-----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, L1oSTrG31B7CQ/MSjsB+ELZhrrDjvfA8wMoYQ3M1mrWo1K6vq4OrppKj8iMTV2bp QUzy7HhHPgjbt5/RyPnM9A== /in/edgar/work/20000914/0000950103-00-001041/0000950103-00-001041.txt : 20000922 0000950103-00-001041.hdr.sgml : 20000922 ACCESSION NUMBER: 0000950103-00-001041 CONFORMED SUBMISSION TYPE: S-3 PUBLIC DOCUMENT COUNT: 8 FILED AS OF DATE: 20000914 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AVON PRODUCTS INC CENTRAL INDEX KEY: 0000008868 STANDARD INDUSTRIAL CLASSIFICATION: [2844 ] IRS NUMBER: 130544597 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-3 SEC ACT: SEC FILE NUMBER: 333-45808 FILM NUMBER: 723125 BUSINESS ADDRESS: STREET 1: PECK & MIDLAND AVE CITY: RYE STATE: NY ZIP: 10580 BUSINESS PHONE: 9149352152 MAIL ADDRESS: STREET 1: PECK & MIDLAND AVE CITY: RYE STATE: NY ZIP: 10580 S-3 1 0001.txt As filed with the Securities and Exchange Commission on September 14, 2000 Registration No. 333- =============================================================================== SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ----------------------- FORM S-3 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ----------------------- AVON PRODUCTS, INC. (Exact Name of Registrant as Specified in Its Charter) New York 2844 13-0544597 (State or Other (Primary Standard (I.R.S. Employer Jurisdiction of Incorporation Industrial Classification Identification or Organization) Number) Number) 1345 Avenue of the Americas New York, New York 10105-0196 (212) 282-5000 (Address, including Zip Code, and Telephone Number, including Area Code, of Registrant's Principal Executive Offices) ----------------------- Ward M. Miller, Jr., Esq. General Counsel 1345 Avenue of the Americas New York, New York 10105-0196 (212) 282-5000 (Name, Address, including Zip Code, and Telephone Number, including Area Code, of Agent for Service) ----------------------- Copy to: Sarah Beshar, Esq. Davis Polk & Wardwell 450 Lexington Avenue New York, New York 10017 (212) 450-4000 Approximate date of commencement of proposed sale to the public: From time to time after the Registration Statement becomes effective. If any of the securities being registered on this Form are being offered pursuant to dividend or interest reinvestment plans, please check the following box. [ ] If any of the securities being registered on this Form are being offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, check the following box. [X] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] __________ If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] __________ If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [ ] CALCULATION OF REGISTRATION FEE ===================================================================================================================== Proposed Maximum Proposed Maximum Title of Each Class Amount to be Offering Price Per Aggregate Amount of of Securities to be Registered Registered Unit (1) Offering Price (1) Registration Fee - --------------------------------------------------------------------------------------------------------------------- Zero Coupon Convertible Senior Notes due 2020.. $400,000,569 100% $400,000,569 $105,601 Common Stock, $.25 par value per share......... (2) (3) (3) (3) Preferred Share Purchase Rights (4)............ =====================================================================================================================
(1) Estimated solely for the purpose of calculating the registration fee. This fee is calculated on the basis of the offering price of the Notes alone. (2) Includes 6,956,491 shares of Common Stock issuable upon conversion of the Notes. Each Note is convertible into 8.2723 shares of Common Stock per $1,000 principal amount at maturity of Notes, subject to adjustment under certain circumstances. Pursuant to Rule 416 under the Securities Act, such number of shares of Common Stock registered hereby shall include an indeterminate number of shares of Common Stock that may be issued in connection with a stock split, stock dividend, capitalization or similar event. (3) The shares of Common Stock issuable upon conversion of the Notes will be issued for no additional consideration, and therefore no registration fee is required pursuant to Rule 457(i). (4) The Rights will initially trade together with the Common Stock. The value attributable to the Rights, if any, is reflected in the market price of the Common Stock. The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. =============================================================================== The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted. Subject to completion, dated September 14, 2000 Prospectus September , 2000 [LOGO] $840,938,000 AVON PRODUCTS, INC. Zero Coupon Convertible Senior Notes due 2020 and Shares of Common Stock Issuable Upon Conversion of the Notes ----------------------- This prospectus relates to (1) $840,938,000 aggregate principal amount at maturity of zero coupon convertible senior notes due 2020 of Avon Products, Inc. and (2) shares of common stock issuable upon conversion of the notes. This prospectus will be used by selling securityholders to resell their notes and the common stock issuable upon conversion of their notes and we will not receive any proceeds from sales that the selling securityholders make. We offered the notes at an issue price of $475.66 per note. We will not pay interest on the notes prior to maturity. Instead, on July 12, 2020, the maturity date of the notes, noteholders will receive $1,000 per note. The issue price per note represents a yield to maturity of 3.75% per year calculated from July 12, 2000. If a Tax Event occurs and we so elect, interest, instead of future original issue discount, shall accrue and be payable semi-annually on each note at 3.75% per year. We may redeem some or all of the notes at any time on or after July 12, 2003 at the prices described under the heading "Description of the Notes- Optional Redemption." Noteholders may convert their notes at any time on or before the maturity date, unless the notes have been redeemed or purchased previously, into 8.2723 shares of Avon common stock per $1,000 principal amount at maturity of notes. The conversion rate may be adjusted for certain reasons, but will not be adjusted for accrued original issue discount. Noteholders may require Avon to purchase all or a portion of their notes on July 12, 2003, July 12, 2008, and July 12, 2013 at a price per note of $531.74, $640.29 and $771.00 respectively. We may choose to pay the purchase price in cash or common stock or a combination of cash and common stock. Noteholders may also require us to repurchase notes upon a Fundamental Change (as defined herein) involving Avon prior to July 12, 2003. In the case of a repurchase upon a Fundamental Change, the repurchase price will be equal to the issue price of the notes plus accrued original issue discount and we may pay the repurchase price in cash, in common stock valued at 97.5% of its Market Price (as defined herein), or in a combination of cash and common stock, at our election. The notes are unsecured obligations of ours and rank equally with all of our other unsecured senior indebtedness. Our common stock is listed on the New York Stock Exchange under the symbol "AVP." On September 13, 2000, the last reported sale price for our common stock was $42.438 per share. ----------------------- This investment involves risk. See "Risk Factors" beginning on page 4. ----------------------- The notes and the shares of common stock may be offered by the selling securityholders in negotiated transactions or otherwise at market prices prevailing at the time of sale or at negotiated prices. The selling securityholders may be deemed to be "underwriters" as defined in the Securities Act of 1933, as amended. If any broker-dealers are used by the selling securityholders, any commissions paid to broker-dealers and, if broker-dealers purchase any notes or shares as principals, any profits received by such broker-dealers on the resale of the notes or shares of common stock may be deemed to be underwriting discounts or commissions under the Securities Act. In addition, any profits realized by the selling securityholders may be deemed to be underwriting commissions. This prospectus does not constitute an offer to sell, or a solicitation of an offer to buy, any of the securities offered hereby by any person in any jurisdiction in which it is unlawful for such person to make such an offering or solicitation. ----------------------- The Securities and Exchange Commission and state securities regulators have not approved or disapproved these securities, or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense. ----------------------- You should rely only on the information contained in this document or that we have referred you to. We have not authorized anyone to provide you with information that is different. We are not making an offer of these securities in any state where the offer is not permitted. You should not assume that the information in this prospectus or any prospectus supplement is accurate as of any date other than the date on the front of those documents. ---------------------- TABLE OF CONTENTS Page ---- Where You Can Find More Information....................................... 3 Special Note Regarding Forward-Looking Information........................ 4 Risk Factors.............................................................. 4 Selected Financial Data................................................... 6 Avon Products, Inc........................................................ 8 Use of Proceeds........................................................... 11 Consolidated Ratio of Earnings to Fixed Charges........................... 11 Price Range of Common Stock and Dividend Policy........................... 12 Description of the Notes.................................................. 13 Registration Rights ...................................................... 26 Description of Capital Stock.............................................. 28 United States Federal Income Tax Considerations........................... 30 Selling Securityholders................................................... 36 Plan of Distribution...................................................... 36 Legal Matters............................................................. 38 Independent Accountants................................................... 38 2 WHERE YOU CAN FIND MORE INFORMATION Avon is subject to the informational requirements of the Securities Exchange Act and we file annual, quarterly and special reports, proxy statements and other information with the Securities and Exchange Commission. Our SEC filings are available over the Internet at the SEC's web site at http://www.sec.gov. You may also read and copy any document we file with the SEC at its public reference facilities: Public Reference Room Office New York Regional Office Chicago Regional Office 450 Fifth Street, N.W. 7 World Trade Center Citicorp Center Room 1024 Suite 1300 500 West Madison Street Washington, D.C. 20549 New York, New York 10048 Suite 1400 Chicago, Illinois 60661-2511
You may also obtain copies of the documents at prescribed rates by writing to the Public Reference Section of the SEC at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549. Please call 1-800-SEC-0330 for further information on the operations of the public reference facilities. Our SEC filings are also available at the offices of the New York Stock Exchange, 20 Broad Street, New York, New York 10005. We incorporate by reference in this prospectus the following documents filed by us with the SEC: (i) Our Annual Report on Form 10-K for the fiscal year ended December 31, 1999, filed with the SEC on March 27, 2000; (ii) Our Quarterly Report on Form 10-Q for the quarter ended March 31, 2000, filed with the SEC on May 11, 2000; (iii) Our Quarterly Report on Form 10-Q for the quarter ended June 30, 2000, filed with the SEC on August 14, 2000; (iv) Our Current Report on Form 8-K filed with the Commission on September 14, 2000; and (v) Our Definitive Proxy Statement filed with the SEC on March 27, 2000. Any statement made in a document incorporated by reference or deemed incorporated herein by reference is deemed to be modified or superseded for purposes of this prospectus if a statement contained in this prospectus or in any other subsequently filed document which also is incorporated or deemed incorporated by reference herein modifies or supersedes that statement. Any statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this prospectus. We also incorporate by reference all future documents filed pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act until our offering is complete. Statements made in this prospectus or in any document incorporated by reference in this prospectus as to the contents of any contract or other document referred to herein or therein are not necessarily complete, and in each instance reference is made to the copy of the contract or other document filed as an exhibit to the documents incorporated by reference, each statement being qualified in all material respects by that reference. We will promptly provide without charge to you, upon oral or written request, a copy of any or all of the documents incorporated by reference in this prospectus. Requests should be directed to Avon, 1345 Avenue of the Americas, New York, New York 10105-0196, Attention: Ward M. Miller, Jr., Esq., telephone (212) 282-5000. We have filed with the SEC under the Securities Act and the rules and regulations thereunder a registration statement on Form S-3 with respect to the notes and common stock issuable upon conversion of the notes. This prospectus does not contain all of the information contained in the registration statement, certain portions of which have been omitted pursuant to the rules and regulations of the SEC and to which reference is hereby made. 3 The information on our website does not form part of this prospectus. SPECIAL NOTE REGARDING FORWARD-LOOKING INFORMATION Some of the statements included or incorporated by reference in this prospectus constitute "forward-looking statements" within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act. These statements involve known and unknown risks, uncertainties and other factors which may cause our or our industry's actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. These factors include, among others, the following: o general economic and business conditions; o our ability to implement our business strategy; o our access to financing and management of foreign currency risks, including the impact of substantial currency exchange devaluations in our principal foreign markets; o our ability to attract and retain key executives; o our ability to achieve anticipated cost savings and profitability targets; o changes in the industry; o competition; and o the effect of regulatory and legal proceedings and restrictions imposed by foreign governments. As a result of the foregoing and other factors, no assurance can be given as to the future results and achievements of Avon. Neither Avon nor any other person assumes responsibility for the accuracy and completeness of these statements. RISK FACTORS You should carefully consider each of the following risks, which we believe are the principal risks that we face, and all of the other information in this prospectus. Some of the following risks relate principally to our business in general and the industry in which we operate. Other risks relate principally to this offering of notes. Our business may also be adversely affected by risks and uncertainties not presently known to us or that we currently believe to be immaterial. We May Not Be Able to Execute Fully Our Global Business Strategy Our ability to implement the key growth initiatives of our Global Business Strategy is dependent upon a number of factors, including our ability to: o grow our "beauty" and "beauty plus" businesses; o modernize the Representative experience; o expand consumer access, particularly through the retail and Internet channels; and o upgrade our beauty image, including through our global advertising campaign and the development of new brands. 4 We cannot assure you that any of these initiatives will be successfully and fully executed within the planned time periods. Our Ability to Conduct Business, Particularly in International Markets, May Be Affected by Political, Legal and Regulatory Risks Our ability to capitalize on growth in new international markets and to maintain the current level of operations in our existing international markets is exposed to risks associated with international operations, including: o the possibility that a foreign government might ban or severely restrict our business method of direct selling; o the possibility that a government authority might impose legal, tax or financial burdens on our Representatives, as direct sellers; and o the possibility that a government authority might challenge the status of our Representatives as independent contractors. In addition, restrictions on foreign currencies and changes in foreign currency exchange rates may also affect our operating results and financial condition. We May Not Be Able to Recruit and Retain Our Representatives Avon's products are sold by approximately 3.0 million Representatives worldwide. Representatives are independent contractors or independent dealers who purchase products directly from Avon and sell them to their customers. There is a high rate of turnover among Representatives, a characteristic of the direct-selling business. As a result, it is continually necessary to recruit and retain new Representatives and if we are unable to do so our business will be adversely affected. Holders May Not Be Able to Sell the Notes The notes were issued in July 2000 in a private placement to a small number of institutional buyers and buyers outside the U.S. We cannot predict whether an active trading market for the notes will develop or be sustained. If an active market for the notes fails to develop or be sustained, the trading price of the notes could be adversely affected. In that case, holders may have difficulty reselling the notes or may be unable to sell them at all. If an active trading market were to develop, the notes' future trading price will depend on many factors, including: o prevailing interest rates; o the market for similar securities; o the market price of the shares of our common stock; o general economic conditions; and o our financial condition, historical financial performance and future prospects. 5 SELECTED FINANCIAL DATA The following selected financial data is derived from our audited consolidated financial statements, except for the financial data for the six months ended June 30 that is derived from our unaudited consolidated financial statements. You should read the financial data presented below in conjunction with our consolidated financial statements, accompanying notes and management's discussion and analysis of our results of operations and financial condition, which are incorporated by reference into this prospectus. Six Months Ended June 30, Year Ended December 31, --------------- --------------------------------------------------------- 2000 1999 1999 1998 1997 1996 1995 ------ ------ ------- ------- ------- ------- ------- ($ in millions, except ratios and per share data) Operating Data: Net Sales.................. $2,703 $2,472 $ 5,289 $ 5,213 $ 5,079 $ 4,814 $ 4,492 Income from continuing operations before income taxes and minority interest........ 311 149 (1) 507 (1) 456 (2) 535 510 465 Net income................. 199 73 (1) 302 (1) 270 (2) 339 318 257 Balance Sheet data (at period end): Total assets............... $2,618 $2,373 $ 2,529 $ 2,434 $ 2,273 $ 2,222 $ 2,053 Total debt................. 1,210 517 1,007 256 234 202 162 Other financing(3)......... 103 109 106 112 59 - - Total stockholders' equity. (346) 122 (406) 285 285 242 193 Other Data: EBITDA(4).................. 399.2 206.5 (1) 632.8 (1) 562 (2) 642.5 608.1 557.9 Capital expenditures....... 76.5 72.1 203.4 189.5 169.4 103.6 72.7 Ratio of total debt and other financing to EBITDA................... 3.3x 3.0x (1) 1.8x (1) 0.7x (2) 0.5x 0.3x 0.3x Ratio of EBITDA to interest expense......... 9.4x 11.5x (1) 14.7x (1) 16.2x (2) 18.1x 18.3x 16.1x Ratio of earnings to fixed charges(5)......... 6.4x 5.6x 8.0x 8.2x 9.2x 9.1x 8.7x Cash dividends per share... $ 0.37 $ 0.36 $ 0.72 $ 0.68 $ 0.63 $ 0.58 $ 0.53 Diluted EPS from continuing operations.... $ 0.83 $ 0.27 (1) $ 1.17 (1) $ 1.02 (2) $ 1.27 $ 1.18 $ 1.05 Cash Flows (used) provided by Operating Activities............... $(44.5) $ 10.5 $ 464.6 $ 324.4 $ 315.5 $ 386.9 $ 279.0 Cash Flows (used) by Investing Activities..... $(72.4) $(82.2) $(208.2) $(182.3) $(175.1) $(106.6) $ (73.3) Cash Flows provided (used) by Financing Activities............... $ 83.2 $ 57.4 $(214.6) $(183.1) $(163.8) $(236.2) $(272.0)
- --------- (1) Includes a one-time charge of $151.2 million pre-tax ($121.9 million after tax) or $0.46 per diluted share, related to our Business Process Redesign (BPR) program. Excluding the charge, income from continuing operations before income taxes and minority interest, net income, EBITDA, ratio of total debt and other financing to EBITDA, ratio of EBITDA to interest expense, and diluted earnings per share were $300.3 million, $194.4 million, $357.7 million, 1.8x, 20.0x and $.73, respectively, for the six months ended June 30, 1999, and $657.8 million, $424.3 million, $784.0 million, 1.4x, 18.2x and $1.64, respectively, for the year ended December 31, 1999. (2) Includes one-time charges of $154.4 million pre-tax ($122.8 million after tax) or $0.46 per diluted share related to our BPR program. Excluding the charges, income from continuing operations before income taxes and minority interest, net income, EBITDA, ratio of total debt and other financing to EBITDA, ratio of EBITDA to interest 6 expense, and diluted earnings per share were $610.3 million, $392.8 million, $717.0 million, 0.5x, 20.7x and $1.48, respectively, for the year ended December 31, 1998. (3) "Other financing" is included in other accrued liabilities on our Consolidated Balance Sheet at June 30, 2000 and December 31, 1999, and in other non-current liabilities at June 30, 1999 and December 31, 1998 and 1997. (4) EBITDA represents income from continuing operations before income taxes, minority interest, interest expense, depreciation and amortization. EBITDA is a widely accepted financial indicator of a company's ability to service and/or incur debt. However, EBITDA should not be construed as an alternative to operating income (as determined in accordance with generally accepted accounting principles) or to cash flows from operating activities (as determined in accordance with generally accepted accounting principles) and should not be construed as an indication of our operating performance or as a measure of our liquidity. EBITDA is not a measurement under generally accepted accounting principles and may not be comparable with similarly titled measures of other companies that do not compute EBITDA in the same manner. (5) For purposes of computing the ratio of earnings to fixed charges, "earnings" consist of earnings before income taxes and minority interest, plus fixed charges and the amortization of capitalized interest. "Fixed charges" consist of interest incurred on indebtedness, amortization of debt discount, fees and expenses plus one-third of the rental expense from operating leases, which management believes is a reasonable approximation of the interest component of rental expense. The ratios of earnings to fixed charges are calculated as follows: (Income before income taxes and minority interest) + (fixed charges) + (amortization of capitalized interest) ------------------------------------------------------------------------------------------------------------- (fixed charges)
For the six months ended June 30, 1999, excluding the one-time charges discussed above, the ratio of earnings to fixed charges was 10.3. For the years ended December 31, 1999 and 1998, excluding the one-time charges discussed above, the ratio of earnings to fixed charges was 10.1 and 10.6, respectively. 7 AVON PRODUCTS, INC. General We are one of the world's leading manufacturers and marketers of beauty and related products, which include cosmetics, fragrance and toiletries (CFT); "beauty plus," which consists of jewelry and accessories and apparel; and "beyond beauty," which consists of gift and decorative and home entertainment products. Approximately 3.0 million independent sales Representatives market our products to consumers globally. We commenced operations in 1886 and were incorporated in the State of New York on January 27, 1916. Our business is comprised of one industry segment, direct selling, with worldwide operations. Global Business Strategy In 1999, we adopted a new strategic plan to drive revenue growth and expand our customer base around the world by building on our strengths as a beauty marketer and a leading home direct seller. The new strategy includes, but is not limited to, plans to accelerate growth in our core beauty business by growing global brands, expanding market share, upgrading our beauty image and product innovation; building a global portfolio of jewelry and accessories; developing innovative programs to train, motivate and retain Representatives; exploiting retail opportunities and developing new businesses. We expect that our Business Process Redesign (BPR) programs will continue to provide resources to fund these strategic growth initiatives and contribute to earnings growth. Spending for product innovation and advertising are key components in building a global beauty image and reaching the end consumer. In the year 2000, we launched our first ever global advertising campaign and significantly expanded our use of Internet technology. Our global strategies include the following key growth initiatives: Direct Selling Contemporization We continue to modernize our direct selling channel and Representative experience, enabling us to reach women quickly and efficiently by offering Representatives training, support and earnings opportunities. We are testing a global Sales Leadership program in several of our major markets around the world. The Sales Leadership program is a system which will give Representatives the opportunity to earn commissions on their own sales, as well as on sales of other Representatives they recruit. We are also implementing a Representative development strategy in the U.S. This strategy will focus on the professional training and development of our Representatives through the introduction of the Avon Beauty Advisor. Beauty Advisor training will include an in-home study package as well as seminars where Representatives will be trained to do beauty makeovers, where permissible, and consultations. We are also developing enhanced Representative training to support the Sales Leadership opportunity, including a certification process for each Leadership level. In addition to the Sales Leadership program and Representative development strategy, we are relaunching the Avon.com Internet site in the United States. The site will feature an expanded product line and will be designed to help our U.S. sales Representatives to build their own Avon business by enabling them to sell online through their own personalized web pages, developed in partnership with us. Through our use of new technology, we will be improving customer service, expanding electronic ordering and communicating more effectively with Representatives. Additionally, we annually produce more than 600 million brochures in over 25 languages, utilizing common imagery and layouts from a single global database to enhance global beauty image. In 2000, we plan on incremental spending to upgrade the quality of our brochures in several of our largest markets, including the U.S. Complementary Access To accelerate growth in established industrial regions such as the U.S., Western Europe and Japan, we have developed new channels to reach more customers and improve access to our products through Avon Beauty Centers and Express Centers in the U.S., toll-free telephone numbers, direct mail and "on-line" shopping via the Internet on our web site, Avon.com. We are implementing an integrated Internet strategy to focus on improving access and 8 accelerating growth. These complementary access programs will further increase Avon's brand awareness and drive global beauty image. Strategies to increase the number of "fixed locations" that sell our products also help reach new customers in the Pacific region. For example, in the Philippines, India and Indonesia, we use decentralized branches and satellite stores to serve Representatives and customers. The branches also create visibility for us with consumers and help build our beauty image. In Malaysia, we have numerous franchised beauty boutiques, which are staffed by franchise Representatives and located in areas with high concentrations of Representatives. The boutiques provide more direct and personal service to Representatives and their customers. Additionally, in China and Taiwan, beauty counters managed by Avon Representatives are in retail store chains. We are exploring potential retail opportunities in the U.S., including a franchising opportunity for women who would own their own Avon retail store or kiosk and a "store within a store" concept developed through a strategic relationship with a major retailer. Image Enhancement We continue to update the image of our core beauty products and our portfolio of global beauty brands. Beginning in 1995, CFT products have all undergone extensive upgrades in packaging, imaging and formulations, consistent with the global brands strategy. These contemporary products project a consistent, high quality image in all markets and include brands such as Anew, Skin-So-Soft, Avon Color, Far Away, Rare Gold, Millennia, Perceive, Starring, Avon Skin Care and Women of Earth. Global brands are growing rapidly as a percentage of our worldwide CFT business and in 1999 they accounted for 51% of our core beauty sales. We are launching global hair care brands and a global jewelry and fashion accessories line around the world. The development of global brands has also enabled us to deliver a consistent beauty image around the world, as well as improve margins through pricing and supply chain efficiencies. We are also marketing a more vibrant beauty image through increased advertising and research and development spending and image-building programs focused on the consumer. In 2000, we launched our first-ever global advertising campaign entitled "Let's Talk," and are increasing investments in product sampling and development and upgrading the quality of our brochure to further build our worldwide beauty image. In 1998, an important image enhancement came with the opening of the Avon Centre, a spa, salon and retail store located in Trump Tower, New York City. The Avon Centre emphasizes health and beauty and offers a selection of our beauty products created exclusively for use at the Avon Centre. Through these strategic initiatives designed to focus on high-quality, affordable products, as well as convenience for the customer, we are not only positioned for continued growth but also as a leading beauty company. International Expansion Avon is one of the most widely recognized brand names in the world. We are particularly well positioned to capitalize on growth in new international markets due to high demand for quality products, underdeveloped retail infrastructures and relatively attractive earnings opportunity for women. As of September 2000, we have operations in 50 countries outside the U.S. and our products are distributed in 86 more, for coverage in 137 markets, and we continue to expand into new markets. We have entered 24 new markets since 1990, including Russia, China and nations throughout Central Europe, and are currently evaluating several other markets in Eastern Europe and the Pacific region. Distribution Our products are sold worldwide primarily by approximately 3.0 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 employees of ours. Representatives 9 purchase products directly from us and sell them directly to their customers. Our Internet site, Avon.com, also sells CFT products directly to consumers. 10 USE OF PROCEEDS The selling securityholders will receive all of the proceeds from the sale of the notes under this prospectus and the common stock issuable upon conversion of the notes. We will not receive any proceeds from these sales. CONSOLIDATED RATIO OF EARNINGS TO FIXED CHARGES The following table sets forth our consolidated ratios of earnings to fixed charges for the years and periods indicated: Six Months Ended June 30, Year Ended December 31, ----------- -------------------------------- 2000 1999 1999 1998 1997 1996 1995 ---- ---- ---- ---- ---- ---- ---- Consolidated Ratio of Earnings to Fixed Charges.........6.4 5.6 1 8.0 1 8.2 2 9.2 9.1 8.7 - --------- (1) Includes a one-time charge of $151.2 million pre-tax ($121.9 million after tax) or $0.46 per diluted share, related to our Business Process Redesign (BPR) program. Excluding the one-time charge, the ratio of earnings to fixed charges for the six months ended June 30, 1999 and for the year ended December 31, 1999, was 10.3 and 10.1, respectively. (2) Includes one-time charges of $154.4 million pre-tax ($122.8 million after tax) or $0.46 per diluted share, related to our BPR program. Excluding the one-time charges, the ratio of earnings to fixed charges for the year ended December 31, 1998, the ratio was 10.6. For purposes of computing the ratio of earnings to fixed charges, "earnings" consist of earnings before income taxes and minority interest, plus fixed charges and the amortization of capitalized interest. "Fixed charges" consist of interest incurred on indebtedness, amortization of debt discount, fees and expenses plus one-third of the rental expense from operating leases, which management believes is a reasonable approximation of the interest component of rental expense. The ratios of earnings to fixed charges are calculated as follows: (Income before income taxes and minority interest) + (fixed charges) + (amortization of capitalized interest) - ------------------------------------------------------------------------------------------------------------- (fixed charges)
11 PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY Our common stock is listed on the New York Stock Exchange under the symbol "AVP." The table below shows the high and low sales prices of our common stock on the New York Stock Exchange Composite Tape as reported in The Wall Street Journal and the quarterly cash dividends declared per share of common stock during the periods indicated. Price Range Cash ------------------ Dividends Low High Declared -------- ------- -------- Fiscal Year 1998 First Quarter ............................ $ 28.00 $ 40.63 $ 0.17 Second Quarter ........................... 36.94 44.50 0.17 Third Quarter ............................ 25.00 44.31 0.17 Fourth Quarter ........................... 25.75 46.25 0.17 Fiscal Year 1999 First Quarter ............................ $ 35.50 $ 49.00 $ 0.18 Second Quarter ........................... 46.38 59.13 0.18 Third Quarter ............................ 24.63 56.75 0.18 Fourth Quarter ........................... 23.31 37.38 0.18 Fiscal Year 2000 First Quarter ............................ $ 25.25 $ 34.50 $ 0.185 Second Quarter ........................... 29.25 44.50 0.185 Third Quarter (through September 13, 2000) 35.00 44.00 0.185 For a recent closing sale price of our common stock on the New York Stock Exchange, see the cover page of this prospectus. Future dividend policy will depend on our earnings, capital requirements, financial condition and other factors considered relevant by our board of directors. 12 DESCRIPTION OF THE NOTES The following summary of certain provisions of the indenture does not purport to be complete and is subject to, and qualified in its entirety by reference to, all the provisions of the indenture, including the definitions therein of certain terms. Because the following is only a summary, it does not contain all information that you may find useful. For further information you should read the notes and the indenture. General The notes: o have been issued under an indenture, dated as of July 12, 2000, between us and The Chase Manhattan Bank, as trustee; o are unsecured obligations of ours and rank equally with all of our unsecured senior indebtedness; o are limited to $840,938,000 aggregate principal amount at maturity; o will mature on July 12, 2020; and o will not pay interest annually, but will pay a principal amount of $1,000 per note upon maturity, representing a yield to maturity of 3.75%. The notes are redeemable prior to maturity only on or after July 12, 2003, as described below under "--Optional Redemption," and do not have the benefit of a sinking fund. Principal of the notes will be payable, and the transfer of notes will be registrable, at the office of the trustee. The notes have been offered at a substantial discount from their principal amount at maturity. See "United States Federal Income Tax Considerations." Except as described below, we will not make periodic payments of interest on the notes. Each note has been issued at an issue price of $475.66 per note. However, the notes will accrue original issue discount while they remain outstanding. Original issue discount is the difference between the issue price and the principal amount at maturity of a note. The calculation of the accrual of original issue discount will be on a semi-annual bond equivalent basis using a 360-day year composed of twelve 30-day months. The issue date for the notes and the commencement date for the accrual of original issue discount was July 12, 2000. The notes have been issued only in registered form without coupons in denominations of $1,000 and any integral multiple of $1,000 above that amount. No service charge will be made for any registration of transfer or exchange of notes, but we may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. The notes are represented by one or more permanent global securities registered in the name of a nominee of The Depository Trust Company, New York, New York. DTC and its direct and indirect participants maintain records of beneficial interests in any global security. You may only effect transfers through these records. The record ownership in a global security, in whole or in part, may be transferred only to DTC, another nominee of DTC or to a successor of DTC or its nominee. Except as set forth under "--Book-Entry; Delivery and Form" below, notes will not be issuable in certificated form. Conversion Rights A holder may convert notes, in multiples of $1,000 principal amount at maturity, into common stock at any time before the close of business on July 12, 2020. However, a holder may convert a note only until the close of business on the last business day prior to the redemption date if we call a note for redemption, unless we default on payment of the redemption price. A note for which a holder has delivered a purchase notice or a Fundamental Change repurchase notice requiring us to purchase or repurchase the note may be converted only if such notice is withdrawn in accordance with the indenture. 13 The initial conversion rate is 8.2723 shares of common stock per note, subject to adjustment upon the occurrence of certain events described below. The conversion rate will not be adjusted for accrued original issue discount. We will pay for any fractional share an amount of cash based on the Sale Price (as defined herein) of the common stock on the trading day immediately preceding the conversion date. On conversion of a note, a holder will not receive any cash payment representing accrued original issue discount. Our delivery to the holder of the fixed number of shares of common stock into which the note is convertible, together with any cash payment for fractional shares, will be deemed: o to satisfy our obligation to pay the principal amount at maturity of the note; and o to satisfy our obligation to pay original issue discount that accrued from the issue date through the conversion date. As a result, accrued original issue discount is deemed to be paid in full rather than canceled, extinguished or forfeited. A certificate for the number of full shares of common stock into which any note is converted, together with any cash payment for fractional shares, will be delivered through the conversion agent as soon as practicable following the conversion date. For a discussion of the tax treatment of a holder receiving common stock upon conversion, see "United States Federal Income Tax Considerations - U.S. Holders - Exchange or Conversion of Notes for Common Stock." The conversion rate will be adjusted for: o dividends or distributions on common stock payable in Avon common stock or other Avon capital stock; o subdivisions, combinations or certain reclassifications of common stock; o distributions to all holders of Avon common stock of certain rights to purchase Avon common stock for a period expiring within 60 days at less than the Sale Price at the time; and o distributions to such holders of our assets or debt securities or certain rights to purchase our securities (excluding cash dividends or other cash distributions from current or retained earnings unless the annualized amount thereof per share exceeds 10% of the Sale Price on the day preceding the date of declaration of such dividend or other distribution). However, no adjustment need be made if holders may participate in the transaction or in certain other cases. In cases where the fair market value of assets, debt securities or certain rights, warrants or options to purchase our securities distributed to shareholders (a) equals or exceeds the average quoted price of the common stock, or (b) such average quoted price exceeds the fair market value of such assets, debt securities or rights, warrants or options so distributed by less than $1.00, rather than being entitled to an adjustment in the conversion rate, the holder of a note will be entitled to receive upon conversion, in addition to the shares of Avon common stock, the kind and amount of assets, debt securities or rights, warrants or options comprising the distribution that such holder would have received if such holder had converted such note immediately prior to the record date for determining the shareholders entitled to receive the distribution. The indenture permits us to increase the conversion rate from time to time. If we are party to a consolidation, merger or binding share exchange or a transfer of all or substantially all of our assets, the right to convert a note into common stock may be changed into a right to convert it into the kind and amount of securities, cash or other assets of Avon or another person which the holder would have received if the holder had converted the holder's notes immediately prior to the transaction. 14 Holders of the notes may, in certain circumstances, be deemed to have received a distribution subject to Federal income tax as a dividend in the amount of: o a taxable distribution to holders of common stock which results in an adjustment of the conversion rate; or o an increase in conversion rate at our discretion. See "United States Federal Income Tax Considerations - U.S. Holders - Adjustment of Conversion Rate." No adjustment to the conversion rate will be made for any of the following under our shareholder rights plan: o the issuance of rights; o the distribution of separate certificates representing the rights; o the exercise or redemption of such rights, including the issuance of any security pursuant thereto; or o the termination or invalidation of the rights. If we exercise our option to have interest, instead of original issue discount, accrue on a note following a Tax Event, the holder will be entitled on conversion to receive the same number of shares of common stock the holder would have received if we had not exercised such option. If we exercise this option, notes surrendered for conversion by a holder during the period from the close of business on any regular record date to the opening of business of the next interest payment date, except for notes to be redeemed on a date within this period or on the next interest payment date, must be accompanied by payment of an amount equal to the interest that the registered holder is to receive on the note. Except where notes surrendered for conversion must be accompanied by payment as described above, we will not pay interest on converted notes on any interest payment date subsequent to the date of conversion. See "--Optional Conversion to Semi-annual Coupon Note Upon Tax Event." Optional Redemption No sinking fund is provided for the notes. Prior to July 12, 2003, the notes will not be redeemable. Beginning on July 12, 2003, at our option we may redeem the notes for cash at any time as a whole, or from time to time in part. We will give not less than 15 days nor more than 60 days notice of redemption by mail to noteholders. The table below shows what redemption prices of a note would be on July 12, 2003, at each July 12 thereafter prior to maturity and at maturity on July 12, 2020. These prices equal the issue price plus the accrued original issue discount calculated to each such date. The redemption price of a note redeemed between such dates would include an additional amount reflecting the additional original issue discount accrued since the next preceding date in the table. Accrued Original Note Issue Issue Discount Price Redemption Date Price(1) At 3.75%(2) (1)+(2) - -------------------------------- ---------- ---------------- --------- July 12, 2003................... $ 475.66 $ 56.08 $ 531.74 July 12, 2004................... 475.66 76.21 551.87 July 12, 2005................... 475.66 97.10 572.76 July 12, 2006................... 475.66 118.78 594.44 July 12, 2007................... 475.66 141.28 616.94 July 12, 2008................... 475.66 164.63 640.29 15 Accrued Original Note Issue Issue Discount Price Redemption Date Price(1) At 3.75%(2) (1)+(2) - -------------------------------- ---------- ---------------- --------- July 12, 2009................... 475.66 188.87 664.53 July 12, 2010................... 475.66 214.02 689.68 July 12, 2011................... 475.66 240.13 715.79 July 12, 2012................... 475.66 267.22 742.88 July 12, 2013................... 475.66 295.34 771.00 July 12, 2014................... 475.66 324.52 800.18 July 12, 2015................... 475.66 354.81 830.47 July 12, 2016................... 475.66 386.24 861.90 July 12, 2017................... 475.66 418.87 894.53 July 12, 2018................... 475.66 452.73 928.39 July 12, 2019................... 475.66 487.87 963.53 At stated maturity.............. 475.66 524.34 1,000.00 If converted to semi-annual coupon notes following the occurrence of a Tax Event, the notes will be redeemable at the restated principal amount plus accrued and unpaid interest from the date of such conversion through the redemption date. However, in no event may the notes be redeemed prior to July 12, 2003. See "--Optional Conversion to Semi-annual Coupon Note Upon Tax Event." If less than all of the outstanding notes are to be redeemed, the trustee shall select the notes to be redeemed in principal amounts at maturity of $1,000 or integral multiples of $1,000. In this case the trustee may select the notes by lot, pro rata or by any other method the trustee considers fair and appropriate. If a portion of a holder's notes is selected for partial redemption and the holder converts a portion of the notes, the converted portion shall be deemed to be the portion selected for redemption. Purchase of Notes at the Option of the Holder On the purchase dates of July 12, 2003, July 12, 2008 and July 12, 2013, we will, at the option of the holder, be required to purchase any outstanding note for which a written purchase notice has been properly delivered by the holder and not withdrawn, subject to certain additional conditions. Holders may submit their notes for purchase to the paying agent at any time from the opening of business on the date that is 20 business days prior to such purchase date until the close of business on such purchase date. The purchase price of a note will be: o $531.74 per note on July 12, 2003; o $640.29 per note on July 12, 2008; and o $771.00 per note on July 12, 2013. These purchase prices equal the issue price plus accrued original issue discount to the purchase dates. We may, at our option, elect to pay the purchase price in cash or shares of common stock valued at the Market Price, or any combination thereof. See "United States Federal Income Tax Considerations." If prior to a purchase date the notes have been converted to semi-annual coupon notes following the occurrence of a Tax Event, the purchase price will be equal to the restated principal amount plus accrued and unpaid interest from the date of such conversion to the purchase date. See "--Optional Conversion to Semi-annual Coupon Note Upon Tax Event." 16 We are required to give notice on a date not less than 20 business days prior to each purchase date to all holders at their addresses shown in the register of the registrar, and to beneficial owners as required by applicable law, stating among other things: o whether we will pay the purchase price of notes in cash or common stock or any combination thereof, specifying the percentages of each; o if we elect to pay in common stock, the method of calculating the Market Price of the common stock; and o the procedures that holders must follow to require us to purchase their notes. The purchase notice given by each holder electing to require us to purchase notes shall state: o the certificate numbers of the holder's notes to be delivered for purchase; o the portion of the principal amount at maturity of notes to be purchased, which must be $1,000 or an integral multiple of $1,000; o that the notes are to be purchased by us pursuant to the applicable provisions of the notes and the indenture; and o in the event we elect, pursuant to the notice that we are required to give, to pay the purchase price in common stock, in whole or in part, but the purchase price is ultimately to be paid to the holder entirely in cash because any condition to payment of the purchase price or portion of the purchase price in common stock is not satisfied prior to the close of business on the purchase date, as described below, whether the holder elects: (1) to withdraw the purchase notice as to some or all of the notes to which it relates, or (2) to receive cash in respect of the entire purchase price for all notes or portions of notes subject to such purchase notice. If the holder fails to indicate the holder's choice with respect to the election described in the final bullet point above, the holder shall be deemed to have elected to receive cash in respect of the entire purchase price for all notes subject to the purchase notice in these circumstances. For a discussion of the tax treatment of a holder receiving cash instead of common stock, see "United States Federal Income Tax Considerations -- U.S. Holders -- Sale, Retirement or Redemption of the Notes Solely for Cash." Any purchase notice may be withdrawn by the holder by a written notice of withdrawal delivered to the paying agent prior to the close of business on the purchase date. The notice of withdrawal shall state: o the principal amount at maturity being withdrawn; o the certificate numbers of the notes being withdrawn; and o the principal amount at maturity of the notes that remains subject to the purchase notice, if any. If we elect to pay the purchase price, in whole or in part, in shares of common stock, the number of shares of common stock to be delivered by us shall be equal to the portion of the purchase price to be paid in common stock divided by the Market Price of a share of common stock. We will pay cash based on the Market Price for all fractional shares of common stock in the event we elect to deliver common stock in payment, in whole or in part, of the purchase price. See "United States Federal Income Tax Considerations." 17 The "Market Price" means the average of the Sale Prices (as defined below) of the common stock for the five trading day period ending on the third business day (if the third business day prior to the applicable purchase date is a trading day or, if not, then on the last trading day) prior to the applicable purchase date, appropriately adjusted to take into account the occurrence, during the period commencing on the first of such trading days during such five trading day period and ending on such purchase date, of certain events with respect to the common stock that would result in an adjustment of the conversion rate. The "Sale Price" of the common stock on any date means the closing sale price per share (or if no closing sale price is reported, the average of the bid and ask prices or, if more than one in either case, the average of the average bid and the average ask prices) on such date as reported in composite transactions for the principal United States securities exchange on which the common stock is traded or, if the common stock is not listed on a United States national or regional securities exchange, as reported by the Nasdaq System. Because the Market Price of the common stock is determined prior to the applicable purchase date, holders of notes bear the market risk with respect to the value of the common stock to be received from the date such Market Price is determined to such purchase date. We may pay the purchase price or any portion of the purchase price in common stock only if the information necessary to calculate the Market Price is published in a daily newspaper of national circulation. Our right to purchase notes, in whole or in part, with common stock is subject to our satisfying various conditions, including: o the registration of the common stock under the Securities Act and the Exchange Act, if required; and o any necessary qualification or registration under applicable state securities law or the availability of an exemption from such qualification and registration. If such conditions are not satisfied with respect to a holder prior to the close of business on the purchase date, we will pay the purchase price of the notes of such holder entirely in cash. See "United States Federal Income Tax Considerations." We may not change the form or components or percentages of components of consideration to be paid for the notes once we have given the notice that we are required to give to holders of notes, except as described in the first sentence of this paragraph. In connection with any purchase offer, we will: o comply with the provisions of Rule 13e-4, Rule 14e-1 and any other tender offer rules under the Exchange Act which may then be applicable; and o file Schedule TO or any other required schedule under the Exchange Act. Payment of the purchase price for a note for which a purchase notice has been delivered and not validly withdrawn is conditioned upon delivery of the note, together with necessary endorsements, to the paying agent at any time after delivery of the purchase notice. Payment of the purchase price for the note will be made promptly following the later of the purchase date or the time of delivery of the note. If the paying agent holds money or securities sufficient to pay the purchase price of the note on the business day following the purchase date in accordance with the terms of the indenture, then, immediately after the purchase date, the note will cease to be outstanding and original issue discount on such note will cease to accrue, whether or not the note is delivered to the paying agent. Thereafter, all other rights of the holder shall terminate, other than the right to receive the purchase price upon delivery of the note. Our ability to purchase notes with cash may be limited by the terms of our then existing senior indebtedness or borrowing or financial agreements. 18 No notes may be purchased for cash at the option of holders if there has occurred and is continuing an event of default with respect to the notes, other than a default in the payment of the purchase price with respect to such notes. Fundamental Change Permits Holder to Require Us to Repurchase Notes If a Fundamental Change (as defined below) occurs at any time prior to July 12, 2003 each holder will have the right, at the holder's option, to require Avon to repurchase any or all of the holder's notes. The notes may be repurchased in multiples of $1,000 principal amount at maturity. Avon will repurchase the notes at a price equal to the issue price plus accrued original issue discount to the repurchase date. See table under "--Optional Redemption." If, prior to the repurchase date, Avon elects to convert the notes to semi-annual coupon notes following a Tax Event, the repurchase price will be equal to the restated principal amount plus accrued and unpaid interest to the repurchase date. See the discussion under the caption entitled "--Optional Conversion to Semi-annual Coupon Note Upon Tax Event." We may, at our option, instead of paying the Fundamental Change repurchase price in cash, pay all or a portion of the Fundamental Change repurchase price in common stock, as long as our common stock is then listed on a national securities exchange or traded on the Nasdaq National Market. The fair market value of the common stock for such purpose shall be 97.5% of the Market Price of our common stock. On or before the 30th day after the occurrence of a Fundamental Change, we will mail to all holders of record of the notes a notice of the occurrence of the Fundamental Change and of the resulting repurchase right. Avon will also deliver to the trustee a copy of the notice. To exercise the repurchase right, holders of notes must deliver, on or before the 60th day after the date of our notice of a Fundamental Change, the notes to be repurchased, duly endorsed for transfer, together with the form entitled "Option to Elect Repurchase Upon a Fundamental Change" on the reverse side of the note duly completed, to the paying agent. A Fundamental Change occurs if : o we consolidate or merge with or into another person (other than a subsidiary); o we sell, convey, transfer or lease our properties and assets substantially as an entirety to any person (other than a subsidiary); o any person (other than a subsidiary) consolidates with or merges with or into Avon; or o our outstanding common stock is reclassified into, exchanged for or converted into the right to receive any other property or security provided that none of these circumstances will be a Fundamental Change if at least 50% of the aggregate fair market value (as determined by our board of directors) of such property and securities, other than cash payments for fractional shares, consists of shares of voting common stock of the surviving person that are, or upon issuance will be, traded on the London, Toronto or another internationally recognized securities exchange or a United States national securities exchange or approved for trading on an established automated over-the-counter trading market in the United States. Avon will comply with the provisions of Rule 13e-4 and any other tender offer rules under the Securities Exchange Act which may then be applicable in connection with the repurchase of the notes in the event of a Fundamental Change. The repurchase rights of the holders of notes could discourage a potential acquiror of Avon. The Fundamental Change repurchase feature, however, is not the result of management's knowledge of any specific effort to obtain control of Avon by any means or part of a plan by management to adopt a series of anti-takeover provisions. The term Fundamental Change is limited to specified transactions and may not include other events that might adversely affect Avon's financial condition. In addition, the requirement that Avon offers to repurchase the notes upon a Fundamental Change may not protect noteholders in the event of a highly leveraged transaction, reorganization, merger or similar transaction involving Avon. 19 No notes may be repurchased at the option of holders upon a Fundamental Change if there has occurred and is continuing an event of default described under "--Events of Default" below. However, notes may be repurchased if the event of default is in the payment of the Fundamental Change repurchase price with respect to the notes. Optional Conversion to Semi-annual Coupon Note Upon Tax Event From and after the date of the occurrence of a Tax Event, we shall have the option to elect to have interest in lieu of future original issue discount accrue at the rate of 3.75% per year on a principal amount per note (the "Restated Principal Amount") equal to the issue price plus original issue discount accrued to the date of the Tax Event or the date on which we exercise the option described herein, whichever is later (the "Option Exercise Date"). Such interest shall accrue from the Option Exercise Date and shall be payable in cash semi-annually on the interest payment dates of January 12 and July 12 of each year to holders of record at the close of business on December 29 or June 28 immediately preceding the interest payment date. Interest will be computed on the basis of a 360-day year comprised of twelve 30-day months. Interest will initially accrue from the Option Exercise Date and thereafter from the last date to which interest has been paid. A "Tax Event" means that Avon shall have received an opinion from independent tax counsel experienced in such matters to the effect that, on or after the date of this prospectus, as a result of: (1) any amendment to, or change (including any announced prospective change) in the laws, rules or regulations thereunder of the United States or any political subdivision or taxing authority thereof or therein, or (2) any amendment to, or change in, an interpretation or application of such laws, rules or regulations by any legislative body, court, governmental agency or regulatory authority, in each case which amendment or change is enacted, promulgated, issued or announced or which interpretation is issued or announced or which action is taken, on or after the date of this prospectus, there is more than an insubstantial risk that interest (including original issue discount) payable on the notes either: o would not be deductible on a current accrual basis, or o would not be deductible under any other method in either case in whole or in part, by Avon (by reason of deferral, disallowance, or otherwise) for United States federal income tax purposes. The Clinton Administration has previously proposed to change the tax law to defer the deduction of original issue discount on convertible debt instruments until the issuer pays the original issue discount. Congress has not yet enacted these proposed changes in the law. If a similar proposal were ever enacted and made applicable to the notes in a manner that would limit our ability to either: o deduct the interest, including original issue discount, payable on the notes on a current accrual basis, or o deduct the interest, including original issue discount, payable on the notes under any other method for United States federal income tax purposes, such enactment would result in a Tax Event and the terms of the notes would be subject to modification at our option as described above. The modification of the terms of notes by us upon a Tax Event, as described above, could possibly alter the timing of income recognition by holders of the notes with respect to the semi-annual payments of interest due on the notes after the Option Exercise Date. 20 Events of Default Each of the following constitutes an event of default under the indenture: o default in payment of the principal amount at maturity (or if the notes have been converted to a semi- annual coupon notes following a Tax Event, the Restated Principal Amount), redemption price, purchase price or Fundamental Change repurchase price with respect to any note when such amount becomes due and payable; o if the notes have been converted to semi-annual coupon notes following a Tax Event, our failure to pay interest within 30 days of the due date; o our failure to comply with any of our other agreements in the notes or the indenture upon receipt by us of notice of such default by the trustee or by holders of not less than 25% in aggregate principal amount at maturity of the notes then outstanding and our failure to cure (or obtain a waiver of) such default within 60 days after receipt by Avon of such notice; and o certain events of bankruptcy or insolvency affecting Avon. If any event of default shall have happened and be continuing, either the trustee or the holders of not less than 25% in aggregate principal amount at maturity of the notes then outstanding may declare the issue price of the notes plus the original issue discount on the notes accrued through the date of such declaration to be immediately due and payable. In the case of certain events of bankruptcy or insolvency, the issue price of the notes plus the original issue discount accrued thereon through the occurrence of such event shall automatically become and be immediately due and payable. Subject to the provisions of the indenture relating to the duties of the trustee in case an event of default shall occur and be continuing, the trustee will be under no obligation to exercise any of its rights or powers under the indenture at the request or direction of any of the holders, unless such holders shall have offered reasonable indemnity to the trustee. Subject to such provisions for the indemnification of the trustee, the holders of a majority in aggregate principal amount at maturity of the outstanding notes will have the right to direct the time, method and place of conducting any proceeding for any remedy available to the trustee or exercising any trust or power conferred on the trustee with respect to the notes. No holder of a note will have any right to institute any proceeding with respect to the indenture, or for the appointment of a receiver or a trustee, or for any other remedy thereunder, unless: o such holder has previously given to the trustee written notice of a continuing event of default with respect to the notes; o the holders of at least 25% in aggregate principal amount at maturity of the outstanding notes have made written request, and such holder or holders have offered reasonable indemnity, to the trustee to institute such proceeding as trustee; and o the trustee has failed to institute such proceeding, and has not received from the holders of a majority in aggregate principal amount at maturity of the outstanding notes a direction inconsistent with such request, within 60 days after such notice, request and offer. However, such limitations do not apply to a suit instituted by a holder of a note for the enforcement of payment of the principal amount at maturity, the Restated Principal Amount, redemption price, purchase price or Fundamental Change repurchase price or interest on such note on or after the applicable due date specified in such note. We are required to furnish to the trustee annually a statement by certain of its officers as to whether or not Avon, to their knowledge, is in default in the performance or observance of any of the terms, provisions and conditions of the indenture and, if so, specifying all such known defaults. 