.

         (c)      Notwithstanding Subsections 3.1(a) and 3.1(b) above, and
                  Section 3.4 below, upon a Change of Control, all Option
                  installments not yet exercisable shall become immediately
                  exercisable; provided, however, that if all or a portion of
                  the Option installments which otherwise would become
                  exercisable pursuant to this Subsection 3.1(c) is determined
                  by the Committee to constitute, when exercised, a "parachute
                  payment" as defined by Section 280G of the Internal Revenue
                  Code of 1986, as amended (the "Code"), such Option
                  installments or portion thereof shall not become exercisable
                  upon the Change of Control. In making this determination
                  pursuant to the preceding sentence the Committee shall first
                  take into account any payments to the Employee contingent on a
                  change in the ownership or control of the Company or its
                  assets (as provided in said Section 280G) under any other
                  agreement or arrangement between the Company and Employee,

                                        4



                  exclusive of any agreement which is not subject to Section
                  280G because of Section 67(e) of the Tax Reform Act of 1984.
                  Subsection 3.1(c) shall be final and binding upon Employee.

3.2      Term of Option

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

3.3      Exercise of Option after Termination of Employment

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

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

         (b)      If the Employee's employment is terminated due to his

                  permanent and total disability, as defined in Section 22(c)(3)
                  of the Code, the Employee may exercise the Option, subject to
                  the limitation in Subsection 3.1(b), within twelve (12) months
                  after Termination of Employment, but not later than the
                  Option's Expiration Date.

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

         (d)      If the Employee's employment is terminated due to his
                  retirement at or after age fifty-five (55) and such Employee
                  continues as a director of the Company, the Employee may
                  exercise the Option to the same extent as he would be able to
                  exercise it if he continued to be employed, until the earlier
                  of two (2) years after he ceases to be a director of the
                  Company or the Option's Expiration Date.

         (e)      If the Employee's employment is terminated other than for good
                  cause or the reasons set forth in Subsections (a) through (d)
                  above, the Employee may exercise the Option, subject to the
                  limitations of Subsection 3.1(b), within three (3) months
                  after Termination of Employment, but not later than the
                  Option's Expiration Date.

3.4      Exercise of Option Upon Merger or Consolidation

         (a)      Notwithstanding Section 3.3, the Option may not be exercised
                  to any extent by anyone after the effective date of either the
                  merger or consolidation of the Company into another
                  corporation, the exchange of all or substantially all of the
                  assets of the Company for the securities of another
                  corporation, the acquisition by another corporation of 80% or
                  more of the Company's then outstanding voting stock, or the
                  liquidation or dissolution of the Company. At least ten (10)
                  days prior to the effective date of such merger,
                  consolidation, exchange, acquisition, liquidation, or
                  dissolution, the Committee shall give the

                                        5



                  Employee notice of such event if the Option has then neither
                  been fully exercised nor become unexercisable due to the
                  passage of the specified time period in Subsection (b) below.

         (b)      In the event of such merger, consolidation, exchange,
                  liquidation, or dissolution, the Committee may, in its
                  absolute discretion and on such terms and conditions as it
                  deems appropriate, provide by resolution adopted prior to such
                  event and incorporated in the notice referred to in Subsection
                  (a) above, that for a specified period of time prior to the
                  effective date of such event, the Option shall be exercisable
                  as to all shares covered hereby, notwithstanding that the
                  Option may not yet have become fully exercisable under
                  Subsection 3.1(a).

                                   ARTICLE IV

                               EXERCISE OF OPTIONS

4.1      Partial Exercise

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

4.2      Manner of Exercise

         The Option, or any exercisable portion thereof, may be exercised solely
         by delivery to the Secretary or his office of all of the following:

         (a)      A written notice, complying with the applicable rules
                  established by the Committee, stating that the Option or
                  portion is thereby exercised. The notice shall be signed by
                  the Employee or the other person then entitled to exercise the
                  Option; and

         (b)      Full payment for the shares with respect to which the option
                  or portion thereof is exercised. Payment may be made in cash
                  (or by certified or bank cashier's check), or by actual or
                  constructive delivery to the Company, in accordance with the
                  procedures established by the Company, of Company Common Stock
                  then owned by the Employee with a fair market value on the
                  date the option is exercised equal to the aggregate exercise
                  purchase price of the shares with respect to which the option
                  or portion thereof is exercised, or by a combination of cash
                  and surrender of stock in the manner herein specified; and

         (c)      Full payment to the Company of any federal, state or local
                  taxes required to be withheld in connection with the exercise,
                  which payment may be made in cash (or by certified or bank
                  cashier's check) or by actual or constructive delivery and
                  surrender to the Company in accordance with procedures
                  established by the Company, of Company Common Stock then owned
                  by the Employee with a fair market value on the date the
                  option is exercised equal to the total of such taxes due in
                  connection with the exercise, or by a combination of cash and
                  surrender of stock in the manner herein specified; and

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

                                        6



                  exercise the Option.

4.3      Conditions to Issuance of Stock Certificates

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

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

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

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

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

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

4.4      Rights as Shareholders

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

                                    ARTICLE V

                                  MISCELLANEOUS

5.1      Administration

         The Committee shall have the power to interpret the Plan and this
         Agreement and to adopt such rules for the administration,
         interpretation and application of the Plan as are consistent therewith
         and to interpret or revoke any such rules. All actions taken and all
         interpretations and determinations made by the Committee in good faith
         shall be final and binding upon the Employee, the Company and all other
         interested persons. No member of the Committee shall be personally
         liable for any action, determination or interpretation made in good
         faith with respect to the Plan or the Option. In its absolute
         discretion, the Board of Directors of the Company may at any time and
         from time to time exercise any and all rights and duties of the
         Committee under the Plan and this Agreement.

                                        7



5.2      Transferability

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

5.3      Notices

         Any notice to be given under the terms of this Agreement to the Company
         shall be addressed to the Company in care of its Secretary and any
         notice to be given to the Employee shall be addressed to him at the
         address given beneath his signature here to. By a notice given pursuant
         to this Section, either party may hereafter designate a different
         address for notices to be given to him. Any notice which is required to
         be given to Employee shall, if Employee is then deceased, be given to
         Employee's personal representative if such representative has
         previously informed the Company of his status and address by written
         notice under this Section. Any notice shall have been deemed duly given
         when enclosed in a properly sealed envelope or wrap per addressed as
         aforesaid, deposited (with postage prepaid) in a post office or branch
         post office regularly maintained by the United States Postal Service.

5.4      Titles

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

5.5      Construction

         This Agreement shall be administered and interpreted under the laws of
         the State of California.

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

                                        AVERY DENNISON CORPORATION

                                        by:  Chairman & Chief Executive Officer*

                                        by:  Secretary*

by:  Optionee*

- ----------
* Refer to the attached Notice.

                                        8



                                                                 EXHIBIT 10.21.2

                           AVERY DENNISON CORPORATION
                            1996 STOCK INCENTIVE PLAN
                              amended and restated

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.

                                        1



(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-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.

                                        2



(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 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.

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

                                        3



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;
provided that no further Awards will be made after December 6, 2002.

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 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

                                        4



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 1.75 percent of the number of
outstanding shares on the first day of each calendar year. 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.

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.

                                        5



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. Stock Options may not be repriced.

(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 permit 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.

                                        6



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).

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 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.

(h) Termination by Reason of Retirement. Unless otherwise determined by the
Committee in an option agreement, if an Optionee's employment terminates by
reason of Retirement, any Stock Option held by

                                        7



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 has been 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 has been 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 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

                                        8



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.

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).

                                        9



(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 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

                                       10



         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:

         (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

                                       11



         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.

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.

                                       12



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 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

                                       13



         (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.

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.

                                       14



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 constitutes 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

         (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.

                                       15



(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.

(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.

                                       16



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. The Plan is amended and
restated as of December 5, 2002.

                                       17



                                                                 EXHIBIT 10.21.3

                           AVERY DENNISON CORPORATION
                            1996 STOCK INCENTIVE PLAN
                      NON-QUALIFIED STOCK OPTION AGREEMENT

THIS AGREEMENT, dated ____________ ____, 2002, is made by and between Avery
Dennison Corporation, a Delaware corporation, hereinafter referred to as the
"Company," and *, an employee of Company or a Subsidiary of Company, hereinafter
referred to as "Employee" or "Optionee."

WHEREAS, Company wishes to afford Employee the opportunity to purchase shares of
its $1.00 par value common stock under the terms of the Avery Dennison
Corporation 1996 Stock Incentive Plan.

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

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

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

ARTICLE I - DEFINITIONS

Whenever the following terms are used in this Agreement they shall have the
meaning specified below unless the context clearly indicates to the contrary.
Terms not defined herein shall have the meaning specified in the Plan, unless
the context clearly indicates to the contrary.

1.1      Beneficiary

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

1.2      Change of Control

         "Change of Control" shall have the meaning as set forth in the Plan.

1.3      Option

         "Option" shall mean the option to purchase common stock of the Company
granted under this Agreement pursuant to the Plan.

1.4      Plan

         The "Plan" shall mean the Avery Dennison Corporation 1996 Stock
Incentive Plan.

- ----------
* Refer to the attached Notice.

                                        1



1.5      Pronouns

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

1.6      Secretary

         "Secretary" shall mean the Secretary of the Company.

1.7      Subsidiary

         "Subsidiary" shall mean any corporation in an unbroken chain of
corporations beginning with the Company if each of the corporations other than
the last corporation in the unbroken chain then owns stock possessing 50 percent
or more of the total combined voting power of all classes of stock in one of the
other corporations in such chain.

1.8      Termination of Employment

         "Termination of Employment" 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 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.

ARTICLE II - GRANT OF OPTION

2.1      Grant of Option

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

2.2      Purchase Price

         The purchase price of the shares of stock covered by the Option shall
be _________________ dollars ($_______) per share without commission or other
charge.

2.3      Consideration to Company

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

- ----------
* Refer to the attached Notice.

                                        2



Agreement, the right of the Employee voluntarily to terminate his employment
with the Company or a Subsidiary.

ARTICLE III - PERIOD OF EXERCISABILITY

3.1      Commencement of Exercisability

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

                  Such early or accelerated vesting will occur provided that the
         Company's return on total capital as reported in the annual report to
         shareholders (or other report) for the most recently completed fiscal
         year equals or exceeds the sixty-seventh (67%) percentile of the return
         on total capital for the peer group companies (as listed in the
         Company's proxy statement) for such third year (the performance test).
         (For example, the performance test for accelerated vesting for options
         granted in December 2002 will be based on the return on total capital
         for 2005).

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

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

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

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

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

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

                                        3



3.2      Term of Option

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

3.3      Exercise of Option after Termination of Employment

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

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

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

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

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

ARTICLE IV - EXERCISE OF OPTIONS

4.1      Partial Exercise

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

4.2      Manner of Exercise

         The Option, or any exercisable portion thereof, may be exercised solely
by delivery to the Secretary or his office of all of the following:

         (a) A written exercise notice, complying with the applicable rules
         established by the Committee, stating that the Option or portion is
         thereby exercised. The notice shall be signed by the Employee or the
         other person then entitled to exercise the Option; and

         (b) Full payment for the shares with respect to which the Option or
         portion thereof is exercised.

                                        4



         Payment may be made by any one of the following methods:

                  (i) in cash (or by certified or bank cashier's check), or

                  (ii) by actual or constructive delivery to the Company, in
                  accordance with the procedures established by the Company, of
                  Company Common Stock then owned by the Employee with a fair
                  market value on the date the Option is exercised equal to the
                  aggregate exercise purchase price of the shares with respect
                  to which the Option or portion thereof is exercised; or

                  (iii) by a combination of cash and surrender of stock in the
                  manner herein specified; or

                  (iv) irrevocable instructions to a broker, acceptable to the
                  Company, to delivery promptly to the Company the amount of
                  the sale or the loan proceeds necessary to pay the option
                  price; or

                  (v) by instructing the Company to withhold a number of such
                  shares having a Fair Market Value on the date of the exercise
                  equal to the aggregate exercise price of such Option; and

         (c) Full payment to the Company of any federal, state, local or foreign
         taxes required to be withheld in connection with the exercise, which
         payment may be made in cash (or by certified or bank cashier's check)
         or by actual or constructive delivery and surrender to the Company in
         accordance with procedures established by the Company, of Company
         Common Stock then owned by the Employee with a Fair Market Value on the
         date the Option is exercised equal to the total of such taxes due in
         connection with the exercise, or by a combination of cash and surrender
         of stock in the manner herein specified (provided that in any event
         Employee is responsible for the payment of any and all applicable taxes
         related to this stock option grant and any exercise of stock options
         hereunder); and

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

4.3      Conditions to Issuance of Stock Certificates

         The shares of stock deliverable, either in the form of Common Stock
certificates or as evidenced in a book-entry system (such as in a direct
registration system), upon the exercise of the Option, or any part thereof, may
be previously authorized but unissued shares, issued shares which have then been
reacquired by the Company, or shares held by a grantor trust (such as the
Employee Stock Benefit Trust). Such shares shall be fully paid and
nonassessable. The Company shall not be required to issue or deliver any
certificate or certificates, or to provide instructions for book entries, for
shares of stock purchased upon the exercise of the Option or part thereof prior
to fulfillment of all of the following conditions:

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

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

                                        5



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

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

         (e) Subject to the terms of the Plan, the receipt by the Company of
         full payment for such shares.

4.4      Rights as Shareholders

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

ARTICLE V - MISCELLANEOUS

5.1      Option Subject to Plan

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

5.2      Administration

         The Committee shall have the power to interpret the terms and
provisions of the Plan and this Agreement and to adopt such rules for the
administration, interpretation and application of the Plan as are consistent
therewith and to interpret, alter or repeal any such rules.

5.3      Transferability

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

5.4      Notices

         Any notice to be given under the terms of this Agreement to the Company
shall be addressed to the Company in care of its Secretary and any notice to be
given to the Employee shall be addressed to him at the address given beneath his
signature hereto. By a notice given pursuant to this Section, either party may
hereafter designate a different address for notices to be given to him. Any
notice which is required to be given to Employee shall, if Employee is then
deceased, be given to Employee's personal representative if such representative
has previously informed the Company of his status and address by written notice
under this Section. Any notice shall have been deemed duly given when hand
delivered to the Secretary (or his designate), faxed with a receipt of confirmed
delivery, given to a major courier service, such as DHL or Federal Express, or
enclosed in a properly sealed envelope or wrapper addressed as aforesaid,
deposited (with postage prepaid) in a post office or branch post office
regularly maintained

                                        6



by the United States Postal Service.

5.5      Titles

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

5.6      Construction

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

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

                                        AVERY DENNISON CORPORATION

                                        by:  Chairman & Chief Executive Officer*

                                        by:  Secretary*

by:  Optionee*

- ----------
* Refer to the attached Notice.

                                        7



                           AVERY DENNISON CORPORATION
                           --------------------------
                           1996 STOCK INCENTIVE PLAN
                           -------------------------
                      NON-QUALIFIED STOCK OPTION AGREEMENT
                      ------------------------------------

THIS AGREEMENT, dated ____________ ____, 2002, is made by and between Avery
Dennison Corporation, a Delaware corporation, hereinafter referred to as the
"Company," and *, an employee of Company or a Subsidiary of Company, hereinafter
referred to as "Employee" or "Optionee."

WHEREAS, Company wishes to afford Employee the opportunity to purchase shares of
its $1.00 par value common stock under the terms of the Avery Dennison
Corporation 1996 Stock Incentive Plan.

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

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

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

ARTICLE I - DEFINITIONS
- -----------------------

Whenever the following terms are used in this Agreement they shall have the
meaning specified below unless the context clearly indicates to the contrary.
Terms not defined herein shall have the meaning specified in the Plan, unless
the context clearly indicates to the contrary.

1.1  Beneficiary
     -----------

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

1.2  Change of Control
     -----------------

     "Change of Control" shall have the meaning as set forth in the Plan.

1.3  Option
     ------

     "Option" shall mean the option to purchase common stock of the Company
granted under this Agreement pursuant to the Plan.

1.4  Plan
     ----

     The "Plan" shall mean the Avery Dennison Corporation 1996 Stock Incentive
Plan.

1.5  Pronouns
     --------

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

- --------------------
* Refer to the attached Notice


                                       1



1.6  Secretary
     ---------

     "Secretary" shall mean the Secretary of the Company.

1.7  Subsidiary
     ----------

     "Subsidiary" shall mean any corporation in an unbroken chain of
corporations beginning with the Company if each of the corporations other than
the last corporation in the unbroken chain then owns stock possessing 50 percent
or more of the total combined voting power of all classes of stock in one of the
other corporations in such chain.

1.8  Termination of Employment
     -------------------------

     "Termination of Employment" 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 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.

ARTICLE II - GRANT OF OPTION
- ----------------------------

2.1  Grant of Option
     ---------------

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

2.2  Purchase Price
     --------------

     The purchase price of the shares of stock covered by the Option shall be
_________________ dollars ($_______) per share without commission or other
charge.

2.3  Consideration to Company
     ------------------------

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

ARTICLE III - PERIOD OF EXERCISABILITY
- --------------------------------------

3.1  Commencement of Exercisability
     ------------------------------

- --------------------
* Refer to the attached Notice


                                       2




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

          Such early or accelerated vesting will occur provided that the
     Company's return on total capital as reported in the annual report to
     shareholders (or other report) for the most recently completed fiscal year
     equals or exceeds the sixty-seventh (67%) percentile of the return on total
     capital for the peer group companies (as listed in the Company's proxy
     statement) for such third year (the performance test). (For example, the
     performance test for accelerated vesting for options granted in December
     2002 will be based on the return on total capital for 2005).

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

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

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

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

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

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

3.2  Term of Option
     --------------

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

3.3  Exercise of Option after Termination of Employment
     --------------------------------------------------


                                       3



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

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

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

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

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

ARTICLE IV - EXERCISE OF OPTIONS
- --------------------------------

4.1  Partial Exercise
     ----------------

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

4.2  Manner of Exercise
     ------------------

     The Option, or any exercisable portion thereof, may be exercised solely by
delivery to the Secretary or his office of all of the following:

     (a) A written exercise notice, complying with the applicable rules
     established by the Committee, stating that the Option or portion is thereby
     exercised. The notice shall be signed by the Employee or the other person
     then entitled to exercise the Option; and

     (b) Full payment for the shares with respect to which the Option or portion
     thereof is exercised. Payment may be made by any one of the following
     methods:

          (i) in cash (or by certified or bank cashier's check), or

          (ii) by actual or constructive delivery to the Company, in accordance
          with the procedures established by the Company, of Company Common
          Stock then owned by the Employee with a fair market value on the date
          the Option is exercised equal to the aggregate exercise purchase price
          of the shares with respect to which the Option or portion thereof is
          exercised; or


                                        4



          (iii) by a combination of cash and surrender of stock in the manner
          herein specified; or

          (iv) irrevocable instructions to a broker, acceptable to the Company,
          to delivery promptly to the Company the amount of the sale or the loan
          proceeds necessary to pay the option price; or

          (v) by instructing the Company to withhold a number of such shares
          having a Fair Market Value on the date of the exercise equal to the
          aggregate exercise price of such Option; and

     (c) Full payment to the Company of any federal, state, local or foreign
     taxes required to be withheld in connection with the exercise, which
     payment may be made in cash (or by certified or bank cashier's check) or by
     actual or constructive delivery and surrender to the Company in accordance
     with procedures established by the Company, of Company Common Stock then
     owned by the Employee with a Fair Market Value on the date the Option is
     exercised equal to the total of such taxes due in connection with the
     exercise, or by a combination of cash and surrender of stock in the manner
     herein specified (provided that in any event Employee is responsible for
     the payment of any and all applicable taxes related to this stock option
     grant and any exercise of stock options hereunder); and

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

4.3  Conditions to Issuance of Stock Certificates
     --------------------------------------------

     The shares of stock deliverable, either in the form of Common Stock
certificates or as evidenced in a book-entry system (such as in a direct
registration system), upon the exercise of the Option, or any part thereof, may
be previously authorized but unissued shares, issued shares which have then been
reacquired by the Company, or shares held by a grantor trust (such as the
Employee Stock Benefit Trust). Such shares shall be fully paid and
nonassessable. The Company shall not be required to issue or deliver any
certificate or certificates, or to provide instructions for book entries, for
shares of stock purchased upon the exercise of the Option or part thereof prior
to fulfillment of all of the following conditions:

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

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

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

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

     (e) Subject to the terms of the Plan, the receipt by the Company of full
     payment for such shares.

