AVON PRODUCTS, INC.
1997 Long Term Incentive Plan
I. INTRODUCTION
1.1 Purpose The purpose of this Plan is to provide additional
incentives for officers and key employees of the Company to operate and
manage the Company's business in a manner that will achieve long-term
growth and profitability and to provide a means of recruiting and
retaining such officers and key employees.
1.2 Relationship to 1993 Stock Incentive Plan This Plan is
subject to the Avon Products, Inc. 1993 Stock Incentive Plan which has
been approved by the Company's shareholders. Accordingly, this Plan
shall be deemed a 'Stock Incentive Program' as defined therein and shall
be subject to the terms and conditions of the 1993 Stock Incentive Plan.
In the event of any conflict, the terms and conditions of the 1993 Stock
Incentive Plan shall govern.
1.3 General Description This Plan provides for the grant to
eligible Participants of two forms of incentive awards with respect to a
performance period covering the three years 1997 - 1999, namely
Performance Units and Stock Options. While Performance Units will
consist of potential cash incentives, both types of awards shall be
considered as 'Stock Incentives' eligible for grants under the 1993
Stock Incentive Plan. The Plan also provides for the grant of shares of
Restricted Stock Awards as set forth in Part V hereof.
1.4 Definitions Capitalized words and phrases in this Plan
shall have the same meaning as the definitions set forth in the 1993
Stock Incentive Plan, to the extent that they are defined therein,
except as otherwise indicated. Definitions used in this Plan shall have
the meanings set forth below:
'Committee' means the Compensation Committee of the Board of
Directors, each member of which is an 'outside director', within the
meaning of Section 162(m) of the 1986 Internal Revenue Code.
'Performance Period' means the period of three consecutive
calendar years commencing with the year 1997.
'Plan' means the Avon Products, Inc. 1997 Long Term Incentive
Plan.
'Senior Officers' means those Company Executive Officers who are
subject to Section 16 of the Exchange Act and all other officers who
report to the Company's Chief Executive Officer.
II. PARTICIPATION
2.1 General Rule The Committee shall determine the levels and
categories of officers and key employees of the Company and its
Subsidiaries who shall be Participants in the Plan. The initial grant
of Plan awards shall be made during the first 90 days of the first year
of the Performance Period.
2.2 Participants Not Eligible at Time of Initial Grant If an
employee becomes eligible for Participation subsequent to the date of
initial grant, he or she may become a Participant at such later date,
with awards to such a Participant to be subject to the terms set forth
below.
III. PERFORMANCE UNIT AWARDS
3.1 Performance Objectives Performance Units will realize a
cash payout value following the end of the Performance Period, only to
the extent applicable Performance Objectives have been attained for such
period. Performance Objectives applicable to Performance Units awarded
to Global Participants, i.e. participants who are not principally
members of management of an Operating Business Unit ('OBU') or Country,
shall solely be the Cumulative EPS Objectives described below. With
respect to Participants who are principally members of management of an
OBU or Country, 60% of their awarded units shall be subject to the
Cumulative EPS Objectives and 40% subject to their applicable Non-EPS
Performance Objectives, as described below.
Appropriate adjustments in Performance Objectives may be made with
respect to the Performance Units of Participants who during the course
of the Performance Period transfer between OBU's or Countries or have
their status changed to or from that of a Global Participant to reflect
for the balance of the Period the Performance Objectives associated with
each Participant's new status or location. At the discretion of the
Committee, however, a Participant's compensation payable pursuant to
this Article III may be reduced to the amount otherwise payable solely
based on the Performance Objectives applicable to such Participant as of
the time of his or her initial grant of Performance Units.
3.2 Definitions for Performance Award Units Terms applicable
to Performance Unit awards shall have the meanings set forth below:
a. 'Base Grant Value' means the target cash value of each
Performance Unit which shall be $100.
b. 'Ultimate Payment Value' means the cash value of each
Performance Unit, which shall be determined by the Committee
following the end of the Performance Period. Such value may
be as high as $200 if the Maximum Growth Rate has been
attained, or zero if the Threshold Growth Rate has not been
attained.
c. 'Earnings Per Share' means the fully diluted earnings per
share of Stock calculated on the weighted average number
of shares outstanding as reported in the Company's Annual
Report based on consolidated net income (before
extraordinary items and income taxes related thereto) of
the Company, as determined by the Company's independent
public accountants. Such determination and report shall
be made as of the end of the Performance Period with respect
to such Period and the applicable Base Year in conformity with
generally accepted accounting principles consistently applied.