21 Modification and Waiver Modifications and amendments of the indenture may be made by us and the trustee with the consent of the holders of at least a majority in aggregate principal amount at maturity of the outstanding notes affected by such modification or amendment. No such modification or amendment may, without the consent of the holder of each outstanding note affected thereby, o make any change to the principal amount at maturity of notes the holders of which must consent to an amendment; o reduce the principal amount at maturity, restated principal amount or the issue price of or extend the stated maturity, of any note; o reduce the redemption price, purchase price or Fundamental Change repurchase price of any note; o make any change that adversely affects the right to convert any note; o except as otherwise provided herein and in the indenture, alter the manner or rate of accrual of original issue discount or interest on any note, reduce the rate of interest upon the occurrence of a Tax Event, or extend the time for payment of original issue discount or interest, if any, on any note; o make any note payable in money or securities other than that stated in the note; o make any change that adversely affects such holder's right to require us to purchase a note; or o impair the right to institute suit for the enforcement of any payment with respect to, or conversion of, the notes. The holders of at least a majority in principal amount at maturity of the outstanding notes may waive compliance by Avon with certain restrictive provisions of the indenture. The holders of a majority in principal amount at maturity of the outstanding notes may waive any past default under the indenture, except a default in the payment of principal or interest and certain covenants and provisions of the indenture which cannot be amended without the consent of the holder of each outstanding note. Mergers and Sales of Assets by Avon The indenture provides that Avon may not consolidate with or merge into any other person or convey, transfer or lease its properties and assets substantially as an entirety to another person, unless among other items, (i) the resulting, surviving or transferee (if other than Avon) is organized and existing under the laws of the United States, any state thereof or the District of Columbia and such person assumes all obligations of Avon under the notes and the indenture, and (ii) Avon or such successor person shall not immediately thereafter be in default under the indenture. Upon the assumption of the obligations of Avon by such a person in such circumstances, subject to certain exceptions, Avon shall be discharged from all obligations under the notes and the indenture. Although such transactions are permitted under the indenture, certain of the foregoing transactions occurring on or prior to July 12, 2003 could constitute a Fundamental Change (as defined herein) permitting each holder to require Avon to repurchase the notes of such holder as described above. Discharge of the Indenture Avon may satisfy and discharge its obligations under the indenture by delivering to the trustee for cancellation all outstanding notes or by depositing with the trustee, the paying agent or the conversion agent, if applicable, after the notes have become due and payable, whether at stated maturity, or any redemption date, or any purchase date, or a Fundamental Change repurchase date, or upon conversion or otherwise, cash or shares of common stock (as 22 applicable under the terms of the indenture) sufficient to pay all of the outstanding notes and paying all other sums payable under the indenture by Avon. Limitations of Claims in Bankruptcy If a bankruptcy proceeding is commenced in respect of Avon, the claim of the holder of a note is, under Title 11 of the United States Code, limited to the issue price of the note plus that portion of the original issue discount that has accrued from the date of issue to the commencement of the proceeding. Regarding the Trustee The indenture provides that, except during the continuance of an event of default, the trustee will perform only such duties as are specifically set forth in the indenture. During the existence of an event of default, the trustee will exercise such rights and powers vested in it under the indenture and use the same degree of care and skill in its exercise as a prudent person would exercise under the circumstances in the conduct of such person's own affairs. The indenture and provisions of the Trust Indenture Act that will be incorporated by reference therein upon the effectiveness of the registration statement, of which this prospectus forms a part, contain limitations on the rights of the trustee, should it become one of our creditors, to obtain payment of claims in certain cases or to realize on certain property received by it in respect of any such claim as security or otherwise. The trustee is permitted to engage in other transactions with us or any of our affiliates; provided, however, that if it acquires any conflicting interest (as defined in the indenture or in the Trust Indenture Act), it must eliminate such conflict or resign. The trustee under the indenture is also the trustee under other indentures relating to certain of our outstanding indebtedness, the trustee with respect to our pension assets and the issuing and paying agent with respect to our commercial paper program and has additional financial arrangements with us. Global Note; Book-Entry Notes sold by the selling securityholders pursuant to the registration statement of which this prospectus forms a part will be represented by a global note, in fully registered form. The global note will be deposited with the trustee as custodian for The Depository Trust Company, New York, New York and registered in the name of Cede and Co., a nominee of DTC, for the accounts of participants in DTC. Except as set forth below, the global note may be transferred, in whole or in part, only to another nominee of DTC or to a successor of DTC or its nominee. Investors may hold their interests in the global note directly through DTC if they are DTC participants, or indirectly through organizations that are DTC participants. DTC has advised Avon as follows: DTC is a limited purpose trust company organized under the laws of the State of New York, a "banking organization" within the meaning of the New York Banking Law, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the New York Uniform Commercial Code and a "clearing agency" registered pursuant to the provisions of Section 17A of the Exchange Act. DTC was created to hold securities for its participants and to facilitate the clearance and settlement of securities transactions, such as transfers and pledges, among participants in deposited securities through electronic book-entry charges to accounts of its participants, thereby eliminating the need for physical movement of securities certificates. Participants include securities brokers and dealers, banks, trust companies, clearing corporations and certain other organizations. Certain of such participants (or other representatives), together with other entities, own DTC. Access to DTC's book-entry system is also available to others such as banks, brokers, dealers and trust companies that clear through or maintain a custodial relationship with a participant, whether directly or indirectly. The rules applicable to DTC and its participants are on file with the SEC. Ownership of beneficial interests in the global note is limited to participants or persons that may hold interests through participants. Ownership of beneficial interests in the global note will be shown on, and the transfer of those ownership interests will be effected only through, records maintained by DTC (with respect to participants' interests) and the participants (with respect to the owners of beneficial interests in the global note other than 23 participants). Beneficial interests in the global note will be exchangeable for definitive certificated notes only in accordance with the terms of the indenture. So long as DTC or its nominee is the registered holder and owner of the global note, DTC or its nominee, as the case may be, will be considered the sole legal owner of the notes represented by the global note for all purposes under the indenture and the notes. Except as set forth below, owners of beneficial interests in the global note will not be entitled to receive definitive notes and will not be considered to be the owners or holders of any notes under the global note. We understand that under existing industry practice, in the event an owner of a beneficial interest in the global note desires to take any action that DTC, as the holder of the global note, is entitled to take, DTC would authorize the participants to take the action, and that participants would authorize beneficial owners owning through the participants to take the action or would otherwise act upon the instructions of beneficial owners owning through them. No beneficial owner of an interest in the global note will be able to transfer the interest except in accordance with the DTC's applicable procedures, in addition to those provided for under the indenture and, if applicable, those of Euroclear and Clearstream Banking. Principal and interest payments on the notes will be made to DTC by wire transfer of immediately available funds. DTC's practice is to credit participants' accounts on the payable date in accordance with their respective holdings shown on DTC's records unless DTC has reason to believe that it will not receive payment on the payable date. Payments by participants to beneficial owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in "street name," and will be the responsibilities of such participant and not of DTC or Avon, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of principal and interest to DTC is the responsibility of Avon, disbursement of such payments to participants shall be the responsibility of DTC, and disbursement of such payments to the beneficial owners shall be the responsibility of participants and indirect participants. Neither Avon nor the trustee will have any responsibility or liability for any aspect of the records relating to or payments made on account of beneficial ownership interests in the global note; maintaining, supervising or reviewing any records relating to such beneficial ownership interests; any other aspect of the relationship between DTC and its participants; or the relationship between the participants and indirect participants and the owners of beneficial interests in the global note. Purchases of notes under the DTC system must be made by or through DTC participants, which will receive a credit for the notes on DTC's records. The ownership interest of each actual purchaser of each note is in turn to be recorded on the participants' and indirect participants' records. Beneficial owners will not receive written confirmation from DTC of their purchase, but beneficial owners are expected to receive written confirmations providing details of the transactions, as well as periodic statements of their holdings, from the participant or indirect participant through which the beneficial owner entered into the transaction. Transfers of ownership interests in the notes are to be accomplished by entries made on the books of participants acting on behalf of beneficial owners. Beneficial owners will not receive certificates representing their ownership interests in notes, except in the event that use of the book-entry system for the notes is discontinued. Participants in DTC will effect transfers with other participants in the ordinary way in accordance with DTC rules and will settle transfers in same-day funds. Participants in Euroclear and Clearstream Banking will effect transfers with other participants in the ordinary way in accordance with the rules and operating procedures of Euroclear and Clearstream Banking, as applicable. If a holder requires physical delivery of a definitive note for any reason, including to sell notes to persons in jurisdictions which require physical delivery or to pledge notes, the holder must transfer its interest in the global note in accordance with the normal procedures of DTC and the procedures set forth in the indenture. Cross-market transfers between DTC, on the one hand, and directly or indirectly through Euroclear or Clearstream Banking, on the other, will be effected in DTC in accordance with DTC rules on behalf of Euroclear or Clearstream Banking, as the case may be, by its respective depositary; however, such cross-market transactions will require delivery of instructions to Euroclear or Clearstream Banking, as the case may be, by the counterparty in such system in accordance with its rules and procedures and within its established deadlines (Brussels time). Euroclear or Clearstream Banking, as the case may be, will, if the transaction meets its settlement requirements, deliver instructions to its respective depositary to take action to effect final settlement on its behalf by delivering or 24 receiving beneficial interests in the global note in DTC, and making or receiving payment in accordance with normal procedures for same-day funds settlement applicable to DTC. Clearstream Banking participants and Euroclear participants may not deliver instructions directly to the depositories for Clearstream Banking or Euroclear. Because of time zone differences, the securities account of a Euroclear participant or Clearstream Banking participant purchasing a beneficial interest in the global note from a participant will be credited during the securities settlement processing day immediately following the DTC settlement date and such credit of any transactions in beneficial interests in the global note settled during such processing will be reported to the relevant Euroclear participant or Clearstream Banking participant on such business day. Cash received in Euroclear or Clearstream Banking as a result of sales of beneficial interests in the global note by or through a Euroclear participant or Clearstream Banking participant to a DTC participant will be received with value on the DTC settlement date but will be available in the relevant Euroclear or Clearstream Banking cash account only as of the business day following settlement in DTC. Although we expect that DTC, Euroclear and Clearstream Banking will agree to the foregoing procedures in order to facilitate transfers of interests in the global note among participants of DTC, Euroclear, and Clearstream Banking, DTC, Euroclear and Clearstream Banking are under no obligation to perform or continue to perform these procedures, and these procedures may be discontinued at any time. Neither we nor the trustee have any responsibility for the performance by DTC, Euroclear or Clearstream Banking or their participants or indirect participants of their obligations under the rules and procedures governing their operations. We expect that DTC will take any action permitted to be taken by a holder of notes only at the direction of one or more participants to whose accounts at the DTC interests in the global note are credited and only in respect of the portion of the aggregate principal amount of the notes as to which the participant or participants has or have given direction. Conveyance of notices and other communications by DTC to participants, by participants to indirect participants and by participants and indirect participants to beneficial owners will be governed by arrangements among them, subject to any statutory or regulatory requirements that may be in effect from time to time. DTC may discontinue providing its services as securities depositary with respect to the notes at any time by giving reasonable notice to Avon. In the event that DTC notifies Avon that it is unwilling or unable to continue as depositary for the global note or if at any time DTC ceases to be a clearing agency registered as such under the Exchange Act when DTC is required to be so registered to act as such depositary and no successor depositary shall have been appointed within 90 days of such notification or of Avon becoming aware of DTC's ceasing to be registered, as the case may be, certificates for the relevant notes will be printed and delivered in exchange for interests in the global note. The global note that is exchangeable pursuant to the preceding sentence shall be exchangeable for relevant notes registered in such names as DTC shall direct. It is expected that such instructions will be based upon directions received by DTC from its participants with respect to ownership of beneficial interests in the global note. Avon may decide to discontinue use of the system of book-entry transfers through DTC (or a successor securities depositary). In that event, certificates representing the notes will be printed and delivered. The information in this section concerning DTC, Clearstream Banking, Euroclear and DTC's book-entry system has been obtained from sources that Avon believes to be reliable, but Avon does not take responsibility for the accuracy thereof. Same-Day Settlement and Payment So long as DTC continues to make its settlement system available to Avon, all payments of principal and interest on the notes will be made by Avon in immediately available funds. 25 REGISTRATION RIGHTS Pursuant to the registration rights agreement we entered into with the initial purchasers of the notes, we have filed a shelf registration statement, of which this prospectus is a part, covering resales of the notes and the common stock issuable upon the conversion thereof pursuant to Rule 415 under the Securities Act. Subject to certain rights to suspend use of the shelf registration statement, we will use commercially reasonable efforts to cause the shelf registration statement to be declared effective and to keep the shelf registration statement effective until the earliest of (1) the time when the notes covered by the shelf registration statement can be sold pursuant to Rule 144 under the Securities Act or any successor rule or regulation thereto, (2) July 12, 2002, the second anniversary of the original date of issuance of the notes and (3) the date on which all notes registered under the shelf registration statement are disposed of in accordance therewith and (4) the date upon which the notes are no longer outstanding. The following requirements and restrictions will generally apply to a holder selling such securities pursuant to the shelf registration statement: o such holder will be required to be named as selling security holder in the related prospectus or supplement thereto; o such holder will be required to deliver a prospectus to purchasers; o such holder will be subject to certain of the civil liability provisions under the Securities Act in connection with such sales; and o such holder will be bound by the provisions of the registration rights agreement which are applicable to such holder (including certain indemnification obligations). In the registration rights agreement, we have agreed to: o provide or cause to be provided to each holder of the notes, or common stock issuable upon conversion of the notes, copies of the prospectus, which is a part of the shelf registration statement; o notify or cause to be notified each holder when the shelf registration for the notes or the common stock issuable upon conversion of the notes has become effective; and o take certain other actions as are required to permit, subject to the foregoing, unrestricted resales of the notes and the shares of common stock issuable upon conversion of the notes. We have agreed to pay predetermined liquidated damages as described herein ("liquidated damages") to holders of the notes and holders of common stock issued upon conversion of the notes if the shelf registration statement is not declared effective within 180 days after the original date of issuance of the notes or if it ceases to be effective at any time prior to the earliest of (1) the time when the notes covered by the shelf registration statement can be sold pursuant to Rule 144 under the Securities Act or any successor rule or regulation thereto, (2) July 12, 2002, the second anniversary of the original date of issuance of the notes and (3) the date on which all notes registered under the shelf registration statement are disposed of in accordance therewith, or if the prospectus is unavailable for periods in excess of forty-five days in any three month period or ninety days in any twelve month period. Such liquidated damages shall accrue until such failure to become or remain effective or such unavailability is cured: o in respect of any note, at a rate per year equal to 0.25% for the first 120 days after the occurrence of such event and 0.5% thereafter of the applicable principal amount (as defined below) thereof, and 26 o in respect of any shares of common stock into which the notes have been converted at a rate per year equal to 0.25% for the first 120 days after the occurrence of such event and 0.5% thereafter of the then applicable conversion price (as defined) The term "applicable principal amount" means, as of any date of determination, with respect to each $1,000 principal amount at maturity of the notes, the sum of the issue price of such notes plus accrued original issue discount with respect to such notes through such date of determination. The term "applicable conversion price" means, as of any date of determination, the applicable principal amount per $1,000 principal amount at maturity of notes as of such date of determination divided by the conversion rate in effect as of such date of determination or, if no notes are then outstanding, the conversion rate that would be in effect were notes then outstanding. Such liquidated damages will accrue from and including the date on which any such registration default occurs to but excluding the date on which all registration defaults have been cured. We will have no other liabilities for monetary damages with respect to our registration obligations, except that if we breach, fail to comply with or violate certain provisions of the registration rights agreement, the holders of the notes will be entitled to equitable relief, including injunction and specific performance. We are permitted to suspend the effectiveness of the shelf registration statement or the use of the prospectus that is part of the shelf registration statement during specified periods in specified circumstances, including circumstances relating to pending corporate developments. The summary herein of certain provisions of the registration rights agreement is subject to, and is qualified in its entirety by reference to all the provisions of the registration rights agreement a copy of which is available upon request to Avon as described under "Where You Can Find More Information." DESCRIPTION OF CAPITAL STOCK Our authorized capital stock consists of 800,000,000 shares of common stock, par value $.25 per share, and 25,000,000 shares of preferred stock, par value $1.00 per share, of which 237,617,849 shares of common stock and no shares of preferred stock were outstanding at August 31, 2000. The number of record holders of our common stock was approximately 22,409 as of August 31, 2000. Common Stock Voting. For all matters, other than the election of directors, submitted to a vote of stockholders, each holder of common stock is entitled to one vote for each share registered in his or her name. In voting for the election of directors, shareholders are entitled to vote cumulatively. Each shareholder is entitled to cast in each election the number of votes equal to the number of shares held of record by such person multiplied by the number of directors to be elected in such election. Under such cumulative voting, shareholders may cast all their votes in a given election for a single nominee, or distribute them among two or more nominees as they see fit. Election of Board of Directors. Our certificate of incorporation divides the board of directors into three classes of equal or nearly equal size. The classes serve staggered one to three-year terms. As a result, at least two annual meetings will generally be required for stockholders to effect a change of a majority of the board of directors. Any director, or the entire board of directors, may be removed from office only for cause and subject to an 80% vote of stockholders. An 80% vote of stockholders is required to amend or repeal these provisions in the certificate of incorporation. Dividends. If our board declares a dividend, holders of common stock will receive payments from the funds of Avon that are legally available to pay dividends. However, this dividend right is subject to any preferential dividend rights we may grant to persons who hold preferred stock, if any is outstanding. 27 Liquidation. If Avon is dissolved, the holders of common stock will be entitled to share ratably in all the assets that remain after we pay our liabilities and any amounts we may owe to the persons who held preferred stock, if any is outstanding. Other Rights and Restrictions. Holders of common stock do not have preemptive rights, and they have no right to convert their common stock into any other securities. Our common stock is not redeemable. See "--Shareholder Rights Plan." Listing. Our common stock is listed on the New York Stock Exchange. Transfer Agent and Registrar. The transfer agent and registrar for our common stock is EquiServe. New York Anti-Takeover Statute. We are subject to the business combination provisions of Section 912 of the New York Business Corporation Law and expect to continue to be so subject if and for so long as we have a class of securities registered under Section 12 of the Securities Exchange Act of 1934, as amended. Section 912 provides, with certain exceptions, that a New York corporation may not engage in a business combination with any "interested shareholder" (including mergers, asset sales and other transactions resulting in a financial benefit to the interested shareholder) for a period of five years from the date that such person first became an interested shareholder unless: o the transaction resulting in a person becoming an interested shareholder was approved by the board of directors of the corporation prior to that person becoming an interested shareholder; o the business combination is approved by the holders of a majority of the outstanding voting stock not beneficially owned by such interested shareholder; o the business combination is approved by the disinterested shareholders at a meeting called no earlier than five years after the date that the interested shareholder became an interested shareholder; or o the business combination meets certain valuation requirements for the capital stock of the New York corporation. An interested shareholder is defined as any person that is the beneficial owner of 20% or more of the outstanding voting stock of a New York corporation or is an affiliate or associate of the corporation that at any time during the prior five years was the beneficial owner, directly or indirectly, of 20% or more of the then outstanding voting stock. This statute could prohibit or delay the accomplishment of mergers, tender offers or other takeover or change in control attempts with respect to us and, accordingly, may discourage attempts to acquire us. These provisions are likely to impose greater restrictions on new, unaffiliated shareholders than on our existing shareholders who will continue to own a majority of our outstanding common stock after this offering. Shareholder Rights Plan On March 5, 1998, our board of directors declared a dividend of one preferred share purchase right (a "Right") for each outstanding share of common stock. Each Right entitles the registered holder to purchase from Avon one one-hundredth of a share of Series B Junior Participating Preferred Stock (the "Preferred Shares") for $300 per one- hundredth of a share, subject to adjustment. This summary description of the rights agreement (the "Rights Agreement") is not complete and is qualified in its entirety by reference to the Rights Agreement itself, a copy of which is on file with the SEC. Until the earliest to occur of (a) 10 days following a public announcement that a person or group of affiliated or associated persons (an "Acquiring Person") has acquired beneficial ownership of 20% or more of the outstanding Avon common stock or (b) 10 business days (or such later date as may be determined by action of our board of directors prior to such time as any person or group of affiliated persons becomes an Acquiring Person) following the commencement of, or announcement of an intention to make, a tender offer or exchange offer, the consummation of 28 which would result in the beneficial ownership by a person or group of 20% or more of the outstanding Avon common stock (the earlier of such dates being called the "Distribution Date"), the Rights will generally be evidenced by the certificates representing Avon's common stock. As soon as practicable following the Distribution Date, separate certificates evidencing the Rights will be mailed to holders of record of the common stock as of the close of business on the Distribution Date and such separate certificates alone will evidence the Rights. The Rights are not exercisable until the Distribution Date. The Rights will expire on March 30, 2008 (the "Final Expiration Date"), unless the Rights are earlier redeemed or exchanged by us, in each case as described below. The purchase price payable, the number of outstanding Rights and the number of Preferred Shares issuable upon exercise of the Rights are subject to adjustment from time to time to prevent dilution upon the occurrence of certain corporate events. Preferred Shares purchasable upon exercise of the Rights will not be redeemable. Each Preferred Share will be entitled to a minimum preferential quarterly dividend payment of $1 per share but will be entitled to an aggregate dividend of 100 times the dividend declared per share of common stock. In the event of liquidation, the holders of the Preferred Shares will be entitled to a minimum preferential liquidation payment of $100 per share but will be entitled to an aggregate payment of 100 times the payment made per share of Avon common stock. Each Preferred Share will be entitled to receive 100 times the amount received per share of Avon common stock. These Rights are also protected by customary antidilution provisions. Because of the nature of the Preferred Share' dividend, liquidation and voting rights, the value of the one one- hundredth interest in a Preferred Share purchasable upon exercise of each Right should approximate the value of one share of Avon common stock. In the event that Avon is acquired in a merger or other business combination transaction or 50% or more of its consolidated assets or earning power are sold after a person or group has become an Acquiring Person, proper provision will be made so that each holder of a Right will thereafter have the right to receive, upon the exercise thereof at the then-current exercise price of the Right, that number of shares of common stock of the acquiring company which at the time of such transaction will have a market value of two times the exercise price of the Right. In the event that any person or group of affiliated or associated persons becomes an Acquiring Person, proper provision shall be made so that each holder of a Right, other than Rights beneficially owned by the Acquiring Person (which will thereafter be void), will thereafter have the right to receive upon exercise that number of shares of Avon common stock having a market value of two times the exercise price of the Right. At any time after any person or group becomes an Acquiring Person and prior to the acquisition by such person or group of 50% or more of the outstanding common shares, our board of directors may exchange the Rights (other than Rights owned by such person or group which will have become void), in whole or in part, at an exchange ratio of one share of Avon common stock, or one one-hundredth of a Preferred Share (or of a share of a class or series of Avon's preferred stock having equivalent rights, preferences and privileges), per Right (subject to adjustment). At any time prior to the acquisition by a person or group of affiliated or associated persons of beneficial ownership of 20% or more of the outstanding shares of Avon common stock, our board of directors may redeem the Rights in whole, but not in part, at a price of $.005 per Right (the "Redemption Price"). The redemption of the Rights may be made effective at such time on such basis with such conditions as our board of directors in its sole discretion may establish. The terms of the Rights may be amended by our board of directors without the consent of the holder of the Rights, except that from and after such time as any person or group of affiliated or associated persons becomes an Acquiring Person, no such amendment may adversely affect the interests of the holders of the Rights. Until a Right is exercised, the holder thereof, as such, will have no rights as a shareholder of Avon, including, without limitation, the right to vote or to receive dividends. 29 Preferred Stock Our certificate of incorporation authorizes the board of directors to issue preferred stock in one or more series and to determine the voting rights, dividend rights, dividend rates, liquidation preferences, conversion or exchange rights, redemption rights, including sinking fund provisions and redemption prices, and other terms and rights of each series. UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS The following are the material U.S. federal income tax considerations relating to the purchase, ownership and disposition of the notes by purchasers of the notes who are U.S. holders (as described below), and the material U.S. federal income and estate tax consequences relating to the purchase, ownership and disposition of the notes by purchasers who are non-U.S. holders (as described below). This discussion is not a complete analysis of all the potential tax considerations relating thereto. In particular, it does not address all tax considerations that may be important to you in light of your particular circumstances (such as the alternative minimum tax provisions) or under certain special rules. Special rules may apply, for instance, to banks, tax-exempt organizations, dealers in securities, persons who hold notes or common stock as part of a hedge, conversion or constructive sale transaction, or straddle or other risk reduction transaction, or to persons who have ceased to be United States citizens or to be taxed as resident aliens. This discussion is limited to holders of notes who hold the notes and any common stock into which the notes are converted as capital assets. This discussion does not address the tax consequences arising under the laws of any foreign, state or local jurisdiction. This discussion is based upon the Internal Revenue Code of 1986, as amended (the "Code"), existing and proposed Treasury Regulations, and judicial decisions and administrative interpretations thereunder, as of the date hereof, all of which are subject to change or different interpretations, possibly with retroactive effect. We cannot assure you that the Internal Revenue Service (the "IRS") will not challenge one or more of the tax results described herein, and Avon has not obtained, nor does it intend to obtain, a ruling from the IRS with respect to the U.S. federal tax consequences of acquiring, holding or disposing of the notes or common stock. PLEASE CONSULT YOUR OWN TAX ADVISORS AS TO THE PARTICULAR TAX CONSEQUENCES TO YOU OF ACQUIRING, HOLDING, CONVERTING OR OTHERWISE DISPOSING OF THE NOTES AND COMMON STOCK, INCLUDING THE EFFECT AND APPLICABILITY OF STATE, LOCAL OR FOREIGN TAX LAWS. U.S. Holders You are a U.S. holder for purposes of this discussion if you are a holder of a note or common stock that is, for U.S. federal income tax law purposes: o a citizen or resident of the United States; o a corporation or other entity taxed as an association or corporation which is created or organized in or under the laws of the United States or of any political subdivision thereof; o an estate the income of which is subject to United States federal income taxation regardless of its source; or o a trust if a court within the United States is able to exercise primary supervision over the administration of the trust and one or more U.S. persons have the authority to control all substantial decisions of the trust. Original Issue Discount on the Notes. The notes were issued at a substantial discount from their principal amount at maturity. For U.S. federal income tax purposes, the excess of the principal amount of each note over its "issue price" constitutes original issue discount ("OID"). For this purpose, the issue price of the notes is the first price at which a substantial portion of the notes were sold to the public (not including sales to underwriters or 30 placement agents). You will be required to include OID in income as it accrues, in accordance with a constant yield method, before receipt of the cash or stock attributable to such income, regardless of your regular method of accounting for U.S. federal income tax purposes. Under these rules, you will have to include in gross income increasingly greater amounts of OID in each successive accrual period. Your original tax basis for determining gain or loss on the sale or other disposition of a note will be increased by any accrued OID included in your gross income. We do not intend to treat the possibility of an optional redemption or repurchase of the notes as (x) affecting the determination of the yield to maturity of the notes or (y) giving rise to any additional accrual of OID or recognition of ordinary income upon redemption, sale or exchange of the notes. In the event that the interest rate in the notes is increased, then such increased interest may be treated as increasing the amount of OID includible by you. We are required to furnish annually to the IRS and to certain noncorporate holders information regarding the amount of the OID attributable to that year. For this purpose, we will use a six-month accrual period which ends on the day in each calender year corresponding to the maturity day of the notes or the date six months before such maturity date. Constant Yield Election. Pursuant to the OID regulations, you may make an election to include in gross income all interest that accrues on a note (including OID, market discount, de minimis market discount, and unstated interest, as adjusted by any acquisition premium) in accordance with a constant yield method based on the compounding of interest. Sale, Retirement or Redemption of the Notes Solely for Cash. Upon the sale, retirement or redemption of a note solely for cash, you will recognize gain or loss equal to the difference between the sale or redemption proceeds and your adjusted tax basis in the note. Your adjusted tax basis in a note will generally equal your cost of the note increased by the amount of market discount, if any, which has previously been included in income (as described below) and any OID previously included in income with respect to such note. Except as described below under "-- Market Discount", gain or loss realized on the sale, exchange or retirement of a note will generally be capital gain or loss and will be long-term capital gain or loss if the note is held for more than one year. You should consult your tax advisors regarding the treatment of capital gains (which may be taxed at lower rates than ordinary income for certain noncorporate taxpayers) and losses (the deductibility of which is subject to limitations). Exchange or Conversion of Notes for Common Stock. Generally, a holder will not recognize gain or loss upon (i) the receipt of common stock in exchange for a note pursuant to a tender to us of the note on a purchase date or upon a Fundamental Change or (ii) the conversion of a note into Avon common stock (except in connection with cash received in lieu of a fractional share of common stock). Your obligation to include in gross income the daily portions of OID with respect to a note will terminate on the date of conversion or exchange. It is unclear whether a holder's receipt of common stock upon an exchange or conversion of a note would be treated as a recapitalization for federal income tax purposes, or as a tax-free transaction pursuant to a published revenue ruling of the IRS which states that no gain or loss is realized upon the conversion of a corporate note, convertible by its terms, into stock of the issuer except in cases where the Code specifically requires that such gain or loss be recognized. In either event, your basis in the common stock received will be the same as your basis in the note at the time of the exchange or conversion (exclusive of any tax basis allocable to a fractional share). However, the characterization of the exchange or conversion for federal income tax purposes may affect your holding period in the common stock received. If the exchange or conversion of the notes is treated as a recapitalization, the holding period of a fractional interest in each share of common stock that is attributable to OID accrued through the date of exchange or conversion will commence on the day following the exchange or conversion. Although there is no authority precisely on point, it is believed that the fractional share that will have a new holding period in the hands of a holder will be equal to the ratio determined by dividing the amount of OID accrued since the date of issuance by the fair 31 market value of the common stock on the date of exchange or conversion. The remainder of the interest in each share will have a holding period that includes the holding period of the note exchanged or converted. If the exchange or conversion of the notes does not constitute a recapitalization, the holding period for the common stock received (including the portion of such stock attributable to accrued OID) will be the same as the holding period for the note. The receipt of cash in lieu of a fractional share of common stock, if any, should generally result in capital gain or loss (measured by the difference between the cash received for the fractional share interest and your tax basis in the fractional share interest). Exchange of the Notes for Cash and Common Stock. If you elect to exercise your option to tender a note to us on a purchase date or upon a Fundamental Change and the purchase price is paid in a combination of shares of common stock and cash (other than cash received in lieu of a fractional share), you would recognize gain (but not loss) but only to the extent such gain does not exceed such cash (excluding cash attributable to accrued OID and, to the extent an election has been made to include market discount in income on a current basis, accrued market discount). Your basis in the common stock received in the exchange will be the same as your tax basis in the notes tendered to us (exclusive of any tax basis allocable to a fractional share), decreased by the amount of cash (other than cash attributable to accrued OID and accrued market discount, if any, previously included in income and cash received in lieu of a fractional share), if any, received in the exchange and increased by the amount of any gain recognized on the exchange (other than gain with respect to a fractional share). The holding period of a fractional interest in each share of common stock that is attributable to OID accrued through the date of exchange and of the remainder of the interest in each share of common stock will have a holding period determined as described above under Exchange or Conversion of Notes for Common Stock. The receipt of cash in lieu of a fractional share of common stock, if any, should generally result in capital gain or loss (measured by the difference between the cash received for the fractional share interest and your tax basis in the fractional share interest). Adjustment of Conversion Rate. If at any time Avon makes a distribution of property to shareholders that would be taxable to such shareholders as a dividend for U.S. federal income tax purposes (for example, distributions of evidences of indebtedness or assets of Avon, but generally not stock dividends or rights to subscribe for common stock) and the conversion rate of the notes is increased pursuant to the anti-dilution provisions of the indenture, such increase may be deemed to be the payment of a taxable dividend to you. If the conversion rate is increased at the discretion of Avon or in certain other circumstances, such increase also may be deemed to be the payment of a taxable dividend to you. Market Discount. If you purchase a note for an amount that is less than its "revised issue price", the amount of the difference will be treated as "market discount" for federal income tax purposes, unless such difference is less than a specified de minimis amount. The revised issue price of a note is defined as the sum of the issue price of the note and the aggregate amount of previously accrued OID. Under the market discount rules, you will be required to treat any principal payment on, or any gain on the sale, exchange, retirement or other disposition of, a note as ordinary income to the extent of accrued market discount unless you have made an election to include currently market discount in income. Unless a second election is made to accrue market discount on a constant yield method, the accrued market discount is the market discount multiplied by a fraction, the numerator of which is the number of days you have held the note and the denominator of which is the number of days between the date you acquired the note and its maturity date. If such note is disposed of in a nontaxable transaction (other than as provided in Code Sections 1276(c) and (d) which provide rules for carryover of accrued market discount), you will be required to include accrued market discount as ordinary income as if you had sold the note at its then fair market value. If a note with accrued market discount is converted into common stock pursuant to the conversion feature, the amount of such accrued market discount generally will be taxable as ordinary income upon disposition of the common stock. In addition, you may be required to defer, until the maturity of the note or its earlier disposition (including a nontaxable transaction other than as provided in Code Sections 32 1276(c) and (d)), the deduction of all or a portion of the interest expense on any indebtedness you incurred or maintained to purchase or carry such note. If you make a constant yield election, as described above, for a note with market discount, such election will result in a deemed election to accrue market discount for all your debt instruments with market discount and may be revoked only with the permission of the Internal Revenue Service with respect to debt instruments acquired after revocation. Acquisition Premium. If you purchase a note for an amount that is greater than its adjusted issue price but less than its principal amount, you will be considered to have purchased such note at an "acquisition premium". The amount of OID required to be included by you in gross income with respect to such note for any taxable year may be reduced by the portion of such acquisition premium properly allocable to such year. Ownership and Disposition of Common Stock. Dividends, if any, paid on the common stock generally will be includible in your income as ordinary income to the extent of your ratable share of Avon's current and accumulated earnings and profits. Upon the sale, exchange or other disposition of common stock received upon conversion of a note or in satisfaction of the purchase price of a note tendered to us on a purchase date or upon a Fundamental Change, except to the extent of ordinary income attributable to accrued market discount not previously included in income, if any, as described above under "-- Market Discount", you generally will recognize capital gain or capital loss equal to the difference between the amount realized on such sale or exchange and your adjusted tax basis in such shares. You should consult your tax advisors regarding the treatment of capital gains (which may be taxed at lower rates than ordinary income for certain noncorporate taxpayers) and losses (the deductibility of which is subject to limitations). Non-U.S. Holders You are a non-U.S. holder for purposes of this discussion if you are a holder of a note or common stock that is, for U.S. federal income tax law purposes: o a nonresident alien individual; o a foreign corporation; o a nonresident alien fiduciary of a foreign estate or trust; or o a foreign partnership one or more of the members of which is a nonresident alien individual, a foreign corporation or a nonresident alien fiduciary of a foreign estate or trust. Withholding Tax on Payments of Principal and Original Issue Discount on Notes. The payment of principal (including any OID included therein) on a note by Avon or any paying agent of Avon to you will not be subject to U.S. federal withholding tax, provided that in the case of payment in respect of OID: o you do not actually or constructively own 10% or more of the total combined voting power of all classes of stock of Avon; o you are not a controlled foreign corporation that is related to Avon within the meaning of the Code; and o either (A) the beneficial owner of the note certifies to the applicable payor or its agent, under penalties of perjury, that it is not a U.S. holder and provides its name and address on an IRS Form W-8 (or a suitable substitute form), or (B) a securities clearing organization, bank or other financial institution, that holds customers' securities in the ordinary course of its trade or business (a "financial institution") and holds the note, certifies under penalties of perjury that such an IRS Form W-8 (or suitable substitute form) has been received from the beneficial owner by it or by a financial institution between it and the beneficial owner and furnishes the payor with a copy thereof. 33 Except to the extent otherwise provided under an applicable tax treaty, you generally will be taxed in the same manner as a U.S. holder with respect to OID and market discount, if any, on a note if such OID or market discount is effectively connected with a U.S. trade or business of yours. Effectively connected income received by a corporate Non-U.S. holder may also, under certain circumstances, be subject to an additional "branch profits tax" at a 30% rate (or, if applicable, a lower treaty rate), subject to certain adjustments. Such effectively connected income will not be subject to withholding tax if the holder delivers the appropriate form (currently on an IRS Form 4224 and, beginning January 1, 2001, a Form W-8ECI) to the payor. Dividends. Dividends, if any, paid on the common stock to you (and, after December 31, 2000, any deemed dividends resulting from an adjustment to the Conversion Rate (see "Adjustment of Conversion Rate" above)) generally will be subject to a 30% U.S. federal withholding tax, subject to reduction if you are eligible for the benefits of an applicable income tax treaty. Currently, for purposes of determining whether tax is to be withheld at the 30% rate or at a reduced treaty rate, Avon will ordinarily presume that dividends paid to an address in a foreign country are paid to a resident of such country absent knowledge that such presumption is not warranted. Under Treasury Regulations effective for payments after December 31, 2000, holders will be required to satisfy certain applicable certification requirements to claim treaty benefits. Except to the extent otherwise provided under an applicable tax treaty, you generally will be taxed in the same manner as a U.S. holder on dividends paid (or deemed paid) that are effectively connected with your conduct of a trade or business in the United States. If you are a foreign corporation, you may also be subject to the "branch profits tax" on such effectively connected income at a 30% rate or such lower rate as may be specified by an applicable income tax treaty, subject to certain adjustments. Gain on Disposition of the Notes and Common Stock. You generally will not be subject to United States federal income tax on gain realized on the sale, exchange or redemption of a note, or the sale or exchange of common stock unless: o you are an individual present in the United States for 183 days or more in the year of such sale, exchange or redemption and either (A) you have a "tax home" in the United States and certain other requirements are met, or (B) the gain from the disposition is attributable to an office or other fixed place of business in the United States; o the gain is effectively connected with your conduct of a U.S. trade or business; or o in the case of the disposition of the notes or the common stock, Avon is a U.S. real property holding corporation at any time during the shorter of the five-year period ending on the date of the disposition or the period during which you held our notes or common stock. Avon does not believe it is or is likely to become a U.S. real property holding corporation. U.S. Federal Estate Tax. A note held by an individual who at the time of death is not a citizen or resident of the United States (as specially defined for U.S. federal estate tax purposes) will not be subject to United States federal estate tax if the individual did not actually or constructively own 10% or more of the total combined voting power of all classes of stock of Avon and, at the time of the individual's death, payments with respect to such note would not have been effectively connected with the conduct by such individual of a trade or business in the United States. Common stock held by an individual who at the time of death is not a citizen or resident of the United States (as specially defined for United States federal estate tax purposes) will be included in such individual's estate for U.S. federal estate tax purposes, unless an applicable estate tax treaty otherwise applies. Backup Withholding and Information Reporting U.S. Holders. Information reporting will apply to payments of interest (including OID), premium or dividends, if any, made by Avon on, or the proceeds of the sale or other disposition of, the notes or shares of common stock with respect to certain noncorporate U.S. holders, and backup withholding at a rate of 31% may apply unless the 34 recipient of such payment supplies a taxpayer identification number, certified under penalties of perjury, as well as certain other information or otherwise establishes an exemption from backup withholding. Any amount withheld under the backup withholding rules is allowable as a credit against the U.S. holder's federal income tax, provided that the required information is provided to the IRS. Non-U.S. Holders. Under current Treasury Regulations, backup withholding and information reporting will not apply to payments of principal, including cash payments in respect of OID, on the notes by Avon or any agent thereof to a non-U.S. holder if the non-U.S. holder certifies as to its non-U.S. holder status under penalties of perjury or otherwise establishes an exemption (provided that neither Avon nor its agent has actual knowledge that the holder is a U.S. person or that the conditions of any other exemptions are not in fact satisfied). Avon must report annually to the IRS and to each non-U.S. holder the amount of any dividends paid to, and the tax withheld with respect to, such holder, regardless of whether any tax was actually withheld. Copies of these information returns may also be made available under the provisions of a specific treaty or agreement to the tax authorities of the country in which the non-U.S. holder resides. The payment of the proceeds on the disposition of notes or shares of common stock to or through the United States office of a United States or foreign broker will be subject to information reporting and backup withholding unless the owner provides the certification described above or otherwise establishes an exemption. The proceeds of the disposition effected outside the United States by a Non-U.S. holder of notes or shares of common stock to or through a foreign office of a broker will not be subject to backup withholding or information reporting. However, if such broker is a U.S. person, a controlled foreign corporation for United States tax purposes, a foreign person, 50% or more of whose gross income from all sources for certain periods is from activities that are effectively connected with a U.S. trade or business, or, in the case of payments made after December 31, 2000, a foreign partnership with certain connections to the United States, information reporting requirements will apply unless such broker has documentary evidence in its files of the holder's Non-U.S. status and has no actual knowledge to the contrary or unless the holder otherwise establishes an exemption. Amounts withheld under the backup withholding rules do not constitute a separate U.S. federal income tax. Rather, any amount withheld under the backup withholding rules will be refunded or is allowable as a credit against the Non-U.S. holder's federal income tax liability, if any, provided that the required information or appropriate claim for refund is provided to the IRS. 35 SELLING SECURITYHOLDERS We initially issued the notes to initial purchasers who then sold the notes in transactions exempt from the registration requirements of the Securities Act to "qualified institutional buyers" (as defined in Rule 144A under the Securities Act) or buyers outside the U.S. (pursuant to Regulation S under the Securities Act). The selling securityholders (which term includes their transferees, pledgees, donees or their successors) may from time to time offer and sell pursuant to this prospectus any or all of the notes and common stock issuable upon conversion of the notes. Prior to any use of this prospectus in connection with an offering of the notes or the common stock issued upon conversion of the notes, this prospectus will be supplemented to set forth the name and number of shares beneficially owned by the selling securityholder intending to sell the notes or common stock and the number of notes or shares of common stock to be offered. The prospectus supplement will also disclose whether any selling securityholder selling in connection with the prospectus supplement has held any position or office with, been employed by or otherwise has had a material relationship with us or any of our affiliates during the three years prior to the date of the prospectus supplement. PLAN OF DISTRIBUTION The selling securityholders may distribute the notes and the shares of common stock issuable upon conversion of the notes from time to time as follows (if at all): o to or through underwriters, brokers or dealers; o directly to one or more other purchasers; o through agents on a best-efforts basis; or o otherwise through a combination of any such methods of sale. If a selling securityholder sells the notes or shares of common stock issuable upon conversion thereof through underwriters, dealers, brokers or agents, such underwriters, dealers, brokers or agents may receive compensation in the form of discounts, concessions or commissions from the selling securityholder and/or the purchasers of the notes or shares of common stock. The notes and the shares of common stock issuable upon conversion of the notes may be sold from time to time: o in one or more transactions at a fixed price or prices, which may be changed; o at market prices prevailing at the time of sale; o at prices related to such prevailing market prices; o at varying prices determined at the time of sale; or o at negotiated prices. Such sales may be effected in transactions: o on any national securities exchange or quotation service on which the notes or our common stock may be listed or quoted at the time of sale; 36 o in the over-the-counter market; o in block transactions in which the broker or dealer so engaged will attempt to sell the notes or shares of common stock issuable upon conversion thereof as agent but may position and resell a portion of the block as principal to facilitate the transaction, or in crosses, in which the same broker acts as an agent on both sides of the trade; o in transactions otherwise than on such exchanges or services or in the over-the-counter market; o through the writing of options; or o through other types of transactions. In connection with sales of the notes or common stock or otherwise, the selling securityholder may enter into hedging transactions with brokers-dealers or others, which may in turn engage in short sales of the notes or our common stock in the course of hedging the positions they assume. The selling securityholder may also sell notes or common stock short and deliver notes or common stock to close out such short positions, or loan or pledge notes of common stock to brokers-dealers or others that in turn may sell such securities. The selling securityholder may pledge or grant a security interest in some or all of the notes or common stock issued upon conversion of the notes owned by it and, if it defaults in the performance of its secured obligations, the pledgees or secured parties may offer and sell the notes or the common stock from time to time pursuant to this prospectus. The selling securityholder also may transfer and donate notes or shares of common stock issuable upon conversion of the notes in other circumstances in which case the transferees, donees, pledgees or other successors in interest will be the selling securityholders for purposes of the prospectus. The selling securityholder may sell short the common stock and may deliver this prospectus in connection with such short sales and use the shares of common stock covered by the prospectus to cover such short sales. In addition, any notices or shares of common stock covered by this prospectus that qualify for sale pursuant to Rule 144, Rule 144A or any other available exemption from registration under the Act may be sold under Rule 144, Rule 144A or such other available exemption. At the time a particular offering of notes or shares of common stock issuable upon conversion thereof is made, a prospectus supplement, if required, will be distributed which will set forth the aggregate amount of notes or shares of common stock being offered and the terms of the offering, including the name or names of any underwriters, dealers, brokers or agents, if any, and any discounts, commissions or concessions allowed or reallowed to be paid to brokers or dealers. Selling securityholders and any underwriters, dealers, brokers or agents who participate in the distribution of the notes or shares of common stock may be deemed to be "underwriters" within the meaning of the Act and any profits on the sale of the notes or shares of common stock by them and any discounts commissions or concessions received by any such underwriters, dealers, brokers or agents may be deemed to be underwriting discounts and commissions under the Act. The selling securityholders and any other person participating in such distribution will be subject to applicable provisions of the Exchange Act and the rules and regulations thereunder, including, without limitation, Regulation M which may limit the timing of purchases and sales of the notes and shares of common stock by the selling securityholders and any other such person. Furthermore, Regulation M under the Exchange Act may restrict the ability of any person engaged in a distribution of the notes or shares of common stock to engage in market-making activities with respect to the notes and shares of common stock being distributed for a period of up to five business days prior to the commencement of such distribution. All of the foregoing may affect the marketability of the notes and shares of common stock and the ability of any person or entity to engage in market-making activities with respect to the notes and shares of common stock. 37 Pursuant to the registration rights agreement entered into in connection with the offer and sale of the notes by Avon, each of Avon and the selling securityholders will be indemnified by the other against certain liablities, including certain liabilities under the Act, or will be entitled to contribution in connection therewith. We will pay all expenses of the shelf registration statement, provided that each selling securityholder will pay any broker's commission, agency fee or underwriter's discount or commission. LEGAL MATTERS The validity of the issuance of the securities offered by this prospectus will be passed upon for Avon by Davis Polk & Wardwell, special counsel to Avon. INDEPENDENT ACCOUNTANTS The consolidated financial statements incorporated in this registration statement by reference to the Annual Report on Form 10-K for the year ended December 31, 1999, have been so incorporated in reliance on the report of PricewaterhouseCoopers LLP, independent accountants, given on the authority of said firm as experts in auditing and accounting. 38 =============================================================================== $840,938,000 Avon Products, Inc. [LOGO] Zero Coupon Convertible Senior Notes due 2020 and Shares of Common Stock Issuable Upon Conversion of the Notes ----------------------- Prospectus ----------------------- o, 2000 =============================================================================== PART II INFORMATION NOT REQUIRED IN THE PROSPECTUS ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. Securities and Exchange Commission registration fee...........$ 105,600 Legal fees and expenses....................................... 100,000 Accounting fees and expenses.................................. 10,000 Miscellaneous................................................. 10,400 ----------- Total....................................................$ 225,000 =========== Except for the SEC registration fee, all of the foregoing are estimates. ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS. Article XII of the By-Laws of Avon Products, Inc. provides as follows: Section 1. Indemnification--Third Party and Derivative Actions. (a) The corporation shall indemnify any person made, or threatened to be made, a party to an action or proceeding, whether civil or criminal (other than one by or in the right of the corporation to procure a judgment in its favor), including an action by or in the right of any other corporation of any type or kind, domestic or foreign, or any partnership, joint venture, trust, employee benefit plan or other enterprise, which any director, officer or employee of the corporation served in any capacity at the request of the corporation, by reason of the fact that he is or was a director or officer of the corporation, or is or was serving such other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise in any capacity, against judgments, fines, including excise taxes, amounts paid in settlement and expenses, including attorney's fees, incurred in connection with any such action or proceeding, or any appeal therein, provided that no indemnification may be made to or on behalf of such person if a judgment or other final adjudication adverse to such person establishes that (i) his acts were committed in bad faith or were the result of his active or deliberate dishonesty and were material to such action or proceeding or (ii) he personally gained in fact a financial profit or other advantage to which he was not legally entitled. (b) The corporation shall indemnify any person made, or threatened to be made, a party to an action by or in the right of the corporation to procure a judgment in its favor by reason of the fact that he is or was a director or officer of the corporation, or is or was serving at the request of the corporation as a director or officer of any other corporation of any type or kind, domestic or foreign, or of any partnership, joint venture, trust, employee benefit plan or other enterprise, against amounts paid in settlement and expenses, including attorneys' fees, incurred in connection with such action, or any appeal therein, provided that no indemnification may be made to or on behalf of such person if (i) his acts were committed in bad faith or were the result of his active and deliberate dishonesty and were material to such action or (ii) he personally gained in fact a financial profit or other advantage to which he was not legally entitled. (c) The termination of any civil or criminal action or proceeding by judgment, settlement, conviction or upon a plea of nolo contendere, or its equivalent, shall not in itself create a presumption that any such person has not met the standard of conduct set forth in this Section 1. Section 2. Payment of Indemnification; Repayment. (a) A person who has been successful, on the merits or otherwise, in the defense of a civil or criminal action or proceeding of the character described in Section 1 of this Article shall be entitled to indemnification as authorized in such Section. (b) Any indemnification under Section 1 of this Article, unless ordered by a court, shall be made by the corporation in such manner as provided by law. II-1 (c) Expenses incurred by a person referred to in Section 1 of this Article in defending a civil or criminal action or proceeding shall be paid by the corporation in advance of the final disposition of such action or proceeding upon receipt of an undertaking by or on behalf of such person to repay such amount in case he is ultimately found, in accordance with this Article, not to be entitled to indemnification or, where indemnity is granted, to the extent the expenses so paid exceed the indemnification to which he is entitled. (d) Any indemnification of a person under Section 1 of this Article, or advancement of expenses under Section 2(c) of this Article, shall be made promptly, and in any event within 60 days, upon the written request of such person. Section 3. Enforcement; Defenses. The right to indemnification or advancement of expenses granted by this Article shall be enforceable by the person in question in any court of competent jurisdiction if the corporation denies such request, in whole or in part, or if no disposition thereof is made within 60 days. Such person's expenses incurred in connection with successfully establishing his right to indemnification, in whole or in part, in any such action shall also be indemnified by the corporation. It shall be a defense to any such action (other than an action brought to enforce a claim for the advancement of expenses under Section 2(c) of this Article where the required undertaking has been received by the corporation) that the claimant has not met the standard of conduct set forth in Section 1 of this Article, but the burden of proving such defense shall be on the corporation. Neither the failure of the corporation to have made a determination that indemnification of the claimant is proper, nor the fact that there has been an actual determination by the corporation that indemnification of the claimant is not proper, shall be a defense to the action or create a presumption that the claimant is not entitled to indemnification. Section 4. Survival; Savings Clause; Preservation of Other Rights. (a) The foregoing indemnification provisions shall be deemed to be a contract between the corporation and each person who serves in such capacity at any time while these provisions as well as the relevant provisions of the New York Business Corporation Law are in effect and any repeal or modification thereof shall not affect any right or obligation then existing with respect to any state of facts then or previously existing or any action or proceeding previously or thereafter brought or threatened based in whole or in part upon any such state of facts. Such a contract right may not be modified retroactively without the consent of such person. (b) If this Article or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the corporation shall nevertheless indemnify each such person against judgments, fines, amounts paid in settlement and expenses, including attorneys' fees, incurred in connection with any actual or threatened action by or in the right of the corporation, or any appeal therein, to the full extent permitted by any applicable portion of this Article that shall not have been invalidated and to the full extent permitted by applicable law. (c) The indemnification provided by this Article shall not be deemed exclusive of any other rights to which those indemnified may be entitled under any by-law, agreement, vote of shareholders or directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be a director, officer or employee of the corporation and shall inure to the benefit of the heirs, executors and administrators of such a person. The corporation is hereby authorized to provide further indemnification if it deems it advisable by resolution of shareholders or directors, by amendment of these by-laws or by agreement. ITEM 16. EXHIBITS. 1.1 Purchase Agreement, dated July 7, 2000, between Avon Products, Inc. and Salomon Smith Barney Inc., Banc of America Securities LLC, Chase Securities Inc., Deutsche Bank Securities Inc., J.P. Morgan Securities Inc. and Morgan Stanley & Co. Incorporated. 4.1 Form of Global Note (included in Exhibit 4.2). 4.2 Indenture, dated as of July 12, 2000, between Avon Products, Inc., as Issuer, and The Chase Manhattan Bank, as Trustee. II-2 4.3 Registration Rights Agreement, dated as of July 12, 2000, between Avon Products, Inc. and Salomon Smith Barney Inc., Banc of America Securities LLC, Chase Securities Inc., Deutsche Bank Securities Inc., J.P. Morgan Securities Inc. and Morgan Stanley & Co. Incorporated. 5.1 Opinion of Davis Polk & Wardwell regarding the validity of the notes and the common stock issuable upon conversion. 12.1 Statement regarding computation of ratios. 23.1 Consent of Davis Polk & Wardwell (included in Exhibit 5.1). 23.2 Consent of PricewaterhouseCoopers LLP. 24.1 Power of Attorney (included on the signature pages of this registration statement). 25.1 Statement of Eligibility under the Trust Indenture Act of 1939 on Form T-1 of The Chase Manhattan Bank, as Trustee. ITEM 17. UNDERTAKINGS. (a) The undersigned registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this Registration Statement: (i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933; (ii) To reflect in the prospectus any facts or events arising after the effective date of the Registration Statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the Registration Statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than 20 percent change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in this registration statement; and (iii) To include any material information with respect to the plan of distribution not previously disclosed in the Registration Statement or any material change to such information in the Registration Statement; provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) above do not apply if the information required to be included in a post-effective amendment by those paragraphs is contained in periodic reports filed with or furnished to the Commission by the registrant pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that are incorporated by reference in the Registration Statement. (2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. (b) The undersigned registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each filing of the registrant's annual report pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 that is incorporated by reference in the II-3 Registration Statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (c) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. (d) The undersigned registrant hereby undertakes that: (1) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this Registration Statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this Registration Statement as of the time it was effective. (2) For the purpose of determining any liability under the Securities Act of 1933, each post- effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be initial bona fide offering thereof. II-4 SIGNATURES Pursuant to the requirements of the Securities Act, the registrant has duly caused this registration statement on Form S-3 to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of New York, State of New York, on this14th day of September, 2000. AVON PRODUCTS, INC. By: /s/ Ward M. Miller, Jr. --------------------------------------- Ward M. Miller, Jr. Senior Vice President, General Counsel and Secretary POWER OF ATTORNEY Each person whose signature appears below on this registration statement hereby constitutes and appoints Ward M. Miller, Jr. with full power to act without the other, his/her true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, and for him/her and in his/her name, place and stead, in any and all capacities (unless revoked in writing) to sign any and all amendments (including post-effective amendments thereto) to this registration statement to which this power of attorney is attached, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting to such attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he/she might or could do in person, hereby notifying and confirming all that such attorney-in-fact and agent or his/her substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated. Signature Title Date /s/ Stanley C. Gault Non-Executive Chairman of the September 14, 2000 - ----------------------- Board and Director Stanley C. Gault /s/ Andrea Jung President and Chief Executive September 14, 2000 - ----------------------- Officer (principal executive Andrea Jung officer) /s/ Robert J. Corti Executive Vice President and September 14, 2000 - ----------------------- Chief Financial Officer Robert J. Corti (principal financial officer) /s/ Janice Marolda Vice President and Controller September 14, 2000 - ----------------------- (principal accounting officer) Janice Marolda /s/ Brenda C. Barnes Director September 14, 2000 - ----------------------- Brenda C. Barnes II-5 Signature Title Date /s/ Richard S. Barton Director September 14, 2000 - -------------------------- Richard S. Barton /s/ Jose Ferreira, Jr. Director September 14, 2000 - -------------------------- Jose Ferreira, Jr. /s/ Edward T. Fogarty Director September 14, 2000 - -------------------------- Edward T. Fogarty /s/ Fred Hassan Director September 14, 2000 - -------------------------- Fred Hassan /s/ Susan J. Kropf Director September 14, 2000 - -------------------------- Susan J. Kropf /s/ Ann S. Moore Director September 14, 2000 - -------------------------- Ann S. Moore /s/ Paula Stern Director September 14, 2000 - -------------------------- Paula Stern /s/ Lawrence A. Weinbach Director September 14, 2000 - -------------------------- Lawrence A. Weinbach II-6 EXHIBIT INDEX EXHIBIT NO. DESCRIPTION - ----------- ----------- 1.1 Purchase Agreement, dated July 7, 2000, between Avon Products, Inc. and Salomon Smith Barney Inc., Banc of America Securities LLC, Chase Securities Inc., Deutsche Bank Securities Inc., J.P. Morgan Securities Inc. and Morgan Stanley & Co. Incorporated. 4.1 Form of Global Note (included in Exhibit 4.2). 4.2 Indenture, dated as of July 12, 2000, between Avon Products, Inc., as Issuer, and The Chase Manhattan Bank, as Trustee. 4.3 Registration Rights Agreement, dated as of July 12, 2000, between Avon Products, Inc. and Salomon Smith Barney Inc., Banc of America Securities LLC, Chase Securities Inc., Deutsche Bank Securities Inc., J.P. Morgan Securities Inc. and Morgan Stanley & Co. Incorporated. 5.1 Opinion of Davis Polk & Wardwell regarding the validity of the notes and the common stock issuable upon conversion. 12.1 Statement regarding computation of ratios. 23.1 Consent of Davis Polk & Wardwell (included in Exhibit 5.1). 23.2 Consent of PricewaterhouseCoopers LLP. 24.1 Power of Attorney (included on the signature pages of this registration statement). 25.1 Statement of Eligibility under the Trust Indenture Act of 1939 on Form T-1 of The Chase Manhattan Bank, as Trustee. E-1 EX-1.1 2 0002.txt EXHIBIT 1.1 AVON PRODUCTS, INC. ZERO COUPON CONVERTIBLE SENIOR NOTES DUE 2020 PURCHASE AGREEMENT July 7, 2000 July 7, 2000 Salomon Smith Barney Inc. Banc of America Securities LLC Chase Securities Inc. Deutsche Bank Securities Inc. J.P. Morgan Securities Inc. Morgan Stanley & Co. Incorporated c/o Salomon Smith Barney Inc. 388 Greenwich Street New York, New York 10013 Avon Products, Inc. Zero Coupon Convertible Senior Notes Due 2020 Ladies and Gentlemen: AVON PRODUCTS, INC., a New York corporation (the "Company"), proposes to issue and sell to the several purchasers named in Schedule A hereto (the "Initial Purchasers") $735,820,000 principal amount at maturity of its Zero Coupon Convertible Senior Notes Due 2020 (the "Initial Securities") and to grant to the Initial Purchasers the option described in Section 2 to purchase all or part of an additional $ 105,118,000 aggregate principal amount at maturity of the Company's Zero Coupon Convertible Senior Notes Due 2020 to cover over-allotments, if any (the "Option Securities"). The Initial Securities, together with the Option Securities, are collectively referred to herein as the "Securities". The Securities are to be issued pursuant to the provisions of an Indenture to be dated as of July 12, 2000 (the "Indenture") between the Company and The Chase Manhattan Bank, as Trustee (the "Trustee"). The Securities will be offered without being registered under the Securities Act of 1933, as amended (the "Securities Act"), to qualified institutional buyers in compliance with the exemption from registration provided by Rule 144A under the Securities Act and in offshore transactions in reliance on Regulation S under the Securities Act ("Regulation S"). The Securities will be convertible into shares of common stock, par value $.25 per share, of the Company (the "Common Stock") in accordance with the terms of the Securities and the Indenture, at the initial conversion rate specified in Schedule B hereto. Upon the third, eighth and thirteenth anniversaries of the original issuance date of the Securities, each holder of Securities may require the Company to purchase such Securities for a price to be paid, at the Company's option, in cash or (subject to certain limitations) shares of Common Stock, or any combination thereof, at a purchase price equal to the issue price of the Securities plus the accrued original issue discount thereon to the date of such purchase. If prior to such date of purchase the Securities have been converted to semiannual coupon notes following the occurrence of a Tax Event (as defined in the Indenture), such purchase price will be equal to the Restated Principal Amount (as defined in the Indenture) plus accrued and unpaid interest (in lieu of any original issue discount) from the most recent date to which interest was paid or, if interest has not been paid, from the date of such conversion through such date of purchase. Upon a Fundamental Change (as defined in the Indenture) occurring prior to July 12, 2003, each holder of Securities may require the Company to repurchase such holder's Securities (subject to certain restrictions described below) at a repurchase price equal to the issue price of the Securities plus the accrued original issue discount thereon to the date of such repurchase. The Company may, at its option, pay all or a portion of the repurchase price in common stock, as long as the Company's common stock is then listed on a national securities exchange or traded on the Nasdaq National Market. The fair market value of the common stock for such purpose shall be 97.5% of the Market Price (as defined in the Indenture) of the Company's common stock. If prior to such date of repurchase the Securities have been converted to semiannual coupon notes following the occurrence of a Tax Event, the Company will be required to repurchase such Securities at a price equal to the Restated Principal Amount plus accrued and unpaid interest (in lieu of any original issue discount) from the most recent date to which interest was paid or, if interest has not been paid, from the date of such conversion through such date of repurchase. The holders of the Securities will be entitled to the benefits of a Registration Rights Agreement dated the Closing Date (as defined in Section 4) between the Company and the Initial Purchasers, substantially in the form attached hereto as Exhibit D (the "Registration Rights Agreement") pursuant to which the Company has agreed, among other things, to use its reasonable best efforts to file a registration statement (the "Registration Statement") with the Securities and Exchange Commission (the "Commission") registering resales of the Securities and the shares of Common Stock issuable upon conversion thereof. In connection with the sale of the Securities, the Company has prepared a final offering memorandum (the "Memorandum") including or incorporating by reference a description of the terms of the Securities, the terms of the offering and a description of the Company. As used herein and, unless otherwise stated, the term "Memorandum" shall include the documents incorporated by reference therein. The terms "supplement," "amendment" and "amend" as used herein with respect to the Memorandum shall include all documents deemed to be incorporated by reference in the Memorandum that are filed subsequent to the date of such Memorandum with the Commission pursuant to the Securities Exchange Act of 1934, as amended (the "Exchange Act") and prior to the termination of the offering of the Securities. 1. Representations and Warranties. The Company represents and warrants to, and agrees with, you that: (a) (i) Each document, if any, filed or to be filed pursuant to the Exchange Act and incorporated by reference in the Memorandum complied or will comply when so filed in all material respects with the Exchange Act and the applicable rules and regulations of the Commission thereunder and (ii) the Memorandum, in the form used by the Initial Purchasers to confirm sales and on the Closing Date, will not contain any untrue statement of a material fact or omit to state a material fact necessary to make the 2 statements therein, in the light of the circumstances under which they were made, not misleading, except that the representations and warranties set forth in this paragraph do not apply to statements or omissions in the Memorandum based upon information furnished to the Company in writing by or on behalf of any Initial Purchaser expressly for use therein. (b) The Company has been duly incorporated, is validly existing as a corporation in good standing under the laws of the jurisdiction of its incorporation, has the corporate power and authority to own its property and to conduct its business as described in the Memorandum and is duly qualified to transact business and is in good standing in each jurisdiction in which the conduct of its business or its ownership or leasing of property requires such qualification, except to the extent that the failure to be so qualified or be in good standing would not have a material adverse effect on the Company and its subsidiaries, taken as a whole. (c) Each significant subsidiary of the Company has been duly incorporated, is validly existing as a corporation in good standing under the laws of the jurisdiction of its incorporation, has the corporate power and authority to own its property and to conduct its business in all material respects as described in the Memorandum and is duly qualified to transact business and is in good standing in each jurisdiction in which the conduct of its business or its ownership or leasing of property requires such qualification, except to the extent that the failure to be so qualified or be in good standing would not have a material adverse effect on the Company and its subsidiaries, taken as a whole; all of the issued shares of capital stock of each significant subsidiary of the Company have been duly and validly authorized and issued, are fully paid and non-assessable and, except for Avon Products Company Limited (the Company's Japanese subsidiary), are owned directly or indirectly by the Company, free and clear of all liens, encumbrances, equities or claims. For purposes of this Purchase Agreement, a "significant subsidiary" is any subsidiary of the Company that generates 5% or more of the Company's revenue or income or that holds 5% or more of the Company's assets. (d) This Agreement has been duly authorized, executed and delivered by the Company. (e) The Securities have been duly authorized and, when executed and authenticated and delivered in accordance with the provisions of the Indenture and paid for by the Initial Purchasers in accordance with the terms of this Agreement, will be valid and binding obligations of the Company, enforceable in accordance with their terms, subject to applicable bankruptcy, insolvency, moratorium, reorganization, fraudulent transfer or similar laws affecting creditors' rights generally and general principles of equity, and the holders thereof will be entitled to the benefits of the Indenture, pursuant to which such Securities are to be issued, and the Registration Rights Agreement. (f) Upon issuance and delivery of the Securities in accordance with this Agreement and the Indenture, the Securities will be convertible at the option of the holder thereof into shares of Common Stock in accordance with the terms of the Securities and the Indenture; the shares of Common Stock issuable upon such conversion of the 3 Securities have been duly authorized and reserved for issuance upon such conversion by all necessary corporate action and such shares, when issued upon such conversion, will be validly issued and will be fully paid and non-assessable; the shares of Common Stock issuable at the Company's option upon purchase of the Securities by the Company at the option of the holder thereof will have been, prior to the issuance thereof, duly authorized by all necessary corporate action, and such shares if and when issued in accordance with the terms of the Securities and the Indenture, will be validly issued, fully paid and non-assessable; and the issuance of such shares upon such conversion or purchase will not be subject to the preemptive or other similar rights of any securityholder of the Company. (g) Each of the Indenture and the Registration Rights Agreement has been duly authorized and, when executed and delivered by the Company and assuming due authorization, execution and delivery by the Trustee (in the case of the Indenture) and by the Initial Purchasers (in the case of the Registration Rights Agreement), will be a valid and binding agreement of the Company, enforceable in accordance with its terms, subject to applicable bankruptcy, insolvency, moratorium, reorganization, fraudulent transfer or similar laws affecting creditors' rights generally and general principles of equity and except as rights to indemnification and contribution under the Registration Rights Agreement may be limited under applicable law. (h) The execution and delivery by the Company of, and the performance by the Company of its obligations under, this Agreement, the Indenture and the Registration Rights Agreement will not contravene any provision of applicable law or the certificate of incorporation or by-laws of the Company or, except to the extent that any such contravention would not have a material adverse effect on the Company and its subsidiaries, taken as a whole, any agreement or other instrument binding upon the Company or any of its subsidiaries that is material to the Company and its subsidiaries, taken as a whole, or any judgment, order or decree of any governmental body, agency or court having jurisdiction over the Company or any subsidiary, and no consent, approval, authorization or order of, or qualification with, any governmental body or agency is required for the performance by the Company of its obligations under this Agreement, the Indenture and the Registration Rights Agreement, except such as may be required by the securities or Blue Sky laws of the various states in connection with the offer and sale of the Securities and by Federal and state securities laws with respect to the Company's obligations under the Registration Rights Agreement. (i) There has not occurred any material adverse change, or any development involving a prospective material adverse change, in the condition, financial or otherwise, or in the earnings, business or operations of the Company and its subsidiaries, taken as a whole, from that set forth in the Memorandum. (j) Each of the Company and its subsidiaries owns or possesses all patents, patent rights, licenses, inventions, copyrights, know-how (including trade secrets and other unpatented and/or unpatentable proprietary or confidential information, systems or procedures), trademarks, service marks, and trade names, in each case to the extent disclosed in the Memorandum as being material to the business of the Company and its 4 subsidiaries, taken as a whole (collectively, the "Intellectual Property"), to the extent required by it for the employment thereof in connection with their respective businesses as currently operated by them, and neither the Company nor, to the Company's knowledge, any of its subsidiaries has received any written notice of infringement of asserted rights of others with respect to any of the Intellectual Property that if taken to a final judgment could have a material adverse effect on the Company and its subsidiaries, taken as a whole. To the knowledge of the Company, the use of such Intellectual Property in connection with the business and operations of the Company or its subsidiaries does not infringe on the rights of any person. (k) There are no legal or governmental proceedings pending or, to the knowledge of the Company, threatened to which the Company or any of its subsidiaries is a party or to which any of the properties of the Company or any of its subsidiaries is subject other than proceedings accurately described in all material respects in the Memorandum and proceedings that are not reasonably expected by the Company to have a material adverse effect on the Company and its subsidiaries, taken as a whole, or on the power or ability of the Company to perform its obligations under this Agreement, the Indenture or the Registration Rights Agreement or to consummate the transactions contemplated by the Memorandum. (l) To the knowledge of the Company, the Company and its subsidiaries (i) are in compliance with any and all applicable foreign, federal, state and local laws and regulations relating to the protection of human health and safety, the environment or hazardous or toxic substances or wastes, pollutants or contaminants ("Environmental Laws"), (ii) have received all permits, licenses or other approvals required of them under applicable Environmental Laws to conduct their respective businesses and (iii) are in compliance with all terms and conditions of any such permit, license or approval, except where such noncompliance with Environmental Laws, failure to receive required permits, licenses or other approvals or failure to comply with the terms and conditions of such permits, licenses or approvals would not, singly or in the aggregate, have a material adverse effect on the Company and its subsidiaries, taken as a whole. (m) There are no costs or liabilities associated with Environmental Laws (including, without limitation, any capital or operating expenditures required for clean-up, closure of properties or compliance with Environmental Laws or any permit, license or approval, any related constraints on operating activities and any potential liabilities to third parties) which would, singly or in the aggregate, have a material adverse effect on the Company and its subsidiaries, taken as a whole. (n) The Company is not, and after giving effect to the offering and sale of the Securities and the application of the proceeds thereof as described in the Memorandum, will not be an "investment company" as such term is defined in the Investment Company Act of 1940, as amended. (o) Neither the Company nor, to the Company's knowledge, any affiliate (as defined in Rule 501(b) of Regulation D under the Securities Act, an "Affiliate") of the Company has directly, or through any agent, (i) sold, offered for sale, solicited offers to 5 buy or otherwise negotiated in respect of, any security (as defined in the Securities Act) which is or will be integrated with the sale of the Securities in a manner that would require the registration under the Securities Act of the Securities or (ii) solicited an offer to buy, offered or sold the Securities by means of any form of general solicitation or general advertising in connection with the offering of the Securities (as those terms are used in Regulation D under the Securities Act), or in any manner involving a public offering within the meaning of Section 4(2) of the Securities Act. (p) Neither the Company nor, to the Company's knowledge, its Affiliates or any person acting on its or their behalf has engaged or will engage in any directed selling efforts (within the meaning of Regulation S) with respect to the Securities, and the Company and its Affiliates and any person acting on its or their behalf have complied and will comply with the offering restrictions requirement of Regulation S, except that no representation, warranty or agreement is made by the Company in this paragraph with respect to the Initial Purchasers. (q) It is not necessary in connection with the offer, sale and delivery of the Securities to the Initial Purchasers in the manner contemplated by this Agreement to register the Securities under the Securities Act or to qualify the Indenture under the Trust Indenture Act of 1939, as amended. (r) The Securities satisfy the requirements set forth in Rule 144A(d)(3) under the Securities Act. (s) None of the Company, its subsidiaries, or any of their respective officers, or directors has taken, directly or indirectly, any action designed to cause or to result in, or that has constituted or might reasonably be expected to constitute, the stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of the Securities. 2. Agreements to Sell and Purchase. The Company hereby agrees to sell to the several Initial Purchasers, and each Initial Purchaser, upon the basis of the representations and warranties herein contained, but subject to the conditions hereinafter stated, agrees, severally and not jointly, to purchase from the Company the respective principal amount of Securities at the price set forth in Schedule A hereto opposite its name (such purchase prices together referred to as the "Purchase Price"). In addition, on the basis of the representations and warranties herein contained and subject to the terms and conditions herein set forth, the Company hereby grants an option to the Initial Purchasers to purchase any or all of the Option Securities (in multiples of $1,000 principal amount at maturity) at the price set forth in Schedule B hereto plus accrued Original Issue Discount, if any, from the Closing Date (as defined below) to the Date of Delivery. The option hereby granted may be exercised only once and will expire 30 days after the date hereof and may be exercised in whole or in part only for the purpose of covering over-allotments that may be made in connection with the offering and distribution of the Securities upon notice by the Initial Purchasers to the Company setting forth the principal amount at maturity of the Option Securities as to which the Initial Purchasers are then exercising the option and the time and date 6 of payment and delivery for such Option Securities. Such time and date of delivery (a "Date of Delivery") shall be determined by the Initial Purchasers, but shall not be later than seven full business days after the exercise of said option, nor in any event prior to the Closing Date, as hereinafter defined. The Company hereby agrees that, without the prior written consent of Salomon Smith Barney Inc. on behalf of the Initial Purchasers, it will not, during the period beginning on the date hereof and continuing to and including the Closing Date (as defined below), offer, sell, contract to sell or otherwise dispose of, any debt of the Company or warrants to purchase debt of the Company substantially similar to the Securities (other than the sale of the Securities under this Agreement). 3. Terms of Offering. The Initial Purchasers have advised the Company that they will make an offering of the Securities purchased by the Initial Purchasers hereunder on the terms to be set forth in the Memorandum, as soon as practicable after this Agreement is entered into as in their judgment is advisable. 4. Payment and Delivery. Payment for the Securities shall be made to the Company in Federal or other funds immediately available in New York City against delivery of such Securities for the respective accounts of the several Initial Purchasers at 10:00 a.m., New York City time, on July 12, 2000, at the offices of Shearman & Sterling, 599 Lexington Avenue, New York, New York, or at such other time on the same or such other date, as shall be mutually agreed upon in writing. The time and date of such payment are herein referred to as the "Closing Date." Certificates for the Securities shall be in definitive form or global form, as specified by you, and registered in such names and in such denominations as you shall request in writing not later than one full business day prior to the Closing Date. The certificates evidencing the Securities shall be delivered to you on the Closing Date for the respective accounts of the several Initial Purchasers, with any transfer taxes payable in connection with the transfer of the Securities to the Initial Purchasers duly paid, against payment of the Purchase Price therefor plus accrued interest, if any, to the date of payment and delivery. 5. Conditions to the Initial Purchasers' Obligations. The several obligations of the Initial Purchasers to purchase and pay for the Securities on the Closing Date are subject to the following conditions: (a) Subsequent to the execution and delivery of this Agreement and prior to the Closing Date: (i) there shall not have occurred any downgrading, nor shall any notice have been given of any intended or potential downgrading or of any review for a possible change that does not indicate the direction of the possible change, in the rating accorded the Company or any of the Company's securities by any "nationally recognized statistical rating organization," as such term is defined for purposes of Rule 436(g)(2) under the Securities Act; and 7 (ii) there shall not have occurred any change, or any development involving a prospective change, in the condition, financial or otherwise, or in the earnings, business or operations of the Company and its subsidiaries, taken as a whole, from that set forth in the Memorandum (exclusive of any amendments or supplements thereto subsequent to the date of this Agreement) that, in your judgment, is material and adverse and that makes it, in your judgment, impracticable to market the Securities on the terms and in the manner contemplated in the Memorandum. (b) The Initial Purchasers shall have received on the Closing Date a certificate, dated the Closing Date and signed by an officer of the Company reasonably satisfactory to the Initial Purchasers, to the effect set forth in Section 5(a)(i) and to the effect that the representations and warranties of the Company contained in this Agreement are true and correct as of the Closing Date (as if made on the Closing Date) and that the Company has complied with all of the agreements and satisfied all of the conditions on its part to be performed or satisfied hereunder on or before the Closing Date. The officer signing and delivering such certificate may rely upon the best of his or her knowledge as to proceedings threatened. (c) The Initial Purchasers shall have received on the Closing Date an opinion of Davis Polk & Wardwell, outside counsel for the Company, dated the Closing Date, to the effect set forth in Exhibit A. Such opinion shall be rendered to the Initial Purchasers at the request of the Company and shall so state therein. (d) The Initial Purchasers shall have received on the Closing Date an opinion from the General Counsel of the Company, dated the Closing Date, to the effect set forth in Exhibit B. Such opinion shall be rendered to the Initial Purchasers at the request of the Company and shall so state therein. (e) The Initial Purchasers shall have received on the Closing Date an opinion and letter of Shearman & Sterling, counsel for the Initial Purchasers, dated the Closing Date, to the effect set forth in Exhibit C. (f) The Initial Purchasers shall have received on the Closing Date a letter, dated the Closing Date, in form and substance reasonably satisfactory to the Initial Purchasers and PricewaterhouseCoopers LLP, from PricewaterhouseCoopers LLP, independent public accountants, containing statements and information of the type ordinarily included in accountants' "comfort letters" to underwriters with respect to the financial statements and certain financial information contained in or incorporated by reference into the Memorandum; provided that the letter delivered on the Closing Date shall use a "cut-off date" not earlier than the date hereof. (g) The Company and the Initial Purchasers shall have entered into the Registration Rights Agreement. 8 (h) Except as set forth on Schedule C, at the date of this Agreement, the Initial Purchasers shall have received an agreement substantially in the form of Exhibit E hereto signed by each executive officer or director of the Company listed on Schedule C. (i) On the Closing Date, the Securities shall have been designated for trading on PORTAL. The several obligations of the Initial Purchasers to purchase and pay for the Option Securities hereunder are also subject to the delivery to the Initial Purchasers on the Date of Delivery of such documents as they may reasonably request as to the good standing of the Company, the due authorization and issuance of the Option Securities and other matters related to the issuance of the Option Securities. 6. Covenants of the Company. In further consideration of the agreements of the Initial Purchasers contained in this Agreement, the Company covenants with each Initial Purchaser as follows: (a) To furnish to you in New York City, without charge, prior to 10:00 a.m. New York City time on the business day next succeeding the date of this Agreement and during the period mentioned in Section 6(c), as many copies of the Memorandum, any documents incorporated by reference therein (excluding the Exhibits thereto) and any supplements and amendments thereto as you may reasonably request. (b) Before amending or supplementing (other than through the filing of periodic reports under the Exchange Act that are to be incorporated by reference in the Memorandum) the Memorandum, to furnish to you a copy of each such proposed amendment or supplement and not to use any such proposed amendment or supplement to which you reasonably object. (c) If, during such period after the date hereof and prior to the date on which all of the Securities shall have been sold by the Initial Purchasers, any event shall occur or condition exist as a result of which it is necessary to amend or supplement the Memorandum in order to make the statements therein, in the light of the circumstances when the Memorandum is delivered to a purchaser, not misleading, or if, in the opinion of counsel for the Initial Purchasers, it is necessary to amend or supplement the Memorandum to comply with applicable law, forthwith to prepare and furnish, at its own expense, to the Initial Purchasers, either amendments or supplements to the Memorandum so that the statements in the Memorandum as so amended or supplemented will not, in the light of the circumstances when the Memorandum is delivered to a purchaser, be misleading or so that the Memorandum, as amended or supplemented, will comply with applicable law. (d) To endeavor to qualify the Securities for offer and sale under the securities or Blue Sky laws of such jurisdictions as you shall reasonably request. (e) Whether or not the transactions contemplated in this Agreement are consummated or this Agreement is terminated, to pay or cause to be paid all expenses incident to the performance of its obligations under this Agreement, including: (i) the 9 fees, disbursements and expenses of the Company's counsel and the Company's accountants in connection with the issuance and sale of the Securities and all other fees or expenses (excluding fees or expenses of the Initial Purchasers' counsel) in connection with the preparation of the Memorandum and all amendments and supplements thereto, including all printing costs associated therewith, and the delivering of copies thereof to the Initial Purchasers, in the quantities herein above specified, (ii) all costs and expenses related to the transfer and delivery of the Securities to the Initial Purchasers, including any transfer or other taxes payable thereon, (iii) the cost of printing or producing any Blue Sky or legal investment memorandum in connection with the offer and sale of the Securities under state securities laws and all expenses in connection with the qualification of the Securities for offer and sale under state securities laws as provided in Section 6(d) hereof, including filing fees and the reasonable fees and disbursements of counsel for the Initial Purchasers in connection with such qualification and in connection with the Blue Sky or legal investment memorandum, (iv) any fees charged by rating agencies for the rating of the Securities, (v) all document production charges and expenses of counsel to the Initial Purchasers (but not including their fees for professional services) in connection with the preparation of this Agreement, (vi) the costs and charges of the Trustee and any transfer agent, registrar or depositary, (vii) the cost of the preparation, issuance and delivery of the Securities, (viii) the costs and expenses of the Company relating to investor presentations undertaken in connection with the marketing of the offering of the Securities, (ix) any fees and expenses payable in connection with the initial and continued designation of the Securities as PORTAL securities under the PORTAL Market Rules pursuant to NASD Rule 5322 and (x) all other costs and expenses incident to the performance of the obligations of the Company hereunder for which provision is not otherwise made in this Section. It is understood, however, that except as provided in this Section, Section 8, and the last paragraph of Section 10, the Initial Purchasers will pay all of their costs and expenses, including fees and disbursements of their counsel, transfer taxes payable on resale of any of the Securities by them and any advertising expenses connected with any offers they may make. (f) Except as contemplated by the Registration Rights Agreement, not to sell, offer for sale or solicit offers to buy or otherwise negotiate in respect of any security (as defined in the Securities Act) reasonably likely to be integrated with the sale of the Securities under the rules and interpretations of the Commission in a manner which would require the registration under the Securities Act of the Securities. (g) Except as contemplated by the Registration Rights Agreement, not to solicit any offer to buy or offer or sell the Securities by means of any form of general solicitation or general advertising (as those terms are used in Regulation D under the Securities Act) or in any manner involving a public offering within the meaning of Section 4(2) of the Securities Act. (h) While any of the Securities remain "restricted securities" within the meaning of the Securities Act, to make available, upon request, to any seller of such Securities the information specified in Rule 144A(d)(4) under the Securities Act, unless the Company is then subject to Section 13 or 15(d) of the Exchange Act. 10 (i) Not to engage and not to permit its Affiliates or any person acting on its or their behalf (other than the Initial Purchasers) to engage in any directed selling efforts (as that term is defined in Regulation S) with respect to the Securities, and the Company and its Affiliates and each person acting on its or their behalf (other than the Initial Purchasers) will comply with the offering restrictions requirement of Regulation S. (j) During the period of two years after the Closing Date, not to resell and not to permit any of its affiliates (as defined in Rule 144 under the Securities Act), to resell any of the Securities which constitute "restricted securities" under Rule 144 that have been reacquired by any of them. (k) To reserve and keep available at all times, free of preemptive rights, Common Stock for the purpose of enabling the Company to satisfy any obligations to issue Common Stock upon conversion of the Securities. (l) To use its best efforts to cause all shares of Common Stock issuable upon conversion of the Securities to be listed on the New York Stock Exchange in accordance with its rules and regulations. (m) During a period of 30 days from the date of the Memorandum, not to, without the prior written consent of Salomon Smith Barney Inc. (i) offer, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend or otherwise transfer or dispose of, directly or indirectly, any shares of Common Stock or any securities convertible into or exercisable or exchangeable for Common Stock, or (ii) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of the Common Stock, whether any such transaction described in clause (i) or (ii) above is to be settled by delivery of Common Stock or such other securities, in cash or otherwise, except (i) the Securities offered in connection with the Memorandum, (ii) the Common Stock issuable upon conversion of the Securities (iii) the issuance by the Company of shares of Common Stock upon the exercise of an option or a warrant or the conversion of a security outstanding on the date of the Memorandum, (iv) the issuance by the Company of Common Stock as consideration in the acquisition of the stock or assets of another entity or in connection with any joint venture, partnership or strategic alliance into which Avon enters during this period, (v) the issuance or sale (directly or indirectly by, or attributable to, Avon) of any securities of the type described above pursuant to existing employee benefit or compensation plans or agreements, (vi) the sale, directly or indirectly, by any executive officer or director of Avon of Common Stock in connection with any exercise of an option, including, but not limited to, through the "cashless exercise" method; or (vii) in connection with any transaction entered into by any executive officer or director of Avon for reasons other than speculation, including, but not limited to, payment of tuition and other dependent care expenses, unforseen financial obligations and the purchase of any residence or other real property. (n) To fully comply with the provisions set forth in Rule 903(b)(3)(iii)(4) of Regulation S of the Securities Act as such provisions have been interpreted by the Commission in the context of offerings such as the offering of the Securities. 11 7. Offering of Securities; Restrictions on Transfer. (a) Each Initial Purchaser, severally and not jointly, represents, warrants, and agrees that such Initial Purchaser is a qualified institutional buyer as defined in Rule 144A under the Securities Act (a "QIB"). Each Initial Purchaser, severally and not jointly, agrees with the Company that (i) it will not solicit offers for, or offer or sell, such Securities by any form of general solicitation or general advertising (as those terms are used in Regulation D under the Securities Act) or in any manner involving a public offering within the meaning of Section 4(2) of the Securities Act and (ii) it will solicit offers for such Securities only from, and will offer such Securities only to, persons that it reasonably believes to be (A) QIBs and (B) in the case of offers outside the United States, to persons other than U.S. persons ("foreign purchasers," which term shall include dealers or other professional fiduciaries in the United States acting on a discretionary basis for foreign beneficial owners (other than an estate or trust)) in reliance upon Regulation S under the Securities Act that, in each case, in purchasing such Securities are deemed to have represented and agreed as provided in the Memorandum under the caption "Notice to Investors". (b) Each Initial Purchaser, severally and not jointly, represents, warrants, and agrees with respect to offers and sales outside the United States that: (i) such Initial Purchaser understands that no action has been or will be taken in any jurisdiction by the Company that would permit a public offering of the Securities, or possession or distribution of the Memorandum or any other offering or publicity material relating to the Securities, in any country or jurisdiction where action for that purpose is required; (ii) such Initial Purchaser will comply with all applicable laws and regulations in each jurisdiction in which it acquires, offers, sells or delivers Securities or has in its possession or distributes the Memorandum or any such other material, in all cases at its own expense; (iii) the Securities have not been registered under the Securities Act and may not be offered or sold within the United States or to, or for the account or benefit of, U.S. persons except (A) in accordance with Rule 144A or Regulation S under the Securities Act, (B) pursuant to registration of the Securities under the Securities Act, or (C) pursuant to another exemption from the registration requirements of the Securities Act; (iv) such Initial Purchaser will not engage in hedging transactions with regard to the Securities prior to the expiration of the distribution compliance period pursuant to Regulation S, unless in compliance with the Securities Act; (v) such Initial Purchaser has offered the Securities and will offer and sell the Securities (A) as part of their distribution at any time and (B) otherwise until 1 year after the later of the commencement of the offering and the Closing Date, only in accordance with Rule 903 of Regulation S or as otherwise permitted in Section 7(a) hereof; accordingly, neither such Initial Purchaser, its Affiliates nor any persons acting on its or their behalf have engaged or will engage in any directed selling efforts (within the meaning of Regulation S) with respect to the Securities, and any such Initial Purchaser, 12 its Affiliates and any such persons have complied and will comply with the offering restrictions requirement of Regulation S; (vi) such Initial Purchaser has (A) not offered or sold, and will not offer or sell in the United Kingdom, by means of any document, any Securities other than to persons whose ordinary business is to buy and sell shares or debentures, whether as a principal or agent, or in circumstances which do not constitute an offer to the public in the United Kingdom within the meaning of the Public Offers of Securities Regulations 1995 (the "Regulations"), (B) complied and will comply with all applicable provisions of the Financial Services Act 1986 of the United Kingdom and the Regulations with respect to anything done by them in relation to the Securities in, from, or otherwise involving the United Kingdom, and (C) only issued or passed on and will only issue and pass on to any persons in the United Kingdom any document received by it in connection with the issue of the Securities if that person is of a kind described in Article 9(3) of the Financial Services Act 1986 (Investment Advertisements) (Exemptions) Order 1988; and (vii) such Initial Purchaser agrees that, at or prior to confirmation of sales of the Securities, it will have sent to each distributor, dealer or person receiving a selling concession, fee or other remuneration that purchases Securities from it during the restricted period a confirmation or notice to substantially the following effect: "The Securities covered hereby have not been registered under the U.S. Securities Act of 1933 (the "Securities Act") or any state securities laws and may not be offered or sold within the United States or to, or for the account or benefit of, U.S. Persons (i) as part of their distribution at any time or (ii) otherwise until one year following the closing of this offering except in either case in accordance with Regulation S (or Rule 144A if available) under the Securities Act. Terms used above shall have the meaning given to them by Regulation S." Terms used in this Section 7(b) have the meanings given to them by Regulation S. (c) The Company and each Initial Purchaser agree that upon issuance the Zero Coupon Convertible Senior Notes due 2020 will bear the legend set forth in Paragraph 4 of the "Notice to Investors - Investor Representations and Restrictions on Resale" section of the Memorandum. 8. Indemnity and Contribution. (a) The Company agrees to indemnify and hold harmless each Initial Purchaser and each person, if any, who controls any Initial Purchaser within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act from and against any and all losses, claims, damages and liabilities (including, without limitation, any legal or other expenses reasonably incurred in connection with defending or investigating any such action or claim) caused by any untrue statement or alleged untrue statement of a material fact contained in the Memorandum (as amended or supplemented if the Company shall have furnished any amendments or supplements thereto), or caused by any omission or alleged omission to state therein a material fact necessary to make the statements therein in the light of the circumstances under which they were made not misleading, except insofar as such losses, claims, damages or liabilities are caused by any such untrue statement or 13 omission or alleged untrue statement or omission based upon information furnished to the Company in writing by or on behalf of any Initial Purchaser expressly for use therein. (b) Each Initial Purchaser agrees, severally and not jointly, to indemnify and hold harmless the Company, its directors, its officers and each person, if any, who controls the Company within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act to the same extent as the foregoing indemnity from the Company to such Initial Purchaser, but only with reference to information furnished to the Company in writing by or on behalf of any Initial Purchaser expressly for use in the Memorandum or any amendments or supplements thereto. (c) In case any proceeding (including any governmental investigation) shall be instituted involving any person in respect of which indemnity may be sought pursuant to Section 8(a) or 8(b), such person (the "indemnified party") shall promptly notify the person against whom such indemnity may be sought (the "indemnifying party") in writing and the indemnifying party, upon request of the indemnified party, shall retain counsel reasonably satisfactory to the indemnified party to represent the indemnified party and any others the indemnifying party may designate in such proceeding and shall pay the fees and disbursements of such counsel related to such proceeding. In any such proceeding, any indemnified party shall have the right to retain its own counsel, but the fees and expenses of such counsel shall be at the expense of such indemnified party unless (i) the indemnifying party and the indemnified party shall have mutually agreed to the retention of such counsel or (ii) the named parties to any such proceeding (including any impleaded parties) include both the indemnifying party and the indemnified party and representation of both parties by the same counsel would be inappropriate due to actual or potential conflicting interests between them. It is understood that the indemnifying party shall not, in respect of the legal expenses of any indemnified party in connection with any proceeding or related proceedings in the same jurisdiction, be liable for the fees and expenses of more than one separate firm (in addition to any local counsel) for all such indemnified parties and that all such fees and expenses shall be reimbursed as they are incurred. Such firm shall be designated in writing by Salomon Smith Barney Inc., in the case of parties indemnified pursuant to Section 8(a), and by the Company, in the case of parties indemnified pursuant to Section 8(b). The indemnifying party shall not be liable for any settlement of any proceeding effected without its written consent, but if settled with such consent or if there be a final judgment for the plaintiff, the indemnifying party agrees to indemnify the indemnified party from and against any loss or liability by reason of such settlement or judgment. Notwithstanding the foregoing sentence, if at any time an indemnified party shall have requested an indemnifying party to reimburse the indemnified party for fees and expenses of counsel as contemplated by the second and third sentences of this paragraph, the indemnifying party agrees that it shall be liable for any settlement of any proceeding effected without its written consent if (i) such settlement is entered into more than 30 days after receipt by such indemnifying party of the aforesaid request and (ii) such indemnifying party shall not have reimbursed the indemnified party in accordance with such request prior to the date of such settlement. No indemnifying party shall, without the prior written consent of the indemnified party, effect any settlement of any pending or threatened proceeding in respect of which any indemnified party is or could have been a party and indemnity could have been sought hereunder by such indemnified party, unless such settlement includes an unconditional release of such indemnified party from all liability on claims that are the subject matter of such proceeding. 14 (d) To the extent the indemnification provided for in Section 8(a) or 8(b) is unavailable to an indemnified party or insufficient in respect of any losses, claims, damages or liabilities referred to therein, then each indemnifying party under such paragraph, in lieu of indemnifying such indemnified party thereunder, shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages or liabilities (i) in such proportion as is appropriate to reflect the relative benefits received by the Company on the one hand and the Initial Purchasers on the other hand from the offering of the Securities or (ii) if the allocation provided by clause 8(d)(i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause 8(d)(i) above but also the relative fault of the Company on the one hand and of the Initial Purchasers on the other hand in connection with the statements or omissions that resulted in such losses, claims, damages or liabilities, as well as any other relevant equitable considerations. The relative benefits received by the Company on the one hand and the Initial Purchasers on the other hand in connection with the offering of the Securities shall be deemed to be in the same respective proportions as the net proceeds from the offering of the Securities (before deducting expenses, but after deduction of the discounts and commissions received by the Initial Purchasers) received by the Company and the total discounts and commissions received by the Initial Purchasers, in each case as set forth in the Memorandum, bear to the aggregate offering price of the Securities. The relative fault of the Company on the one hand and of the Initial Purchasers on the other hand shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company or by the Initial Purchasers and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Initial Purchasers' respective obligations to contribute pursuant to this Section 8 are several in proportion to the respective principal amount of Securities they have purchased hereunder, and not joint. (e) The Company and the Initial Purchasers agree that it would not be just or equitable if contribution pursuant to this Section 8 were determined by pro rata allocation (even if the Initial Purchasers were treated as one entity for such purpose) or by any other method of allocation that does not take account of the equitable considerations referred to in Section 8(d). The amount paid or payable by an indemnified party as a result of the losses, claims, damages and liabilities referred to in Section 8(d) shall be deemed to include, subject to the limitations set forth above, any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this Section 8, no Initial Purchaser shall be required to contribute any amount in excess of the amount by which the total price at which the Securities resold by it in the initial placement of such Securities were offered to investors exceeds the amount of any damages that such Initial Purchaser has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The remedies provided for in this Section 8 are not exclusive and shall not limit any rights or remedies which may otherwise be available to any indemnified party at law or in equity. (f) The indemnity and contribution provisions contained in this Section 8 and the representations, warranties and other statements of the Company contained in this Agreement 15 shall remain operative and in full force and effect regardless of (i) any termination of this Agreement, (ii) any investigation made by or on behalf of any Initial Purchaser or any person controlling any Initial Purchaser or by or on behalf of the Company, its officers or directors or any person controlling the Company and (iii) acceptance of and payment for any of the Securities. 9. Termination. This Agreement shall be subject to termination by notice given by Salomon Smith Barney Inc. on behalf of the Initial Purchasers to the Company, if (a) after the execution and delivery of this Agreement and prior to the Closing Date (i) trading generally shall have been suspended or materially limited on or by, as the case may be, any of the New York Stock Exchange, the American Stock Exchange, the National Association of Securities Dealers, Inc., (ii) trading of any securities of the Company shall have been suspended on any exchange or in any over-the-counter market, (iii) a general moratorium on commercial banking activities in New York shall have been declared by either Federal or New York State authorities or (iv) there shall have occurred any outbreak or escalation of hostilities or any change in financial markets or any calamity or crisis that, in your judgment, is material and adverse and (b) in the case of any of the events specified in clauses (a)(i) through (iv) of this Section 9, such event, singly or together with any other such event, makes it, in your judgment, impracticable to market the Securities on the terms and in the manner contemplated in the Memorandum. 10. Effectiveness; Defaulting Initial Purchasers. This Agreement shall become effective upon the execution and delivery hereof by the parties hereto. If, on the Closing Date, any one or more of the Initial Purchasers shall fail or refuse to purchase Securities that it or they have agreed to purchase hereunder on such date, and the aggregate principal amount of Securities which such defaulting Initial Purchaser or Initial Purchasers agreed but failed or refused to purchase is not more than one-tenth of the aggregate principal amount of Securities to be purchased on such date, the other Initial Purchasers shall be obligated severally in the proportions that the principal amount of Securities set forth opposite their respective names in Schedule A bears to the aggregate principal amount of Securities set forth opposite the names of all such non-defaulting Initial Purchasers, or in such other proportions as you may specify, to purchase the Securities which such defaulting Initial Purchaser or Initial Purchasers agreed but failed or refused to purchase on such date; provided that in no event shall the principal amount of Securities that any Initial Purchaser has agreed to purchase pursuant to this Agreement be increased pursuant to this Section 10 by an amount in excess of one-ninth of such principal amount of Securities without the written consent of such Initial Purchaser. If, on the Closing Date any Initial Purchaser or Initial Purchasers shall fail or refuse to purchase Securities which it or they have agreed to purchase hereunder on such date and the aggregate principal amount of Securities with respect to which such default occurs is more than one-tenth of the aggregate principal amount of Securities to be purchased on such date, and arrangements satisfactory to you and the Company for the purchase of such Securities are not made within 36 hours after such default, this Agreement shall terminate without liability on the part of any non-defaulting Initial Purchaser or of the Company. In any such case either you or the Company shall have the right to postpone the Closing Date, but in no event for longer than seven days, in order that the required changes, if any, in the Memorandum or in any other documents or arrangements may be effected. Any action taken under this paragraph shall not 16 relieve any defaulting Initial Purchaser from liability in respect of any default of such Initial Purchaser under this Agreement. If this Agreement shall be terminated by the Initial Purchasers, or any of them, because of any failure or refusal on the part of the Company to comply with the terms or to fulfill any of the conditions of this Agreement, or if for any reason the Company shall be unable to perform its obligations under this Agreement, the Company will reimburse the Initial Purchasers or such Initial Purchasers as have so terminated this Agreement with respect to themselves, severally, for all out-of-pocket expenses (including the fees and disbursements of their counsel) reasonably incurred by such Initial Purchasers in connection with this Agreement or the offering contemplated hereunder. 11. Counterparts. This Agreement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. 12. Applicable Law. This Agreement shall be governed by and construed in accordance with the internal laws of the State of New York. 17 13. Headings. The headings of the sections of this Agreement have been inserted for convenience of reference only and shall not be deemed a part of this Agreement. Very truly yours, AVON PRODUCTS, INC. By: /s/ Dennis Ling ------------------------------ Name: Dennis Ling Title: Group Vice President, Finance and Treasurer Accepted as of the date hereof: Salomon Smith Barney Inc. Banc of America Securities LLC Chase Securities Inc. Deutsche Bank Securities Inc. J.P. Morgan Securities Inc. Morgan Stanley & Co. Incorporated By: Salomon Smith Barney Inc. By: /s/ Christina Mohr ------------------------ Name: Christina Mohr Title: Managing Director SCHEDULE A Initial Purchaser Principal Amount at Maturity of Zero Coupon Convertible Senior Notes due 2020 to be Purchased Salomon Smith Barney Inc. $ 441,495,000 Banc of America Securities LLC $ 58,865,000 Chase Securities Inc. $ 58,865,000 Deutsche Bank Securities Inc. $ 58,865,000 J.P. Morgan Securities Inc. $ 58,865,000 Morgan Stanley & Co. Incorporated $ 58,865,000 ------------- Total................................ $ 735,820,000 SCHEDULE B $735,820,000 principal amount at maturity of Zero Coupon Convertible Senior Notes Due 2020 1. The initial offering price per $1,000 principal amount at maturity of the Securities shall be $475.66, which represents a yield to maturity of 3.75% per annum (computed on a semiannual bond equivalent basis). 2. The Securities shall be convertible into shares of common stock, par value $0.25 per share, of the Company (the "Common Stock") at an initial rate of 8.2723 shares of Common Stock per $1,000 principal amount at maturity. 3. The purchase price to be paid by the Initial Purchasers for the Securities shall be $466.1468, being an amount equal to the initial offering price per $1,000 principal amount at maturity of Securities set forth above, less $9.5132 per $1,000 principal amount at maturity of Securities. 4. Prior to July 12, 2003, the Securities will not be redeemable. 