-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Gl5nLNlwGBt2G8GepDcNewrR1ZSwXL9VH/vODnQhyTRApuBqJrb9zHC8AL86zcit mbkTtgmEVf6hNv6y72Yr9Q== 0000008868-96-000001.txt : 19960401 0000008868-96-000001.hdr.sgml : 19960401 ACCESSION NUMBER: 0000008868-96-000001 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960329 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: AVON PRODUCTS INC CENTRAL INDEX KEY: 0000008868 STANDARD INDUSTRIAL CLASSIFICATION: PERFUMES, COSMETICS & OTHER TOILET PREPARATIONS [2844] IRS NUMBER: 130544597 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-04881 FILM NUMBER: 96541655 BUSINESS ADDRESS: STREET 1: 9 W 57TH ST CITY: NEW YORK STATE: NY ZIP: 10019 BUSINESS PHONE: 2125466015 10-K 1 DEC 31, 1995 FORM 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 [x] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended December 31, 1995 OR [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from ____ to ____ Commission file number 1-4881 AVON PRODUCTS, INC. (Exact name of registrant as specified in its charter) NEW YORK 13-0544597 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 9 WEST 57TH STREET, NEW YORK, NEW YORK 10019 (Address of principal executive offices) (212) 546-6015 (Telephone number) Securities registered pursuant to Section 12(b) of the Act: Name of each exchange on Title of each class which registered ------------------- ------------------- Common Stock (par value $.50) New York Stock Exchange Preferred Share Purchase Rights New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None 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 requirementsfor the past 90 days. Yes X No -------- -------- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]. The aggregate market value of Common Stock (par value $.50) held by non- affiliates at February 29, 1996 was $5.4 billion. The number of shares of Common Stock (par value $.50) outstanding at February 29, 1996 was 67,246,093. Documents Incorporated by Reference Parts I and II Portions of the 1995 Annual Report to Shareholders. Part III Portions of the Proxy Statement for the 1996 Annual Meeting of Shareholders. 1 PART I ITEM 1. BUSINESS Avon Products, Inc. ("Avon" or "Company") is one of the world's leading manufacturers and marketers of beauty and related products, which include cosmetics, fragrance and toiletries; gift and decorative; apparel; and fashion jewelry and accessories. Avon commenced operations in 1886 and was incorporated in the State of New York on January 27, 1916. Avon's business is comprised of one industry segment, direct selling, with worldwide operations. Financial information relating to geographic areas is incorporated by reference to the analysis of net sales and pretax income from operations by geographic area on page 31 in Avon's 1995 Annual Report to Shareholders. Distribution Avon's products are sold worldwide by approximately 2.0 million Representatives, approximately 445,000 of whom are in the United States. Almost all Representatives are women who sell on a part-time basis. Representatives are independent contractors or independent dealers, and are not agents or employees of Avon. Representatives purchase products directly from Avon and sell them directly to their customers. The Company's products are sold to customers through a combination of direct selling and marketing utilizing independent Representatives, the mail, by phone or fax. Representatives go where the customers are, either in the home or in the workplace. Representatives may sell in a territory, which typically averages 100 homes in the United States and from 100 to 150 homes in other countries. Representatives in the United States have the opportunity to take responsibility for sales in larger areas. In the United States, the Representative contacts customers, selling primarily through the use of brochures which also highlight new products and specially priced items for each two-week sales campaign. Product samples, demonstration products, make-up color charts and catalogs are also used. Generally the Representative forwards an order every two weeks to a designated distribution center. This order is processed and the products are assembled at the distribution center and delivered to the Representative's home, usually by a local delivery service. The Representative then delivers the merchandise and collects payment from the customer for their own account. Payment by the Representative to Avon is customarily made when the next order is forwarded to the distribution center. The cost of merchandise to the Representative varies according to the total order size for each two-week sales campaign and averages approximately 60 percent of the recommended selling price. In order to increase support of the Representative in the United States and allow them to run their business more efficiently as well as to improve order processing accuracy, Avon employs certain electronic order systems technology. One of these systems permits Avon Representatives to submit add- on orders with a touch-tone telephone, enabling them to augment orders already submitted by placing a phone call. Another system, Avon's Personal Order Entry Terminal, permits the top-producing Representatives in the United States to transmit orders electronically by phone line, 24 hours a day, seven days a week. 2 Outside the United States, each sales campaign is generally of a three or four week duration. Although terms of payment and cost of merchandise to the Representative vary from country to country, the basic method of direct selling and marketing by Representatives is essentially the same as that used in the United States, and substantially the same merchandising and promotional techniques are utilized. The recruiting and training of Representatives are the primary responsibility of district managers. In the United States, each district manager has responsibility for a market area covered by 225 to 300 Representatives. District managers are employees of Avon and are paid a salary and a commission based on purchases of Avon products by Representatives in their district. Personal contacts, including recommendations from current Representatives and local advertising, constitute the primary means of obtaining new Representatives. Because of the high rate of turnover among Representatives, a characteristic of the direct-selling method, recruiting and training of new Representatives are continually necessary. From time to time, the question of the legal status of Representatives has arisen, usually in regard to possible coverage under social benefit laws that would require Avon (and in most instances, the Representatives) to make regular contributions to social benefit funds. Although Avon has generally been able to address these questions in a satisfactory manner, the matter has not been fully resolved in all countries. If there should be a final determination adverse to Avon in a country, the cost for future, and possibly past, contributions could be so substantial in the context of the volume of business of Avon in that country that it would have to consider discontinuing operations in that country. Promotion and Marketing Sales promotion and sales development activities are directed toward giving selling assistance to the Representatives by making available sales aids such as brochures, product samples and demonstration products. In order to support the efforts of Representatives to reach new customers, especially working women and other individuals who frequently are not at home, specially designed sales aids, promotional pieces, customer flyers and product and image enhancing media advertising are used. In addition, Avon seeks to motivate its Representatives through the use of special incentive programs that reward superior sales performance. Periodic sales meetings with Representatives are conducted by the district manager. The meetings are designed to keep Representatives abreast of product line changes, explain sales techniques and provide recognition for sales performance. A number of merchandising techniques, including the introduction of new products, the use of combination offers, the use of trial sizes and the promotion of products packaged as gift items, are used. In general for each sales campaign, a distinctive brochure is published, in which new products are introduced and selected items are offered at special prices or are given particular prominence in the brochure. Cosmetic, fragrance and toiletry products are available each sales campaign at a constant low price, while maintaining introductory specials and periodic sales on selected items for limited time periods. From time to time, various regulations or laws have been proposed or adopted that would, in general, restrict the frequency or duration of, or volume of sales resulting from new product introductions, special prices or other special price offers. The Company's pricing flexibility and broad product lines are expected to be able to mitigate the effect of these regulations. 3 Competitive Conditions The cosmetic, fragrance and toiletry; gift and decorative; apparel; and fashion jewelry and accessory industries are highly competitive. Avon is one of the leading manufacturers and distributors of cosmetics and fragrances in the United States. Its principal competitors are the large and well-known cosmetics and fragrances companies that manufacture and sell broad product lines through various types of retail establishments. There are many other companies that compete in particular products or product lines sold through retail establishments. Avon has many competitors in the gift and decorative products and apparel industries in the United States, including retail establishments, principally department stores, gift shops and direct-mail companies, specializing in these products. Avon is one of the leading distributors of fashion jewelry and accessories for women in the United States. Its principal competition in the fashion jewelry industry consists of a few large companies and many small companies that manufacture and sell fashion jewelry for women through retail establishments. The number of competitors and degree of competition that Avon faces in its foreign cosmetics, fragrance, toiletries and fashion jewelry markets varies widely from country to country. Avon is one of the leading manufacturers and distributors in the cosmetics, fragrance and toiletries industry in most of its foreign markets, as well as in the fashion jewelry industry in Europe. There are a number of direct-selling companies which sell product lines similar to Avon's, some of which also have worldwide operations and compete with Avon, although none have comparable sales or income. Avon believes that the personalized customer service offered by Representatives; the high quality, attractive designs and reasonable prices of its products; new product introductions; and the guarantee of satisfaction are significant factors in establishing and maintaining its competitive position. Avon's consolidated net sales, by classes of principal products, are as follows: Years ended December 31 ----------------------- 1995 1994 1993 ------- ------- ------- (In millions) Cosmetics, fragrance and toiletries........ $2,797.2 $2,604.2 $2,375.2 Gift and decorative..... 780.6 769.2 663.6 Apparel................. 500.5 480.3 350.0 Fashion jewelry and accessories.......... 413.8 412.8 455.3 -------- -------- -------- $4,492.1 $4,266.5 $3,844.1 ======= ======= ======= 4 International Operations Avon's International operations are subject to certain customary risks inherent in carrying on business abroad, including the risk of adverse currency fluctuations, currency remittance restrictions and unfavorable economic and political conditions. Avon's International operations are conducted primarily through subsidiaries in 40 countries and Avon's products are distributed in some 84 other countries. Manufacturing Avon manufactures and packages almost all of its cosmetic, fragrance and toiletry products. Raw materials, consisting chiefly of essential oils, chemicals, containers and packaging components, are purchased from various suppliers. Packages, consisting of containers and packaging components, are designed by its staff of artists and designers. The design and development of new products are affected by the cost and availability of materials such as glass, plastics and chemicals. Avon believes that it can continue to obtain sufficient raw materials and supplies to manufacture and supply its products. Avon has eighteen manufacturing laboratories around the world, three of which are principally devoted to the manufacture of fashion jewelry. In the United States, Avon's cosmetic, fragrance and toiletry products are produced in three manufacturing laboratories for the four distribution centers located throughout the country. Most products sold in foreign countries are manufactured in Avon's facilities abroad. The fashion jewelry line is generally developed by Avon's staff and produced in its two manufacturing laboratories in Puerto Rico, and Avon's manufacturing laboratory in Ireland or by several independent manufacturers. Trademarks and Patents Although Avon owns several patents and has several more patent applications pending in the United States Patent Office, its business, both in the United States and abroad, is not materially dependent upon patents or patent protection. Avon has no material licenses, franchises or concessions. Avon's major trademarks are protected by registration in the United States and the other countries where its products are marketed as well as in many other countries throughout the world. DISCONTINUED OPERATIONS In December 1995, the Company entered into an agreement with Mallinckrodt Group, Inc. ("Mallinckrodt"), which has fully settled the litigation initiated by Mallinckrodt. The settlement covers all indemnity obligations related to Avon's sale of Mallinckrodt, including environmental clean-up claims and litigation concerning Mallinckrodt's settlement of a DuPont patent claim. The settlement payments being made by Avon to Mallinckrodt, and related costs, resulted in an after-tax charge to discontinued operations in the fourth quarter of 1995, net of existing reserves, of $29.6 million, or $.43 per share. During 1994, the Company sold Giorgio Beverly Hills, Inc. ("Giorgio"), its remaining retail business, for cash of $150.0 million. The Company recorded a loss of $25.0 million on the sale. Giorgio's operating results 5 are segregated and reported as discontinued operations through the date of sale. Since the Company has excess capital loss carryforwards, no tax benefits were recognized on the above losses in 1995 and 1994. During 1993, Avon recorded a discontinued operations provision of $10.0 million after tax, or $.14 per share, for the final settlement and related expenses in an arbitration proceeding related to a business previously sold. Contingencies Although Avon has completed its divestiture of all discontinued operations, various lawsuits and claims (asserted and unasserted) are pending or threatened against Avon. The Company is also involved in a number of proceedings arising out of the federal Superfund law and similar state laws. In some instances Avon, along with other companies, has been designated as a potentially responsible party which may be liable for costs associated with these various hazardous waste sites. In the opinion of Avon's management, based on its review of the information available at this time, the difference, if any, between the total cost of resolving such contingencies and reserves recorded by Avon at December 31, 1995 should not have a material adverse impact on Avon's consolidated financial position or results of operations. SEASONAL NATURE OF BUSINESS Avon's sales and earnings have a marked seasonal pattern characteristic of many companies selling cosmetics, fragrance and toiletries; gift and decorative products; and fashion jewelry. Christmas sales cause a sales peak in the fourth quarter of the year. Fourth quarter net sales were 31 percent and 32 percent of full year net sales in 1995 and 1994, respectively, and fourth quarter pretax income from continuing operations was 40 percent and 42 percent in 1995 and 1994, respectively. RESEARCH ACTIVITIES Avon's research and development department is a leader in the industry, based on the number of new product launches, including formulating affordable, effective beauty treatments relevant to women's needs. A team of researchers and technicians applies the disciplines of science to the practical aspects of bringing products to market around the world. Relationships with well known dermatologists and other specialists supplement Avon's own research to deliver new formulas and ingredients. Each year, Avon researchers test and develop more than 600 products in the cosmetic, fragrance, toiletry and jewelry categories as well as analyze, evaluate and develop gift and decorative products. Avon has pioneered many innovative products, including Skin-So-Soft, its best-selling bath oil; BioAdvance, the first skin care product with stabilized retinol, the purest form of Vitamin A; and Collagen Booster, the premier product to capitalize on Vitamin C technology. Avon also introduced the benefits of aromatherapy to millions of American women, encapsulated color for the Color-Release line and introduced alpha-hydroxy acid for the Anew Perfecting Complex products. 6 The amounts incurred on research activities relating to the development of new products and the improvement of existing products were $27.8 million in 1995, $27.9 million in 1994 and $28.5 million in 1993. This research included the activities of product research and development and package design and development. Most of these activities are related to the development of cosmetic, fragrance and toiletry products. ENVIRONMENTAL MATTERS Pursuant to Avon's global environmental policy, environmental audits are conducted to ensure Avon facilities around the world meet or exceed local regulatory standards in such categories as waste disposal and air and water emissions. A corporate environmental operations committee ensures that opportunities for environmental performance improvements are reflected in our products and packaging. In general, compliance with environmental regulations which impact Avon's global operations has not had, and is not anticipated to have, any material effect upon the capital expenditures, financial position or competitive position of Avon. Reference is made to Item 3 of this report for additional information regarding environmental matters. EMPLOYEES At December 31, 1995, Avon employed approximately 31,800 people. Of these, approximately 8,000 were employed in the United States and approximately 23,800 in other countries. The number of employees tends to rise from a low point in January to a high point in November and decreases somewhat in December when Christmas shipments are completed. ITEM 2. PROPERTIES Avon's principal properties consist of manufacturing laboratories for the production of cosmetics, fragrance and toiletries and fashion jewelry and distribution centers where offices are located and where finished merchandise is warehoused and shipped to Representatives in fulfillment of their orders. Substantially all of these properties are owned by Avon or its subsidiaries, are in good repair, adequately meet Avon's needs and operate at reasonable levels of productive capacity. The domestic manufacturing laboratories are located in Morton Grove, IL; Springdale, OH; and Suffern, NY; and the distribution centers are located in Atlanta, GA; Glenview, IL; Newark, DE; and Pasadena, CA. International properties include three manufacturing laboratories, including a fashion jewelry manufacturing laboratory in Ireland, and eight distribution centers in Europe; five manufacturing laboratories and eleven distribution centers in Latin America; one manufacturing and one distribution center in Canada; and four manufacturing laboratories and nine distribution centers in the Pacific. The research and development laboratories are located in Suffern, NY. Avon leases space for its executive and administrative offices in New York City and its fashion jewelry manufacturing facilities in Puerto Rico. During 1995, the Company signed new leases, commencing in 1997, for office facilities for the U.S. and global operations, which will be relocated within New York City. ITEM 3. LEGAL PROCEEDINGS Various lawsuits and claims (asserted and unasserted), arising in the ordinary course of business or related to businesses previously sold, are pending or threatened against Avon. 7 In 1991, a class action lawsuit was initiated against Avon on behalf of certain classes of holders of Avon's Preferred Equity-Redemption Cumulative Stock ("PERCS"). This lawsuit alleges various contract and securities law claims relating to the PERCS (which were fully redeemed that year). Avon has rejected the assertions in this case, believes it has meritorious defense to the claims, and is vigorously contesting this lawsuit. In the opinion of Avon's management, based on its review of the information available at this time, the difference, if any, between the total cost of resolving such contingencies and reserves recorded by Avon at December 31, 1995 should not have a material adverse impact on Avon's consolidated financial position or results of operations. Avon is involved in a number of proceedings arising out of the federal Superfund law and similar state laws. In some instances Avon, along with other companies, has been designated as a potentially responsible party which may be liable for costs associated with these various hazardous waste sites. Based upon Avon's current knowledge of proceedings, management believes, without taking into consideration any insurance recoveries, if any, that in the aggregate they would not have a material adverse impact on Avon's consolidated financial position or results of operations. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders during the quarter ended December 31, 1995. - ------------------------------------- Executive Officers of the Registrant Officers are elected by the Board of Directors at its first meeting following the Annual Meeting of Shareholders. Officers serve until the first meeting of the Board of Directors following the Annual Meeting of Shareholders at which Directors are elected for the succeeding year, or until their successors are elected, except in the event of death, resignation or removal, or the earlier termination of the term of office. Information regarding employment contracts between Avon and named executive officers is incorporated by reference to the "Contracts with Executives" section of Avon's Proxy Statement for the 1996 Annual Meeting of Shareholders. 8 Listed below are the executive officers of Avon, each of whom (except as noted) has served in various executive and operating capacities with Avon during the past five years: Elected Title Name Age Officer - ----- ---- --- ------- Chairman of the Board, Chief Executive Officer and Director................... James E. Preston 62 1971 President, Chief Operating Officer and Director................... Edward J. Robinson 55 1989 Senior Vice President, General Counsel and Secretary.................. Ward M. Miller, Jr. 63 1993 (1) Senior Vice President and Chief Financial Officer.............. Edwina D. Woodbury 44 1990 Senior Vice Presidents..................... Christina A. Gold 48 1993 Marcia L. Worthing 53 1988 Group Vice President, Taxes and Treasurer...................... Robert J. Corti 46 1988 Vice President and Controller..................... Michael R. Mathieson 43 1995(2) (1) Ward M. Miller, Jr. was elected Senior Vice President, General Counsel and Secretary in October 1994. Mr. Miller joined Avon in February 1993 as Vice President. Prior to joining Avon, he was Senior Vice President and General Counsel of Nabisco Brands; and Vice President, Associate General Counsel and Secretary of its parent, RJR Nabisco. (2) Michael R. Mathieson was elected Vice President and Controller in April 1995. Mr. Mathieson joined Avon in May 1990 as Assistant Corporate Controller. Prior to joining Avon, he was Vice President and Director of Accounting Research for Chase Manhattan Bank. PART II ITEM 5. MARKET FOR THE REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS This information is incorporated by reference to "Market Prices of Common Stock by Quarter" on page 41 of Avon's 1995 Annual Report to Shareholders. ITEM 6. SELECTED FINANCIAL DATA The information for the five-year period 1991 through 1995 is incorporated by reference to the "Eleven-Year Review" on pages 58 and 59 of Avon's 1995 Annual Report to Shareholders. 9 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION This information is incorporated by reference to "Management's Discussion and Analysis" on pages 29 through 40 of Avon's 1995 Annual Report to Shareholders. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA This information is incorporated by reference to the "Consolidated Financial Statements and Notes" on pages 42 through 56, together with the report thereon of Coopers & Lybrand, L.L.P., on page 57, and "Results of Operations by Quarter" on page 41 of Avon's 1995 Annual Report to Shareholders. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Information regarding directors is incorporated by reference to the " Election of Directors" and "Information Concerning the Board of Directors" sections of Avon's Proxy Statement for the 1996 Annual Meeting of Shareholders. Information regarding executive officers is presented in Part I of this report. ITEM 11. EXECUTIVE COMPENSATION This information is incorporated by reference to the "Information Concerning the Board of Directors" and "Executive Compensation" sections of Avon's Proxy Statement for the 1996 Annual Meeting of Shareholders. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT This information is incorporated by reference to the "Ownership of Shares" section of Avon's Proxy Statement for the 1996 Annual Meeting of Shareholders. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS This information is incorporated by reference to the "Compensation Committee Interlocks and Insider Participation" section and the "Contracts with Executives" section of Avon's Proxy Statement for the 1996 Annual Meeting of Shareholders. 10 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
Annual Report to Form 10-K Shareholders Page Page Number Number (a) 1. Consolidated Financial Statements of Avon Products, Inc. and Subsidiaries Consolidated statement of income for each of the years in the three-year period ended December 31, 1995 42 Consolidated balance sheet at December 31, 1995 and 1994 43 Consolidated statement of cash flows for each of the years in the three-year period ended December 31, 1995 44 Consolidated statement of changes in shareholders' equity for each of the years in the three-year period ended December 31, 1995 45 Notes to consolidated financial statements 46-56 Report of Independent Accountants Coopers & Lybrand L.L.P..............57 (a) 2. Financial Statement Schedules Report of Independent Accountants Coopers & Lybrand L.L.P S-1 Consent of Independent Accountants Coopers & Lybrand L.L.P S-2 Financial statement schedule for each of the years in the three-year period ended December 31, 1995 VIII-- Valuation and qualifying accounts S-3
Financial statements of the registrant and all other financial statement schedules are omitted because they are not applicable or because the required information is shown in the consolidated financial statements and notes. 11 (a) 3. Exhibits Exhibit Number Description - ---------- -------------- 3.1 Restated Certificate of Incorporation of Avon, filed with the Secretary of State of the State of New York on August 12, 1988 (incorporated by reference to Exhibit 3.1 to Avon's Annual Report on Form 10-K for the year ended December 31, 1993). 3.2 By-laws, as amended to April 27, 1990, of Avon (incorporated by reference to Exhibit 3.1 to Avon's Quarterly Report on Form 10-Q for the quarter ended March 31, 1990). 4.1 Instrument defining the rights of holders of Avon's preferred share purchase rights to purchase Avon's Series A Junior Participating Preferred Stock (reference is made to Article IIIA of the restated Certificate of Incorporation of Avon, filed with the Secretary of State of New York State on August 12, 1988 and included as Exhibit 3.1 to the 1993 Annual Report on Form 10-K). 4.2 Rights Agreement, dated as of March 30, 1988 (the "Rights Agreement"), between Avon and First Chicago Trust Company of New York (as successor to Morgan Shareholder Services Trust Company) (incorporated by reference to Exhibit 1 to Avon's Registration Statement on Form 8-A, filed April 7, 1988). 4.3 Amendment, dated as of January 3, 1989, to the Rights Agreement (incorporated by reference to Exhibit 3 to Avon's Amendment No. 1 on Form 8, filed January 4, 1989, amending its Registration Statement on Form 8-A, filed April 7, 1988). 4.4 Second Amendment, dated as of April 5, 1990, to the Rights Agreement (incorporated by reference to Exhibit 4(c) to Avon's Current Report on Form 8-K, dated April 5, 1990). 4.5 Third Amendment, dated as of May 10, 1990, to the Rights Agreement (incorporated by reference to Exhibit 4(d) to Avon's Current Report on Form 8-K, dated May 10, 1990). 4.6 Revolving Credit and Competitive Advance Facility Agreement, dated as of October 5, 1994, among Avon, Avon Capital Corporation and a group of banks and other lenders (incorporated by reference to Exhibit 4.1 to Avon's Quarterly Report on Form 10-Q for the quarter ended September 30, 1994). 10.1* Avon Products, Inc. 1993 Stock Incentive Plan, approved by stockholders May 6, 1993 (incorporated by reference to Exhibit 10.2 to Avon's Quarterly Report on Form 10-Q for the quarter ended June 30, 1993). 10.2* Form of Stock Option Agreement to the Avon Products, Inc. 1993 Stock Incentive Plan (incorporated by reference to Exhibit 10.2 to Avon's Annual Report on Form 10-K for the year ended December 31, 1993). 12 10.3* Avon Products, Inc. 1994 Long-Term Incentive Plan, effective as of January 1, 1994 (incorporated by reference to Exhibit 10.3 to Avon's Annual Report on Form 10-K for the year ended December 31, 1993). 10.4* Avon Products, Inc. 1970 Stock Option Incentive Plan, as amended and restated through May 4, 1989 (incorporated by reference to Exhibit 4.6 to Avon's Registration Statement on Form S-8, Registration No. 33-28653, filed May 18, 1989). 10.5* First Amendment, dated as of November 5, 1992, to the Avon Products, Inc. 1970 Stock Option Incentive Plan as amended and restated through May 4, 1989 (incorporated by reference to Exhibit 10.1 to Avon's Quarterly Report on Form 10-Q for the quarter ended March 31, 1993). 10.6* Supplemental Executive Retirement Plan and Supplemental Life Plan of Avon Products, Inc., as amended and restated as of September 1, 1994 (incorporated by reference to exhibit 10.6 to Avon's Annual Report on Form 10-K for the year ended December 31, 1994). 10.7* Benefit Restoration Pension Plan of Avon Products, Inc., effective as of January 1, 1994 (incorporated by reference to Exhibit 10.7 to Avon's Annual Report on Form 10-K for the year ended December 31, 1994). 10.8* Trust Agreement, amended and restated as of March 2, 1990, between Avon and Chase Manhattan Bank, N.A. (incorporated by reference to Exhibit 10.2 to Avon's Quarterly Report on Form 10-Q for the quarter ended March 31, 1990). 10.9* First Amendment, dated as of January 30, 1992, to the Trust Agreement, dated as of March 2, 1990, by and between Avon and Chase Manhattan Bank, N.A. (incorporated by reference to Exhibit 10.2 to Avon's Quarterly Report on Form 10-Q for the quarter ended March 31, 1993). 10.10* Second Amendment, dated as of June 12, 1992 to the Trust Agreement, dated as of March 2, 1990, by and between Avon and Chase Manhattan Bank, N.A. (incorporated by reference to Exhibit 10.3 to Avon's Quarterly Report on Form 10-Q for the quarter ended March 31, 1993). 10.11* Third Amendment, dated as of November 5, 1992, to the Trust Agreement, dated as of March 2, 1990, by and between Avon and Chase Manhattan Bank, N.A. (incorporated by reference to Exhibit 10.4 to Avon's Quarterly Report on Form 10-Q for the quarter ended March 31, 1993). 10.12* The Avon Products, Inc. Deferred Compensation Plan, as amended and restated as of October 8, 1990 (incorporated by reference to Exhibit 10.5 to Avon's Annual Report on Form 10-K for the year ended December 31, 1991). 10.13* First Amendment, dated as of November 5, 1992, to the Avon Products, Inc. Deferred Compensation Plan, as amended and restated as of October 8, 1990 (incorporated by reference to Exhibit 10.5 to Avon's Quarterly Report on Form 10-Q for the quarter ended March 31, 1993). 13 10.14* Trust Agreement, dated as of April 12, 1995, between Avon and Chemical Bank, amending and restating the Trust Agreement as of August 3, 1989 between Avon and Manufacturers Hanover Trust Company. 10.15* Instrument of Amendment, effective as of April 1, 1990 amending various employee benefit plans and agreements as stipulated in the Instrument of Amendment (incorporated by reference to Exhibit 10.3 to Avon's Quarterly Report on Form 10-Q for the quarter ended March 31, 1990). 10.16* Employment Agreement, dated as of November 1, 1995, between Avon and James E. Preston. 10.17* Stock Option Agreement between Avon and James E. Preston dated October 30, 1995. 10.18* Non-Qualified Stock Option Award, dated as of December 5, 1991, granted by Avon to James E. Preston (incorporated by reference to Exhibit 10.11 to Avon's Annual Report on Form 10-K for the year ended December 31, 1991). 10.19* Employment Agreement, dated as of September 1, 1994, between Avon and Edward J. Robinson (incorporated by reference to Exhibit 10.1 to Avon's Quarterly Report on Form 10-Q for the quarter ended September 30, 1994). 10.20* Restricted Stock Agreement, effective as of November 4, 1993, granted by Avon to Edward J. Robinson (incorporated by reference to Exhibit 10.21 to Avon's Annual Report on Form 10-K for the year ended December 31, 1993). 10.21* Form of Employment Agreement, dated as of September 1, 1994, between Avon and certain senior officers (incorporated by reference to Exhibit 10.2 to Avon's Quarterly Report on Form 10-Q for the quarter ended September 30, 1994). 10.22* Avon Products, Inc. Directors' Retirement Plan, effective as of January 1, 1988 (incorporated by reference to Exhibit 10.22 to Avon's Annual Report on Form 10-K for the year ended December 31, 1991). 10.23* First Amendment, dated as of November 5, 1992, to the Avon Products, Inc. Directors' Retirement Plan (incorporated by reference to Exhibit 10.6 to Avon's Quarterly Report on Form 10-Q for the quarter ended March 31, 1993). 10.24* Trust Agreement, dated as of December 31, 1991, between Avon and Manufacturers Hanover Trust Company (incorporated by reference to Exhibit 10.23 to Avon's Annual Report on Form 10-K for the year ended December 31, 1991). 10.25* First Amendment, dated as of November 5, 1992, to the Trust Agreement dated as of December 31, 1991, by and between Avon and Manufacturers Hanover Trust Company (incorporated by reference to Exhibit 10.7 to Avon's Quarterly Report on Form 10-Q for the quarter ended March 31, 1993). 11.1 Statement re computation of primary income per share. 11.2 Statement re computation of fully diluted income per share. 14 13 Portions of the Annual Report to Shareholders for the year ended December 31, 1995, incorporated by reference in response to Items 1,5 through 8 in this filing. 21 Subsidiaries of the registrant. 21 Subsidiaries of the registrant. 23 Consent of Coopers & Lybrand L.L.P. (set forth on page S-2 of this Annual Report on Form 10-K). 24 Power of Attorney 27. Financial Data Schedule 99 Financial statements for the Avon Products, Inc., Employees' Savings and Stock Ownership Plan and the Avon Mirabella/Lomalinda Employees' Savings Plan for the year ended December 31, 1995 will be filed by amendment. * The Exhibits identified above and in the Exhibit Index with an asterisk (*) are management contracts or compensatory plans or arrangements. (b) Reports on Form 8-K A report on Form 8-K dated December 8, 1995 was filed. This report disclosed the agreement with Mallinckrodt Group, Inc. setting litigation initiated by Mallinckrodt. (c) Avon's Annual Report on Form 10-K for the year ended December 31, 1995, at the time of filing with the Securities and Exchange Commission, shall modify and supersede all prior documents filed pursuant to Section 13, 14 or 15(d) of the Securities Exchange Act of 1934 for purposes of any offers or sales of any securities after the date of such filing pursuant to any Registration Statement or Prospectus filed pursuant to the Securities Act of 1933, which incorporates by reference such Annual Report on Form 10-K. 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, on the 7th day of March 1996. Avon Products, Inc. By /s/WARD M. MILLER, JR. -------------------------------- Ward M. Miller, Jr. Senior Vice President, General Counsel and Secretary 15 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature Title Date - ----------- ----- ----- Chairman of the Board and Chief Executive Officer--Principal * Executive Officer - ---------------- and Director March 27, 1996 James E. Preston President, Chief * Operating Officer and - ---------------- Director March 27, 1996 Edward J. Robinson Senior Vice President and Chief Financial * Officer--Principal - ----------------- Financial Officer March 27, 1996 Edwina D. Woodbury Vice President and * Controller--Principal - ------------------- Accounting Officer March 27, 1996 Michael R. Mathieson BRENDA BARNES* ) RICHARD S. BARTON ) DANIEL B. BURKE ) REMEDIOS DIAZ OLIVER*) EDWARD T. FOGARTY* ) STANLEY C. GAULT ) GEORGE V. GRUNE* ) Directors March 27, 1996 CHARLES S. LOCKE* ) ANN S. MOORE* ) JOSEPH A. RICE* ) CECILY C. SELBY* ) *By/s/ WARD M. MILLER, JR. - ----------------------------------- March 27, 1996 Ward M. Miller, Jr. Attorney-in-fact S-1 REPORT OF INDEPENDENT ACCOUNTANTS To the Shareholders of Avon Products, Inc. Our report on the consolidated financial statements of Avon Products, Inc. and subsidiaries as of December 31, 1995 and 1994 and for each of the years in the three-year period ended December 31, 1995 has been incorporated by reference in this Form 10-K from page 57 of the 1995 Annual Report to Shareholders of Avon Products, Inc. In connection with our audits of such financial statements, we have also audited the related financial statement schedule for each of the years in the three-year period ended December 31, 1995, as listed in the Index under Item 14(a)2 of this Form 10-K. In our opinion, the financial statement schedule for each of the years in the three-year period ended December 31, 1995 referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information required to be included therein. New York, New York February 1, 1996 /s/Coopers & Lybrand L.L.P. S-1 S-2 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the following Registration Statements of Avon Products, Inc.: Form S-8 (Reg. No. 2-37955), Form S-8 (Reg. No. 2-48080), Form S-8 (Reg. No. 2-61285), Form S-8 (Reg. No. 2-83235), Form S- 8 (Reg. No. 2-94959), Form S-8 (Reg. No. 33-28653), Form S-8 (Reg. No. 33-47209), Form S-8 (Reg. No. 33-60218), Form S-8 (Reg. No. 33-60918), Form S-8 (Reg. No. 33-65998), Post Effective Amendment No. 1 to Form S-8 (Reg. No. 2- 98707), and Pre-Effective Amendment No. 1 to Form S-8 (Reg. No. 33-22099), of our reports dated February 1, 1996 on our audits of (i) the consolidated financial statements of Avon Products, Inc. as of December 31, 1995 and 1994 and for each of the years in the three-year period ended December 31, 1995, which report is included in the 1995 Annual Report to Shareholders and incorporated by reference in this Annual Report on Form 10-K and (ii) the 1995, 1994 and 1993 financial statement schedule of Avon Products, Inc., which report is included in this Annual Report on Form 10-K. New York, New York March 27, 1996 /s/Coopers & Lybrand L.L.P. S-2 S-3 AVON PRODUCTS, INC. AND SUBSIDIARIES SCHEDULE VIII--VALUATION AND QUALIFYING ACCOUNTS (In millions) Years ended December 31
