Avon 2015 Annual Report Download - page 33

The licensing of our North America intellectual property rights, including trademarks that are
fundamental to our brand, in connection with the Separation could adversely impact our
reputation and our ability to enforce intellectual property rights used in both North America
and international jurisdictions, without appropriate controls and monitoring.
In connection with the Separation, we will grant NewCo a perpetual, irrevocable, royalty-free license, with the ability to sublicense, to certain
intellectual property rights that we used in the conduct of our North America business prior to the Separation. The license agreement
includes quality control provisions obligating NewCo and its sublicensees to remain in compliance with applicable law or, for certain of our
brands, quality standards that we have provided to NewCo, when marketing products under certain trademarks we have licensed to NewCo.
However, there is a risk that failure by NewCo or its sublicensees to comply with such quality control provisions or other conduct by NewCo
or its sublicensees associated with the trademarks licensed to NewCo, could adversely affect our reputation globally. We have also granted
NewCo enforcement rights to intellectual property licensed to NewCo in certain circumstances, which could adversely affect our position
and options globally relating to enforcement of our intellectual property.
The issuance and subsequent conversion of 435,000 shares of our Series C Preferred Stock to
Cleveland Investor would dilute the ownership of holders of our common stock and may
adversely affect the market price of our common stock.
Conversion of the Series C Preferred Stock would dilute the ownership interest of existing holders of our common stock, and any sales in the
public market of the common stock issuable upon conversion of the Series C Preferred Stock could adversely affect the market price of our
common stock. We have granted Cleveland Investor registration rights in respect of the shares of Series C Preferred Stock and shares of
common stock issued upon conversion of the Series C Preferred Stock, which would facilitate the resale of such securities into the public
market. Sales by Cleveland Investor of a substantial number of shares of our common stock in the public market, or the perception that such
sales might occur, could have a material adverse effect on the price of our common stock.
The Series C Preferred Stock to be issued to Cleveland Investor will have rights, preferences
and privileges that are not held by, and are preferential to, the rights of holders of our
common stock. Such preferential rights could adversely affect our liquidity, cash flows and
financial condition, and may result in the interests of Cleveland Investor differing from those
of our common shareholders.
The Series C Preferred Stock will rank senior to the shares of our common stock with respect to dividend rights and rights on the distribution
of assets on any liquidation, dissolution or winding up of our affairs. The Series C Preferred Stock will have a liquidation preference of
$1,000 per share, representing an aggregate liquidation preference of $435 million upon issuance. Holders of Series C Preferred Stock will
be entitled to participate on an as-converted basis in any cash dividends paid to the holders of shares of our common stock. In addition,
cumulative preferred dividends will accrue daily on the Series C Preferred Stock and will be payable at the rate of 1.25% per quarter (net of
any dividends on our common stock and subject to increase up to 5.00% per quarter if we breach certain obligations). Except to the extent
not otherwise previously paid by us, preferred dividends will be payable on the seventh anniversary of the issuance date of the Series C
Preferred Stock as and when declared by the Board of Directors and at the end of each quarter thereafter. Accrued and unpaid preferred
dividends may be paid, at our option, in (i) cash, (ii) subject to certain conditions, in shares of our common stock or (iii) upon conversion of
shares of Series C Preferred Stock, in shares of our non-voting, non-convertible Series D Preferred Stock, par value $1.00 per share (the
“Series D Preferred Stock”). Any such shares of Series D Preferred Stock issued would have similar preferential rights.
Upon certain change of control events involving us, holders of Series C Preferred Stock can require us to repurchase the Series C Preferred
Stock for an amount equal to the greater of (i) cash equal to 100% of the liquidation preference thereof plus all accrued but unpaid
dividends or (ii) the consideration the holders would have received if they had converted their shares of Series C Preferred Stock into
common stock immediately prior to the change of control event.
Our obligations to pay dividends to the holders of Series C Preferred Stock, and to repurchase the outstanding shares of Series C Preferred
Stock under certain circumstances, could impact our liquidity and reduce the amount of cash flows. Our obligations to the holders of
Series C Preferred Stock could also limit our ability to obtain additional financing or increase our borrowing costs, which could have an
adverse effect on our financial condition. The preferential rights of holders of our Series C Preferred Stock could also result in divergent
interests between Cleveland Investor and those of our common shareholders.
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