4.4  Rights as Shareholders
     ----------------------


                                       5



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

ARTICLE V - MISCELLANEOUS
- -------------------------

5.1  Option Subject to Plan
     ----------------------

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

5.2  Administration
     --------------

     The Committee shall have the power to interpret the terms and provisions of
the Plan and this Agreement and to adopt such rules for the administration,
interpretation and application of the Plan as are consistent therewith and to
interpret, alter or repeal any such rules.

5.3  Transferability
     ---------------

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

5.4  Notices
     -------

     Any notice to be given under the terms of this Agreement to the Company
shall be addressed to the Company in care of its Secretary and any notice to be
given to the Employee shall be addressed to him at the address given beneath his
signature hereto. By a notice given pursuant to this Section, either party may
hereafter designate a different address for notices to be given to him. Any
notice which is required to be given to Employee shall, if Employee is then
deceased, be given to Employee's personal representative if such representative
has previously informed the Company of his status and address by written notice
under this Section. Any notice shall have been deemed duly given when hand
delivered to the Secretary (or his designate), faxed with a receipt of confirmed
delivery, given to a major courier service, such as DHL or Federal Express, or
enclosed in a properly sealed envelope or wrapper addressed as aforesaid,
deposited (with postage prepaid) in a post office or branch post office
regularly maintained by the United States Postal Service.

5.5  Titles
     ------

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

5.6  Construction
     ------------

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

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


                                        6



                                   AVERY DENNISON CORPORATION

                                   by:      Chairman & Chief Executive Officer*

                                   by:      Secretary*

by:      Optionee*



- -------------
* Refer to the attached Notice


                                       7



                                                                 EXHIBIT 10.32.1

                           AVERY DENNISON CORPORATION
                            BENEFIT RESTORATION PLAN
                              amended and restated

Avery Dennison Corporation, a Delaware corporation, adopted the Benefit
Restoration Plan of Avery Dennison Corporation (the "Plan"), effective as of
December 1, 1994 (the "Effective Date"), for the benefit of its eligible
Employees. The Plan is amended and restated effective as of June 1, 2001.

The Plan constitutes an unfunded "excess benefit plan" within the meaning of
Section 3(36) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"). The Plan is maintained primarily for the purpose of providing
deferred Compensation for a select group of management or highly compensated
employees, within the meaning of ERISA Sections 201(2), 301(a)(3) and 401(a)(1).

                             ARTICLE I - DEFINITIONS

Whenever the following terms are used in the Plan with the first letter
capitalized, they shall have the meaning specified below unless the context
clearly indicates to the contrary.

"Actuarial Equivalent" shall mean the equivalent of a given Benefit or a given
amount payable in another manner or by other means, determined by or under the
direction of the Administrator in accordance with actuarial principles, methods
and assumptions which are found to be appropriate by the Enrolled Actuary,
acting independently of the Administrator or the Company and in the exercise of
his sole professional judgment. Such principles, methods and assumptions,
however, shall be reasonable in the aggregate and shall constitute the Enrolled
Actuary's best estimate of anticipated experience under the Plan. Such
assumptions shall include at any time, those assumptions then in effect under
the Qualified Plan. For purposes of calculating lump sum amounts under Section
5.2, such assumptions shall be those set those set forth in Sections 1.2(a)(i)b
and 1.2(a)(ii)b of the Qualified Plan (or any successor thereto).

"Administrator" shall mean Avery Dennison Corporation, acting through its Board
or its delegates, except that if it appoints a Committee under Section 6.4, the
term "Administrator" shall mean the Committee as to those duties, powers and
responsibilities specifically conferred upon the Committee. Avery Dennison
Corporation shall have all duties and responsibilities imposed by ERISA, except
as specifically assigned to, delegated to or reserved to the Board, and the
Committee under the Plan

"Associate Plan" shall mean The Associate Retirement Plan for Employees of Avery
Dennison Corporation as in effect on or after June 1, 2002 and as set forth in
Appendix B to the Dennison Retirement Plan and as may be amended from time to
time.

"Beneficiary" shall mean a person or trust properly designated by a Participant
or Former Participant in the manner provided in the Qualified Plan.

"Benefit" of a Participant shall mean the benefit payable pursuant to Article
IV.

"Board" shall mean the Board of Directors of Avery Dennison Corporation. The
Board may delegate any power or duty otherwise allocated to the Administrator to
any other person or persons, including a Committee appointed under Section 6.4.

                                        1



"CEO" shall mean the Chief Executive Officer of Avery Dennison Corporation.

"Code" shall mean the Internal Revenue Code of 1986, as amended from time to
time.

"Committee" shall mean the BRP Committee of Avery Dennison Corporation, as
appointed pursuant to Section 6.4, if any.

"Company" shall mean Avery Dennison Corporation, any other company which
subsequently adopts the Plan as a whole or as to any one or more divisions, in
accordance with Section 7.3(b), and any successor company which continues the
Plan under Section 7.3(a).

"Company Affiliate" shall mean any employer which, at the time of reference,
was, with the Company, a member of a controlled group of corporations or trades
or businesses under common control, or a member of an affiliated service group,
as determined under regulations issued by the Secretary under Code Sections
414(b), (c), (m) and 415(h) and any other entity required to be aggregated with
the Company pursuant to regulations issued under Code Section 414(o).

"Compensation Committee" shall mean the Compensation and Executive Personnel
Committee of the Board.

"Effective Date" shall mean the effective date of the Plan, which shall be
December 1, 1994.

"Employee" shall mean any person who renders services to the Company in the
status of an employee as the term is defined in Code Section 3121(d), excluding:
(i) any person retained to render services as an independent contractor; (ii)
leased Employees treated as Employees of the Company pursuant to Code Sections
414(n) and 414(o); (iii) employees of a Company Affiliate or (iv) any person
whose services with the Company are performed pursuant to a contract or an
arrangement that purports to treat the individual as an independent contractor
even if such individual is later determined (by judicial action or otherwise) to
have been a common law employee of the Company rather than an independent
contractor; provided, however, that "Employee" shall also mean any Included
Affiliate Employee.

For purposes of this Plan, a United States citizen shall be treated as an
employee of the Company if he is employed by a foreign subsidiary of the Company
or a Company Affiliate to which there applies an agreement under Section 3121(a)
of the Code and if no contributions to a funded plan of deferred compensation
(whether or not a plan described in Sections 401(a), 403(a) or 405(a) of the
Code) are provided by any other person with respect to the compensation paid to
such citizen by the foreign subsidiary, unless otherwise elected by the Vice
President, Compensation and Benefits of Avery Dennison Corporation

"Enrolled Actuary" shall mean the person enrolled by the Joint Board for the
Enrollment of Actuaries established under subtitle C of title III of ERISA who
has been engaged by the Administrator on behalf of all Participants to make and
render all necessary actuarial determinations, statements, opinions,
assumptions, reports and valuations under the Plan as required by law or
requested by the Administrator.

"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended from time to time.

                                        2



"Former Participant" shall mean a Participant who has had a Separation from the
Service.

"Included Affiliate Employee" shall mean any person who is employed by a Company
Affiliate and would not be an Employee but for the fact that the Vice President,
Compensation and Benefits of Avery Dennison Corporation has determined that he
be so treated.

"Military Leave" shall mean leave subject to reemployment rights under the
Uniformed Services Employment and Reemployment Rights Act of 1994, as amended
from time to time. Any Employee who leaves the Company or a Company Affiliate
directly to perform service in the Armed Forces of the United States or in the
United States Public Health Service under conditions entitling him to such
reemployment rights shall, solely for the purposes of the Plan and irrespective
of whether he is compensated by the Company or such Company Affiliate during
such period of service, be presumed an Employee on Military Leave. An Employee's
Military Leave shall expire if such Employee voluntarily resigns from the
Company or such Company Affiliate during such period of service, or if he fails
to make application for reemployment within the period specified by such laws
for the preservation of his reemployment rights. For purposes of computing an
Employee's service, no more than 365 days of service shall be credited for any
Military Leave except as required by Treas. Reg. Section 1.410(a) - 7(b) (6)
(iii).

"Participant" means any person included in the Plan as provided in Article II.

"Plan" shall mean the Benefit Restoration Plan of Avery Dennison Corporation.

"Plan Year" shall be the twelve month period from December 1 through the last
day of the following November, including all such years prior to the adoption of
the Plan.

"Qualified Benefit" of a Participant for a Plan Year shall mean the benefit
calculated pursuant to Article IV of the Qualified Plan (as applicable based
upon the circumstances of the Participant's Separation from the Service).

"Qualified Plan" shall mean The Retirement Plan for Employees of Avery Dennison
Corporation and/or the Associate Plan, as appropriate for the context in
question and as may be amended from time to time except that for purposes of
Section 5.1, "Qualified Plan" shall mean The Retirement Plan for Employees of
Avery Dennison Corporation unless the Participant in question has never been a
participant thereunder, in which case "Qualified Plan" shall mean the Associate
Plan.

"Separation from the Service" of an Employee shall mean his resignation from or
discharge by the Company or a Company Affiliate, his death, or Early, Normal,
Late or Disability Retirement as defined under the Qualified Plan, but not his
transfer among the Company and Company Affiliates. A leave of absence or sick
leave authorized by the Company or a Company Affiliate in accordance with
established policies, a vacation period, a temporary layoff for lack of work or
a Military Leave shall not constitute a Separation from the Service; provided,
however, that (i) continuation upon a temporary layoff for lack of work for a
period in excess of twelve months shall be considered a discharge effective as
of the expiration of the twelfth month of such period, and (ii) failure to
return to work upon expiration of any leave of absence, sick leave, Military
Leave or vacation or within three days after recall from a temporary layoff for
lack of work shall be considered a resignation effective as of the date of
expiration of such leave of absence, sick leave, Military Leave, vacation, or
the expiration of the third day after recall from any such temporary layoff.

                                        3



"Vested Benefit" of a Participant on a given date shall mean the Benefit
provided hereunder if the Participant were to have a Separation from the Service
on such date with a "Vested Retirement Benefit" under the Qualified Plan.

                             ARTICLE II -ELIGIBILITY

SECTION 2.1 - REQUIREMENTS FOR PARTICIPATION

Only those Employees of the Company who satisfy criteria set by the
Administrator from time to time, shall be Participants. Such criteria are set
forth in Appendix A, which may be updated from time to time without formal
amendment of the Plan. Each of the Administrator, the Board, the Compensation
Committee, the Committee or the CEO shall have the power to change or revoke
such criteria hereunder in its sole discretion on a prospective basis, and any
such change or revocation shall be binding and final on all Employees,
Beneficiaries and other interested persons.

                        ARTICLE III - FUNDING OF BENEFITS

SECTION 3.1 - SOURCE OF BENEFITS

The Plan shall be unfunded. All benefits payable under the Plan shall be paid
from the Company' general assets, and nothing contained in the Plan shall
require the Company to set aside or hold in trust any funds for the benefit of a
Participant or his Beneficiary, each of whom shall have the status of a general
unsecured creditor with respect to the Company's obligation to make payments
under the Plan. Any funds of the Company available to pay benefits under the
Plan shall be subject to the claims of general creditors of the Company and may
be used for any purpose by the Company.

                              ARTICLE IV - BENEFITS

SECTION 4.1 - DETERMINATION OF BENEFITS

(a)      Unless otherwise described in Appendix B, a Participant's Benefit shall
         be the excess of

         (i)      the total, for each Plan Year which commenced on or after the
                  Effective Date and for which the Participant was entitled to
                  accrue a benefit hereunder, of the Qualified Benefit, but

                  a    with "Compensation," as defined in the Qualified Plan,

                       1    determined without reference to the limitations of
                            Code Section 401(a)(17) ($150,000 annual limit
                            adjusted for increases in the cost of living), and

                       2    including the Participant's deferrals under the
                            Company's non-qualified deferred compensation
                            program earned on or after the Effective Date, and

                  b    without application of the limitation on benefits under
                       Code Section 415, over

                                        4



         (ii)     the total of the actual Qualified Benefits for such years, but
                  not less than zero.

                         ARTICLE V - PAYMENT OF BENEFITS

SECTION 5.1 - BENEFICIARY; FORM OF BENEFITS

Each Participant shall designate his Beneficiary and elect the form and the
timing of his Benefits hereunder in accordance with the procedures set forth in
the Qualified Plan; provided, however, that any designations and/or elections
made by Participant under Article IV of the Qualified Plan with respect to his
"Benefits" thereunder shall be equally applicable to his Benefits under this
Plan. The intent of this Section is that each Participant shall make a single
set of elections applicable to both the Qualified Plan and this Plan.

SECTION 5.2 - PAYMENT OF BENEFITS

A Participant's Benefits shall be paid in accordance with Section 5.1, except
that a Participant will receive his Benefit in an Actuarially Equivalent lump
sum if it would otherwise have been paid in the form of an annuity with monthly
payments of less than $300.

SECTION 5.3 - FORFEITURES

If a Participant has a Separation from the Service while all or any portion of
his Benefit is not a Vested Benefit, such portion of his Benefit shall
immediately be forfeited.

                     ARTICLE VI - ADMINISTRATIVE PROVISIONS

SECTION 6.1 - ADMINISTRATOR'S DUTIES AND POWERS

(a)      The Administrator shall conduct the general administration of the Plan
         in accordance with the Plan and shall have all the necessary power and
         authority to carry out that function. Among its necessary powers and
         duties are the following:

         (i)      To delegate all or part of its function as Administrator to
                  others and to revoke any such delegation.

         (ii)     To determine questions of vesting of Participants and their
                  entitlement to benefits, subject to the provisions of Section
                  6.11.

         (iii)    To select and engage attorneys, accountants, actuaries,
                  appraisers, brokers, consultants, administrators, physicians,
                  the Committee under Section 6.4, or other persons to render
                  service or advice with regard to any responsibility the
                  Administrator or the Board has under the Plan, or otherwise,
                  to designate such persons to carry out fiduciary
                  responsibilities under the Plan, and (with the Committee, the
                  Companies, the Board and its officers, and Employees) to rely
                  upon the advice, opinions or valuations of any such persons,
                  to the extent permitted by law, being fully protected in
                  acting or relying thereon in good faith.

         (iv)     To interpret the Plan for purpose of the administration and
                  application of the Plan, in a manner not inconsistent with the
                  Plan or applicable law and to amend or revoke any such
                  interpretation.

                                        5



         (v) To conduct claims procedures as provided in Section 6.11

(b)      Every finding, decision and determination made by the Administrator
         shall, to the full extent permitted by law, be final and binding upon
         all parties, except to the extent found by a court of competent
         jurisdiction to constitute an abuse of discretion.

SECTION 6.2 - LIMITATIONS UPON POWER

The Plan shall be uniformly and consistently administered, interpreted and
applied with regard to all Participants in similar circumstances. The Plan shall
be administered, interpreted and applied fairly and equitably and accordance
with the specified purposes of the Plan.

SECTION 6.3 - FINAL EFFECT OF ADMINISTRATOR ACTION

Except as provided in Section 6.11, all actions taken and all determinations
made by the Administrator in good faith shall be final and binding upon all
Participants and any person interested in the Plan.

SECTION 6.4 - COMMITTEE

The Administrator may, but need not, appoint a BRP Committee consisting of three
or more members to hold office during the pleasure of the Administrator. The
Committee shall have such powers and duties as are delegated to it by the
Administrator. Committee members shall not receive payment for their services as
such.

SECTION 6.5 - RESIGNATION

A Committee member may resign at any time by delivering written notice to the
Administrator.

SECTION 6.6 - VACANCIES

Vacancies in the Committee shall be filled by the Administrator.

SECTION 6.7 - MAJORITY RULE

The Committee shall act by a majority of its members in office; provided,
however, that the Committee may appoint one of its members or a delegate to act
on behalf of the Committee on matters arising in the ordinary course of
administration of the Plan, or on specific matters.

SECTION 6.8 - INDEMNIFICATION BY THE COMPANY; LIABILITY INSURANCE

(a)      The Company shall pay or reimburse any of the Company's officers,
         directors, Committee members or Employees who are fiduciaries with
         respect to the Plan for all expenses incurred by such persons in, and
         shall indemnify and hold them harmless from, all claims, liability and
         costs (including reasonable attorneys' fees) arising out of the good
         faith performance of their fiduciary functions.

(b)      The Company may obtain and provide for any such person, at the
         Company's expense, liability insurance against liabilities imposed on
         him by law.

                                        6



SECTION 6.9 - RECORDKEEPING

(a) The Administrator shall maintain suitable records as follows:

         (i) Records of each Participant's individual Benefit.

         (ii)     Records which show the operations of the Plan during each Plan
                  Year.

         (iii)    Records of the Administrator's deliberations and decisions.

(b)      The Administrator shall appoint a secretary, and at its discretion, an
         assistant secretary, to keep the record of proceedings, to transmit its
         decisions, instructions, consents or directions to any interested
         party, to execute and file, on behalf of the Committee, such documents,
         reports or other matters as may be necessary or appropriate to perform
         ministerial acts.

(c)      The Administrator shall not be required to maintain any records or
         accounts, which duplicate any records or accounts maintained by the
         Company.

SECTION 6.10 - INSPECTION OF RECORDS

Copies of the Plan and records of a Participant's Benefit shall be open to
inspection by him or his duly authorized representatives at the office of the
Administrator at any reasonable business hour.

SECTION 6.11 - CLAIMS PROCEDURE

The claims procedures hereunder shall be in accordance with the claims
procedures set forth in the Qualified Plan; provided that for purposes of the
claims procedure under this Plan, the review official described in the Qualified
Plan shall be the President of the Company.

SECTION 6.12 - CONFLICTING CLAIMS

The procedures for the resolution of conflicting claims by the Committee shall
be in accordance with the procedures set forth in the applicable section of the
Qualified Plan.

SECTION 6.13 - SERVICE OF PROCESS

The Secretary of the Avery Dennison Corporation is hereby designated as agent of
the Plan for the service of legal process.

                     ARTICLE VII - MISCELLANEOUS PROVISIONS

SECTION 7.1 - AMENDMENT, TERMINATION OR SUSPENSION OF THE PLAN

(a)      The Plan may be amended or terminated by the Board or the Compensation
         Committee at any time; the CEO may amend the Plan at any time. Such
         amendment or termination may modify or eliminate any benefit hereunder
         other than a benefit or a portion of a benefit that is a Vested
         Benefit.

                                        7



(b)      If the Board determines that payments under the Plan would have a
         material adverse effect on the Company's ability to carry on its
         business, the Board may suspend such payments temporarily for such time
         as in its sole discretion it deems advisable, but in no event for a
         period in excess of one year. The Company shall pay such suspended
         payments immediately upon the expiration of the period of suspension.

(c)      The Plan is intended to provide benefits for a "select group of
         management or highly compensated employees" within the meaning of
         Sections 201, 301 and 401 of ERISA, and therefore to be exempt from the
         provisions of Parts 2, 3 and 4 of Title I of ERISA. Accordingly, the
         Plan shall terminate and, except for benefits or portions of benefits
         that have vested (which at the option of the Board, may be accelerated
         and the balance paid in a single, Actuarial Equivalent lump sum), no
         further benefits shall be paid hereunder in the event it is determined
         by a court of competent jurisdiction or by an opinion of the Company's
         regular outside employee benefits counsel that the Plan constitutes an
         employee pension benefit plan within the meaning of Section 3(2) of
         ERISA which is not so exempt.

SECTION 7.2 - LIMITATION ON RIGHTS OF EMPLOYEES

The Plan is strictly a voluntary undertaking on the part of the Company and
shall not constitute a contract between the Company and any Employee, or
consideration for, or an inducement or condition of, the employment of an
Employee. Nothing contained in the Plan shall give any Employee the right to be
retained in the service of the Company or to interfere with or restrict the
right of the Company, which is hereby expressly reserved, to discharge or retire
any Employee, except as provided by law, at any time without notice and with or
without cause. Inclusion under the Plan will not give any Employee any right or
claim to any benefit hereunder except to the extent such right has specifically
become fixed under the terms of the Plan and there are funds available therefor
in the hands of the Company. The doctrine of substantial performance shall have
no application to Employees, Participants or any other persons entitled to
payments under the Plan. Each condition and provision, including numerical
items, has been carefully considered and constitutes the minimum limit on
performance, which will give rise to the applicable right.