Additions ------------------- Balance at Charged to Charged Balance beginning costs and to other at end of period expenses accounts Deductions of period --------- --------- -------- ---------- --------- 1995 Allowance for doubtful accounts receivable $27.3 $78.0 $----- $72.7(a) $32.6 ===== ===== ===== ====== ===== 1994 Allowance for doubtful accounts receivable $22.0 $64.9 $----- $59.6(a) $27.3 ===== ===== ===== ====== ===== 1993 Allowance for doubtful accounts receivable $21.4 $51.4 $----- $50.8(a) $22.0 ===== ===== ===== ====== =====
(a) Accounts written off, net of recoveries and foreign currency translation adjustment. S-3 EX-99 2 EX-INDEX SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ____________ FORM 10-K Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended December 31, 1995 Commission file number 1-4881 --------------------- AVON PRODUCTS, INC. (Exact name of registrant as specified in its charter) ____________ EXHIBITS INDEX TO EXHIBITS (a) 3. Exhibits Exhibit Number Description - ---------- -------------- 3.1 Restated Certificate of Incorporation of Avon, filed with the Secretary of State of the State of New York on August 12, 1988 (incorporated by reference to Exhibit 3.1 to Avon's Annual Report on Form 10-K for the year ended December 31, 1993). 3.2 By-laws, as amended to April 27, 1990, of Avon (incorporated by reference to Exhibit 3.1 to Avon's Quarterly Report on Form 10-Q for the quarter ended March 31, 1990). 4.1 Instrument defining the rights of holders of Avon's preferred share purchase rights to purchase Avon's Series A Junior Participating Preferred Stock (reference is made to Article IIIA of the restated Certificate of Incorporation of Avon, filed with the Secretary of State of New York State on August 12, 1988 and included as Exhibit 3.1 to the 1993 Annual Report on Form 10-K). 4.2 Rights Agreement, dated as of March 30, 1988 (the "Rights Agreement"), between Avon and First Chicago Trust Company of New York (as successor to Morgan Shareholder Services Trust Company) (incorporated by reference to Exhibit 1 to Avon's Registration Statement on Form 8-A, filed April 7, 1988). 4.3 Amendment, dated as of January 3, 1989, to the Rights Agreement (incorporated by reference to Exhibit 3 to Avon's Amendment No. 1 on Form 8, filed January 4, 1989, amending its Registration Statement on Form 8-A, filed April 7, 1988). 4.4 Second Amendment, dated as of April 5, 1990, to the Rights Agreement (incorporated by reference to Exhibit 4(c) to Avon's Current Report on Form 8-K, dated April 5, 1990). 4.5 Third Amendment, dated as of May 10, 1990, to the Rights Agreement (incorporated by reference to Exhibit 4(d) to Avon's Current Report on Form 8-K, dated May 10, 1990). 4.6 Revolving Credit and Competitive Advance Facility Agreement, dated as of October 5, 1994, among Avon, Avon Capital Corporation and a group of banks and other lenders (incorporated by reference to Exhibit 4.1 to Avon's Report on Form 10-Q for the quarter ended September 30, 1994). 10.1* Avon Products, Inc. 1993 Stock Incentive Plan, approved by stockholders May 6, 1993 (incorporated by reference to Exhibit 10.2 to Avon's Quarterly Report on Form 10-Q for the quarter ended June 30, 1993). 10.2* Form of Stock Option Agreement to the Avon Products, Inc. 1993 Stock Incentive Plan (incorporated by reference to Exhibit 10.2 to Avon's Annual Report on Form 10-K for the year ended December 31, 1993). 10.3* Avon Products, Inc. 1994 Long-Term Incentive Plan, effective as of January 1, 1994 (incorporated by reference to Exhibit 10.3 to Avon's Annual Report on Form 10-K for the year ended December 31, 1993). 10.4* Avon Products, Inc. 1970 Stock Option Incentive Plan, as amended and restated through May 4, 1989 (incorporated by reference to Exhibit 4.6 to Avon's Registration Statement on Form S-8, Registration No. 33-28653, filed May 18, 1989). 10.5* First Amendment, dated as of November 5, 1992, to the Avon Products, Inc. 1970 Stock Option Incentive Plan as amended and restated through May 4, 1989 (incorporated by reference to Exhibit 10.1 to Avon's Quarterly Report on Form 10-Q for the quarter ended March 31, 1993). 10.6* Supplemental Executive Retirement Plan and Supplemental Life Plan of Avon Products, Inc., as amended and restated as of September 1, 1994 (incorporated by reference to exhibit 10.6 to Avon's Annual Report on Form 10-K for the year ended December 31, 1994). 10.7* Benefit Restoration Pension Plan of Avon Products, Inc., effective as of January 1, 1994 (incorporated by reference to Exhibit 10.7 to Avon's Annual Report on Form 10-K for the year ended December 31, 1994). 10.8* Trust Agreement, amended and restated as of March 2, 1990, between Avon and Chase Manhattan Bank, N.A. (incorporated by reference to Exhibit 10.2 to Avon's Quarterly Report on Form 10-Q for the quarter ended March 31, 1990). 10.9* First Amendment, dated as of January 30, 1992, to the Trust Agreement, dated as of March 2, 1990, by and between Avon and Chase Manhattan Bank, N.A. (incorporated by reference to Exhibit 10.2 to Avon's Quarterly Report on Form 10-Q for the quarter ended March 31, 1993). 10.10* Second Amendment, dated as of June 12, 1992 to the Trust Agreement, dated as of March 2, 1990, by and between Avon and Chase Manhattan Bank, N.A. (incorporated by reference to Exhibit 10.3 to Avon's Quarterly Report on Form 10-Q for the quarter ended March 31, 1993). 10.11* Third Amendment, dated as of November 5, 1992, to the Trust Agreement, dated as of March 2, 1990, by and between Avon and Chase Manhattan Bank, N.A. (incorporated by reference to Exhibit 10.4 to Avon's Quarterly Report on Form 10-Q for the quarter ended March 31, 1993). 10.12* The Avon Products, Inc. Deferred Compensation Plan, as amended and restated as of October 8, 1990 (incorporated by reference to Exhibit 10.5 to Avon's Annual Report on Form 10-K for the year ended December 31, 1991). 10.13* First Amendment, dated as of November 5, 1992, to the Avon Products, Inc. Deferred Compensation Plan, as amended and restated as of October 8, 1990 (incorporated by reference to Exhibit 10.5 to Avon's Quarterly Report on Form 10-Q for the quarter ended March 31, 1993). 10.14* Trust Agreement, dated as of April 12, 1995, between Avon and Chemical Bank, amending and restating the Trust Agreement as of August 3, 1989 between Avon and Manufacturers Hanover Trust Company. 10.15* Instrument of Amendment, effective as of April 1, 1990 amending various employee benefit plans and agreements as stipulated in the Instrument of Amendment (incorporated by reference to Exhibit 10.3 to Avon's Quarterly Report on Form 10-Q for the quarter ended March 31, 1990). 10.16* Employment Agreement, dated as of November 1, 1995, between Avon and James E. Preston. 10.17* Stock Option Agreement between Avon and James E. Preston dated October 30, 1995. 10.18* Non-Qualified Stock Option Award, dated as of December 5, 1991, granted by Avon to James E. Preston (incorporated by reference to Exhibit 10.11 to Avon's Annual Report on Form 10-K for the year ended December 31, 1991). 10.19* Employment Agreement, dated as of September 1, 1994, between Avon and Edward J. Robinson (incorporated by reference to Exhibit 10.1 to Avon's Quarterly Report on Form 10-Q for the quarter ended September 30, 1994). 10.20* Restricted Stock Agreement, effective as of November 4, 1993, granted by Avon to Edward J. Robinson (incorporated by reference to Exhibit 10.21 to Avon's Annual Report on Form 10-K for the year ended December 31, 1993). 10.21* Form of Employment Agreement, dated as of September 1, 1994, between Avon and certain senior officers (incorporated by reference to Exhibit 10.2 to Avon's Quarterly Report on Form 10-Q for the quarter ended September 30, 1994). 10.22* Avon Products, Inc. Directors' Retirement Plan, effective as of January 1, 1988 (incorporated by reference to Exhibit 10.22 to Avon's Annual Report on Form 10-K for the year ended December 31, 1991). 10.23* First Amendment, dated as of November 5, 1992, to the Avon Products, Inc. Directors' Retirement Plan (incorporated by reference to Exhibit 10.6 to Avon's Quarterly Report on Form 10-Q for the quarter ended March 31, 1993). 10.24* Trust Agreement, dated as of December 31, 1991, between Avon and Manufacturers Hanover Trust Company (incorporated by reference to Exhibit 10.23 to Avon's Annual Report on Form 10-K for the year ended December 31, 1991). 10.25* First Amendment, dated as of November 5, 1992, to the Trust Agreement dated as of December 31, 1991, by and between Avon and Manufacturers Hanover Trust Company (incorporated by reference to Exhibit 10.7 to Avon's Quarterly Report on Form 10-Q for the quarter ended March 31, 1993). 11.1 Statement re computation of primary income per share. 11.2 Statement re computation of fully diluted income per share. 13 Portions of the Annual Report to Shareholders for the year ended December 31, 1995, incorporated by reference in response to Items 1,5 through 8 in this filing. 21 Subsidiaries of the registrant. 21 Subsidiaries of the registrant. 23 Consent of Coopers & Lybrand L.L.P. (set forth on page S-2 of this Annual Report on Form 10-K). 24 Power of Attorney 27. Financial Data Schedule 99 Financial statements for the Avon Products, Inc., Employees' Savings and Stock Ownership Plan and the Avon Mirabella/Lomalinda Employees' Savings Plan for the year ended December 31, 1995 will be filed by amendment. * The Exhibits identified above and in the Exhibit Index with an asterisk (*) are management contracts or compensatory plans or arrangements. EX-10.14 3 EX-10.14 EXHIBIT 10.14 AVON PRODUCTS, INC. AMENDED AND RESTATED BENEFIT PROTECTION TRUST This Amended and Restated Trust Agreement made as of this 21st day of April, 1995, by and among Avon Products, Inc., a New York corporation (the "Company"), Chemical Bank, a banking corporation organized under the laws of the State of New York (the "Trustee"), and Buck Consultants, Inc. (the "Consulting Firm"), providing for the continuation of the trust known as the Avon Products Inc. Benefit Protection Trust (the "Trust") to provide a source for payments required to be made to executives (the "Executives") under the agreements listed on Exhibit A (the "Agreements") WITNESSETH THAT: WHEREAS, the Trust was established by that certain Trust Agreement dated as of August 3, 1989 between the Company as grantor and the Trustee as successor by merger to Manufacturers Hanover Trust Company, as trustee (the "Original Trust Agreement"); and WHEREAS, the Original Trust Agreement was amended by an agreement between the Company and Trustee dated as of June 8, 1994 (the Original Trust Agreement, as so amended, the "Amended Trust Agreement"); WHEREAS, the Company and the Trustee desire to amend and restate the Amended Trust Agreement as set forth below; and WHEREAS, the Company shall make contributions of cash and/or other property to the Trust, and may obtain a Letter of Credit, in each case to aid the Company in accumulating funds to satisfy the Company's obligations under the Agreements; NOW, THEREFORE, in consideration of the mutual under- takings of the parties and other good and valuable consider- ation, the parties hereto do hereby establish the Trust and agree that the Trust shall be comprised, held and disposed of as follows: Section 1: Definitions (a) "Adjustment Date" means each of the following days: (i) any date on which a Potential Change of Control oc- curs; (ii) any date on which a Change of Control occurs; (iii) the first day of each fiscal quarter of the Company after the occurrence of a Change of Control; (iv) any date following a Change of Control on which the Trustee notifies the Consulting Firm pursuant to Section 4 of an insufficiency in the funds available in the Benefit Contribution Account and under any Letter of Credit; and (v) any date following a Change of Control on which the Trustee notifies the Consulting Firm that it has used Trust Assets to pay compensation, expenses, fees or taxes pursuant to Section 9. (b) "Benefit Contribution Account" has the meaning set forth in Section 6(b). (c) "Benefit Contributions" has the meaning set forth in Section 3(a). (d) "Board" means the Board of Directors of the Company. (e) "Change of Control" means: (i) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of voting securities of the Company where such acquisition causes such Person to own 20% or more of 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"); provided, however, that for purposes of this subsection (i), the following acquisitions shall not be deemed to result in constitute a Change of Control: (A) any acquisition 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, (D) any acquisition by any corporation pursu- ant to a transaction which complies with all of clauses (A), (B) and (C) of subsection (iii) below; or (iv) any acquisition by any corporation pursuant to a transaction that complies with clauses (i), (ii) and (iii) of subsec- tion (c) below; and provided, further, that if any Person's beneficial ownership of the Outstanding Company Voting Securities reaches or exceeds 20% as a result of a transaction described in clause (i) or (ii) above, and such Person subsequently acquires beneficial ownership of additional voting securities of the Company, such subse- quent acquisition shall be treated as an acquisition that causes such Person to own 20% or more of the Outstanding Company Voting Securities or (ii) individuals who, as of the date hereof, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Company's shareholders, was approved by a vote of at least two-thirds of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or (iii) the approval by the shareholders of the Company of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company (a "Business Combination") or, if consummation of such Business Combination is subject, at the time of such approval by Shareholders, to the consent of any government or governmental agency, the obtaining of such consent (either explicitly or implicitly by consummation); excluding, however, such a Business Combi- nation pursuant to which (A) all or substantially all of the individuals and entities who were the beneficial owners of the Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 60% of, respectively, the then 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 Business Combination (including, without limitation, a corporation that 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 Business Combination of the Outstanding Company Voting Securities, (B) no Person (excluding any employee benefit plan (or related trust) of the Company or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 20% or more of, respectively, the then out- standing shares of common stock of the corporation result- ing from such Business Combination or the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership ex- isted prior to the Business Combination, and (C) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination; or (iv) approval by the shareholders of the Company of a complete liquidation or dissolution of the Company. (f) "Code" means the Internal Revenue Code of 1986, as amended. (g) "Contributions" means the Initial Contribution and all other contributions of cash and/or property to the Trust, whenever made. (h) "ERISA" means the Employee Retirement IncomeSecurity Act of 1974, as amended. (i) "Executives" has the meaning set forth in the first paragraph of this Agreement. (j) "Fee Contribution Account" has the meaning set forth in Section 6(b). (k) "Fee Contributions" has the meaning set forth in Section 3(a). (l) "Insolvent" has the meaning set forth in Section 5(a). (m) "Letter of Credit" means any letter of credit that may be obtained subsequent to the execution of this Trust Agreement pursuant to an agreement between the Company and one or more banking institutions providing for an irrevocable letter of credit in favor of the Trustee, in its capacity as Trustee ofthe Trust. (n) "Minimum Required Funding" has the meaning set forth in Section 3(c). (o) "Notice of Insolvency" has the meaning set forth in Section 5(c). (p) "Potential Change of Control" means: (i) the commencement of a tender or exchange offer by any third person (other than a tender or exchange offer which, if consummated, would not result in a Change of Control) for 20% or more of the then outstanding shares of common stock or combined voting power of the Company's then outstanding voting securities; (ii) the execution of an agreement by the Company, the consummation of which would result in the occurrence of a Change of Control; (iii) the public announcement by any person (including the Company) of an intention to take or to consider taking actions which if consummated would constitute a Change of Control other than through a contested election for directors of the Company; or (iv) the adoption by the Board, as a result of other circumstances, including circumstances similar or related to the foregoing, of a resolution to the effect that, for purposes of this Trust Agreement, a Potential Change of Control has occurred. (q) "Required Funding Amount" as of a given date means the present value of the aggregate maximum amount of all Required Payments that could become due under the Agreements, as determined by the Consulting Firm as of such date, taking into account any Required Payments that have previously been made and using the assumptions set forth on Exhibit B hereto. The Company may amend Exhibit B hereto at any time and from time to time before a Change of Control. After a Change of Control, Exhibit B may be amended only with the consent of the Consulting Firm and the Trustee. (r) "Required Payment" means any cash payments that become due under an Agreement upon or after a Change of Control as a result of the termination of the Executive's employment (whether such termination occurs before or after the Change of Control) or the imposition of the tax imposed under Section 4999 of the Code or any similar tax that may hereafter be imposed, but excluding any payments that would be made from any other grantor trust created by the Company. (s) "Trust" has the meaning set forth in the first paragraph of this Trust Agreement. (t) "Trust Assets" means all contributions to the Trust by the Company and any amounts drawn by the Trustee under any Letter of Credit, together with any earnings thereon and other increases thereof, reduced by any losses and distributions from the Trust and any other reductions thereof. Section 2: Establishment of Trust (a) Contributions. The Company has previously made an initial contribution under the Original Trust Agreement, which, together with all future Contributions and any amounts drawn by the Trustee under any Letter of Credit, shall constitute the principal of the Trust to be held, administered and disposed of by the Trustee in accordance with this Trust Agreement. (b) Grantor Trust. The Trust is intended to be a grantor trust of which the Company is the grantor, within the meaning of Section 671 of the Code, and shall be construed accordingly. The Trust is notdesigned or intended to qualify under Section 401(a) of the Code. (c) Trust Assets. The Trust Assets shall be held separate and apart from other funds of the Company and shall be used exclusively for the uses and purposes herein set forth. The Executives shall not have any preferred claim on, nor any beneficial ownership interest in, any of the Trust Assets before the Trust Assets are paid to the Executives pursuant to the terms of this Trust Agreement, and all rights created under the Agreements and this Trust Agreement shall be mere unsecured contractual rights of the Executives against the Company. The Trust Assets shall at all times be subject to the claims of the Company's general creditors under Federal and state law in ac- cordance with Section 5. (d) Amendment of Exhibit A. Exhibit A may be amended by the Company from time to time before a Change of Control to add or delete Agreements. After the occurrence of a Potential