5. The redemption prices to be supplied on page 19 of the Memorandum (and correspondingly in the Indenture) shall be: Accrued Original Issue Redemption Note Issue Discount Price Redemption Date Price (1) At 3.75% (2) (1) + (2) --------------- --------- ------------ --------- July 12, 2003................... $ 475.66 $ 56.08 $ 531.74 July 12, 2004................... $ 475.66 $ 76.21 $ 551.87 July 12, 2005................... $ 475.66 $ 97.10 $ 572.76 July 12, 2006................... $ 475.66 $ 118.78 $ 594.44 July 12, 2007................... $ 475.66 $ 141.28 $ 616.94 July 12, 2008................... $ 475.66 $ 164.63 $ 640.29 July 12, 2009................... $ 475.66 $ 188.87 $ 664.53 July 12, 2010................... $ 475.66 $ 214.02 $ 689.68 July 12, 2011................... $ 475.66 $ 240.13 $ 715.79 July 12, 2012................... $ 475.66 $ 267.22 $ 742.88 July 12, 2013................... $ 475.66 $ 295.34 $ 771.00 July 12, 2014................... $ 475.66 $ 324.52 $ 800.18 July 12, 2015................... $ 475.66 $ 354.81 $ 830.47 July 12, 2016................... $ 475.66 $ 386.24 $ 861.90 July 12, 2017................... $ 475.66 $ 418.87 $ 894.53 July 12, 2018................... $ 475.66 $ 452.73 $ 928.39 July 12, 2019................... $ 475.66 $ 487.87 $ 963.53 At stated maturity.............. $ 475.66 $ 524.34 $ 1,000.00 6. The purchase prices and dates to be supplied on page 19 of the Memorandum (and correspondingly in the Indenture) shall be: o $531.74 per note on July 12, 2003; o $640.29 per note on July 12, 2008; and o $771.00 per note on July 12, 2013; These purchase prices equal the issue price plus accrued original issue discount to the respective purchase dates. SCHEDULE C List of Persons Subject to Lock-up Agreements Andrea Jung President, Chief Executive Officer and Director Susan J. Kropf Executive Vice President, Chief Operating Officer, North America and Global Business Operations Jose Ferreira, Jr. Executive Vice President, Chief Operating Officer, International and New Business Development Fernando Lezama R. Executive Vice President, Asia Pacific Robert J. Corti Executive Vice President and Chief Financial Officer Ward M. Miller, Jr. Senior Vice President, General Counsel and Secretary Jill Kanin-Lovers Senior Vice President, Human Resources Janice Marolda Vice President and Controller Brenda C. Barnes Director Richard S. Barton Director Edward T. Fogarty Director Stanley C. Gault Director Fred Hassan Director Ann S. Moore Director Paula Stern, Ph.D. Director Lawrence A. Weinbach Director A-1 EXHIBIT A Opinion of Davis Polk & Wardwell The opinion of Davis Polk & Wardwell, outside counsel for the Company, to be delivered pursuant to Section 5(c) of the Purchase Agreement, shall be to the effect that: (1) The Company has been duly incorporated, is validly existing as a corporation in good standing under the laws of the State of New York, and has the corporate power and authority to own its property and to conduct its business as described in the Memorandum. (2) The Purchase Agreement has been duly authorized, executed and delivered by the Company. (3) The Securities have been duly authorized and executed by the Company and, when authenticated in accordance with the provisions of the Indentures and delivered to and paid for by the Initial Purchasers in accordance with the terms of the Purchase Agreement, the Securities will be entitled to the benefits of the Indentures and the Registration Rights Agreement and will be valid and legally binding obligations of the Company, enforceable in accordance with their terms, except (i) as such enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors' rights and remedies generally and (ii) as such enforcement may be limited by general principles of equity, regardless of whether enforcement is sought in a proceeding at law or in equity. (4) Each of the Indenture and the Registration Rights Agreement has been duly authorized, executed and delivered by, and assuming, in the case of the Indenture, the due authorization, execution and delivery thereof by the Trustee and, in the case of the Registration Rights Agreement, the due authorization, execution and delivery thereof by the Initial Purchasers, each of the Indenture and the Registration Rights Agreement constitute valid and legally binding agreements of the Company, enforceable against the Company in accordance with their respective terms, except (i) as such enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors' rights and remedies generally, (ii) as such enforcement may be limited by general principles of equity, regardless of whether enforcement is sought in a proceeding at law or in equity and (iii) as rights to indemnity and contribution under the Registration Rights Agreement may be limited by applicable law. (5) The Securities, the Common Stock and the Indenture conform in all material respects to the descriptions thereof contained in the Memorandum. (6) The execution and delivery by the Company of, and the performance by the Company of its obligations under, the Purchase Agreement, the Indenture and the A-2 Registration Rights Agreement will not contravene any provision of applicable law or the certificate of incorporation or by-laws of the Company and no consent, approval, authorization or order of, or qualification with, any governmental body or agency is required for the performance by the Company of its obligations under the Purchase Agreement, the Indenture or the Registration Rights Agreement. (7) The Company is not, and after giving effect to the offering and sale of the Securities and the application of the proceeds thereof as described in the Memorandum, will not be, an "investment company" as such term is defined in the Investment Company Act of 1940, as amended. (8) The statements under the captions "Description of the Notes," "Registration Rights" and "Notice to Investors" in the Memorandum, insofar as such statements constitute a summary of the documents or proceedings referred to therein, fairly summarize the matters referred to therein. (9) The statements under the caption "United States Federal Income Tax Considerations" in the Memorandum, insofar as such statements constitute a summary of the United States federal tax laws referred to therein and, subject to the qualifications set forth therein, are accurate and fairly summarize in all material respects the United States federal tax laws referred to therein. (10) Based upon the representations, warranties and agreements of the Company in Sections 1(n), 1(o), 1(p), 1(r), 6(f), 6(g), 6(h), 6(i) and 6(j) of the Purchase Agreement, the Initial Purchasers in Section 7 of the Purchase Agreement, and the purchasers of the Securities to whom the Initial Purchasers initially resell the Securities in the Memorandum (and the receipt by such purchasers of the Memorandum) it is not necessary in connection with the offer, sale and delivery of the Securities to the Initial Purchasers under the Purchase Agreement or in connection with the initial resale of such Securities by the Initial Purchasers in accordance with Section 7 of the Purchase Agreement to register the Securities under the Securities Act of 1933 or to qualify the Indentures under the Trust Indenture Act of 1939, it being understood that no opinion is expressed as to any subsequent resale of any Security. (11) Such counsel has no reason to believe that (except for financial statements and schedule and other financial and statistical data as to which such counsel need not express any belief) the Memorandum when issued contained, or as of the date such opinion is delivered contains, any untrue statement of a material fact or omitted or omits to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. With respect to paragraph (11) above, Davis Polk & Wardwell may state that its belief is based upon its participation in the preparation of the Memorandum (and any amendments or supplements thereto) and review and discussion of the contents thereof and A-3 review of the documents incorporated by reference therein, but is without independent check or verification except as specified. B-1 EXHIBIT B Opinion of General Counsel The opinion of the General Counsel of the Company, to be delivered pursuant to Section 5(d) of the Purchase Agreement, shall be to the effect that: (1) The Company is duly qualified to transact business and is in good standing in each jurisdiction in which the conduct of its business or its ownership or leasing of property requires such qualification, except to the extent that the failure to be so qualified or in good standing would not have a material adverse effect on the Company and its subsidiaries, taken as a whole. (2) Each significant subsidiary(1) of the Company has been duly incorporated, is validly existing as a corporation in good standing under the laws of the jurisdiction of its incorporation, has the corporate power and authority to own its property and to conduct its business in all material respects as described in the Memorandum (which term includes for purposes of such opinion, all documents incorporated by reference therein), and is duly qualified to transact business and is in good standing in each jurisdiction in which the conduct of its business or its ownership or leasing of property requires such qualification, except to the extent that the failure to be so qualified or be in good standing would not have a material adverse effect on the Company and its subsidiaries, taken as a whole; all of the issued shares of capital stock of each significant subsidiary of the Company have been duly and validly authorized and issued, are fully paid and non-assessable, and, except for Avon Products Company Limited (the Company's Japanese subsidiary), are owned directly or indirectly by the Company, free and clear of all liens, encumbrances, equities or claims. (3) The execution and delivery by the Company of, and the performance by the Company of its obligations under, the Purchase Agreement, the Indenture and the Registration Rights Agreement will not contravene any provision of applicable law or the certificate of incorporation or by-laws of the Company, or any agreement or other instrument binding upon the Company or any of its subsidiaries that is material to the Company and its subsidiaries, taken as a whole (except to the extent that any such contravention would not have a material adverse effect (i) on the Company and its subsidiaries, taken as a whole or (ii) on the power or ability of the Company to perform its obligations under the Purchase Agreement, the Indenture or the Registration Rights - -------- 1 A "significant subsidiary" is any subsidiary of the Company that generates 5% or more of the Company's revenue or income or that holds 5% or more of the Company's assets. B-2 Agreement or to consummate the transactions contemplated by the Memorandum), or, any judgment, order or decree of any governmental body, agency or court having jurisdiction over the Company or any subsidiary. (4) The statements under the caption "Item 3 - Legal Proceedings" of the Company's most recent annual report on Form 10-K, insofar as such statements constitute a summary of the documents or proceedings referred to therein, fairly summarize the matters referred to therein. (5) Each of the Company and its subsidiaries owns or possesses all patents, patent rights, licenses, inventions, copyrights, know-how (including trade secrets and other unpatented and/or unpatentable proprietary or confidential information, systems or procedures), trademarks, service marks, and trade names, in each case to the extent disclosed in the Memorandum as being material to the business of the Company or its subsidiaries, taken as a whole, (collectively, the "Intellectual Property") to the extent required by it for the employment thereof in connection with their respective businesses as currently operated by them, and neither the Company nor, to the knowledge of such counsel, any of its subsidiaries has received any written notice of infringement of asserted rights of others with respect to any of the Intellectual Property that if taken to a final judgment could have a material adverse effect on the Company and its subsidiaries, taken as a whole. To the knowledge of such counsel, the use of such Intellectual Property in connection with the business and operations of the Company or its subsidiaries does not infringe on the rights of any person. (6) After due inquiry, such counsel does not know of any legal or governmental proceedings pending or threatened to which the Company or any of its subsidiaries is a party or to which any of the properties of the Company or any of its subsidiaries is subject other than proceedings fairly summarized in all material respects in the Memorandum and proceedings which such counsel believes are not likely to have a material adverse effect (i) on the Company and its subsidiaries, taken as a whole, or (ii) on the power or ability of the Company to perform its obligations under the Purchase Agreement, the Indenture, or the Registration Rights Agreement or to consummate the transactions contemplated by the Memorandum. (7) Each document incorporated by reference in the Memorandum (except for financial statements and schedules and other financial and statistical data included therein as to which such counsel need express no opinion), complied as to form when filed with the Commission in all material respects with the Exchange Act and the rules and regulations of the Commission thereunder. C-1 EXHIBIT C Opinion of Shearman & Sterling The opinion of Shearman & Sterling, counsel for the Initial Purchasers, to be delivered pursuant to Section 5(e) of the Purchase Agreement, shall be to the effect that: (1) the Company is duly incorporated and validly existing as a corporation in good standing under the laws of the State of New York, with corporate power and authority under such laws to own its properties and conduct its business as described in the Memorandum; (2) the Purchase Agreement has been duly authorized, executed and delivered by the Company; (3) the Securities have been duly authorized by the Company and, when executed and delivered by the Company and paid for by the Initial Purchasers in accordance with the provisions of the Purchase Agreement and authenticated by the Trustee in accordance with the provisions of the Indenture (which facts such counsel need not determine by an inspection of the Securities), the Securities will constitute legal, valid and binding obligations of the Company, enforceable against the Company in accordance with their terms, except as enforcement thereof may be limited by bankruptcy, insolvency (including, without limitation, all laws relating to fraudulent transfers), reorganization, moratorium or other similar laws affecting enforcement of creditors' rights generally and except as enforcement thereof is subject to general principles of equity (regardless of whether enforcement is considered in a proceeding in equity or at law); (4) the Indenture has been duly authorized, executed and delivered by the Company and constitutes a legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, except as enforcement thereof may be limited by bankruptcy, insolvency (including, without limitation, all laws relating to fraudulent transfers), reorganization, moratorium or other similar laws affecting enforcement of creditors' rights generally and except as enforcement thereof is subject to general principles of equity (regardless of whether enforcement is considered in a proceeding in equity or at law); (5) the Registration Rights Agreement has been duly authorized, executed and delivered by the Company and constitutes a legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, except as (i) enforcement thereof may be limited by bankruptcy, insolvency (including, without limitation, all laws relating to fraudulent transfers), reorganization, moratorium or other similar laws affecting enforcement of creditors' rights generally, (ii) enforcement thereof A-5 is subject to general principles of equity (regardless of whether enforcement is considered in a proceeding in equity or at law), and (iii) any rights to indemnity and contribution may be limited by federal and state securities laws and public policy considerations; (6) The Securities, the Common Stock and the Indenture conform in all material respects to the descriptions thereof contained in the Memorandum; (7) assuming (a) the accuracy of the representations and warranties and performance of the covenants of the Company contained in Sections 1(n), 1(o), 1(p), 1(r), 6(f), 6(g), 6(h), 6(i) and 6(j) of the Purchase Agreement, (b) the accuracy of the Initial Purchasers' representations and warranties and the performance of the Initial Purchasers' covenants contained in Section 7 of the Purchase Agreement, (c) the accuracy of the representations and warranties and performance of the covenants of each of the purchasers to whom the Initial Purchasers initially resell the Securities as contemplated by the Memorandum, (d) compliance with the offering and transfer procedures and restrictions described in the Memorandum and (e) receipt by the purchasers to whom the Initial Purchasers initially resell the Securities of a copy of the Memorandum prior to such sale, no registration of the Securities under the Securities Act of 1933, as amended, or qualification of the Securities under the Trust Indenture Act of 1939, as amended, is required for the offer, sale and delivery of the Securities to the Initial Purchasers or the initial resale of the Securities by the Initial Purchasers, in each case in the manner contemplated by the Purchase Agreement and the Memorandum, it being understood that no opinion is expressed as to any subsequent sale of any of the Securities; and (8) the statements in the Memorandum under the captions "Description of the Notes," "Registration Rights" and "Notice to Investors," insofar as such statements constitute summaries of legal matters, documents or proceedings referred to therein, fairly summarize the matters referred to therein. Such counsel shall also state, in a separate letter to the Initial Purchasers dated the Closing Date, that no facts have come to their attention which gave such counsel reason to believe that the Memorandum (other than the financial statements and other financial and statistical data contained therein or omitted therefrom, as to which such counsel need express no comment), as of its date and as of the date of such counsel's opinion, contained or contains an untrue statement of a material fact or omitted or omits to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. D-1 EXHIBIT D Registration Rights Agreement E-1 EXHIBIT E FORM OF LOCK-UP AGREEMENT July 6, 2000 Salomon Smith Barney Inc. Banc of America Securities LLC Chase Securities Inc. Deutsche Bank Securities Inc. J.P. Morgan Securities Inc. Morgan Stanley & Co. Incorporated As the Initial Purchasers, c/o Salomon Smith Barney Inc. 388 Greenwich Street New York, New York 10013 Re: Avon Products, Inc. Proposed Offering of Zero Coupon Senior Convertible Notes Due 2020 ------------------------------------------------------------------ Ladies and Gentlemen: This letter is being delivered to you in connection with the proposed Purchase Agreement (the "Purchase Agreement"), between Avon Products, Inc., a New York corporation ("Avon" or the "Company"), and each of you as Initial Purchasers named therein, relating to an offering (the "Offering") of Zero Coupon Senior Convertible Notes Due 2020 (the "Notes") of the Company. In order to induce you to enter into the Purchase Agreement, the undersigned will not, without the prior written consent of Salomon Smith Barney Inc., (i) offer, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend or otherwise transfer or dispose of, directly or indirectly, any shares of Common Stock or any securities convertible into or exercisable or exchangeable for Common Stock, or (ii) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic E-2 The Initial Purchasers, c/o Salomon Smith Barney Inc. July 6, 2000 Page 2 consequences of ownership of the Common Stock, whether any such transaction described in clause (i) or (ii) above is to be settled by delivery of Common Stock or such other securities, in cash or otherwise, for a 30-day period after the date of the offering memorandum (the "Offering Memorandum") in connection with the Offering. The foregoing agreement, however, shall not apply (i) to the sale, directly or indirectly, by the undersigned of Common Stock in connection with any exercise of a stock option, including, but not limited to, through the "cashless exercise" method, or (ii) in connection with any transaction entered into by the undersigned for reasons other than speculation, including, but not limited to, payment of tuition and other dependent care expenses, unforeseen financial obligations and the purchase of any residence or other real property. If for any reason the Purchase Agreement shall be terminated prior to the Closing Date (as defined in the Purchase Agreement) or the closing contemplated by the Purchase Agreement does not take place prior to August 15, 2000, the agreement set forth above shall likewise be terminated. Yours very truly, ---------------------------------- Print Name:_______________________ EX-4.2 3 0003.txt INDENTURE EXHIBIT 4.2 INDENTURE, dated as of July 12, 2000, between AVON PRODUCTS, INC., a corporation duly organized and existing under the laws of the State of New York, as Issuer (herein called the "Company"), having its principal office at 1345 Avenue of the Americas, New York, New York 10105-0196, and THE CHASE MANHATTAN BANK, a banking corporation duly organized under the laws of the State of New York, as Trustee (herein called the "Trustee"). RECITALS OF THE COMPANY The Company has duly authorized the creation of an issue of its Zero Coupon Convertible Senior Notes due 2020 (each a "Security" and collectively, the "Securities") of substantially the tenor and amount hereinafter set forth, and to provide therefor the Company has duly authorized the execution and delivery of this Indenture. All things necessary to make the Securities, when executed by the Company and authenticated and delivered hereunder and duly issued by the Company, the valid obligations of the Company, and to make this Indenture a valid agreement of the Company, in accordance with their and its terms, have been done. NOW, THEREFORE, THIS INDENTURE WITNESSETH: For and in consideration of the premises and the purchases of the Securities by the Holders thereof, it is mutually agreed, for the equal and proportionate benefit of all Holders of the Securities, as follows: ARTICLE 1 DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION SECTION 1.01. Definitions. For all purposes of this Indenture, except as otherwise expressly provided or unless the context otherwise requires: (i) the terms defined in this Article have the meanings assigned to them in this Article and include the plural as well as the singular; (ii) all other terms used herein which are defined in the Trust Indenture Act, either directly or by reference therein, have the meanings assigned to them therein; (iii) all accounting terms not otherwise defined herein have the meanings assigned to them in accordance with GAAP; and (iv) the words "herein," "hereof' and "hereunder" and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other subdivision. 1 "Act," when used with respect to any Holder, has the meaning specified in Section 1.04. "Affiliate" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For the purposes of this definition, "control" when used with respect to any specified Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "Agent Members" has the meaning specified in Section 3.08. "Average Quoted Price" has the meaning specified in Section 13.01. "Board of Directors" means, with respect to any Person, either the board of directors of such Person or any duly authorized committee of that board. "Board Resolution" means, with respect to any Person, a copy of a resolution certified by the Secretary or an Assistant Secretary of such Person to have been duly adopted by the Board of Directors and to be in full force and effect on the date of such certification, and delivered to the Trustee. "Business Day" means any day other than a Saturday, a Sunday or a day on which banking institutions in The City of New York are authorized or obligated by law, or executive order or governmental decree to be closed. "Capital Stock" means any and all shares, interests, participations, rights or other equivalents (however designated) of corporate stock, including, without limitation, with respect to partnerships, partnership interests (whether general or limited) and any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, such partnership. "Commission" means the Securities and Exchange Commission, as from time to time constituted, created under the Exchange Act, or, if at any time after the execution of this instrument such Commission is not existing and performing the duties now assigned to it under the Trust Indenture Act, then the body performing such duties at such time. "Common Stock" means the shares of Common Stock, par value $.25 per share, of the Company as it exists on the date of this Indenture or any other shares of Capital Stock of the Company into which the Common Stock shall be reclassified or changed. "Company" means the Person named as the "Company" in the first paragraph of this instrument until a successor Person shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Company" shall mean such successor Person. "Company Notice" has the meaning specified in Section 11.08. "Company Notice Date" has the meaning specified in Section 11.08. 2 "Company Request" or "Company Order" means a written request or order signed in the name of the Company by its Chairman of the Board, its Vice Chairman of the Board, its President or any Vice President, and by its Treasurer, an Assistant Treasurer, its Secretary or an Assistant Secretary, and delivered to the Trustee. "Conversion Agent" means the Trustee or such other office or agency designated by the Company where Securities may be presented for conversion. "Conversion Date" has the meaning specified in Section 13.02. "Conversion Rate" has the meaning specified in Section 13.01. "Corporate Trust Office" means the office of the Trustee at which the corporate trust business of the Trustee shall, at any particular time, be principally administered, which office is, at the date of this Indenture, located at 450 West 33rd Street, New York, New York 10001-2697, Attention: Capital Markets Fiduciary Services. "corporation" means a corporation, association, company, joint-stock company or business trust. "Default" means any event that is or with the passage of time or the giving of notice or both would become an Event of Default. "Defaulted Interest" has the meaning specified in Section 12.02. "Depositary" means The Depository Trust Company until a successor Depositary shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Depositary" shall mean such successor Depositary. "Equity Interests" means Capital Stock and all warrants, options or other rights to acquire Capital Stock (but excluding any debt security that is convertible into, or exchangeable for, Capital Stock). "Event of Default" has the meaning specified in Section 5.01. "Ex-Dividend Time" has the meaning specified in Section 13.01. "Exchange Act" means the U.S. Securities Exchange Act of 1934, as amended. "Fundamental Change" has the meaning specified in Section 11.09. "Fundamental Change Company Notice" has the meaning specified in Section 11.09. "Fundamental Change Company Notice Date" has the meaning specified in Section 11.09. "Fundamental Change Repurchase Date" has the meaning specified in Section 11.09. 3 "Fundamental Change Repurchase Notice" has the meaning specified in Section 11.09. "Fundamental Change Repurchase Price" has the meaning specified in Section 11.09. "GAAP" means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as have been approved by a significant segment of the accounting profession, in each case, as in effect in the United States on the date hereof. "Global Security" means a Security in global form registered in the Security Register in the name of a Depositary or a nominee thereof. "Holder" or "Securityholder" means a Person in whose name a Security is registered in the Security Register. "Indenture" means this instrument as originally executed or as it may from time to time be supplemented or amended by one or more indentures supplemental hereto entered into pursuant to the applicable provisions hereof, including, for all purposes of this instrument and any such supplemental indenture, the provisions of the Trust Indenture Act that are deemed to be a part of and govern this instrument and any such supplemental indenture, respectively. "Initial Purchasers" means Salomon Smith Barney Inc., Banc of America Securities LLC, Chase Securities Inc., Deutsche Bank Securities Inc., J.P. Morgan Securities Inc. and Morgan Stanley & Co. Incorporated. "Interest Payment Date" has the meaning specified in Section 12.01. "Investment Company Act" means the Investment Company Act of 1940 and any statute successor thereto, in each case as amended from time to time. "Issue Date" means the date the Securities are originally issued or deemed issued as set forth on the face of the Security under this Indenture. "Issue Price" of any Security means, in connection with the original issuance of such Security, the initial issue price at which the Security is sold as set forth on the face of the Security. "Market Price" has the meaning specified in Section 11.08. "Maturity", when used with respect to any Security, means the date on which the principal, Restated Principal Amount, Purchase Price or Fundamental Change Repurchase Price of such Security becomes due and payable as therein or herein provided, whether at the Stated Maturity, on a Redemption Date, Purchase Date or Fundamental Change Repurchase Date, or by declaration of acceleration or otherwise. 4 "Non-U.S. Person" means a Person who is not a U.S. person, as defined in Regulation S. "Notice of Default" has the meaning specified in Section 5.01. "Offering Memorandum" means the Offering Memorandum dated July 7, 2000, offering the Securities for sale as provided therein. "Officers' Certificate" means a certificate signed by the Chairman of the Board, a Vice Chairman of the Board, the President or any Vice President, and by the Treasurer, an Assistant Treasurer, the Secretary or an Assistant Secretary, of the Company, and delivered to the Trustee. One of the officers signing an Officers' Certificate given pursuant to Section 10.04 shall be the principal executive, financial or accounting officer of the Company. "Offshore Global Securities" has the meaning specified in Section 2.01. "Offshore Physical Securities" has the meaning specified in Section 2.01. "Opinion of Counsel" means a written opinion of counsel, who may be external or in-house counsel for the Company, and who shall be reasonably acceptable to the Trustee. "Option Exercise Date" has the meaning specified in Section 12.01. "Original Issue Discount" of any Security means the difference between the Issue Price and the Principal Amount at Maturity of the Security as set forth on the face of the Security. "Outstanding," when used with respect to Securities, means, as of the date of determination, all Securities theretofore authenticated and delivered under this Indenture, except: (i) Securities theretofore cancelled by the Trustee or delivered to the Trustee for cancellation; (ii) Securities, or portions thereof, for whose payment or redemption money in the necessary amount has been theretofore deposited with the Trustee or any Paying Agent (other than the Company) in trust or set aside and segregated in trust by the Company (if the Company shall act as its own Paying Agent) for the Holders of such Securities; provided that if such Securities are to be redeemed prior to the maturity thereof, notice of such redemption shall have been given to the Holders as herein provided, or provision satisfactory to a Responsible Officer of the Trustee shall have been made for giving such notice; and (iii) Securities which have been paid or in exchange for or in lieu of which other Securities have been authenticated and delivered pursuant to this Indenture, other than any such Securities in respect of which there shall have been presented to the Trustee proof satisfactory to it that such Securities are held by a protected purchaser in whose hands such Securities are valid obligations of the Company; 5 provided, however, that, in determining whether the Holders of the requisite Principal Amount at Maturity of the Outstanding Securities have given any request, demand, authorization, direction, notice, consent or waiver hereunder, Securities owned by the Company or any other obligor upon the Securities or any Affiliate of the Company or of such other obligor shall be disregarded and deemed not to be Outstanding, except that, in determining whether the Trustee shall be protected in relying upon any such request, demand, authorization, direction, notice, consent or waiver, only Securities which a Responsible Officer of the Trustee knows to be so owned shall be so disregarded. Securities so owned which have been pledged in good faith may be regarded as Outstanding if the pledgee establishes to the satisfaction of the Trustee the pledgee's right so to act with respect to such Securities and that the pledgee is not the Company or any other obligor upon the Securities or any Affiliate of the Company or of such other obligor. "Paying Agent" means any Person authorized by the Company to pay the principal of, interest on or Redemption Price of any Securities on behalf of the Company. The Trustee shall initially be the Paying Agent. "Person" means any individual, corporation, partnership, limited liability company, joint venture, trust, unincorporated organization or government or any agency or political subdivision thereof. "Physical Securities" has the meaning specified in Section 2.01. "Predecessor Security" of any particular Security means every previous Security evidencing all or a portion of the same debt as that evidenced by such particular Security; and, for the purposes of this definition, any Security authenticated and delivered under Section 3.06 in exchange for or in lieu of a mutilated, destroyed, lost or stolen Security shall be deemed to evidence the same debt as the mutilated, destroyed, lost or stolen Security. "Principal Amount at Maturity" of a Security means the Principal Amount at Maturity as set forth on the face of the Security. "Purchase Agreement" means the Purchase Agreement, dated as of July 7, 2000, entered into by the Company and the Initial Purchasers in connection with the sale of the Securities. "Purchase Date" has the meaning specified in Section 11.08. "Purchase Notice" has the meaning specified in Section 11.08. "Purchase Price" has the meaning specified in Section 11.08. "Qualified Institutional Buyer" or "QIB" shall have the meaning specified in Rule 144A. "Redemption Date" shall mean the date specified for redemption of the Securities in accordance with the terms of the Securities and Article 11 hereof. "Redemption Price" has the meaning specified in the Securities. 6 "Registration Rights Agreement" means the Registration Rights Agreement, dated as of July 12, 2000, between the Company and the Initial Purchasers, for the benefit of themselves and the Holders, as the same may be amended or modified from time to time in accordance with the terms thereof. "Regular Record Date" has the meaning specified in Section 12.01. "Regulation S" means Regulation S under the Securities Act. "Resale Registration Statement" means a registration statement under the Securities Act registering the Securities for resale pursuant to the terms of the Registration Rights Agreement. "Responsible Officer" means any officer of the Trustee within the Corporate Trust Office of the Trustee with direct responsibility for the administration of this Indenture and also, with respect to a particular matter, any other officer of the Trustee to whom such matter is referred because of such officer's knowledge and familiarity with the particular subject. "Restated Principal Amount" has the meaning specified in Section 12.01. "Restricted Global Security" means a Global Security representing Restricted Securities. "Restricted Security" or "Restricted Securities" has the meaning specified in Section 2.05. "Rights" has the meaning specified in Section 13.19. "Rights Agreement" has the meaning specified in Section 13.19. "Rule 144" means Rule 144 under the Securities Act (including any successor rule thereto), as the same may be amended from time to time. "Rule 144A" means Rule 144A under the Securities Act (including any successor rule thereto), as the same may be amended from time to time. "Rule 144A Information" has the meaning specified in Section 2.03. "Sale Price" has the meaning specified in Section 11.08. "Security" or "Securities" has the meaning specified in the first paragraph of the Recitals of the Company. "Securities Act" means the U.S. Securities Act of 1933, as amended, and the rules and regulations of the Commission promulgated thereunder. "Security Register" and "Security Registrar" have the respective meanings specified in Section 3.05. 7 "Special Record Date" has the meaning specified in Section 12.02. "Stated Maturity," when used with respect to any Security, means the date specified in such Security as the fixed date on which an amount equal to the Principal Amount at Maturity of such Security is due and payable or, if the Securities have been converted into semi-annual coupon notes, the date specified in such Security as the fixed date on which the Restated Principal Amount thereof or any installment of interest thereon is due and payable. "Stock Transfer Agent" means EquiServe or such other Person designated by the Company as the transfer agent for the Common Stock. "Subsidiary" means a corporation more than 50% of the outstanding voting stock of which is owned, directly or indirectly, by the Company or by one or more other Subsidiaries, or by the Company and one or more other Subsidiaries. For the purposes of this definition, "voting stock" means stock which ordinarily has voting power for the election of directors, whether at all times or only so long as no senior class of stock has such voting power by reason of any contingency. "Tax Event" means that the Company shall have received an opinion from independent tax counsel experienced in such matters to the effect that, on or after July 7, 2000, as a result of (a) any amendment to, or change (including any announced prospective change) in, the laws, rules or any regulations thereunder of the United States or any political subdivision or taxing authority thereof or therein or (b) any amendment to, or change in, an interpretation or application of such laws or regulations by any legislative body, court, governmental agency or regulatory authority, in each case which amendment or change is enacted, promulgated, issued or announced or which interpretation is issued or announced or which action is taken, on or after July 7, 2000, there is more than an insubstantial risk that interest (including Original Issue Discount) payable on the Securities either (i) would not be deductible on a current accrual basis or (ii) would not be deductible under any other method, in either case in whole or in part, by the Company (by reason of deferral, disallowance, or otherwise) for United States Federal income tax purposes. "Tax Event Date" has the meaning specified in Section 12.01. "Time of Determination" has the meaning specified in Section 13.01. "Trust Indenture Act" means the Trust Indenture Act of 1939 as in force at the date as of which this instrument was executed; provided, however, that in the event the Trust Indenture Act of 1939 is amended after such date, "Trust Indenture Act" means, to the extent required by any such amendment, the Trust Indenture Act of 1939 as so amended. "Trustee" means the Person named as the "Trustee" in the first paragraph of this instrument until a successor Trustee shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Trustee" shall mean such successor Trustee. "Unrestricted Global Security" means a Global Security representing Securities which are not Restricted Securities. 8 "U.S. Global Securities" has the meaning specified in Section 2.01. "U.S. Physical Securities" has the meaning specified in Section 2.01. "Vice President," when used with respect to the Company or the Trustee, means any vice president, whether or not designated by a number or a word or words added before or after the title "vice president". SECTION 1.02. Compliance Certificates and Opinions. Upon any application or request by the Company to the Trustee to take any action under any provision of this Indenture, the Company shall furnish to the Trustee such certificates and opinions as may be required under the Trust Indenture Act. Each such certificate or opinion shall be given in the form of an Officers' Certificate, if to be given by an officer of the Company, or an Opinion of Counsel, if to be given by counsel, and shall comply with the requirements of the Trust Indenture Act and any other requirement set forth in this Indenture. Every certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture shall include (i) a statement that each individual signing such certificate or opinion has read such covenant or condition and the definitions herein relating thereto: (ii) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (iii) a statement that, in the opinion of each such individual, such individual has made such examination or investigation as is necessary to enable such individual to express an informed opinion as to whether or not such covenant or condition has been complied with; and (iv) a statement as to whether, in the opinion of each such individual, such condition or covenant has been complied with. SECTION 1.03. Form of Documents Delivered to Trustee. In any case where several matters are required to be certified by, or covered by an opinion of, any specified Person, it is not necessary that all such matters be certified by, or covered by the opinion of, only one such Person, or that they be so certified or covered by only one document, but one such Person may certify or give an opinion with respect to some matters and one or more other such Persons as to other matters, and any such Person may certify or give an opinion as to such matters in one or several documents. Any certificate or opinion of an officer of the Company may be based, insofar as it relates to legal matters, upon a certificate or opinion of, or representations by, counsel, unless such officer knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to the matters upon which his certificate or opinion is based are erroneous. Any such certificate or Opinion of Counsel may be based, insofar as it relates to factual matters, upon a certificate or opinion of, or representations by, an officer or 9 officers of the Company stating that the information with respect to such factual matters is in the possession of the Company, unless such counsel knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to such matters are erroneous. Where any Person is required to make, give or execute two or more applications, requests, consents, certificates, statements, opinions or other instruments under this Indenture, they may, but need not, be consolidated and form one instrument. SECTION 1.04. Acts of Holders; Record Dates. (a) Any request, demand, authorization, direction, notice, consent, waiver or other action provided by this Indenture to be given or taken by Holders may be embodied in and evidenced by one or more instruments of substantially similar tenor signed by such Holders in person or by agent duly appointed in writing and, except as herein otherwise expressly provided, such action shall become effective when such instrument or instruments are delivered to the Trustee and, where it is hereby expressly required, to the Company. Such instrument or instruments (and the action embodied therein and evidenced thereby) are herein sometimes referred to as the "Act" of the Holders signing such instrument or instruments. Proof of execution of any such instrument or of a writing appointing any such agent shall be sufficient for any purpose of this Indenture and (subject to Section 6.01) conclusive in favor of the Trustee and the Company, if made in the manner provided in this Section. (b) The fact and date of the execution by any Person of any such instrument or writing may be proved by the affidavit of a witness of such execution or by a certificate of a notary public or other officer authorized by law to take acknowledgments of deeds, certifying that the individual signing such instrument or writing acknowledged to him the execution thereof. Where such execution is by a signer acting in a capacity other than his individual capacity, such certificate or affidavit shall also constitute sufficient proof of his authority. The fact and date of the execution of any such instrument or writing, or the authority of the Person executing the same, may also be proved in any other manner which the Trustee deems sufficient. (c) The Company may, in the circumstances permitted by the Trust Indenture Act, fix any day as the record date for the purpose of determining the Holders entitled to give or take any request, demand, authorization, direction, notice, consent, waiver or other action, or to vote on any action, authorized or permitted to be given or taken by Holders. If not set by the Company prior to the first solicitation of a Holder made by any Person in respect of any such action, or, in the case of any such vote, prior to such vote, the record date for any such action or vote shall be the 30th day (or, if later, the date of the most recent list of Holders required to be provided pursuant to Section 7.01) prior to such first solicitation or vote, as the case may be. With regard to any record date, only the Holders on such date (or their duly designated proxies) shall be entitled to give or take, or vote on, the relevant action. (d) The ownership of Securities shall be proved by the Security Register. (e) Any request, demand, authorization, direction, notice, consent, waiver or other Act of the Holder of any Security shall bind every future Holder of the same Security and the Holder of every Security issued upon the registration of transfer thereof or in exchange therefor 10 or in lieu thereof in respect of anything done, omitted or suffered to be done by the Trustee or the Company in reliance thereon, whether or not notation of such action is made upon such Security. SECTION 1.05. Notices, Etc., to Trustee and Company. Any request, demand, authorization, direction, notice, consent, waiver or Act of Holders or other document provided or permitted by this Indenture to be made upon, given or furnished to, or filed with, (i) the Trustee by any Holder or by the Company shall be sufficient for every purpose hereunder if made, given, furnished or filed in writing to or with the Trustee at 450 West 33rd Street, New York, New York 10001, Attention: Capital Markets Fiduciary Services, or (ii) the Company by the Trustee or by any Holder shall be sufficient for every purpose hereunder (unless otherwise herein expressly provided) if in writing and mailed, first-class postage prepaid, to the Company addressed to it at the address of its principal office specified in the first paragraph of this instrument or at any other address previously furnished in writing to the Trustee by the Company, Attention: Treasurer. SECTION 1.06. Notice to Holders; Waiver. Where this Indenture provides for notice to Holders of any event, such notice shall be sufficiently given (unless otherwise herein expressly provided) if in writing and mailed, first-class postage prepaid, to each Holder affected by such event, at his address as it appears in the Security Register, not later than the latest date (if any), and not earlier than the earliest date (if any), prescribed for the giving of such notice. In any case where notice to Holders is given by mail, neither the failure to mail such notice, nor any defect in any notice so mailed, to any particular Holder shall affect the sufficiency of such notice with respect to other Holders. Where this Indenture provides for notice in any manner, such notice may be waived in writing by the Person entitled to receive such notice, either before or after the event, and such waiver shall be the equivalent of such notice. Waivers of notice by Holders shall be filed with the Trustee, but such filing shall not be a condition precedent to the validity of any action taken in reliance upon such waiver. In case by reason of the suspension of regular mail service or by reason of any other cause it shall be impracticable to give such notice by mail, then such notification as shall be made with the approval of the Trustee shall constitute a sufficient notification for every purpose hereunder. SECTION 1.07. Conflict with Trust Indenture Act. If any provision hereof limits, qualifies or conflicts with a provision of the Trust Indenture Act that is required under such Act to be a part of and govern this Indenture, the latter provision shall control. If any provision of this Indenture modifies or excludes any provision of the Trust Indenture Act that may be so modified or excluded, the latter provision shall be deemed to apply to this Indenture as so modified or to be excluded, as the case may be. SECTION 1.08. Effect of Headings and Table of Contents. The Article and Section headings herein and the Table of Contents are for convenience only and shall not affect the construction hereof. 11 SECTION 1.09. Successors and Assigns. All covenants and agreements in this Indenture by the Company shall bind its successors and assigns, whether so expressed or not. SECTION 1.10. Separability Clause. In case any provision in this Indenture or in the Securities shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. SECTION 1.11. Benefits of Indenture. Nothing in this Indenture or in the Securities, express or implied, shall give to any Person, other than the parties hereto and their respective successors hereunder and the Holders of Securities, any benefit or any legal or equitable right, remedy or claim under this Indenture. SECTION 1.12. Governing Law. This Indenture and the Securities shall be governed by and construed in accordance with the laws of the State of New York. SECTION 1.13. Legal Holiday. In any case where any Interest Payment Date or Stated Maturity of any Security shall not be a Business Day, then (notwithstanding any other provision of this Indenture or of the Securities) payment of interest or principal need not be made on such date, but may be made on the next succeeding Business Day with the same force and effect as if made on the Interest Payment Date or at the Stated Maturity, provided that no interest shall accrue with respect to such payment for the period from and after such Interest Payment Date or Stated Maturity or, as the case may be. ARTICLE 2 SECURITY FORMS SECTION 2.01. Forms Generally. The Securities and the Trustee's certificates of authentication shall be in substantially the forms set forth in this Article, with such appropriate insertions, omissions, substitutions and other variations as are required or permitted by this Indenture, and may have such letters, numbers or other marks of identification and such legends or endorsements placed thereon as may be required to comply with the rules of any securities exchange or Depositary therefor, the Internal Revenue Code of 1986, as amended, and regulations thereunder, or as may, consistently herewith, be determined by the officers executing such Securities, as evidenced by their execution thereof. Securities offered and sold in reliance on Rule 144A shall be issued in the form of permanent U.S. Global Securities in registered form in substantially the form set forth in this Article (the "U.S. Global Securities"). Securities offered and sold in offshore transactions in reliance on Regulation S shall be issued, subject to certain exceptions, in the form of permanent Global Securities in registered form in substantially the form set forth in this Article (the "Offshore Global Securities"). The aggregate Principal Amount at Maturity of the Global Securities may from time to time be increased or decreased by adjustments made on the records of the Trustee, as custodian for the Depositary, as hereinafter provided. 12 Securities offered and sold in reliance on any other exemption from registration under the Securities Act other than as described in the preceding paragraph, and those securities offered and sold in offshore transactions in reliance on Regulation S that cannot be issued in the form of Global Securities under the laws of the relevant jurisdiction (the "Offshore Physical Securities"), shall be issued in the form of permanent certificated Securities in registered form, in substantially the form set forth in this Article (the "U.S. Physical Securities"). The Offshore Physical Securities and the U.S. Physical Securities are sometimes collectively referred to as the "Physical Securities." SECTION 2.02. Form of Face of Security. FOR PURPOSES OF SECTIONS 1273 AND 1275 OF THE INTERNAL REVENUE CODE, THE ISSUE PRICE AND AMOUNT OF ORIGINAL ISSUE DISCOUNT WITH RESPECT TO EACH $1,000 OF PRINCIPAL AMOUNT AT MATURITY OF THIS SECURITY ARE $475.66 AND $524.34, RESPECTIVELY, THE ISSUE DATE IS JULY 12, 2000 AND THE YIELD TO MATURITY IS 3.75%. [INCLUDE IF SECURITY IS A RESTRICTED SECURITY -- THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT AS SET FORTH BELOW. BY ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE ACT) OR (B) IT IS NOT A U.S. PERSON AND IS ACQUIRING THIS SECURITY IN AN OFFSHORE TRANSACTION, (2) AGREES THAT IT WILL NOT WITHIN TWO YEARS AFTER THE ORIGINAL ISSUANCE OF THIS SECURITY RESELL OR OTHERWISE TRANSFER THIS SECURITY EXCEPT (A) TO THE COMPANY OR ANY SUBSIDIARY THEREOF, (B) INSIDE THE UNITED STATES TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (C) OUTSIDE THE UNITED STATES TO PERSONS OTHER THAN U.S. PERSONS IN OFFSHORE TRANSACTIONS MEETING THE REQUIREMENTS OF RULE 904 UNDER REGULATION S UNDER THE SECURITIES ACT, (D) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE), OR (E) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND (3) AGREES THAT IT WILL GIVE TO EACH PERSON TO WHOM THIS SECURITY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION", "UNITED STATES" AND "U.S. PERSON" HAVE THE RESPECTIVE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT. THIS SECURITY AND ANY RELATED DOCUMENTATION MAY BE AMENDED OR SUPPLEMENTED FROM TIME TO TIME TO MODIFY THE RESTRICTIONS ON AND PROCEDURES FOR RESALES AND OTHER TRANSFERS OF THIS SECURITY TO REFLECT ANY CHANGE IN APPLICABLE LAW OR REGULATION (OR THE INTERPRETATION THEREOF) OR IN PRACTICES RELATING TO THE RESALE OR TRANSFER OF RESTRICTED SECURITIES GENERALLY. THE HOLDER OF THIS SECURITY SHALL BE DEEMED BY THE ACCEPTANCE OF THIS SECURITY TO HAVE AGREED TO ANY SUCH AMENDMENT OR SUPPLEMENT. 13 THE HOLDER OF THIS SECURITY IS SUBJECT TO, AND ENTITLED TO THE BENEFITS OF, A REGISTRATION RIGHTS AGREEMENT, DATED AS OF JULY 12, 2000, ENTERED INTO BY THE COMPANY FOR THE BENEFIT OF CERTAIN HOLDERS FROM TIME TO TIME OF SECURITIES.] [INCLUDE IF SECURITY IS A GLOBAL SECURITY -- THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY OR A NOMINEE THEREOF. THIS SECURITY MAY NOT BE EXCHANGED IN WHOLE OR IN PART FOR A SECURITY REGISTERED, AND NO TRANSFER OF THIS SECURITY IN WHOLE OR IN PART MAY BE REGISTERED, IN THE NAME OF ANY PERSON OTHER THAN SUCH DEPOSITARY OR A NOMINEE THEREOF, EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY ("DTC"), A NEW YORK CORPORATION, TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL IN AS MUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.] AVON PRODUCTS, INC. Zero Coupon Convertible Senior Note due 2020 CUSIP No. 054303AN2 $___________ Principal Amount at Maturity Issue Date: July 12, 2000 Original Issue Discount: $524.34 Issue Price: $475.66 (for each $1,000 Principal (for each $1,000 Principal Amount at Maturity) Amount at Maturity) Avon Products, Inc., a corporation duly organized and existing under the laws of New York (herein called the "Company", which term includes any successor Person under the Indenture hereinafter referred to), for value received, hereby promises to pay to _____________, or registered assigns, the Principal Amount at Maturity set forth above [INCLUDE IF SECURITY IS A GLOBAL SECURITY -- (which amount may from time to time be increased or decreased by adjustments made on the records of the Trustee, as custodian for the Depositary, in accordance with the rules and procedures of the Depositary)] on July 12, 2020. 14 This Security shall not bear interest except as specified on the other side of this Security. Original Issue Discount will accrue as specified on the other side of this Security. This Security is convertible as specified on the other side of this Security. Reference is hereby made to the further provisions of this Security set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place. Unless the certificate of authentication hereon has been executed by the Trustee referred to on the reverse hereof by manual signature, this Security shall not be entitled to any benefit under the Indenture or be valid or obligatory for any purpose. IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed under its corporate seal. Dated: AVON PRODUCTS, INC. By ----------------------------------- Attest: - ------------------------------------ SECTION 2.03. Form of Reverse of Security. This Security is one of a duly authorized issue of Securities of the Company designated as its Zero Coupon Convertible Senior Notes due 2020, limited in aggregate Principal Amount at Maturity to $735,820,000 (subject to increase by up to $105,118,000 in the event the Initial Purchasers exercise the over-allotment option granted to them in the Purchase Agreement) (herein called the "Securities"), issued and to be issued under an Indenture, dated as of July 12, 2000 (herein called the "Indenture"), between the Company and The Chase Manhattan Bank, as Trustee (herein called the "Trustee", which term includes any successor trustee under the Indenture), to which Indenture and all indentures supplemental thereto reference is hereby made for a statement of the respective rights, limitations of rights, duties and immunities thereunder of the Company, the Trustee and the Holders of the Securities and of the terms upon which the Securities are, and are to be, authenticated and delivered. This Security shall not bear interest, except as specified herein. Original Issue Discount (the difference between the Issue Price and the Principal Amount at Maturity of the Security), in the period during which a Security remains outstanding, shall accrue at 3.75% per annum, on a semi-annual bond equivalent basis using a 360-day year composed of twelve 30-day months, from the Issue Date of this Security. Redemption at the Option of the Company - No sinking fund is provided for the Securities. The Securities are redeemable as a whole, or from time to time in part, at any time at 15 the option of the Company at a Redemption Price equal to the Issue Price plus the accrued Original Issue Discount to the Redemption Date, provided that the Securities are not redeemable prior to July 12, 2003. The table below shows Redemption Prices of a Security per $1,000 Principal Amount at Maturity on the dates shown below and at Stated Maturity, which prices equal the Issue Price plus accrued Original Issue Discount calculated to each such date. The Redemption Price of a Security redeemed between such dates shall include an additional amount reflecting the additional Original Issue Discount accrued since the next preceding date in the table. 16 (2) (3) (1) Accrued Original Redemption Note Issue Discount Price Redemption Date Issue Price at 3.75% (1) + (2) - --------------- ----------- -------- --------- July 12, 2003........... $475.66 $ 56.08 $ 531.74 July 12, 2004........... $475.66 $ 76.21 $ 551.87 July 12, 2005........... $475.66 $ 97.10 $ 572.76 July 12, 2006........... $475.66 $ 118.78 $ 594.44 July 12, 2007........... $475.66 $ 141.28 $ 616.94 July 12, 2008........... $475.66 $ 164.63 $ 640.29 July 12, 2009........... $475.66 $ 188.87 $ 664.53 July 12, 2010........... $475.66 $ 214.02 $ 689.68 July 12, 2011........... $475.66 $ 240.13 $ 715.79 July 12, 2012........... $475.66 $ 267.22 $ 742.88 July 12, 2013........... $475.66 $ 295.34 $ 771.00 July 12, 2014........... $475.66 $ 324.52 $ 800.18 July 12, 2015........... $475.66 $ 354.81 $ 830.47 July 12, 2016........... $475.66 $ 386.24 $ 861.90 July 12, 2017........... $475.66 $ 418.87 $ 894.53 July 12, 2018........... $475.66 $ 452.73 $ 928.39 July 12, 2019........... $475.66 $ 487.87 $ 963.53 At Stated Maturity...... $475.66 $ 524.34 $1,000.00 If converted to a semi-annual coupon note following the occurrence of a Tax Event, this Security will be redeemable at the Restated Principal Amount plus accrued and unpaid interest from the later of the date of such conversion and the date on which interest was last paid through the Redemption Date; but in no event will this Security be redeemable before July 12, 2003. Purchase By the Company at the Option of the Holder - Subject to the terms and conditions of the Indenture, the Company shall become obligated to purchase, at the option of the Holder, the Securities held by such Holder on the following Purchase Dates and at the following Purchase Prices per $1,000 Principal Amount at Maturity, upon delivery of a Purchase Notice containing the information set forth in the Indenture, at any time from the opening of business on the date that is 20 Business Days prior to such Purchase Date until the close of business on such Purchase Date and upon delivery of the Securities to the Paying Agent by the Holder as set forth in the Indenture. Purchase Date Purchase Price ------------- -------------- July 12, 2003 $531.74 July 12, 2008 $640.29 July 12, 2013 $771.00 17 The Purchase Price (equal to the Issue Price plus accrued Original Issue Discount to the Purchase Date) may be paid, at the option of the Company, in cash or by the issuance and delivery of shares of Common Stock of the Company, or in any combination thereof. If prior to a Purchase Date this Security has been converted to a semi-annual coupon note following the occurrence of a Tax Event, the Purchase Price will be equal to the Restated Principal Amount plus accrued and unpaid interest from the later of the date of such conversion and the date on which interest was last paid to the Purchase Date. At the option of the Holder and subject to the terms and conditions of the Indenture, the Company shall become obligated to repurchase the Securities if a Fundamental Change occurs at any time prior to July 12, 2003 for a Fundamental Change Repurchase Price equal to the Issue Price plus accrued Original Issue Discount to the Fundamental Change Repurchase Date, which Fundamental Change Repurchase Price shall be paid in cash or, at the option of the Company, in Common Stock of the Company, as long as it is then listed on a national securities exchange or traded on the Nasdaq Stock Market, or any combination thereof. The fair market value of the Common Stock for such purpose shall be 97.5% of the Market Price (as defined in the Indenture) of the Common Stock. If prior to a Fundamental Change Repurchase Date this Security has been converted to a semi-annual coupon note following the occurrence of a Tax Event, the Fundamental Change Repurchase Price shall be equal to the Restated Principal Amount plus accrued and unpaid interest from the later of the date of such conversion and the date on which interest was last paid to the Fundamental Change Repurchase Date. Holders have the right to withdraw any Purchase Notice or Fundamental Change Repurchase Notice, as the case may be, by delivering to the Paying Agent a written notice of withdrawal in accordance with the provisions of the Indenture. If cash and/or securities sufficient to pay the Purchase Price or Fundamental Change Repurchase Price, as the case may be, of all Securities or portions thereof to be purchased as of the Purchase Date or the Fundamental Change Repurchase Date, as the case may be, is deposited with the Paying Agent on the Business Day following the Purchase Date or the Fundamental Change Repurchase Date, as the case may be, Original Issue Discount ceases to accrue on such Securities (or portions thereof) immediately after such Purchase Date or Fundamental Change Repurchase Date, as the case may be, and the Holder thereof shall have no other rights as such (other than the right to receive the Purchase Price or Fundamental Change Repurchase Price, as the case may be, upon surrender of such Security). If the Company elects to pay all or part of the Purchase Price or the Fundamental Change Repurchase Price in Common Stock, the portion of accrued Original Issue Discount (or interest if the Company has exercised the option to convert the Securities into semi-annual coupon notes as provided for herein), attributable to the period from the Issue Date (or, if the Company has exercised its option to convert the Securities into semi-annual coupon notes, the later of (x) the date of such exercise, and (y) the date on which interest was last paid) through the Purchase Date or the Fundamental Change Repurchase Date, as the case may be, with respect to the surrendered Security shall not be cancelled, extinguished or forfeited, but rather shall be deemed to be paid in full to the Holder thereof through the delivery of the Common Stock (together with cash payment, if any, in lieu of fractional shares) and cash, if any, in exchange for the Security being 18 purchased pursuant to the terms hereof; and such cash, if any, and the fair market value of such shares of Common Stock (together with any such cash payment in lieu of fractional shares) shall be treated as delivered pro rata, to the extent thereof, first in exchange for Original Issue Discount (or interest, if the Company has exercised its option to convert the Securities into semi-annual coupon notes) accrued through the Purchase Date (or the Fundamental Change Repurchase Date, as the case may be), and the balance, if any, of such cash and the fair market value of such Common Stock (and any such cash payment) shall be treated as delivered in exchange for the Issue Price of the Security being purchased pursuant to the provisions hereof. Conversion - Subject to the next two succeeding sentences, a Holder of a Security may convert it into Common Stock of the Company at any time before the close of business on July 12, 2020. If the Security is called for redemption, the Holder may convert it at any time before the close of business on the Business Day immediately preceding the Redemption Date. A Security in respect of which a Holder has delivered a Purchase Notice or Fundamental Change Repurchase Notice exercising the option of such Holder to require the Company to purchase such Security may be converted only if such Purchase Notice or Fundamental Change Repurchase Notice is withdrawn in accordance with the terms of the Indenture. The initial Conversion Rate is 8.2723 shares of Common Stock per $1,000 Principal Amount at Maturity, subject to adjustment in certain events described in the Indenture. The Company will deliver cash or a check in lieu of any fractional share of Common Stock. In the event the Company exercises its option pursuant to Section 12.01 of the Indenture to have interest in lieu of Original Issue Discount accrue on the Security following a Tax Event, the Holder will be entitled on conversion to receive the same number of shares of Common Stock such Holder would have received if the Company had not exercised such option. If the Company exercises such option, Securities surrendered for conversion during the period from the close of business on any Regular Record Date next preceding any Interest Payment Date to the opening of business on such Interest Payment Date (except Securities to be redeemed on a date within such period) must be accompanied by payment of an amount equal to the interest thereon that the registered Holder is to receive. Except where Securities surrendered for conversion must be accompanied by payment as described above, no interest on converted Securities will be payable by the Company on any Interest Payment Date subsequent to the date of conversion. To convert a Security, a Holder must (1) complete and manually sign the conversion notice below (or complete and manually sign a facsimile of such notice) and deliver such notice to the Conversion Agent, (2) surrender the Security to the Conversion Agent for cancellation, (3) furnish appropriate endorsements and transfer documents if required by the Conversion Agent, the Company or the Trustee and (4) pay any transfer or similar tax, if required. A Holder may convert a portion of a Security if the Principal Amount at Maturity of such portion is $1,000 or an integral multiple of $1,000. No payment or adjustment will be made for dividends on the Common Stock except as provided in the Indenture. On conversion of a Security, that portion of accrued Original Issue Discount (or interest if the Company has exercised its option provided for below in "Tax Event") attributable to the period from the Issue Date (or, if the Company has exercised the option referred to below in "Tax Event", the later of (x) the date of such exercise and (y) the date on which interest was last paid) through the 19 Conversion Date with respect to the converted Security shall not be cancelled, extinguished or forfeited, but rather shall be deemed to be paid in full to the Holder thereof through the delivery of the Common Stock (together with the cash payment, if any, in lieu of fractional shares) in exchange for the Security being converted pursuant to the terms hereof; and the fair market value of such shares of Common Stock (together with any such cash payment in lieu of fractional shares) shall be treated as issued, to the extent thereof, first in exchange for Original Issue Discount (or interest, if the Company has exercised its option provided for below in "Tax Event") accrued through the Conversion Date, and the balance, if any, of such fair market value of such Common Stock (and any such cash payment) shall be treated as issued in exchange for the Issue Price of the Security being converted pursuant to the provisions hereof. The Conversion Rate will be adjusted for dividends or distributions on Common Stock payable in Common Stock or other Capital Stock; subdivisions, combinations or certain reclassifications of Common Stock; distributions to all holders of Common Stock of certain rights to purchase Common Stock for a period expiring within 60 days at less than the Sale Price at the Time of Determination; and distributions to such holders of assets or debt securities of the Company or certain rights to purchase securities of the Company (excluding certain cash dividends or distributions). However, no adjustment need be made if Securityholders may participate in the transaction or in certain other cases. The Company from time to time may voluntarily increase the Conversion Rate. If the Company is a party to a consolidation, merger or binding share exchange or a transfer of all or substantially all of its assets, or upon certain distributions described in the Indenture, the right to convert a Security into Common Stock may be changed into a right to convert it into securities, cash or other assets of the Company or another Person. Tax Event - (a) From and after (i) the date (the "Tax Event Date") of the occurrence of a Tax Event and (ii) the date the Company exercises such option, whichever is later (the "Option Exercise Date"), at the option of the Company, interest in lieu of future Original Issue Discount shall accrue at the rate of 3.75% per annum on a principal amount per Security (the "Restated Principal Amount") equal to the Issue Price plus Original Issue Discount accrued through the Option Exercise Date and shall be payable semi-annually on January 12 and July 12 of each year (each an "Interest Payment Date") to holders of record at the close of business on December 29 or June 28 (each a "Regular Record Date") immediately preceding such Interest Payment Date. Interest will be computed on the basis of a 360-day year comprised of twelve 30-day months and will accrue from the most recent date to which interest has been paid or, if no interest has been paid, from the Option Exercise Date. (b) Interest on any Security that is payable, and is punctually paid or duly provided for, on any Interest Payment Date shall be paid to the Person in whose name that Security is registered at the close of business on the Regular Record Date for such interest at the office or agency of the Company maintained for such purpose. Each installment of interest on any Security shall be paid in same-day funds by transfer to an account maintained by the payee located inside the United States, provided that with respect to any Holder, such Holder shall have furnished to the Paying Agent all required wire payment instructions no later than the related Regular Record Date, or if no such instructions have been furnished, by check payable to such Holder. 