SECTION 7.3 - PLAN BINDING IN EVENT OF CONSOLIDATION OR MERGER; ADOPTION OF PLAN
              BY OTHER COMPANIES

(a)      In the event of the consolidation or merger of a Company with or into
         any other corporation, this Plan shall be binding on such new
         corporation.

(b)      Any Company or Company Affiliate may, with the approval of the Board,
         the Compensation Committee or the CEO, adopt the Plan as a whole
         company or as to any one or more divisions by resolution of its own
         board of directors or agreement of its partners. Such Company or
         Company Affiliate shall give written notice of such adoption to the
         Committee by its duly authorized officers.

SECTION 7.4 - ASSIGNMENTS, ETC.  PROHIBITED

Except for the withholding of any tax under the laws of the United States or any
state or locality, no part of a Participant's Benefit hereunder shall be liable
for the debts, contracts or engagements of any Participant, his Beneficiaries or
successors in interest, or be taken in execution by levy, attachment or
garnishment or by any other legal or equitable proceeding prior

                                        8



to distribution, nor shall any such person have any rights to alienate,
anticipate, commute, pledge, encumber or assign any Benefits or payments
hereunder in any manner whatsoever except to designate a Beneficiary as provided
herein.

SECTION 7.5 - ERRORS AND MISSTATEMENTS

In the event of any misstatement or omission of fact by a Participant to the
Committee or any clerical error resulting in payment of benefits in an incorrect
amount, the Committee shall promptly cause the amount of future payments to be
corrected upon discovery of the facts and shall cause the Company to pay the
Participant or any other person entitled to payment under the Plan any
underpayment in cash in a lump sum or to recoup any overpayment from future
payments to the Participant or any other person entitled to payment under the
Plan in such amounts as the Committee shall direct or to proceed against the
Participant or any other person entitled to payment under the Plan for recovery
of any such overpayment.

SECTION 7.6 - PAYMENT ON BEHALF OF MINOR, ETC.

In the event any amount becomes payable under the Plan to a minor or a person
who, in the sole judgment of the Committee is considered by reason of physical
or mental condition to be unable to give a valid receipt therefore, the
Committee may direct that such payment be made to any person found by the
Committee in its sole judgment, to have assumed the care of such minor or other
person. Any payment made pursuant to such determination shall constitute a full
release and discharge of the Company, the Board, the Committee and their
officers, directors and employees.

SECTION 7.7 - GOVERNING LAW

This Plan shall be construed, administered and governed in all respects under
and by applicable federal laws and, where, state law is applicable, the laws of
the State of California.

SECTION 7.8 - PRONOUNS AND PLURALITY

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

SECTION 7.9 - TITLES

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

SECTION 7.10 - REFERENCES

Unless the context clearly indicates to the contrary, a reference to a statute,
regulation or document shall be construed as referring to any subsequently
enacted, adopted or executed statute, regulation or document.

                                        9



                                   APPENDIX A

                             PARTICIPATION CRITERIA

Participation in the Plan shall be limited to Employees of the Company, selected
by the Administrator, who satisfy the following criteria:

     1.   Employees whose Compensation, as determined under Section 4.1(a)(i) a
          1 and 2 of this Plan, exceeds the limitations of Code Section
          401(a)(17) (the $150,000 annual limit adjusted for increases in the
          cost of living) ($170,000 for the Plan Year beginning December 1,
          2001), and as amended thereafter.

     2.   Effective December 1, 1998, Employees who participate in the Company's
          non-qualified deferred compensation program, regardless of whether
          they satisfy criterion 1. above.

     3.   Present or former employees of the Company (or any present or former
          direct or indirect subsidiary) listed on Appendix B.

The criteria in this Appendix may be changed or revoked by the Administrator,
the Board, the Compensation Committee, the Committee or the CEO at any time and
without formal amendment, as provided under Section 2.1 of the Plan.

                                       10



                      APPENDIX B - SPECIAL BENEFIT SCHEDULE

Notwithstanding any provisions of the Plan to the contrary, the following
individuals shall receive the following indicated benefits under the Plan:

      Recipient        Benefit

      --------------   ----------------------------------------------------
      Nelson Gifford   $3,858.57 per month for life, commencing June 1, 2001

                                       11




                                                                      EXHIBIT 12

                           AVERY DENNISON CORPORATION
                COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
                              (Dollars in Millions)

                                                             2002         2001
                                                         ----------   ---------
Earnings
Income before taxes                                      $   364.8    $   359.8
Add:     Fixed Charges*                                       69.3         75.0
         Amortization of capitalized interest                  2.0          2.0
Less:    Capitalized interest                                 (3.9)        (6.9)
                                                         ----------   ---------
                                                         $   432.2    $   429.9
                                                         =========    =========

*Fixed charges:
         Interest expense                                $    43.7    $    50.2
         Capitalized interest                                  3.9          6.9
         Amortization of debt issuance costs                   0.7          0.3
         Interest portion of leases                           21.0         17.6
                                                         ---------    ---------
                                                         $    69.3    $    75.0
                                                         =========    =========

Ratio of Earnings to Fixed Charges                             6.2          5.7
                                                         =========    =========

The ratios of earnings to fixed charges were computed by dividing earnings by
fixed charges. For this purpose, "earnings" consist of income before taxes plus
fixed charges and amortization of capitalized interest, less capitalized
interest. "Fixed charges" consist of interest expense, capitalized interest,
amortization of debt issuance costs and the portion of rent expense (estimated
to be 35%) on operating leases deemed representative of interest.




                                                                      EXHIBIT 13

                           AVERY DENNISON CORPORATION

FINANCIAL HIGHLIGHTS



(In millions, except per share amounts)                  2002         2001         2000
- ---------------------------------------------------------------------------------------
                                                                    
FOR THE YEAR

Net sales                                          $  4,206.9   $  3,803.3   $  3,893.5

Income before taxes                                     364.8        359.8        426.3

Net income                                              257.2        243.2        283.5

Net income as a percent of sales                          6.1          6.4          7.3

Net income per common share, assuming dilution     $     2.59   $     2.47   $     2.84

Dividends per common share                               1.35         1.23         1.11

Capital expenditures                                    151.8        135.4        198.3

Return on average shareholders' equity (percent)         25.7         27.4         34.6
=======================================================================================





                           AVERY DENNISON CORPORATION

FIVE-YEAR SUMMARY



                                          Compound           2002/(1)/               2001/(3)/                 2000
                                         Growth Rate
(In millions, except per share amounts)     5 Year       Dollars           %     Dollars           %    Dollars           %
- ---------------------------------------------------------------------------------------------------------------------------
                                                                                                 
FOR THE YEAR
Net sales                                        4.7%  $ 4,206.9       100.0   $ 3,803.3       100.0   $ 3,893.5      100.0
Gross profit                                     4.6     1,353.7        32.2     1,240.2        32.6     1,332.2       34.2
Marketing, general and
 administrative expense                          4.3       913.1        21.7       830.5        21.8       851.3       21.9
Interest expense                                 6.6        43.7         1.0        50.2         1.3        54.6        1.4
Income before taxes                              3.2       364.8         8.7       359.8         9.5       426.3       10.9
Taxes on income                                   .2       107.6         2.6       116.4         3.1       142.8        3.7
Net income                                       4.7       257.2         6.1       243.2         6.4       283.5        7.3
==========================================================================================================================


                                                     1999/(4)/                   1998
(In millions, except per share amounts)       Dollars            %      Dollars            %
- --------------------------------------------------------------------------------------------
                                                                           
FOR THE YEAR
Net sales                                  $  3,768.2        100.0   $  3,459.9        100.0
Gross profit                                  1,281.4         34.0      1,144.5         33.1
Marketing, general and
 administrative expense                         842.6         22.4        773.2         22.3
Interest expense                                 43.4          1.2         34.6          1.0
Income before taxes                             330.4          8.8        336.7          9.7
Taxes on income                                 115.0          3.1        113.4          3.3
Net income                                      215.4          5.7        223.3          6.5
============================================================================================


                                                       2002        2001         2000         1999         1998
- -----------------------------------------------------------------------------------------------------------------
                                                                                   
PER SHARE INFORMATION
Net income per common share              5.6%     $    2.61    $   2.49    $    2.88    $    2.17    $    2.20
Net income per common share,
 assuming dilution                       6.1           2.59        2.47         2.84         2.13         2.15
Dividends per common share              13.4           1.35        1.23         1.11          .99          .87
Average common shares outstanding        (.9)          98.5        97.8         98.3         99.2        101.5
Average common shares outstanding,
 assuming dilution                      (1.3)          99.4        98.6         99.8        101.3        104.1
Book value at fiscal year end            5.4      $   10.64    $   9.49    $    8.49    $    8.20    $    8.33
Market price at fiscal year end          6.2          59.05       56.20        54.88        72.88        45.06
Market price range                                    52.86 to    44.39 to     43.31 to     39.75 to     40.88 to
                                                      69.49       60.24        78.00        72.88        60.75
- -----------------------------------------------------------------------------------------------------------------

AT YEAR END
Working capital                                   $   (80.6)   $   31.2    $   181.7    $   105.6    $   137.7
Property, plant and equipment, net                  1,199.2     1,074.6      1,079.0      1,043.5      1,035.6
Total assets/(2)/                                   3,652.4     2,909.6      2,766.3      2,647.1      2,187.4
Long-term debt                                        837.2       626.7        772.9        617.5        465.9
Total debt                                          1,144.2       849.7        827.2        685.7        537.2
Shareholders' equity                                1,056.4       929.4        828.1        809.9        833.3
Number of employees                                  20,500      17,300       17,900       17,400       16,100
- -----------------------------------------------------------------------------------------------------------------

OTHER INFORMATION
Depreciation expense                              $   127.1    $  124.1    $   126.0    $   126.5    $   114.6
Research and development expense                       74.5        69.9         67.8         64.3         65.0
Effective tax rate                                     29.5%       32.4%        33.5%        34.8%        33.7%
Long-term debt as a percent of
 total long-term capital                               44.2        40.3         48.3         43.3         35.9
Total debt as a percent of total capital               52.0        47.8         50.0         45.8         39.2
Return on average shareholders'
 equity (percent)                                      25.7        27.4         34.6         27.1         26.7
Return on average total capital (percent)              15.8        16.2         19.6         17.0         19.0
=================================================================================================================


/(1)/   Results for 2002 include sales of approximately $270 million from three
        acquisitions completed during the year. Results for 2002 also include a
        pretax charge for asset impairments and lease cancellation costs of
        $21.4 million as well as a pretax charge of $10.7 million related to
        severance.
/(2)/   Certain amounts for prior years were reclassified to conform with the
        current year presentation.
/(3)/   Results for 2001 include a pretax gain of $20.2 million for the sale of
        the Company's specialty coatings business and a pretax cost reduction
        charge of $19.9 million.
/(4)/   Results for 1999 include a pretax cost reduction charge of $65 million.

                                        2



                           AVERY DENNISON CORPORATION

CONSOLIDATED BALANCE SHEET



(Dollars in millions)                                                                        2002         2001
- --------------------------------------------------------------------------------------------------------------
                                                                                              
ASSETS
Current assets:
  Cash and cash equivalents                                                            $     22.8   $     19.1
  Trade accounts receivable, less allowances
    of $46.1 and $37.5 for 2002 and 2001, respectively                                      733.4        579.2
  Inventories, net                                                                          343.6        267.4
  Deferred taxes                                                                             25.7         58.8
  Other current assets                                                                       90.0         65.8
- --------------------------------------------------------------------------------------------------------------
    Total current assets                                                                  1,215.5        990.3
Property, plant and equipment, net                                                        1,199.2      1,074.6
Goodwill, net                                                                               628.7        293.2
Other intangibles resulting from business acquisitions, net                                 147.9        120.0
Other assets                                                                                461.1        431.5
- --------------------------------------------------------------------------------------------------------------
                                                                                       $  3,652.4   $  2,909.6
==============================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
  Short-term and current portion of long-term debt                                     $    307.0   $    223.0
  Accounts payable                                                                          441.0        316.4
  Accrued payroll and employee benefits                                                     178.7        116.5
  Other accrued liabilities                                                                 298.5        214.4
  Income taxes payable                                                                       70.9         88.8
- --------------------------------------------------------------------------------------------------------------
    Total current liabilities                                                             1,296.1        959.1
Long-term debt                                                                              837.2        626.7
Long-term retirement benefits and other accrued liabilities                                 304.2        236.2
Non-current deferred taxes                                                                   74.0         83.6
Other long-term obligation                                                                   84.5         74.6
Shareholders' equity:
  Common stock, $1 par value, authorized - 400,000,000 shares at year end
   2002 and 2001; issued - 124,126,624 shares at year end 2002 and 2001;
   outstanding - 99,303,840 shares and 97,882,630 shares at year end 2002
   and 2001, respectively                                                                   124.1        124.1
  Capital in excess of par value                                                            740.2        707.2
  Retained earnings                                                                       1,664.8      1,556.1
  Cost of unallocated ESOP shares                                                           (12.2)       (13.7)
  Employee stock trusts, 11,163,451 shares and
   12,008,123 shares at year end 2002 and 2001, respectively                               (658.7)      (674.5)
  Treasury stock at cost, 13,659,333 shares and
   14,235,871 shares at year end 2002 and 2001, respectively                               (596.9)      (633.4)
  Accumulated other comprehensive loss                                                     (204.9)      (136.4)
- --------------------------------------------------------------------------------------------------------------
    Total shareholders' equity                                                            1,056.4        929.4
- --------------------------------------------------------------------------------------------------------------
                                                                                       $  3,652.4   $  2,909.6
==============================================================================================================


See Notes to Consolidated Financial Statements

                                        3



CONSOLIDATED STATEMENT OF INCOME



(In millions, except per share amounts)                               2002          2001           2000
- -------------------------------------------------------------------------------------------------------
                                                                                   
Net sales                                                       $  4,206.9    $  3,803.3    $   3,893.5
Cost of products sold                                              2,853.2       2,563.1        2,561.3
- -------------------------------------------------------------------------------------------------------
    Gross profit                                                   1,353.7       1,240.2        1,332.2
Marketing, general and administrative expense                        913.1         830.5          851.3
Interest expense                                                      43.7          50.2           54.6
Other expense (income), net                                           32.1           (.3)             -
- -------------------------------------------------------------------------------------------------------
    Income before taxes and accounting change                        364.8         359.8          426.3
Taxes on income                                                      107.6         116.4          142.8
- -------------------------------------------------------------------------------------------------------
    Income before accounting change                                  257.2         243.4          283.5
Cumulative effect of accounting change, net of tax                       -           (.2)             -
- -------------------------------------------------------------------------------------------------------
Net income                                                      $    257.2    $    243.2    $     283.5
=======================================================================================================
Per share amounts:
     Net income per common share:
     Before accounting change                                   $     2.61    $     2.49    $      2.88
     Cumulative effect of accounting change                              -             -              -
- -------------------------------------------------------------------------------------------------------
Net income per common share                                     $     2.61    $     2.49    $      2.88
=======================================================================================================
Net income per common share, assuming dilution:
     Before accounting change                                   $     2.59    $     2.47    $      2.84
     Cumulative effect of accounting change                              -             -              -
- -------------------------------------------------------------------------------------------------------
Net income per common share, assuming dilution                  $     2.59    $     2.47    $      2.84
=======================================================================================================
Dividends                                                       $     1.35    $     1.23    $      1.11
- -------------------------------------------------------------------------------------------------------
Average shares outstanding:
    Common shares                                                     98.5          97.8           98.3
    Common shares, assuming dilution                                  99.4          98.6           99.8
=======================================================================================================
Common shares outstanding at year end                                 99.3          97.9           97.5
=======================================================================================================


                 See Notes to Consolidated Financial Statements

                                        4



CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY



                                                                                          Cost of
                                                   Common   Capital in                unallocated
                                                stock, $1    excess of     Retained          ESOP
(Dollars in millions)                           par value    par value     earnings        shares
- -------------------------------------------------------------------------------------------------
                                                                          
Fiscal year ended 1999                          $   124.1   $    962.3   $  1,288.5   $     (16.8)
Comprehensive income:
   Net income                                                                 283.5
   Foreign currency translation adjustment
     Total comprehensive income
 Repurchase of 2.4 million shares for
 treasury
 Stock issued under option plans, net of
  $36.3 of tax and dividends paid on stock
  held in stock trusts                                           (28.9)
Dividends: $1.11 per share                                                   (123.7)
ESOP transactions, net                                                                        1.5
Employee stock benefit trust market value
 adjustment                                                     (241.4)
- -------------------------------------------------------------------------------------------------
Fiscal year ended 2000                              124.1        692.0      1,448.3         (15.3)
Comprehensive income:
   Net income                                                                 243.2
   Other comprehensive loss:
     Foreign currency translation adjustment
     Minimum pension liability adjustment
     Effective portion of gains or losses
      on cash flow hedges
        Other comprehensive loss
           Total comprehensive income
 Repurchase of .4 million shares for
  treasury, net of shares issued
 Stock issued under option plans, net of
  $22.3 of tax and dividends paid on stock
  held in stock trusts                                              .2
Dividends: $1.23 per share                                                   (135.4)
ESOP transactions, net                                                                        1.6
Employee stock benefit trust market value
 adjustment                                                       15.0
- -------------------------------------------------------------------------------------------------
Fiscal year ended 2001                              124.1        707.2      1,556.1         (13.7)
Comprehensive income:
   Net income                                                                 257.2
   Other comprehensive loss:
     Foreign currency translation adjustment
     Minimum pension liability adjustment
     Effective portion of gains or losses
      on cash flow hedges
        Other comprehensive loss
           Total comprehensive income
Treasury stock issued of .7 million shares
 for L&E acquisition
 Repurchase of .2 million shares for
  treasury, net of shares issued
Stock issued under option plans,
 net of $26.5 of tax and dividends paid
 on stock held in stock trusts                                    (3.5)
Dividends: $1.35 per share                                                   (148.5)
ESOP transactions, net                                                                        1.5
Employee stock benefit trust market value
 adjustment                                                       36.5
- -------------------------------------------------------------------------------------------------
Fiscal year ended 2002                          $  124.1    $    740.2   $  1,664.8   $     (12.2)
=================================================================================================


                                                                           Accumulated
                                                                                 other
(Dollars in millions)                             Employee    Treasury   comprehensive
                                              stock trusts       stock   income (loss)      Total
- -------------------------------------------------------------------------------------------------
                                                                          
Fiscal year ended 1999                        $   (1,014.0)  $  (481.3)  $    (52.9)  $     809.9
Comprehensive income:
   Net income                                                                               283.5
   Foreign currency translation adjustment                                    (52.5)        (52.5)
                                                                                      -----------
     Total comprehensive income                                                             231.0
 Repurchase of 2.4 million shares for                                                      (134.4)
 treasury                                                       (134.4)
 Stock issued under option plans, net of
  $36.3 of tax and dividends paid on stock
  held in stock trusts                                72.7                                   43.8
Dividends: $1.11 per share                                                                 (123.7)
ESOP transactions, net                                                                        1.5
Employee stock benefit trust market value
 adjustment                                          241.4                                      -
- -------------------------------------------------------------------------------------------------
Fiscal year ended 2000                              (699.9)     (615.7)       (105.4)       828.1
Comprehensive income:
   Net income                                                                               243.2
   Other comprehensive loss:
     Foreign currency translation adjustment                               (17.7)           (17.7)
     Minimum pension liability adjustment                                  (14.3)           (14.3)
     Effective portion of gains or losses
      on cash flow hedges                                                    1.0              1.0
                                                                         ------------------------
        Other comprehensive loss                                           (31.0)           (31.0)
                                                                                      -----------
           Total comprehensive income                                                       212.2
 Repurchase of .4 million shares for
  treasury, net of shares issued                                 (17.7)                     (17.7)
 Stock issued under option plans, net of
  $22.3 of tax and dividends paid on stock
  held in stock trusts                                40.4                                   40.6
Dividends: $1.23 per share                                                                 (135.4)
ESOP transactions, net                                                                        1.6
Employee stock benefit trust market value
 adjustment                                          (15.0)                                    -
- -------------------------------------------------------------------------------------------------
Fiscal year ended 2001                              (674.5)     (633.4)       (136.4)       929.4
Comprehensive income:
   Net income                                                                               257.2
   Other comprehensive loss:
     Foreign currency translation adjustment                                11.7             11.7
     Minimum pension liability adjustment                                  (53.9)           (53.9)
     Effective portion of gains or losses
      on cash flow hedges                                                  (26.3)           (26.3)
                                                                         ------------------------
        Other comprehensive loss                                           (68.5)           (68.5)
                                                                                   --------------
           Total comprehensive income                                                       188.7
Treasury stock issued of .7 million shares                        46.9                       46.9
 for L&E acquisition
 Repurchase of .2 million shares for                             (10.4)                     (10.4)
  treasury, net of shares issued
Stock issued under option plans,
 net of $26.5 of tax and dividends paid
 on stock held in stock trusts                        52.3                                   48.8
Dividends: $1.35 per share                                                                 (148.5)
ESOP transactions, net                                                                        1.5
Employee stock benefit trust market value
 adjustment                                          (36.5)                                     -
- -------------------------------------------------------------------------------------------------
Fiscal year ended 2002                        $     (658.7)  $  (596.9)  $   (204.9)  $   1,056.4
=================================================================================================