Change of Control, however, no Agreement may be deleted from Exhibit A unless the Executive who is a party to such consent has given his or her written content thereto to the Trustee and the Consulting Firm. Exhibit A may not be amended after a Change of Control. Section 3: Funding (a) Contributions. The Company shall make additional Contributions to the Trust in accordance with Sections 3(c) and 9 of this Trust Agreement, and such other Contributions as the Board deems appropriate from time to time. The Trustee shall be responsible only for Contributions actually received by it hereunder, and the Trustee shall have no duty or responsibility with respect to the timing, amounts and sufficiency of the Contributions made or to be made by the Company hereunder, except as otherwise provided in Section 3(c), Section 4 and Section 9 of this Agreement. All Contributions shall be classified as intended to provide funding either for the payment of compensation, expenses and taxes pursuant to Section 9 of this Trust Agreement ("Fee Contributions") or for payments to Executives pursuant to Section 4 of this Trust Agreement ("Benefit Contributions"). The previously made initial contribution, all additional Contributions pursuant to Section 9, and any other Contributions by the Company that the Board so designates, shall be considered Fee Contributions. All other Contributions and all amounts drawn by the Trustee on any Letter of Credit shall be considered Benefit Contributions. (b) Letter of Credit. Prior to a Change of Control, the Trustee shall draw upon any Letter of Credit only when and to the extent so directed by the Company. (c) Required Funding. As soon as practicable fol- lowing each Adjustment Date, but in no event later than fifteen business days thereafter, (i) the Consulting Firm shall de- termine and notify the Company and the Trustee of the Required Funding Amount as of that Adjustment Date, and (ii) the Trustee shall determine and notify the Company and the Consulting Firm of the amounts in the Benefit Contribution Account and the Fee Contribution Account as of that Adjustment Date. If, as of the Adjustment Date, the amount in the Fee Contribution Account is less than One Hundred Thousand Dollars ($100,000), then within ten business days after receiving notice thereof, the Company shall make additional Fee Contributions so as to cause the amount in the Fee Contribution Account to equal or exceed One Hundred Thousand Dollars ($100,000). If, as of any Adjustment Date on which a Potential Change of Control occurs, the amount then held in the Benefit Contribution Account is not equal to at least eighty percent (80%) of the Required Funding Amount ("Minimum Required Funding"), then within thirty days after receiving such notice the Company shall make additional Benefit Contributions and/or the Trustee shall draw down such amount under any Letter of Credit, or a combination thereof, so as to provide funding of the Benefit Contribution Account that will equal or exceed the Minimum Required Funding. Within thirty days after receiving such notice with respect to any other Ad- justment Date, the Trustee may draw from any Letter of Credit such additional amount (if any) as may be necessary to provide the Benefit Contribution Account with the Minimum Required Funding as of that Adjustment Date (or such higher level of funding up to 100% of the Required Funding Amount as of the Adjustment Date as the Trustee in its discretion shall then deem appropriate). (d) Distributions. Notwithstanding any other provision of this Trust Agreement to the contrary, at any time and from time to time before a Change of Control, the Company may direct the Trustee to distribute to the Company, and upon such direction the Trustee shall distribute to the Company, any por- tion of the Trust Assets (in cash or in kind, as directed by the Company), so long as Trust Assets having a value of at least $1,000 remain in the Trust. After a Change of Control, if, as of any Adjustment Date, the amount, if any, in the Benefit Contribution Account exceeds 150 percent of the Required Funding Amount, the Company may elect, by so notifying the Trustee within 45 days after the Adjustment Date, to eliminate such excess by requiring the Trustee to distribute Trust Assets to the Company; provided, however, that any such distribution shall be made exclusively from the Benefit Contribution Account. (e) Duty to Inform of Trigger Event; Notification of Trigger Event by Executives. The Company shall have the duty to inform the Trustee and the Consulting Firm whenever a Change of Control or Potential Change of Control (as the case may be) occurs. If within any period of sixty consecutive days any two Executives give the Trustee written notice that a Change of Control or Potential Change of Control (as the case may be) has occurred, setting forth the factual basis for that assertion, and the Trustee determines that there is a reasonable basis on which to conclude that a Change of Control or Potential Change of Control (as the case may be) has occurred, the Trustee shall so notify the Company and the Consulting Firm and, unless within five business days thereafter the Company delivers to the Trustee and the Consulting Firm an opinion of outside legal counsel to the Company (which opinion may be based upon representations of fact, as long as such counsel does not know that such representations are untrue) that a Change of Control or Potential Change of Control (as the case may be) has not occurred, then a Change of Control or Potential Change of Control (as the case may be) will be deemed to have occurred. The Trustee shall give prompt notice of the occurrence of a Change of Control or Potential Change of Control (as the case may be) to all Executives. Section 4: Payments to Executives The Trustee shall make all Required Payments that become due under the Agreements directly to the Executives; provided, that the Trustee shall withhold from such Required Payments any Federal, state, local and foreign taxes that are required by applicable laws and regulations to be withheld and shall deliver and pay over any such withheld amounts to the appropriate taxing authorities, all in accordance with the Com- pany's instructions. In determining that a Required Payment has become due, the Trustee shall be entitled to rely upon the certification of an Executive that all conditions to the Execu- tive's right to receive the Required Payment have been met. Upon receiving such a certification, the Trustee shall request that the Consulting Firm determine, and the Consulting Firm shall determine, the amount of Required Payment, and the Trustee shall be entitled to rely on such determination. Such determination by the Consulting Firm shall be itemized as to the dollar values of the various principal forms of compensation due under the applicable Agreement, including the amount to be paid as a "Tax Reimbursement Payment" (related to any excise taxes that may be imposed on the Executive), which amount may separately be paid at a later date in accordance with the terms of the Agreement. All payments by the Trustee pursuant to this Section 4 shall be made from the Benefit Contribution Account to the extent of the positive balance thereof, and thereafter from amounts drawn upon the Letter of Credit. If the funds available in the Benefit Contribution Account and under any Letter of Credit are insufficient to make such payment, the Trustee shall promptly so notify the Company, the Consulting Firm and the Executive, and the Company shall make such payment to the extent of such insufficiency. The Trustee shall have no duty or responsibility with respect to the Company's obligation to make benefit payments under the Agreements. In no event shall a payment by the Trustee pursuant to this Section 4 be made from the Fee Contribution Account. Section 5: Trust Assets Subject to Claims of Creditors (a) Definition of Insolvency. The Company shall be considered "Insolvent" if (i) it is unable to pay its debts as they mature, or (ii) it is subject to a pending proceeding as a debtor under the United States Bankruptcy Code. (b) Trust Assets Subject to Claims of Creditors. At all times while the Trust is in existence, the Trust Assets shall be subject to the claims of general creditors of the Company under Federal and state law as set forth below. Not- withstanding the provisions of Section 4, whenever the Trustee has actual knowledge in its capacity as Trustee that the Company is Insolvent, or has received a Notice of Insolvency, the Trustee shall suspend making payments to the Executives and shall hold the Trust Assets for the benefit of the Company's general creditors, and shall promptly notify the Executives that it is doing so. During any period when payments to the Executives are suspended under this Section 5, the Trustee may nonetheless pay compensation, expenses, fees and taxes in ac- cordance with Section 9, unless it receives a court order to the contrary. If the Company subsequently ceases to be In- solvent without the entry of a court order concerning the dis- position of the Trust Assets, the Company shall give notice to the Trustee, the Consulting Firm and the Executives (i) stating that the Company is no longer Insolvent and (ii) setting forth the extent to which the Company has made directly to the Ex- ecutives any Required Payments that became due during the period that the Trustee had suspended payments. The Trustee shall thereupon resume payments pursuant to Section 4, including payments that became due and were not paid during the period of suspension. (c) Notice of Insolvency. A "Notice of Insolvency" means a written notice from the Board of Directors or the Chief Executive Officer of the Company that the Company is Insolvent, or a written notice from a person claiming to be a creditor of the Company (which person the Trustee considers to be reliable and responsible) alleging that the Company is Insolvent. The Board of Directors and the Chief Executive Officer of the Com- pany shall have the duty to give the Trustee a Notice of Insol- vency immediately upon the Company's becoming Insolvent. The Trustee shall be entitled to rely upon a Notice of Insolvency from the Board of Directors or the Chief Executive Officer of the Company and shall have no duty at any time to inquire whether the Company is Insolvent, except in response to a Notice of Insolvency from a person claiming to be a creditor of the Company. The Trustee may in all events rely upon such evi- dence concerning the Company's solvency as may be furnished to it by the Company that provides a reasonable basis for making a determination of whether the Company is Insolvent. Section 6: Accounting by the Trustee and the Consulting Firm; Provision of Information By the Company (a) Recordkeeping. The Trustee shall keep accurate and detailed records of all investments, receipts, disburse- ments, and all other transactions required to be done, including such specific records as shall be agreed upon in writing between the Company and the Trustee. Within sixty days following the close of each calendar year and within sixty days after the removal or resignation of the Trustee, the Trustee shall deliver to the Company and the Consulting Firm a written statement of its administration of the Trust during such year or during the period from the close of the last preceding year to the date of such removal or resignation, setting forth all investments, receipts, disbursements and other transactions effected by it, including a description of all securities and investments purchased and sold with the cost or net proceeds of such purchases or sales (accrued interest paid or receivable being shown separately), showing all cash, securities and other property held in the Trust at the end of such year or as of the date of such removal or resignation, as the case may be, and the book and fair market value of any such asset. (b) Accounts. The Benefit Contributions, together with the earnings thereon, and the Fee Contributions, together with the earnings thereon, shall be reflected by the Trustee in two separate accounts called the "Benefit Contribution Account" and the "Fee Contribution Account," respectively. Whenever it is necessary under this Trust Agreement to determine the amount in either the Benefit Contribution Account or the Fee Contribu- tion Account, the Trustee shall determine the value of the as- sets in that account in its discretion, and may consult with such experts as it deems necessary to determine such value. (c) Provision of Information. The Company shall furnish the Trustee and the Consulting Firm with copies of the Agreements and any and all amendments thereto. Exhibit C sets forth the names and addresses of each Executive currently cov- ered by an Agreement together with his or her current annual rate of salary, most recent Annual Bonus, and the target value of his or her Performance Units award the Company's 1994 Long- Term Incentive Plan. The Company shall amend Exhibit C as of April 1 of each year and in any event as and when necessary to ensure that it is complete and accurate at all times. The Com- pany shall promptly provide the Trustee and the Consulting Firm with any and all other information that they reasonably request or that the Company believes would be useful to them in carrying out their duties hereunder, and shall promptly update such information as and when it changes. (d) Inspection of Records. This Trust Agreement and the Exhibits hereto, as amended from time to time, and all ac- counts, books and records maintained pursuant to this Section 6 shall be open to inspection and audit at all reasonable times by the Company and the Executives. Section 7: Investment Authority (a) Trustee Discretion. Except as otherwise spe- cifically provided in this Trust Agreement, the Trustee shall have full discretion in and sole responsibility for investment, management and control of the Trust Assets. Notwithstanding the foregoing, the Trust Assets shall be invested solely in one or more money market mutual funds consisting primarily of U.S. matters would use in the conduct of an enterprise of like character and with like aims. The Trustee shall not be liable for any act or failure to act under this Agreement, if any such action were taken or omitted, as the case may be, in good faith or in accordance with the express provisions of this Agreement The Trustee's duties and obligations shall be limited to those expressly imposed upon it by this Agreement, notwithstanding any reference to the Agreements. In no event, however, shall the Trustee be liable for special, consequential or punitive damages. (b) Consulting Firm Not Fiduciary. It is not in- tended that the Consulting Firm be a fiduciary with respect to the Trust, and the Consulting Firm shall have no liability to the Company or any Executive as a result of the exercise of its discretion in determining the Required Funding Amount under this Trust Agreement, except to the extent such exercise involves negligence or misconduct on the part of the Consulting Firm. (c) Counsel. The Trustee and the Consulting Firm may consult with legal counsel (who may also be counsel for the Company) with respect to any of its duties or obligations hereunder, and shall be fully protected in acting or refraining from acting in accordance with the advice of such counsel, and the Company shall be responsible for the payment of any such expenses and compensation. (d) Consultants. The Trustee and the Consulting Firm may employ suitable agents, including attorneys, accountants, financial consultants, and other experts, and the Company shall be responsible for the payment of their expenses and compensation. Section 9: Compensation, Expenses, Fees and Taxes The Trustee and the Consulting Firm shall each be entitled to receive such reasonable compensation for their services as shall be agreed upon by the Company and the Trustee or the Consulting Firm, as the case may be. The Trustee and the Consulting Firm shall also beentitled to receive their reasonable expenses incurred with respect to the administration of the Trust, including without limitation fees incurred pursuant to Sections 8(c) and (d) of this Trust Agreement and any expenses incurred in the course of appointing a successor Trustee pursuant to Section 10(b) or a successor Consulting Firm pursuant to Section 11(b). Such compensation and expenses shall be paid by the Company and if not so paid, shall be paid by the Trustee from the Trust Assets. To the extent that any taxes are payable by the Trust to any Federal, state, local or foreign taxing authorities on account of earnings on or transactions involving Trust Assets, such taxes shall be paid by the Company and if not so paid, shall be paid by the Trustee from the Trust Assets. In the event any Trust Assets are used pur- suant to the preceding sentences to pay compensation, expenses, or taxes, such payments shall be made from the Fee Contribution Account to the extent of the positive balance therein, and then from the Benefit Contribution Account to the extent of the pos- itive balance therein; and (ii) Trustee shall notify the Company and the Consulting Firm of such payments, and the Company shall promptly contribute to the Trust the amount of such payments, plus interest thereon at a rate equal to the short-term applicable Federal rate, as defined in Section 1274(d) of the Code, or any successor thereto, from the date of such use through the date of the Contribution. Section 10: Resignation and Replacement of Trustee (a) Resignation or Removal. The Trustee may resign at any time during the term of this Trust by delivering to the Company a written notice of its resignation, and the Company may remove the Trustee at any time by delivering to the Trustee a written notice of such removal; provided, that any such res- ignation or removal shall not take effect unless and until a successor Trustee has been appointed in accordance with Section 10(b). After a Change of Control, the Trustee shall resign pursuant to the preceding sentence if, during any period of three months, two-thirds or more of the Executives give notice to the Trustee demanding such resignation. If, within 180 days of the delivery of notice of such resignation or removal, a successor Trustee shall not have been appointed, the Trustee may apply to any court of competent jurisdiction for the appointment of a successor Trustee. (b) Successor Trustee. In the event that the Trustee gives notice of its resignation, or the Company gives notice of its removal of the Trustee, in accordance with Section 10(a), a bank or trust company shall be appointed successor Trustee. Before a Change of Control, such appointment shall be made by the Company, and after a Change of Control, it shall be made by the Consulting Firm. The Company shall promptly notify the Consulting Firm of the name and address of a successor Trustee appointed by it, and the Consulting Firm shall promptly notif the Executives of the name and address of every successor Trustee. The appointment of a successor Trustee shall become final upon the giving of such notices, unless a Change of Control has previously occurred, in which event the appointment of a successor Trustee shall become final thirty days after the Executives are so notified unless more than one-third of the Executives have given the Consulting Firm written notice of their objection to the appointment. When the appointment of a successor Trustee becomes final, the Trustee shall thereupon deliver to the successor Trustee all property of this Trust, together with such records and documents as may be reasonably required to enable the successor Trustee to properly administer the Trust, reserving such funds as it reasonably deems necessary to cover its unpaid bills and expenses. (c) Succession. Upon appointment of a successor Trustee, all right, title and interest of the resigning or re- moved Trustee in the Trust Assets and all rights and privileges under this Trust Agreement theretofore vested in the resigning or removed Trustee shall vest in the successor Trustee where