20 (c) Except as otherwise specified with respect to the Securities, any Defaulted Interest on any Security shall forthwith cease to be payable to the registered Holder thereof on the relevant Regular Record Date by virtue of having been such Holder, and such Defaulted Interest may be paid by the Company as provided for in Section 12.02(b) of the Indenture. [INCLUDE IF SECURITY IS A GLOBAL SECURITY -- In the event of a deposit or withdrawal of an interest in this Security, including an exchange, transfer, repurchase or conversion of this Security in part only, the Trustee, as custodian of the Depositary, shall make an adjustment on its records to reflect such deposit or withdrawal in accordance with the rules and procedures of the Depositary.] [INCLUDE IF SECURITY IS A RESTRICTED SECURITY -- Subject to certain limitations in the Indenture, at any time when the Company is not subject to Section 13 or 15(d) of the United States Securities Exchange Act of 1934, as amended, upon the request of a Holder of a Restricted Security, the Company will promptly furnish or cause to be furnished Rule 144A Information (as defined below) to such Holder of Restricted Securities, or to a prospective purchaser of any such security designated by any such Holder, to the extent required to permit compliance by any such Holder with Rule 144A under the Securities Act of 1933, as amended (the "Securities Act"). "Rule 144A Information" shall be such information as is specified pursuant to Rule 144A(d)(4) under the Securities Act (or any successor provision thereto).] If an Event of Default shall occur and be continuing, the Issue Price plus the Original Issue Discount accrued through such date on all the Securities may be declared due and payable in the manner and with the effect provided in the Indenture. The Indenture permits, with certain exceptions as therein provided, the amendment thereof and the modification of the rights and obligations of the Company and the rights of the Holders of the Securities under the Indenture at any time by the Company and the Trustee with the consent of the Holders of not less than a majority in aggregate Principal Amount at Maturity of the Outstanding Securities. The Indenture also contains provisions permitting the Holders of specified percentages in aggregate Principal Amount at Maturity of the Outstanding Securities, on behalf of the Holders of all the Securities, to waive compliance by the Company with certain provisions of the Indenture and certain past defaults under the Indenture and their consequences. Any such consent or waiver by the Holder of this Security shall be conclusive and binding upon such Holder and upon all future Holders of this Security and of any Security issued upon the registration of transfer hereof or in exchange herefor or in lieu hereof, whether or not notation of such consent or waiver is made upon this Security. As provided in and subject to the provisions of the Indenture, the Holder of this Security shall not have the right to institute any proceeding with respect to the Indenture or for the appointment of a receiver or trustee or for any other remedy thereunder, unless such Holder shall have previously given the Trustee written notice of a continuing Event of Default with respect to the Securities, the Holders of not less than 25% in Principal Amount at Maturity of the Outstanding Securities shall have made written request to the Trustee to institute proceedings in respect of such Event of Default as Trustee and offered the Trustee reasonable indemnity, and the Trustee shall not have received from the Holders of a majority in Principal Amount at 21 Maturity of Outstanding Securities a direction inconsistent with such request, and shall have failed to institute any such proceeding, for 60 days after receipt of such notice, request and offer of indemnity. The foregoing shall not apply to any suit instituted by the Holder of this Security for the enforcement of any payment of said principal hereof or interest hereon on or after the respective due dates expressed herein. No reference herein to the Indenture and no provision of this Security or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal, Restated Principal Amount, Purchase Price or Fundamental Change Repurchase Price of, and interest, if any, on, this Security at the times, place and rate, and in the coin or currency, herein prescribed. As provided in the Indenture and subject to certain limitations therein set forth, the transfer of this Security is registrable in the Security Register, upon surrender of this Security for registration of transfer at the office or agency of the Company in The City of New York, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company and the Security Registrar duly executed by, the Holder hereof or his attorney duly authorized in writing, and thereupon one or more new Securities, of authorized denominations and for the same aggregate Principal Amount at Maturity, will be issued to the designated transferee or transferees. The Securities are issuable only in registered form without coupons in denominations of $1,000 and any integral multiple of $1,000 above that amount. As provided in the Indenture and subject to certain limitations therein set forth. Securities are exchangeable for a like aggregate Principal Amount at Maturity of Securities of a different authorized denomination, as requested by the Holder surrendering the same. No service charge shall be made for any such registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. Prior to due presentment of this Security for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name this Security is registered as the owner hereof for all purposes, whether or not this Security be overdue, and neither the Company, the Trustee nor any such agent shall be affected by notice to the contrary. All terms used in this Security which are defined in the Indenture shall have the meanings assigned to them in the Indenture. 22 ASSIGNMENT FORM If you want to assign this Security, fill in the form below and have your signature guaranteed: I or we assign and transfer this Security to: - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (Print or type name, address and zip code and social security or tax ID number of assignee) and irrevocably appoint _____________________________________ agent to transfer this Security on the books of the Company. The agent may substitute another to act for him. Date: __________________ Signed: ____________________ (Sign exactly as your name appears on the other side of this Security) Signature Guarantee:________________________________ In connection with any transfer of this Security occurring prior to the date which is the earlier of (i) the date of the declaration by the Commission of the effectiveness of a registration statement under the Securities Act of 1933, as amended (the "Securities Act"), covering resales of this Security (which effectiveness shall not have been suspended or terminated at the date of the transfer) and (ii) July 12, 2002 the undersigned confirms that it has not utilized any general solicitation or general advertising in connection with the transfer and that this Security is being transferred: [Check One] (1) [X] to the Company or a subsidiary thereof; or (2) [X] pursuant to and in compliance with Rule 144A under the Securities Act; or (3) [X] outside the United States to a "foreign person" in compliance with Rule 904 of Regulation S under the Securities Act; or (4) [X] pursuant to the exemption from registration provided by Rule 144 under the Securities Act, or 23 (5) [X] pursuant to an effective registration statement under the Securities Act; or (6) [X] pursuant to another available exemption from the registration requirements of the Securities Act. Unless one of the boxes is checked, the Trustee will refuse to register any of the Securities evidenced by this certificate in the name of any Person other than the registered Holder thereof, provided that if box (3), (4) or (6) is checked, the Company may require, prior to registering any such transfer of the Securities, in its sole discretion, such legal opinions, certifications (including an investment letter in the case of box (3)) and other information as the Company may reasonably request to confirm that such transfer is being made pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act. If none of the foregoing boxes is checked, the Trustee or Security Registrar shall not be obligated to register this Security in the name of any Person other than the Holder hereof unless and until the conditions to any such transfer of registration set forth herein and in Section 3.10 of the Indenture shall have been satisfied. Date: __________________ Signed: ____________________ (Sign exactly as your name appears on the other side of this Security) Signature Guarantee:________________________________ 24 TO BE COMPLETED BY PURCHASER IF (2) ABOVE IS CHECKED The undersigned represents and warrants that it is purchasing this Security for its own account or an account with respect to which it exercises sole investment discretion and that it and any such account is a "qualified institutional buyer" within the meaning of Rule 144A under the Securities Act and is aware that the sale to it is being made in reliance on Rule 144A and acknowledges that it has received such information regarding the Company as the undersigned has requested pursuant to Rule 144A or has determined not to request such information and that it is aware that the transferor is relying upon the undersigned's foregoing representations in order to claim the exemption from registration provided by Rule 144A. Date: __________________ Signed: ____________________ NOTICE: To be executed by an executive officer. CONVERSION NOTICE If you want to convert this Security into Common Stock of the Company, check the box: [ ] To convert only part of this Security, state the Principal Amount at Maturity to be converted (which must be $1,000 or an integral multiple of $1,000): $__________________________________ If you want the stock certificate made out in another person's name, fill in the form below: - ------------------------------------------------------------------------------- (Insert other person's social security or tax ID no.) - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- (Print or type other person's name, address and zip code) Date: __________________ Signed: ____________________ (Sign exactly as your name appears on the other side of this Security) Signature Guarantee:________________________________ 25 SECTION 2.04. Form of Trustee's Certificate of Authentication. This is one of the Securities referred to in the within-mentioned Indenture. THE CHASE MANHATTAN BANK, as Trustee By:____________________________________ Authorized Officer SECTION 2.05. Legend on Restricted Securities. During the period beginning on July 12, 2000 and ending on the date two years from such date, any Security including any Security issued in exchange therefor or in lieu thereof, shall be deemed a "Restricted Security" and shall be subject to the restrictions on transfer provided in the legends set forth on the face of the form of Security in Section 2.02; provided, however, that the term "Restricted Security" shall not include any Securities as to which restrictions have been terminated in accordance with Section 3.05. All Securities shall bear the applicable legends set forth on the face of the form of Security in Section 2.02. Except as provided in Section 3.05 and Section 3.10, the Trustee shall not issue any unlegended Security until it has received an Officers' Certificate from the Company directing it to do so. ARTICLE 3 THE SECURITIES SECTION 3.01. Title and Terms. The aggregate Principal Amount at Maturity of Securities which may be authenticated and delivered under this Indenture is limited to $735,820,000 (subject to increase by up to $105,118,000 in the event the Initial Purchasers exercise the over-allotment option granted to them in the Purchase Agreement), except for Securities authenticated and delivered upon registration or transfer of, or in exchange for, or in lieu of, other Securities pursuant to Section 3.04, 3.05, 3.06 or 9.06. The Securities shall be known and designated as the "Zero Coupon Convertible Senior Notes due 2020" of the Company with a Stated Maturity on July 12, 2020. The Issue Price and Original Issue Discount accrued on the Securities shall be payable at the office or agency of the Company in The City of New York maintained for such purpose and at any other office or agency maintained by the Company for such purpose; provided, however, that at the option of the Company payments may be made by wire transfer or by check mailed to the address of the Person entitled thereto as such address shall appear in the Security Register. 26 The Securities shall not have the benefit of a sinking fund. The Securities shall not be superior in right of payment to, and shall rank pari passu with, all other unsecured and unsubordinated indebtedness of the Company. SECTION 3.02. Denominations. The Securities shall be issuable only in registered form without coupons and in denominations of $1,000 and any integral multiple of $1,000 above that amount. SECTION 3.03. Execution, Authentication, Delivery and Dating. The Securities shall be executed on behalf of the Company by its Chairman of the Board, its Vice Chairman of the Board, its President or one of its Vice Presidents, under its corporate seal reproduced thereon attested by its Secretary or one of its Assistant Secretaries. The signature of any of these officers on the Securities may be manual or facsimile. Securities bearing the manual or facsimile signatures of individuals who were at any time the proper officers of the Company shall bind the Company, notwithstanding that such individuals or any of them have ceased to hold such offices prior to the authentication and delivery of such Securities or did not hold such offices at the date of such Securities. At any time and from time to time after the execution and delivery of this Indenture, the Company may deliver Securities executed by the Company to the Trustee for authentication, together with a Company Order for the authentication and delivery of such Securities. The Company Order shall specify the amount of Securities to be authenticated, and shall further specify the amount of such Securities to be issued as a Global Security, as Offshore Physical Securities or as U.S. Physical Securities. The Trustee in accordance with such Company Order shall authenticate and deliver such Securities as in this Indenture provided and not otherwise. Each Security shall be dated the date of its authentication. No Security shall be entitled to any benefit under this Indenture or be valid or obligatory for any purpose unless there appears on such Security a certificate of authentication substantially in the form provided for herein executed by the Trustee by manual signature, and such certificate upon any Security shall be conclusive evidence, and the only evidence, that such Security has been duly authenticated and delivered hereunder. SECTION 3.04. Temporary Securities. Pending the preparation of definitive Securities, the Company may execute, and upon Company Order the Trustee shall authenticate and deliver, temporary Securities which are printed, lithographed, typewritten, mimeographed or otherwise produced, in any authorized denomination, substantially of the tenor of the definitive Securities in lieu of which they are issued and with such appropriate insertions, omissions, substitutions and other variations as the officers executing such Securities may determine, as evidenced by their execution of such Securities. If temporary Securities are issued, the Company will cause definitive Securities to be prepared without unreasonable delay. After the preparation of definitive Securities, the temporary Securities shall be exchangeable for definitive Securities upon surrender of the 27 temporary Securities at any office or agency of the Company designated pursuant to Section 10.02, without charge to the Holder. Upon surrender for cancellation of any one or more temporary Securities the Company shall execute and the Trustee shall authenticate and deliver in exchange therefor a like Principal Amount at Maturity of definitive Securities of authorized denominations. Until so exchanged the temporary Securities shall in all respects be entitled to the same benefits under this Indenture as definitive Securities. SECTION 3.05. Registration; Registration of Transfer and Exchange; Restrictions on Transfer. (a) The Company shall cause to be kept at the Corporate Trust Office of the Trustee a register (the register maintained in such office and in any other office or agency designated pursuant to Section 10.02 being herein sometimes collectively referred to as the "Security Register") in which, subject to such reasonable regulations as it may prescribe, the Company shall provide for the registration of Securities and of transfers of Securities. The Trustee is hereby appointed "Security Registrar" (the "Security Registrar") for the purpose of registering Securities and transfers of Securities as herein provided. Upon surrender for registration of transfer of any Security at an office or agency of the Company designated pursuant to Section 10.02 for such purpose, the Company shall execute, and the Trustee shall authenticate and deliver, in the name of the designated transferee or transferees, one or more new Securities of any authorized denominations and of a like aggregate Principal Amount at Maturity and tenor each such Security bearing such restrictive legends as may be required by this Indenture (including Sections 2.02, 2.05 and 3.10). At the option of the Holder and subject to the other provisions of this Section 3.05 and to Section 3.10, Securities may be exchanged for other Securities of any authorized denominations and of a like aggregate Principal Amount at Maturity and tenor, upon surrender of the Securities to be exchanged at such office or agency. Whenever any Securities are so surrendered for exchange, the Company shall execute, and the Trustee shall authenticate and deliver, the Securities which the Holder making the exchange is entitled to receive. All Securities issued upon any registration of transfer or exchange of Securities shall be the valid obligations of the Company, evidencing the same debt, and entitled to the same benefits under this Indenture, as the Securities surrendered upon such registration of transfer or exchange. Every Security presented or surrendered for registration of transfer or for exchange shall (if so required by the Company or the Trustee) be duly endorsed, or be accompanied by a written instrument of transfer in form satisfactory to the Company and the Security Registrar duly executed, by the Holder thereof or his attorney duly authorized in writing. As a condition to the registration of transfer of any Restricted Securities, the Company or the Trustee may require evidence satisfactory to them as to the compliance with the restrictions set forth in the legend on such securities. Except as provided in the following sentence and in Section 3.10, all Securities originally issued hereunder and all Securities issued upon registration of transfer or exchange or replacement thereof shall be Restricted Securities and shall bear the legend required by Sections 2.02 and 2.05, unless the Company shall have delivered to the Trustee (and the Security 28 Registrar, if other than the Trustee) a Company Order stating that the Security is not a Restricted Security and may be issued without such legend thereon. Securities which are issued upon registration of transfer of, or in exchange for, Securities which are not Restricted Securities shall not be Restricted Securities and shall not bear such legend. No service charge shall be made for any registration of transfer or exchange of Securities, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any registration of transfer or exchange of Securities, other than exchanges pursuant to Section 3.04 or 9.06 not involving any transfer. The Company shall not be required to exchange or register a transfer of any Security (i) during the 15-day period immediately preceding the mailing of any notice of redemption of any Security, or (ii) after any notice of redemption has been given to Holders of Securities, except, where such notice provides that such Security is to be redeemed only in part, the Company shall be required to exchange or register a transfer of the portion thereof not to be redeemed. (b) Beneficial ownership of every Restricted Security shall be subject to the restrictions on transfer provided in the legends required to be set forth on the face of each Restricted Security pursuant to Sections 2.02 and 2.05, unless such restrictions on transfer shall be terminated in accordance with this Section 3.05(b) or Section 3.10. The Holder of each Restricted Security, by such Holder's acceptance thereof, agrees to be bound by such restrictions on transfer. The restrictions imposed by this Section 3.05 and Sections 2.02, 2.05 and 3.10 upon the transferability of any particular Restricted Security shall cease and terminate upon delivery by the Company to the Trustee of an Officers' Certificate stating that such Restricted Security has been sold pursuant to an effective Resale Registration Statement under the Securities Act or transferred in compliance with Rule 144 under the Securities Act (or any successor provision thereto). Any Restricted Security as to which the Company has delivered to the Trustee an Officers' Certificate that such restrictions on transfer shall have expired in accordance with their terms or shall have terminated may, upon surrender of such Restricted Security for exchange to the Security Registrar in accordance with the provisions of this Section 3.05, be exchanged for a new Security, of like tenor and aggregate Principal Amount at Maturity, which shall not bear the restrictive legends required by Sections 2.02 and 2.05. The Company shall inform the Trustee in writing of the effective date of any Resale Registration Statement registering the Securities under the Securities Act. The Trustee shall not be liable for any action taken or omitted to be taken by it in good faith in accordance with the aforementioned Resale Registration Statement. As used in the preceding two paragraphs of this Section 3.05, the term "transfer" encompasses any sale, pledge, transfer or other disposition of any Restricted Security. (c) Neither the Trustee nor any of its agents shall (i) have any duty to monitor compliance with or with respect to any federal or state or other securities or tax laws or (ii) have 29 any duty to obtain documentation on any transfers or exchanges other than as specifically required hereunder. SECTION 3.06. Mutilated, Destroyed, Lost and Stolen Securities. If any mutilated Security is surrendered to the Trustee, the Company shall execute and the Trustee shall authenticate and deliver in exchange therefor a new Security of like tenor and Principal Amount at Maturity and bearing a number not contemporaneously outstanding. If there shall be delivered to the Company and the Trustee (i) evidence to their satisfaction of the destruction, loss or theft of any Security and (ii) such security or indemnity as may be required by them to save each of them and any agent of either of them harmless, then, in the absence of notice to the Company or the Trustee that such Security has been acquired by a bona fide purchaser, the Company shall execute and the Trustee shall authenticate and deliver, in lieu of any such destroyed, lost or stolen Security, a new Security of like tenor and Principal Amount at Maturity and bearing a number not contemporaneously outstanding. In case any such mutilated, destroyed, lost or stolen Security has become or is about to become due and payable or has been called for redemption in full, the Company in its discretion may, instead of issuing a new Security, pay such Security. Upon the issuance of any new Security under this Section, the Company may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the fees and expenses of the Trustee) connected therewith. Every new Security issued pursuant to this Section in lieu of any destroyed, lost or stolen Security shall constitute an original additional contractual obligation of the Company, whether or not the destroyed, lost or stolen Security shall be at any time enforceable by anyone, and shall be entitled to all the benefits of this Indenture equally and proportionately with any and all other Securities duly issued hereunder. The provisions of this Section are exclusive and shall preclude (to the extent lawful) all other rights and remedies with respect to the replacement or payment of mutilated, destroyed, lost or stolen Securities. SECTION 3.07. Persons Deemed Owners. Prior to due presentment of a Security for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name such Security is registered as the owner of such Security for the purpose of receiving payment of principal on such Security (and interest, if the Securities have been converted into semi-annual coupon notes) and for all other purposes whatsoever, whether or not such Security be overdue, and neither the Company, the Trustee nor any agent of the Company or the Trustee shall be affected by notice to the contrary. SECTION 3.08. Book-entry Provisions for Global Securities. (a) The Global Securities initially shall (i) be registered in the name of the Depositary or the nominee of such Depositary, (ii) be delivered to the Trustee as custodian for the Depositary and (iii) bear legends as set forth on the face of the form of Security in Section 2.02. 30 Members of, or participants in, the Depositary ("Agent Members") shall have no rights under this Indenture with respect to any Global Security held on their behalf by the Depositary, or the Trustee as its custodian, or under the Global Security, and the Depositary may be treated by the Company, the Trustee and any agent of the Company or the Trustee as the absolute owner of the Global Security for all purposes whatsoever. Notwithstanding the foregoing, nothing herein shall prevent the Company, the Trustee or any agent of the Company or the Trustee from giving effect to any written certification, proxy or other authorization furnished by the Depositary or impair, as between the Depositary and its Agent Members, the operation of customary practices governing the exercise of the rights of any Holder. (b) Transfers of the Global Securities shall be limited to transfers in whole, but not in part, to the Depositary, its successors or their respective nominees. Interests of beneficial owners in a Global Security may be transferred or exchanged, in whole or in part, for Physical Securities in accordance with the rules and procedures of the Depositary and the provisions of Section 3.10. In addition, Physical Securities shall be transferred to all beneficial owners in exchange for their beneficial interests in the Global Securities if (A) such Depositary has notified the Company (or the Company becomes aware) that the Depositary (i) is unwilling or unable to continue as Depositary for such Global Security or (ii) has ceased to be a clearing agency registered under the Exchange Act when the Depositary is required to be so registered to act as such Depositary and, in both such cases, no successor Depositary shall have been appointed within 90 days of such notification or of the Company becoming aware of such event, (B) there shall have occurred and be continuing an Event of Default with respect to such Global Security and the Outstanding Securities shall have become due and payable pursuant to Section 5.02 and the Trustee has requested that Physical Securities be issued or (C) the Company has decided to discontinue use of book-entry transfers through the Depositary (or a successor Depositary); provided that Holders of Securities offered and sold in reliance on Rule 144A or Regulation S in the form of permanent certificated Securities in registered form shall have the right, subject to applicable law, to request that such Securities be exchanged for interests in the applicable Global Security. (c) In connection with any transfer or exchange of a portion of the beneficial interest in the Global Security to beneficial owners pursuant to paragraph (b), the Security Registrar shall (if one or more Physical Securities are to be issued) reflect on its books and records the date and a decrease in the Principal Amount at Maturity of the Global Security in an amount equal to the Principal Amount at Maturity of the beneficial interest in the Global Security to be transferred, and the Company shall execute, and the Trustee shall authenticate and deliver, one or more Physical Securities of like tenor and amount. (d) In connection with the transfer of the entire Global Security to beneficial owners pursuant to paragraph (b), the Global Security shall be deemed to be surrendered to the Trustee for cancellation, and the Company shall execute, and the Trustee shall authenticate and deliver, to each beneficial owner identified by the Depositary in exchange for its beneficial interest in the Global Security, an equal aggregate Principal Amount at Maturity of Physical Securities of authorized denominations and the same tenor. (e) Any Physical Security constituting a Restricted Security delivered in exchange for an interest in the Global Security pursuant to paragraph (c) or (d) shall, except as 31 otherwise provided by paragraphs (a)(i)(x) and (c) of Section 3.10, bear the legend regarding transfer restrictions applicable to the Physical Securities set forth on the face of the form of Security in Section 2.02. (f) The Holder of the Global Securities may grant proxies and otherwise authorize any Person, including Agent Members and Persons that may hold interests through Agent Members, to take any action which a Holder is entitled to take under this Indenture or the Securities. SECTION 3.09. Cancellation. The Company at any time may deliver to the Trustee for cancellation any Securities previously authenticated and delivered hereunder which the Company may have acquired in any manner whatsoever, and may deliver to the Trustee for cancellation any Securities previously authenticated hereunder which the Company has not issued and sold. The Trustee shall cancel and destroy all Securities surrendered for registration of transfer, exchange, payment, purchase, repurchase, redemption, conversion (pursuant to Article 13 hereof) or cancellation in accordance with its customary practices. If the Company shall acquire any of the Securities, such acquisition shall not operate as a redemption or satisfaction of the indebtedness represented by such Securities unless and until the same are delivered to the Trustee for cancellation. The Company may not issue new Securities to replace Securities it has paid in full or delivered to the Trustee for cancellation. SECTION 3.10. Special Transfer Provisions. (a) Transfers to Non-U.S. Persons. The following provisions shall apply with respect to the registration of any proposed transfer of a Security constituting a Restricted Security to any Non-U.S. Person to which Securities in the form of Global Securities cannot be issued: (i) the Security Registrar shall register the transfer of any Security constituting a Restricted Security, whether or not such Security bears the legend required by Sections 2.02 and 2.05, if (x) the requested transfer is after July 12, 2002 or (y) the proposed transferor has delivered to the Security Registrar a certificate substantially in the form of Exhibit A hereto, together with such other certifications, legal opinions or other information as the Company may reasonably require to confirm that such transfer is being made pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act; and (ii) if the proposed transferor is an Agent Member holding a beneficial interest in the Global Security, upon receipt by the Security Registrar of (x) the certificate, if any, required by paragraph (i) above and instructions given in accordance with the Depositary's and the Security Registrar's procedures, whereupon (1) the Security Registrar shall reflect on its books and records the date and (if the transfer does not involve a transfer of outstanding Physical Securities) a decrease in the Principal Amount at Maturity of the Global Security in an amount equal to the Principal Amount at Maturity of the beneficial interest in the Global Security to be transferred, and (b) the Company shall execute and the Trustee shall authenticate and deliver one or more Physical Securities of like tenor and amount. 32 (b) Transfers to QIBs. The following provisions shall apply with respect to the registration of any proposed transfer of a Security constituting a Restricted Security to a QIB (excluding transfers to Non-U.S. Persons): (i) the Security Registrar shall register the transfer if such transfer is being made by a proposed transferor who has checked the box provided for on the form of Security stating, or has otherwise advised the Company and the Security Registrar in writing, that the sale has been made in compliance with the provisions of Rule 144A to a transferee who has signed the certification provided for on the form of Security stating, or has otherwise advised the Company and the Security Registrar in writing, that it is purchasing the Security for its own account or an account with respect to which it exercises sole investment discretion and that it and any such account is a QIB within the meaning of Rule 144A, and is aware that the sale to it is being made in reliance on Rule 144A and acknowledges that it has received such information regarding the Company as it has requested pursuant to Rule 144A or has determined not to request such information and that it is aware that the transferor is relying upon its foregoing representations in order to claim the exemption from registration provided by Rule 144A; and (ii) if the proposed transferee is an Agent Member, and the Securities to be transferred consist of Physical Securities which after transfer are to be evidenced by an interest in the Global Security, upon receipt by the Security Registrar of instructions given in accordance with the Depositary's and the Security Registrar's procedures, the Security Registrar shall reflect on its books and records the date and an increase in the Principal Amount at Maturity of the Global Security in an amount equal to the Principal Amount at Maturity of the Physical Securities to be transferred, and the Trustee shall cancel the Physical Securities so transferred. (c) Private Placement Legend. Upon the registration of transfer, exchange or replacement of Securities not bearing the legends required by Sections 2.02 and 2.05, the Security Registrar shall deliver Securities that do not bear such legends. Upon the registration of transfer, exchange or replacement of Securities bearing the legends required by Sections 2.02 and 2.05, the Security Registrar shall deliver only Securities that bear such legends unless (i) the circumstance contemplated by paragraph (a)(i)(x) of this Section 3.10 exists or (ii) there is delivered to the Security Registrar an Opinion of Counsel reasonably satisfactory to the Company and the Trustee to the effect that neither such legend nor the related restrictions on transfer are required in order to maintain compliance with the provisions of the Securities Act. (d) General. By its acceptance of any Security bearing the legends required by Sections 2.02 and 2.05, each Holder of such a Security acknowledges the restrictions on transfer of such Security set forth in this Indenture and in such legends and agrees that it will transfer such Security only as provided in this Indenture. The Security Registrar shall retain, in accordance with its customary procedures, copies of all letters, notices and other written communications received pursuant to this Section 3.10. The Company shall have the right to inspect and make copies of all such letters, notices or other written communications at any reasonable time upon the giving of reasonable written notice to the Security Registrar. 33 ARTICLE 4 SATISFACTION AND DISCHARGE SECTION 4.01. Satisfaction and Discharge of Indenture. This Indenture shall cease to be of further effect (except as to any surviving rights of registration of transfer or exchange of Securities herein expressly provided for), and the Trustee, on demand of and at the expense of the Company, shall execute proper instruments acknowledging satisfaction and discharge of this Indenture, when (a) either (i) all Securities theretofore authenticated and delivered (other than (A) Securities which have been destroyed, lost or stolen and which have been replaced or paid as provided in Section 3.06 and (B) Securities for whose payment money has theretofore been deposited with the Trustee in trust or segregated and held in trust by the Company and thereafter repaid to the Company or discharged from such trust as provided in Section 10.03) have been delivered to the Trustee for cancellation; or (ii) all such Securities not theretofore delivered to the Trustee for cancellation have become due and payable and the Company has deposited or caused to be deposited with the Trustee as trust funds in trust for the purpose an amount sufficient to pay and discharge the entire indebtedness evidenced by such Securities not theretofore delivered to the Trustee for cancellation, for principal and interest to the date of such deposit (in the case of Securities which have become due and payable) or to the Stated Maturity or Redemption Date, as the case may be; (b) the Company has paid or caused to be paid all other sums payable hereunder by the Company; and (c) the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent herein provided for relating to the satisfaction and discharge of this Indenture have been complied with. Notwithstanding the satisfaction and discharge of this Indenture, the obligations of the Company to the Trustee under Section 6.07 and, if money shall have been deposited with the Trustee pursuant to subclause (ii) of Clause (a) of this Section, the obligations of the Trustee under Section 4.02 and the last paragraph of Section 10.03 shall survive. SECTION 4.02. Application of Trust Money. Subject to the provisions of the last paragraph of Section 10.03, all money deposited with the Trustee pursuant to Section 4.01 shall be held in trust and applied by it, in accordance with the provisions of the Securities and this Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as its own Paying Agent) as the trustee may determine, to the Persons entitled thereto, of the principal and interest for whose payment such money has been deposited with the Trustee. 34 ARTICLE 5 REMEDIES SECTION 5.01. Events of Default. "Event of Default", wherever used herein, means any one of the following events (whatever the reason for such Event of Default and whether it shall be voluntary or involuntary or be effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body): (a) default in the payment of the Principal Amount at Maturity (or, if the Securities have been converted to semi-annual coupon notes following a Tax Event, the Restated Principal Amount), Redemption Price, Purchase Price or Fundamental Change Repurchase Price on any Security when it becomes due and payable; or (b) default in the payment of interest upon any Security, if the Company has exercised its option following a Tax Event to convert the Securities into semi-annual coupon notes, when such interest becomes due and payable, and continuance of such default for a period of 30 days; or (c) default in the performance of any covenant, agreement or condition of the Company in this Indenture or the Securities, and continuance of such default for a period of 60 days after there has been given, by registered or certified mail, to the Company by the Trustee or to the Company and the Trustee by the Holders of at least 25% in Principal Amount at Maturity of the Outstanding Securities a written notice specifying such default and requiring it to be remedied and stating that such notice is a "Notice of Default" hereunder; or (d) the entry by a court having jurisdiction in the premises of (i) a decree or order for relief in respect of the Company of a voluntary case or proceeding under any applicable Federal or State bankruptcy, insolvency, reorganization or other similar law or (ii) a decree or order adjudging the Company a bankrupt or insolvent, or approving as properly filed a petition seeking reorganization, arrangement, adjustment or composition of or in respect of the Company under any applicable Federal or State law. or appointing a custodian, receiver, liquidator, assignee, trustee, sequestrator or other similar official of the Company or of any substantial part of its property, or ordering the winding up or liquidation of its affairs, and the continuance of any such decree or order for relief or any such other decree or order unstayed and in effect for a period of 60 consecutive days; or (e) the commencement by the Company of a voluntary case or proceeding under any applicable Federal or State bankruptcy, insolvency, reorganization or other similar law or of any other case or proceeding to be adjudicated a bankrupt or insolvent, or the consent by it to the entry of a decree or order for relief in respect of the Company in an involuntary case or proceeding under any applicable Federal or State bankruptcy, insolvency, reorganization or other similar law or to the commencement of any bankruptcy or insolvency case or proceeding against it, or the filing by it of a petition or answer or consent seeking reorganization or relief under any applicable Federal or State 35 law, or the consent by it to the filing of such petition or to the appointment of or taking possession by a custodian, receiver, liquidator, assignee, trustee, sequestrator or other similar official of the Company or of any substantial part of its property, or the making by it of an assignment for the benefit of creditors, or the admission by it in writing of its inability to pay its debts generally as they become due, or the taking of corporate action by the Company in furtherance of any such action. SECTION 5.02. Acceleration of Maturity; Rescission and Annulment. (a) If an Event of Default (other than those specified in Sections 5.01(d) and 5.01(e)) occurs and is continuing, then and in every such case the Trustee or the Holders of not less than 25% in Principal Amount at Maturity of the Outstanding Securities may declare the Issue Price plus accrued Original Issue Discount of all the Outstanding Securities to be due and payable immediately, by a notice in writing to the Company (and to the Trustee if given by Holders), and upon any such declaration such Issue Price plus accrued Original Issue Discount shall become immediately due and payable. Notwithstanding the foregoing, in the case of an Event of Default specified in Sections 5.01(d) or 5.01(e), the Issue Price plus accrued Original Issue Discount of all Outstanding Securities will ipso facto become due and payable without any declaration or other Act on the part of the Trustee or any Holder. (b) At any time after such a declaration of acceleration has been made and before a judgment or decree for payment of the money due has been obtained by the Trustee as hereinafter in this Article provided, the Holders of a majority in Principal Amount at Maturity of the Outstanding Securities, by written notice to the Company and the Trustee, may rescind and annul such declaration and its consequences if (i) the Company has paid or deposited with the Trustee a sum sufficient to pay (A) all overdue interest on all Securities, if the Company has exercised its option following a Tax Event to convert the Securities into semi-annual coupon notes, (B) the Issue Price plus accrued Original Issue Discount of any Securities which have become due otherwise than by such declaration of acceleration, and (C) all sums paid or advanced by the Trustee hereunder and the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 6.07; and (ii) all Events of Default, other than the non-payment of the Issue Price plus accrued Original Issue Discount of Securities which have become due solely by such declaration of acceleration, have been cured or waived as provided in Section 5.13. 36 No such rescission shall affect any subsequent default or impair any right consequent thereon. SECTION 5.03. Collection of Indebtedness and Suits for Enforcement by Trustee. The Company covenants that if (i) default is made in the payment of any interest on any Security when such interest becomes due and payable, if the Company has exercised its option following a Tax Event to convert the Securities into semi-annual coupon notes, and such default continues for a period of 30 days, or (ii) default is made in the payment of the Issue Price plus accrued Original Issue Discount, Restated Principal Amount, Redemption Price, Purchase Price or Fundamental Change Repurchase Price of any Security at the Maturity thereof, the Company will, upon demand of the Trustee, pay to it, for the benefit of the Holders of such Securities, the whole amount then due and payable on such Securities, and, in addition thereto, such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel. If an Event of Default with respect to the Securities occurs and is continuing, the Trustee may in its discretion, subject to applicable law, proceed to protect and enforce its rights and the rights of the Holders by such appropriate judicial proceedings as the Trustee shall deem most effectual to protect and enforce any such rights, whether for the specific enforcement of any covenant or agreement in this Indenture or in aid of the exercise of any power granted herein, or to enforce any other proper remedy. SECTION 5.04. Trustee May File Proofs of Claim. In case of any judicial proceeding relative to the Company (or any other obligor upon the Securities), its property or its creditors, the Trustee shall be entitled and empowered, by intervention in such proceeding or otherwise, to take any and all actions authorized under the Trust Indenture Act in order to have claims of the Holders and the Trustee allowed in any such proceeding. In particular, the Trustee shall be authorized to collect and receive any moneys or other property payable or deliverable on any such claims and to distribute the same; and any custodian, receiver, assignee, trustee, liquidator, sequestrator or other similar official in any such judicial proceeding is hereby authorized by each Holder to make such payments to the Trustee and, in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay to the Trustee any amount due it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel. and any other amounts due the Trustee under Section 6.07. No provision of this Indenture shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Securities or the rights of any Holder thereof or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding. 37 SECTION 5.05. Trustee May Enforce Claims Without Possession of Securities. All rights of action and claims under this Indenture or the Securities may be prosecuted and enforced by the Trustee without the possession of any of the Securities or the production thereof in any proceeding relating thereto, and any such proceeding instituted by the Trustee shall be brought in its own name as trustee of an express trust, and any recovery of judgment shall, after provision for the payment of the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 6.07, be for the ratable benefit of the Holders of the Securities in respect of which such judgment has been recovered. SECTION 5.06. Application of Money Collected. Any money collected by the Trustee pursuant to this Article shall be applied in the following order, at the date or dates fixed by the Trustee and, in case of the distribution of such money to Holders, upon presentation of the Securities and the notation thereon of the payment if only partially paid and upon surrender thereof if fully paid: FIRST: To the payment of all amounts due the Trustee under Section 6.07; and SECOND: To the payment of the amounts then due and unpaid on the Securities for the Principal Amount at Maturity, Redemption Price, Purchase Price, Fundamental Change Repurchase Price or interest, if any, as the case may be, in respect of which or for the benefit of which such money has been collected, ratably, without preference or priority of any kind, according to the amounts due and payable on such Securities. SECTION 5.07. Limitation on Suits. No Holder of any Security shall have any right to institute any proceeding, judicial or otherwise, with respect to this Indenture, or for the appointment of a receiver or trustee, or for any other remedy hereunder, unless (i) such Holder has previously given written notice to the Trustee of a continuing Event of Default; (ii) the Holders of not less than 25% in aggregate Principal Amount at Maturity of the Outstanding Securities shall have made written request to the Trustee to institute proceedings in respect of such Event of Default in its own name as Trustee hereunder; (iii) such Holder or Holders have offered to the Trustee reasonable indemnity against the costs, expenses and liabilities to be incurred in compliance with such request; (iv) the Trustee for 60 days after its receipt of such notice, request and offer of indemnity has failed to institute any such proceeding; and (v) no direction inconsistent with such written request has been given to the Trustee during such 60-day period by the Holders of a majority in aggregate Principal Amount at Maturity of the Outstanding Securities; it being understood and intended that no one or more Holders shall have any right in any manner whatever by virtue of, or by availing of, any provision of this Indenture to affect, disturb or 38 prejudice the rights of any other Holders, or to obtain or to seek to obtain priority or preference over any other Holders or to enforce any right under this Indenture, except in the manner herein provided and for the equal and ratable benefit of all the Holders. SECTION 5.08. Unconditional Right of Holders to Receive Payment. Notwithstanding any other provision of this Indenture, the right of any Holder to receive payment of the Principal Amount at Maturity (or if the Securities have been converted to semi-annual coupon notes following a Tax Event pursuant to Article 12, the Restated Principal Amount), Redemption Price, Purchase Price, Fundamental Change Repurchase Price or interest, if any, in respect of the Securities held by such Holder, on or after the respective due dates expressed in the Securities or any Redemption Date, and to convert the Securities in accordance with Article 13, or to bring suit for the enforcement of any such payment on or after such respective dates or the right to convert, shall not be impaired or affected adversely without the consent of such Holder. SECTION 5.09. Restoration of Rights and Remedies. If the Trustee or any Holder has instituted any proceeding to enforce any right or remedy under this Indenture and such proceeding has been discontinued or abandoned for any reason, or has been determined adversely to the Trustee or to such Holder, then and in every such case, subject to any determination in such proceeding, the Company, the Trustee and the Holders shall be restored severally and respectively to their former positions hereunder and thereafter all rights and remedies of the Trustee and the Holders shall continue as though no such proceeding had been instituted. SECTION 5.10. Rights and Remedies Cumulative. Except as otherwise provided with respect to the replacement or payment of mutilated, destroyed, lost or stolen Securities in the last paragraph of Section 3.06, no right or remedy herein conferred upon or reserved to the Trustee or to the Holders is intended to be exclusive of any other right or remedy, and every right and remedy shall, to the extent permitted by law, be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other appropriate right or remedy. SECTION 5.11. Delay or Omission Not Waiver. No delay or omission of the Trustee or of any Holder of any Security to exercise any right or remedy accruing upon any Event of Default shall impair any such right or remedy or constitute a waiver of any such Event of Default or an acquiescence therein. Every right and remedy given by this Article or by law to the Trustee or to the Holders may be exercised from time to time, and as often as may be deemed expedient, by the Trustee or by the Holders, as the case may be. SECTION 5.12. Control by Holders. The Holders of a majority in Principal Amount at Maturity of the Outstanding Securities shall have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on the Trustee, provided that (i) such direction shall not be in conflict with any rule of law or with this Indenture, and 39 (ii) the Trustee may take any other action deemed proper by the Trustee which is not inconsistent with such direction. SECTION 5.13. Waiver of Past Defaults. The Holders of not less than a majority in Principal Amount at Maturity of the Outstanding Securities may on behalf of the Holders of all the Securities waive any past default hereunder and its consequences, except a default (i) Described in Section 5.01(a) or (b), or (ii) in respect of a covenant or provision hereof which under Article 9 cannot be modified or amended without the consent of the Holder of each Outstanding Security affected, or (iii) which constitutes a failure to convert any Security in accordance with the terms of Article 13. Upon any such waiver, such default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured, for every purpose of this Indenture; but no such waiver shall extend to any subsequent or other default or impair any right consequent thereon. SECTION 5.14. Undertaking for Costs. In any suit for the enforcement of any right or remedy under this Indenture or in any suit against the Trustee for any action taken or omitted by it as Trustee, in either case in respect to the Securities, a court may require any party litigant in such suit to file an undertaking to pay the costs of the suit, and the court may assess reasonable costs, including reasonable attorney's fees, against any party litigant in the suit having due regard to the merits and good faith of the claims or defenses made by the party litigant; but the provisions of this Section shall not apply to any suit instituted by the Company, to any suit instituted by the Trustee, to any suit instituted by any Holder, or group of Holders, holding in the aggregate more than 10% in Principal Amount at Maturity of the Outstanding Securities, or to any suit instituted by any Holder for the enforcement of the payment of the principal of or interest on any Security on or after the maturity of such Security. SECTION 5.15. Waiver of Stay or Extension Laws. The Company covenants (to the extent that it may lawfully do so) that it will not at any time insist upon, or plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay, or extension law wherever enacted, now or at any time hereafter in force, which may affect the covenants or the performance of this Indenture; and the Company (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law and covenants that it will not hinder, delay, or impede the execution of any power herein granted to the Trustee, but will suffer and permit the execution of every such power as though no such law had been enacted. 40 ARTICLE 6 THE TRUSTEE SECTION 6.01. Certain Duties and Responsibilities. The duties and responsibilities of the Trustee shall be as provided by the Trust Indenture Act. Notwithstanding the foregoing, no provision of this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder, or in the exercise of any of its rights or powers, if it shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it. Whether or not therein expressly so provided, every provision of this Indenture relating to the conduct or affecting the liability of or affording protection to the Trustee shall be subject to the provisions of this Section. SECTION 6.02. Notice of Defaults. The Trustee shall give the Holders notice of any default hereunder as and to the extent provided by the Trust Indenture Act; provided, however, that in the case of any default of the character specified in Section 5.01(c), no such notice to Holders shall be given until at least 30 days after the occurrence thereof. For the purpose of this Section, the term "default" means any event which is, or after notice or lapse of time or both would become, an Event of Default. SECTION 6.03. Certain Rights of Trustee. Subject to the provisions of Section 6.01: (a) the Trustee may rely and shall be protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties; (b) any request or direction of the Company mentioned herein shall be sufficiently evidenced by a Company Request or Company Order and any resolution of the Board of Directors of the Company may be sufficiently evidenced by a Board Resolution; (c) whenever in the administration of this Indenture the Trustee shall deem it desirable that a matter be proved or established prior to taking, suffering or omitting any action hereunder, the Trustee (unless other evidence be herein specifically prescribed) may, in the absence of bad faith on its part, rely upon an Officers' Certificate; (d) the Trustee may consult with counsel and the written advice of such counsel or any Opinion of Counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon; (e) the Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request or direction of any of the Holders pursuant to 41 this Indenture, unless such Holders shall have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities which might be incurred by it in compliance with such request or direction; (f) the Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document, but the Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit; (g) the Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys and the Trustee shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed with due care by it hereunder; (h) the Trustee shall not be charged with knowledge of any Default or Event of Default with respect to the Securities unless either (i) a Responsible Officer shall have actual knowledge of such Default or Event of Default or (ii) written notice of such Default or Event of Default shall have been given to the Trustee by the Company or any other obligor on such Securities or by any Holder of such Securities; and (i) the Trustee shall not be liable for any action taken, suffered or omitted by it in good faith and believed by it to be authorized or within the discretion or rights or powers conferred upon it by this Indenture. SECTION 6.04. Not Responsible for Recitals. The recitals contained herein and in the Securities, except the Trustee's certificates of authentication, shall be taken as the statements of the Company, and the Trustee assumes no responsibility for their correctness. The Trustee makes no representations as to the validity or sufficiency of this Indenture or of the Securities. The Trustee shall not be accountable for the use or application by the Company of Securities or the proceeds thereof. SECTION 6.05. May Hold Securities. The Trustee, any Paying Agent, any Security Registrar or any other agent of the Company, in its individual or any other capacity, may become the owner or pledgee of Securities and, subject to Sections 6.08 and 6.13, may otherwise deal with the Company with the same rights it would have if it were not Trustee, Paying Agent, Security Registrar or such other agent. SECTION 6.06. Money Held in Trust. Money held by the Trustee in trust hereunder need not be segregated from other funds except to the extent required by law. The Trustee shall be under no liability for interest on any money received by it hereunder except as otherwise agreed in writing with the Company. SECTION 6.07. Compensation and Reimbursement. The Company agrees: (i) to pay to the Trustee from time to time reasonable compensation for all services rendered by it hereunder (which compensation shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust); 42 (ii) except as otherwise expressly provided herein, to reimburse the Trustee upon its request for all reasonable expenses, disbursements and advances incurred or made by the Trustee in accordance with any provision of this Indenture (including the reasonable compensation and the expenses and disbursements of its agents and counsel), except any such expense, disbursement or advance as may be attributable to its negligence or bad faith; and (iii) to indemnify the Trustee for, and to hold it harmless against, any loss, liability or expense incurred without negligence or bad faith on its part, arising out of or in connection with the acceptance or administration of this trust, including the reasonable costs and expenses of defending itself against any claim or liability in connection with the exercise or performance of any of its powers or duties hereunder. The obligations of the Company under this Section 6.07 shall survive the resignation or removal of the Trustee and the satisfaction and discharge of this Indenture. To secure the Company's payment obligations in this Section 6.07, the Trustee shall have a Lien prior to the Securities on all money or property held or collected by the Trustee, except that held in trust to pay principal and interest on the Securities. Such Lien shall survive the resignation or removal of the Trustee and the satisfaction and discharge of this Indenture. When the Trustee incurs expenses or renders services after a Default or an Event of Default specified in Sections 5.01(d) or 5.01(e) hereof occurs, the expenses and the compensation for the services (including, the fees and expenses of its agents and counsel) are intended to constitute expenses of administration under U.S. Code, Title 11 or any other similar foreign, federal or state law for the relief of debtors. SECTION 6.08. Disqualification; Conflicting Interests. If the Trustee has or shall acquire a conflicting interest within the meaning of the Trust Indenture Act, the Trustee shall either eliminate such interest or resign, to the extent and in the manner provided by, and subject to the provisions of, the Trust Indenture Act and this Indenture. SECTION 6.09. Corporate Trustee Required; Eligibility. There shall at all times be a Trustee hereunder which shall be a Person that is eligible pursuant to the Trust Indenture Act to act as such and has a combined capital and surplus of at least $50,000.000. If such Person publishes reports of condition at least annually, pursuant to law or to the requirements of said supervising or examining authority, then for the purposes of this Section, the combined capital and surplus of such Person shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. If at any time the Trustee shall cease to be eligible in accordance with the provisions of this Section, it shall resign immediately in the manner and with the effect hereinafter specified in this Article. SECTION 6.10. Resignation and Removal; Appointment of Successor. (a) No resignation or removal of the Trustee and no appointment of a successor Trustee pursuant to this Article shall become effective until the acceptance of appointment by the successor Trustee under Section 6.11. (b) The Trustee may resign at any time by giving written notice thereof to the Company. If an instrument of acceptance by a successor Trustee shall not have been delivered to 43 the Trustee within 30 days after the giving of such notice of resignation, the resigning Trustee may petition any court of competent jurisdiction for the appointment of a successor Trustee. (c) The Trustee may be removed at any time by Act of the Holders of majority in Principal Amount at Maturity of the Outstanding Securities, delivered to the Trustee and to the Company. (d) If at any time: (i) the Trustee shall fail to comply with Section 6.08 after written request therefor by the Company or by any Holder who has been a bona fide Holder of a Security for at least six months, or (ii) the Trustee shall cease to be eligible under Section 6.09 and shall fail to resign after written request therefor by the Company or by any such Holder, or (iii) the Trustee shall become incapable of acting or shall be adjudged a bankrupt or insolvent, or (iv) a receiver of the Trustee or of its property shall be appointed or any public officer shall take charge or control of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation. then, in any such case, (A) the Company by a Company Order may remove the Trustee, or (B) subject to Section 5.14, any Holder who has been a bona fide Holder of a Security for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee. (e) If the Trustee shall resign, be removed or become incapable of acting, or if a vacancy shall occur in the office of Trustee for any cause, the Company, by a Company Order, shall promptly appoint a successor Trustee. If, within one year after such resignation, removal or incapability, or the occurrence of such vacancy, a successor Trustee shall be appointed by Act of the Holders of a majority in Principal Amount at Maturity of the Outstanding Securities delivered to the Company and the retiring Trustee, the successor Trustee so appointed shall, forthwith upon its acceptance of such appointment, become the successor Trustee and supersede the successor Trustee appointed by the Company. If no successor Trustee shall have been so appointed by the Company or the Holders and accepted appointment in the manner hereinafter provided, any Holder who has been a bona fide Holder of a Security for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the appointment of a successor Trustee. (f) The Company shall give notice of each resignation and each removal of the Trustee and each appointment of a successor Trustee to all Holders in the manner provided in Section 1.06. Each notice shall include the name of the successor Trustee and the address of its Corporate Trust Office. 