See Notes to Consolidated Financial Statements

                                        5



                           AVERY DENNISON CORPORATION

                                        6



                           AVERY DENNISON CORPORATION

CONSOLIDATED STATEMENT OF CASH FLOWS



(In millions)                                                                                  2002          2001          2000
- --------------------------------------------------------------------------------------------------------------------------------
                                                                                                             
OPERATING ACTIVITIES
Net income                                                                               $    257.2     $   243.2     $   283.5
Adjustments to reconcile net income to net cash provided by operating activities:
   Depreciation                                                                               127.1         124.1         126.0
   Amortization                                                                                25.7          31.9          30.9
   Deferred taxes                                                                              22.2           3.0          11.8
   Asset impairment and net (gain) or loss on sale of assets of $3.2 in 2002 and
    $(20.2) in 2001                                                                            20.7          (0.3)            -
   Changes in assets and liabilities, net of the effect of foreign currency translation,
    business acquisitions and divestitures:
                  Trade accounts receivable                                                   (41.1)          7.8         (37.0)
                  Inventories                                                                 (16.7)          1.9           8.8
                  Other current assets                                                          1.3          (4.4)         (8.4)
                  Accounts payable and accrued liabilities                                    142.9         (58.3)         (4.3)
                  Taxes on income                                                               6.2          27.4           6.5
                  Long-term retirement benefits and other accrued liabilities                 (22.7)          (.8)         (7.9)
- --------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities                                                     522.8         375.5         409.9
- --------------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Purchase of property, plant and equipment                                                    (151.8)       (135.4)       (198.3)
Purchase of software                                                                          (20.1)        (50.3)        (35.0)
Payments for acquisitions                                                                    (397.4)        (63.9)        (75.3)
Proceeds from sale of assets                                                                   10.7          33.7          10.6
Other                                                                                         (16.8)        (52.4)        (17.5)
- --------------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities                                                        (575.4)       (268.3)       (315.5)
- --------------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Additional borrowings                                                                         697.0         364.8         373.8
Payments of debt                                                                             (520.2)       (343.5)       (228.3)
Dividends paid                                                                               (148.5)       (135.4)       (123.7)
Purchase of treasury stock                                                                    (10.4)        (17.9)       (134.4)
Proceeds from exercise of stock options, net                                                   22.1          17.4          19.7
Other                                                                                          17.0          15.5           3.9
- --------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities                                            57.0         (99.1)        (89.0)
- --------------------------------------------------------------------------------------------------------------------------------
Effect of foreign currency translation on cash balances                                        (0.7)          (.4)          (.9)
- --------------------------------------------------------------------------------------------------------------------------------
Increase in cash and cash equivalents                                                           3.7           7.7           4.5
- --------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, beginning of year                                                   19.1          11.4           6.9
- --------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year                                                   $     22.8     $    19.1     $    11.4
================================================================================================================================


See Notes to Consolidated Financial Statements

                                        7



                           AVERY DENNISON CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NATURE OF OPERATIONS
Avery Dennison Corporation (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 segment contributes approximately
60 percent of the Company's total sales while the Consumer and Converted
Products segment contributes approximately 40 percent of the Company's total
sales. Sales are generated primarily in the United States and continental
Europe.

PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of all majority-owned
subsidiaries. All intercompany accounts, transactions and profits are
eliminated. Investments representing less than 20 percent ownership are
accounted for by the cost method of accounting.

FISCAL YEAR
The Company's 2002, 2001 and 2000 fiscal years reflected 52-week periods ending
December 28, 2002, December 29, 2001, and December 30, 2000, respectively.
Normally, 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
Cash and cash equivalents include cash on hand, deposits in banks and short-term
investments, with maturities of three months or less when purchased. The
carrying amounts of these assets approximate fair value due to the short
maturity of the instruments. Cash paid for interest and taxes was as follows:

(In millions)                                   2002         2001         2000
- ------------------------------------------------------------------------------
Interest, net of capitalized amounts        $   44.4     $   50.0     $   54.8
Income taxes, net of refunds                    91.6         95.1        142.8
==============================================================================

In 2002, non-cash activities included the issuance of approximately $47 million
in Avery Dennison common shares for the L&E acquisition and the assumption of
approximately $100 million in debt from the Jackstadt acquisition. Refer to Note
2 "Acquisitions" for further detail. In 2001, non-cash activities included the
receipt of $16.7 million in notes and receivables related to the sale of assets
and the sale of the Company's specialty coatings business.

INVENTORIES

Inventories are stated at the lower of cost or market value. Cost is determined
using methods that approximate both the first-in, first-out (FIFO) and last-in,
first-out (LIFO) methods. Inventories valued using the LIFO method comprised 34
percent and 39 percent of inventories before LIFO adjustment at year end 2002
and 2001, respectively. Inventories at year end were as follows:



(In millions)                                                       2002           2001
- ---------------------------------------------------------------------------------------
                                                                      
Raw materials                                                $     101.9    $      82.9
Work-in-progress                                                    81.5           67.6
Finished goods                                                     176.9          134.6
- ---------------------------------------------------------------------------------------
Inventories at lower of FIFO cost or market (approximates
 replacement cost)                                                 360.3          285.1
Less LIFO adjustment                                               (16.7)         (17.7)
- ---------------------------------------------------------------------------------------
                                                             $     343.6    $     267.4
=======================================================================================


                                        8



                           AVERY DENNISON CORPORATION

NOTE 1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

PROPERTY, PLANT AND EQUIPMENT
Major classes of property, plant and equipment are stated at cost and were as
follows:

(In millions)                                             2002           2001
- -----------------------------------------------------------------------------
Land                                                $     54.9     $     45.7
Buildings and improvements                               537.9          469.4
Machinery and equipment                                1,574.8        1,457.6
Construction-in-progress                                 122.8           84.8
- -----------------------------------------------------------------------------
                                                       2,290.4        2,057.5
Accumulated depreciation                              (1,091.2)        (982.9)
- -----------------------------------------------------------------------------
                                                    $  1,199.2     $  1,074.6
=============================================================================

Depreciation is generally computed using the straight-line method over the
estimated useful lives of the assets ranging from ten to forty-five years for
buildings and improvements and three to fifteen years for machinery and
equipment. 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 net income.

SOFTWARE

The Company capitalizes software costs in accordance with American Institute of
Certified Public Accountants' Statement of Position 98-1, "Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use," and are
included in "Other assets" in the Consolidated Balance Sheet. Capitalized
software is amortized on a straight-line basis over the estimated useful life of
the software, not to exceed ten years. Capitalized software costs were as
follows:

(In millions)                                              2002         2001
- ----------------------------------------------------------------------------
Cost                                                 $    176.4   $    158.0
Accumulated amortization                                  (63.0)       (55.5)
- ----------------------------------------------------------------------------
                                                     $    113.4   $    102.5
============================================================================

GOODWILL AND OTHER INTANGIBLES RESULTING FROM BUSINESS ACQUISITIONS
The Company adopted all provisions of Statement of Financial Accounting
Standards (SFAS) No. 141, "Business Combinations," at the beginning of fiscal
2002. However, because certain provisions of the Statement apply to business
combinations initiated after June 30, 2001, the Company adopted those provisions
as of the beginning of the third quarter of 2001. For business combinations
accounted for using the purchase method before July 1, 2001, the provisions of
the Statement were effective at the beginning of fiscal 2002. All business
combinations are accounted for by the purchase method, and the excess of the
acquisition cost over the fair value of net tangible assets and identified
intangible assets acquired is considered goodwill. As a result, the Company
discloses goodwill separately from other intangible assets and, as of the
beginning of fiscal 2002, recorded no amortization on goodwill. Other
acquisition intangibles are identified using the criteria included in this
Statement, including trademarks and tradenames, patented and other acquired
technology, customer relationships and other intangibles.

The Company adopted SFAS No. 142, "Goodwill and Other Intangible Assets," at the
beginning of fiscal 2002. As required, the Company identified its reporting
units and the amounts of goodwill, other intangible assets, and other assets and
liabilities allocated to those reporting units. This Statement addresses the
accounting and reporting of goodwill and other intangible assets subsequent to
their acquisition. SFAS No. 142 provides that (i) goodwill and indefinite-lived
intangible assets will no longer be amortized, (ii) impairment will be measured
using various valuation techniques based on discounted cash flows, (iii)
goodwill will be tested for impairment at least annually at the reporting unit
level, (iv) intangible assets deemed to have an indefinite life will be tested
for impairment at least annually, and (v) intangible assets with finite lives
will be amortized over their useful lives.

SFAS No. 142 requires that goodwill be tested for impairment upon adoption of
the Statement, as well as annually thereafter. The Company completed its
transitional goodwill impairment test during the first quarter of 2002 and had
no impairment losses. Other intangible assets deemed to have an indefinite life
are tested for impairment by comparing the fair value of the asset to its
carrying amount. The Company does not have other intangible assets with
indefinite lives. See Note 3 "Goodwill and Other Intangibles Resulting from
Business Acquisitions" for more information.

                                        9



                           AVERY DENNISON CORPORATION

NOTE 1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

FOREIGN CURRENCY TRANSLATION
All asset and liability accounts of international operations are translated into
U.S. dollars at current rates. Revenue, costs and expenses are translated at the
weighted-average currency rate, which prevailed during the fiscal year.
Translation gains and losses of subsidiaries operating in hyperinflationary
economies are included in net income currently. Operations in hyperinflationary
economies consist of the Company's operations in Turkey for 2002, 2001 and 2000.
Gains and losses resulting from foreign currency transactions are included in
income currently, except for gains and losses resulting from hedging the value
of investments in certain international operations and from translation of
financial statements which are recorded directly to a component of other
comprehensive loss.

Transaction and translation losses decreased net income in 2002, 2001 and 2000
by $3.5 million, $2.7 million and $3 million, respectively.

FINANCIAL INSTRUMENTS
The Company enters into foreign exchange forward, option and swap contracts to
reduce its risk from exchange rate fluctuations associated with receivables,
payables, loans and firm commitments denominated in foreign currencies. The
Company also enters into interest rate contracts to manage its exposure to
interest rate fluctuations.

On the date the Company enters into a derivative contract, it determines whether
the derivative will be designated as a hedge. Those derivatives not designated
as hedges are recorded on the balance sheet at fair value, with changes in the
fair value recognized currently in earnings. Those derivatives designated as
hedges are classified as either (1) a hedge of the fair value of a recognized
asset or liability or an unrecognized firm commitment (a "fair value" hedge); or
(2) a hedge of a forecasted transaction or the variability of cash flows that
are to be received or paid in connection with a recognized asset or liability (a
"cash flow" hedge). The Company generally does not hold or purchase any foreign
currency or interest rate contracts for trading purposes.

The Company assesses, both at the inception of the hedge and on an ongoing
basis, whether hedges are highly effective. If it is determined that a hedge is
not highly effective, the Company prospectively discontinues hedge accounting.
For cash flow hedges, the effective portion of the related gains and losses is
recorded as a component of other comprehensive loss, and the ineffective portion
is reported currently in earnings. Amounts in accumulated other comprehensive
loss are reclassified into earnings in the same period during which the hedged
forecasted transaction is consummated. In the event the anticipated transaction
is no longer likely to occur, the Company recognizes the change in fair value of
the instrument in earnings currently. Changes in fair value hedges are
recognized currently in earnings. Changes in the fair values of underlying
hedged items (such as unrecognized firm commitments) are also recognized
currently in earnings and offset the changes in the fair value of the
derivative.

REVENUE RECOGNITION
Sales, provisions for estimated sales returns, and the cost of products sold are
recorded at the time title transfers to customers. Actual product returns are
charged against estimated sales return allowances. Volume, promotional, price,
cash and other discounts and customer incentives are accounted for as a
reduction to gross sales.

SHIPPING AND HANDLING COSTS
Shipping and handling costs, which consist primarily of transportation charges
incurred to move finished goods to customers, are included in "Cost of products
sold" for the Pressure-sensitive Adhesives and Materials segment and in
"Marketing, general and administrative expense" for the Consumer and Converted
Products segment. Shipping and handling costs included in "Marketing, general
and administrative expense" were $47.1 million, $32.2 million and $32.9 million
for 2002, 2001 and 2000, respectively.

ADVERTISING COSTS
Advertising costs included in "Marketing, general and administrative expense"
were $8.3 million, $6.1 million and $8.1 million for 2002, 2001 and 2000,
respectively.

RESEARCH AND DEVELOPMENT
Research and development costs are expensed as incurred. Research and
development expense for 2002, 2001 and 2000 was $74.5 million, $69.9 million and
$67.8 million, respectively.

                                       10



                           AVERY DENNISON CORPORATION

NOTE 1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

PRODUCT WARRANTY
The Company provides for an estimate of costs that may be incurred under its
basic limited warranty at the time product revenue is recognized. These costs
primarily include materials and labor associated with the service or sale of the
product. Factors that affect the Company's warranty liability include the number
of units installed or sold, historical and anticipated rate of warranty claims
on those units and cost per claim to satisfy the Company's warranty obligation.
As these factors are impacted by actual experience and future expectations, the
Company assesses the adequacy of its recorded warranty liability and adjusts the
amounts as necessary.

Product warranty liabilities were as follows:

(In millions)                                             2002        2001
- --------------------------------------------------------------------------
Balance at beginning of year                          $    1.3    $    1.3
Accruals for warranties issued                             1.5          .9
Payments                                                  (1.4)        (.9)
- --------------------------------------------------------------------------
Balance at end of year                                $    1.4    $    1.3
==========================================================================

STOCK-BASED COMPENSATION
The Company has a policy whereby all stock option grants are priced at fair
market value on the date of grant. Under the provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation," the Company uses the intrinsic value
method of accounting for stock-based compensation in accordance with Accounting
Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to
Employees." Under the intrinsic value method, compensation cost is the excess,
if any, of the quoted market price of the stock at the grant date or other
measurement date over the amount an employee must pay to acquire the stock.

In accordance with the disclosure provisions of SFAS No. 148, "Accounting for
Stock-Based Compensation - Transition and Disclosures," the following table
reflects pro forma net income and earnings per share had the Company elected to
adopt the fair value approach of SFAS No. 123:



(In millions, except per share amounts)                   2002       2001        2000
- -------------------------------------------------------------------------------------
                                                                   
Net income, as reported                               $  257.2   $  243.2   $   283.5
Compensation expense, net of tax                         (16.5)     (12.6)      (12.4)
- -------------------------------------------------------------------------------------
Pro forma net income                                  $  240.7   $  230.6   $   271.1
- -------------------------------------------------------------------------------------
Earnings per share, as reported                       $   2.61   $   2.49   $    2.88
Earnings per share, assuming dilution, as reported        2.59       2.47        2.84
- -------------------------------------------------------------------------------------
Pro forma earnings per share                          $   2.44   $   2.36   $    2.75
Pro forma earnings per share, assuming dilution           2.42       2.34        2.72
=====================================================================================


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 related to
remediation and 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.

INVESTMENT TAX CREDITS
Investment tax credits are accounted for in the period earned in accordance with
the flow-through method.

                                       11



                           AVERY DENNISON CORPORATION

NOTE 1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

NET INCOME PER SHARE
Net income per common share amounts were computed as follows:



(In millions, except per share amounts)                             2002         2001       2000
- -------------------------------------------------------------------------------------------------
                                                                               
(A)  Net income available to common shareholders               $   257.2    $   243.2   $   283.5
- -------------------------------------------------------------------------------------------------
(B)  Weighted-average number of common shares outstanding           98.5         97.8        98.3
     Additional common shares issuable under employee stock
      options using the treasury stock method                         .9           .8         1.5
- -------------------------------------------------------------------------------------------------
(C)  Weighted-average number of common shares
      outstanding assuming the exercise of stock options            99.4         98.6        99.8
=================================================================================================

Net income per common share (A) / (B)                          $    2.61    $    2.49   $    2.88
Net income per common share, assuming dilution (A) / (C)            2.59         2.47        2.84
=================================================================================================


Certain employee stock options were not included in the computation of net
income per common share, assuming dilution, because these options would not have
had a dilutive effect. The number of antidilutive stock options (which are
options that have exercise prices greater than the average market price for the
period) excluded from the computation were .2 million, 1.8 million and 1 million
for the years ended December 28, 2002, December 29, 2001 and December 30, 2000,
respectively.

COMPREHENSIVE INCOME
Comprehensive income for the Company includes net income, foreign currency
translation adjustments, adjustments to the minimum pension liability and the
effective portion of gains or losses on cash flow hedges which are currently
presented as a component of shareholders' equity.

The components of accumulated other comprehensive loss at year end were as
follows:



(In millions)                                                                          2002         2001
- --------------------------------------------------------------------------------------------------------
                                                                                        
Foreign currency translation adjustment                                           $  (111.4)  $   (123.1)
Minimum pension liability                                                             (68.2)       (14.3)
Net (loss) gain on derivative instruments designated as cash flow instruments         (25.3)         1.0
- --------------------------------------------------------------------------------------------------------
Total accumulated other comprehensive loss                                        $  (204.9)  $   (136.4)
========================================================================================================


Cash flow hedging instrument activity in other comprehensive income (loss) was
as follows:

(In millions)                                               2002          2001
- ------------------------------------------------------------------------------
Beginning accumulated derivative gain                    $   1.0             -
Net gain reclassified to earnings                            (.6)    $     (.6)
Net change in the revaluation of hedging transactions      (25.7)          1.6
- ------------------------------------------------------------------------------
Ending accumulated derivative (loss) gain                $ (25.3)    $     1.0
==============================================================================

The Company entered into a forward starting interest rate swap in May 2002 to
secure the interest rate on the Company's anticipated long-term debt issuance.
The principal amount hedged was $250 million. Because of a shift in interest
rates, an unrealized loss of approximately $37.4 million ($26.2 million, net of
tax) was included in other comprehensive loss during 2002. In connection with
the issuance of the $250 million 10-year Senior Notes in January 2003 (see Note
4 "Debt" for further detail), the Company settled the interest rate swap at a
loss of approximately $32.5 million. The loss will be amortized to interest
expense over 10 years, which corresponds to the term of the related debt.

                                       12



                           AVERY DENNISON CORPORATION

NOTE 1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

RECENT ACCOUNTING REQUIREMENTS

In January 2003, the Financial Accounting Standards Board (FASB) issued
Interpretation No. 46, "Consolidation of Variable Interest Entities - an
Interpretation of ARB No. 51." The Interpretation clarifies the application of
Accounting Research Bulletin No. 51, "Consolidated Financial Statements," to
certain entities in which equity investors do not have the characteristics of a
controlling financial interest or do not have sufficient equity at risk for the
entity to finance its activities without additional subordinated financial
support from other parties. The provisions of this Interpretation are effective
for all enterprises with variable interests in variable interest entities
created after January 31, 2003. The adoption of this Interpretation is not
expected to have a significant impact on the Company's financial results.

In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure." This Statement amends SFAS No. 123,
"Accounting for Stock-Based Compensation," to provide alternative methods of
transition for an entity that voluntarily changes to the fair value-based method
of accounting for stock-based employee compensation. It also amends the
disclosure provisions of that Statement to require prominent disclosure about
the effects on reported net income of an entity's accounting policy decisions
with respect to stock-based employee compensation. Finally, this Statement
amends APB Opinion No. 28, "Interim Financial Reporting," to require disclosure
about those effects in interim financial information. The provisions of this
Statement are effective for financial statements of interim or annual periods
ending after December 15, 2002. The Company has continued to use the intrinsic
value method of accounting for stock-based compensation in 2002 in accordance
with APB Opinion No. 25. The Company, however, has adopted the disclosure
provisions of SFAS No. 148 as presented in "Stock Based Compensation" in this
Note.