applicable, and the resigning or removed Trustee shall have no further obligations under this Trust Agreement; provided, how- ever, that the resigning or removed Trustee shall execute, ac- knowledge and deliver all documents and written instruments that are necessary to transfer and convey the right, title and interest in the Trust Assets, and all rights and privileges to the successor Trustee. (d) Accounting. Nothing in this Trust Agreement shall be interpreted as depriving the Trustee or the Company of the right to have a judicial settlement of the Trustee's ac- counts, and upon any proceeding for a judicial settlement of the Trustee's accounts or for instructions the only necessary parties thereto will be the Trustee and the Company. Section 11: Resignation and Replacement of Consulting Firm (a) Resignation or Removal. The Consulting Firm may resign at any time during the term of this Trust by delivering to the Company a written notice of its resignation, and the Company may remove the Consulting Firm at any time by delivering to the Consulting Firm a written notice of such removal. After a Change of Control, the Trustee shall remove the Consulting Firm if, during any period of three months, two-thirds or more of the Executives give notice to the Trustee requesting such removal. No such resignation or removal shall take effect unless and until a successor Consulting Firm has been appointed in accordance with Section 11(b). (b) Successor Consulting Firm. In the event that the Consulting Firm gives notice of its resignation, or the Company or the Trustee gives notice of its removal of the Consulting Firm, in accordance with Section 11(a), a firm of compensation or retirement plan consultants or certified public accountants shall be appointed the successor Consulting Firm. Before a Change of Control, such appointment shall be made by the Company, and after a Change of Control, it shall be made by the Trustee. The Company shall promptly notify the Trustee of the name and address of a successor Consulting Firm appointed by it, and the Trustee shall promptly notify the Executives of the name and address of every successor Consulting Firm. The appointment of a successor Consulting Firm shall become final upon the giving of such notices, unless a Change of Control has previously occurred, in which event the appointment of a successor Consulting Firm shall become final thirty days after the Executives are so notified unless more than one-third of the Executives have given the Trustee written notice of their ob- jection to the appointment. When the appointment of a successor Consulting Firm becomes final, the Consulting Firm shall thereupon deliver to the successor Consulting Firm all records and documents in its possession as may be reasonably required to enable the successor Consulting Firm properly to carry out its duties under this Trust Agreement. Section 12: Amendment or Termination (a) Amendment. This Trust Agreement may be amended at any time and from time to time before a Change of Control by a written instrument executed by the Trustee, the Company and the Consulting Firm. This Trust Agreement may not be amended after a Change of Control. (b) Irrevocable. Except as provided in Section 3(d), the Trust shall be irrevocable and may be terminated only upon the receipt by the Trustee of a certification from the Consulting Firm that (i) all liabilities to the Executives under the Agreements have been satisfied or (ii) it has received the signed consent to the termination of the Trust of each Executive who remains entitled to payments pursuant to the Agreements; provided, that if the Company or the Consulting Firm notifies the Trustee that any payment made from the Trust or to be made pursuant to the Agreements is being contested, litigated or otherwise disputed, the Trust shall remain in effect until such contest, litigation or dispute is resolved. Upon such a termination of the Trust, the Trustee shall promptly transfer the Trust Assets (if any) to the Company. Section 13: Protection of the Trustee and the Consulting Firm. (a) The Company agrees, to the extent permitted by applicable law, to indemnify each of the Trustee and the Con- sulting Firm against and hold it harmless from any claim or liability that may be asserted against it by the Company or any other party, except on account of the Trustee's or the Con- sulting Firm's (as the case may be) own gross negligence or willful breach of its obligations under this Trust Agreement. Without limiting the generality of the foregoing, it shall not be considered a breach for the Trustee or the Consulting Firm, as the case may be, in good faith: (a) to rely upon a certi- fication of an authorized representative of the Company, or (in the case of the Trustee) the Consulting Firm, with respect to any instruction, direction or approval of the Company until a subsequent certification is filed with it; (b) to act upon any instrument, certificate, or paper believed by it to be genuine and to be signed or presented by the proper person or persons (and except as set forth in Sections 3(e) and 5(c), neither the Trustee nor the Consulting Firm shall be under any duty to make any investigation or inquiry as to any statement contained in any such writing but may accept the same as conclusive evidence of the truth and accuracy of the statements therein contained); or (c) in the case of the Trustee, to make distributions in accordance with the terms of this Trust Agreement and infor- mation or directions furnished to the Trustee by the Executives, the Consulting Firm or the Company. In addition, the Company agrees to indemnify the Trustee for, and hold it harmless against, and defend it against any and all liabilities, losses, costs or expenses (including reasonable attorneys' fees) of whatsoever kind and nature which may be imposed on, incurred by or asserted against it at any time by reason of (i) accepting any property contributed to the Trust in the Company's discretion or retaining such property as a Trust Asset at the Company's direction, or (ii) carrying out in good faith the responsibilities delegated to it under this Agreement, or by reason of any act or failure to act under this Agreement, if any such action was taken or omitted, as the case may be, in good faith or in accordance with the express provisions of this Trust Agreement; provided, that with respect to subclause (ii), the Trustee shall not be indemnified against any liability or expense for any action or inaction taken or omitted by the Trustee which, under the circumstances, the Trustee knows or has reason to know constitutes a violation of the law or a breach of its fiduciary duties. The Trustee shall not be required to give any bond or any other security for the faithful performance of its duties under this Trust Agreement, except as required by law. (b) Litigation. Neither the Trustee nor the Consulting Firm shall be required to undertake or to defend any litigation arising in connection with this Trust Agreement, unless it be first indemnified by the Company against its pro- spective costs, expenses and liability including counsel fees, and the Company hereby agrees to indemnify the Trustee and the Consulting Firm for such costs, expenses, and liability includ- ing counsel fees. The Company agrees to indemnify the Trustee and the Consulting Firm for any and all costs and expenses (in- cluding counsel fees) and shall hold the Trustee and the Con- sulting Firm harmless from any liability which may arise in connection with any disputes or litigation in connection with the Trust. Section 14: Notices All notices, consents and other communications here- under shall be in writing and shall be given by hand delivery or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: If to the Company: Avon Products, Inc. Nine West 57th Street New York, NY 10019-2683 Attention: General Counsel If to the Consulting Firm: Buck Consultants, Inc. Two Pennsylvania Plaza Attention: John J. Ponzini If to the Trustee: Chemical Bank 4 New York Plaza 4th Floor New York, New York 10004 Attention: Richard Hauptman If to the Executives: To the addresses set forth in Exhibit C or to such other address as a party shall have furnished to the others in writing in accordance herewith. Notice and communi- cations shall be effective when actually received by the addressee. Section 15: Severability and Alienation (a) Severability. Any provision of this Trust Agreement prohibited by law shall be ineffective to the extent of any such prohibition without invalidating or in any other way limiting the remaining provisions hereof. (b) No Alienation. The rights and benefits of the Executives under this Trust Agreement, and the payments to the Executives from the Trust Assets, may not be anticipated, as- signed, alienated or subject to attachment, garnishment, levy, execution or other legal or equitable process except as required by law. Any attempt by a Executive to anticipate, alienate, assign, sell, transfer, pledge, encumber or charge the same shall be void. The Trust Assets shall not in any manner be subject to the debts, contracts, liabilities, engagements or torts of any Executive, and payments hereunder shall not be considered assets of any Executive in the event of insolvency or bankruptcy. Section 16: Governing Law This Trust Agreement shall be governed by and con- strued in accordance with the laws of the state of New York, without reference to principles of conflicts of law. Section 17: Miscellaneous (a) Taxes. The Trustee shall be neither individually nor severally liable for any taxes of any kind levied or assessed under the existing or future laws against the Trust Assets. The Trustee shall withhold from each payment to a Executive any Federal, state, local and foreign taxes that are required by applicable laws and regulations to be withheld, in accordance with the Consulting Firm's instructions, and shall deliver and pay over such amounts to the Company for its payment to the appropriate taxing authorities. Any tax information applicable to an Executive shall be supplied to the Consulting Firm by the Company and the Consulting Firm shall have no responsibility for the accuracy of that information. (b) Satisfaction Under Agreements. Any payment to a Executive by the Trustee in accordance with Section 4 of this Trust Agreement shall, to the extent thereof, be in full satis- faction of all claims against the Trustee and the Company under the Agreements. Nothing in this Trust shall relieve the Company of its liability to make payments under the Agreements, except to the extent such liability is met by payments pursuant to Section 4 of this Trust Agreement. (c) Headings. Headings in this Trust Agreement are inserted for convenience of reference only and are not to be considered in the construction of the provisions hereof. (d) Counterparts. This Trust Agreement may be ex- ecuted in several counterparts, each of which shall be deemed an original, and said counterparts shall constitute but one and the same instrument. (e) Successors. This Trust Agreement shall inure to the benefit of, and be binding upon, the parties hereto and their successors and assigns. (f) Actions in Writing. Any action of the Company or the Consulting Firm pursuant to this Trust Agreement, including without limitation all orders, requests, directions, instructions and communications of information, shall be in writing signed on its behalf by an officer or named designee of the Company or the Consulting Firm (as the case may be). (g) Death or Disability of Executive. If at any time while this Trust is in existence, an Executive should die, references herein to that Executive shall be deemed to include the Executive's designated beneficiaries under the relevant Agreement or, if there are no such beneficiaries, the executor or administrator of the Executive's estate. If at any time while this Trust is in existence, a legal guardian should be appointed for an Executive, references herein to that Executive shall be deemed to include such legal guardian. IN WITNESS WHEREOF, the Company, the Trustee and the Consulting Firm have executed this Trust Agreement as of the date first above written. AVON PRODUCTS, INC. By:/S/ James E. Preston Name: James E. Preston Title: Chairman & Chief Executive Office CHEMICAL BANK By:/s/ Richard Hauptman Name: Richard Hauptman Title: Vice President BUCK CONSULTANTS, INC. By:/s/ John J. Ponzihi Name: John J. Ponzihi Title: Consulting Actuary Exhibit A Agreements Covered by the Avon Products, Inc., Benefit Protection Trust (Nine Agreements) Employment Agreements between Avon Products, Inc., and the following officers, such agreements dated as of the dates indicated: 1. James E. Preston, Chairman and Chief Executive Officer (dated November 5, 1992)* 2. Edward J. Robinson, President and Chief Oper- ating Officer (dated September 1, 1994) 3. Gail Blanke-Cusick, Senior Vice President (dated September 1, 1994) 4. Christina A. Gold, Senior Vice President (dated September 1, 1994) 5. Susan J. Kropf, Senior Vice President (dated September 1, 1994) 6. Ward M. Miller, Jr., Senior Vice President and General Counsel (dated November 3, 1994) 7. Edwina G. Woodbury, Senior Vice President and Chief Financial Officer (dated September 1, 1994) 8. Marcia L. Worthing, Senior Vice President (dated September 1, 1994) Updated as of April 1, 1995 _____________________ * Mr. Preston's agreement by its terms expires October 31, 1995. Prior to that date it will be amended or superceded by a new agreement. Exhibit B The Required Funding Amount shall be determined as of a given Adjustment Date assuming all cash payments would become due under an Agreement upon or after Change of Control and further assuming the Executive's termination of employment oc- curred as of the Adjustment Date, or if termination occurred prior to such date, the actual date of termination. The present value shall be determined, where appropriate, based on the assumptions specified in the Agreement. If the appropriate assumptions are not specified in the Agreement, the assumed interest rate shall equal the interest rate payable on one-year Treasury Bills in effect on the day that is 30 business days (where a business day is any day other than Saturday, Sunday or a legal holiday in the City of New York) prior to the Adjustment Date, and where mortality assumptions are required, the average of the applicable factors under the 1984 Buck Mortality Table shall be used. It shall be further assumed that the amount of any tax reimbursement payment to the Executive under the Agreement shall be based on the assumption that the maximum amount of applicable taxes are payable to the Executive. Any benefit costs, premiums or other payments to be made under the Agreement will be based on information provided by the Company. EX-10.16 4 EX-10.16 EXHIBIT 10.16 EMPLOYMENT AGREEMENT THIS AGREEMENT, by and between AVON PRODUCTS, INC., a New York corporation (the "Corporation"), and JAMES E. PRESTON (the "Executive"), dated as of this 1st day of November, 1995. W I T N E S S E T H: WHEREAS, the Corporation and the Executive have previously entered into an Employment Agreement dated as of November 5, 1992 ("1992 Agreement"), the term of which expires as of October 31, 1995; and WHEREAS, the Corporation and the Executive desire to enter into a new Employment Agreement effective as of November 1, 1995 succeeding the 1992 Agreement; and NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained, and other good and valuable consideration, the Corporation and the Executive do hereby agree as follows: 1. Employment. The Corporation shall continue to employ the Executive and the Executive agrees to continue to serve as an executive of the Corporation, in such capacities and upon such conditions as are hereinafter set forth. 2. Term. This Agreement is effective as of November 1, 1995 and shall expire as of May 7, 1998 ("Agreement Expiration Date"). The Executive's employment, however, may be terminated at an earlier date subject to the obligations of the parties upon such termination as are set forth hereinafter. 3. Position and Duties. (a) Position. The Executive shall continue to serve as Chairman of the Board and Chief Executive Officer of the Corporation, provided that at any time subsequent to May 1, 1997, if the Corporation's Board of Directors so elects, the Executive shall serve as Chairman of the Board with another officer of the Corporation concurrently serving as the Chief Executive Officer of the Corporation. (b) Business Time. The Executive agrees to devote his full business time during normal business hours to the business and affairs of the Corporation and to use his best efforts to perform faithfully and efficiently the responsibilities assigned to him hereunder, to the extent necessary to discharge such responsibilities, except for (i) time spent in managing his personal, financial and legal affairs and serving on corporate, civic or charitable boards or committees, in each case only if and to the extent not substantially interfering with the performance of such responsibilities, and (ii) periods of vacation to which he is entitled. The Executive's continuing to serve on any boards and committees on which he is serving or with which he is otherwise associated immediately preceding the date hereof, or his service on any other boards and committees of which the Corporation has knowledge and does not object, in writing, within thirty (30) days after first becoming aware of such service, shall not be deemed to interfere with the performance of the Executive's services to the Corporation. The Executive specifically is directed to continue to serve on the boards of which he is currently a member as of the date of this Agreement and to be absent from the Corporation's offices for such periods as may be necessary for him to properly discharge his responsibilities as a director. 4. Compensation. The Executive shall be entitled to the following compensation for as long as the Executive remains an employee of the Corporation; (a) Base Salary. The Executive shall continue to receive a base salary (the "Base Salary") payable in equal bi- weekly installments at an annual rate of $610,000 through December 31, 1996. His Base Salary for the year 1997 will be at an annual rate of $1,000,000 and for periods subsequent to 1997 at an annual rate of $1,100,000. Such Base Salary shall not serve to reduce any other obligation of the Corporation hereunder. (b) Annual Bonus. For each fiscal year of the Corporation during which he is employed by the Corporation the Executive shall be eligible to receive an annual bonus ("Annual Bonus") under the Corporation's Management Incentive Plan or successor annual incentive award plan. Such Annual Bonus shall be determined on the basis of an annual target bonus opportunity of (a) 50% of the Base Salary paid the Executive with respect to the years 1995 and 1996, and (b) at least 70% of the Base Salary paid the Executive with respect to years subsequent to 1996. Each Annual Bonus (or portion thereof) shall be paid in cash in February of the year next following the year for which the Annual Bonus (or prorated portion) is earned or awarded, unless electively deferred by the Executive pursuant to any deferral programs or arrangements that the Corporation may make available to the Executive. (c) Incentive and Savings Plans; Retirement and Death Benefit Programs. The Executive shall be entitled to participate in all incentive and savings plans and programs, including stock option plans and other equity-based compensation plans, and in all employee retirement, executive retirement and executive death benefit plans (including the SERP and SLIP) on a basis no less favorable than that basis available to senior officers of the Corporation The Executive is entitled to a death benefit under the SLIP of $2,000,000 and has accumulated the maximum 35 years of creditable services under the SERP, as of the date of the Agreement. (d) Other Benefit Plans. The Executive and his spouse, as the case may be, shall be entitled to participate in or be covered under all medical, dental, disability, group life, severance, accidental death and travel accident insurance plans and programs of the Corporation and any Affiliated Companies at the most favorable level of participation and providing the highest levels of benefits available to them. (e) Other Perquisites. The Executive shall also be entitled to continue to receive all forms of perquisite compensation that he has been provided immediately prior to the date of this Agreement. (f) Enhanced SERP Benefits. The provisions of this subsection (f) shall apply notwithstanding anything to the contrary in the SERP. Calculations of the Executive's SERP benefits shall include credit for hypothetical Base Salary and bonus compensation for the years 1992 through 1996, as set forth in Section 5(a) of the 1992 Agreement. 