d. 'Cumulative EPS' means the aggregate total Earnings Per Share
for the entire Performance Period.
e. 'Target EPS Objective' means the Cumulative EPS established
by the Committee for the Performance Period which, if exactly
attained, shall result in an Ultimate Payment Value of $100
per Performance Unit.
f. 'Maximum EPS Objective' means the Cumulative EPS established
by the Committee for the Performance Period which, if
attained or exceeded, shall result in an Ultimate Payment
Value of $200 per Performance Unit.
g. 'Threshold EPS Objective' means the Cumulative EPS
established by the Committee for the Performance Period
which, if exactly attained, shall result in an Ultimate
Payment Value of $50 per Performance Unit and, if not
attained, shall result in an Ultimate Payment Value of zero
for all Performance Units.
h. 'Cumulative Operating Profit' means the aggregate total
operating profit achieved for the entire Performance Period
of a designated OBU or Country business unit.
i. 'Cumulative Pretax Contribution' means the aggregate total
pretax contribution to the Company achieved for the entire
Performance Period by a designated Country business unit.
j. 'Non-EPS Performance Objectives' means the Cumulative
Operating Profit or Cumulative Pretax Contribution
objectives, as established by the Committee, which are
applicable to that portion of a Participant's Performance
Units whose value will be determined by the degree to which
such objectives have been achieved. The value of such units
will be zero, however, if the Threshold EPS Objective has not
been achieved.
k. 'Target Non-EPS Performance Objectives' means the level of
Cumulative Operating Profit or Cumulative Pretax
Contribution, whichever is applicable, as established by the
Committee, which, if exactly attained, shall result in an
Ultimate Payment Value of $100 for each Performance Unit
whose value is to be determined by Non-EPS Performance
Objectives.
l. 'Maximum Non-EPS Performance Objectives' means the level of
Cumulative Operating Profit or Cumulative Pretax
Contribution, whichever is applicable, as established by the
Committee, which, if attained or exceeded, shall result in an
Ultimate Payment Value of $200 for each Performance Unit
whose value is to be determined by Non-EPS Performance
Objectives.
m. 'Threshold Non-EPS Performance Objectives' means the level of
Cumulative Operating Profit or Cumulative Pretax
Contribution, whichever is applicable, as established by the
Committee which, if exactly attained, shall result in an
Ultimate Payment Value of $50 for each Performance Unit whose
value is to be determined by Non-EPS Performance Objectives.
n. 'Proration Tables' mean the tables established by the
Committee which shall determine the Ultimate Values of
Performance Units where the applicable performance attained
exceeds its Threshold Objective but is less than its Maximum
Objective (and is not exactly at Target).
All of the foregoing Performance Objectives and Proration Tables
shall be established by the Committee during the first 90 days of the
Performance Period.
3.3 Grants of Performance Units The Committee shall
authorize grants of Performance Units to Participants and establish the
Performance Objectives to be applied for such units, including the
Target, Maximum and Threshold levels of all relevant objectives and
their Proration Tables. The Committee shall approve (a) all specific
grants of Performance Units to Senior Officers and (b) an aggregate
number of Performance Units to be granted other Participants, which
shall be allocated by the Company's Chief Executive Officer.
The number of Performance Units to be initially granted a
Participant shall be determined as follows: (a) an annualized cash
target amount shall be established, (b) such cash target amount shall be
divided by the Base Grant Value of $100 and (c) the resulting number
shall be multiplied by the number of years in the Performance Period
(three).
When a Participant is promoted to a higher level position,
supplemental grants of Performance Units shall be awarded to such
Participant determined by the amount of base salary increase
attributable to the promotion and the same cash target percentage used
in calculating his or her prior initial grant. The Committee reserves
the right, however, to decline to grant such supplemental Performance
Units. At any time during the Performance Period, grants of Performance
Units may be made, at the Committee's sole discretion, to employees
hired subsequent to the initial grant date or who otherwise have
subsequently become eligible for Participation. All Performance Units
granted subsequent to the initial grant date shall take into account the
shorter period of time remaining between the date of the grant and the
end of the Performance Period. If, for example, a grant was made
effective as of the first day of the second year of the Performance
Period, the cash target amount referred to in the preceding paragraph
would be multiplied by two rather than three.