44 SECTION 6.11. Acceptance of Appointment by Successor. Every successor Trustee appointed hereunder shall execute, acknowledge and deliver to the Company and to the retiring Trustee an instrument accepting such appointment, and thereupon the resignation or removal of the retiring Trustee shall become effective and such successor Trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the retiring Trustee; but, on request of the Company or the successor Trustee, such retiring Trustee shall, upon payment of its charges, execute and deliver an instrument transferring to such successor Trustee all the rights, powers and trusts of the retiring Trustee and shall duly assign, transfer and deliver to such successor Trustee all property and money held by such retiring Trustee hereunder. Upon request of any such successor Trustee, the Company shall execute any and all instruments for more fully and certainly vesting in and confirming to such successor Trustee all such rights, powers and trusts. No successor Trustee shall accept its appointment unless at the time of such acceptance such successor Trustee shall be qualified and eligible under this Article. SECTION 6.12. Merger, Conversion, Consolidation or Succession to Business. Any corporation into which the Trustee may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which the Trustee shall be a party, or any corporation succeeding to all or substantially all the corporate trust business of the Trustee, shall be the successor of the Trustee hereunder, provided such corporation shall be otherwise qualified and eligible under this Article, without the execution or filing of any paper or any further act on the part of any of the parties hereto. In case any Securities shall have been authenticated, but not delivered, by the Trustee then in office, any successor by merger, conversion or consolidation to such authenticating Trustee may adopt such authentication and deliver the Securities so authenticated with the same effect as if such successor Trustee had itself authenticated such Securities. SECTION 6.13. Preferential Collection of Claims Against. If and when the Trustee shall be or become a creditor of the Company (or any other obligor upon the Securities), the Trustee shall be subject to the provisions of the Trust Indenture Act regarding the collection of claims against the Company (or any such other obligor). ARTICLE 7 HOLDERS' LISTS AND REPORTS BY TRUSTEE SECTION 7.01. Company to Furnish Trustee Names and Addresses of Holders. The Company will furnish or cause to be furnished to the Trustee (a) semi-annually, not more than 15 days after each Regular Record Date, a list, in such form as the Trustee may reasonably require, of the names and addresses of the Holders as of such Regular Record Date, and 45 (b) at such other times as the Trustee may request in writing, within 30 days after the receipt by the Company of any such request, a list of similar form and content as of a date not more than 15 days prior to the time such list is furnished; excluding from any such list names and addresses received by the Trustee in its capacity as Security Registrar; provided, however, that no such list need be furnished so long as the Trustee is acting as Security Registrar. SECTION 7.02. Preservation of Information; Communications to Holders. (a) The Trustee shall preserve, in as current a form as is reasonably practicable, the names and addresses of Holders contained in the most recent list furnished to the Trustee as provided in Section 7.01 and the names and addresses of Holders received by the Trustee in its capacity as Security Registrar. The Trustee may destroy any list furnished to it as provided in Section 7.01 upon receipt of a new list so furnished. (b) The rights of Holders to communicate with other Holders with respect to their rights under this Indenture or under the Securities, and the corresponding rights and duties of the Trustee, shall be as provided by the Trust Indenture Act. (c) Every Holder of Securities, by receiving and holding the same, agrees with the Company and the Trustee that neither the Company nor the Trustee nor any agent of either of them shall be held accountable by reason of any disclosure of information as to names and addresses of Holders made pursuant to the Trust Indenture Act. SECTION 7.03. Reports by Trustee. (a) The Trustee shall transmit to Holders such reports concerning the Trustee and its actions under this Indenture as may be required pursuant to the Trust Indenture Act at the times and in the manner provided pursuant thereto. Reports so required to be transmitted at stated intervals of not more than 12 months shall be transmitted no later than January 31 in each calendar year, commencing in January 2001. (b) A copy of each such report shall, at the time of such transmission to Holders, be filed by the Trustee with each stock exchange upon which the Securities are listed, with the Commission and with the Company. The Company will notify the Trustee when the Securities are listed on any stock exchange. SECTION 7.04. Reports by Company. The Company shall file with the Trustee and the Commission, and transmit to Holders, such information, documents and other reports, and such summaries thereof, as may be required pursuant to the Trust Indenture Act at the times and in the manner provided pursuant to such Act; provided that any such information, documents or reports required to be filed with the Commission pursuant to Section 13 or 15(d) of the Exchange Act shall be filed with the Trustee within 15 days after the same is so required to be filed with the Commission. In the event the Company is not subject to Section 13 or 15(d) of the Exchange Act, it shall file with the Trustee upon request the information required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act. 46 ARTICLE 8 CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE SECTION 8.01. Company May Consolidate, Etc., Only on Certain Terms. The Company shall not consolidate with or merge into any other Person or convey, transfer or lease its properties and assets substantially as an entirety to any Person, and the Company shall not permit any Person to consolidate with or merge into the Company or convey, transfer or lease its properties and assets substantially as an entirety to the Company, unless: (i) in case the Company shall consolidate with or merge into another Person or convey, transfer or lease its properties and assets substantially as an entirety to any Person, the Person formed by such consolidation or into which the Company is merged or the Person which acquires by conveyance or transfer, or which leases, the properties and assets of the Company substantially as an entirety shall be a corporation, partnership or trust, shall be organized and validly existing under the laws of the United States of America, any State thereof or the District of Columbia and shall expressly assume, by an indenture supplemental hereto, executed and delivered to the Trustee, in form satisfactory to the Trustee, the due and punctual payment of the principal of and interest on all the Securities and the performance or observance of every covenant of this Indenture on the part of the Company to be performed or observed; (ii) immediately after giving effect to such transaction, no Event of Default, and no event which, after notice or lapse of time or both, would become an Event of Default, shall have happened and be continuing; and (iii) the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that such consolidation, merger, conveyance, transfer or lease and, if a supplemental indenture is required in connection with such transaction, such supplemental indenture comply with this Article. SECTION 8.02. Successor Substituted. Upon any consolidation of the Company with, or merger of the Company into, any other Person or any conveyance, transfer or lease of the properties and assets of the Company substantially as an entirety in accordance with Section 8.01, the successor Person formed by such consolidation or into which the Company is merged or to which such conveyance, transfer or lease is made shall succeed to, and be substituted for, and may exercise every right and power of, the Company under this Indenture with the same effect as if such successor Person had been named as the Company herein, and thereafter, except in the case of a lease, the predecessor Person shall be relieved of all obligations and covenants under this Indenture and the Securities. 47 ARTICLE 9 SUPPLEMENTAL INDENTURES SECTION 9.01. Supplemental Indentures Without Consent of Holders. Without the consent of any Holders, the Company, when authorized by a Board Resolution, and the Trustee, at any time and from time to time, may enter into one or more indentures supplemental hereto, in form satisfactory to the Trustee, for any of the following purposes: (a) to evidence the succession of another Person to the Company and the assumption by any such successor of the covenants of the Company herein and in the Securities; or (b) to add to the covenants of the Company for the benefit of the Holders, or to surrender any right or power herein conferred upon the Company; or (c) to add any additional Events of Default for the benefit of the Holders; or (d) to cure any ambiguity, to correct or supplement any provision herein which may be inconsistent with any other provision herein, or to make any other provisions with respect to matters or questions arising under this Indenture which shall not be inconsistent with the provisions of this Indenture, provided that such action pursuant to this Clause (d) shall not adversely affect the interests of the Holders in any material respect. SECTION 9.02. Supplemental Indentures with Consent of Holders. With the consent of the Holders of not less than a majority in Principal Amount at Maturity of the Outstanding Securities, by Act of said Holders delivered to the Company and the Trustee, the Company, when authorized by a Board Resolution, and the Trustee may enter into an indenture or indentures supplemental hereto for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Indenture or of modifying in any manner the rights of the Holders under this Indenture; provided, however, that no such supplemental indenture shall, without the consent of the Holder of each Outstanding Security affected thereby, (i) make any change in the manner or rate of accrual in connection with Original Issue Discount, reduce the yield to maturity referred to in the Securities, reduce the rate of interest referred to in Section 12.01 upon the occurrence of a Tax Event, or extend the time for payment of interest, if any, on any Security; (ii) reduce the Principal Amount at Maturity, Restated Principal Amount or the Issue Price of or extend the Stated Maturity of any Security; (iii) reduce the Redemption Price, Purchase Price or Fundamental Change Repurchase Price of any Security; (iv) make any Security payable in money or securities other than that stated in the Security; 48 (v) make any change that adversely affects the right to convert any Security; or (vi) make any change that adversely affects the right to require the Company to purchase the Securities in accordance with the terms thereof and this Indenture; or (vii) reduce the percentage in Principal Amount at Maturity of the Outstanding Securities, the consent of whose Holders is required for any such supplemental indenture, or the consent of whose Holders is required for any waiver (of compliance with certain provisions of this Indenture or certain defaults hereunder and their consequences) provided for in this Indenture; or (viii) modify any of the provisions of this Section, Section 5.13, except to increase any such percentage or to provide that certain other provisions of this Indenture cannot be modified or waived without the consent of the Holder of each Outstanding Security affected thereby. It shall not be necessary for any Act of Holders under this Section to approve the particular form of any proposed supplemental indenture, but it shall be sufficient if such Act shall approve the substance thereof. SECTION 9.03. Execution of Supplemental Indentures. In executing, or accepting the additional trusts created by, any supplemental indenture permitted by this Article or the modifications thereby of the trusts created by this Indenture, the Trustee shall be entitled to receive, and (subject to Section 6.01) shall be fully protected in relying upon, in addition to the documents required by Section 1.02, an Opinion of Counsel stating that the execution of such supplemental indenture is authorized or permitted by this Indenture. The Trustee may, but shall not be obligated to, enter into any such supplemental indenture which affects the Trustee's own rights, duties or immunities under this Indenture or otherwise. SECTION 9.04. Effect of Supplemental Indentures. Upon the execution of any supplemental indenture under this Article, this Indenture shall be modified in accordance therewith, and such supplemental indenture shall form a part of this Indenture for all purposes; and every Holder of Securities theretofore or thereafter authenticated and delivered hereunder shall be bound thereby. SECTION 9.05. Conformity with Trust Indenture Act. Every supplemental indenture executed pursuant to this Article shall conform to the requirements of the Trust Indenture Act. SECTION 9.06. Reference in Securities to Supplemental Indentures. Securities authenticated and delivered after the execution of any supplemental indenture pursuant to this Article may, and shall if required by the Trustee, bear a notation in form approved by the Trustee as to any matter provided for in such supplemental indenture. If the Company shall so determine, new Securities so modified as to conform, in the opinion of the Trustee and the Company, to any such supplemental indenture may be prepared and executed by the Company and authenticated and delivered by the Trustee in exchange for Outstanding Securities. 49 ARTICLE 10 COVENANTS SECTION 10.01. Payments. The Company shall duly and punctually make all payments in respect of the Securities in accordance with the terms of the Securities and this Indenture. SECTION 10.02. Maintenance of Office or Agency. The Company shall maintain in the Borough of Manhattan, The City of New York, an office or agency where Securities may be presented or surrendered for payment, where Securities may be surrendered for registration of transfer or exchange and where notices and demands to or upon the Company in respect of the Securities and this Indenture may be served. The Company shall give prompt written notice to the Trustee of the location, and any change in the location, of such office or agency. If at any time the Company shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the Corporate Trust Office of the Trustee, and the Company hereby appoints the Trustee as its agent to receive all such presentations, surrenders, notices and demands. The Company may also from time to time designate one or more other offices or agencies (in or outside the Borough of Manhattan, The City of New York) where the Securities may be presented or surrendered for any or all such purposes and may from time to time rescind such designations; provided, however, that no such designation or rescission shall in any manner relieve the Company of its obligation to maintain an office or agency in the Borough of Manhattan, The City of New York, for such purposes. The Company shall give prompt written notice to the Trustee of any such designation or rescission and of any change in the location of any such other office or agency. SECTION 10.03. Money for Security Payments to Be Held in Trust. If the Company shall at any time act as its own Paying Agent, it shall, on or before each due date of any payment in respect of any of the Securities, segregate and hold in trust for the benefit of the Persons entitled thereto a sum sufficient to make the payment so becoming due until such sums shall be paid to such Persons or otherwise disposed of as herein provided and shall promptly notify the Trustee of its action or failure so to act. Whenever the Company shall have one or more Paying Agents, it will, prior to each due date of any payment in respect of any Securities, deposit with a Paying Agent a sum sufficient to pay such amount, such sum to be held as provided by the Trust Indenture Act, and (unless such Paying Agent is the Trustee) the Company will promptly notify the Trustee of its action or failure so to act. The Company shall cause each Paying Agent other than the Trustee to execute and deliver to the Trustee an instrument in which such Paying Agent shall agree with the Trustee, subject to the provisions of this Section, that such Paying Agent will (i) comply with the provisions of the Trust Indenture Act applicable to it as a Paying Agent and (ii) during the continuance of any default by the Company (or any other obligor upon the Securities) in the 50 making of any payment in respect of the Securities, upon the written request of the Trustee, forthwith pay to the Trustee all sums held in trust by such Paying Agent as such. The Company may at any time, for the purpose of obtaining the satisfaction and discharge of this Indenture or for any other purpose, pay, or by Company Order direct any Paying Agent to pay, to the Trustee all sums held in trust by the Company or such Paying Agent, such sums to be held by the Trustee upon the same trusts as those upon which such sums were held by the Company or such Paying Agent; and, upon such payment by any Paying Agent to the Trustee, such Paying Agent shall be released from all further liability with respect to such money. Any money deposited with the Trustee or any Paying Agent, or then held by the Company, in trust for the making of payments in respect of any Security and remaining unclaimed for two years after such payment has become due shall be paid to the Company on Company Request, or (if then held by the Company) shall be discharged from such trust; and the Holder of such Security shall thereafter, as an unsecured general creditor, look only to the Company for payment thereof, and all liability of the Trustee or such Paying Agent with respect to such trust money, and all liability of the Company as trustee thereof, shall thereupon cease; provided, however, that the Trustee or such Paying Agent, before being required to make any such repayment, may at the expense of the Company cause to be published once, in a newspaper published in the English language, customarily published on each Business Day and of general circulation in The City of New York, notice that such money remains unclaimed and that, after a date specified therein, which shall not be less than 30 days from the date of such publication, any unclaimed balance of such money then remaining shall be repaid to the Company. SECTION 10.04. Statement by Officers as to Default. The Company will deliver to the Trustee, within 120 days after the end of each fiscal year of the Company ending after the date hereof, an Officers' Certificate, stating whether or not to the best knowledge of the signers thereof the Company is in default in the performance and observance of any of the terms, provisions and conditions of this Indenture (without regard to any period of grace or requirement of notice provided hereunder) and, if the Company shall be in default, specifying all such defaults and the nature and status thereof of which they may have knowledge. SECTION 10.05. Existence. Subject to Article 8, the Company shall do or cause to be done all things necessary to preserve and keep in full force and effect its existence, rights (charter and statutory) and franchises; provided, however, that the Company shall not be required to preserve any such right or franchise if the Board of Directors of the Company shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Company and that the loss thereof is not disadvantageous in any material respect to the Holders. SECTION 10.06. Reports and Delivery of Certain Information. Whether or not required by the rules and regulations of the Commission, so long as any Securities are outstanding, the Company shall furnish to the Holders of the Securities (i) all quarterly and annual financial information that is substantially equivalent to that which would be required to be contained in a filing with the Commission on Forms 10-Q and 10-K if the Company were required to file such Forms, including a "Management's Discussion and Analysis of Financial Condition and Results of Operations" section and, with respect to the annual information only, a 51 report thereon by the Company's certified independent accountants and (ii) all reports that are substantially equivalent to that which would be required to be filed with the Commission on Form 8-K if the Company were required to file such reports. In addition, whether or not required by the rules and regulations of the Commission, the Company shall file a copy of all such information with the Commission for public availability (unless the Commission will not accept such a filing) and make such information available to investors who request it in writing. So long as any of the Securities remain Outstanding, the Company shall make available to any prospective purchaser of Securities or beneficial owner of Securities in connection with any sale thereof the information required by Rule 144A(d)(4) under the Securities Act, until the earlier of (a) such time as the Holders thereof have disposed of such Securities pursuant to an effective Resale Registration Statement under the Securities Act and (b) July 12, 2002. SECTION 10.07. Resale of Certain Securities. During the period beginning on the Issue Date and ending on the date that is two years from the Issue Date, the Company shall not, and shall not permit any of its "affiliates" (as defined under Rule 144 under the Securities Act or any successor provision thereto) to, resell any Securities which constitute "restricted securities" under Rule 144 that have been reacquired by any of them. The Trustee shall have no responsibility in respect of the Company's performance of its agreement in the preceding sentence. SECTION 10.08. Book-Entry System. If the Securities cease to trade in the Depositary's book-entry settlement system, the Company covenants and agrees that it shall use reasonable efforts to make such other book-entry arrangements that it determines are reasonable for the Securities. SECTION 10.09. Calculation of Original Issue Discount. The Company shall file with the Trustee promptly at the end of each calendar year (i) a written notice specifying the amount of Original Issue Discount (including daily rates and accrual periods) accrued on Outstanding Securities as of the end of such year and (ii) such other specific information relating to such Original Issue Discount as may then be relevant under the Internal Revenue Code of 1986, as amended from time to time. ARTICLE 11 REDEMPTION AND PURCHASES SECTION 11.01. Right to Redeem; Notices to Trustee. The Company, at its option, may redeem the Securities in accordance with the provisions of the Securities and the Indenture. If the Company elects to redeem Securities, it shall notify the Trustee in writing of the Redemption Date, the Principal Amount at Maturity of Securities to be redeemed and the Redemption Price. The Company shall give the notice to the Trustee provided for in this Section 11.01 by a Company Order, at least 45 days before the Redemption Date (unless a shorter notice shall be satisfactory to the Trustee). 52 SECTION 11.02. Selection of Securities to Be Redeemed. If less than all the Securities are to be redeemed, the Trustee shall select the Securities to be redeemed pro rata or by lot or by any other method the Trustee considers fair and appropriate (so long as such method is not prohibited by the rules of any stock exchange on which the Securities are then listed). The Trustee shall make the selection at least 30 days but not more than 60 days before the Redemption Date from Outstanding Securities not previously called for redemption. Securities and portions of them the Trustee selects shall be in Principal Amounts at Maturity of $1,000 or integral multiples of $1,000. Provisions of this Indenture that apply to Securities called for redemption also apply to portions of Securities called for redemption. The Trustee shall notify the Company promptly of the Securities or portions of Securities to be redeemed. If any Security selected for partial redemption is converted in part before termination of the conversion right with respect to the portion of the Security so selected, the converted portion of such Security shall be deemed (so far as may be) to be the portion selected for redemption. Securities which have been converted during a selection of Securities to be redeemed may be treated by the Trustee as outstanding for the purpose of such selection. SECTION 11.03. Notice of Redemption. At least 30 days but not more than 60 days before a Redemption Date, the Company shall mail a notice of redemption by first-class mail, postage prepaid, to each Holder of Securities to be redeemed. The notice shall identify the Securities to be redeemed and shall state: (1) the Redemption Date; (2) the Redemption Price; (3) the Conversion Rate; (4) the name and address of the Paying Agent and Conversion Agent; (5) that Securities called for redemption may be converted at any time before the close of business on the Business Day immediately preceding the Redemption Date; (6) that Holders who want to convert Securities must satisfy the requirements set forth therein and in this Indenture; (7) that Securities called for redemption must be surrendered to the Paying Agent for cancellation to collect the Redemption Price; (8) if fewer than all the outstanding Securities are to be redeemed, the certificate number and Principal Amounts at Maturity of the particular Securities to be redeemed; 53 (9) that, unless the Company defaults in making payment of such Redemption Price, Original Issue Discount on Securities called for redemption, or interest, if any, will cease to accrue on and after the Redemption Date; and (10) the CUSIP number of the Securities. At the Company's request, the Trustee shall give the notice of redemption in the Company's name and at the Company's expense, provided that the Company makes such request at least three Business Days prior to the proposed date of mailing of such notice of redemption. SECTION 11.04. Effect of Notice of Redemption. Once notice of redemption is given, Securities called for redemption become due and payable on the Redemption Date and at the Redemption Price stated in the notice except for Securities which are converted in accordance with the terms of this Indenture. Upon surrender to the Paying Agent, such Securities shall be paid at the Redemption Price stated in the notice. SECTION 11.05. Deposit of Redemption Price. Prior to 10:00 a.m. (New York City Time), on a Redemption Date, the Company shall deposit with the Paying Agent (or if the Company or a Subsidiary or an Affiliate of either of them is the Paying Agent, shall segregate and hold in trust) money sufficient to pay the Redemption Price of all Securities to be redeemed on that date other than Securities or portions of Securities called for redemption which on or prior thereto have been delivered by the Company to the Trustee for cancellation or have been converted. The Paying Agent shall as promptly as practicable return to the Company any money, not required for that purpose because of conversion of Securities pursuant to Article 13. If such money is then held by the Company in trust and is not required for such purpose it shall be discharged from such trust. SECTION 11.06. Securities Redeemed in Part. Upon surrender of a Security that is redeemed in part, the Company shall execute and the Trustee shall authenticate and deliver to the Holder a new Security in an authorized denomination equal in Principal Amount at Maturity to the unredeemed portion of the Security surrendered. SECTION 11.07. Conversion Arrangement on Call for Redemption. In connection with any redemption of Securities, the Company may arrange for the purchase and conversion of any Securities called for redemption by an agreement with one or more investment bankers or other purchasers to purchase such Securities by paying to the Trustee in trust for the Securityholders, on or prior to 10:00 a.m. New York City time on the Redemption Date, an amount that, together with any amounts deposited with the Trustee by the Company for the redemption of such Securities, is not less than the Redemption Price of such Securities. Notwithstanding anything to the contrary contained in this Article 11, the obligation of the Company to pay the Redemption Price of such Securities shall be deemed to be satisfied and discharged to the extent such amount is so paid by such purchasers. If such an agreement is entered into, any Securities not duly surrendered for conversion by the Holders thereof may, at the option of the Company, be deemed, to the fullest extent permitted by law, acquired by such purchasers from such Holders and (notwithstanding anything to the contrary contained in Article 13) surrendered by such purchasers for conversion, all as of immediately prior to the close of business on the Business Day prior to the Redemption Date, subject to payment of the above 54 amount as aforesaid. The Trustee shall hold and pay to the Holders whose Securities are selected for redemption any such amount paid to it for purchase and conversion in the same manner as it would moneys deposited with it by the Company for the redemption of Securities. Without the Trustee's prior written consent, no arrangement between the Company and such purchasers for the purchase and conversion of any Securities shall increase or otherwise affect any of the powers, duties, responsibilities or obligations of the Trustee as set forth in this Indenture, and the Company agrees to indemnify the Trustee from, and hold it harmless against, any loss, liability or expense arising out of or in connection with any such arrangement for the purchase and conversion of any Securities between the Company and such purchasers, including the costs and expenses incurred by the Trustee in the defense of any claim or liability arising out of or in connection with the exercise or performance of any of its powers, duties, responsibilities or obligations under this Indenture. SECTION 11.08. Purchase of Securities at Option of the Holder. (a) General. Securities shall be purchased by the Company pursuant to the terms thereof as of July 12, 2003, July 12, 2008 and July 12, 2013 (each, a "Purchase Date"), at the purchase price of $531.74 per $1,000 of Principal Amount at Maturity as of July 12, 2003, $640.29 per $1,000 of Principal Amount at Maturity as of July 12, 2008 and $771.00 per $1,000 of Principal Amount at Maturity as of July 12, 2013 (each, a "Purchase Price", as applicable), at the option of the Holder thereof, upon: (1) delivery to the Paying Agent by the Holder of a written notice of purchase (a "Purchase Notice"), substantially in the form of Exhibit B hereto, at any time from the opening of business on the date that is at least 20 Business Days prior to a Purchase Date until the close of business on such Purchase Date stating: (A) the certificate number of the Security which the Holder will deliver to be purchased, (B) the portion of the Principal Amount at Maturity of the Security which the Holder will deliver to be purchased, which portion must be in a Principal Amount at Maturity of $1,000 or integral multiples thereof, (C) that such Security shall be purchased as of the Purchase Date pursuant to the terms and conditions specified in the Securities and in this Indenture, and (D) in the event the Company elects, pursuant to Section 11.08(b), to pay the Purchase Price to be paid as of such Purchase Date, in whole or in part, in shares of Common Stock but such portion of the Purchase Price shall ultimately be payable to such Holder entirely in cash because any of the conditions to payment of the Purchase Price in Common Stock is not satisfied prior to the close of business on such Purchase Date, as set forth in Section 11.08(d), whether such Holder elects (i) to withdraw such Purchase Notice as to some or all of the Securities to which such Purchase Notice relates (stating the Principal Amount at Maturity and certificate 55 numbers of the Securities as to which such withdrawal shall relate), or (ii) to receive cash in respect of the entire Purchase Price for all Securities (or portions thereof) to which such Purchase Notice relates; and (2) delivery of such Security to the Paying Agent for cancellation prior to, on or after the Purchase Date (together with all necessary endorsements) at the offices of the Paying Agent, such delivery being a condition to receipt by the Holder of the Purchase Price therefor; provided, however, that such Purchase Price shall be so paid pursuant to this Section 11.08 only if the Security so delivered to the Paying Agent shall conform in all respects to the description thereof in the related Purchase Notice. If a Holder, in such Holder's Purchase Notice, fails to indicate such Holder's choice with respect to the election set forth in clause (D) of Section 11.08(a)(1), such Holder shall be deemed to have elected to receive cash in respect of the Purchase Price for all Securities subject to such Purchase Notice in the circumstances set forth in such clause (D). The Company shall purchase from the Holder thereof, pursuant to this Section 11.08, a portion of a Security if the Principal Amount at Maturity of such portion is $1,000 or an integral multiple of $1,000 if so requested by the Holder. Provisions of this Indenture that apply to the purchase of all of a Security also apply to the purchase of such portion of such Security. Any purchase by the Company contemplated pursuant to the provisions of this Section 11.08 shall be consummated by the delivery of the consideration to be received by the Holder promptly following the later of the Purchase Date and the time of delivery of the Security. Notwithstanding anything herein to the contrary, any Holder delivering to the Paying Agent the Purchase Notice contemplated by this Section 11.08(a) shall have the right to withdraw such Purchase Notice at any time prior to the close of business on the Business Day prior to the Purchase Date by delivery of a written notice of withdrawal to the Paying Agent in accordance with Section 11.10. The Paying Agent shall promptly notify the Company of the receipt by it of any Purchase Notice or written notice of withdrawal thereof. (b) Company's Right to Elect Manner of Payment of Purchase Price. The Securities to be purchased pursuant to Section 11.08(a) may be paid for, at the election of the Company, in cash or Common Stock, or in any combination of cash and Common Stock, subject to the conditions set forth in Sections 11.08(c) and (d). The Company shall designate, in the Company Notice delivered pursuant to Section 11.08(e), whether the Company will purchase the Securities for cash or Common Stock, or, if a combination thereof, the percentages of the Purchase Price of Securities in respect of which it will pay in cash or Common Stock; provided that the Company will pay cash for fractional interests in Common Stock. For purposes of determining the existence of potential fractional interests, all Securities subject to purchase by the Company held by a Holder shall be considered together (no matter how many separate certificates are to be presented). Each Holder whose Securities are purchased pursuant to this 56 Section 11.08 shall receive the same percentage of cash or Common Stock in payment of the Purchase Price for such Securities, except (i) as provided in Section 11.08(d) with regard to the payment of cash in lieu of fractional shares of Common Stock and (ii) in the event that the Company is unable to purchase the Securities of a Holder or Holders for Common Stock because any necessary qualifications or registrations of the Common Stock under applicable state securities laws cannot be obtained, the Company may purchase the Securities of such Holder or Holders for cash. The Company may not change its election with respect to the consideration (or components or percentages of components thereof) to be paid once the Company has given its Company Notice to Securityholders except pursuant to this Section 11.08(b) or pursuant to Section 11.08(d) in the event of a failure to satisfy, prior to the close of business on the Purchase Date, any condition to the payment of the Purchase Price, in whole or in part, in Common Stock. If the Company elects to pay all or part of the Purchase Price in Common Stock, the portion of accrued Original Issue Discount (or interest if the Company has exercised its option to convert the Securities into semi-annual coupon notes) attributable to the period from the Issue Date (or, if the Company has exercised the option to convert the Securities into semi-annual coupon notes, the later of (x) the date of such exercise, and (y) the date on which interest was last paid) through the Purchase Date with respect to the surrendered Security shall not be cancelled, extinguished or forfeited, but rather shall be deemed to be paid in full to the Holder thereof through the delivery of the Common Stock (together with cash payment, if any, in lieu of fractional shares) and cash, if any, in exchange for the Security being purchased pursuant to the terms hereof; and such cash and the fair market value of such shares of Common Stock (together with any such cash payment in lieu of fractional shares) shall be treated as delivered pro rata, to the extent thereof, first in exchange for Original Issue Discount (or interest, if the Company has exercised its option to convert the Securities into semi-annual coupon notes) accrued through the Purchase Date, and the balance, if any, of such cash and the fair market value of such Common Stock (and any such cash payment) shall be treated as delivered in exchange for the Issue Price of the Security being purchased pursuant to the provisions hereof. At least three Business Days before the Company Notice Date, the Company shall deliver an Officers' Certificate to the Trustee specifying: (i) the manner of payment selected by the Company, (ii) the information required by Section 11.08(e), (iii) if the Company elects to pay the Purchase Price, or a specified percentage thereof, in Common Stock, that the conditions to such manner of payment set forth in Section 11.08(d) have been or will be complied with, and (iv) whether the Company desires the Trustee to give the Company Notice required by Section 11.08(e). (c) Purchase with Cash. On each Purchase Date, at the option of the Company, the Purchase Price of Securities in respect of which a Purchase Notice pursuant to Section 11.08(a) has been given, or a specified percentage thereof, may be paid by the Company with cash equal to the aggregate Purchase Price of such Securities. 57 (d) Payment by Issuance of Common Stock. On each Purchase Date, at the option of the Company, the Purchase Price of Securities in respect of which a Purchase Notice pursuant to Section 11.08(a) has been given, or a specified percentage thereof, may be paid by the Company by the issuance of a number of shares of Common Stock equal to the quotient obtained by dividing (i) the amount of cash to which the Securityholders would have been entitled had the Company elected to pay all or such specified percentage, as the case may be, of the Purchase Price of such Securities in cash by (ii) the Market Price of a share of Common Stock, subject to the next succeeding paragraph. The Company will not issue a fractional share of Common Stock in payment of the Purchase Price. Instead the Company will pay cash for the current market value of the fractional share. The current market value of a fraction of a share shall be determined by multiplying the Market Price by such fraction and rounding the product to the nearest whole cent. It is understood that if a Holder elects to have more than one Security purchased, the number of shares of Common Stock shall be based on the aggregate amount of Securities to be purchased. The Company's right to exercise its election to purchase the Securities pursuant to Section 11.08 through the issuance of shares of Common Stock shall be conditioned upon: (i) the Company's not having given its Company Notice of an election to pay entirely in cash and its giving of timely Company Notice of election to purchase all or a specified percentage of the Securities with Common Stock as provided herein; (ii) the registration of the shares of Common Stock to be issued in respect of the payment of the Purchase Price under the Securities Act or the Exchange Act, in each case if required; (iii) any necessary qualification or registration under applicable state securities laws or the availability of an exemption from such qualification and registration; and (iv) the receipt by the Trustee of an Officers' Certificate and an Opinion of Counsel, each stating that (A) the terms of the issuance of the Common Stock are in conformity with this Indenture and (B) the shares of Common Stock to be issued by the Company in payment of the Purchase Price in respect of Securities have been duly authorized and, when issued and delivered pursuant to the terms of this Indenture in payment of the Purchase Price in respect of the Securities, will be validly issued, fully paid and non-assessable and, to the best of such counsel's knowledge, free from preemptive rights, and, in the case of such Officers' Certificate, stating that conditions (i), (ii) and (iii) above and the condition set forth in the second succeeding sentence have been satisfied and, in the case of such Opinion of Counsel, stating that conditions (ii) and (iii) above has been satisfied. 58 Such Officers' Certificate shall also set forth the number of shares of Common Stock to be issued for each $1,000 Principal Amount at Maturity of Securities and the Sale Price of a share of Common Stock on each trading day during the period during which the Market Price is calculated. The Company may pay the Purchase Price (or any portion thereof) in Common Stock only if the information necessary to calculate the Market Price is published in a daily newspaper of national circulation. If the foregoing conditions are not satisfied with respect to a Holder or Holders prior to the close of business on the Purchase Date and the Company has elected to purchase the Securities pursuant to this Section 11.08 through the issuance of shares of Common Stock, the Company shall pay the entire Purchase Price of the Securities of such Holder or Holders in cash. The "Market Price" means the average of the Sale Prices of the Common Stock for the five trading day period ending on (if the third Business Day prior to the applicable Purchase Date is a trading day, or if not, then on the last trading day prior to) the third Business Day prior to the applicable Purchase Date, appropriately adjusted to take into account the occurrence, during the period commencing on the first of such trading days during such five trading day period and ending on such Purchase Date, of any event described in Section 13.06, 13.07 or 13.08; subject, however, to the conditions set forth in Sections 13.09 and 13.10. The "Sale Price" of the Common Stock on any date means the closing sale price per share (or, if no closing sale price is reported, the average of the bid and ask prices or, if more than one in either case, the average of the average bid and average ask prices) on such date as reported in the composite transactions for the principal United States securities exchange on which the Common Stock is traded or, if the Common Stock is not listed on a United States national or regional securities exchange, as reported by the National Association of Securities Dealers Automated Quotation System. (e) Notice of Election. The Company's notice of election to pay the Purchase Price with cash or Common Stock or any combination thereof shall be sent to the Holders (and to beneficial owners as required by applicable law) in the manner provided herein (the "Company Notice"). The Company Notice shall be sent to Holders (and to beneficial owners as required by applicable law) not less than 20 Business Days prior to such Purchase Date (the "Company Notice Date"). The Company Notice shall state the manner of payment elected and shall contain the following information: In the event the Company has elected to pay the Purchase Price (or a specified percentage thereof) with Common Stock, the Company Notice shall: (1) state that each Holder will receive Common Stock in respect of the specified percentage of the Purchase Price of the Securities held by such Holder (except any cash amount to be paid in lieu of fractional shares); (2) state that the total number of shares of Common Stock to be issued to Holders will be equal to the quotient obtained by dividing (i) the amount of cash to which the Securityholders would have been entitled had the Company elected to pay all or such specified percentage, as the case may be, of the Purchase Price of such Securities in cash by (ii) the Market Price of a share of Common Stock; 59 (3) set forth the method of calculating the Market Price of the Common Stock; and (4) state that because the Market Price of Common Stock will be determined prior to the Purchase Date, Holders will bear the market risk with respect to the value of the Common Stock to be received from the date such Market Price is determined to the Purchase Date. In any case, each Company Notice shall include a form of Purchase Notice to be completed by a Securityholder and shall state: (i) the Purchase Price and the Conversion Rate applicable on the Company Notice Date; (ii) the name and address of the Paying Agent and the Conversion Agent; (iii) that Securities as to which a Purchase Notice has been given may be converted pursuant to Article 13 hereof only if the applicable Purchase Notice has been withdrawn in accordance with the terms of this Indenture; (iv) that Securities must be surrendered to the Paying Agent for cancellation to collect payment; (v) that the Purchase Price for any security as to which a Purchase Notice has been given and not withdrawn will be paid promptly following the later of the Purchase Date and the time of surrender of such Security as described in (iv); (vi) the procedures the Holder must follow to exercise rights under Section 11.08 and a brief description of those rights; (vii) briefly, the conversion rights of the Securities; (viii) the procedures for withdrawing a Purchase Notice (including, without limitation, for a conditional withdrawal pursuant to the terms of Section 11.08(a)(1)(D) or Section 11.10); (ix) that, unless the Company defaults in making payment of such Purchase Price, Original Issue Discount on Securities covered by any Purchase Notice, or interest, if any, will cease to accrue on and after the Purchase Date; and (x) the CUSIP number of the Securities. At the Company's request, the Trustee shall give such Company Notice in the Company's name and at the Company's expense; provided, however, that, in all cases, the text of such Company Notice shall be prepared by the Company. (f) Covenants of the Company. All shares of Common Stock delivered upon purchase of the Securities shall be newly issued shares or treasury shares, shall be duly 60 authorized, validly issued, fully paid and nonassessable, and shall be free from preemptive rights and free of any lien or adverse claim. The Company shall use its best efforts to list or cause to have quoted any shares of Common Stock to be issued to purchase Securities on each national securities exchange or over-the-counter or other domestic market on which the Common Stock is then listed or quoted. (g) Procedure upon Purchase. The Company shall deposit cash (in respect of a cash purchase under Section 11.08(c) or for fractional interests, as applicable) or shares of Common Stock, or a combination thereof, as applicable, at the time and in the manner as provided in Section 11.11, sufficient to pay the aggregate Purchase Price of all Securities to be purchased pursuant to this Section 11.08. As soon as practicable after the Purchase Date, the Company shall deliver to each Holder entitled to receive Common Stock through the Stock Transfer Agent, a certificate for the number of full shares of Common Stock issuable in payment of the Purchase Price. The Person in whose name the certificate for Common Stock is registered shall be treated as a holder of record of shares of Common Stock on the Business Day following the Purchase Date. Subject to Section 11.08(d), no payment or adjustment will be made for dividends on any Common Stock delivered in payment of the Purchase Price the record date for which occurred on or prior to the Purchase Date. (h) Taxes. If a Holder of a Security is paid in Common Stock, the Company shall pay any documentary, stamp or similar issue or transfer tax due on such issue of shares of Common Stock. However, the Holder shall pay any such tax which is due because the Holder requests the shares of Common Stock to be issued in a name other than the Holder's name. The Paying Agent may refuse to deliver the certificates representing the Common Stock being issued in a name other than the Holder's name until the Paying Agent receives a sum that the Company deems to be sufficient to pay any tax which will be due because the shares of Common Stock are to be issued in a name other than the Holder's name. Nothing herein shall preclude any income tax withholding required by law or regulations. SECTION 11.09. Repurchase of Securities at Option of the Holder upon Fundamental Change. (a) General. If prior to July 12, 2003 there shall have occurred a Fundamental Change, Securities shall be purchased by the Company, at a purchase price specified in the Securities (the "Fundamental Change Repurchase Price"), as of a date that is not less than 60 Business Days nor more than 90 Business Days after the occurrence of the Fundamental Change (the "Fundamental Change Repurchase Date"), at the option of the Holder thereof, upon: (1) delivery to the Paying Agent by the Holder of a written notice of purchase (a "Fundamental Change Repurchase Notice"), substantially in the form of Exhibit C hereto, at any time from the opening of business on the date that is at least 20 Business Days prior to a Fundamental Change Repurchase Date until the close of business on such Fundamental Change Repurchase Date stating: (A) the certificate number of the Security which the Holder will deliver to be purchased, 61 (B) the portion of the Principal Amount at Maturity of the Security which the Holder will deliver to be purchased, which portion must be in a Principal Amount at Maturity of $1,000 or integral multiples thereof, (C) that such Security shall be purchased as of the Fundamental Change Repurchase Date pursuant to the terms and conditions specified in the Securities and in this Indenture, and (D) in the event the Company elects, pursuant to Section 11.09(b), to pay the Fundamental Change Repurchase Price to be paid as of such Fundamental Change Repurchase Date, in whole or in part, in shares of Common Stock but such portion of the Fundamental Change Repurchase Price shall ultimately be payable to such Holder entirely in cash because any of the conditions to payment of the Fundamental Change Repurchase Price in Common Stock is not satisfied prior to the close of business on such Fundamental Change Repurchase Date, as set forth in Section 11.09(d), whether such Holder elects (i) to withdraw such Fundamental Change Repurchase Notice as to some or all of the Securities to which such Fundamental Change Repurchase Notice relates (stating the Principal Amount at Maturity and certificate numbers of the Securities as to which such withdrawal shall relate), or (ii) to receive cash in respect of the entire Fundamental Change Repurchase Price for all Securities (or portions thereof) to which such Fundamental Change Repurchase Notice relates; and (2) delivery of such Security to the Paying Agent for cancellation prior to, on or after the Fundamental Change Repurchase Date (together with all necessary endorsements) at the offices of the Paying Agent, such delivery being a condition to receipt by the Holder of the Fundamental Change Repurchase Price therefor; provided, however, that such Fundamental Change Repurchase Price shall be so paid pursuant to this Section 11.09 only if the Security so delivered to the Paying Agent shall conform in all respects to the description thereof in the related Fundamental Change Repurchase Notice. If a Holder, in such Holder's Fundamental Change Repurchase Notice, fails to indicate such Holder's choice with respect to the election set forth in clause (D) of Section 11.09(a)(1), such Holder shall be deemed to have elected to receive cash in respect of the Fundamental Change Repurchase Price for all Securities subject to such Fundamental Change Repurchase Notice in the circumstances set forth in such clause (D). The Company shall purchase from the Holder thereof, pursuant to this Section 11.09, a portion of a Security if the Principal Amount at Maturity of such portion is $1,000 or an integral multiple of $1,000 if so requested by the Holder. Provisions of this Indenture that apply to the purchase of all of a Security also apply to the purchase of such portion of such Security. 62 Any purchase by the Company contemplated pursuant to the provisions of this Section 11.09 shall be consummated by the delivery of the consideration to be received by the Holder promptly following the later of the Fundamental Change Repurchase Date and the time of delivery of the Security. Notwithstanding anything herein to the contrary, any Holder delivering to the Paying Agent the Fundamental Change Repurchase Notice contemplated by this Section 11.09(a) shall have the right to withdraw such Fundamental Change Repurchase Notice at any time prior to the close of business on the Business Day prior to the Fundamental Change Repurchase Date by delivery of a written notice of withdrawal to the Paying Agent in accordance with Section 11.10. The Paying Agent shall promptly notify the Company of the receipt by it of any Fundamental Change Repurchase Notice or written notice of withdrawal thereof. A "Fundamental Change" shall be deemed to have occurred at such time as any of the following events shall occur: (i) the Company consolidates or merges with another Person (other than a Subsidiary); (ii) the Company sells, conveys, transfers or leases its properties and assets substantially as an entirety to any Person (other than a Subsidiary); (iii) any Person (other than a Subsidiary) consolidates with or merges with or into the Company; or (iv) the Company's Common Stock is reclassified into, exchanged for or converted into the right to receive any other property or security; provided, that none of these circumstances will be a Fundamental Change if at least 50% of the aggregate fair market value (as determined by the Company's Board of Directors) of such property and securities, other than cash payments for fractional shares, consists of shares of voting Common Stock of the surviving Person that are, or upon issuance will be, traded on the London, Toronto or another internationally recognized securities exchange or a United States national securities exchange or approved for trading on an established over-the-counter trading market in the United States. (b) Company's Right to Elect Manner of Payment of Fundamental Change Repurchase Price. The Securities to be purchased pursuant to Section 11.09(a) may be paid for, at the election of the Company, in cash or Common Stock, or in any combination of cash and Common Stock, subject to the conditions set forth in Sections 11.09(c) and (d). The Company shall designate, in the Fundamental Change Company Notice delivered pursuant to Section 11.09(e), whether the Company will purchase the Securities for cash or Common Stock, or, if a combination thereof, the percentages of the Fundamental Change Repurchase Price of Securities in respect of which it will pay in cash or Common Stock; provided that the Company will pay cash for fractional interests in Common Stock. For purposes of determining the existence of potential fractional interests, all Securities subject to purchase by the Company held by a Holder 63 shall be considered together (no matter how many separate certificates are to be presented). Each Holder whose Securities are purchased pursuant to this Section 11.09 shall receive the same percentage of cash or Common Stock in payment of the Fundamental Change Repurchase Price for such Securities, except (i) as provided in Section 11.09(d) with regard to the payment of cash in lieu of fractional shares of Common Stock and (ii) in the event that the Company is unable to purchase the Securities of a Holder or Holders for Common Stock because any necessary qualifications or registrations of the Common Stock under applicable state securities laws cannot be obtained, the Company may purchase the Securities of such Holder or Holders for cash. The Company may not change its election with respect to the consideration (or components or percentages of components thereof) to be paid once the Company has given its Fundamental Change Company Notice to Securityholders except pursuant to this Section 11.09(b) or pursuant to Section 11.09(d) in the event of a failure to satisfy, prior to the close of business on the Fundamental Change Repurchase Date, any condition to the payment of the Fundamental Change Repurchase Price, in whole or in part, in Common Stock. If the Company elects to pay all or part of the Fundamental Change Repurchase Price in Common Stock, the portion of accrued Original Issue Discount (or interest if the Company has exercised its option to convert the Securities into semi-annual coupon notes) attributable to the period from the Issue Date (or, if the Company has exercised the option to convert the Securities into semi-annual coupon notes, the later of (x) the date of such exercise, and (y) the date on which interest was last paid) through the Fundamental Change Repurchase Date, as the case may be, with respect to the surrendered Security shall not be cancelled, extinguished or forfeited, but rather shall be deemed to be paid in full to the Holder thereof through the delivery of the Common Stock (together with cash payment, if any, in lieu of fractional shares) and cash, if any, in exchange for the Security being purchased pursuant to the terms hereof; and such cash, if any, and the fair market value of such shares of Common Stock (together with any such cash payment in lieu of fractional shares) shall be treated as delivered pro rata, to the extent thereof, first in exchange for Original Issue Discount (or interest, if the Company has exercised its option to convert the Securities into semi-annual coupon notes) accrued through the Fundamental Change Repurchase Date, and the balance, if any, of such cash or the fair market value of such Common Stock (and any such cash payment) shall be treated as delivered in exchange for the Issue Price of the Security being purchased pursuant to the provisions hereof. At least three Business Days before the Fundamental Change Company Notice Date (as defined below), the Company shall deliver an Officers' Certificate to the Trustee specifying: (i) the manner of payment selected by the Company, (ii) the information required by Section 11.09(e), (iii) if the Company elects to pay the Fundamental Change Repurchase Price, or a specified percentage thereof, in Common Stock, that the conditions to such manner of payment set forth in Section 11.09(d) have been or will be complied with, and 64 (iv) whether the Company desires the Trustee to give the Fundamental Change Company Notice required by Section 11.09(e). (c) Purchase with Cash. On each Fundamental Change Repurchase Date, at the option of the Company, the Fundamental Change Repurchase Price of Securities in respect of which a Fundamental Change Repurchase Notice pursuant to Section 11.09(a) has been given, or a specified percentage thereof, may be paid by the Company with cash equal to the aggregate Fundamental Change Repurchase Price of such Securities. (d) Payment by Issuance of Common Stock. On each Fundamental Change Repurchase Date, at the option of the Company, the Fundamental Change Repurchase Price of Securities in respect of which a Fundamental Change Repurchase Notice pursuant to Section 11.09(a) has been given, or a specified percentage thereof, may be paid by the Company by the issuance of a number of shares of Common Stock equal to the quotient obtained by dividing (i) the amount of cash to which the Securityholders would have been entitled had the Company elected to pay all or such specified percentage, as the case may be, of the Fundamental Change Repurchase Price of such Securities in cash by (ii) 0.975 times the Market Price of a share of Common Stock, subject to the next succeeding paragraph. The Company will not issue a fractional share of Common Stock in payment of the Fundamental Change Repurchase Price. Instead the Company will pay cash for the current market value of the fractional share. The current market value of a fraction of a share shall be determined, to the nearest 1/1,000th of a share, by multiplying the Market Price by such fraction and rounding the product to the nearest whole cent. It is understood that if a Holder elects to have more than one Security purchased, the number of shares of Common Stock shall be based on the aggregate amount of Securities to be purchased. The Company's right to exercise its election to purchase the Securities pursuant to Section 11.09 through the issuance of shares of Common Stock shall be conditioned upon: (i) the Company's not having given its Fundamental Change Company Notice of an election to pay entirely in cash and its giving of timely Fundamental Change Company Notice of election to purchase all or a specified percentage of the Securities with Common Stock as provided herein; (ii) the registration of the shares of Common Stock to be issued in respect of the payment of the Fundamental Change Repurchase Price under the Securities Act or the Exchange Act, in each case if required; (iii) any necessary qualification or registration under applicable state securities laws or the availability of an exemption from such qualification and registration; and (iv) the receipt by the Trustee of an Officers' Certificate and an Opinion of Counsel, each stating that (A) the terms of the issuance of the Common Stock are in conformity with this Indenture and (B) the shares of Common Stock to be issued by the Company in payment of the Fundamental Change Repurchase Price in respect of Securities have been duly authorized and, when issued and delivered 65 pursuant to the terms of this Indenture in payment of the Fundamental Change Repurchase Price in respect of the Securities, will be validly issued, fully paid and non-assessable and, to the best of such counsel's knowledge, free from preemptive rights, and, in the case of such Officers' Certificate, stating that conditions (i), (ii) and (iii) above and the condition set forth in the second succeeding sentence have been satisfied and, in the case of such Opinion of Counsel, stating that conditions (ii) and (iii) above has been satisfied. Such Officers' Certificate shall also set forth the number of shares of Common Stock to be issued for each $1,000 Principal Amount at Maturity of Securities and the Sale Price of a share of Common Stock on each trading day during the period during which the Market Price is calculated. The Company may pay the Fundamental Change Repurchase Price (or any portion thereof) in Common Stock only if the information necessary to calculate the Market Price is published in a daily newspaper of national circulation. If the foregoing conditions are not satisfied with respect to a Holder or Holders prior to the close of business on the Fundamental Change Repurchase Date and the Company has elected to purchase the Securities pursuant to this Section 11.09 through the issuance of shares of Common Stock, the Company shall pay the entire Fundamental Change Repurchase Price of the Securities of such Holder or Holders in cash. (e) Notice of Fundamental Change and Company Election. Within 30 days after the occurrence of a Fundamental Change, the Company shall mail a written notice of Fundamental Change (the "Fundamental Change Company Notice") by first-class mail to the Trustee and to each Holder (and to beneficial owners as required by applicable law). The Fundamental Change Company Notice shall disclose the Company's election to repurchase with cash or Common Stock or any combination thereof in the manner provided herein. The Fundamental Change Company Notice shall be sent to Holders (and to beneficial owners as required by applicable law) not less than 20 Business Days prior to such Fundamental Change Repurchase Date (the "Fundamental Change Company Notice Date"). The notice shall include a form of Fundamental Change Repurchase Notice to be completed by the Securityholder and shall state: (1) briefly, the events causing a Fundamental Change and the date of such Fundamental Change; (2) the date by which the Fundamental Change Repurchase Notice pursuant to this Section 11.09 must be given; (3) the Fundamental Change Repurchase Date; (4) the Fundamental Change Repurchase Price; (5) the name and address of the Paying Agent and the Conversion Agent; (6) the Conversion Rate applicable on the Fundamental Change Company Notice Date and any adjustments thereto; 66 (7) that Securities as to which a Fundamental Change Repurchase Notice has been given may be converted pursuant to Article 13 hereof only if the Fundamental Change Repurchase Notice has been withdrawn in accordance with the terms of this Indenture; (8) that Securities must be surrendered to the Paying Agent for cancellation to collect payment; (9) that the Fundamental Change Repurchase Price for any Security as to which a Fundamental Change Repurchase Notice has been duly given and not withdrawn will be paid promptly following the later of the Fundamental Change Repurchase Date and the time of surrender of such Security as described in (8); (10) briefly, the procedures the Holder must follow to exercise rights under this Section 11.09; (11) briefly, the conversion rights of the Securities; (12) the procedures for withdrawing a Fundamental Change Repurchase Notice (including, without limitation, for a conditional withdrawal pursuant to the terms of Section 11.09(a)(1)(D) or Section 11.10); (13) that, unless the Company defaults in making payment of such Fundamental Change Repurchase Price, Original Issue Discount on Securities covered by any Fundamental Change Repurchase Notice, or interest, if any, will cease to accrue on and after the Fundamental Change Repurchase Date; and (14) the CUSIP number of the Securities. In the event the Company has elected to pay the