5. Termination. (a) Disability. The Corporation may terminate the Executive's employment upon the Executive's Disability, by giving to the Executive written notice of its intention to terminate his employment, and his employment with the Corporation shall terminate effective on the 90th day after receipt of such notice if the Executive shall fail to return to full-time performance of his duties within ninety (90) days after such receipt. (b) Voluntary Termination by Executive. Notwithstanding anything in this Agreement to the contrary, the Executive may, upon not less than thirty (30) days' written notice to the Corporation, voluntarily terminate employment for any reason (including retirement under the terms of the Corporation's retirement plan as in effect from time to time), provided that any termination by the Executive pursuant to Section 5(d) on account of Constructive Termination shall not be treated as a voluntary termination under this Section 5(b). The Executive will voluntarily retire effective as of the Agreement Expiration Date, at which time he will have attained age 65, and such retirement will be deemed to constitute voluntary termination for the purpose of the Agreement. (c) Termination by the Corporation. The Corporation at any time may terminate the Executive's employment for Cause or without Cause. (d) Constructive Termination. The Executive at any time may terminate his employment for Constructive Termination. (e) Notice of Termination. Any termination by the Corporation for Cause or by the Executive for Constructive Termination shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 14(c). For purposes of this Agreement, a "Notice of Termination" means a written notice given, in the case of a termination for Cause, within ten (10) business days of the Corporation's having actual knowledge of the events giving rise to such termination, and in the case of a termination for Constructive Termination, within 180 days of the Executive's having actual knowledge of the events giving rise to such termination, and which (i) indicates the specific termination provision in this Agreement relied upon, (ii) sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated, and (iii) if the termination date is other than the date of receipt of such notice, specifies the termination date of this Agreement (which date shall be not more than fifteen (15) days after the giving of such notice). The failure by the Executive to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Constructive Termination shall not waive any right of the Executive hereunder or preclude the Executive from asserting such fact or circumstance in enforcing his rights hereunder. (f) Date of Termination. For the purpose of this Agreement, the term "Date of Termination" means (i) in the case of a termination for which a Notice of Termination is required, the date of receipt of such Notice of Termination or, if later, the date specified therein, as the case may be and (ii) in all other cases, the actual date on which the Executive's employment terminates. 6. Obligations of the Corporation Upon Termination. Upon termination of the Executive's employment with the Corporation, the Corporation shall have the following obligations (including the obligation to pay the cost of all benefits provided by the applicable benefit plan to the Executive and the Executive's family under this Section 6 except normal employee contributions required by the applicable benefit plan of other participating executives with comparable responsibilities), provided, however, that any item paid or payable under this Agreement shall be reduced by any amount paid or payable to the Executive and the Executive's family with respect to the same type of payment under any severance program maintained by the Corporation. For this purpose, any payment under any severance program maintained by the Corporation made over time shall be discounted to present value at the Interest Rate before reducing any payment under this Agreement by any amount paid or payable to the Executive under such a program. (a) Death and Retirement. If the Executive's employment is terminated by reason of the Executive's death, this Agreement shall terminate without further obligations to the Executive's legal representatives under this Agreement other than payment of the Accrued Obligations. Unless otherwise directed by the Executive (or, in the case of a Qualified Plan, as may be required by such plan) all Accrued Obligations shall be paid to the Executive, his beneficiaries or his estate, as applicable, in a lump sum in cash within thirty (30) days of the Date of Termination. In the event of the retirement of the Executive, he and his family shall be entitled to benefits generally available upon retirement to other senior officers of the Corporation. In the event of the Executive's death, his family shall be entitled to receive benefits generally available to the surviving families of other senior officers of the Corporation. (b) Disability. If the Executive's employment is terminated by reason of the Executive's Disability, the Executive, and the Executive's spouse shall be entitled to continue to participate in or be covered under the benefit plans and programs referred to in Section 4(d) or, at the Corporation's option, to receive equivalent benefits by alternate means, at least equal to those described in Section 4(d). Unless otherwise directed by the Executive (or, in the case of any Qualified Plan, as may be required by such plan), the Executive shall also be paid all Accrued Obligations in a lump sum in cash within thirty (30) days of the Date of Termination. In addition, the Executive and the Executive's spouse shall be entitled to receive disability and other benefits generally available to other senior officers of the Corporation. (c) Termination by the Corporation for Cause and Voluntary Termination by Executive. If the Executive's employment shall be terminated for Cause or voluntarily terminated by the Executive (other than on account of Constructive Termination), the Corporation shall pay the Executive the Accrued Obligations. The Executive shall be paid all such Accrued Obligations in a lump sum in cash within thirty (30) days of the Date of Termination and the Corporation shall have no further obligations to the Executive under this Agreement, unless otherwise required by a Qualified Plan or specified pursuant to a valid election to defer the receipt of all or a portion of such payments made in accordance with any plan of deferred compensation sponsored by the Corporation. (d) Other Termination of Employment. If the Corporation terminates the Executive's employment other than for Cause or Disability, or the Executive terminates his employment for Constructive Termination, the Corporation shall pay or provide the Executive the following: (A) Cash Payment. The Corporation shall pay to the Executive in a lump sum in cash within fifteen (15) days after the Date of Termination the aggregate of the following amounts (other than amounts payable from Qualified Plans, non- qualified retirement plans and deferred compensation plans, which amounts shall be paid in accordance with the terms of such plans): (1) all Accrued Obligations; (2) a cash amount equal to two (2) times the sum of (I) the Executive's annual Base Salary at the greater of the rate in effect as of the date when the Notice of Termination was given or the rate payable, or prospectively payable, to the Executive for the year 1997 (one million dollars) as provided in Section 4(a); and (II) the greater of (x) the Annual Bonus earned by or awarded to the Executive for the last fiscal year of the Corporation ending prior to the Date of Termination or (y) the annual target bonus opportunity percentage applied to the rate of Base Salary payable, or prospectively payable, to the Executive for the year 1997 (70%) as provided in Section 4(b). In the event such Date of Termination occurs prior to May 1, 1997 and such date is within one hundred eighty (180) days of a Change of Control Date, the cash amount determined under Section 6(d)(A)(2) shall be three (3) times the sum of (I) and (II) above. (3) a cash amount equal to the difference between (I) the sum of the maximum payments the Executive would have received for all awards (or other similar rights) outstanding at the Date of Termination and granted to the Executive under any long-term incentive compensation or performance plan of the Corporation if he had continued in the employ of the Corporation through the Agreement Expiration Date and the Corporation had met its maximum performance goals under each such award and the maximum amount payable under each such award was paid and (II) any amounts actually paid under any such plan with respect to such awards. The cash amount payable pursuant to this paragraph shall include the maximum payment value of all outstanding Performance Units awarded the Executive under the Corporation's 1994 Long- Term Incentive Plan reduced by any amounts actually paid or payable under such plan with respect to such units; (4) a cash amount equal to the present value, calculated using the Interest Rate, of the difference between (I) the lump sum value of the retirement benefits (including, without limitation, any pension, retiree life, or retiree medical benefits) that would have been payable or available to the Executive under any Qualified Plan, under the SERP, and under any other supplemental retirement, life (other than the SLIP) or medical plan or arrangement, whether or not qualified, maintained by the Corporation or an Affiliated Company based on the age and service the Executive would have attained or completed had the Executive continued in the Corporation's employ until the Agreement Expiration Date, determined using, where compensation is a relevant factor, his pensionable compensation at the Date of Termination (or, if greater, at the rate in effect on the date on which occurred an event giving rise to a Constructive Termination), with such lump sum value being calculated using, where applicable, assumptions contained in the respective plans; and (II) the lump sum value of the retirement benefits (including, without limitation, any pension, retiree life, or retiree medical benefits) that are payable or available to the Executive under any Qualified Plan, under the SERP, and under any other supplemental retirement, life (other than the SLIP) or medical plan or arrangement, whether or not qualified, maintained by the Corporation or an Affiliated Company based on the age and service the Executive has attained or completed as of the Executive's Date of Termination determined using, where compensation is a relevant factor, his pensionable compensation at the Date of Termination (or, if greater, at the rate in effect on the date on which occurred an event giving rise to a Constructive Termination), with such lump sum value being calculated using, where applicable, assumptions contained in the respective plans. The retirement benefits which would have become payable under such plans include, without limitation, the additional benefits attributable to such additional service which would have been rendered during such period and the benefits which would have vested under such plans as a result of such service, but which were otherwise forfeited. Notwithstanding the foregoing, in lieu of any cash payment in respect of retiree life or retiree medical coverage for which the Executive would have qualified by remaining in the Corporation's employ until the Agreement Expiration Date, the Corporation may arrange at its option or shall arrange at the election of the Executive for such coverage to continue for the Executive (or may secure equivalent conversion coverage) and shall pay the cost of such coverage. Any election by the Executive pursuant to the immediately preceding sentence shall be made in writing and delivered to the Corporation prior to the Date of Termination. (B) SLIP Coverage. The Executive shall continue to be covered under the SLIP and his beneficiaries shall continue to be eligible to receive such supplemental life allowance as if he had continued in the employ of the Corporation until the Agreement Expiration Date reduced by the face amount of any fully paid whole life insurance policy the Executive receives pursuant to the SLIP. (C) Other Benefit Continuation. The Corporation shall provide for the continued participation of the Execu- tive, and his spouse, as the case may be, until the Agreement Expiration Date, in the plans described in Section 4(d) on the same terms as described in Section 4(d). In lieu of continued participation in medical and life insurance programs referred to the foregoing, the Executive may elect by written notice delivered to the Corporation prior to the Date of Termination, to receive an amount equal to the annual cost to the Corporation (based on premium rates) of providing such coverage. (e) Discharge of Corporation's Obligations. Subject to the performance of its obligations under Sections 6, 7, 8 and 11, the Corporation shall have no further obligations to the Executive under this Agreement in respect of any termination by the Executive for Constructive Termination or by the Corporation other than for Cause or Disability. 7. Vesting or Cash-Out of Stock Options and Restricted Stock. If the Corporation involuntarily terminates the Executive's employment for reasons other than for cause, or the Executive terminates his employment due to Disability or Constructive Termination, all of his outstanding restricted stock will immediately become vested and distributed and all of his outstanding stock options shall become fully vested and exercisable, subject to the terms of applicable Stock Option Agreements executed by the Corporation and the Executive. Such stock options shall also become fully vested in the event of death, disability or early retirement with the consent of the Board of Directors. In the event of a Change of Control the Executive shall be entitled a cash out of outstanding restricted stock, stock options and any other equity based awards in accordance with the terms of the Corporation's plans under which such awards were granted and subject to the terms of applicable Stock Option Agreements executed by the Corporation and the Executive. 8. Certain Further Payments by the Corporation. (a) Tax Reimbursement Payment. In the event that any amount or benefit paid or distributed to the Executive by the Corporation or any Affiliated Company, whether pursuant to this Agreement or otherwise (collectively, the "Covered Payments"), is or becomes subject to the tax (the "Excise Tax") imposed under Section 4999 of the Code or any similar tax that may hereafter be imposed, the Corporation shall either pay to the Executive or contribute for the benefit of the Executive to a "rabbi" trust established by the Corporation prior to the Change of Control Date, at the time specified in Section 8(e) below, the Tax Reimbursement Payment (as defined below). The Tax Reimbursement Payment is defined as an amount, which when added to the Covered Payments and reduced by any Excise Tax on the Covered Payments and any federal, state and local income tax and Excise Tax on the Tax Reimbursement Payment provided for by this Agreement (but without reduction for any federal, state or local income or employment tax on such Covered Payments), shall be equal to the sum of (i) the amount of the Covered Payments, and (ii) an amount equal to the product of any deductions disallowed for federal, state or local income tax purposes because of the inclusion of the Tax Reimbursement Payment in the Executive's adjusted gross income and the highest applicable marginal rate of federal, state or local income taxation, respectively, for the calendar year in which the Tax Reimbursement Payment is to be made. (b) Determining Excise Tax. For purposes of determining whether any of the Covered Payments will be subject to the Excise Tax and the amount of such Excise Tax, (i) such Covered Payments will be treated as "parachute payments" within the meaning of Section 280G of the Code, and all "parachute payments" in excess of the "base amount" (as defined under Section 280G(b)(3) of the Code) shall be treated as subject to the Excise Tax, unless, and except to the extent that, in the opinion of the Corporation's independent certified public accountants, which, in the case of Covered Payments made after the Change of Control Date, shall be the Corporation's independent certified public accountants appointed prior to the Change of Control Date, or tax counsel selected by such accountants (the "Accountants"), such Covered Payments (in whole or in part) either do not constitute "parachute payments" or represent reasonable compensation for services actually rendered (within the meaning of Section 280G(b)(4) of the Code) in excess of the "base amount", or such "parachute payments" are otherwise not subject to such Excise Tax, and (ii) the value of any non-cash benefits or any deferred payment or benefit shall be determined by the Accountants in accordance with the principles of Section 280G of the Code. (c) Applicable Tax Rates and Deductions. For purposes of determining the amount of the Tax Reimbursement Payment, the Executive shall be deemed: (i) to pay federal income taxes at the highest applicable marginal rate of federal income taxation for the calendar year in which the Tax Reimbursement Payment is to be made, (ii) to pay any applicable state and local income taxes at the highest applicable marginal rate of taxation for the calendar year in which the Tax Reimbursement Payment is to be made, net of the maximum reduction in federal income taxes which could be obtained from the deduction of such state or local taxes if paid in such year (determined without regard to limitations on deductions based upon the amount of the Executive's adjusted gross income), and (iii) to have otherwise allowable deductions for federal, state and local income tax purposes at least equal to those disallowed because of the inclusion of the Tax Reimbursement Payment in the Executive's adjusted gross income. (d) Subsequent Events. In the event that the Excise Tax is subsequently determined by the Accountants to be less than the amount taken into account hereunder in calculating the Tax Reimbursement Payment made, the Executive shall repay to the Corporation, at the time that the amount of such reduction in the Excise Tax is finally determined, the portion of such prior Tax Reimbursement Payment that has been paid to the Executive or to federal, state or local tax authorities on the Executive's behalf and that would not have been paid if such Excise Tax had been applied in initially calculating such Tax Reimbursement Payment, plus interest on the amount of such repayment at the rate provided in Section 1274(b)(2)(B) of the Code. Notwithstanding the foregoing, in the event any portion of the Tax Reimbursement Payment to be refunded to the Corporation has been paid to any federal, state or local tax authority, repayment thereof shall not be required until actual refund or credit of such portion has been made to the Executive, and interest payable to the Corporation shall not exceed interest received or credited to the Executive by such tax authority for the period it held such portion. The Executive and the Corporation shall mutually agree upon the course of action to be pursued (and the method of allocating the expenses thereof) if the Executive's good faith claim for refund or credit is denied. In the event that the Excise Tax is later determined by the Accountants to exceed the amount taken into account hereunder at the time the Tax Reimbursement Payment is made (including, but not limited to, by reason of any payment the existence or amount of which cannot be determined at the time of the Tax Reimbursement Payment), the Corporation shall make an additional Tax Reimbursement Payment in respect of such excess (which Tax Reimbursement Payment shall include any interest or penalty payable with respect to such excess) at the time that the amount of such excess is finally determined. (e) Date of Payment. The portion of the Tax Reimbursement Payment attributable to a Covered Payment shall be paid to the Executive or to a "rabbi" trust established by the Corporation prior to the Change of Control Date within ten (10) business days following the payment of the Covered Payment. If the amount of such Tax Reimbursement Payment (or portion thereof) cannot be finally determined on or before the date on which payment is due, the Corporation shall either pay to the Executive or contribute for the benefit of the Executive to a "rabbi" trust established by the Corporation prior to the Change of Control Date, an amount estimated in good faith by the Accountants to be the minimum amount of such Tax Reimbursement Payment and shall pay the remainder of such Tax Reimbursement Payment (which Tax Reimbursement Payment shall include interest at the rate provided in Section 1274(b)(2)(B) of the Code) as soon as the amount thereof can be determined, but in no event later than forty-five (45) calendar days after payment of the related Covered Payment. In the event that the amount of the estimated Tax Reimbursement Payment exceeds the amount subsequently determined to have been due, such excess shall be repaid or refunded pursuant to the provisions of Section 8(d) above. 