In no event, however, may the total cash value for aggregate
Performance Units awarded to any one Participant exceed $6,000,000. All
Performance Units, regardless of when granted, shall be subject to the
same performance criteria in determining Ultimate Payment Value,
including the relevant three-year Performance Objectives.
3.4 Value Determination and Payment The Ultimate Payment
Value(s) of all Performance Units shall be determined by the Committee
as soon as practicable after the end of the Performance Period and its
review of a report concerning actual Cumulative EPS for the period
submitted to the Committee by the Company's independent public
accountants, and the Cumulative Operating Profit and Cumulative Pretax
Contribution totals submitted by the Company's Chief Financial Officer.
The Ultimate Payment Value initially so determined for Performance Units
shall be increased by 10% if an Avon Value Added ('AVA') growth
objective for the Performance Period has been attained or exceeded.
Such AVA 'kicker' objective shall be established by the Committee during
the first 90 days of the Performance Period.
Payment to a Participant shall be made in a single sum in cash
equal to the applicable Ultimate Payment Value(s), adjusted by any AVA
kicker, multiplied by his or her total Performance Units and reduced by
applicable tax withholding. Such payments shall be made as soon as
practicable after the Committee determines such Ultimate Payment
Value(s).
3.5 Termination of Employment During Performance Period If
prior to the end of the Performance Period but after completion of the
period's first calendar year, a Participant (a) dies while employed by
the Company, (b) retires under the terms of a Company retirement plan or
(c) is involuntarily terminated by the Company, other than for cause,
such Participant shall remain entitled to a portion of the Performance
Units granted to him or her. Such portion shall be the Participant's
total number of Performance Units multiplied by a fraction, the
numerator of which is the number of months in which such Participant was
actively employed during the Participant's Performance Period (including
the month during which employment terminated) and the denominator of
which is 36 or, if fewer, the number of months from the effective date
of the grant of the Participant's Performance Units to the end of the
Performance Period (applicable in the case of grants first made after
the initial grant).
Except as provided below, no payment can be made for such retained
Performance Units prior to the time the Committee has determined the
Ultimate Payment Value(s) assigned to all Performance Units. To the
extent applicable, if a Threshold Objective has not been attained, no
payment would be made for any Performance Units subject to such
Threshold Objective.
At the discretion of the Committee, however, a payment may be made
on behalf of a deceased Participant prior to the end of the Performance
Period based on the above described proration formula and a Base Grant
Value. Any payment made with respect to a Participant who has died
shall be paid to the beneficiary designated by the Participant to
receive the proceeds of any group life insurance coverage provided for
the Participant by the Company. A Participant who has not designated
such beneficiary, or who desires to designate a different beneficiary,
may file with the Company a written designation of a beneficiary under
the Plan, which designation may be changed or revoked only by the
Participant. If no designation of beneficiary has been made under such
life insurance coverage or filed with the Company, distribution shall be
made to the Participant's spouse, if surviving, and if not, to the
Participant's estate.
No payment will be due any Participant who voluntarily terminates
employment or whose employment has been involuntarily terminated by the
Company for 'cause' prior to the end of the Performance Period. Unless
otherwise provided by an individual employment agreement, a Participant
who is deemed terminated for cause pursuant to the terms of the
applicable Company Severance Pay Plan, shall be deemed terminated for
cause for purposes of this Plan. Except in the case of a 'Change of
Control' situation, any Participant who is terminated for any reason
during the first year of the Performance Period is not entitled to any
payment, provided that the Committee, at its discretion, may make a
payment on behalf of a deceased Participant.
No payment will be due any Participant who terminates employment
and prior to the end of the Performance Period, without the written
consent to the Company, (a) knowingly discloses confidential information
concerning the Company, (b) accepts employment, or enters into a
consulting arrangement with, another direct selling company that
competes with the Company or (c) solicits any Company employees to leave
to work for another employer.
3.6 Change of Control In the event that a Change of Control
should occur, payment will be made with respect to all Performance Units
as soon as practicable. The amount to be paid per Performance Unit
shall be the greater of the Base Grant Value ($100) or such higher
Ultimate Payment Value up to $200 as may be established by the Committee
in its discretion. In the event Change of Control occurs prior to the
end of the first calendar year of the Performance Period, only Base
Grant Value will be used.
