Exhibit 10.39
[Avon Products, Inc.
letterhead]
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ANDREA
JUNG
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CHAIRMAN
AND
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CHIEF
EXECUTIVE OFFICER
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Personal &
Confidential
April 6, 2006
Ben Gallina
Senior Vice President
Western Europe, Middle East & Africa and
China
Dear Ben:
This letter confirms our mutual
understanding of the terms and conditions applying to your
assignment in the U.K. as Senior Vice President of Western Europe,
Middle East & Africa and China reporting to me. Your assignment
in the U.K. is contingent upon our mutual understanding of the
performance objectives which are subject to change at Avon’s
discretion, timely local regulatory permission being obtained for
you to work in the U.K. and your acceptance of the terms and
conditions of this letter.
The conditions of this letter are in
accordance with the policies set forth in the International
Assignment Handbook, those policies being incorporated herein by
this reference. This letter summarizes key points in the
International Assignment Handbook and specifies certain additional
conditions associated with your assignment. In terms of this
specific assignment, local conditions and guidelines applicable to
Avon expatriates in the U.K. will also govern you.
The date of this assignment is on or
about March 1, 2006 and is scheduled to be two years in duration.
The assignment may be less than two years subject to the discretion
of Avon senior management. The assignment may be greater than two
years subject to mutual agreement.
TOTAL COMPENSATION
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Base Salary
. With the commencement of your
assignment in the U.K., your annual base salary will remain at
$475,000. It means a monthly base salary of $39,583.33. Your next
salary review is scheduled for April 2007. Your salary will
continue to be based on home country internal and external
competitive rates.
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Management Incentive
Plan . Your target award
will remain at 65% of your base salary. As of January 1, 2006, your
MIP payout will be based on the achievement of the Western Europe,
Middle East & Africa and China CBUs’ pre-set MIP
goals.
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Long Term Incentive
Plan . You will continue
to participate in the Long Term Incentive Plan (LTIP) while on
assignment in the U.K.
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Total Compensation
. Your total compensation is your
current performance-based compensation. This includes your annual
salary, your Management Incentive Plan, your Long Term Incentive
Plan and any other bonuses or performance-related incentives
received during this assignment. Once the amount is determined, a
hypothetical tax will be applied and you will be paid the net
amount.
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Ben
Gallina
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Page 2
of 6
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April
6, 2006
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Overseas Compensation
A balance sheet approach will be
used to ensure that your standard of living and taxes in the U.K.
will be comparable to that which you are accustomed to in the
U.S.
A copy of your balance sheet is
attached. It shows the current recommended pay split of your
expatriate compensation. You will initially receive your salary in
your home country. Should you decide to receive a portion of your
salary in the U.K. during your assignment, please contact Kit Lee
and Avon-U.K. in writing with the desired home and/or host salary
payments you would like to receive. However, you will not begin
receiving funds in the U.K. until you confirm that you have opened
a U.K. bank account.
Taxes
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Tax Equalization
Adjustments . Under the
terms of the International Assignment Policy, your tax liability
while on assignment in the U.K. will be approximately the amount
that would be payable if you were working and living in the U.S. In
order to equalize the tax obligation of your foreign service, a
hypothetical U.S. income tax is computed and deducted from your
total salary. A tax equalization calculation/reconciliation will be
prepared at the end of each calendar year to determine if the
appropriate U.S. taxes were withheld on your total compensation
during your foreign service through your hypothetical income tax
deductions.
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Ernst & Young LLP will be
completing your income tax returns while you are on foreign
assignment. It is therefore imperative that you make contact with
them to ensure that all necessary information is being compiled and
that the tax process is in place to file your tax returns on a
timely basis. Please contact [contact person] of E&Y-Hong Kong,
who has been handling your U.S. tax returns. Contact information is
as follows:
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Telephone:
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[xxx
xxxx xxxx]
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Fax:
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[xxx
xxxx xxxx]
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Email:
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[email address]
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You should also contact [contact
person] of E&Y-U.K. regarding your host country returns.
Contact information is as follows:
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Telephone:
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[xxx xxxx xxxx]
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Fax:
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[xxx xxxx xxxx]
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Email:
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[email address]
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[Contact person], a manager at Ernst
& Young (E&Y) in the United States, is responsible for the
day-to-day coordination of tax issues regarding Avon’s
worldwide expatriates. He may be reached at [(xxx) xxx-xxxx] or via
email at [email address] . [Contact person], a tax partner
at Ernst & Young (E&Y) in New York, is responsible for
Avon’s worldwide expatriate tax work.
In the event of severance, tax
treatment of any payments made to you will be reviewed and income
tax withholding adjusted accordingly, if necessary.
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Hypothetical Tax
. As stated above, a hypothetical
U.S. tax will be deducted from your total compensation when it is
paid to you. As stated, total compensation includes base salary,
Management Incentive Plan, LTIP and any other bonuses or
performance-related incentives received during your
assignment.
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Social Security
. The hypothetical tax deduction
does not cover your home country social security obligation. The
U.S. payroll department should continue to handle this deduction
while you are on
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Ben
Gallina
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Page 3
of 6
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April
6, 2006
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assignment in the U.K. You will not be
responsible for any U.K. social taxes incurred while on assignment.
These taxes will be paid on your behalf by the U.K.
office.
Differential, Allowances &
Assignment Incentive Bonus
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Goods and Services
Differential . The goods
and services differential is calculated by taking the difference
between the goods and services (G&S) index of the host and home
location times the amount that someone at your income level and
family size would spend on goods and services in the U.S.
The portion of your salary used on goods and services in the U.S.
is also referred to as your spendable income. It is the U.S.
spendable income – not total base salary – that is
protected from the higher costs of goods and services abroad. At
present, ORC reports a goods & services index for the U.K.
above the present cost of living in the U.S. ORC continually
monitors exchange rates and movements in the rate of inflation for
both countries. Your balance sheet will reflect changes, positive
or negative, to your goods & services index and exchange rate
only when there is an adjustment for inflation or new pricing
surveys are available. Your balance sheet will be updated in April
and October of each year.
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Initially, your temporary living
expenses should be reported through an expense report. You will
begin to receive a G&S differential, if applicable, once you
are no longer being reimbursed for your living expenses via this
method. Please notify Kit Lee of the International Assignments
Department when you no longer are reporting your living expenses
through an expense report so that any applicable G&S
differential can be implemented.
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Host Country Housing
Allowance . Avon will be
assuming the full cost of your housing in the U.K. including your
rent and utilities (excluding telephone), up to a
monthly
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