9. Non-exclusivity of Rights. Nothing in this Agreement shall prevent or limit the Executive's continuing or future participation in any benefit, bonus, incentive or other plan or program provided by the Corporation or any of its Affiliated Companies and for which the Executive may qualify, nor shall anything herein limit or otherwise prejudice such rights as the Executive may have under any other agreements with the Corporation or any Affiliated Companies, including, but not limited to stock option or restricted stock agreements. Amounts which are vested benefits or which the Executive is otherwise entitled to receive under any plan or program of the Corporation or any Affiliated Companies at or subsequent to the Date of Termination shall be payable in accordance with such plan or program. 10. Full Settlement. Except as provided in Section 12(b), the Corporation's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any circumstances, including, without limitation, any set-off, counterclaim, recoupment, defense or other right which the Corporation may have against the Executive or others whether by reason of the subsequent employment of the Executive or otherwise. In no event shall the Executive be obligated to seek other employment by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement. 11. Legal Fees and Expenses. In the event that a claim for payment or benefits under this Agreement is disputed, the Corporation shall pay all reasonable attorney fees and expenses incurred by the Executive in pursuing such claim, provided that the Executive is successful as to at least part of the disputed claim by reason of litigation, arbitration or settlement. 12. Confidential Information and Noncompetition. (a) The Executive shall hold in a fiduciary capacity for the benefit of the Corporation all secret or confidential information, knowledge or data, including without limitation all trade secrets, relating to the Corporation or any Affiliated Companies, and their respective businesses, (i) obtained by the Executive during his employment by the Corporation or any of its Affiliated Companies and (ii) which is not otherwise publicly known (other than by reason of an unauthorized act by the Executive). After termination of the Executive's employment with the Corporation, the Executive shall not without the prior written consent of the Corporation, unless compelled pursuant to an order of a court or other body having jurisdiction over such matter, communicate or divulge any such information, knowledge or data to anyone other than the Corporation and those designated by it. In no event shall an asserted violation of the provisions of this Section 12(a) constitute a basis for deferring or withholding any amounts otherwise payable to the Executive under this Agreement. (b) Upon termination of the Executive's employment for any reason whatsoever prior to a Change of Control, the Executive shall not, without the prior written consent of the Corporation, during the three-year period following the Date of Termination (i) accept employment or enter into a consulting or advisory arrangement with Amway Corporation, Sara Lee Corporation, Premark International, Inc., Mary Kay Cosmetics, Inc., or any of their affiliates; or (ii) directly solicit or aid in the direct solicitation of any employees of the Corporation or an Affiliated Company to leave their employment. In the event the Executive violates the terms of this Section 12(b), all benefit continuation coverage that the Executive and/or his family members are then receiving pursuant to the terms of Section 6(d) shall cease. Also, in the event that this Section 12(b) is determined to be unenforceable in part, it shall be construed to be enforceable to the maximum extent permitted by law. 13. Successors. (a) This Agreement is personal to the Executive and, without the prior written consent of the Corporation, shall not be assignable by the Executive otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive's legal representatives. (b) This Agreement shall inure to the benefit of and be binding upon the Corporation and its successors. The Corporation shall require any successor to all or substantially all of the business and/or assets of the Corporation, whether direct or indirect, by purchase, merger, consolidation, acquisition of stock, or otherwise, by an agreement in form and substance satisfactory to the Executive, expressly to assume and agree to perform this Agreement in the same manner and to the same extent as the Corporation would be required to perform if no such succession had taken place. 14. Miscellaneous. (a) Applicable Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York, applied without reference to principles of conflict of laws. (b) Amendments. This Agreement may not be amended or modified otherwise than by a written agreement executed by the parties hereto or their respective successors and legal representatives. (c) Notices. All notices and other communications hereunder shall be in writing and shall be given by hand-delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: If to the Executive: at the address listed on the last page hereof or such other address as provided to the Corporation in writing by the Executive. If to the Corporation: Avon Products, Inc. 9 West 57th Street New York, New York 10019 Attention: Secretary (with a copy to the attention of the General Counsel or to such other address as either party shall have furnished to the other in writing in accordance herewith). Notice and communications shall be effective when actually received by the addressee. (d) Tax Withholding. The Corporation may withhold from any amounts payable under this Agreement such federal, state or local taxes as shall be required to be withheld pursuant to any applicable law or regulation. (e) Severability. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. (f) Captions. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. (g) Entire Agreement. This Agreement expresses the entire understanding and agreement of the parties regarding the terms and conditions governing the Executive's employment with the Corporation, and all prior agreements governing the Executive's employment with the Corporation shall have no further effect; provided, however, that except as specifically provided herein, the terms of this Agreement do not supersede the terms of any grant or award to the Executive under the 1970 Stock Option Plan, the 1993 Stock Incentive Plan, any Long Term Incentive Plan, Management Incentive Plan and any other similar or successor plan or program. 15. Definitions. (a) "Accountants" shall have the meaning set forth in Section 8(b). (b) "Accrued Obligations" shall mean (i) the Executive's full Base Salary through the Date of Termination, (ii) in the case of death or retirement, the product of the Annual Bonus paid to the Executive for the last full fiscal year of the Corporation and a fraction, the numerator of which is the number of days in the current fiscal year of the Corporation through the Date of Termination, and the denominator of which is 365, (iii) any compensation previously deferred by the Executive (together with any accrued earnings thereon) and not yet paid by the Corporation and any accrued vacation pay for the current year not yet paid by the Corporation, (iv) any amounts or benefits owing to the Executive or to the Executive's beneficiaries under the then applicable employee benefit plans or policies of the Corporation and (v) any amounts owing to the Executive for reimbursement of expenses properly incurred by the Executive prior to the Date of Termination and which are reimbursable in accordance with the reimbursement policy of the Corporation described in Section 4(e). (c) "Affiliated Company" shall mean any company controlling, controlled by or under common control with the Corporation. (d) "Annual Bonus" shall have the meaning set forth in Section 4(b). (e) "Base Salary" shall have the meaning set forth in Section 4(a). (f) "Board" shall mean the Board of Directors of the Corporation. (g) "Cause" shall mean (i) an act or acts of dishonesty or gross misconduct on the Executive's part which result or are intended to result in material damage to the Corporation's business or reputation or (ii) repeated material violations by the Executive of his obligations under Section 3 of this Agreement which violations are demonstrably willful and deliberate on the Executive's part and which result in material damage to the Corporation's business or reputation and as to which material violations the Board has notified the Executive in writing. (h) "Change of Control" means: (A) the acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of voting securities of the corporation where such acquisition causes such person to own 20% or more of the combined voting power of the then outstanding voting securities of the Corporation entitled to vote generally in the election of directors (the "Outstanding Corporation Voting Securities"); provided, however, that for purposes of this Subsection (A), the following acquisitions shall not be deemed to result in a Change of Control: (i) any acquisition directly from the Corporation, (ii) any acquisition by the Corporation, (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Corporation or any corporation controlled by the Corporation or (iv) any acquisition by any corporation pursuant to a transaction that complies with clauses (i), (ii) and (iii) of Subsection (C) below; and provided, further, that if any Person's beneficial ownership of the Outstanding Corporation Voting Securities reaches or exceeds 20% as a result of a transaction described in clause (i) or (ii) above, and such Person subsequently acquires beneficial ownership of additional voting securities of the Corporation, such subsequent acquisition shall be treated as an acquisition that causes such Person to own 20% or more of the Outstanding Corporation Voting Securities; or (B) individuals who as of the date hereof, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Corporation's shareholders, was approved by a vote of at least two-thirds of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or (C) the approval by the shareholders of the Corporation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Corporation ("Business Combination") or, if consummation of such Business Combination is subject, at the time of such approval by shareholders, to the consent of any government or governmental agency, the obtaining of such consent (either explicitly or implicitly by consummation); excluding, however, such a Business Combination pursuant to which (i) all or substantially all of the individuals and entities who were the beneficial owners of the Outstanding Corporation Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 60% of, respectively, the then 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 Business Combination (including, without limitation, a corporation that as a result of such transaction owns the Corporation or all or substantially all of the Corporation's assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the Outstanding Corporation Voting Securities, (ii) no Person (excluding any employee benefit plan (or related trust) of the Corporation or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business Combination and (iii) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination; or (D) approval by the shareholders of the Corporation of a complete liquidation or dissolution of the Corporation. Notwithstanding the foregoing, no Change of Control shall be deemed to have occurred for purposes of this Agreement (i) by reason of any actions or events in which the Executive participates in a capacity other than in his capacity as Executive (or as a director of the Corporation or a Subsidiary, where applicable) or (ii) if prior to what otherwise would have been a Change of Control Date, the Executive is demoted below the position described in Section 3(a) hereof and the Board provides written notification to the Executive, no later than thirty (30) days thereafter, that a Change of Control will not be deemed to occur with respect to the Executive. (i) "Change of Control Date" shall mean the date on which a Change of Control shall be deemed to have occurred. (j) "Code" shall mean the Internal Revenue Code of 1986, as amended. (k) "Constructive Termination" shall mean any of the following: (A) Reduction in Base Salary below the applicable levels set forth in Section 4(a) or reduction in annual target bonus opportunity below the levels set forth in Section 4(b). (B) Any change to a position other than Chairman of the Board and Chief Executive Officer prior to May 1, 1997, absent the Executive's written consent, or removal from the position of Chairman of the Board prior to the Agreement Expiration Date absent the Executive's written consent. (C) The occurrence of a Change of Control, effective as the Change of Control Date, regardless of the Executive's compensation or position on or after such date. (D) A change of more than twenty-five (25) miles in the office or location where the Executive is based, provided that a change in the Executive's office location prior to a Change of Control which is directly caused by the relocation of the Corporation's headquarters office from its present address of 9 West 57th Street, New York City, must be more than fifty (50) miles from that address, in order to constitute an event of Constructive Termination. (l) "Covered Payments" shall have the meaning set forth in Section 8(a). (m) "Date of Termination" shall have the meaning set forth in Section 5(f). (n) "Disability" shall mean disability which would entitle the Executive to receive full long-term disability benefits under the Corporation's long-term disability plan on terms substantially similar to those of the long-term disability plan as in on the date of this Agreement. (o) "Excise Tax" shall have the meaning as set forth in Section 8(a). (p) "Interest Rate" shall mean the interest rate payable on one year Treasury Bills in effect on the day that is 30 business days (days other than Saturday, Sunday or legal holidays in the City of New York) prior to the Date of Termination. (q) "Notice of Termination" shall have the meaning as set forth in Section 5(f). (r) "Qualified Plan" shall mean an employee benefit plan qualified (or which is intended to be qualified) under Section 401(a) of the Code. (s) "SERP" shall mean the Supplemental Executive Retirement Plan of Avon Products, Inc. (t) "SLIP" shall mean the Supplemental Life Plan of Avon Products, Inc. (u) "Subsidiary" shall mean any majority owned subsidiary of the Corporation. (v) "Tax Reimbursement Payment" shall have the meaning set forth in Section 8(a). IN WITNESS WHEREOF, the Executive has hereunto set his hand and the Corporation has caused this Agreement to be executed in its name on its behalf, and its corporate seal to be hereunto affixed and attested by its Secretary, all effective as of the day and year first above written. AVON PRODUCTS, INC. By:/S/ Marcia L. Worthing Marcia L. Worthing, Senior Vice President, ATTEST: Human Resources, and Corporate Affairs /s/ Ward M. Miller, Jr. Ward M. Miller, Senior Vice President, General Counsel and Secretary (CORPORATE SEAL) EXECUTIVE: /s/ James E. Preston James E. Preston Address: Nodine Pasture Road P.O. Box 830 Kent, CT 06757 EX-10.17 5 EX-10.17 EXHIBIT 10.17 AVON PRODUCTS, INC. 1993 STOCK INCENTIVE PLAN STOCK OPTION AGREEMENT DATE OF GRANT: OCTOBER 30, 1995 1. Grant of Option. Pursuant to the provisions of the Avon Products, Inc., 1993 Stock Incentive Plan (the "Plan"), Avon Products, Inc. (the "Company"), on the above date has granted to James E. Preston (the "Optionee") the right and option to purchase from the Company a total of Three Hundred and Twenty Five Thousand (325,000) shares of Common Stock of the Company at the exercise price of $69.375 per share (the "Option"). This Option is subject to the terms and conditions of the Plan and those set forth in this Agreement. All capitalized terms used herein shall have the meaning set forth in the Plan, unless the context requires a different meaning. 2. Exercise of Option (a) Except as otherwise provided in this Agreement, this Option shall be exercisable in its entirety commencing May 7, 1998 and shall continue to be exercisable, in whole or in part, subject to the terms of Section 3 hereof. The Option may become exercisable at a date earlier than May 7, 1998 in the event of the Optionee's termination of employment due to death, permanent disability, involuntary termination by the Company other than for cause, or voluntary termination with the consent of the Company's Board of Directors. Except in the case of death, however, this Option may not be exercisable prior to November 2, 1996. (b) In accordance with the Plan this entire Option shall be immediately cashed out effective as of the date of any "Change in Control", regardless of whether or not otherwise exercisable. For this purpose, the "Change in Control Price" shall be the higher of (i) the highest price paid for a share of Stock as reported on the New York Stock Exchange Composite Tape during the 12 month period ending with the effective date of Change in Control or (ii) the highest cash tender offer price for a share of Stock during such period. In the event that a tender offer for Stock consists of a combination of cash and securities, the Change in Control Price calculated under (ii) would be based solely on the cash price equivalent of such offer. (c) Shares may be purchased by giving the Company's Corporate Secretary or Assistant Secretary written notice of exercise, specifying the number of shares to be purchased. The notice of exercise shall designate one of the following methods of purchase: (i) tender to the Company of a check for the full exercise price of the shares with respect to which such Option or portion thereof is exercised, or (ii) instructions to the Company to deliver all the shares being exercised to a broker-dealer with whom an arrangement has been made to deliver the full exercise price to the Company. The Company may establish special terms and conditions for this "cashless" exercise, and at any time may terminate 3. Expiration of Option. The Option shall expire or terminate and may not be exercised to any extent by the Optionee as of the first to occur of the following events: (a) November 1, 2005; (b) The Optionee's Termination of Employment for Cause (as defined below) or the Optionee's voluntary termination of employment without consent of the Company's Board of Directors; or (c) The Optionee's intentional material violation of any non- disclosure or non-compete covenant applicable to the Optionee as set forth in his employment agreement. Retirement prior to attainment of age 65 shall be deemed to constitute voluntary termination of employment for purposes of this Agreement. "Permanent Disability" shall have the same meaning as that provided by the Company's Long Term Disability Plan regardless of whether or not the Optionee is covered by such a plan. "Cause" shall have the same meaning as that provided by the Optionee's employment agreement dated as of November 1, 1995. 