IV. STOCK OPTION GRANTS
4.1 Initial Option Grants Any Participant eligible to receive
an award of Performance Units at the time of initial grants for the
Performance Period shall also receive a grant of Stock Options. Stock
Options may also be granted to certain Participants who are not
otherwise eligible to receive an award of performance units. Additional
options may be granted to active Participants on the first and second
anniversary dates of the initial grant or at such other times as the
Committee may determine. The Committee shall approve (a) all specific
grants of Stock Options to Senior Officers and (b) an aggregate number
of Stock Options to be granted other Participants, which shall be
allocated by the Company's Chief Executive Officer.
4.2 Supplemental Option Grants Participants who are first
awarded Performance Units subsequent to the date of the initial grants
may also receive a grant of Stock Options.
4.3 Terms and Conditions One-third of the shares covered by
each Stock Option grant under the Plan shall be exercisable one year
following the date of grant with another one-third exercisable one year
thereafter and the final one-third one year after that. The
exercisability of Stock Options is not affected by the Plan's
performance objectives affecting Performance Units. All other terms and
conditions shall be set forth in a form of Stock Option Agreement. All
Stock Options granted under this Plan shall be consistent with, and
subject to, the terms and conditions of the 1993 Stock Incentive Plan.
4.4 Elective Stock Options Within 60 days of the initial
grant, a Participant may irrevocably elect, subject to the approval of
the Committee, to exchange up to 50% of his or her initially granted
Performance Units for additional 'Elective Stock Options'. Terms and
conditions relating to the exchange of Performance Units for Elective
Stock Options will be established by the Committee; the exercise terms
for Elective Stock Options may be different than those for regular stock
option grants under this Plan. In no event may any one Participant,
however, receive stock options which, when aggregated with all of his or
her other stock options and stock incentives awarded pursuant to the
1993 Plan, exceed 10% of the Maximum Plan Shares issuable under the 1993
Plan.
V. RESTRICTED STOCK GRANTS
At any time, and from time to time, during the Performance Period
the Committee, at its discretion, may make grants of Restricted Stock to
selected key employees. Such grants principally would be made for the
purpose of attracting and retaining those individuals for whom such form
of additional incentive compensation is deemed to be necessary and in
the best interests of the Company. Such awards of Restricted Stock need
not be affected by the terms and conditions of this Plan applicable to
grants of Performance Units or Stock Options.
The terms and conditions of any grant of Restricted Stock shall be
set forth in a Stock Incentive Agreement executed by the employee and
the Company. Such terms and conditions shall be consistent with the
1993 Stock Incentive Plan. Dividends on such shares, even though not
vested, may, at the Committee's discretion, be paid out currently.
VI. MISCELLANEOUS
6.1 The Company, the Board of Directors, the Committee and the
officers and other employees of the Company shall not be liable for any
action taken in good faith in interpreting and administering the Plan.
6.2 Pursuant to the provisions of the 1993 Stock Incentive Plan,
the Company shall deduct from all cash payments and distributions under
the Plan any taxes required to be withheld by federal, state, or local
governments.
6.3 The establishment of the Plan shall not be construed as
conferring on any Participant any right to continued employment or
employment in any position, and the employment of any Participant may be
terminated by the Company or by the Participant without regard to the
effect which such action might have upon him or her as a Participant in
the Plan.
6.4 No benefit under the Plan shall be subject in any manner to
anticipation, alienation, sale, transfer, assignment, pledge,
encumbrance, or charge; and any attempt to do so shall be void. No such
benefit shall, prior to receipt thereof by the Participant, be in any
manner liable for or subject to the debts, contracts, liabilities,
engagements, or torts of the Participant. No benefit or promise
hereunder shall be secured by any specific assets of the Company, nor
shall any assets of the Company be designated as attributable or
allocated to the satisfaction of the Company's obligations under the
Plan.
6.5 The Committee at any time may terminate and in any respect
amend or modify the Plan, so long as such amendment does not adversely
affect the rights of any Participant with respect to Performance Units
and Stock Options granted prior to such amendment. The Committee shall
have the power to interpret the Plan and all interpretations,
determinations and actions by the Committee shall be final, conclusive
and binding upon all parties.
6.6 The Plan shall be governed by and subject to the laws of the
State of New York to the extent not preempted by federal law.
VII. EFFECTIVE DATE
This Plan is effective as of January 1, 1997, and its three-year
Performance Period will commence with the Calendar Year 1997.
1997 Long Term Incentive Plan - Avon Products Inc.
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