Fundamental Change Repurchase Price (or a specified percentage thereof) with Common Stock, the Fundamental Change Company Notice also shall: (1) state that each Holder will receive Common Stock in respect of the specified percentage of the Fundamental Change Repurchase Price of the Securities held by such Holder (except any cash amount to be paid in lieu of fractional shares); (2) state that the total number of shares of Common Stock to be issued to Holders will be equal to the quotient obtained by dividing (i) the amount of cash to which the Securityholders would have been entitled had the Company elected to pay all or such specified percentage, as the case may be, of the Fundamental Change Repurchase Price of such Securities in cash by (ii) 0.975 times the Market Price of a share of Common Stock; (3) set forth the method of calculating the Market Price of the Common Stock; and 67 (4) state that because the Market Price of Common Stock will be determined prior to the Fundamental Change Repurchase Date, Holders will bear the market risk with respect to the value of the Common Stock to be received from the date such Market Price is determined to the Fundamental Change Repurchase Date. At the Company's request, the Trustee shall give such Fundamental Change Company Notice in the Company's name and at the Company's expense; provided, however, that, in all cases, the text of such Fundamental Change Company Notice shall be prepared by the Company. (f) Covenants of the Company. All shares of Common Stock delivered upon purchase of the Securities shall be newly issued shares or treasury shares, shall be duly authorized, validly issued, fully paid and nonassessable, and shall be free from preemptive rights and free of any lien or adverse claim. The Company shall use its best efforts to list or cause to have quoted any shares of Common Stock to be issued to purchase Securities on each national securities exchange or over-the-counter or other domestic market on which the Common Stock is then listed or quoted. (g) Procedure upon Purchase. The Company shall deposit cash (in respect of a cash purchase under Section 11.09(c) or for fractional interests, as applicable) or shares of Common Stock, or a combination thereof, as applicable, at the time and in the manner as provided in Section 11.11, sufficient to pay the aggregate Fundamental Change Repurchase Price of all Securities to be purchased pursuant to this Section 11.09. As soon as practicable after the Fundamental Change Repurchase Date, the Company shall deliver to each Holder entitled to receive Common Stock through the Stock Transfer Agent, a certificate for the number of full shares of Common Stock issuable in payment of the Fundamental Change Repurchase Price. The Person in whose name the certificate for Common Stock is registered shall be treated as a holder of record of shares of Common Stock on the Business Day following the Fundamental Change Repurchase Date. Subject to Section 11.09(d), no payment or adjustment will be made for dividends on any Common Stock delivered in payment of the Fundamental Change Repurchase Price the record date for which occurred on or prior to the Fundamental Change Repurchase Date. (h) Taxes. If a Holder of a Security is paid in Common Stock, the Company shall pay any documentary, stamp or similar issue or transfer tax due on such issue of shares of Common Stock. Nothing herein shall preclude any income tax withholding required by law or regulations. SECTION 11.10. Effect of Purchase Notice or Fundamental Change Repurchase Notice. Upon receipt by the Paying Agent of the Purchase Notice or Fundamental Change Repurchase Notice specified in Section 11.08(a) or Section 11.09(a), as applicable, the Holder of the Security in respect of which such Purchase Notice or Fundamental Change Repurchase Notice, as the case may be, was given shall (unless such Purchase Notice or Fundamental Change Repurchase Notice is withdrawn as specified in the following two paragraphs) thereafter be entitled to receive solely the Purchase Price or Fundamental Change Repurchase Price, as the case may be, with respect to such Security. Such Purchase Price or Fundamental Change Repurchase Price shall be paid to such Holder, subject to receipts of funds and/or securities by the Paying Agent, promptly following the later of (x) the Purchase Date or the Fundamental Change 68 Repurchase Date, as the case may be, with respect to such Security (provided the conditions in Section 11.08(a) or Section 11.09(a), as applicable, have been satisfied) and (y) the time of delivery of such Security to the Paying Agent by the Holder thereof in the manner required by Section 11.08(a) or Section 11.09(a), as applicable. Securities in respect of which a Purchase Notice or Fundamental Change Repurchase Notice, as the case may be, has been given by the Holder thereof may not be converted pursuant to Article 13 hereof on or after the date of the delivery of such Purchase Notice or Fundamental Change Repurchase Notice, as the case may be, unless such Purchase Notice or Fundamental Change Repurchase Notice, as the case may be, has first been validly withdrawn as specified in the following two paragraphs. A Purchase Notice or Fundamental Change Repurchase Notice, as the case may be, may be withdrawn by means of a written notice of withdrawal delivered to the office of the Paying Agent in accordance with the Purchase Notice or Fundamental Change Repurchase Notice, as the case may be, at any time prior to the close of business on the Business Day prior to the Purchase Date or the Fundamental Change Repurchase Date, as the case may be, specifying: (1) the certificate number of the Security in respect of which such notice of withdrawal is being submitted, (2) the Principal Amount at Maturity of the Security with respect to which such notice of withdrawal is being submitted, and (3) the Principal Amount at Maturity, if any, of such Security which remains subject to the original Purchase Notice or Fundamental Change Repurchase Notice, as the case may be, and which has been or will be delivered for purchase or repurchase by the Company. A written notice of withdrawal of a Purchase Notice or Fundamental Change Repurchase Notice may be in the form set forth in the preceding paragraph or may be in the form of (i) a conditional withdrawal contained in a Purchase Notice or Fundamental Change Repurchase Notice pursuant to the terms of Section 11.08(a)(1)(D) or 11.09(a)(1)(D) or (ii) a conditional withdrawal containing the information set forth in Section 11.08(a)(1)(D) or 11.09(a)(1)(D) and the preceding paragraph and contained in a written notice of withdrawal delivered to the Paying Agent as set forth in the preceding paragraph. There shall be no purchase of any Securities pursuant to Section 11.08 or 11.09 (other than through the issuance of Common Stock in payment of the Purchase Price, including cash in lieu of fractional shares) if there has occurred (prior to, on or after, as the case may be, the giving, by the Holders of such Securities, of the required Purchase Notice or Fundamental Change Repurchase Notice, as the case may be) and is continuing an Event of Default (other than a default in the payment of the Purchase Price or Fundamental Change Repurchase Price, as the case may be, with respect to such Securities). The Paying Agent will promptly return to the respective Holders thereof any Securities (x) with respect to which a Purchase Notice or Fundamental Change Repurchase Notice, as the case may be, has been withdrawn in compliance with this Indenture, or (y) held by it during the continuance of an Event of Default (other than a 69 default in the payment of the Purchase Price or Fundamental Change Repurchase Price, as the case may be, with respect to such Securities) in which case, upon such return, the Purchase Notice or Fundamental Change Repurchase Notice with respect thereto shall be deemed to have been withdrawn. SECTION 11.11. Deposit of Purchase Price or Fundamental Change Repurchase Price. Prior to 10:00 a.m. (local time in The City of New York) on the Business Day following the Purchase Date or the Fundamental Change Repurchase Date, as the case may be, the Company shall deposit with the Trustee or with the Paying Agent (or, if the Company or a Subsidiary or an Affiliate of either of them is acting as the Paying Agent, shall segregate and hold in trust as provided herein) an amount of money (in immediately available funds if deposited on such Business Day) sufficient to pay the cash portion of the aggregate Purchase Price or Fundamental Change Repurchase Price, as the case may be, of all the Securities or portions thereof which are to be purchased as of the Purchase Date or Fundamental Change Repurchase Date, as the case may be, and shall instruct the Stock Transfer Agent to deliver the number of full shares of Common Stock issuable in payment of the remaining portion of the aggregate Purchase Price or Fundamental Change Repurchase Price, as the case may be. The Company shall promptly notify the Trustee in writing of the amount of any deposits of cash or deliveries of Common Stock made pursuant to this Section. SECTION 11.12. Securities Purchased or Repurchased in Part. Any Security which is to be purchased or repurchased only in part shall be surrendered at the office of the Paying Agent (with, if the Company or the Trustee so requires, due endorsement by, or a written instrument of transfer in form satisfactory to the Company and the Trustee duly executed by, the Holder thereof or such Holder's attorney duly authorized in writing) and the Company shall execute and the Trustee shall authenticate and deliver to the Holder of such Security, without service charge, a new Security or Securities, of any authorized denomination as requested by such Holder in aggregate Principal Amount at Maturity equal to, and in exchange for, the portion of the Principal Amount at Maturity of the Security so surrendered which is not purchased. SECTION 11.13. Covenant to Comply With Securities Laws Upon Purchase or Repurchase of Securities. In connection with any offer to purchase or repurchase or purchase or repurchase of Securities under Section 11.08 or 11.09 hereof (provided that such offer or purchase or repurchase constitutes an "issuer tender offer" for purposes of Rule 13e-4 (which term, as used herein, includes any successor provision thereto) under the Exchange Act at the time of such offer or purchase), the Company shall (i) comply with Rule 13e-4 and Rule 14e-1 under the Exchange Act, (ii) file the related Schedule TO (or any successor schedule, form or report) under the Exchange Act, and (iii) otherwise comply with all Federal and state securities laws so as to permit the rights and obligations under Sections 11.08 and 11.09 to be exercised in the time and in the manner specified in Sections 11.08 and 11.09. SECTION 11.14. Repayment to the Company. The Trustee and the Paying Agent shall return to the Company any cash that remains unclaimed, together with interest or dividends, if any, thereon, held by them for the payment of the Purchase Price or Fundamental Change Repurchase Price, as the case may be; provided, however, that to the extent that the aggregate amount of cash deposited by the Company pursuant to Section 11.11 exceeds the cash portion of the aggregate Purchase Price or Fundamental Change Repurchase Price, as the case may be, of 70 the Securities or portions thereof which the Company is obligated to purchase as of the Purchase Date or Fundamental Change Repurchase Date, as the case may be, then on the Business Day following the Purchase Date or Fundamental Change Repurchase Date, as the case may be, the Trustee shall return any such excess to the Company. ARTICLE 12 SPECIAL TAX EVENT CONVERSION SECTION 12.01. Optional Conversion to Semi-annual Coupon Note Upon Tax Event. From and after (i) the date (the "Tax Event Date") of the occurrence of a Tax Event and (ii) the date the Company exercises its option set forth in this Section 12.01, whichever is later (the "Option Exercise Date"), at the option of the Company, interest in lieu of future Original Issue Discount shall accrue at the rate of 3.75% per annum on a restated principal amount per $1,000 original Principal Amount at Maturity (the "Restated Principal Amount") equal to the Issue Price plus Original Issue Discount accrued through the Option Exercise Date and shall be payable semi-annually on January 12 and July 12 of each year (each an "Interest Payment Date") to holders of record at the close of business on December 29 or June 28 (each a "Regular Record Date") immediately preceding such Interest Payment Date. Interest will be computed on the basis of a 360-day year comprised of twelve 30-day months and will accrue from the most recent date on which interest has been paid or, if no interest has been paid, from the Option Exercise Date. Within 15 days of the occurrence of a Tax Event, the Company shall deliver a written notice of such Tax Event by facsimile and first-class mail to the Trustee and within 15 days of its exercise of such option the Company shall deliver a written notice of the Option Exercise Date by facsimile and first-class mail to the Trustee and by first class mail to the Holders of the Securities. From and after the Option Exercise Date, (i) the Company shall be obligated to pay at Stated Maturity, in lieu of the Principal Amount at Maturity of a Security, the Restated Principal Amount thereof and (ii) "Issue Price and accrued Original Issue Discount," "Issue Price plus Original Issue Discount" or similar words, as used herein, shall mean Restated Principal Amount plus accrued and unpaid interest with respect to any Security. Securities authenticated and delivered after the Option Exercise Date may, and shall if required by the Trustee, bear a notation in a form approved by the Trustee as to the conversion of the Securities to semi-annual coupon notes. SECTION 12.02. Payment of Interest; Interest Rights Preserved. (a) Interest on any Security that is payable, and is punctually paid or duly provided for, on any Interest Payment Date shall be paid to the Person in whose name that Security is registered at the close of business on the Regular Record Date for such interest at the office or agency of the Company maintained for such purpose. Each installment of interest on any Security shall be paid in same-day funds by transfer to an account maintained by the Holder located inside the United States, provided that with respect to any Holder, such Holder shall have furnished to the Paying Agent all required wire payment instructions no later than the related Regular Record Date, or if no such instructions have been furnished, by check payable to such Holder. In the case of a permanent Global Security, interest payable on any Interest Payment Date will be paid to the Depositary, with respect to that portion of such permanent Global Security held for its account by Cede & 71 Co. for the purpose of permitting such party to credit the interest received by it in respect of such permanent Global Security to the accounts of the beneficial owners thereof. (b) Except as otherwise specified with respect to the Securities, any interest on any Security that is payable, but is not punctually paid or duly provided for, within 30 days following on any Interest Payment Date (herein called "Defaulted Interest", which term shall include any accrued and unpaid interest that has accrued on such defaulted amount in accordance with paragraph 1 of the Securities), shall forthwith cease to be payable to the registered Holder thereof on the relevant Regular Record Date by virtue of having been such Holder, and such Defaulted Interest may be paid by the Company, as its election in each case, as provided in clause (1) or (2) below: (1) The Company may elect to make payment of any Defaulted Interest to the Persons in whose names the Securities are registered at the close of business on a date (the "Special Record Date") for the payment of such Defaulted Interest, which shall be fixed in the following manner. The Company shall notify the Trustee in writing of the amount of Defaulted Interest proposed to be paid on each Security and the date of the proposed payment (which shall not be less than 20 days after such notice is received by the Trustee), and at the same time the Company shall deposit with the Trustee an amount of money equal to the aggregate amount proposed to be paid in respect of such Defaulted Interest or shall make arrangements satisfactory to the Trustee for such deposit on or prior to the date of the proposed payment, such money when deposited to be held in trust for the benefit of the Persons entitled to such Defaulted Interest as in this clause provided. Thereupon the Trustee shall fix a Special Record Date for the payment of such Defaulted Interest which shall be not more than 15 days and not less than 10 days prior to the date of the proposed payment and not less than 10 days after the receipt by the Trustee of the notice of the proposed payment. The Trustee shall promptly notify the Company of such Special Record Date and, in the name and at the expense of the Company, shall cause notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor to be mailed, first-class postage prepaid, to each Holder of Securities at his address as it appears on the list of Securityholders maintained pursuant to this Indenture not less than 10 days prior to such Special Record Date. Notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor having been mailed as aforesaid, such Defaulted Interest shall be paid to the Persons in whose names the Securities are registered at the close of business on such Special Record Date and shall no longer be payable pursuant to the following clause (2). (2) The Company may make payment of any Defaulted Interest on the Securities in any other lawful manner not inconsistent with the requirements of any securities exchange on which such Securities may be listed, and upon such notice as may be required by such exchange, if, after notice given by the Company to the Trustee of the proposed payment pursuant to this clause, such manner of payment shall be deemed practicable by the Trustee. 72 Subject to the foregoing provisions, each Security delivered under this Indenture upon registration of transfer of or in exchange for or in lieu of any other Security shall carry the rights to interest accrued and unpaid, and to accrue, which were carried by such other Security. ARTICLE 13 CONVERSION SECTION 13.01. Conversion Privilege. A Holder of a Security may convert such Security into Common Stock at any time during the period stated in the Securities. The number of shares of Common Stock issuable upon conversion of a Security per $1,000 of Principal Amount at Maturity thereof (the "Conversion Rate") shall be that set forth in the Securities, subject to adjustment as herein set forth. A Holder may convert a portion of the Principal Amount at Maturity of a Security if the portion is $1,000 or an integral multiple of $1,000. Provisions of this Indenture that apply to conversion of all of a Security also apply to conversion of a portion of a Security. "Average Quoted Price" means the average of the Sale Prices of the Common Stock for the shorter of (i) 30 consecutive trading days ending on the last full trading day prior to the Time of Determination with respect to the rights, warrants or options or distribution in respect of which the Average Quoted Price is being calculated, or (ii) the period (x) commencing on the date next succeeding the first public announcement of (a) the issuance of rights, warrants or options or (b) the distribution, in each case, in respect of which the Average Quoted Price is being calculated and (y) proceeding through the last full trading day prior to the Time of Determination with respect to the rights, warrants or options or distribution in respect of which the Average Quoted Price is being calculated (excluding days within such period, if any, which are not trading days), or (iii) the period, if any, (x) commencing on the date next succeeding the Ex-Dividend Time with respect to the next preceding (a) issuance of rights, warrants or options or (b) distribution, in each case, for which an adjustment is required by the provisions of Section 13.06(4), 13.07 or 13.08 and (y) proceeding through the last full trading day prior to the Time of Determination with respect to the rights, warrants or options or distribution in respect of which the Average Quoted Price is being calculated (excluding days within such period, if any, which are not trading days). In the event that the Ex-Dividend Time (or in the case of a subdivision, combination or reclassification, the effective date with respect thereto), with respect to a dividend, subdivision, combination or reclassification to which Section 13.06(1), (2), (3) or (5) applies, occurs during the period applicable for calculating "Average Quoted Price" pursuant to 73 the definition in the preceding sentence, "Average Quoted Price" shall be calculated for such period in a manner determined by the Board of Directors to reflect the impact of such dividend, subdivision, combination or reclassification on the Sale Price of the Common Stock during such period. "Time of Determination" means the time and date of the earlier of (i) the determination of stockholders entitled to receive rights, warrants or options or a distribution, in each case, to which Section 13.07 or 13.08 applies and (ii) the time ("Ex-Dividend Time") immediately prior to the commencement of "ex-dividend" trading for such rights, warrants or options or distribution on the New York Stock Exchange or such other national or regional exchange or market on which the Common Stock is then listed or quoted. SECTION 13.02. Conversion Procedure. To convert a Security a Holder must satisfy the requirements set forth in the Securities. The date on which the Holder satisfies all those requirements is the conversion date (the "Conversion Date"). As soon as practicable after the Conversion Date, the Company shall deliver to the Holder, through the Conversion Agent, a certificate for the number of full shares of Common Stock issuable upon the conversion and cash in lieu of any fractional share determined pursuant to Section 13.03. The Person in whose name the certificate is registered shall be treated as a stockholder of record on and after the Conversion Date; provided, however, that no surrender of a Security on any date when the stock transfer books of the Company shall be closed shall be effective to constitute the Person or Persons entitled to receive the shares of Common Stock upon such conversion as the record holder or holders of such shares of Common Stock on such date, but such surrender shall be effective to constitute the Person or Persons entitled to receive such shares of Common Stock as the record holder or holders thereof for all purposes at the close of business on the next succeeding day on which such stock transfer books are open; such conversion shall be at the Conversion Rate in effect on the date that such Security shall have been surrendered for conversion, as if the stock transfer books of the Company had not been closed. Upon conversion of a Security, such Person shall no longer be a Holder of such Security and such Security shall be cancelled and no longer Outstanding. No payment or adjustment will be made for dividends on, or other distributions with respect to, any Common Stock except as provided in this Article 13. On conversion of a Security, that portion of accrued Original Issue Discount (or interest, if the Company has exercised its option provided for in Section 12.01) attributable to the period from the Issue Date (or, if the Company has exercised the option provided for in Section 12.01, the later of (x) the date of such exercise and (y) the date on which interest was last paid) of the Security through the Conversion Date with respect to the converted Security shall not be cancelled, extinguished or forfeited, but rather shall be deemed to be paid in full to the Holder thereof through delivery of the Common Stock (together with the cash payment, if any, in lieu of fractional shares) in exchange for the Security being converted pursuant to the provisions hereof; and the fair market value of such shares of Common Stock (together with any such cash payment in lieu of fractional shares) shall be treated as issued, to the extent thereof, first in exchange for Original Issue Discount (or interest, if the Company has exercised its option provided for in Section 12.01) accrued through the Conversion Date, and the balance, if any, of such fair market value of such Common Stock (and any such cash payment) shall be treated as issued in exchange for the Issue Price of the Security being converted pursuant to the provisions hereof. 74 If the Holder converts more than one Security at the same time, the number of shares of Common Stock issuable upon the conversion shall be based on the total Principal Amount at Maturity of the Securities converted. If the last day on which a Security may be converted is a Legal Holiday, the Security may be surrendered on the next succeeding day that is not a Legal Holiday. Upon surrender of a Security that is converted in part, the Company shall execute, and the Trustee shall authenticate and deliver to the Holder, a new Security in an authorized denomination equal in Principal Amount at Maturity to the unconverted portion of the Security surrendered. SECTION 13.03. Fractional Shares. The Company will not issue a fractional share of Common Stock upon conversion of a Security. Instead, the Company will deliver cash for the current market value of the fractional share. The current market value of a fractional share shall be determined, to the nearest 1/1,000th of a share, by multiplying the Average Quoted Price by the fractional amount and rounding the product to the nearest whole cent. SECTION 13.04. Taxes on Conversion. If a Holder converts a Security, the Company shall pay any documentary, stamp or similar issue or transfer tax due on the issue of shares of Common Stock upon the conversion. However, the Holder shall pay any such tax which is due because the Holder requests the shares to be issued in a name other than the Holder's name. The Conversion Agent may refuse to deliver the certificates representing the Common Stock being issued in a name other than the Holder's name until the Conversion Agent receives a sum that the Company deems to be sufficient to pay any tax which will be due because the shares are to be issued in a name other than the Holder's name. Nothing herein shall preclude any tax withholding required by law or regulations. SECTION 13.05. Company to Provide Stock. The Company shall, prior to issuance of any Securities under this Article 13, and from time to time as may be necessary, reserve out of its authorized but unissued or treasury Common Stock a sufficient number of shares of Common Stock to permit the conversion of the Securities. All shares of Common Stock delivered upon conversion of the Securities shall be newly issued shares or treasury shares, shall be duly and validly issued and fully paid and nonassessable, and shall be free from preemptive rights and free of any lien or adverse claim. The Company will endeavor promptly to comply with all federal and state securities laws regulating the offer and delivery of shares of Common Stock upon conversion of Securities, if any, including the addition of any and all restrictive legends that are required to appear on the face of the Common Stock, and will list or cause to have quoted such shares of Common Stock on each national securities exchange or in the over-the-counter market or such other market on which the Common Stock is then listed or quoted. SECTION 13.06. Adjustment for Change In Capital Stock. If, after the Issue Date of the Securities, the Company: 75 (1) pays a dividend or makes a distribution on its Common Stock in shares of its Common Stock; (2) subdivides its outstanding shares of Common Stock into a greater number of shares; (3) combines its outstanding shares of Common Stock into a smaller number of shares; (4) pays a dividend or makes a distribution on its Common Stock in shares of its Capital Stock (other than Common Stock or rights, warrants or options for its Capital Stock); or (5) issues by reclassification of its Common Stock any shares of its Capital Stock (other than rights, warrants or options for its Capital Stock), then the Conversion Rate in effect immediately prior to such action shall be adjusted so that the Holder of a Security thereafter converted may receive the number of shares of Capital Stock of the Company which such Holder would have owned immediately following such action if such Holder had converted the Security immediately prior to such action. The adjustment shall become effective immediately after the record date in the case of a dividend or distribution and immediately after the effective date in the case of a subdivision, combination or reclassification. If after an adjustment a Holder of a Security upon conversion of such Security may receive shares of two or more classes of Capital Stock of the Company, the Conversion Rate shall thereafter be subject to adjustment upon the occurrence of an action taken with respect to any such class of Capital Stock as is contemplated by this Article 13 with respect to the Common Stock, on terms comparable to those applicable to Common Stock in this Article 13. SECTION 13.07. Adjustment for Rights Issue. If after the Issue Date of the Securities, the Company distributes any rights, warrants or options to all holders of its Common Stock entitling them, for a period expiring within 60 days after the record date for such distribution, to subscribe for or purchase shares of Common Stock at a price per share less than the Sale Price as of the Time of Determination, the Conversion Rate shall be adjusted, subject to the provisions of the last paragraph of this Section 13.07, in accordance with the formula R' = R x (O + N) ------------------ (O + (N x P)/M) where: R' = the adjusted Conversion Rate. R = the current Conversion Rate. 76 O = the number of shares of Common Stock outstanding on the record date for the distribution to which this Section 13.07 is being applied. N = the number of additional shares of Common Stock offered pursuant to the distribution. P = the offering price per share of the additional shares. M = the Average Quoted Price, minus, in the case of (i) a distribution to which Section 13.06(4) applies or (ii) a distribution to which Section 13.08 applies, for which, in each case, (x) the record date shall occur on or before the record date for the distribution to which this Section 13.07 applies and (y) the Ex-Dividend Time shall occur on or after the date of the Time of Determination for the distribution to which this Section 13.07 applies, the fair market value (on the record date for the distribution to which this Section 13.07 applies) of the (1) Capital Stock of the Company distributed in respect of each share of Common Stock in such Section 13.06(4) distribution and (2) assets of the Company or debt securities or any rights, warrants or options to purchase securities of the Company distributed in respect of each share of Common Stock in such Section 13.08 distribution. The Board of Directors shall determine fair market values for the purposes of this Section 13.07. The adjustment shall become effective immediately after the record date for the determination of shareholders entitled to receive the rights, warrants or options to which this Section 13.07 applies. If all of the shares of Common Stock subject to such rights, warrants or options have not been issued when such rights, warrants or options expire, then the Conversion Rate shall promptly be readjusted to the Conversion Rate which would then be in effect had the adjustment upon the issuance of such rights, warrants or options been made on the basis of the actual number of shares of Common Stock issued upon the exercise of such rights, warrants or options. No adjustment shall be made under this Section 13.07 if the application of the formula stated above in this Section 13.07 would result in a value of R' that is equal to or less than the value of R. SECTION 13.08. Adjustment for Other Distributions. If, after the Issue Date of the Securities, the Company distributes to all holders of its Common Stock any of its assets, or debt securities or any rights, warrants or options to purchase securities of the Company (including securities or cash, but excluding (x) distributions of Capital Stock referred to in Section 13.06 and distributions of rights, warrants or options referred to in Section 13.07 and (y) cash dividends or other cash distributions that are paid out of consolidated current net earnings or earnings retained in the business as shown on the books of the Company unless such cash dividends or other cash distributions are Extraordinary Cash Dividends) the Conversion Rate shall be adjusted, subject to the provisions of the last paragraph of this Section 13.08, in accordance with the formula: 77 R' = R x M ----- M-F where: R' = the adjusted Conversion Rate. R = the current Conversion Rate. M = the Average Quoted Price, minus, in the case of a distribution to which Section 11.06(4) applies, for which (i) the record date shall occur on or before the record date for the distribution to which this Section 13.08 applies and (ii) the Ex-Dividend Time shall occur on or after the date of the Time of Determination for the distribution to which this Section 13.08 applies, the fair market value (on the record date for the distribution to which this Section 13.08 applies) of any Capital Stock of the Company distributed in respect of each share of Common Stock in such Section 13.06(4) distribution. F = the fair market value (on the record date for the distribution to which this Section 13.08 applies) of the assets, securities, rights, warrants or options to be distributed in respect of each share of Common Stock in the distribution to which this Section 13.08 is being applied (including, in the case of cash dividends or other cash distributions giving rise to an adjustment, all such cash distributed concurrently). The Board of Directors shall determine fair market values for the purposes of this Section 13.08. The adjustment shall become effective immediately after the record date for the determination of shareholders entitled to receive the distribution to which this Section 13.08 applies. For purposes of this Section 13.08, the term "Extraordinary Cash Dividend" shall mean any cash dividend with respect to the Common Stock the amount of which, together with the aggregate amount of cash dividends on the Common Stock to be aggregated with such cash dividend in accordance with the provisions of this paragraph, equals or exceeds the threshold percentage set forth in item (i) below. For purposes of item (i) below, the "Measurement Period" with respect to a cash dividend on the Common Stock shall mean the 365 consecutive day period ending on the date prior to the Ex-Dividend Time with respect to such cash dividend, and the "Relevant Cash Dividends" with respect to a cash dividend on the Common Stock shall mean the cash dividends on the Common Stock with Ex-Dividend Times occurring in the Measurement Period. (i) If, upon the date prior to the Ex-Dividend Time with respect a cash dividend on the Common Stock, the aggregate amount of such cash dividend together with the amounts of all Relevant Cash Dividends equals or exceeds on a per share basis 10% of the Sale Price of the Common Stock on the last trading day preceding the date of declaration by the Board of Directors of the cash dividend with respect to which this provision is being applied, then such cash dividend 78 together with all Relevant Cash Dividends, shall be deemed to be an Extraordinary Cash Dividend and for purposes of applying the formula set forth above in this Section 13.08, the value of "F" shall be equal to (y) the aggregate amount of such cash dividend together with the amount of all Relevant Cash Dividends, minus (z) the aggregate amount of all Relevant Cash Dividends for which a prior adjustment in the Conversion Rate was previously made under this Section 13.08. In making the determinations required by item (i) above, the amount of cash dividends paid on a per share basis and the amount of any Relevant Cash Dividends specified in item (i) above, shall be appropriately adjusted to reflect the occurrence during such period of any event described in Section 13.06. In the event that, with respect to any distribution to which this Section 13.08 would otherwise apply, the difference "M-F" as defined in the above formula is less than $1.00 or "F" is equal to or greater than "M", then the adjustment provided by this Section 13.08 shall not be made and in lieu thereof the provisions of Section 13.14 shall apply to such distribution. SECTION 13.09. When Adjustment May Be Deferred. No adjustment in the Conversion Rate need be made unless the adjustment would require an increase or decrease of at least 1% in the Conversion Rate. Any adjustments that are not made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this Article 13 shall be made to the nearest cent or to the nearest 1/1,000th of a share, as the case may be. SECTION 13.10. When No Adjustment Required. No adjustment need be made for a transaction referred to in Section 13.06, 13.07, 13.08 or 13.14 if Securityholders are to participate in the transaction on a basis and with notice that the Board of Directors determines to be fair and appropriate in light of the basis and notice on which holders of Common Stock participate in the transaction. Such participation by Securityholders may include participation upon conversion provided that an adjustment shall be made at such time as the Securityholders are no longer entitled to participate. No adjustment need be made for rights to purchase Common Stock pursuant to a Company plan for reinvestment of dividends or interest. No adjustment need be made for a change in the par value or no par value of the Common Stock. To the extent the Securities become convertible pursuant to this Article 13 into cash, no adjustment need be made thereafter as to the cash. Interest will not accrue on the cash. SECTION 13.11. Notice of Adjustment. Whenever the Conversion Rate is adjusted, the Company shall promptly mail to Securityholders a notice of the adjustment. The Company shall file with the Trustee and the Conversion Agent such notice and a certificate from the Company's independent public accountants briefly stating the facts requiring the adjustment and the manner of computing it. The certificate shall be conclusive evidence that the adjustment 79 is correct. Neither the Trustee nor any Conversion Agent shall be under any duty or responsibility with respect to any such certificate except to exhibit the same to any Holder desiring inspection thereof. SECTION 13.12. Voluntary Increase. The Company from time to time may increase the Conversion Rate by any amount for any period of time. Whenever the Conversion Rate is increased, the Company shall mail to Securityholders and file with the Trustee and the Conversion Agent a notice of the increase. The Company shall mail the notice at least 15 days before the date the increased Conversion Rate takes effect. The notice shall state the increased Conversion Rate and the period it will be in effect. A voluntary increase of the Conversion Rate does not change or adjust the Conversion Rate otherwise in effect for purposes of Section 13.06, 13.07 or 13.08. SECTION 13.13. Notice of Certain Transactions. If: (1) the Company takes any action that would require an adjustment in the Conversion Rate pursuant to Section 13.06, 13.07 or 13.08 (unless no adjustment is to occur pursuant to Section 13.10); or (2) the Company takes any action that would require a supplemental indenture pursuant to Section 13.14; or (3) there is a liquidation or dissolution of the Company; then the Company shall mail to Securityholders and file with the Trustee and the Conversion Agent a notice stating the proposed record date for a dividend or distribution or the proposed effective date of a subdivision, combination, reclassification, consolidation, merger, binding share exchange, transfer, liquidation or dissolution. The Company shall file and mail the notice at least 15 days before such date. Failure to file or mail the notice or any defect in it shall not affect the validity of the transaction. SECTION 13.14. Reorganization of Company; Special Distributions. If the Company is a party to a transaction subject to Section 8.01 (other than a sale of all or substantially all of the assets of the Company in a transaction in which the holders of Common Stock immediately prior to such transaction do not receive securities, cash or other assets of the Company or any other Person) or a merger or binding share exchange which reclassifies or changes its outstanding Common Stock, the Person obligated to deliver securities, cash or other assets upon conversion of Securities shall enter into a supplemental indenture. If the issuer of securities deliverable upon conversion of Securities is an Affiliate of the successor Company, that issuer shall join in the supplemental indenture. The supplemental indenture shall provide that the Holder of a Security may convert it into the kind and amount of securities, cash or other assets which such Holder would have received immediately after the consolidation, merger, binding share exchange or transfer if such Holder had converted the Security immediately before the effective date of the transaction, assuming (to the extent applicable) that such Holder (i) was not a constituent Person or an Affiliate of a constituent Person to such transaction; (ii) made no election with respect thereto; 80 and (iii) was treated alike with the plurality of non-electing Holders. The supplemental indenture shall provide for adjustments which shall be as nearly equivalent as may be practical to the adjustments provided for in this Article 13. The successor Company shall mail to Securityholders a notice briefly describing the supplemental indenture. If this Section applies, neither Section 13.06 nor Section 13.07 applies. If the Company makes a distribution to all holders of its Common Stock of any of its assets, or debt securities or any rights, warrants or options to purchase securities of the Company that, but for the provisions of the last paragraph of Section 13.08, would otherwise result in an adjustment in the Conversion Rate pursuant to the provisions of Section 13.08, then, from and after the record date for determining the holders of Common Stock entitled to receive the distribution, a Holder of a Security that converts such Security in accordance with the provisions of this Indenture shall upon such conversion be entitled to receive, in addition to the shares of Common Stock into which the Security is convertible, the kind and amount of securities, cash or other assets comprising the distribution that such Holder would have received if such Holder had converted the Security immediately prior to the record date for determining the holders of Common Stock entitled to receive the distribution. SECTION 13.15. Company Determination Final. Any determination that the Company or the Board of Directors must make pursuant to Section 13.03, 13.06, 13.07, 13.08, 13.09, 13.10, 13.14 or 13.17 is conclusive. SECTION 13.16. Trustee's Adjustment Disclaimer. The Trustee has no duty to determine when an adjustment under this Article 13 should be made, how it should be made or what it should be. The Trustee has no duty to determine whether a supplemental indenture under Section 13.14 need be entered into or whether any provisions of any supplemental indenture are correct. The Trustee shall not be accountable for and makes no representation as to the validity or value of any securities or assets issued upon conversion of Securities. The Trustee shall not be responsible for the Company's failure to comply with this Article 13. Each Conversion Agent shall have the same protection under this Section 13.16 as the Trustee. SECTION 13.17. Simultaneous Adjustments. In the event that this Article 13 requires adjustments to the Conversion Rate under more than one of Sections 13.06(4), 13.07 or 13.08, and the record dates for the distributions giving rise to such adjustments shall occur on the same date, then such adjustments shall be made by applying, first, the provisions of Section 13.06, second, the provisions of Section 13.08 and, third, the provisions of Section 13.07. SECTION 13.18. Successive Adjustments. After an adjustment to the Conversion Rate under this Article 13, any subsequent event requiring an adjustment under this Article 13 shall cause an adjustment to the Conversion Rate as so adjusted. SECTION 13.19. Rights Issued in Respect of Common Stock Issued Upon Conversion. Each share of Common Stock issued upon conversion of Securities pursuant to this Article 13 shall be entitled to receive the appropriate number of common stock or preferred stock purchase rights, as the case may be (the "Rights"), if any, and the certificates representing the Common Stock issued upon such conversion shall bear such legends, if any, in each case as may 81 be provided by the terms of any shareholder rights agreement adopted by the Company, as the same may be amended from time to time (in each case, a "Rights Agreement"). Provided that such Rights Agreement requires that each share of Common Stock issued upon conversion of Securities at any time prior to the distribution of separate certificates representing the Rights be entitled to receive such Rights, then, notwithstanding anything else to the contrary in this Article 13, there shall not be any adjustment to the Conversion Rate as a result of the issuance of Rights, the distribution of separate certificates representing the Rights, the exercise or redemption of such Rights in accordance with any such Rights Agreement, or the termination or invalidation of such Rights. ----------------------------------------------------- This instrument may be executed in any number of counterparts, each of which so executed shall be deemed to be an original, but all such counterparts shall together constitute but one and the same instrument. 82 IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed as of the day and year first above written. AVON PRODUCTS, INC. By /s/ Dennis Ling ------------------------------- THE CHASE MANHATTAN BANK, as Trustee By /s/ Kathleen Perry ------------------------------- 83 EXHIBIT A Form of Certificate to Be Delivered in Connection with Transfers Pursuant to Regulation S ---------------, ---- The Chase Manhattan Bank 450 West 33rd Street New York, New York 10001 Attention: Capital Market Fiduciary Services Re: Avon Products, Inc. (the Company") Zero Coupon Convertible Senior Notes due 2020 (the "Notes") Ladies and Gentlemen: In connection with our proposed sale of $____ aggregate Principal Amount at Maturity of the Notes, we confirm that such sale has been effected pursuant to and in accordance with Regulation S under the U.S. Securities Act of 1933, as amended (the "Securities Act"), and, accordingly, we represent that: 1. the offer of the Notes was not made to a Person in the United States; 2. either (a) at the time the buy offer was originated, the transferee was outside the United States or we and any Person acting on our behalf reasonably believed that the transferee was outside the United States, or (b) the transaction was executed in, on or through the facilities of a designated off-shore securities market and neither we nor any Person acting on our behalf knows that the transaction has been pre-arranged with a buyer in the United States; 3. no directed selling efforts have been made in the United States in contravention of the requirements of Rule 903(b) or Rule 904(b) of Regulation S, as applicable; 4. the transaction is not part of a plan or scheme to evade the registration requirements of the Securities Act, and 5. We have advised the transferee of the transfer restrictions applicable to the Notes. You and the Company are entitled to rely upon this letter and are irrevocably authorized to produce this letter or a copy hereof to any interested party, in any administrative or A-1 legal proceedings or official inquiry with respect to the matters covered hereby. Terms used in this certificate have the meanings set forth in Regulation S. Very truly yours, [Name of Transferor] By ------------------------------- Authorized Signature A-2 EXHIBIT B Form of Purchase Notice ---------------, ---- The Chase Manhattan Bank 450 West 33rd Street New York, New York 10001 Attention: Capital Market Fiduciary Services Re: Avon Products, Inc. (the "Company") Zero Coupon Convertible Senior Notes due 2020 This is a Purchase Notice as defined in Section 11.08 of the Indenture dated as of July 12, 2000 (the "Indenture") between the Company and The Chase Manhattan Bank, as Trustee. Terms used but not defined herein shall have the meanings ascribed to them in the Indenture. Certificate No(s). of Securities: _____________________________ I intend to deliver the following aggregate Principal Amount of Maturity of Securities for purchase by the Company pursuant to Section 11.08 of the Indenture (in multiples of $1,000): $_____________________________ I hereby agree that the Securities will be purchased as of the Purchase Date pursuant to the terms and conditions thereof and of the Indenture. In the event that the Company elects, pursuant to Section 11.08(b) of the Indenture, to pay the Purchase Price, in whole or in part, in shares of Common Stock but such portion of the Purchase Price is ultimately payable entirely in cash because any of the conditions to payment of the Purchase Price in Common Stock is not satisfied prior to the close of business on the Purchase Date, I elect (check one): [ ] (1) to withdraw this Purchase Notice as to all of the Securities to which it relates; [ ] (2) to withdraw this Purchase Notice as to $___________________ Principal Amount of Securities (Certificate No(s). ____________________); or [ ] (3) to receive cash in respect of the entire Purchase Price for all Securities or portions thereof to which this Purchase Notice relates. Signed: ________________________ B-1 EXHIBIT C Form of Fundamental Change Repurchase Notice ---------------, ---- The Chase Manhattan Bank 450 West 33rd Street New York, New York 10001 Attention: Capital Market Fiduciary Services Re: Avon Products, Inc. (the "Company") Zero Coupon Convertible Senior Notes due 2020 This is a Fundamental Change Repurchase Notice as defined in Section 11.09 of the Indenture dated as of July 12, 2000 (the "Indenture") between the Company and The Chase Manhattan Bank, as Trustee. Terms used but not defined herein shall have the meanings ascribed to them in the Indenture. Certificate No(s). of Securities: _____________________________ I intend to deliver the following aggregate Principal Amount of Maturity of Securities for purchase by the Company pursuant to Section 11.09 of the Indenture (in multiples of $1,000): $________________________________ I hereby agree that the Securities will be purchased as of the Fundamental Change Repurchase Date pursuant to the terms and conditions thereof and of the Indenture. In the event that the Company elects, pursuant to Section 11.09(b) of the Indenture, to pay the Fundamental Change Repurchase Price, in whole or in part, in shares of Common Stock but such portion of the Fundamental Change Repurchase Price is ultimately payable entirely in cash because any of the conditions to payment of the Fundamental Change Repurchase Price in Common Stock is not satisfied prior to the close of business on the Fundamental Change Repurchase Date, I elect (check one): [ ] (1) to withdraw this Fundamental Change Repurchase Notice as to all of the Securities to which it ; [ ] (2) to withdraw this Fundamental Change Repurchase Notice as to $___________________ Principal Amount of Securities (Certificate No(s). ____________________); or C-1 [ ] (3) to receive cash in respect of the entire Fundamental Change Repurchase Price for all Securities or portions thereof to which this Fundamental Change Repurchase Notice relates. Signed: ________________________ C-2 TABLE OF CONTENTS ----------------- Page ARTICLE 1 DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION Section 1.01. Definitions .............................................. 1 Section 1.02. Compliance Certificates and Opinions...................... 9 Section 1.03. Form of Documents Delivered to Trustee ................... 9 Section 1.04. Acts of Holders; Record Dates ............................ 10 Section 1.05. Notices, Etc., to Trustee and Company .................... 11 Section 1.06. Notice to Holders; Waiver ................................ 11 Section 1.07. Conflict with Trust Indenture Act ........................ 11 Section 1.08. Effect of Headings and Table of Contents ................. 11 Section 1.09. Successors and Assigns ................................... 12 Section 1.10. Separability Clause ...................................... 12 Section 1.11. Benefits of Indenture .................................... 12 Section 1.12. Governing Law ............................................ 12 Section 1.13. Legal Holiday ............................................ 12 ARTICLE 2 SECURITY FORMS Section 2.01. Forms Generally .......................................... 12 Section 2.02. Form of Face of Security ................................. 13 Section 2.03. Form of Reverse of Security .............................. 15 Section 2.04. Form of Trustee's Certificate of Authentication .......... 26 Section 2.05. Legend on Restricted Securities .......................... 26 i ARTICLE 3 THE SECURITIES Section 3.01. Title and Terms .......................................... 26 Section 3.02. Denominations ............................................ 27 Section 3.03. Execution, Authentication, Delivery and Dating ........... 27 Section 3.04. Temporary Securities ..................................... 27 Section 3.05. Registration; Registration of Transfer and Exchange; Restrictions on Transfer ....................... 28 Section 3.06. Mutilated, Destroyed, Lost and Stolen Securities ......... 30 Section 3.07. Persons Deemed Owners .................................... 30 Section 3.08. Book-entry Provisions for Global Securities .............. 30 Section 3.09. Cancellation ............................................. 32 Section 3.10. Special Transfer Provisions .............................. 32 ARTICLE 4 SATISFACTION AND DISCHARGE Section 4.01. Satisfaction and Discharge of Indenture .................. 34 Section 4.02. Application of Trust Money ............................... 34 ARTICLE 5 REMEDIES Section 5.01. Events of Default ........................................ 35 Section 5.02. Acceleration of Maturity; Rescission and Annulment ....... 36 Section 5.03. Collection of Indebtedness and Suits for Enforcement by Trustee .................................................. 37 Section 5.04. Trustee May File Proofs of Claim ......................... 37 Section 5.05. Trustee May Enforce Claims Without Possession of Securities ............................................... 38 Section 5.06. Application of Money Collected ........................... 38 Section 5.07. Limitation on Suits ...................................... 38 ii Section 5.08. Unconditional Right of Holders to Receive Payment ........ 39 Section 5.09. Restoration of Rights and Remedies ....................... 39 Section 5.10. Rights and Remedies Cumulative ........................... 39 Section 5.11. Delay or Omission Not Waiver ............................. 39 Section 5.12. Control by Holders ....................................... 39 Section 5.13. Waiver of Past Defaults .................................. 40 Section 5.14. Undertaking for Costs .................................... 40 Section 5.15. Waiver of Stay or Extension Laws ......................... 40 ARTICLE 6 THE TRUSTEE Section 6.01. Certain Duties and Responsibilities ...................... 41 Section 6.02. Notice of Defaults ....................................... 41 Section 6.03. Certain Rights of Trustee ................................ 41 Section 6.04. Not Responsible for Recitals ............................. 42 Section 6.05. May Hold Securities ...................................... 42 Section 6.06. Money Held in Trust ...................................... 42 Section 6.07. Compensation and Reimbursement ........................... 42 Section 6.08. Disqualification; Conflicting Interests .................. 43 Section 6.09. Corporate Trustee Required; Eligibility .................. 43 Section 6.10. Resignation and Removal; Appointment of Successor ................................................ 43 Section 6.11. Acceptance of Appointment by Successor ................... 45 Section 6.12. Merger, Conversion, Consolidation or Succession to Business ................................................. 45 Section 6.13. Preferential Collection of Claims Against ................ 45 iii ARTICLE 7 HOLDERS' LISTS AND REPORTS BY TRUSTEE Section 7.01. Company to Furnish Trustee Names and Addresses of Holders .................................................. 45 Section 7.02. Preservation of Information; Communications to Holders ... 46 Section 7.03. Reports by Trustee ....................................... 46 Section 7.04. Reports by Company ....................................... 46 ARTICLE 8 CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE Section 8.01. Company May Consolidate, Etc., Only on Certain Terms ..... 47 Section 8.02. Successor Substituted .................................... 47 ARTICLE 9 SUPPLEMENTAL INDENTURES Section 9.01. Supplemental Indentures Without Consent of Holders ....... 48 Section 9.02. Supplemental Indentures with Consent of Holders .......... 48 Section 9.03. Execution of Supplemental Indentures ..................... 49 Section 9.04. Effect of Supplemental Indentures ........................ 49 Section 9.05. Conformity with Trust Indenture Act ...................... 49 Section 9.06. Reference in Securities to Supplemental Indentures ............................................... 49 ARTICLE 10 COVENANTS Section 10.01. Payments ................................................. 50 Section 10.02. Maintenance of Office or Agency .......................... 50 Section 10.03. Money for Security Payments to Be Held in Trust .......... 50 Section 10.04. Statement by Officers as to Default ...................... 51 Section 10.05. Existence ................................................ 51 iv Section 10.06. Reports and Delivery of Certain Information .............. 51 Section 10.07. Resale of Certain Securities ............................. 52 Section 10.08. Book-Entry System ........................................ 52 Section 10.09. Calculation of Original Issue Discount ................... 52 ARTICLE 11 REDEMPTION AND PURCHASES Section 11.01. Right to Redeem; Notices to Trustee ...................... 52 Section 11.02. Selection of Securities to Be Redeemed ................... 53 Section 11.03. Notice of Redemption ..................................... 53 Section 11.04. Effect of Notice of Redemption ........................... 54 Section 11.05. Deposit of Redemption Price............................... 54 Section 11.06. Securities Redeemed in Part............................... 54 Section 11.07. Conversion Arrangement on Call for Redemption............. 54 Section 11.08. Purchase of Securities at Option of the Holder............ 55 Section 11.09. Repurchase of Securities at Option of the Holder upon Fundamental Change................................... 61 Section 11.10. Effect of Purchase Notice or Fundamental Change Repurchase Notice......................................... 68 Section 11.11. Deposit of Purchase Price or Fundamental Change Repurchase Price.......................................... 70 Section 11.12. Securities Purchased or Repurschased in Part.............. 70 Section 11.13. Covenant to Comply With Securities Laws Upon Purchase or Repurchase of Securities............................... 70 Section 11.14. Repayment to the Company.................................. 70 ARTICLE 12 SPECIAL TAX EVENT CONVERSION Section 12.01. Optional Conversion to Semi-annual Coupon Note Upon Tax Event..................................................... 71 Section 12.02. Payment of Interest; Interest Rights Preserved............ 71 v ARTICLE 13 CONVERSION Section 13.01. Conversion Privilege....................................... 73 Section 13.02. Conversion Procedure....................................... 74 Section 13.03. Fractional Shares.......................................... 75 Section 13.04. Taxes on Conversion........................................ 75 Section 13.05. Company to Provide Stock................................... 75 Section 13.06. Adjustment for Change In Capital Stock..................... 75 Section 13.07. Adjustment for Rights Issue................................ 76 Section 13.08. Adjustment for Other Distributions......................... 77 Section 13.09. When Adjustment May Be Deferred............................ 79 Section 13.10. When No Adjustment Required................................ 79 Section 13.11. Notice of Adjustment....................................... 79 Section 13.12. Voluntary Increase......................................... 80 Section 13.13. Notice of Certain Transactions............................. 80 Section 13.14. Reorganization of Company; Special Distributions........... 80 Section 13.15. Company Determination Final................................ 81 Section 13.16. Trustee's Adjustment Disclaimer............................ 81 Section 13.17. Simultaneous Adjustments................................... 81 Section 13.18. Successive Adjustments..................................... 81 Section 13.19. Rights Issued in Respect of Common Stock Issued Upon Conversion................................................. 81 Exhibit A - Form of Certificate to be Delivered in Connection with Transfers Pursuant to Regulation S Exhibit B - Form of Purchase Notice Exhibit C - Form of Fundamental Change Repurchase Notice vi - ------------------------------------------------------------------------------- AVON PRODUCTS, INC. as Issuer AND THE CHASE MANHATTAN BANK as Trustee -------------------- Indenture Dated as of July 12, 2000 ------------------- $735,820,000 Principal Amount at Maturity Zero Coupon Convertible Senior Notes due 2020 - ------------------------------------------------------------------------------- ..................................... Certain Sections of this Indenture relating to Sections 310 through 318 of the Trust Indenture Act of 1939: Trust Indenture Indenture Act Section Section ----------- ------- ss.310(a)(1) ..................................... 6.09 (a)(2) ..................................... 6.09 (a)(3) ..................................... Not Applicable (a)(4) ..................................... Not Applicable (b) ..................................... 6.08 6.10 ss.311(a) ..................................... 6.13 (b) ..................................... 6.13 ss.312(a) ..................................... 7.01 7.02(a) (b) ..................................... 7.02(b) (c) ..................................... 7.02(c) ss.313(a) ..................................... 7.03(a) (b) ..................................... 7.03(a) (c) ..................................... 7.03(a) (d) ..................................... 7.03(b) ss.314(a) ..................................... 7.04 (b) ..................................... Not Applicable (c)(1) ..................................... 1.02 (c)(2) ..................................... 1.02 (c)(3) ..................................... Not Applicable (d) ..................................... Not Applicable (e) ..................................... 1.02 ss.315(a) ..................................... 6.01 (b) ..................................... 6.02 (c) ..................................... 6.01 (d) ..................................... 6.01 (e) ..................................... 5.14 ss.316(a)(1)(A) ..................................... 5.12 (a)(1)(B) ..................................... 5.13 (a)(2) ..................................... Not Applicable (b) ..................................... 5.08 (c) ..................................... 1.04(c) i Trust Indenture Indenture Act Section Section ----------- ------- ss.317(a)(1) ..................................... 5.03 (a)(2) ..................................... 5.04 (b) ..................................... 10.03 ss.318(a) ..................................... 1.07 - --------- Note: This reconciliation and tie shall not, for any purpose, be deemed to be a part of this Indenture. ii EX-4.3 4 0004.txt REGISTRATION RIGHTS AGREEMENT EXHIBIT 4.3 REGISTRATION RIGHTS AGREEMENT REGISTRATION RIGHTS AGREEMENT, dated as of July 12, 2000 (this "Agreement"), among AVON PRODUCTS, INC., a New York corporation (the "Company") and SALOMON SMITH BARNEY INC., BANC OF AMERICA SECURITIES LLC, CHASE SECURITIES INC., DEUTSCHE BANK SECURITIES INC., J.P. MORGAN SECURITIES INC. and MORGAN STANLEY & CO. INCORPORATED (the "Initial Purchasers") of the Zero Coupon Convertible Senior Notes due 2020, to be issued pursuant to the provisions of an Indenture dated as of July 12, 2000 between the Company and The Chase Manhattan Bank, as Trustee (the "Trustee"). 