In November 2002, the FASB issued Interpretation No. 45, "Guarantor's Accounting
and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others." This Interpretation clarifies the requirements for a
guarantor's accounting for and disclosures of certain guarantees issued and
outstanding. This Interpretation also clarifies the requirements related to the
recognition of a liability by a guarantor at the inception of a guarantee for
the obligations the guarantor has undertaken in issuing that guarantee. The
disclosure provisions of the Interpretation are effective for financial
statements of interim or annual periods ending after December 15, 2002. The
Company has adopted the disclosure provisions of this Interpretation as
disclosed in Notes 1, 4 and 8 of these consolidated financial statements. The
initial recognition and initial measurement provisions of this Interpretation
are applicable on a prospective basis to guarantees issued or modified after
December 31, 2002. The Company is currently in the process of determining the
impact of this Interpretation on the Company's financial results for those
provisions effective in 2003.

In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities." This Statement addresses financial accounting
and reporting for costs associated with exit or disposal activities and
nullifies EITF Issue No. 94-3, "Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (including Certain
Costs Incurred in a Restructuring)." Under EITF Issue No. 94-3, a liability for
an exit cost is recognized at the date an entity commits to an exit plan. SFAS
No. 146 eliminates the definition and requirements for recognition of exit costs
in EITF Issue No. 94-3 and requires that a liability for a cost associated with
an exit or disposal activity be recognized when the liability is incurred. This
Statement also establishes that fair value is the objective for initial
measurement of the liability. The provisions of this Statement will be effective
after December 31, 2002. The adoption of SFAS No. 146 will affect the timing of
the recognition of future costs associated with exit or disposal activities and
will not affect previous charges related to such activities.

In May 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No. 4,
44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections." This
Statement rescinds SFAS No. 4, "Reporting Gains and Losses from Extinguishment
of Debt," and an amendment of that Statement, SFAS No. 64, "Extinguishments of
Debt Made to Satisfy Sinking-Fund Requirements." This Statement amends SFAS No.
13, "Accounting for Leases," to eliminate an inconsistency between the required
accounting for sale-leaseback transactions and the required accounting for
certain lease modifications that have economic effects that are similar to
sale-leaseback transactions. This Statement also amends other existing
authoritative pronouncements to make various technical corrections, clarify
meanings, or describe their applicability under changed conditions. The
provisions of this Statement related to the rescission of SFAS No. 4 are
effective beginning in 2003. All other provisions were effective May 16, 2002.
The provisions adopted, effective May 16, 2002, did not have a significant
impact on the Company's financial results. The adoption of this Statement for
those provisions effective in 2003 is not expected to have a significant impact
on the Company's financial results.

                                       13



                           AVERY DENNISON CORPORATION

NOTE 1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets." This Statement was effective for the Company on
December 30, 2001, and supersedes SFAS No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," and amends
APB Opinion No. 30, "Reporting the Results of Operations - Reporting the Effects
of Disposal of a Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions." This Statement requires that
long-lived assets that are to be disposed of by sale be measured at the lower of
book value or fair value less costs to sell. SFAS No. 144 retains the
fundamental provisions of SFAS No. 121 for (a) recognition and measurement of
the impairment of long-lived assets to be held and used, and (b) measurement of
long-lived assets to be disposed of by sale. This Statement also retains APB
Opinion No. 30's requirement that companies report discontinued operations
separately from continuing operations. For the year ended December 28, 2002, the
Company divested operations whose results, including the gain/loss on asset
sales, did not have a significant impact on the income statement and were,
therefore, not reflected as discontinued operations in the Company's
Consolidated Statement of Income.

In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations," which addresses financial accounting and reporting for obligations
associated with the retirement of tangible long-lived assets and the associated
asset retirement costs. This Statement requires that the fair value of a
liability for an asset retirement obligation be recognized in the period in
which it is incurred if a reasonable estimate of fair value can be made. The
associated asset retirement costs are capitalized as part of the carrying amount
of the long-lived asset. All provisions of this Statement will be effective at
the beginning of fiscal 2003. The adoption of this Statement is not expected to
have a significant impact on the Company's financial results.

The Company is currently reviewing the requirements of EITF Issue No. 00-21,
"Accounting for Revenue Arrangements with Multiple Deliverables." EITF Issue No.
00-21 addresses certain aspects of the accounting by a vendor for arrangements
under which it will perform multiple revenue-generating activities.
Specifically, EITF Issue No. 00-21 addresses how to determine whether an
arrangement involving multiple deliverables contains more than one unit of
accounting. The provisions of EITF Issue No. 00-21 will be effective in fiscal
periods beginning after June 15, 2003. The Company is in the process of
determining the impact of EITF Issue No. 00-21 on the Company's financial
results when effective.

RELATED PARTY TRANSACTIONS
From time to time, the Company enters into transactions in the normal course of
business with related parties. The Company believes that such transactions are
at arm's-length and for terms that would have been obtained from unaffiliated
third parties. One of the Company's directors, Mr. Peter W. Mullin, is the
chairman and chief executive officer and a director of MC Insurance Services,
Inc. ("MC"), Mullin Insurance Services, Inc. ("MINC") and PWM Insurance
Services, Inc. ("PWM"), executive compensation and benefit consultants and
insurance agents. Mr. Mullin is also the majority stockholder of MC, MINC and
PWM. During 2002 and 2001, the Company paid insurance companies premiums for
life insurance placed by MC, MINC and PWM in connection with various Company
employee benefit plans. In 2002, 2001 and 2000, MC, MINC and PWM earned
commissions from such insurance companies in aggregate amounts of approximately
$1.3 million, $1.7 million, and $1.6 million, respectively, for the placement
and renewal of this insurance. Mr. Mullin had direct and indirect interests
related to these commissions of approximately $.9 million in 2002 and $1 million
in each of the years 2001 and 2000. The majority of these commissions were
allocated to and used by MCP Insurance Services, LLC (an affiliate of MC), and
another affiliate, to administer benefit plans and provide benefit statements to
participants under various Company employee benefit plans. None of these
transactions are significant to the financial position or results of operations
of the Company.

FINANCIAL PRESENTATION
Certain prior year amounts have been reclassified to conform with the 2002
financial statement presentation.

NOTE 2.  ACQUISITIONS

On November 5, 2002, the Company acquired 100 percent of RVL Packaging, Inc.
("RVL"), a provider of brand identification products to apparel manufacturers
and retailers. RVL designs, markets and distributes woven and printed labels,
graphic tags and specialty packaging products. On the same day, the Company also
acquired the assets of L&E Packaging ("L&E"), one of RVL's suppliers. L&E offers
a broad range of printing products tailored to the specific needs of the apparel
and retail industries. Both transactions included the acquisition of certain
related entities. The combination of existing data management and ticketing
businesses with the operations of RVL and L&E is expected to provide apparel
manufacturers and retailers with a comprehensive range of products and services
that offer a total solution for their entire supply chain, including a full
array of brand identification and data management tools. On a combined basis,
unaudited revenues for RVL, L&E and affiliated companies were approximately $175
million in 2001. The RVL and L&E operations are included in the Company's
Consumer and Converted Products segment. RVL and L&E's results of operations
have been included in the Company's consolidated financial statements as of the
acquisition date.

                                       14



                           AVERY DENNISON CORPORATION

NOTE 2.  ACQUISITIONS (Continued)

The purchase price, net of cash acquired, for these transactions was
approximately $222 million, including cash of approximately $175 million and
approximately $47 million in Avery Dennison common shares (743,108). The value
of these common shares issued was determined based on the average closing market
price of the Company's common shares for a three-day period before and after the
date the parties agreed to the number of shares to be issued. Funds to complete
the acquisitions were also derived from short-term borrowings. The Company
assumed liabilities of approximately $38 million, including accounts payable and
other current and long-term liabilities.

The preliminary allocation of the purchase price as of December 28, 2002 has
been made and recorded in these financial statements. Although the Company has
obtained third-party valuations of acquired assets, ongoing assessments may
impact the allocation of the purchase price.

The following table summarizes the preliminary estimated fair values of the
assets acquired and liabilities assumed at the date of the acquisition:

(In millions)                                            November 5, 2002
- -------------------------------------------------------------------------
Current assets, net of cash acquired                     $           41.2
Property, plant, and equipment and other assets                      28.8
Intangible assets                                                    19.9
Goodwill                                                            169.8
- -------------------------------------------------------------------------
  Total assets acquired                                             259.7
Current liabilities                                                 (30.2)
Other long-term liabilities                                          (8.0)
- -------------------------------------------------------------------------
  Total liabilities assumed                                         (38.2)
- -------------------------------------------------------------------------
Net assets acquired                                      $          221.5
=========================================================================

The excess of the cost-basis over the fair value of net tangible assets acquired
is currently estimated to be approximately $190 million, including goodwill of
approximately $170 million and identified amortizable intangible assets of
approximately $20 million. Of the total goodwill, approximately $54 million is
expected to be deductible for tax purposes. The acquired intangible assets have
a weighted-average useful life of sixteen years. These assets include
approximately $16 million for customer relationships (nineteen-year
weighted-average useful life), approximately $2 million for design intellectual
property (three-year weighted-average useful life), and approximately $2 million
of other intangibles (six-year weighted-average useful life). Additionally,
approximately $2 million of computer software (three-year weighted-average
useful life) is included in "Other assets" in the Consolidated Balance Sheet.

On May 17, 2002, the Company acquired Jackstadt GmbH ("Jackstadt"), a
manufacturer of pressure-sensitive adhesive materials based in Germany.
Jackstadt has an international customer base and had consolidated revenues of
approximately $400 million in 2001. The Jackstadt business is included in the
Company's Pressure-sensitive Adhesives and Materials segment. Jackstadt
complements the Company's operations in Europe, Latin America, Asia and North
America. Jackstadt enhances the Company's international presence, including its
capability to grow in Eastern Europe, and enables it to offer a broader
selection of products and services.

The purchase price, net of cash acquired, was approximately $311 million, which
included approximately $211 million in cash and assumed debt of approximately
$100 million. The purchase price paid at closing was based on financial
statement values at a date prior to closing and adjusted based upon a formula in
the purchase agreement. The Company assumed liabilities of approximately $189
million, including the assumed debt, accrued payroll and benefits, accounts
payable, other accrued liabilities, long-term retirement benefits and other
current and long-term liabilities. The Company funded the transaction with cash
and short-term commercial paper. Jackstadt's results of operations have been
included in the Company's consolidated financial statements as of the
acquisition date.

The preliminary allocation of the purchase price as of December 28, 2002 has
been made and recorded in these financial statements. The Company is currently
reviewing its plans with regard to facilities rationalization that may require
adjustments to estimated amounts recorded for closure of certain facilities and
carrying values of acquired assets. Although the Company has obtained
third-party valuations of acquired assets, ongoing assessments may impact the
allocation of the purchase price.

The Company has determined certain costs related to exit activities and
integration costs. These costs have been recognized as liabilities assumed,
totaling approximately $18 million, and are included in the liabilities
aforementioned, and in "Accrued payroll and employee benefits" and "Other
accrued liabilities" in the Consolidated Balance Sheet. The costs were primarily
related to severance costs for involuntary terminations of approximately 500
employees of Jackstadt, to be paid through 2004. Also included are lease exit
costs, which are expected to be completed through 2003. At year end 2002,
approximately $12 million remained accrued. Of the total positions under these
actions, approximately 225 employees had left the Company at the end of 2002.

                                       15



                           AVERY DENNISON CORPORATION

NOTE 2.  ACQUISITIONS (Continued)

The following table summarizes the preliminary estimated fair values of the
assets acquired and liabilities assumed at the date of the acquisition:

(In millions)                                           May 17, 2002
- --------------------------------------------------------------------
Current assets, net of cash acquired                    $      155.7
Property, plant, and equipment and other assets                 92.6
Intangible assets                                               11.4
Goodwill                                                       140.7
- --------------------------------------------------------------------
  Total assets acquired                                        400.4
Current liabilities                                           (166.5)
Long-term debt and other long-term liabilities                 (22.6)
- --------------------------------------------------------------------
  Total liabilities assumed                                   (189.1)
- --------------------------------------------------------------------
Net assets acquired                                     $      211.3
====================================================================

The excess of the cost-basis over the fair value of net tangible assets acquired
is currently estimated to be approximately $152 million, including goodwill of
approximately $141 million and identified amortizable intangible assets of
approximately $11 million. No portion of the total goodwill is expected to be
deductible for tax purposes. The acquired intangible assets consisting of
tradenames have a weighted-average useful life of five years.

In the first quarter of 2001, the Company acquired Dunsirn Industries, Inc.
("Dunsirn"). Dunsirn is a supplier of non-adhesive materials to the narrow-web
printing industry, as well as a provider of customized slitting and distribution
services for roll pressure-sensitive materials manufacturers. Customized
slitting and distribution services refers to the process of cutting bulk rolls
of material into sizes requested by customers and then shipping these materials
to customers. The Dunsirn operation is included within the Company's
Pressure-sensitive Adhesives and Materials segment. Sales in 2000 for Dunsirn
were approximately $68 million, including sales to the Company. The excess of
the cost-basis over the fair value of net tangible assets acquired was $30.8
million, which included identified intangible assets of $5.5 million.

In the first quarter of 2001, the Company acquired CD Stomper, a product line
consisting of CD and DVD labels, software and a label applicator, from Stomp
Inc., a software developer and manufacturer based in California. Sales in 2000
for the CD Stomper product line were approximately $20 million. The CD Stomper
product line is included in the Company's Consumer and Converted Products
segment. The excess of the cost-basis over the fair value of net tangible assets
acquired was $22.6 million, which included identified intangible assets of $9.7
million.

In the first quarter of 2000, the Company acquired the Adespan
pressure-sensitive materials operation of Panini S.p.A., a European printing and
publishing company based in Italy. Adespan had sales of approximately $75
million in 1999. The Adespan business operates as a division within the
Company's Pressure-sensitive Adhesives and Materials segment. The excess of the
cost-basis over the fair value of net tangible assets acquired was $25.4
million, which included identified intangible assets of $12.4 million.

The aggregate cost of acquired companies was approximately $546 million, $66
million and $76 million in 2002, 2001 and 2000, respectively. Goodwill resulting
from these business acquisitions was approximately $326 million, $34 million and
$13 million in 2002, 2001 and 2000, respectively. Intangibles resulting from
these business acquisitions were approximately $31 million, $15 million and $12
million in 2002, 2001 and 2000, respectively. Other acquisitions during 2002,
2001 and 2000 not described above were not significant to the consolidated
position of the Company. In 2002, 2001 and 2000, acquired businesses added
approximately seven percent, two percent and three percent, respectively, to the
Company's total sales. Pro forma results for significant acquisitions in 2002
are presented below. Pro forma results for acquisitions in 2001 and 2000 are not
presented, as the acquired businesses did not have a significant impact on the
Company's results of operations for the two years ended December 29, 2001.

The following represents the unaudited pro forma results of operations for the
Company as though the acquisitions of Jackstadt, RVL and L&E had occurred at the
beginning of the periods presented. The pro forma results include interest
expense on additional debt that would have been needed to finance the purchase,
amortization of intangibles that would have been acquired, and certain
adjustments that would have been required to conform to the Company's accounting
policies. The pro forma results of operations have been prepared based on the
preliminary allocation of the purchase price and may require adjustment in
accordance with the terms of the purchase agreement or as a result of the
finalization of the purchase price allocation. This pro forma information is for
comparison purposes only, and is not necessarily indicative of the results that
would have occurred had the acquisitions been completed at the beginning of the
periods presented, nor is it necessarily indicative of future results.

                                       16



                           AVERY DENNISON CORPORATION

NOTE 2.  ACQUISITIONS (Continued)

(In millions, except per share amounts)         2002              2001
- ----------------------------------------------------------------------
Net sales                                 $  4,590.0     $     4,387.3
- ----------------------------------------------------------------------
Net income                                $    260.4     $       232.1
- ----------------------------------------------------------------------
Net income per common share               $     2.64     $        2.36
Net income per common share, assuming
 dilution                                       2.62              2.34
- ----------------------------------------------------------------------

NOTE 3. GOODWILL AND OTHER INTANGIBLES RESULTING FROM BUSINESS ACQUISITIONS

Changes in the net carrying amount of goodwill for the year ended December 28,
2002, by reportable segment, are as follows:



                                                              Pressure-sensitive
                                               Consumer and        Adhesives and
(In millions)                            Converted Products            Materials        Total
- ---------------------------------------------------------------------------------------------
                                                                            
Balance as of December 29, 2001          $           148.9    $            144.3     $  293.2
   Goodwill acquired during the period               176.2                 150.3        326.5
   Translation adjustments                            11.3                  (2.3)         9.0
- ---------------------------------------------------------------------------------------------
Balance as of December 28, 2002          $           336.4    $            292.3     $  628.7
- ---------------------------------------------------------------------------------------------


Amortization expense on goodwill was $14.8 million and $13.2 million for the
years ended December 29, 2001 and December 30, 2000, respectively.

The following table sets forth the Company's acquired other intangible assets at
December 28, 2002 and December 29, 2001, which will continue to be amortized:



                                                                  2002                                      2001
- --------------------------------------------------------------------------------------    --------------------------------------
                                                    Gross                          Net         Gross                         Net
                                                 Carrying     Accumulated     Carrying      Carrying     Accumulated    Carrying
(In millions)                                      Amount    Amortization       Amount        Amount    Amortization      Amount
- --------------------------------------------------------------------------------------------------------------------------------
                                                                                                      
Amortizable other intangible assets:
   Tradenames and trademarks                     $   36.6    $       11.4    $    25.2    $     23.4    $        6.8    $   16.6
   Patented and other acquired technology            65.4             9.2         56.2          63.6             5.8        57.8
   Customer relationships                            70.1             6.1         64.0          47.6             3.6        44.0
   Other intangibles                                  4.0             1.5          2.5           2.3              .7         1.6
- --------------------------------------------------------------------------------------------------------------------------------
Total                                            $  176.1    $       28.2    $   147.9    $    136.9    $       16.9    $  120.0
- --------------------------------------------------------------------------------------------------------------------------------


Amortization expense on intangible assets resulting from business acquisitions
was $9.7 million for the year ended December 28, 2002, $7.3 million for the year
ended December 29, 2001 and $6.3 million for the year ended December 30, 2000.
The weighted-average amortization periods for intangible assets resulting from
business acquisitions are thirteen years for tradenames and trademarks, nineteen
years for patented and other acquired technology, twenty-two years for customer
relationships, seven years for other intangibles and nineteen years in total.
Based on current information, estimated amortization expense for such acquired
intangible assets for each of the next five succeeding fiscal years is expected
to be approximately $12 million, $12 million, $12 million, $11 million and $8
million, respectively.

                                       17



                           AVERY DENNISON CORPORATION

NOTE 3. GOODWILL AND OTHER INTANGIBLES RESULTING FROM BUSINESS ACQUISITIONS
        (CONTINUED)

As required by SFAS No. 142, the results for the prior years have not been
restated. Had the Company applied the non-amortization provisions related to
goodwill under SFAS No. 142 for all periods presented, the Company's net income
and earnings per share would have been as follows:

(In millions, except per share amounts)         2002          2001         2000
- -------------------------------------------------------------------------------
Reported net income                        $    257.2   $    243.2   $    283.5
Goodwill amortization, net of tax                   -         13.8         12.9
- -------------------------------------------------------------------------------
Adjusted net income                        $    257.2   $    257.0   $    296.4
- -------------------------------------------------------------------------------
Basic earnings per share:
    As reported                            $     2.61   $     2.49   $     2.88
    Goodwill amortization                           -          .14          .13
- -------------------------------------------------------------------------------
Adjusted basic earnings per share          $     2.61   $     2.63   $     3.01
- -------------------------------------------------------------------------------
Diluted earnings per share:
    As reported                            $     2.59   $     2.47   $     2.84
    Goodwill amortization                           -          .14          .13
- -------------------------------------------------------------------------------
Adjusted diluted earnings per share        $     2.59   $     2.61   $     2.97
- -------------------------------------------------------------------------------

NOTE 4.  DEBT

Long-term debt and its respective weighted-average interest rates at December
28, 2002 consisted of the following:



(In millions)                                                                        2002         2001
- ------------------------------------------------------------------------------------------------------
                                                                                       
Medium-term notes
  Series 1993 at 6.6% - due 2003 through 2005                                 $      98.0    $    98.0
  Series 1994 at 7.7% - due 2003 through 2004                                        80.0        100.0
  Series 1995 at 7.3% - due 2005 through 2025                                       100.0        100.0
  Series 1997 at 6.6% - due 2007                                                     60.0         60.0
  Series 1998 at 5.9% - due 2008                                                     50.0         50.0
  Series 2000 at 2.0% - due 2006                                                        -         40.0
Other long-term borrowings                                                           13.5          4.1
Variable rate short-term borrowings at 1.87% to be refinanced on a long-term        512.2        195.0
 basis/(1)/
Less amount classified as current                                                   (76.5)       (20.4)
- ------------------------------------------------------------------------------------------------------
                                                                              $     837.2    $   626.7
- ------------------------------------------------------------------------------------------------------


/(1)/ In January 2003, the Company refinanced $400 million of its
variable rate short-term borrowings through the offering of $250
million of 4.875 percent Senior Notes due 2013 and $150 million of
6 percent Senior Notes due 2033.