4. Tax Withholding. No distribution of shares may be made to the Optionee until the Company has received all amounts required for federal, state or local tax withholding. The method of discharging such withholding obligation shall be elected with the notice of exercise and may include (i) payment by check, (ii) withholding of that number of Option shares by the Company having a Fair Market Value equal to the amount required to satisfy such withholding obligation, or (iii) use of a 'cashless exercise' using a broker-dealer in a manner similar to that described in Section 2(c)(ii) hereof. The method of withholding shall be subject to such rules as the Committee may adopt from time to time. It is recognized by both parties that, based on current laws, the difference between the Fair Market Value of the shares purchased by an option exercise and the exercise price of such shares generally will constitute ordinary taxable income for federal income and "Medicare" tax purposes and for most state and local income tax purposes. 5. Non-Transferability. The Option is non-transferable, except by will or the laws of descent and distribution, if applicable, and shall be exercisable only by the Optionee or his estate subject to Section 3 hereof. 6. Notice. Any notices required to be given hereunder to the Company shall be addressed to the Secretary or Assistant Secretary of the Company at the Company's headquarters offices in New York City, New York. Any notice required to be given hereunder to the Optionee shall be addressed to the Optionee at his current address shown on the Company's records. Notice shall be sent by mail, express delivery or, if practical, by hand delivery. 7. Other Provisions. The provisions set forth in Section 5 of the Plan are specifically incorporated by reference in this Agreement, including but not limited to those pertaining to the following matters: a. Changes in Capitalization; Merger; Liquidation b. Right to Terminate Employment c. Non-alienation of Benefits d. Choice of Law IN WITNESS WHEREOF, the Company, by its duly authorized officer, and the Optionee, have entered this Agreement as of the Date of Grant first above written. AVON PRODUCTS, INC. /s/James E. Preston Marcia L. Worthing James E. Preston Marcia L. Worthing Senior Vice President, Human Resources and Corporate Affairs EX-10.21 6 EX-10.21 EXHIBIT 10.21 Exhibit 10.21 Form of Employment Agreement, dated as of September 1, 1994 between Avon Products, Inc. and certain senior officers (incorporated by reference to Exhibit 10.2 to Avon's Quarterly Report on Form 10-Q for the quarter ended September 30, 1994). Avon has an employment agreement with each of the following senior officers: Christina Gold Susan Kropf Ward Miller, Jr. Edwina Woodbury Marcia Worthing EX-11.1 7 EX-11.1 EXHIBIT 11.1 EXHIBIT 11.1 AVON PRODUCTS, INC. COMPUTATION OF PRIMARY INCOME (LOSS) PER SHARE (In millions, except per share data) Years ended December 31 ----------------------- 1995 1994 1993 ----- ----- ----- Weighted average shares of common stock: Weighted average shares outstanding during the year........ 68.24 70.59 72.06 Common stock equivalents.............. * * * Weighted average shares for primary ----- ----- ----- income per share computation....... 68.24 70.59 72.06 ===== ===== ===== Income applicable to common stock:.... Income from continuing operations..... $286.1 $264.8 $236.9 Discontinued operations, net.......... (29.6) (23.8) 2.7 Cumulative effect of accounting changes, net of taxes.............. - (45.2)(107.5) ------ ----- ----- Net income............................ $256.5 $195.8 $132.1 ===== ===== ===== Primary income (loss) per share: Continuing operations................. $ 4.19 $ 3.75 $ 3.28 Discontinued operations............... (.43) (.34) .04 Cumulative effect of accounting changes................. - (.64) (1.49) ------ ------ ------ Net income............................ $ 3.76 $ 2.77 $ 1.83 ===== ===== ===== - ------------- * common stock equivalents are not reported because they result in less than three percent dilution. EX-11.2 8 EX-11.2 EXHIBIT 11.2 EXHIBIT 11.2 AVON PRODUCTS, INC. COMPUTATION OF FULLY DILUTED INCOME (LOSS) PER SHARE (In millions, except per share data) Years ended December 31 ----------------------- 1995 1994 1993 ---- ---- ---- Weighted average shares of common stock: Weighted average shares outstanding during the year.. 68.24 70.59 72.06 Common stock equivalents........ .29 .19 .08 ----- ----- ----- Weighted average shares for fully diluted income per share computation............... 68.53 70.78 72.14 ===== ===== ===== Income applicable to common stock: Income from continuing operations.................. $286.1 $264.8 $236.9 Discontinued operations, net......................... (29.6) (23.8) 2.7 Cumulative effect of accounting changes, net of taxes................ - (45.2) (107.5) ------ ------ ------ Net income.................... $256.5 $195.8 $132.1 ====== ====== ====== Fully diluted income (loss) per share: Continuing operations.......... $ 4.17 $ 3.75 $ 3.28 Discontinued operations........ (.43) (.34) .04 Cumulative effect of accounting changes.......... - (.64) (1.49) ------ ------ ------ Net income.................... $ 3.74 $ 2.77 $ 1.83 ====== ====== ====== EX-13 9 EX-13 EXHIBIT 13 29 Management's Discussion and Analysis Avon Products, Inc. The following discussion of the results of operations and financial condition of Avon Products, Inc. ("Avon" or "Company") should be read in conjunction with the information contained in the Consolidated Financial Statements and Notes thereto. These statements have been prepared in conformity with generally accepted accounting principles and require management to make estimates and assumptions that affect amounts reported and disclosed in the financial statements and related notes. Actual results could differ from these estimates. Results of Operations Consolidated - Net income in 1995 was $256.5 million, or $3.76 per share, compared with $195.8 million, or $2.77 per share, in 1994. The 1995 results include a $29.6 million, or $.43 per share, after-tax charge to discontinued operations relating to a litigation settlement with Mallinckrodt Group, Inc. ("Mallinckrodt"). See Note 3 of the Notes to the Consolidated Financial Statements for further discussion of this settlement. In addition, the following one-time pretax items are included in the 1995 results: a gain of $25.0 million, net of related costs, from a cash settlement of a lease dispute and a $7.0 million gain, net of related expenses, due to a value- added tax refund in the United Kingdom. Partially offsetting these gains were charges of $12.0 million related to an early retirement program implemented in Japan and $11.0 million for severance costs, primarily in Europe, as part of Avon's program to reduce fixed expenses in certain markets. The gain in the United Kingdom and expenses in Japan and Europe are included in marketing, distribution and administrative expenses. The lease dispute related to prior year rent charges for the Company's headquarters building. The $25.0 million gain represents a $14.0 million recovery of disputed rent, which is included in marketing, distribution and administrative expenses, and $11.0 million of interest, net of related costs, which is included in other expense, net. The net effect of these one-time items was to increase income from continuing operations and net income by $7.6 million, or $.11 per share. The Japan and Europe expense reduction programs, which were substantially completed at December 31, 1995, generated approximately $6.0 million and $5.0 million, respectively, of pretax savings in 1995, with higher levels of annual savings anticipated to be realized in 1996 and beyond. The 1994 results included a loss of $23.8 million, or $.34 per share, for discontinued operations relating to the sale of Giorgio Beverly Hills, Inc. ("Giorgio"), and a non-cash charge for accounting changes of $45.2 million after tax, or $.64 per share. The charge for accounting changes was for the cumulative effect of changes in accounting principles for the following: Statement of Financial Accounting Standards ("FAS") No. 112, "Employers' Accounting for Postemployment Benefits", for all applicable operations of $28.9 million; FAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions", for foreign benefit plans of $8.0 million; and costs related to the development of information systems of $8.3 million. Net income for 1993 was $132.1 million, or $1.83 per share, which included a net charge for the cumulative effect of changes in accounting principles of $107.5 million after tax, or $1.49 per share, net income from discontinued operations related to Giorgio of $12.7 million and a $10.0 million charge to discontinued operations for the final settlement and related expenses in an arbitration proceeding related to a business previously sold. Net income per share from discontinued operations was $.04 in 1993. Continuing Operations - Income from continuing operations before the cumulative effect of accounting changes was $286.1 million, or 8 percent above 1994. Income per share from continuing operations increased 12 percent to $4.19 from $3.75 in the prior year. This 12 percent increase in income per share exceeded the 8 percent increase in income from continuing operations reflecting the impact of lower average shares outstanding in 1995 compared with the prior year due to the stock repurchase program begun in 1994. See Note 8 of the Notes to the Consolidated Financial Statements for further discussion of this program. Pretax income was $465.0 million, a 7 percent, or $31.2 million, increase over prior year. The increase was primarily due to higher sales and lower net interest and non-operating expenses. In addition, the increase in pretax income reflects the one-time items previously discussed. These favorable results were partially offset by a slight decline in the gross margin. Income from continuing operations in 1994 increased $27.9 million, or $.47 per share, from 1993. 31 Interest income in 1995 of $19.4 million decreased $2.7 million, or 12 percent, compared to last year due to lower interest rates and lower average cash balances in Brazil. Interest income in 1994 of $22.1 million decreased $3.2 million, or 13 percent, compared to 1993 due to lower average cash balances in Brazil in 1994. Other expense, net, was $20.6 million, a $12.5 million decrease from 1994. The decrease was primarily due to the $11.0 million portion of the previously discussed favorable lease settlement and lower monetary correction expense in Brazil, partially offset by higher non-operating expenses and unfavorable net foreign exchange in 1995. Other expense, net, was $33.1 million in 1994, a $14.4 million increase over 1993. The increase was primarily due to gains related to the sales of a non-operating investment and land in 1993 and higher non-operating expenses in 1994. Income taxes were $176.4 million in 1995 and the effective tax rate was 37.9 percent compared with $163.5 million and an effective tax rate of 37.7 percent in 1994. The effective tax rate was higher in 1995 due to the mix of earnings and income tax rates of international subsidiaries. The utilization of foreign net operating loss carryforwards did not significantly impact the effective tax rate in 1995. In 1994, the effective tax rate was 37.7 percent, compared with 38.2 percent in 1993. The lower effective tax rate in 1994 resulted primarily from the mix of earnings and tax rates of international subsidiaries and the utilization of foreign net operating loss carryforwards in 1994. Inflation in the United States has remained at a relatively low level during the last three years, and has not had a major effect on Avon's results of operations. Many countries in which Avon has operations have experienced higher rates of inflation than the United States. Among the countries in which Avon has significant operations, extremely high rates of inflation have been experienced in Brazil for a number of years. The annual inflation rate in Brazil, however, has decreased significantly in 1995 as the economic environment has improved as a result of the government's economic stabilization program implemented in mid-1994. While it is not possible to forecast with certainty, it is currently expected that Brazil's inflation rate will remain relatively stable throughout 1996. Venezuela and Mexico experienced high rates of inflation in 1995. Below is an analysis of the key factors affecting net sales and pretax income from continuing operations by geographic area for each of the years in the three-year period ended December 31, 1995. In millions Years ended December 31 1995 1994 1993 ---- ---- ---- Net Pretax Net Pretax Net Pretax Sales Income Sales Income Sales Income ------- ------ ------- ------ ------- ----- United States $1,584.8 $211.6 $1,535.1 $201.2 $1,395.6 $152.8 -------- ------ -------- ------ -------- ----- International Americas 1,466.9 265.8 1,415.3 273.9 1,175.2 196.4 Pacific 712.0 67.5 664.3 89.7 625.6 90.9 Europe 728.4 41.7 651.8 15.3 647.7 53.5 ------- ----- ------- ----- ------- ----- Total International 2,907.3 375.0 2,731.4 378.9 2,448.5 340.8 ------- ----- ------- ----- ------- ----- Total from operations $4,492.1 586.6 $4,266.5 580.1 $3,844.1 493.6 ======== ======= ======= Corporate expenses (74.6) (84.9) (69.0) Interest expense (41.3) (50.8) (45.2) Other (expense) income (5.7) (10.6) 15.2 ----- ----- ----- Total $465.0 $433.8 $394.6 ====== ====== ===== 32 U.S. - U.S. sales increased 3 percent to $1.58 billion and pretax income increased 5 percent to $211.6 million in 1995. The increase in sales reflects a 2 percent increase in the number of Representative orders and a 1 percent increase in average order size. Units sold increased 3 percent over 1994. The sales improvement was driven by increases in the apparel and fragrance and color cosmetics categories, partially offset by declines in the jewelry and gift categories. A full year of apparel sales in 1995, a category originally launched in March 1994, the Fall introduction of the Diane Von Furstenberg collections and the success of the children's and novelty lines all contributed to the increase in apparel sales. The increase in the fragrance and color cosmetics category was driven by the successful launch of Avon's newest global fragrance, Rare Gold, in the fourth quarter and the introductions of Incredible Lengths Mascara and Perfect Wear for Eyes in 1995. The increase in pretax income was primarily due to the sales increase and lower overall operating expenses, despite a significant increase in the price of paper in 1995. These improvements were partially offset by a lower gross margin resulting from higher sales of the lower margin apparel line and margin investments, including clearance sales, to reduce inventory levels. In addition, the margin was impacted by an increase in the demand for new and attractively- priced holiday products as well as some incremental costs incurred in meeting the demand for several of these products. In 1994, U.S. sales increased 10 percent to $1.54 billion and pretax income increased 32 percent to $201.2 million. The increase in sales reflects a 6 percent increase in average order size and a 4 percent increase in the number of Representative orders. Units sold increased 5 percent over 1993. The sales improvement was driven by the introduction of the new apparel line in 1994, a strong increase in sales of color cosmetics and increases in most other major product categories. The increase in pretax income was primarily due to the sales increase and an improved operating expense ratio. The improved operating expense ratio reflects the sales increase, lower marketing- related expenses, primarily advertising, and expense savings resulting from the 1992 restructuring program. The increase was partially offset by a lower gross margin due to a shift in the sales mix to the lower margin apparel line. International - International sales increased 6 percent to $2.91 billion and pretax income of $375.0 million was slightly below 1994. Excluding the one- time items previously mentioned, pretax income increased 3 percent. The increase in sales reflects the favorable impact of the weaker U.S. dollar in the Europe and Pacific Regions and strong unit growth in the Americas Region, especially Brazil, most Pacific Rim markets, and the United Kingdom. These improvements were partially offset by a significant sales decline in Mexico due to the negative impact of the peso devaluation and reduced consumer spending due to the weak economy. In addition, there were operational sales declines in Japan. In the Americas Region, sales increased 4 percent to $1.47 billion and pretax income decreased 3 percent to $265.8 million from $273.9 million in 1994. The sales increase was mainly due to significant improvements in Brazil. The economic stabilization program implemented in Brazil in July 1994 has produced significantly lower levels of annual inflation generating improved consumer confidence. In addition, in 1995, the implementation of a new distribution center, the introduction of new higher-priced products such as Rare Gold Parfum and Renew Intensive Treatment, strong unit growth and an increase in number of orders contributed to the sales increase in Brazil. The sales increase in the Region also reflects strong unit growth in Venezuela and Chile. These improvements were partially offset by a significant sales decline in Mexico resulting from the negative impact of the peso devaluation which began in late December 1994. As a result, the purchasing power of the Mexican consumer, who is struggling with one of the worst recessions on record, has decreased in 1995. This deep recession has resulted in a shift in sales to lower-priced products with purchases directed toward essential products and away from luxury items such as jewelry. Mexico, however, had double-digit increases in local currency sales reflecting an increase in number of active Representatives. The decrease in pretax income was 33 primarily due to the unfavorable results in Mexico as well as higher operating expenses in Brazil associated with the sales increase, including bad debt and transportation expenses, and the implementation of a new distribution center in 1995. In addition, higher field recognition and marketing expenses in Venezuela in 1995 and unfavorable net foreign exchange in Brazil also contributed to the decrease in pretax income. Brazil's net asset position and slight devaluation generated translation losses in 1995 as compared to a net liability position and significant devaluation which generated gains in 1994. These declines were partially offset by the overall sales increase and lower monetary correction expense in Brazil reflecting the more economically stable environment. In addition, pretax profit was higher -----END PRIVACY-ENHANCED MESSAGE-----