1. Certain Definitions. For purposes of this Registration Rights Agreement, the following terms shall have the following respective meanings: (a) "Applicable Conversion Price" means, as of any date of determination, the Applicable Principal Amount per $1,000 principal amount at maturity of Notes as of such date of determination divided by the Conversion Rate in effect as of such date of determination or, if no Notes are then outstanding, the Conversion Rate that would be in effect were Notes then Outstanding. (b) "Applicable Principal Amount" means, as of any date of determination, with respect to each $1,000 principal amount at maturity of Notes, (i) the sum of the initial issue price of such Notes ($475.66) plus accrued original issue discount with respect to such Notes through such date of determination or, if no Notes are then outstanding, such sum calculated as if Notes were then outstanding, or (ii) if the Notes have been converted to semiannual coupon notes pursuant to Section 12 of the Indenture, the Restated Principal Amount (as defined in the Indenture). (c) "Business Day" means each Monday, Tuesday, Wednesday, Thursday and Friday that is not a day on which banking institutions in The City of New York are authorized or obligated by law or executive order to close. (d) "Closing Date" means the date on which the Notes are initially issued. (e) "Commission" means the Securities and Exchange Commission, or any other federal agency at the time administering the Exchange Act or the Securities Act, whichever is the relevant statute for the particular purpose. (f) "Conversion Rate" shall have the meaning assigned such term in the Indenture. (g) "Deferral Notice" has the meaning assigned thereto in Section 3(g). (h) "Deferral Period" has the meaning assigned thereto in Section 3(g). (i) "Effective Time" means the time and date as of which the Commission declares the Shelf Registration effective or as of which the Shelf Registration otherwise becomes effective. (j) "Exchange Act" means the Securities Exchange Act of 1934, or any successor thereto, as the same shall be amended from time to time. (k) "Holder" means each Initial Purchaser for so long as it owns any Registrable Securities, and such of its respective successors and assigns who acquire Registrable Securities, directly or indirectly, from such person or from any successor or assign of such person, in each case for so long as such person owns any Registrable Securities. (l) "Indenture" means the Indenture dated as of July 12, 2000, between the Company and The Chase Manhattan Bank, as Trustee, as the same shall be amended from time to time. (m) "Material Event" has the meaning assigned thereto in Section 3(b)(vi). (n) "Notes" means the Zero Coupon Convertible Senior Notes due 2020, to be issued under the Indenture and sold by the Company to the Initial Purchasers, and securities (other than the Shares) of the Company issued in exchange therefor or in lieu thereof pursuant to the Indenture. (o) "Notice and Questionnaire" means a written notice delivered to the Company containing substantially the information called for by the Selling Security Holder Notice and Questionnaire attached as Appendix A to the Offering Memorandum of the Company dated July 7, 2000 relating to the Notes. (p) "Notice Holder" means, on any date, any Holder that has delivered a Notice and Questionnaire to the Company on or prior to such date. (q) "Person" means a corporation, association, partnership, organization, business, individual, government or political subdivision thereof or governmental agency. (r) "Prospectus" means the prospectus included in any Shelf Registration, as amended or supplemented by any amendment or prospectus supplement, including post-effective amendments, and all materials incorporated by reference or explicitly deemed to be incorporated by reference in such Prospectus. (s) "Purchase Agreement" means the Purchase Agreement dated July 7, 2000 among the Company and the Initial Purchasers. (t) "Registrable Securities" means the Securities; provided, however, that such Securities shall cease to be Registrable Securities when (i) in the circumstances contemplated by Section 2(a), a registration statement registering such Securities under the Securities Act has been declared or becomes effective and such Securities have been 2 sold or otherwise transferred by the Holder thereof pursuant to such effective registration statement; (ii) such Securities are sold pursuant to Rule 144 under circumstances in which any legend borne by such Securities relating to restrictions on transferability thereof, under the Securities Act or otherwise, is removed or such Securities are eligible to be sold pursuant to paragraph (k) of Rule 144; or (iii) such Securities shall cease to be outstanding (including, in the case of the Notes, upon conversion into Shares). (u) "Registration Default" has the meaning assigned thereto in Section 2(c). (v) "Registration Default Damages" has the meaning assigned thereto in Section 2(c). (w) "Registration Expenses" has the meaning assigned thereto in Section 5. (x) "Resale Period" means the period beginning on the date the Shelf Registration becomes effective and ending on the earlier of (i) the Shelf Registration ceasing to be effective or (ii) the second anniversary of the Closing Date. (y) "Restricted Holder" means (i) a Holder that is an affiliate of the Company within the meaning of Rule 405 or (ii) a broker-dealer who receives Securities for its own account but did not acquire the Securities as a result of market-making activities or other trading activities. (z) "Rule 144," "Rule 405" and "Rule 415" means, in each case, such rule promulgated under the Securities Act. (aa) "Securities" means, collectively, the Notes and the Shares. (bb) "Securities Act" means the Securities Act of 1933. (cc) "Shares" means the shares of common stock of the Company, par value $0.25 per share, into which the Notes are convertible or that have been issued upon any conversion from Notes into common stock of the Company. (dd) "Shelf Registration" has the meaning assigned thereto in Section 2(a). (ee) "Trust Indenture Act" means the Trust Indenture Act of 1939, or any successor thereto, and the rules, regulations and forms promulgated thereunder, all as the same shall be amended from time to time. Unless the context otherwise requires, any reference herein to a "Section" or "clause" refers to a Section or clause, as the case may be, of this Agreement, and the words "herein," "hereof" and "hereunder" and other words of similar import refer to this Agreement as a whole and not to any particular Section or other subdivision. Unless the context otherwise requires, any reference to a statute, rule or regulation refers to the same (including any successor statute, rule or regulation thereto) as it may be amended from time to time. 3 2. Registration Under the Securities Act. (a) The Company agrees to file under the Securities Act as promptly as practicable but in any event within 120 days after the Closing Date a "shelf" registration statement providing for the registration of, and the sale on a continuous or delayed basis by the Holders of, all of the Registrable Securities, pursuant to Rule 415 or any similar rule that may be adopted by the Commission (the "Shelf Registration"). The Company agrees to use its commercially reasonable efforts to cause the Shelf Registration to become or be declared effective within 180 days after the Closing Date and to keep such Shelf Registration continuously effective for a period ending on the earlier of (i) the second anniversary of the Closing Date or (ii) such time as there are no longer any Registrable Securities outstanding. The Company further agrees to supplement or make amendments to the Shelf Registration, as and when required by the rules, regulations or instructions applicable to the registration form used for such Shelf Registration or by the Securities Act or rules and regulations thereunder for shelf registration, and the Company agrees to furnish to the Holders of the Registrable Securities copies of any such supplement or amendment prior to its being used or promptly following its filing with the Commission. (b) Each Holder of Registrable Securities agrees that if such Holder wishes to sell Registrable Securities pursuant to a Shelf Registration and related Prospectus, it will do so only in accordance with this Section 2(b) and Section 3(g). Each Holder of Registrable Securities wishing to sell Registrable Securities pursuant to a Shelf Registration and related Prospectus agrees to deliver a Notice and Questionnaire to the Company at least three (3) Business Days prior to any intended distribution of Registrable Securities under the Shelf Registration. From and after the date the Shelf Registration is declared effective, the Company shall, as promptly as is practicable after the date a Notice and Questionnaire is delivered, and in any event within five (5) Business Days after such date, (i) if required by applicable law, file with the Commission a post-effective amendment to the Shelf Registration or prepare and, if required by applicable law, file a supplement to the related Prospectus or a supplement or amendment to any document incorporated therein by reference or file any other required document so that the Holder delivering such Notice and Questionnaire is named as a selling security Holder in the Shelf Registration and the related Prospectus in such a manner as to permit such Holder to deliver such Prospectus to purchasers of the Registrable Securities in accordance with applicable law and, if the Company shall file a post-effective amendment to the Shelf Registration, use commercially reasonable efforts to cause such post-effective amendment to be declared effective under the Securities Act as promptly as is practicable; (ii) provide such Holder copies of any documents filed pursuant to Section 2(b)(i); and (iii) notify such Holder as promptly as practicable after the effectiveness under the Securities Act of any post-effective amendment filed pursuant to Section 2(b)(i); provided that if such Notice and Questionnaire is delivered during a Deferral Period, the Company shall so inform the Holder delivering such Notice and Questionnaire and shall take the actions set forth in clauses (i), (ii) and (iii) above upon expiration of the Deferral Period in accordance with Section 3(g). Notwithstanding 4 anything contained herein to the contrary, the Company shall be under no obligation to name any Holder that is not a Notice Holder as a selling security Holder in any Shelf Registration or related Prospectus; provided, however, that any Holder that becomes a Notice Holder pursuant to the provisions of Section 2(b) of this Agreement (whether or not such Holder was a Notice Holder at the time the Shelf Registration was declared effective) shall be named as a selling security Holder in the Shelf Registration or related Prospectus in accordance with the requirements of this Section 2(b). (c) If any of the following events (any such event a "Registration Default") shall occur, then liquidated damages (the "Registration Default Damages") shall become payable in respect of the Securities as follows: (i) if the Shelf Registration is not filed with the Commission within 120 days following the Closing Date, then commencing on the 121st day after the Closing Date, Registration Default Damages shall accrue on the Applicable Principal Amount of any outstanding Notes that are Registrable Securities and the Applicable Conversion Price of any outstanding Shares that are Registrable Securities at a rate of 0.25% per annum for the first 120 days following such 121st day and 0.5% per annum thereafter; or (ii) if the Shelf Registration is not declared effective by the Commission on or prior to the 180th day following the Closing Date, then commencing on the 181st day after the Closing Date, Registration Default Damages shall accrue on the Applicable Principal Amount of any outstanding Notes that are Registrable Securities and the Applicable Conversion Price of any outstanding Shares that are Registrable Securities at a rate of 0.25% per annum for the first 120 days following such 181st day and 0.5% per annum thereafter; or (iii) if the Shelf Registration has been declared effective but such Shelf Registration ceases to be effective (other than pursuant to Section 3(g) hereof) at any time prior to the earlier of (A) two years from the Closing Date or (B) the time at which there ceases to be any Registrable Securities, then commencing on the day such Shelf Registration ceases to be effective, Registration Default Damages shall accrue on the Applicable Principal Amount of any outstanding Notes that are Registrable Securities and the Applicable Conversion Price of any outstanding Shares that are Registrable Securities at a rate of 0.25% per annum for the first 120 days following such date on which the Shelf Registration ceases to be effective and 0.5% per annum thereafter; or (iv) if the aggregate duration of Deferral Periods in any period exceeds the number of days permitted in respect of such period pursuant to Section 3(g) hereof, then commencing on the day the aggregate duration of Deferral Periods in any period exceeds the number of days permitted in respect of such period, Registration Default Damages shall accrue on the Applicable Principal Amount of any outstanding Notes that are Registrable Securities and the Applicable 5 Conversion Price of any outstanding Shares that are Registrable Securities at a rate of 0.25% per annum for the first 120 days and 0.5% per annum thereafter; provided, however, that the Registration Default Damages rate on the Securities shall not exceed in the aggregate 0.5% per annum; provided further, however, that (1) upon the filing of the Shelf Registration (in the case of clause (i) above), (2) upon the effectiveness of the Shelf Registration (in the case of clause (ii) above), (3) upon the effectiveness of the Shelf Registration which had ceased to remain effective (in the case of clause (iii) above), (4) upon the termination of the Deferral Period that caused the limit on the aggregate duration of Deferral Periods in a period set forth in Section 3(g) to be exceeded (in the case of clause (iv) above) or (5) upon the termination of certain transfer restrictions on the Securities as a result of the application of Rule 144(k), Registration Default Damages on the Securities as a result of such clause, as the case may be, shall cease to accrue. (d) Any reference herein to a registration statement shall be deemed to include any document incorporated therein by reference as of the applicable Effective Time and any reference herein to any post-effective amendment to a registration statement shall be deemed to include any document incorporated therein by reference as of a time after such Effective Time. (e) Notwithstanding any other provision of this Agreement, no Holder of Registrable Securities who does not comply with the provisions of Section 3(d), if applicable, shall be entitled to receive Registration Default Damages unless and until such Holder complies with the provisions of such section, if applicable. 3. Registration Procedures. The following provisions shall apply to registration statements filed pursuant to Section 2: (a) At the Effective Time of the Shelf Registration, the Company shall qualify the Indenture under the Trust Indenture Act. (b) In connection with the Company's obligations with respect to the Shelf Registration, the Company shall: (i) prepare and file with the Commission a registration statement with respect to the Shelf Registration on any form which may be utilized by the Company and which shall permit the disposition of the Registrable Securities in accordance with the intended method or methods thereof, as specified in writing by the Holders of the Registrable Securities, and use its commercially reasonable efforts to cause such registration statement to become effective in accordance with Section 2(a) above; 6 (ii) prepare and file with the Commission such amendments and supplements to such registration statement and the Prospectus included therein as may be necessary to effect and maintain the effectiveness of such registration statement for the period specified in Section 2(a) and as may be required by the applicable rules and regulations of the Commission and the instructions applicable to the form of such registration statement, and furnish to the Holders of the Registrable Securities copies of any such supplement or amendment simultaneously with or prior to its being used or filed with the Commission; (iii) comply, as to all matters within the Company's control, with the provisions of the Securities Act with respect to the disposition of all of the Registrable Securities covered by such registration statement in accordance with the intended methods of disposition by the Holders thereof provided for in such registration statement; (iv) provide to any of (A) the Holders of the Registrable Securities to be included in such registration statement, (B) the underwriters (which term, for purposes of this Agreement, shall include a person deemed to be an underwriter within the meaning of Section 2(11) of the Securities Act), if any, thereof, (C) the sales or placement agent, if any, therefor, (D) counsel for such underwriters or agent and (E) not more than one counsel for all the Holders of such Registrable Securities who so request of the Company in writing the opportunity to participate in the preparation of such registration statement, each Prospectus included therein or filed with the Commission and each amendment or supplement thereto; (v) for a reasonable period prior to the filing of such registration statement, and throughout the Resale Period, make available at reasonable times at the Company's principal place of business or such other reasonable place for inspection by the persons referred to in Section 3(b)(iv), who shall certify to the Company that they have a current intention to sell their Registrable Securities pursuant to the Shelf Registration, such financial and other information and books and records of the Company, and cause the officers, employees, counsel and independent certified public accountants of the Company to respond to such inquiries, as shall be reasonably necessary, in the judgment of the respective counsel referred to in such Section, to conduct a reasonable investigation within the meaning of Section 11 of the Securities Act; provided, however, that each such party shall be required to maintain in confidence and not to disclose to any other person any information or records reasonably designated by the Company in writing as being confidential, until such time as (A) such information becomes a matter of public record (whether by virtue of its inclusion in such registration statement or otherwise), or (B) such person shall be required so to disclose such information pursuant to a subpoena or order of any court or other governmental agency or body having jurisdiction over the matter (subject to the requirements of such order, and only after such person shall have given the Company prompt prior written notice of such requirement and the opportunity to contest the same or seek an appropriate protective order), or (C) such information is required to be set forth 7 in such registration statement or the Prospectus included therein or in an amendment to such registration statement or an amendment or supplement to such Prospectus in order that such registration statement, Prospectus, amendment or supplement, as the case may be, does not contain an untrue statement of a material fact or omit to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading; (vi) promptly notify the selling Holders of Registrable Securities, the sales or placement agent, if any, therefor and the managing underwriter or underwriters, if any, thereof named in the Shelf Registration or a supplement thereto, and confirm such notice in writing, (A) when such registration statement or the Prospectus included therein or any Prospectus amendment or supplement or post-effective amendment has been filed, and, with respect to such registration statement or any post-effective amendment, when the same has become effective, (B) of the issuance by the Commission of any stop order suspending the effectiveness of such registration statement or the initiation or written threat of any proceedings for that purpose, (C) of the receipt by the Company of any notification with respect to the suspension of the qualification of the Registrable Securities for sale in any jurisdiction or the initiation or written threat of any proceeding for such purpose, (D) of the occurrence of (but not the nature of or details concerning) any event or the existence of any fact (a "Material Event") as a result of which any Shelf Registration shall contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, or any Prospectus shall contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading (provided, however, that no notice by the Company shall be required pursuant to this clause (D) in the event that the Company either promptly files a Prospectus supplement to update the Prospectus or a Form 8-K or other appropriate Exchange Act report that is incorporated by reference into the Shelf Registration, which, in either case, contains the requisite information with respect to such Material Event that results in such Shelf Registration no longer containing any untrue statement of material fact or omitting to state a material fact necessary to make the statements contained therein not misleading), (E) of the determination by the Company that a post-effective amendment to a Shelf Registration will be filed with the Commission, which notice may, at the discretion of the Company (or as required pursuant to Section 3(g)), state that it constitutes a Deferral Notice, in which event the provisions of Section 3(g) shall apply or (F) at any time when a Prospectus is required to be delivered under the Securities Act, that such registration statement, Prospectus, Prospectus amendment or supplement or post-effective amendment does not conform in all material respects to the applicable requirements of the Securities Act and the Trust Indenture Act and the rules and regulations of the Commission thereunder; 8 (vii) use its commercially reasonable efforts to obtain the withdrawal of any order suspending the effectiveness of such registration statement or any post-effective amendment thereto at the earliest practicable date; (viii) if requested by any managing underwriter or underwriters, any placement or sales agent or any Holder of Registrable Securities, promptly incorporate in a Prospectus supplement or post-effective amendment such information as is required by the applicable rules and regulations of the Commission relating to the terms of the sale of such Registrable Securities, including information with respect to the principal amount at maturity or number of Registrable Securities being sold by such Holder or agent or to any underwriters, the name and description of such Holder, agent or underwriter, the offering price of such Registrable Securities and any discount, commission or other compensation payable in respect thereof, the purchase price being paid therefor by such underwriters and with respect to any other terms of the offering of the Registrable Securities to be sold by such Holder or agent or to such underwriters; and make all required filings of such Prospectus supplement or post-effective amendment promptly after notification of the matters to be incorporated in such Prospectus supplement or post-effective amendment; (ix) furnish to each Holder of Registrable Securities, each placement or sales agent, if any, therefor, each underwriter, if any, thereof and the respective counsel referred to in Section 3(b)(iv) an executed copy (or, in the case of a Holder of Registrable Securities, a conformed copy) of such registration statement, each such amendment or supplement thereto (in each case including all exhibits thereto) and such number of copies of such registration statement (excluding exhibits thereto) and of the Prospectus included in such registration statement (including each preliminary Prospectus and any summary Prospectus), in conformity in all material respects with the applicable requirements of the Securities Act and the Trust Indenture Act and the rules and regulations of the Commission thereunder; and the Company hereby consents (except during such periods that a Deferral Notice is outstanding and has not been revoked) to the use of such Prospectus (including any such preliminary or summary Prospectus) and any amendment or supplement thereto by each such Holder and by any such agent and underwriter, in each case in the form most recently provided to such person by the Company in connection with the offering and sale of the Registrable Securities covered by the Prospectus (including any such preliminary or summary Prospectus) or any supplement or amendment thereto; and (x) use its commercially reasonable efforts to (A) register or qualify, to the extent required by law, the Registrable Securities to be included in such registration statement under such securities laws or blue sky laws of such United States jurisdictions as any Holder of such Registrable Securities and each placement or sales agent, if any, therefor and underwriter, if any, thereof shall reasonably request, and (B) keep such registrations or qualifications in effect and comply with such laws so as to permit the continuance of offers, sales and 9 dealings therein in such jurisdictions during the period the Shelf Registration is required to remain effective under Section 2(a) and for so long as may be necessary to enable any such Holder, agent or underwriter to complete its distribution of Securities pursuant to such registration statement but in any event not later than the date through which the Company is required to keep the Shelf Registration effective pursuant to Section 2(a); provided, however, that the Company shall not be required for any such purpose to (1) qualify as a foreign corporation in any jurisdiction wherein it would not otherwise be required to qualify but for the requirements of this Section 3(b)(x), (2) consent to general service of process in any such jurisdiction or (3) make any changes to its certificate of incorporation or by-laws or any agreement between it and its stockholders. In case any of the foregoing obligations is dependent upon information provided or to be provided by a party other than the Company, such obligation shall be subject to the provision of such information by such party; provided that the Company shall use its reasonable best efforts to obtain the necessary information from any party responsible for providing such information. (c) In the event that the Company would be required, pursuant to Section 3(b)(vi)(D), to notify the selling Holders of Registrable Securities, the placement or sales agent, if any, therefor or the managing underwriters, if any, thereof named in the Shelf Registration or a supplement thereto of the existence of the circumstances described therein, the Company shall prepare and furnish to each such Holder, to each placement or sales agent, if any, and to each such underwriter, if any, a reasonable number of copies of a Prospectus supplemented or amended so that, as thereafter delivered to purchasers of Registrable Securities, such Prospectus shall conform in all material respects to the applicable requirements of the Securities Act and the Trust Indenture Act and the rules and regulations of the Commission thereunder. Each Holder of Registrable Securities agrees that upon receipt of any notice from the Company, pursuant to Section 3(b)(vi)(D), such Holder shall forthwith discontinue (and cause any placement or sales agent or underwriters acting on their behalf to discontinue) the disposition of Registrable Securities pursuant to the registration statement applicable to such Registrable Securities until such Holder (i) shall have received copies of such amended or supplemented Prospectus and, if so directed by the Company, such Holder shall deliver to the Company (at the Company's expense) all copies, other than permanent file copies, then in such Holder's possession of the Prospectus covering such Registrable Securities at the time of receipt of such notice or (ii) shall have received notice from the Company that the disposition of Registrable Securities pursuant to the Shelf Registration may continue. (d) The Company may require each Holder of Registrable Securities as to which any registration pursuant to Section 2(a) is being effected to furnish to the Company such information regarding such Holder and such Holder's intended method of distribution of such Registrable Securities as the Company may from time to time reasonably request in writing, but only to the extent that such information is required in 10 order to comply with the Securities Act. Each such Holder agrees to notify the Company as promptly as practicable of any inaccuracy or change in information previously furnished by such Holder to the Company or of the occurrence of any event in either case as a result of which any Prospectus relating to such registration contains or would contain an untrue statement of a material fact regarding such Holder or such Holder's intended method of disposition of such Registrable Securities or omits to state any material fact regarding such Holder or such Holder's intended method of disposition of such Registrable Securities required to be stated therein or necessary to make the statements therein not misleading, and promptly to furnish to the Company any additional information required to correct and update any previously furnished information or required so that such Prospectus shall not contain, with respect to such Holder or the disposition of such Registrable Securities, an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading. (e) Until the expiration of two years after the Closing Date, the Company will not, and will not permit any of its "affiliates" (as defined in Rule 144) to, resell any of the Securities that have been reacquired by any of them except pursuant to an effective registration statement under the Securities Act. (f) Upon the occurrence of a Material Event, the Company shall as promptly as practicable prepare and file a post-effective amendment to the Shelf Registration or a supplement to the related Prospectus or any document incorporated therein by reference or file any other required document that would be incorporated by reference into such Shelf Registration and Prospectus so that such Shelf Registration does not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, and such Prospectus does not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, as thereafter delivered to the purchasers of the Registrable Securities being sold thereunder, and, in the case of a post-effective amendment to a Shelf Registration, use all commercially reasonable efforts to cause it to be declared effective as promptly as is reasonably practicable. (g) Upon the occurrence or existence of any pending corporate development or any other Material Event that, in the sole judgment of the Company, makes it appropriate to suspend the availability of the Shelf Registration and the related Prospectus, the Company shall give notice (without notice of the nature or details of such events) to the Notice Holders that the availability of the Shelf Registration is suspended (a "Deferral Notice") and, upon receipt of any Deferral Notice, each Notice Holder agrees not to sell any Registrable Securities pursuant to the Shelf Registration until such Notice Holder's receipt of copies of the supplemented or amended Prospectus provided for in clause (i) above, or until it is advised in writing by the Company that the Prospectus may be used, and has received copies of any additional or supplemental filings that are incorporated or deemed incorporated by reference in such Prospectus. The period during which the availability of the Shelf Registration and any Prospectus is 11 suspended (the "Deferral Period") shall, without the Company incurring any obligation to pay liquidated damages pursuant to Section 2(c), not exceed forty-five (45) days in any three (3) month period or ninety (90) days in any twelve (12) month period. 4. Holder's Obligations. Each Holder agrees, by acquisition of the Registrable Securities, that no Holder of Registrable Securities shall be entitled to sell any of such Registrable Securities pursuant to a Shelf Registration or to receive a Prospectus relating thereto, unless such Holder has furnished the Company with a Notice and Questionnaire as required pursuant to Section 2(b) hereof (including the information required to be included in such Notice and Questionnaire) and the information set forth in the next sentence. Each Notice Holder agrees promptly to furnish to the Company all information required to be disclosed in order to make the information previously furnished to the Company by such Notice Holder not misleading and any other information regarding such Notice Holder and the distribution of such Registrable Securities as may be required to be disclosed in the Shelf Registration under applicable law or pursuant to SEC comments. Each Holder further agrees not to sell any Registrable Securities pursuant to the Shelf Registration without delivering, or causing to be delivered, a Prospectus to the purchaser thereof and, following termination of the Effectiveness Period, to notify the Company, within 10 business days of request, of the amount of Registrable Securities sold pursuant to the Shelf Registration and, in the absence of a response, the Company may assume that all of the Holder's Registrable Securities were so sold. 5. Registration Expenses. The Company agrees to bear and to pay or cause to be paid promptly upon request being made therefor all expenses incident to the Company's performance of or compliance with this Agreement, including (a) all Commission and any NASD registration and filing fees and expenses, (b) all fees and expenses in connection with the qualification of the Securities for offering and sale under the State securities and blue sky laws referred to in Section 3(b)(x) hereof, including reasonable fees and disbursements of one counsel for the placement or sales agent or underwriters, if any, in connection with such qualifications, (c) all expenses relating to the preparation, printing, distribution and reproduction of each registration statement required to be filed hereunder, each Prospectus included therein or prepared for distribution pursuant hereto, each amendment or supplement to the foregoing, the certificates representing the Securities and all other documents relating hereto, (d) fees and expenses of the Trustee under the Indenture, and of any escrow agent or custodian, and of the registrar and transfer agent for the Shares, (e) internal expenses (including all salaries and expenses of the Company's officers and employees performing legal or accounting duties), (f) fees, disbursements and expenses of counsel and independent certified public accountants of the Company (including the expenses of any opinions or "cold comfort" letters required by or incident to such performance and compliance) and (g) reasonable fees, disbursements and expenses of one counsel for the Holders of Registrable Securities retained in connection with the Shelf Registration, as selected by the Company (unless reasonably objected to by Holders of at least a majority in aggregate Applicable Principal Amount and Applicable Conversion Price of the Registrable Securities being registered), and fees, expenses and disbursements of any other persons, including special 12 experts, retained by the Company in connection with such registration (collectively, the "Registration Expenses"). To the extent that any Registration Expenses are incurred, assumed or paid by any Holder of Registrable Securities or any placement or sales agent therefor or underwriter thereof, the Company shall reimburse such person for the full amount of the Registration Expenses so incurred, assumed or paid promptly after receipt of a documented request therefor. Notwithstanding the foregoing, the Holders of the Registrable Securities being registered shall pay all agency fees and commissions and underwriting discounts and commissions attributable to the sale of such Registrable Securities and the fees and disbursements of any counsel or other advisors or experts retained by such Holders (severally or jointly), other than the counsel and experts specifically referred to above. 6. Representations and Warranties. The Company represents and warrants to, and agrees with, the Initial Purchasers and each of the Holders from time to time of Registrable Securities that: (a) Each registration statement covering Registrable Securities and each Prospectus (including any preliminary or summary Prospectus) contained therein or furnished pursuant to Section 3(c) hereof and any further amendments or supplements to any such registration statement or Prospectus, when it becomes effective or is filed with the Commission, as the case may be, and, in the case of an underwritten offering of Registrable Securities, at the time of the closing under the underwriting agreement relating thereto, will conform in all material respects to the applicable requirements of the Securities Act and the Trust Indenture Act and the rules and regulations of the Commission thereunder and will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading; and at all times subsequent to the Effective Time when a Prospectus would be required to be delivered under the Securities Act, other than from (i) such time as a notice has been given to Holders of Registrable Securities pursuant to Section 3(b)(vi)(D) hereof until (ii) such time as the Company furnishes an amended or supplemented Prospectus pursuant to Section 3(c) hereof or such time as the Company provides notice that offers and sales pursuant to the Shelf Registration may continue, each such registration statement, and each Prospectus (including any summary Prospectus) contained therein or furnished pursuant to Section 3(b) hereof, as then amended or supplemented, will conform in all material respects to the applicable requirements of the Securities Act and the Trust Indenture Act and the rules and regulations of the Commission thereunder; provided, however, that this representation and warranty shall not apply to any statements or omissions made in reliance upon and in conformity with information furnished in writing to the Company by or on behalf of a Holder of Registrable Securities expressly for use therein. (b) Any documents incorporated by reference in any Prospectus referred to in Section 6(a) hereof, when they become or became effective or are or were filed with the Commission, as the case may be, will conform or conformed in all material respects to the requirements of the Securities Act or the Exchange Act, as applicable, and none of 13 such documents will contain or contained an untrue statement of a material fact or will omit or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading, provided, however, that this representation and warranty shall not apply to any statements or omissions made in reliance upon and in conformity with information furnished in writing to the Company by a Holder of Registrable Securities expressly for use therein. (c) The compliance by the Company with all of the provisions of this Agreement and the consummation of the transactions herein contemplated will not contravene any provision of applicable law or the certificate of incorporation or by-laws of the Company or, except to the extent that any such contravention would not have a material adverse effect on the Company and its subsidiaries, taken as a whole, any indenture or instrument relating to indebtedness for money borrowed or any agreement to which the Company is a party or any order, rule, regulation or decree of any court or governmental agency or authority located in the United States having jurisdiction over the Company or any property of the Company; and, to the best knowledge of the Company, no consent, authorization or order of, or filing or registration with, any court or governmental agency or authority is required for the consummation by the Company of the transactions contemplated by this Agreement, except the registration under the Securities Act contemplated hereby, qualification of the Indenture under the Trust Indenture Act and such consents, approvals, authorizations, registrations or qualifications as may be required under State securities or blue sky laws. (d) This Agreement has been duly authorized, executed and delivered by the Company. 7. Indemnification. (a) Indemnification by the Company. In connection with the Shelf Registration, the Company shall, and it hereby agrees to, indemnify and hold harmless each of the Holders of Registrable Securities included in such Shelf Registration, and each person who is named in such Shelf Registration or a supplement thereto as an underwriter in any offering or sale of such Registrable Securities and each person who controls any such person (each, a "Participant") against any losses, claims, damages or liabilities, joint or several, to which such Participant may become subject under the Securities Act, the Exchange Act or other federal or state statutory law or regulation, at common law or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon an untrue statement or alleged untrue statement of a material fact contained in any registration statement under which such Registrable Securities were registered under the Securities Act, or any preliminary, final or summary Prospectus contained therein or furnished by the Company to any such Participant, or any amendment or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading and the Company shall, and it hereby agrees to, reimburse each such Participant for any legal or other expenses reasonably incurred by it in connection with investigating or defending any 14 such loss, claim, damage, liability or action; provided, however, that the Company shall not be liable to any such person in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in such registration statement, or preliminary, final or summary Prospectus, or amendment or supplement thereto, in reliance upon and in conformity with written information furnished to the Company by such Participant expressly for use therein; provided, further, that this indemnity agreement shall not apply to any loss, liability, claim, damage or expense (1) arising from an offer or sale of Registrable Securities occurring during a Deferral Period, if Notice Holders received a Deferral Notice, or (2) the Participant fails to deliver at or prior to the written confirmation of sale, the most recent Prospectus, as amended or supplemented, and such Prospectus, as amended or supplemented, would have corrected such untrue statement or alleged untrue statement of a material fact. This indemnity agreement will be in addition to any liability which the Company may otherwise have. (b) Indemnification by Participants. Each Participant, severally and not jointly, agrees to indemnify and hold harmless the Company, each of the Company's directors, officers and employees and each person who controls the Company within the meaning of either the Securities Act or the Exchange Act, to the same extent as the foregoing indemnity from the Company, but only with reference to written information furnished to the Company by or on behalf of such Participant specifically for use in any registration statement, or any preliminary or final or summary Prospectus contained therein or any amendment or supplement thereto. This indemnity agreement will be acknowledged by each Participant that is not an Initial Purchaser in such Participant's Notice and will be in addition to any liability which any such person may otherwise have. (c) Promptly after receipt by an indemnified party under Section 7(a) or (b) of notice of the commencement of any action, such indemnified party will, if a claim in respect thereof is to be made against the indemnifying party under such subsection, notify the indemnifying party in writing of the commencement thereof; but the omission so to notify the indemnifying party will not relieve the indemnifying party from any liability which it may have to any indemnified party otherwise than under Section 7(a) or (b). In case any such action is brought against any indemnified party, and it notifies the indemnifying party of the commencement thereof, the indemnifying party will be entitled to participate therein, and to the extent that it may elect by written notice delivered to the indemnified party promptly after receiving the aforesaid notice from such indemnified party, to assume the defense thereof, with counsel satisfactory to such indemnified party; provided that, if the defendants in any such action include both the indemnified party and the indemnifying party and representation of both parties by the same counsel would be inappropriate due to actual or potential conflicting interests between them, the indemnified party or parties shall have the right to select separate counsel to participate in the defense of such action on behalf of such indemnified party or parties. Upon receipt of notice from the indemnifying party to such indemnified party of its election so to assume the defense of such action and approval by the indemnified party of counsel, the indemnifying party will not be liable to such indemnified party under Section 7(a) or (b) 15 for any legal or other expenses subsequently incurred by such indemnified party (other than reasonable costs of investigation) in connection with the defense thereof unless (i) the indemnified party shall have employed separate counsel in connection with the assertion of legal defenses in accordance with the proviso to the immediately preceding sentence (it being understood, however, that the indemnifying party shall not be liable for the expenses of more than one separate national counsel, approved by the indemnifying party, representing the indemnified parties who are parties to such action), (ii) the indemnifying party shall not have employed counsel satisfactory to the indemnified party to represent the indemnified party within a reasonable time after notice of commencement of the action or (iii) the indemnifying party has authorized the employment of counsel for the indemnified party at the expense of the indemnifying party; and except that, if clause (i) or (iii) is applicable, such liability shall be only in respect of the counsel referred to in such clause (i) or (iii). No indemnifying party shall, without the prior written consent of the indemnified party, effect any settlement of any pending or threatened action in respect of which any indemnified party is or could have been a party and indemnity could have been sought hereunder by such indemnified party unless such settlement includes an unconditional release of such indemnified party from all liability on any claims that are the subject matter of such action. (d) Contribution. Each party hereto agrees that, if for any reason the indemnification provisions contemplated by Section 7(a) or Section 7(b) are unavailable to or insufficient to hold harmless an indemnified party in respect of any losses, claims, damages or liabilities (or actions in respect thereof) referred to therein, then each indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages or liabilities (or actions in respect thereof) in such proportion as is appropriate to reflect the relative fault of the indemnifying party and the indemnified party in connection with the statements or omissions which resulted in such losses, claims, damages or liabilities (or actions in respect thereof), as well as any other relevant equitable considerations. The relative fault of such indemnifying party and indemnified party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact relates to information supplied by such indemnifying party or by such indemnified party, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The parties hereto agree that it would not be just and equitable if contributions pursuant to this Section 7(d) were determined by pro rata allocation (even if the Participants were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to in this Section 7(d). The amount paid or payable by an indemnified party as a result of the losses, claims, damages, or liabilities (or actions in respect thereof) referred to above shall be deemed to include any legal or other fees or expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this Section 7(d), no Participant shall be required to contribute any amount in excess of the amount by which the dollar amount of 16 the proceeds received by such Participant from the sale of any Registrable Securities exceeds the amount of any damages which such Participant has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission, and no underwriter shall be required to contribute any amount in excess of the amount by which the total price at which the Registrable Securities underwritten by it and distributed to the public were offered to the public exceeds the amount of any damages which such underwriter has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The Participants' obligations in this Section 7(d) to contribute shall be several in proportion to the aggregate principal amount at maturity or number of Registrable Securities registered or underwritten, as the case may be, by them and not joint. (e) The obligations of the Company under this Section 7 shall be in addition to any liability which the Company may otherwise have and shall extend, upon the same terms and conditions, to each officer, director and partner of each Participant and each person, if any, who controls any Participant within the meaning of the Securities Act or the Exchange Act; and the obligations of the Participants contemplated by this Section 7 shall be in addition to any liability which the respective Participants may otherwise have and shall extend, upon the same terms and conditions, to each officer, employee and director of the Company (including any person who, with his consent, is named in any registration statement as about to become a director of the Company), and to each person, if any, who controls the Company within the meaning of the Securities Act or the Exchange Act. 8. Rule 144. The Company covenants to the Holders of Registrable Securities that the Company shall use its commercially reasonable efforts to timely file the reports required to be filed by it under the Exchange Act or the Securities Act (including the reports under Section 13 and 15(d) of the Exchange Act referred to in subparagraph (c)(1) of Rule 144 adopted by the Commission under the Securities Act) and the rules and regulations adopted by the Commission thereunder, all to the extent required from time to time to enable such Holder to sell Registrable Securities without registration under the Securities Act within the limitations of the exemption provided by Rule 144 under the Securities Act, as such Rule may be amended from time to time, or any similar or successor rule or regulation hereafter adopted by the Commission. Upon the request of any Holder of Registrable Securities in connection with that Holder's sale pursuant to Rule 144, the Company shall deliver to such Holder a written statement as to whether it has complied with such requirements. 9. Miscellaneous. (a) Notices. All notices, requests, claims, demands, waivers and other communications hereunder shall be in writing and shall be deemed to have been duly 18 given when delivered by hand, if delivered personally or by courier, or three days after being deposited in the mail (registered or certified mail, postage prepaid, return receipt requested) as follows: If to the Company, to it at 1345 Avenue of the Americas, New York, New York 10105-0196, Attention: Treasurer; if to an Initial Purchaser, to it at the address for the Initial Purchasers set forth in the Purchase Agreement; and if to a Holder, to the address of such Holder set forth in the security register, a Notice and Questionnaire or other records of the Company or to such other address as the Company or any such Holder may have furnished to the other in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt. (b) Parties in Interest. All the terms and provisions of this Agreement shall be binding upon, shall inure to the benefit of and shall be enforceable by the respective successors and assigns of the parties hereto. In the event that any transferee of any Holder of Registrable Securities shall acquire Registrable Securities, in any manner, whether by gift, bequest, purchase, operation of law or otherwise, such transferee shall, without any further writing or action of any kind, be deemed a party hereto for all purposes and such Registrable Securities shall be held subject to all of the terms of this Agreement, and by taking and holding such Registrable Securities such transferee shall be entitled to receive the benefits of, and be conclusively deemed to have agreed to be bound by and to perform, all of the applicable terms and provisions of this Agreement. (c) Survival. The respective indemnities, agreements, representations, warranties and each other provision set forth in this Agreement or made pursuant hereto shall remain in full force and effect regardless of any investigation (or statement as to the results thereof) made by or on behalf of any Holder of Registrable Securities, any director, officer or partner of such Holder, any agent or underwriter or any director, officer or partner thereof, or any controlling person of any of the foregoing, and shall survive delivery of and payment for the Registrable Securities pursuant to the Purchase Agreement and the transfer and registration of Registrable Securities by such Holder. (d) LAW GOVERNING. THIS REGISTRATION RIGHTS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK. (e) Headings. The descriptive headings of the several Sections and paragraphs of this Agreement are inserted for convenience only, do not constitute a part of this Agreement and shall not affect in any way the meaning or interpretation of this Agreement. (f) Entire Agreement; Amendments. This Agreement and the other writings referred to herein (including the Indenture) or delivered pursuant hereto which form a part hereof contain the entire understanding of the parties with respect to its subject matter. This Agreement supersedes all prior agreements and understandings between the parties with respect to its subject matter. This Agreement may be amended and the observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively) only by a written instrument 18 duly executed by the Company and the Holders of at least a majority of the Shares constituting Registrable Securities at the time outstanding (with Holders of Notes deemed to be the Holders, for the purposes of this Section, of the number of outstanding Shares into which such Notes are or would be convertible or exchangeable as of the date on which such consent is requested). Each Holder of any Registrable Securities at the time or thereafter outstanding shall be bound by any amendment or waiver effected pursuant to this Section 9(f), whether or not any notice, writing or marking indicating such amendment or waiver appears on such Registrable Securities or is delivered to such Holder. (g) Inspection. For so long as this Agreement shall be in effect, this Agreement and a complete list of the names and addresses of all the Holders of Registrable Securities shall be made available for inspection and copying on any business day by any Holder of Registrable Securities for proper purposes only (which shall include any purpose related to the rights of the Holders of Registrable Securities under the Securities, the Indenture and this Agreement) at the offices of the Company at the address thereof set forth in Section 9(a) above, or at the office of the Trustee under the Indenture. (h) Counterparts. This Agreement may be executed by the parties in counterparts, each of which shall be deemed to be an original, but all such respective counterparts shall together constitute one and the same instrument. 19 Agreed to and accepted as of the date referred to above. Very truly yours, AVON PRODUCTS, INC. By: /s/ Dennis Ling -------------------------------- Name: Dennis Ling Title: Group Vice President, Finance and Treasurer Salomon Smith Barney Inc. Banc of America Securities LLC Chase Securities Inc. Deutsche Bank Securities Inc. J.P. Morgan Securities Inc. Morgan Stanley & Co. Incorporated By: Salomon Smith Barney Inc. By: /s/ Christina Mohr --------------------------------- Name: Christina Mohr Title: Managing Director 20 EX-5.1 5 0005.txt OPINION OF DAVIS POLK & WARDWELL EXHIBIT 5.1 DAVIS POLK & WARDWELL 450 LEXINGTON AVENUE NEW YORK, NY 10017 212-450-4000 September 14, 2000 Avon Products, Inc. 1345 Avenue of the Americas New York, NY 10105-0196 Re: Registration Statement on Form S-3 Ladies and Gentlemen: We have acted as special counsel to Avon Products, Inc., a New York corporation (the "Company"), in connection with the Registration Statement on Form S-3 (the "Registration Statement") filed by the Company with the Securities and Exchange Commission (the "Commission") under the Securities Act of 1933, as amended (the "Act"), relating to the resale by selling securityholders of up to $400,000,569 aggregate principal amount of the Company's Zero Coupon Convertible Senior Notes due 2020 (the "Notes") and shares of common stock issuable upon conversion of the Notes (the "Shares"). The Notes were issued under an Indenture dated as of July 12, 2000 between the Company and The Chase Manhattan Bank (the "Indenture). We have examined originals or copies, certified or otherwise identified to our satisfaction, of such documents, corporate records, certificates of public officials and other instruments as we have deemed necessary or advisable for the purposes of rendering this opinion. In rendering the opinion set forth below, we have assumed the genuineness of all signatures, the legal capacity of natural persons, the authenticity of all documents submitted to us as originals, the conformity to original documents of all documents submitted to us as duplicates or certified or conformed copies, and the authenticity of the originals of such latter documents. We have also assumed that the Indenture is the valid and legally binding obligation of the Trustee. Based upon the foregoing, and subject to the qualifications and limitations stated herein, we are of the opinion that: Avon Products, Inc. 2 September 11, 2000 1. The Notes have been duly authorized, executed and issued by the Company and, assuming that they have been duly authenticated by the Trustee, constitute valid and legally binding obligations of the Company, enforceable against the Company in accordance with their terms; and 2. The Shares initially issuable upon conversion of the Notes have been duly authorized and, when issued and delivered in accordance with the provisions of the Notes and the Indenture, will be validly issued, fully paid and nonassessable. Our opinion is subject to applicable bankruptcy, insolvency and similar laws affecting creditors' rights and to general principles of equity. We are members of the Bar of the State of New York and the foregoing opinion is limited to the laws of the State of New York and the federal laws of the United States. We hereby consent to the filing of this opinion as an exhibit to the Registration Statement and to the reference to our name under the heading "Legal Matters" in the prospectus which is part of such Registration Statement. Very truly yours, /s/ Davis Polk & Wardwell EX-12.1 6 0006.txt RATIO OF EARNINGS TO FIXED CHARGES (IN THOUSANDS) EXHIBIT 12.1 Avon Products, Inc. Ratio of Earnings to Fixed Charges (in thousands) Pursuant to Item 503 Regulation S-K Six Months Ended Years ended December 31, June 30, --------------------------------------------------- ------------------ Description 1995 1996 1997 1998 1999 1999 2000 - ----------- ------- ------- ------- ------- ------- ------- ------- Income before income taxes........................ 465,024 510,445 534,882 455,866 506,581 149,110 310,635 Interest expense............................. 34,600 33,200 35,500 34,700 43,161 17,844 42,690 Amortization of debt discount, fees and expenses................................... 450 450 550 951 1,464 688 936 Amortization of capitalized interest......... 3,060 3,060 3,060 3,060 3,060 1,529 1,529 Lease rental expense representative of interest................................... 26,000 29,900 29,400 28,233 28,167 14,084 14,084 ------- ------- ------- ------- ------- ------- ------- Earnings before fixed charges..................... 529,134 577,055 603,392 522,810 582,433 183,255 369,874 ======= ======= ======= ======= ======= ======= ======= Fixed Charges Interest expense............................. 34,600 33,200 35,500 34,700 43,161 17,844 42,690 Amortization of debt discount, fees and expenses................................... 450 450 550 951 1,464 688 936 Lease rental expense representative of interest................................... 26,000 29,900 29,400 28,233 28,167 14,084 14,084 ------- ------- ------- ------- ------- ------- ------- Total Fixed Charges............................... 61,050 63,550 65,450 63,884 72,792 32,616 57,710 ======= ======= ======= ======= ======= ======= ======= Ratio of earnings to fixed charges................ 8.7 9.1 9.2 8.2 8.0 5.6 6.4
EX-23.2 7 0007.txt CONSENT OF PRICWATERHOUSECOOPERS LLP EXHIBIT 23.2 Consent of Independent Accountants We hereby consent to the incorporation by reference in this Registration Statement on Form S-3 of our report dated January 27, 2000 relating to the financial statements, which appears in the 1999 Annual Report to Shareholders of Avon Products, Inc., which is incorporated by reference in Avon Products, Inc. Annual Report on Form 10-K for the year ended December 31, 1999. We also consent to the incorporation by reference of our report dated January 27, 2000 relating to the financial statement schedule, which appears in such Annual Report of Form 10-K. We also consent to the reference to us under the heading "Experts" in such Registration Statement. /s/ PricewaterhouseCoopers LLP September 13, 2000 New York, New York EX-25.1 8 0008.txt T-1 EXHIBIT 25.1 - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 ------------------------- FORM T-1 STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939 OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE ------------------------------------------- CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT TO SECTION 305(b)(2) ________ ---------------------------------------- THE CHASE MANHATTAN BANK (Exact name of trustee as specified in its charter) New York 13-4994650 (State of incorporation (I.R.S. employer if not a national bank) identification No.) 270 Park Avenue New York, New York 10017 (Address of principal executive offices) (Zip Code) William H. McDavid General Counsel 270 Park Avenue New York, New York 10017 Tel: (212) 270-2611 (Name, address and telephone number of agent for service) --------------------------------------------- AVON PRODUCTS, INC. (Exact name of obligor as specified in its charter) New York 13-0544597 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification No.) 1345 Avenue of the Americas New York, New York 10105 (Address of principal executive offices) (Zip Code) --------------------------------------------- Debt Securities (Title of the indenture securities) GENERAL Item 1. General Information. Furnish the following information as to the trustee: (a) Name and address of each examining or supervising authority to which it is subject. New York State Banking Department, State House, Albany, New York 12110. Board of Governors of the Federal Reserve System, Washington, D.C., 20551 Federal Reserve Bank of New York, District No. 2, 33 Liberty Street, New York, N.Y. Federal Deposit Insurance Corporation, Washington, D.C., 20429. (b) Whether it is authorized to exercise corporate trust powers. Yes. Item 2. Affiliations with the Obligor. If the obligor is an affiliate of the trustee, describe each such affiliation. None. -2- Item 16. List of Exhibits List below all exhibits filed as a part of this Statement of Eligibility. 1. A copy of the Articles of Association of the Trustee as now in effect, including the Organization Certificate and the Certificates of Amendment dated February 17, 1969, August 31, 1977, December 31, 1980, September 9, 1982, February 28, 1985, December 2, 1991 and July 10, 1996 (see Exhibit 1 to Form T-1 filed in connection with Registration Statement No. 333-06249, which is incorporated by reference). 2. A copy of the Certificate of Authority of the Trustee to Commence Business (see Exhibit 2 to Form T-1 filed in connection with Registration Statement No. 33-50010, which is incorporated by reference. On July 14, 1996, in connection with the merger of Chemical Bank and The Chase Manhattan Bank (National Association), Chemical Bank, the surviving corporation, was renamed The Chase Manhattan Bank). 3. None, authorization to exercise corporate trust powers being contained in the documents identified above as Exhibits 1 and 2. 4. A copy of the existing By-Laws of the Trustee (see Exhibit 4 to Form T-1 filed in connection with Registration Statement No. 333-06249, which is incorporated by reference). 5. Not applicable. 6. The consent of the Trustee required by Section 321(b) of the Act (see Exhibit 6 to Form T-1 filed in connection with Registration Statement No. 33-50010, which is incorporated by reference. On July 14, 1996, in connection with the merger of Chemical Bank and The Chase Manhattan Bank (National Association), Chemical Bank, the surviving corporation, was renamed The Chase Manhattan Bank). 7. A copy of the latest report of condition of the Trustee, published pursuant to law or the requirements of its supervising or examining authority. 8. Not applicable. 9. Not applicable. SIGNATURE Pursuant to the requirements of the Trust Indenture Act of 1939 the Trustee, The Chase Manhattan Bank, a corporation organized and existing under the laws of the State of New York, has duly caused this statement of eligibility to be signed on its behalf by the undersigned, thereunto duly authorized, all in the City of New York and State of New York, on the 12th. day of September 2000. THE CHASE MANHATTAN BANK By: /s/ Kathleen Perry --------------------------- Kathleen Perry Vice President -3- Exhibit 7 to Form T-1 Bank Call Notice RESERVE DISTRICT NO. 2 CONSOLIDATED REPORT OF CONDITION OF The Chase Manhattan Bank of 270 Park Avenue, New York, New York 10017 and Foreign and Domestic Subsidiaries, a member of the Federal Reserve System, at the close of business June 30, 2000, in accordance with a call made by the Federal Reserve Bank of this District pursuant to the provisions of the Federal Reserve Act. Dollar Amounts ASSETS in Millions Cash and balances due from depository institutions: Noninterest-bearing balances and currency and coin ....................................... $ 15,412 Interest-bearing balances ............................... 4,593 Securities: Held to maturity securities .................................. 613 Available for sale securities ................................ 57,372 Federal funds sold and securities purchased under agreements to resell .................................... 29,490 Loans and lease financing receivables: Loans and leases, net of unearned income .....$ 142,368 Less: Allowance for loan and lease losses .... 2,227 Less: Allocated transfer risk reserve ........ 0 --------- Loans and leases, net of unearned income, allowance, and reserve .................................. 140,141 Trading Assets ............................................... 48,079 Premises and fixed assets (including capitalized leases) ................................................. 3,447 Other real estate owned....................................... 27 Investments in unconsolidated subsidiaries and associated companies .................................... 259 Customers' liability to this bank on acceptances outstanding ............................................. 676 Intangible assets ............................................ 3,994 Other assets ................................................. 16,373 -------- TOTAL ASSETS ................................................. $320,476 ======== - 4 - LIABILITIES Deposits In domestic offices ..................................... $103,433 Noninterest-bearing ...........................$ 42,054 Interest-bearing .............................. 61,379 In foreign offices, Edge and Agreement subsidiaries and IBF's .................................. 92,486 Noninterest-bearing ................................$ 5,683 Interest-bearing ................................86,803 Federal funds purchased and securities sold under agree- ments to repurchase .......................................... 49,016 Demand notes issued to the U.S. Treasury ..................... 750 Trading liabilities .......................................... 32,878 Other borrowed money (includes mortgage indebtedness and obligations under capitalized leases): With a remaining maturity of one year or less ........... 4,298 With a remaining maturity of more than one year through three years .............................. 0 With a remaining maturity of more than three years .... 97 Bank's liability on acceptances executed and outstanding ..... 676 Subordinated notes and debentures ............................ 5,430 Other liabilities ............................................ 12,129 TOTAL LIABILITIES ............................................ 301,193 EQUITY CAPITAL Perpetual preferred stock and related surplus ................ 0 Common stock.................................................. 1,211 Surplus (exclude all surplus related to preferred stock)...... 11,066 Undivided profits and capital reserves........................ 8,165 Net unrealized holding gains (losses) on available-for-sale securities............................ (1,175) Accumulated net gains (losses) on cash flow hedges............ 0 Cumulative foreign currency translation adjustments........... 16 TOTAL EQUITY CAPITAL.......................................... 19,283 -------- TOTAL LIABILITIES AND EQUITY CAPITAL.......................... $320,476 ======== I, Joseph L. Sclafani, E.V.P. & Controller of the above-named bank, do hereby declare that this Report of Condition has been prepared in conformance with the instructions issued by the appropriate Federal regulatory authority and is true to the best of my knowledge and belief. JOSEPH L. SCLAFANI We, the undersigned directors, attest to the correctness of the Report of Condition (including the supporting schedules) for this report date and declare that it has been examined by us, and to the best of our knowledge and belief has been prepared in conformance with the instructions issued by the appropriate Federal regulatory authority and is true and correct. WILLIAM B. HARRISON, JR. ) JOHN R. STAFFORD ) DIRECTORS M. ANTHONY BURNS ) -5- -----END PRIVACY-ENHANCED MESSAGE-----