The Company's medium-term notes have maturities from 2003 through 2025 and
accrue interest at fixed rates.

Maturities of long-term debt during the years 2003 through 2007 are $76.5
million (classified as current), $86.5 million, $76.1 million, $112.6 million
and $60.4 million, respectively, with $501.6 million maturing thereafter.

The Company's total interest costs in 2002, 2001 and 2000 were $47.6 million,
$57.1 million and $59 million, respectively, of which $3.9 million, $6.9 million
and $4.4 million, respectively, were capitalized as part of the cost of assets
constructed for the Company's use.

The Company had $80.5 million of borrowings outstanding under short-term lines
of credit with a weighted-average interest rate of 7.7 percent for 2002.

                                       18



                           AVERY DENNISON CORPORATION

NOTE 4.  DEBT (Continued)

Variable rate short-term borrowings at December 28, 2002 were $512.2 million
with a weighted average interest rate of 1.87 percent. In January 2003, the
Company refinanced $400 million of these variable rate short-term borrowings
through the offering of $250 million of 4.875 percent Senior Notes due 2013 and
$150 million of 6 percent Senior Notes due 2033. The aggregate $400 million
refinancing was issued under the Company's existing shelf registration statement
filed with the Securities and Exchange Commission in the third quarter of 2001,
permitting the Company to issue up to $600 million in debt and equity
securities. After the issuance of the $400 million, there is a remaining $200
million available for general corporate purposes including acquisitions and
capital expenditures, repaying, redeeming or repurchasing existing debt and for
working capital. Remaining variable rate short-term borrowings that the Company
does not intend to repay within the next year and had the ability to refinance
under its long-term revolving credit agreement, discussed above, are classified
as long-term liabilities.

In December 2002, the Company issued $150 million one-year callable commercial
notes at a weighted-average interest rate of 2.5 percent. The issuance replaced
the December 2001 issuance of $150 million of one-year callable commercial notes
at a weighted-average interest rate of 2.1 percent.

At December 28, 2002, the Company had additional available short-term lines of
credit totaling $558.1 million. These available lines of credit included a
364-day revolving credit facility with eight domestic and foreign banks to
provide up to $200 million in borrowings through December 5, 2003. The Company
may annually extend the revolving period and due date with the approval of the
banks or may convert the loan to a one-year term loan at the Company's option.
Financing available under this agreement will be used as a commercial paper
back-up facility and to finance other corporate requirements. There was no debt
outstanding under this agreement as of year end 2002. The Company also has a
bridge credit agreement with two domestic financial institutions to provide up
to $200 million in borrowings through January 31, 2003. There was no debt
outstanding under this agreement as of year end 2002.

The Company also has a revolving credit agreement with four domestic banks to
provide up to $250 million in borrowings through July 1, 2006. The Company may
annually extend the revolving period and due date with the approval of the
banks. Financing available under this agreement will be used as a commercial
paper back-up facility and to finance other corporate requirements. There was no
debt outstanding under this agreement as of year end 2002.

The terms of various loan agreements in effect at year end require that the
Company maintain specified ratios on consolidated debt and consolidated interest
expense in relation to certain measures of income. Under the loan agreements,
consolidated debt as a ratio to consolidated earnings before interest, taxes,
depreciation and amortization may not exceed 3.5 to 1.0. The Company's ratio at
year end 2002 was 2.0 to 1.0. Consolidated earnings before interest and taxes,
as a ratio to consolidated interest may not be less than 3.5 to 1.0. The
Company's ratio at year end 2002 was 9.3 to 1.0.

Commitment fees relating to the financing arrangements are not significant. The
debt assumed in connection with the acquisition of Jackstadt is securitized by
the acquired assets. At December 28, 2002, the total Jackstadt debt balance was
approximately $33.2 million.

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 debts of
the same remaining maturities. At year end 2002 and 2001, the fair value of the
Company's total debt, including short-term borrowings, was $1.18 billion and
$857.6 million, respectively.

The Company had standby letters of credit outstanding of $182.7 million and
$217.9 million at the end of 2002 and 2001, respectively. The aggregate contract
amount of all outstanding standby letters of credit approximated fair value.

In addition, the Company had uncommitted lines of credit of approximately $237.4
million at year end 2002. The Company's uncommitted lines of credit do not have
a commitment expiration date, and may be cancelled at any time by the Company or
the banks.

The Company guaranteed $349.3 million of its foreign subsidiaries' lines of
credit and foreign exchange lines, as well as $15.9 million of its foreign
subsidiaries' certain obligations to their suppliers as of December 28, 2002.

In the first quarter of 1999, the Company recorded an obligation associated with
the transaction with Steinbeis Holding GmbH, which combined substantially all of
the Company's office products businesses in Europe with Zweckform Buro-Produkte
GmbH, a German office products supplier. The obligation of $84.5 million is the
only amount reported in the "Other long-term obligation" line in the
Consolidated Balance Sheet. The obligation is guaranteed by a standby letter of
credit and it is the intention of the Company to pay the entire obligation in
early 2004.

                                       19



                           AVERY DENNISON CORPORATION

NOTE 5.  FINANCIAL INSTRUMENTS

The Company adopted SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities," as amended, in the first quarter of 2001 and recorded a
transition adjustment reducing net income by $.2 million (net of tax). This
Statement requires that all derivative instruments be recorded on the balance
sheet at their fair value.

For purposes of this footnote, the terms "cash flow hedge," "derivative
instrument," "fair value," "fair value hedge," "financial instrument," "firm
commitment," and "highly effective" are used as these terms are defined in SFAS
No. 133, as amended.

During the year ended December 28, 2002, the ineffectiveness related to cash
flow hedges was not significant. The reclassification from other comprehensive
loss to earnings was a net gain of approximately $.6 million during 2002 and
2001. A net loss of approximately $1.1 million is expected to be reclassified
from other comprehensive loss to earnings within the next 12 months. The maximum
length of time in which the Company hedges its exposure to the variability in
future cash flows for forecasted foreign currency transactions is generally 12
months. The Company entered into a forward starting interest rate swap in May
2002 to secure the interest rate on the Company's anticipated long-term debt
issuance to finance the acquisition of Jackstadt. The principal amount hedged
was $250 million. Because of a shift in interest rates, an unrealized loss of
approximately $37.4 million was included in other comprehensive loss at the end
of 2002. In connection with the issuance of the $250 million 10-year Senior
Notes in January 2003, the Company settled the interest rate swap at a loss of
approximately $32.5 million. The loss will be amortized to interest expense over
10 years, which corresponds to the term of the related debt.

A loss of approximately $2.7 million related to a net investment hedge was
included in the foreign currency translation adjustment reported in accumulated
other comprehensive loss.

The carrying value of the foreign exchange forward contracts approximated the
fair value, which, based on quoted market prices of comparable instruments, was
a net asset of approximately $.5 million and $1 million at the end of 2002 and
2001, respectively.

The carrying value of the foreign exchange option contracts, based on quoted
market prices of comparable instruments, was a net asset of approximately $.1
million and net liability of approximately $.1 million at the end of 2002 and
2001, respectively. The carrying value of the foreign exchange option contracts
approximated the fair market value.

During 1998, the Company entered into a swap contract to hedge foreign currency
commitments of approximately $9 million over a five-year period. The carrying
value of this contract approximated fair value, which was an asset of
approximately $.5 million and $.4 million at the end of 2002 and 2001,
respectively.

The counterparties to foreign exchange forward, option and swap contracts
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 any such
losses.

At year end 2002 and 2001, approximately 17 percent and 23 percent,
respectively, of trade accounts receivable were from nine retail customers of
the Company's Office Products business. The Company does not require its
customers to provide collateral, but the financial position and operations of
these customers are monitored on an ongoing basis. The Company may be exposed to
losses and maintains reserves in the event of nonpayment.

NOTE 6.  COMMITMENTS

Minimum annual rental commitments on operating leases having initial or
remaining noncancellable lease terms in excess of one year are as follows:

(In millions)
- -------------------------------------------------------
Year
- -------------------------------------------------------
2003                                          $    41.0
2004                                               32.8
2005                                               25.1
2006                                               15.6
2007                                               12.1
Thereafter                                         45.6
- -------------------------------------------------------
Total minimum lease payments                  $   172.2
=======================================================

                                       20



                           AVERY DENNISON CORPORATION

Operating leases relate primarily to office and warehouse space, electronic data
processing and transportation equipment. The terms of these leases do not impose
any significant restrictions or unusual obligations. There are no significant
capital leases.

Rent expense for 2002, 2001 and 2000 was $60 million, $50 million and $49
million, respectively.

NOTE 7.  TAXES BASED ON INCOME

Taxes based on income were as follows:

(In millions)                                    2002          2001         2000
- --------------------------------------------------------------------------------
Current:
  U.S. federal tax                          $    43.0     $    47.5    $    68.6
  State taxes                                     3.3           7.5         12.3
  International taxes                            39.1          45.5         50.6
- --------------------------------------------------------------------------------
                                                 85.4         100.5        131.5
================================================================================
Deferred:
  U.S. taxes                                     11.0           8.5          8.4
  International taxes                            11.2           7.4          2.9
- --------------------------------------------------------------------------------
                                                 22.2          15.9         11.3
- --------------------------------------------------------------------------------
Taxes on income                             $   107.6     $   116.4    $   142.8
================================================================================

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)                                             2002         2001        2000
- ---------------------------------------------------------------------------------------
                                                                     
Computed tax at 35% of income before taxes           $   127.7   $   125.9    $   149.2
Increase (decrease) in taxes resulting from:
  State taxes, net of federal tax benefit                  3.8         4.9          8.0
  Foreign earnings taxed at different rates              (12.1)       (9.1)        (9.7)
  Tax credits                                             (6.9)       (5.6)        (4.2)
  Other items, net                                        (4.9)         .3          (.5)
- ---------------------------------------------------------------------------------------
Taxes on income                                      $   107.6   $   116.4    $   142.8
=======================================================================================


Consolidated income before taxes for U.S. and international operations was as
follows:

(In millions)                                    2002          2001        2000
- -------------------------------------------------------------------------------
U.S.                                        $   194.4    $   182.8    $   245.5
International                                   170.4        177.0        180.8
- -------------------------------------------------------------------------------
                                            $   364.8    $   359.8    $   426.3
===============================================================================

U.S. income taxes have not been provided on undistributed earnings of
international subsidiaries of approximately $800 million and $700 million at
year ended 2002 and 2001, respectively, 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 of foreign subsidiaries for 2002 and 2001 are $58.4
million and $25 million, respectively, and credit carryforwards are $6.2 million
for federal income tax purposes. Net operating losses of $9.3 million expire
from 2003 through 2012, while net operating losses of $49.1 million can be
carried forward indefinitely. The credit carryforwards will expire from 2003
through 2007. The Company has established a valuation allowance for the net
operating loss carryforwards not expected to be utilized.

                                       21



                           AVERY DENNISON CORPORATION

NOTE 7.  TAXES BASED ON INCOME (CONTINUED)

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)                                                    2002      2001
- -------------------------------------------------------------------------------
Accrued expenses not currently deductible                   $    33.2  $   86.7
Net operating losses and foreign tax credit carryforwards        24.9      13.1
Postretirement and postemployment benefits                       46.2      14.1
Pension costs                                                   (13.3)    (18.7)
Depreciation and amortization                                  (136.7)   (127.6)
Inventory reserves                                               11.1      14.0
Other                                                             3.9      (2.0)
Valuation allowance                                             (17.6)     (4.4)
- -------------------------------------------------------------------------------
Total net deferred tax liabilities                           $  (48.3) $  (24.8)
===============================================================================

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 eight 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. 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.
Amounts currently accrued are not significant to the consolidated financial
position of the Company, and based upon current information, management believes
that it is unlikely that final resolution of these matters will significantly
impact the consolidated financial position and operations of the Company.

The Company participates in an international receivable financing program with a
financial institution whereby advances may be requested from the financial
institution. All advances are guaranteed by the Company. At December 28, 2002,
the Company had guaranteed $1.8 million.

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.  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 (none outstanding), with respect to which the Board of
Directors may fix the series and terms of issuance, and 400 million shares of $1
par value voting common stock.

In December 1997, the Company redeemed the outstanding preferred stock purchase
rights and issued new 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 $150.00 per one one-hundredth of a share until October 31,
2007. 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 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's common stock with a market value equal to twice the exercise price
of the right. The rights

                                       22



                           AVERY DENNISON CORPORATION

NOTE 9.  SHAREHOLDERS' EQUITY (CONTINUED)

may be redeemed by the Company at a price of one 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 40.4
million shares of the Company's outstanding common stock. The acquired shares
may be reissued under the Company's stock option and incentive plans or used for
other corporate purposes. At year end 2002, approximately 3.2 million shares
were still available for repurchase pursuant to this authorization.

STOCK OPTION AND INCENTIVE PLANS
The Board of Directors previously authorized the issuance of up to 18 million
shares to be used for the issuance of stock options and the funding of other
Company obligations arising from various employee benefit plans. The remaining
shares available are held in the Company's Employee Stock Benefit Trust (ESBT).
The ESBT common stock 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 employees may be issued at
prices no less than par value. The Company has a policy whereby all stock option
grants are priced at fair market value on the date of the grant and generally
vest ratably over a two-year period for directors, or over a four-year period
for employees, except that options may cliff-vest over a 3 to 9.75 year period
for certain officers based on the Company's performance. Unexercised options
expire ten years from the date of grant. The following table sets forth stock
option information relative to these plans (options in thousands):



                                                   2002                          2001                            2000
                                     ------------------------------  ------------------------------  -----------------------------
                                      Weighted-average       Number   Weighted-average       Number   Weighted-average      Number
                                        exercise price   of options     exercise price   of options     exercise price  of options
- ----------------------------------------------------------------------------------------------------------------------------------
                                                                                                        
Outstanding at beginning of year      $          46.07      6,843.1   $          40.75      6,071.2   $          35.49     7,252.1
Granted                                          62.80      1,384.4              54.72      1,929.6              54.57       744.0
Exercised                                        33.50     (1,050.1)             27.69       (902.0)             22.34    (1,611.6)
Forfeited or expired                             51.88       (235.0)             49.95       (255.7)             46.43      (313.3)
- ----------------------------------------------------------------------------------------------------------------------------------
Outstanding at year end                          51.10      6,942.4              46.07      6,843.1              40.75     6,071.2
Options exercisable at year end       $          41.91      2,939.3   $          36.72      3,079.4   $          30.90     3,095.2
==================================================================================================================================


The following table summarizes information on fixed stock options outstanding at
December 28, 2002 (options in thousands):



                                                      Options outstanding                               Options exercisable
                                 ------------------------------------------------------------  ------------------------------------
                                                       Weighted-average
                                           Number             remaining     Weighted-average           Number      Weighted-average
Range of exercise prices              outstanding      contractual life       exercise price      exercisable        exercise price
- -----------------------------------------------------------------------------------------------------------------------------------
                                                                                                    
$  12.88 to 50.72                         2,520.2             5.0 years     $          38.37           2,163.4     $          36.60
   51.13 to 59.16                         2,888.8             8.1 years                56.05             696.0                56.26
   59.18 to 68.31                         1,533.4             9.7 years                62.73              79.9                60.66
- -----------------------------------------------------------------------------------------------------------------------------------
$  12.88 to 68.31                         6,942.4             7.3 years     $          51.10           2,939.3     $          41.91
===================================================================================================================================


                                       23



                           AVERY DENNISON CORPORATION

NOTE 9.  SHAREHOLDERS' EQUITY (Continued)

The weighted-average fair value of options granted during 2002, 2001 and 2000
was $16.94, $18.31 and $22.16, respectively. Option grant date fair values were
determined using a Black-Scholes option pricing model. The underlying
assumptions used were as follows:

                                                 2002        2001         2000
- ------------------------------------------------------------------------------
Risk-free interest rate                          4.43%       5.14%        6.10%
Expected stock price volatility                 29.06       33.37        34.63
Expected dividend yield                          2.14        2.30         1.43
Expected option term                          7 years    10 years     10 years
==============================================================================

NOTE 10.  COMPONENTS OF OTHER INCOME AND EXPENSE

The Company recorded a charge in the fourth quarter of 2002 relating to cost
reduction actions. The 2002 charge involved cost reduction programs and the
reorganization of manufacturing and administrative facilities in both of the
Company's operating segments. The cost reduction efforts resulted in a pretax
charge of $10.7 million, which consisted of employee severance and related costs
for approximately 300 positions worldwide. The positions eliminated included
approximately 80 employees in the Pressure-sensitive Adhesives and Materials
segment and approximately 220 employees in the Consumer and Converted Products
segment. Severance and related costs represent cash paid or to be paid to
employees terminated under the program. At year end 2002, $9.8 million remained
accrued for severance and related costs (included in "Accrued payroll and
employee benefits" in the Consolidated Balance Sheet). At the end of 2002, of
the approximate 300 positions affected by these actions, approximately 50
employees (10 employees from the Consumer and Converted Products segment and 40
employees from the Pressure-sensitive Adhesives and Materials segment) had left
the Company. The Company expects to complete this cost reduction program in
2003.

In the fourth quarter of 2002, the Company recorded a $6.2 million pretax charge
for the disposition of fixed assets (comprised of machinery and equipment)
related to a reduction of costs in the Reflective business, as well as the
Jackstadt integration. The charge, shown in the "Other expense" line in the
Consolidated Statement of Income, related entirely to assets owned by the
Company prior to the acquisition of Jackstadt.

In the third quarter of 2002, the Company recorded a $15.2 million pretax charge
for the disposition of fixed assets (land, buildings, machinery and equipment)
and lease cancellation costs associated with the integration of Jackstadt
operations, as well as the planned closure of a plant facility, costs to exit
leases and other fixed asset impairments related to other businesses.
Approximately 60 percent of the charge related to the integration of Jackstadt.
The charge, shown in the "Other expense" line in the Consolidated Statement of
Income, related entirely to assets and leases owned by the Company prior to the
acquisition of Jackstadt. Of the $15.2 million charge, approximately $11.3
million related to asset impairments for property, plant and equipment ($1.3
million for buildings and $10 million for machinery and equipment) and $3.9
million related to lease cancellation costs. The Company expects to pay the
lease cancellation costs through 2011. The lease contracts extend for a period
of up to eight years at which time the accruals for these leases will be fully
utilized.

The table below details the lease cancellation cost activity:

(In millions)
- -------------------------------------------------------------------------
Accrued lease cancellation costs                                  $   3.9
Cancellation costs paid                                               (.2)
- -------------------------------------------------------------------------
Accrued lease cancellation costs, end of period                   $   3.7
=========================================================================

In the fourth quarter of 2001, the Company sold its specialty coatings business,
reported within the Pressure-sensitive Adhesives and Materials segment. Cash
proceeds and $11.5 million in notes and receivables were received in conjunction
with the sale, which resulted in a pretax gain of approximately $20.2 million.
Net sales from this business were $26.7 million for ten months in 2001 and $37.7
million in 2000.

