AGREEMENT AND PLAN OF MERGERS WITH NATURA COSMETICOS S.A.

9 Months Ended

Sep. 30, 2019

Business Combinations [Abstract]

AGREEMENT AND PLAN OF MERGERS WITH NATURA COSMETICOS S.A.

AGREEMENT AND PLAN OF MERGERS WITH NATURA COSMÉTICOS S.A.

On May 22, 2019, the Company entered into an Agreement and Plan of Mergers (as amended, the "Merger Agreement") with Natura Cosméticos S.A., a Brazilian corporation (sociedade anônima) ("Natura Cosméticos"), Natura &Co Holding S.A., a Brazilian corporation (sociedade anônima) ("Natura &Co Holding"), Nectarine Merger Sub I, Inc., a Delaware corporation and a direct wholly owned subsidiary of Natura &Co Holding ("Merger Sub I"), and Nectarine Merger Sub II, Inc., a Delaware corporation and a direct wholly owned subsidiary of Merger Sub I ("Merger Sub II"), pursuant to which (i) Natura &Co Holding will, after the completion of certain restructuring steps, hold all issued and outstanding shares of Natura Cosméticos, (ii) Merger Sub II will merge with and into Avon, with Avon surviving the merger and (iii) Merger Sub I will merge with and into Natura &Co Holding, with Natura &Co Holding surviving the merger and as a result of which Avon will become a wholly owned direct subsidiary of Natura &Co Holding (collectively, the "Transaction"). If the Transaction is completed, Avon and Natura Cosméticos will each become wholly owned subsidiaries of Natura &Co Holding.

If the Transaction is completed, each share of Avon common stock issued and outstanding immediately prior to the consummation of the Transaction will be converted into the right to receive, at the election of the holder thereof, (i) 0.300 validly issued and allotted, fully paid-up American Depositary Shares of Natura &Co Holding, each representing one Natura &Co Holding Share ("Natura &Co Holding ADSs") against the deposit of two shares of common stock of Natura &Co Holding ("Natura &Co Holding Shares"), subject to adjustment in accordance with the terms of the Merger Agreement, and any cash in lieu of fractional Natura &Co Holding ADSs or (ii) 0.600 validly issued and allotted, fully paid-up Natura &Co Holding Shares, subject to adjustment in accordance with the terms of the Merger Agreement, and any cash in lieu of fractional Natura &Co Holding Shares, and each share of Avon series C preferred stock held by Cleveland Apple Investor L.P. issued and outstanding immediately prior to the consummation of the Transaction will be automatically converted into the right to receive an amount in cash without interest equal to the Stated Value (as defined in Avon's certificate of incorporation) of such shares of series C preferred stock. Upon the consummation of the Transaction, Natura &Co Holding Shares are expected to be listed on the B3 S.A. - Brasil, Bolsa, Balcão stock exchange (the "B3") and Natura &Co Holding ADSs are expected to be listed on the New York Stock Exchange (the "NYSE"). Additionally, upon the consummation of the Transaction, Avon common stock will cease to be traded on the NYSE.

The Merger Agreement contains customary representations and warranties of Avon, Natura Cosméticos and Natura &Co Holding relating to their respective businesses and public filings, in each case generally subject to a materiality qualifier. Additionally, the Merger Agreement provides for customary pre-closing covenants of Avon, including (i) covenants relating to conducting its business in the ordinary course consistent with past practice and to refrain from taking certain actions without Natura Cosméticos's consent, (ii) covenants not to solicit proposals relating to alternative transactions or, subject to certain exceptions, enter into discussions concerning, or provide information in connection with, alternative transactions and (iii) covenants to recommend, subject to certain exceptions, that Avon's shareholders adopt the Merger Agreement.

The timing and completion of the Transaction is subject to a number of closing conditions, including (i) Avon and Natura Cosméticos shareholder approvals having been obtained in accordance with applicable law, (ii) clearance from competition authorities in certain jurisdictions where Avon and Natura Cosméticos operate, (iii) the absence of any judgment, injunction or other order issued by a court of competent jurisdiction prohibiting the Transaction, (iv) effectiveness of registration statements for Natura &Co Holding's ADSs, (v) listing approval for Natura &Co Holding's ADSs on the NYSE, (vi) listing approval for Natura &Co Holding's shares on the B3 stock exchange under the Novo Mercado listing segment and (vii) subject to certain materiality exceptions, the accuracy of Avon's, Natura Cosméticos's and Natura &Co Holding's representations and warranties in the Merger Agreement and performance by each party of their obligations under the Merger Agreement.

The Company has incurred costs to date of $27 in relation to the Transaction, primarily professional fees. It is expected that additional costs will be incurred prior to or at the closing of the Transaction, including approximately $31 with respect to professional fees that are contingent on the successful closing of the Transaction.