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. [ ]
<TABLE>
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
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
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)............
=====================================================================================================================
</TABLE>
(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.
===============================================================================
<PAGE>
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.
<PAGE>
-----------------------
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
<PAGE>
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:
<TABLE>
<S> <C> <C>
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
</TABLE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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.
<TABLE>
Six Months
Ended
June 30, Year Ended December 31,
--------------- ---------------------------------------------------------
2000 1999 1999 1998 1997 1996 1995
------ ------ ------- ------- ------- ------- -------
($ in millions, except ratios and per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
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)
</TABLE>
---------
(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
<PAGE>
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:
<TABLE>
<S> <C> <C>
(Income before income taxes and minority interest) + (fixed charges) + (amortization of capitalized interest)
-------------------------------------------------------------------------------------------------------------
(fixed charges)
</TABLE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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:
<TABLE>
<S> <C> <C>
(Income before income taxes and minority interest) + (fixed charges) + (amortization of capitalized interest)
-------------------------------------------------------------------------------------------------------------
(fixed charges)
</TABLE>
11
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
===============================================================================
$840,938,000
Avon Products, Inc.
[LOGO]
Zero Coupon Convertible Senior Notes due 2020
and Shares of Common Stock Issuable Upon Conversion of the Notes
-----------------------
Prospectus
-----------------------
o, 2000
===============================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Securities and Exchange Commission registration fee...........$ 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
<PAGE>
(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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