                                       24



                           AVERY DENNISON CORPORATION

NOTE 10.  COMPONENTS OF OTHER INCOME AND EXPENSE (Continued)

The Company also recorded a charge in the fourth quarter of 2001 relating to
cost reduction actions. The 2001 charge involved cost reduction programs and the
reorganization of manufacturing and administrative facilities in both of the
Company's operating segments. The cost reduction efforts resulted in a pretax
charge of $19.9 million, which consisted of employee severance and related costs
of $13.1 million for approximately 400 positions worldwide, and asset
impairments of $6.8 million. The positions eliminated included approximately 170
employees in the Pressure-sensitive Adhesives and Materials segment, 210
employees in the Consumer and Converted Products segment and 20 Corporate
employees. Severance and related costs represented cash paid or to be paid to
employees terminated under the program. Asset impairments represented non-cash
charges required to reduce the carrying value of the assets that were disposed
of to net realizable value as of the planned date of disposal. At year end 2002,
$1.9 million remained accrued for severance and related costs (included in
"Accrued payroll and employee benefits" in the Consolidated Balance Sheet),
associated with long-term severance contracts, which will be paid through 2004.
All amounts related to asset impairments were utilized.

NOTE 11.  PENSIONS AND OTHER POSTRETIREMENT BENEFITS

DEFINED BENEFIT PLANS AND POSTRETIREMENT HEALTH BENEFITS

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 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 may be paid, in part, from an employee stock ownership
plan.

The Company provides postretirement health benefits to certain of its U.S.
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.

                                       25



                           AVERY DENNISON CORPORATION

NOTE 11.  PENSIONS AND OTHER POSTRETIREMENT BENEFITS (CONTINUED)

The following provides a reconciliation of benefit obligations, plan assets and
funded status of the plans:



                                                                                                                   Postretirement
                                                                   Pension Benefits                               Health Benefits
- -----------------------------------------------------------------------------------------------      ----------------------------
                                                           2002                    2001                   2002           2001
(In millions)                                         U.S.       Int'l        U.S.       Int'l                    U.S.
- -------------------------------------------------------------- --------------------------------      ----------------------------
                                                                                                     
CHANGE IN BENEFIT OBLIGATION:
Benefit obligation at beginning of year            $   340.1   $   189.5    $  309.8   $  176.9         $     45.7     $     26.1
Service cost                                             9.4         6.4         8.1        5.3                 .9             .7
Interest cost                                           24.0        12.2        23.3       10.7                2.8            2.5
Participant contribution                                   -         2.3           -        2.0                  -              -
Amendments                                               (.2)         .2           -         .2                  -              -
Actuarial loss                                          12.1        13.7        19.0        4.4                2.3           18.8
Plan transfer                                            5.6           -         3.5          -                  -              -
Benefits paid                                          (25.4)       (6.5)      (23.6)      (5.9)              (4.1)          (2.4)
Acquisition                                                -         8.9           -          -                  -              -
Foreign currency translation                               -        31.2           -       (4.1)                 -              -
- -------------------------------------------------------------- --------------------------------      ----------------------------
Benefit obligation at end of year                  $   365.6   $   257.9    $  340.1   $  189.5         $     47.6     $     45.7
- -------------------------------------------------------------- --------------------------------      ----------------------------

CHANGE IN PLAN ASSETS:
Fair value of plan assets at beginning of year     $   396.9   $   217.5    $  415.1   $  235.8                  -              -
Actual return on plan assets                           (26.2)      (23.7)         .8       (7.0)                 -              -
Plan transfer                                            5.6           -         3.5          -                  -              -
Employer contribution                                   16.0         4.4         1.1        1.7         $      4.1     $      2.4
Participant contribution                                   -         2.3           -        1.9                  -              -
Benefits paid                                          (25.4)       (6.5)      (23.6)      (5.9)              (4.1)          (2.4)
Foreign currency translation                               -        15.6           -       (9.0)                 -              -
- -------------------------------------------------------------- --------------------------------      ----------------------------
Fair value of plan assets at end of year           $   366.9   $   209.6    $  396.9   $  217.5         $        -     $        -
- -------------------------------------------------------------- --------------------------------      ----------------------------

FUNDED STATUS OF THE PLANS:
Plan assets in excess of (less than) benefit
 obligation                                        $     1.3   $   (48.2)   $    56.7  $   28.1         $    (47.6)    $    (45.7)
Unrecognized net actuarial loss (gain)                  75.6        91.2        (5.6)      18.7               12.1            9.9
Unrecognized prior service cost                         (3.2)        5.2        (3.1)       5.1                1.0            1.1
Unrecognized net asset                                  (1.2)       (7.2)       (1.9)      (8.4)                 -              -
- -------------------------------------------------------------- --------------------------------      ----------------------------
Net amount recognized                              $    72.5   $    41.0        46.1   $   43.5         $    (34.5)    $    (34.7)
- -------------------------------------------------------------- --------------------------------      ----------------------------

AMOUNTS RECOGNIZED IN THE CONSOLIDATED BALANCE
 SHEET CONSIST OF:
Prepaid benefit cost                               $   106.9   $    36.3    $   90.0   $   52.3                  -              -
Accrued benefit liability                              (89.7)      (48.0)      (64.7)      (8.8)        $    (34.5)    $    (34.7)
Intangible asset                                         5.4         5.2         6.5          -                  -              -
Other comprehensive income                              49.9        47.5        14.3          -                  -              -
- -------------------------------------------------------------- --------------------------------      ----------------------------
Net amount recognized                              $    72.5   $    41.0    $   46.1   $   43.5        $     (34.5)    $    (34.7)
- -------------------------------------------------------------- --------------------------------      ----------------------------


The projected benefit obligation, accumulated benefit obligation and fair value
of plan assets for pension plans with accumulated benefit obligations in excess
of plan assets for U.S. plans were $246.4 million, $244.2 million and $154.7
million, respectively, at year end 2002, and $227.6 million, $224.8 million and
$162.1 million, respectively, at year end 2001.

The projected benefit obligation, accumulated benefit obligation and fair value
of plan assets for pension plans with accumulated benefit obligations in excess
of plan assets for international plans were $125.4 million, $114.9 million and
$68.8 million, respectively, at year end 2002, and $12.8 million, $12.1 million
and $3.9 million, respectively, at year end 2001.

                                       26



                           AVERY DENNISON CORPORATION

NOTE 11.  PENSIONS AND OTHER POSTRETIREMENT BENEFITS (Continued)



                                                                                                                    Postretirement
                                                                    Pension Benefits                               Health Benefits
- ----------------------------------------------------------------------------------------------------------------------------------
                                                        2002              2001              2000             2002     2001    2000
                                                    U.S.    Int'l      U.S.   Int'l     U.S.    Int'l               U.S.
- ----------------------------------------------------------------------------------------------------------------------------------
                                                                                                   
WEIGHTED-AVERAGE ASSUMPTIONS USED:
Discount rate                                        7.0%     5.5%      7.3%    5.9%     7.8%     6.2%       7.00%    7.25%   7.75%
Expected long-term rate of return on plan assets     9.5      7.1       9.8     7.5     10.0      7.8           -        -       -
Rate of increase in future compensation levels       3.6      2.6       4.1     3.7      4.0      4.0           -        -       -
==================================================================================================================================


The following table sets forth the components of net periodic benefit (income)
cost:



                                                                                                               Postretirement
                                                  Pension Benefits                                            Health Benefits
- ---------------------------------------------------------------------------------------------------    ----------------------
                                              2002                 2001                 2000            2002    2001    2000
(In millions)                             U.S.      Int'l       U.S.      Int'l      U.S.     Int'l             U.S.
- ---------------------------------------------------------------------------------------------------    ----------------------
                                                                                             
COMPONENTS OF NET PERIODIC BENEFIT
 (INCOME) COST:
Service cost                          $    9.4   $    6.4   $    8.1   $    5.3   $   6.5   $   5.5    $   .9  $   .7   $  .6
Interest cost                             24.0       12.2       23.3       10.7      22.3      10.0       2.9     2.5     1.9
Expected return on plan assets           (41.0)     (16.8)     (39.2)     (16.4)    (36.8)    (16.4)        -       -       -
Recognized net actuarial (gain) loss      (2.1)        .5       (3.4)       (.2)     (1.6)      (.3)        -       -     (.4)
Amortization of prior service cost          .2         .4         .5         .3        .5        .3        .1      .1      .1
Amortization of transition
 obligation or asset                       (.7)      (1.1)       (.7)      (1.0)      (.7)     (1.2)        -       -       -
Curtailment                                (.2)       (.2)         -          -         -         -         -       -       -
- ---------------------------------------------------------------------------------------------------    ----------------------
Net periodic benefit (income) cost    $  (10.4)  $    1.4   $  (11.4)  $   (1.3)  $  (9.8)  $  (2.1)   $  3.9  $  3.3   $ 2.2
===================================================================================================    ======================


For measurement purposes, an 11 percent annual rate of increase in the per
capita cost of covered health care benefits was assumed for 2003. The rate is
expected to decrease to 6 percent by 2008.

An one-percentage-point change in assumed health care cost trend rates would
have the following effects:



                                                          One-percentage-point  One-percentage-point
(In millions)                                                        increase               decrease
- ----------------------------------------------------------------------------------------------------
                                                                          
Effect on total of service and interest cost components   $                .4   $                (.4)
Effect on postretirement benefit obligation                               4.6                   (4.0)
- ----------------------------------------------------------------------------------------------------


As a result of changes in assumptions and the negative return on plan assets
during 2002 and 2001, an additional minimum pension liability of $34.5 million
and $20.2 million, respectively, for U.S. pension plans and an additional
minimum pension liability of $52.7 million in 2002 for international pension
plans is reflected in the Company's Consolidated Balance Sheet. There was no
additional minimum pension liability for international pension plans in 2001.
These transactions generated an additional intangible pension asset or liability
of $(1.1) million and $6.2 million, respectively, in 2002 and 2001 for U.S.
pension plans and $5.2 million in 2002 for international pension plans with a
charge to equity for the remainder. There was no additional intangible pension
asset recognized in 2001 for international pension plans.

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.

                                       27



                           AVERY DENNISON CORPORATION

ESOP expense is accounted for under the cost of shares allocated method. Total
ESOP (income) expense for 2002, 2001 and 2000 was $(.1) million, $.1 million and
$(1.6) million, respectively. Company contributions to pay interest or principal
on ESOP borrowings were $.8 million and $1.8 million in 2002 and 2001,
respectively. There were no Company contributions to pay interest or principal
on ESOP borrowings for 2000.

Interest costs incurred by the ESOPs for 2002, 2001 and 2000 were $.5 million,
$1.2 million and $1.7 million, respectively. Dividends on unallocated ESOP
shares used for debt service were $1.6 million in 2002, 2001 and 2000.

Consolidated expense (income) for all defined contribution plans (including
total ESOP expense) for 2002, 2001 and 2000 was $1.6 million, $1.7 million and
$(.5) million, respectively. Of the total shares held by the ESOP, 4.1 million
shares were allocated and 1.1 million shares were unallocated at year end 2002,
and 4.7 million shares were allocated and 1.3 million shares were unallocated at
year end 2001.

OTHER RETIREMENT PLANS

The Company has deferred compensation plans which permit eligible employees and
directors to defer a portion of their compensation. The deferred compensation,
together with certain Company contributions, earns specified and variable rates
of return. As of year end 2002 and 2001, the Company had accrued $114 million
and $115.9 million, respectively, for its obligations under these plans. These
obligations are secured by standby letters of credit of $82.5 million for 2002
and $127.6 million for 2001. The Company's expense, which includes Company
contributions and interest expense, was $10 million, $12.7 million and $11.5
million for 2002, 2001 and 2000, respectively. A portion of the interest may be
forfeited by participants if 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" in the
Consolidated Balance Sheet was $109.8 million and $101.4 million at year end
2002 and 2001, respectively.

NOTE 12.  SEGMENT INFORMATION

The Company manages its business in two operating segments: Pressure-sensitive
Adhesives and Materials and Consumer and Converted Products. The segments were
determined based upon the types of products produced and markets served by each
segment. The Pressure-sensitive Adhesives and Materials segment manufactures
pressure-sensitive adhesives and base materials that are sold primarily to
converters and label printers for further processing. Products in this segment
include Fasson-brand papers, films and foils, graphic and reflective films,
specialty tapes and chemicals. The Consumer and Converted Products segment
manufactures products for home, school and office uses, and for the retail
industry and original-equipment manufacturers. This segment includes Avery-brand
labels and other consumer products, custom labels, tickets and tags, high
performance specialty films and labels, battery labels, postage stamps,
automotive applications and fasteners.

The accounting policies of the segments are the same as those described in the
summary of significant accounting policies. Intersegment sales are recorded at
or near market prices and are eliminated in determining consolidated sales. The
Company evaluates performance based on income from operations before interest
expense and taxes. General corporate expenses are also excluded from the
computation of income from operations.

The Company does not disclose total assets by operating segment since the
Company does not produce and review such information internally. The Company
does not disclose revenues from external customers for each product because it
is impracticable to do so. As the Company's reporting structure is not organized
by country, results by individual country are not provided because it is
impracticable to do so.

                                       28



                           AVERY DENNISON CORPORATION

NOTE 12.  SEGMENT INFORMATION (Continued)

Financial information by operating segment is set forth below:



(In millions)                                  2002/(2)/     2001/(3)/          2000
- ------------------------------------------------------------------------------------
                                                                 
NET SALES:
Pressure-sensitive Adhesives and Materials    $  2,568.0    $  2,188.8    $  2,136.4
Consumer and Converted Products                  1,811.7       1,783.8       1,898.3
Intersegment/(1)/                                 (172.8)       (169.3)       (141.2)
- ------------------------------------------------------------------------------------
Net sales                                     $  4,206.9    $  3,803.3    $  3,893.5
====================================================================================
INCOME FROM OPERATIONS BEFORE TAXES:
Pressure-sensitive Adhesives and Materials    $    198.0    $    192.1    $    212.4
Consumer and Converted Products                    245.5         244.4         293.2
Corporate administrative and research and
 development expenses                              (35.0)        (26.5)        (24.7)
Interest expense                                   (43.7)        (50.2)        (54.6)
- ------------------------------------------------------------------------------------
Income before taxes                           $    364.8    $    359.8    $    426.3
====================================================================================
CAPITAL EXPENDITURES:
Pressure-sensitive Adhesives and Materials    $     93.3    $     75.7    $    110.8
Consumer and Converted Products                     49.2          48.9          74.2
Corporate                                            9.3          10.8          13.3
- ------------------------------------------------------------------------------------
Capital expenditures                          $    151.8    $    135.4    $    198.3
====================================================================================
DEPRECIATION EXPENSE:
Pressure-sensitive Adhesives and Materials    $     71.9    $     69.4    $     69.9
Consumer and Converted Products                     49.0          49.2          48.7
Corporate                                            6.2           5.5           7.4
- ------------------------------------------------------------------------------------
Depreciation expense                          $    127.1    $    124.1    $    126.0
====================================================================================


/(1)/   The majority of intersegment sales represent sales from the
        Pressure-sensitive Adhesives and Materials segment to the Consumer and
        Converted Products segment.
/(2)/   Results for 2002 include a pretax charge of $21.4 million for asset
        impairment charges and lease cancellation costs. This charge was
        recorded as follows: $17.2 million to the Pressure-sensitive Adhesives
        and Materials segment and $4.2 million to the Consumer and Converted
        Products segment. Results for 2002 also include a pretax cost reduction
        charge of $10.7 million. This charge was recorded as follows: $4.8
        million to the Pressure-sensitive Adhesives and Materials segment and
        $5.9 million to the Consumer and Converted Products segment. See Note 10
        "Components of Other Income and Expense" for further information.
/(3)/   Results for 2001 include a pretax gain of $20.2 million from the sale of
        the Company's specialty coatings business included in the
        Pressure-sensitive Adhesives and Materials segment results. Results for
        2001 also include a pretax cost reduction charge of $19.9 million. This
        charge was recorded as follows: $7.6 million to the Pressure-sensitive
        Adhesives and Materials segment, $9.4 million to the Consumer and
        Converted Products segment, and $2.9 million to Corporate. See Note 10
        "Components of Other Income and Expense" for additional information
        regarding the Company's 2001 cost reduction program.

                                       29



                           AVERY DENNISON CORPORATION

NOTE 12.  SEGMENT INFORMATION (CONTINUED)

Financial information relating to the Company's operations by geographic area is
set forth below:

(In millions)                                  2002          2001          2000
- -------------------------------------------------------------------------------
NET SALES:
U.S.                                   $    2,433.7   $   2,318.8   $   2,393.9
International                               1,941.5       1,561.7       1,539.9
Intersegment                                 (168.3)        (77.2)        (40.3)
- -------------------------------------------------------------------------------
Net sales                              $    4,206.9   $   3,803.3   $   3,893.5
===============================================================================
PROPERTY, PLANT AND EQUIPMENT, NET:
U.S.                                   $      659.1   $     673.6   $     665.8
International                                 540.1         401.0         413.2
- -------------------------------------------------------------------------------
Property, plant and equipment, net     $    1,199.2   $   1,074.6   $   1,079.0
===============================================================================

Revenues are attributed to geographic areas based on the location to which the
product is shipped. The Company's international operations, conducted primarily
in continental Europe, 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.

NOTE 13.  QUARTERLY FINANCIAL INFORMATION (UNAUDITED)



                                                          First         Second          Third               Fourth
(In millions, except per share data)                    Quarter        Quarter   Quarter/(1)/   Quarter/(2)/ /(3)/
- ------------------------------------------------------------------------------------------------------------------
                                                                                    
2002
Net sales                                            $    930.8     $  1,056.3   $    1,114.5   $          1,105.3
Gross profit                                              308.9          346.5          353.2                345.1
Net income                                                 64.8           73.8           63.1                 55.5
Net income per common share                                 .66            .75            .64                  .56
Net income per common share, assuming dilution              .66            .74            .64                  .56
- ------------------------------------------------------------------------------------------------------------------
2001
Net sales                                            $    963.2     $    960.8   $      966.7   $            912.6
Gross profit                                              319.0          311.8          312.8                296.6
Net income                                                 63.6           59.8           61.7                 58.1
Net income per common share                                 .65            .61            .63                  .60
Net income per common share, assuming dilution              .65            .61            .63                  .59
- ------------------------------------------------------------------------------------------------------------------
2000
Net sales                                            $    965.3     $    993.4   $    1,001.7   $            933.1
Gross profit                                              334.1          343.7          340.3                314.1
Net income                                                 70.2           72.8           73.0                 67.5
Net income per common share                                 .71            .74            .74                  .69
Net income per common share, assuming dilution              .70            .73            .73                  .69
==================================================================================================================


/(1)/   Results in the third quarter 2002 include a $15.2 million pretax charge
        for the disposition of fixed assets and lease cancellation costs
        associated with the integration of the Jackstadt operations, as well as
        the planned closure of a plant facility, costs to exit leases and other
        fixed asset impairments related to other businesses.
/(2)/   Results in the fourth quarter 2002 include a $10.7 million pretax charge
        for severance and related costs for cost reduction programs and the
        reorganization of manufacturing and administrative facilities in both of
        the Company's operating segments as well as a $6.2 million pretax charge
        for the disposition of fixed assets related to a reduction of costs in
        the Reflective business, as well as the Jackstadt integration.
/(3)/   Results in the fourth quarter 2001 include a pretax gain of $20.2
        million for the sale of the Company's specialty coatings business and a
        pretax cost reduction charge of $19.9 million.

                                       30



                           AVERY DENNISON CORPORATION

STATEMENT OF MANAGEMENT RESPONSIBILITY FOR FINANCIAL STATEMENTS

The consolidated financial statements and accompanying information were prepared
by and are the responsibility of management. The statements were prepared in
conformity with generally accepted accounting principles and, as such, include
amounts that are based on management's best estimates and judgments.

The internal control systems are designed to provide reliable financial
information for the preparation of financial statements, to safeguard assets
against loss or unauthorized use and to ensure that transactions are executed
consistent with Company policies and procedures. Management believes that
existing internal accounting control systems are achieving their objectives and
that they provide reasonable assurance concerning the accuracy of the financial
statements.

Oversight of management's financial reporting and internal accounting control
responsibilities is exercised by the Board of Directors, through an audit
committee, which consists solely of outside directors (see page 7 of the
Company's Proxy Statement - Schedule 14A). The Committee meets periodically with
financial management, internal auditors and the independent accountants to
obtain reasonable assurance that each is meeting its responsibilities and to
discuss matters concerning auditing, internal accounting control and financial
reporting. The independent accountants and the Company's internal audit
department have free access to meet with the Audit Committee without
management's presence.

- --------------------------------                  ------------------------------
Philip M. Neal                                    Daniel R. O'Bryant
Chairman and                                      Senior Vice President, Finance
Chief Executive Officer                           and Chief Financial Officer

                                       31



                           AVERY DENNISON CORPORATION

                        REPORT OF INDEPENDENT ACCOUNTANTS

TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF AVERY DENNISON CORPORATION:

In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, shareholders' equity and cash flows present
fairly, in all material respects, the financial position of Avery Dennison
Corporation and its subsidiaries at December 28, 2002 and December 29, 2001, and
the results of their operations and their cash flows for each of the three years
in the period ended December 28, 2002 in conformity with accounting principles
generally accepted in the United States of America. 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 of these statements in accordance with auditing standards
generally accepted in the United States of America, which require that we plan
and perform the audit 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, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

As discussed in Note 1, the Company adopted Statement of Financial Accounting
Standards No 142, "Goodwill and Other Intangible Assets." Accordingly, the
Company ceased amortizing goodwill as of December 30, 2001.

/s/ PricewaterhouseCoopers LLP
Los Angeles, California
January 27, 2003

                                       32



                           AVERY DENNISON CORPORATION

CORPORATE INFORMATION

COUNSEL
Latham & Watkins LLP
Los Angeles, California

INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
Los Angeles, California

TRANSFER AGENT-REGISTRAR
EquiServe Trust Company, N.A.
P.O.  Box 2500
Jersey City, NJ  07303-2500
(800) 756-8200
(201) 222-4955 (hearing impaired number)
www.equiserve.com (Web site)

ANNUAL MEETING
The Annual Meeting of Shareholders will be held at 1:30 pm, Thursday, April 24,
2003, in the Conference Center of Avery Dennison's Charles D. Miller Corporate
Center, 150 North Orange Grove Boulevard, Pasadena, California.

THE DIRECTSERVICE(TM) INVESTMENT PROGRAM
Shareholders of record may reinvest their cash dividends in additional shares of
Avery Dennison common stock at market price. Investors may also invest optional
cash payments of up to $12,500 per month in Avery Dennison common stock at
market price. Avery Dennison investors not yet participating in the program, as
well as brokers and custodians who hold Avery Dennison common stock for clients,
may obtain a copy of the program by writing to The DirectSERVICE(TM) Investment
Program, c/o EquiServe (include a reference to Avery Dennison in the
correspondence), P.O. Box 2598, Jersey City, NJ 07303-2598, or calling (800)
649-2291, or logging onto their Web site at http://www.equiserve.com.

                                       33



                           AVERY DENNISON CORPORATION

DIRECT DEPOSIT OF DIVIDENDS
Avery Dennison shareholders may deposit quarterly dividend checks directly into
their checking or savings accounts. For more information, call Avery Dennison's
transfer agent and registrar, EquiServe Trust Company, N.A., at (800) 870-2340.

FORM 10-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.

CORPORATE HEADQUARTERS
Avery Dennison Corporation
Miller Corporate Center
150 North Orange Grove Boulevard
Pasadena, California  91103
Phone:  (626) 304-2000
Fax:  (626) 792-7312

Mailing Address:
P.O.  Box 7090
Pasadena, California  91109-7090

                                       34



                           AVERY DENNISON CORPORATION

STOCK AND DIVIDEND DATA

Common shares of Avery Dennison are listed on the New York and Pacific stock
exchanges.
Ticker symbol:  AVY



                                                                  2002                      2001
                                                        -----------------------    --------------------
                                                              High         Low          High        Low
- -------------------------------------------------------------------------------------------------------
                                                                                  
MARKET PRICE
First Quarter                                           $    64.00  $    53.63     $   56.25  $   50.50
Second Quarter                                               69.49       59.64         60.24      48.88
Third Quarter                                                65.23       52.86         52.24      44.39
Fourth Quarter                                               65.69       55.21         56.81      46.30
=======================================================================================================
Prices shown represent closing on the NYSE

                                                                          2002                     2001
- -------------------------------------------------------------------------------------------------------
DIVIDENDS PER COMMON SHARE
First Quarter                                                       $      .33                $     .30
Second Quarter                                                             .33                      .30
Third Quarter                                                              .33                      .30
Fourth Quarter                                                             .36                      .33
- -------------------------------------------------------------------------------------------------------
Total                                                               $     1.35                $    1.23
=======================================================================================================

Number of shareholders of record as of year end 2002                                             11,765
=======================================================================================================


                                       35

Exhibit 21

Avery Dennison Corporation

JURISDICTION IN
NAME OF CURRENT SUBSIDIARY WHICH ORGANIZED

Avery Dennison Dover S.A. Argentina
Austracote PTY Ltd. Australia
Avery Dennison Australia Group Holdings Pty Limited Australia
Avery Dennison Holdings Limited Australia
Avery Dennison Materials Pty Limited Australia
Avery Dennison Office Products Pty Limited Australia
Avery Properties Pty. Limited Australia
JAC Asia Pacific Pty Ltd. Australia
JAC Australia Pty Ltd. Australia
Stimsonite Australia Pty Limited Australia
Avery Dennison Osterreich G.m.b.H. Austria
Avery Dennison Zweckform Austria G.m.b.H. Austria
Avery Dennison Foreign Sales Corporation Barbados
Avery Dennison Belgie B.V. B.A. Belgium
Avery Dennison Coordination Center B.V.B.A. Belgium
Cardinal Insurance Limited Bermuda (U.S.A.)
Avery Dennison do Brasil Ltda. Brazil
Dennison Comercio, Importacas E Exportacao Ltda. Brazil
JAC do Brasil Ltda Brazil
Stimsonite do Brasil Ltda Brazil
Tiadeco Participacoes, Ltda. Brazil
Avery Dennison Canada Inc. Canada
Fasson Canada Inc. Canada
JAC Canada Inc. Canada
Spartan Plastics Canada, Ltd Canada
Dennison Manufacturing (Trading) Ltd. Channel Islands
Avery Dennison Chile S.A. Chile
Avery (China) Company Limited China
Avery Dennison (Guangzhou) Co. Ltd. China
Avery Dennison (Guangzhou) Converted Products Limited China
Avery Dennison (Kunshan) Limited China
Avery Dennison (Shanghai) International Trading Limited China
Yue Hwa Industrial Co. Ltd. China
Avery Dennison Colombia S.A. Colombia
Jackstadt Praha spol. R.o. Czech Republic
Avery Dennison Finance Danmark A.p. S. Denmark
Avery Dennison Group Danmark A.p.S. Denmark
Avery Dennison Nordic A/S Denmark
Avery Dennison Scandinavia A/S Denmark
Avery Dennison Security Printing Europe A/S Denmark
Avery Etiketsystemer A/S Denmark
Etikettrykkeriet A/S Denmark
IWACO A/S Denmark
JAC Skandinavia A/S Denmark
JAC Caribe C.s.Z. Dominican Republic
Avery Dennison Converted Products El Salvador S.A. de C.V. El Salvador
Avery Dennison (Fiji) Limited Fiji
Avery Dennison Suomi OY Finland
IWACO Labels & Labelling Systems OY Finland
Avery Dennison Finance France S. A. S. France
Avery Dennison France S.A.S. France
Avery Dennison Materials France S.A.R.L. France
Avery Dennison Office Products France S. A. S. France

Avery Dennison Corporation

JURISDICTION IN
NAME OF CURRENT SUBSIDIARY WHICH ORGANIZED

Avery Dennison Systemes d'etiquetage France S.A.S. France
Avery Holding S.A. France
CELT SNC France
JAC France S.a.r.l. et CIE SNC France
Jackstadt France S.N.C. France
Jackstadt France SARL France
Avery Dennison Deutschland G.m.b.H. Germany
Avery Dennison Europe Holding (Deutschland) G.m.b.H & Co KG Germany
Avery Dennison Finance Germany G.m.b.H. Germany
Avery Dennison Holding G.m.b.H. Germany
Avery Dennison Materials G.m.b.H. Germany
Avery Dennison Verwaltungs G.m.b.H. Germany
Avery Dennison Zweckform Office Products Europe G.m.b.H. Germany
Avery Dennison Zweckform Unterstutzungskasse G.m.b.H. Germany
Avery Maschinen G.m.b.H. Germany
Blitz 02-050 GmbH Germany
Jackstadt GmbH Germany
Jackstadt Vermongensverwaltungs Gmb Germany
RVL Europe GmbH Germany
Steinbeis Office Products Beteiligungs G.m.b.H. Germany
Universal Packaging & Design GmbH Germany
Avery Dennison G Investments I Limited Gibraltar
Avery Dennison G Investments II Limited Gibraltar
Avery Dennison G Investments III Limited Gibraltar
Avery Dennison G Investments IV Limited Gibraltar
Avery Dennison G Investments V Limited Gibraltar
RVL Central America, S.A. Guatemala
Avery Dennison (Hong Kong) Limited Hong Kong
L&E Packaging Far East Limited Hong Kong
Modern Mark International Limited Hong Kong
RVL Packaging Far East Limited Hong Kong
RVL Printed Label Far East Limited Hong Kong
Universal Packaging & Design, Ltd. Hong Kong
Avery Dennison Hungary Limited Hungary
Avery Dennison Office Products Manufacturing & Trading Limited
Liability Company (Avery Dennison Ltd.) Hungary
Jackstadt Trade Ltd. Hungary
Avery Dennison (India) Private Limited India
RVL Packaging India Private Limited India
PT Arvilindo Sentosa Indonesia
PT Avery Dennison Indonesia Indonesia
PT Robert Vincent Lyle Packaging Indonesia Indonesia
PT Universal Globalindo Indonesia
Avery Dennison (Ireland) Limited Ireland
Avery Dennison Materials Ireland Limited Ireland
Dennison Ireland Limited Ireland
Dennison Office Products Limited Ireland
Retail Products Limited Ireland
ADESPAN S.R.L. Italy
Avery Dennison Italia S.p.A. Italy
Avery Dennison Office Products Italia S.r.l. Italy
JAC Italia SRL Italy
Avery Dennison-Maxell K.K. Japan

Avery Dennison Corporation

JURISDICTION IN
NAME OF CURRENT SUBSIDIARY WHICH ORGANIZED

Avery Dennison Korea Limited Korea
RVL Packaging Korea Ltd. Korea
Avery Dennison Finance Luxembourg S. A. R. L. Luxembourg
Avery Dennison Holding Luxembourg S. A. R. L. Luxembourg
Avery Dennison Luxembourg S.A. Luxembourg
Avery Dennison (Malaysia) SDN. BHD. Malaysia
Avery Dennison Materials SDN BHD Malaysia
JAC Asia/Pacific SDN BHD Malaysia
Avery de Mexico S.A. de C.V. Mexico
Avery Dennison Converted Products de Mexico, S.A. de C.V. Mexico
Avery Dennison Office Products De Mexico, S.A. de C.V. Mexico
Avery Dennison, S.A. de C.V. Mexico
L&E Americas Servicios, S.A. de C.V. Mexico
L&E Americas, S.A. de C.V. Mexico
RVL Americas, S de R.L. de C.V. Mexico
RVL Service, S. DE R.L. de C.V. Mexico
Avery Dennison B. V. Netherlands
Avery Dennison Holding & Finance The Netherlands B. V. Netherlands
Avery Dennison Hong Kong B.V. Netherlands
Avery Dennison Investments The Netherlands B. V. Netherlands
Avery Dennison Materials Nederland B.V. Netherlands
Avery Holding B.V. Netherlands
Dennison International Holding B.V. Netherlands
Avery Dennison Office Products (NZ) Limited New Zealand
JAC New Zealand Limited New Zealand
Avery Dennison Norge A/S Norway
Iwaco Norge AS Norway
Avery Dennison Peru S. A. Peru
ADC Philippines, Inc. Philippines
RVL Packaging Philippines, Inc. Philippines
Avery Dennison Polska Sp. Z O.O. Poland
IWACO Polska Poland
Jackstadt Polska sp. Zo.o Poland
Fasson Portugal Produtos Auto-Adesivos LDA. Portugal
Avery Dennison Singapore (PTE) Ltd Singapore
RVL Packaging Singapore PTE Ltd. Singapore
Universal Packaging & Design PTE Ltd. Singapore
Avery Dennison Office Products (PTY.) Ltd. South Africa
Avery Dennison South Africa (Proprietary) Limited South Africa
Jackstadt South Africa (Pty.) Ltd. South Africa
Avery Dennison Iberica, S.A. Spain
Avery Dennison Sverige AB Sweden
Avery Etikettsystem Svenska AB Sweden
Ocawi Sverige AB Sweden
A.V. Chemie GmbH Switzerland
Avery Dennison Holding AG Switzerland
Avery Dennison Office Products Europe GmbH Switzerland
Avery Dennison Schweiz AG Switzerland
Jackstadt (Switzerland) AG Switzerland
RVL Packaging Taiwan Ltd. Taiwan
Avery Dennison (Thailand) Ltd. Thailand
JAC Thai KK Thailand
Avery Dennison Etiket Ticaret Limited Sirketi Turkey

Avery Dennison Corporation

JURISDICTION IN
NAME OF CURRENT SUBSIDIARY WHICH ORGANIZED

RVL Foreign Trade Ltd. Turkey
RVL Textile Corporation Turkey Turkey
AEAC, Inc. U.S.A.
Avery Corp. U.S.A.
Avery Dennison G Holdings I Company U.S.A.
Avery Dennison G Holdings II Company U.S.A.
Avery Dennison Health Management Corporation U.S.A.
Avery Dennison Office Products Company U.S.A.
Avery Dennison Overseas Corporation U.S.A.
Avery Dennison Shared Services, Inc. U.S.A.
Avery Graphic Systems, Inc. U.S.A.
Avery Pacific Corporation U.S.A.
Avery Research Center, Inc. U.S.A.
Avery, Inc. U.S.A.
Dennison Development Associates U.S.A.
Dennison International Company U.S.A.
Dennison Manufacturing Company U.S.A.
DMC Development Corporation U.S.A.
JAC USA, Inc. U.S.A.
Monarch Industries, Inc. U.S.A.
RVL Packaging, Inc. U.S.A.
Security Printing Division, Inc. U.S.A.
Spartan International, Inc. U.S.A.
Stimsonite Corporation U.S.A.
Stimsonite International, Inc. U.S.A.
ADESPAN U.K. Limited United Kingdom
Avery Automotive Limited United Kingdom
Avery Dennison Materials U.K. Limited United Kingdom
Avery Dennison Office Products U.K. Limited United Kingdom
Avery Dennison Pension Trustee Limited United Kingdom
Avery Dennison U.K. Limited United Kingdom
Avery Guidex Limited United Kingdom
Avery Holding Limited United Kingdom
JAC (U.K.) Limited United Kingdom
LAC Retail Systems Limited United Kingdom
Stimsonite Europa Limited United Kingdom
Zweckform U.K. Ltd. United Kingdom
Avery Dennison C.A. Venezuela




                                                                    EXHIBIT 99.1

                    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"). Words such as "aim," "anticipate," "assume," "believe," "continue,"
"could," "estimate," "expect," "intend," "may," "objective," "plan,"
"potential," "project," "shall," "should," "target," "will," and other
expressions, which refer to future events and trends, identify forward-looking
statements that involve risks and uncertainties. Forward-looking information may
relate to such matters as sales, unit volume, 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, expectations, projections and estimates 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 attempting to predict the outcome of future events. Therefore,
actual results may differ materially from those expressed or implied. Investors
are therefore cautioned not to place undue reliance on any forward-looking
statements as a prediction of future results. The Company assumes no obligation
to update any forward-looking statements, other than as may be required by law.

The ability of the Company to attain management's goals and objectives are
materially dependent on numerous factors, including but not limited to, 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, 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
forty-percent of the Company's sales are in foreign currencies, which fluctuate
in relation to one another and to the United States dollar. Fluctuations in
currencies can cause transaction, translation and other losses to the Company,
which can negatively impact the Company's sales and earnings projections. The
Company has operations in over 40 countries and its domestic and international
operations are strongly influenced by matters beyond its control, including but
not limited to changes in the political, social, economic, tax and regulatory
environment (including tariffs) in the countries in which the Company conducts
its operations.

As a manufacturer, the Company's sales and profitability are also dependent upon
availability and cost of raw materials and components, which are subject to
price fluctuations, and the ability to control or pass on costs of raw materials
and labor. Inflationary and other increases in the costs of raw materials and
labor have occurred in the past and are expected to recur, and the Company's
performance depends in part on: its ability to reflect changes in costs in its
selling prices for product; its productivity; and its focus on higher margin
businesses. 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 consumer
products in the United States are concentrated in a few major customers,
principally office product superstores, mass merchandisers, and distributors.
These market conditions, including increased credit risks for these and other
customers and the possibility of related bad debt write-offs, increase pressures
on the Company's margins and profits.

                                        1




A significant portion of the revenues in 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 and enforce patents, are therefore, important to
maintaining the Company's growth, which ability cannot be assured.

Other factors, which are not exhaustive, include costs and other effects of
interest rate increases, legal and administrative cases and proceedings (whether
civil, such as environmental and product related, or criminal), settlements,
judgments 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; successful integration of new acquisitions; customer or
supplier business reorganizations or combinations; increase in cost of debt;
ability to retain adequate levels of insurance coverage at acceptable rates;
loss of a significant contract(s) or customer(s); customer acceptance of new
products; pricing of competitive products; disruptions in transportation
networks; increased participation in potentially less stable emerging markets;
fluctuations in interest rates; dependability of utilities; impact of computer
viruses; general or specific economic conditions and the ability and willingness
of purchasers to substitute other products for the products that the Company
manufactures or distributes; financial condition and inventory strategies of
customers and suppliers; 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; other risks associated
with foreign operations, acts of war, terrorism, weather and other natural
disasters; and other factors.

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.

                                        2




                                                                    EXHIBIT 99.2

     CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

                    CERTIFICATION OF CHIEF EXECUTIVE OFFICER*

     Pursuant to 18 U.S.C. Section 1350, as created by Section 906 of the
Sarbanes-Oxley Act of 2002, the undersigned officer of Avery Dennison
Corporation (the "Company") hereby certifies, to the best of his knowledge,
that:

         (i)      the Annual Report on Form 10-K of the Company for the fiscal
                  year ended December 28, 2002 (the "Report") fully complies
                  with the requirements of Section 13(a) or Section 15(d), as
                  applicable, of the Securities Exchange Act of 1934, as
                  amended; and

         (ii)     the information contained in the Report fairly presents, in
                  all material respects, the financial condition and results of
                  operations of the Company.

Dated: March 28, 2003

                               By:              /s/  Philip M. Neal
                                    --------------------------------------------
                                    Name:   Philip M. Neal
                                    Title:  Chairman and Chief Executive Officer

- ----------
* A signed original of this written statement required by Section 906 of the
Sarbanes-Oxley Act of 2002, has been provided to Avery Dennison Corporation and
will be retained by Avery Dennison Corporation and furnished to the Securities
and Exchange Commission or its staff upon request.

                                        1




                                                                    EXHIBIT 99.3

     CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

                    CERTIFICATION OF CHIEF FINANCIAL OFFICER*

     Pursuant to 18 U.S.C. Section 1350, as created by Section 906 of the
Sarbanes-Oxley Act of 2002, the undersigned officer of Avery Dennison
Corporation (the "Company") hereby certifies, to the best of his knowledge,
that:

         (i)      the Annual Report on Form 10-K of the Company for the fiscal
                  year ended December 28, 2002 (the "Report") fully complies
                  with the requirements of Section 13(a) or Section 15(d), as
                  applicable, of the Securities Exchange Act of 1934, as
                  amended; and

         (ii)     the information contained in the Report fairly presents, in
                  all material respects, the financial condition and results of
                  operations of the Company.

Dated: March 28, 2003

                                      By:     /s/  Daniel R. O'Bryant
                                              ---------------------------------
                                      Name:   Daniel R. O'Bryant
                                      Title:  Senior Vice President, Finance and
                                              Chief Financial Officer

- ----------
* A signed original of this written statement required by Section 906 of the
Sarbanes-Oxley Act of 2002, has been provided to Avery Dennison Corporation and
will be retained by Avery Dennison Corporation and furnished to the Securities
and Exchange Commission or its staff upon request.

                                        1