Exhibit 10.1
[Avon Products, Inc.
letterhead]
Personal &
Confidential
September 16, 2009
Ms. Elizabeth A.
Smith
[home address]
Dear Liz:
This letter describes the terms and
conditions of your active employment with Avon Products, Inc. (the
“Avon” or the “Company”) and confirms the
arrangements relating to your transition from the Company. It
supersedes your offer letter dated November 1, 2004 and its
amendment dated November 7, 2008 (together, the
“Original Agreement”).
1. Separation Date . On
October 30, 2009, you will relinquish your position as
President of the Company and you will leave employment of the
Company on that date (the “Separation Date”) to pursue
other interests and leadership opportunities. At that time, you
will receive a payment for any earned, but unused, vacation
benefits through the Separation Date. The remaining provisions of
this letter, including the benefits provided to you under
Paragraphs 2 through 9 below, are conditioned upon your complying
with the terms of this letter.
If you voluntarily terminate
employment prior to the Separation Date or are terminated by Avon
for “Cause” before the Separation Date, this letter
will become null and void and the terms of your offer letter, as
amended, will govern. For purposes of this letter agreement, a
termination for “Cause” shall have the meaning of the
Original Agreement. Any other type of termination of employment (
e . g ., disability, termination not for
“Cause”, etc.) will not void the terms of this letter.
After the Separation Date, you will remain on Avon’s payroll,
as set forth and subject to the conditions below, through the
expiration of the Continuation Period (as defined
below).
2. Separation Payments .
Because you will be a “specified employee” on your
Separation Date, your salary continuation payments are subject to
certain limitations
under Internal Revenue Code Section 409A
(hereinafter called “409A”). To comply with 409A, you
will receive: (a) in May 2010, a lump sum payment equal to six
months of your base salary, less any and all required taxes and
other withholdings; and (b) beginning on the first payroll
period which begins on or after May 1, 2010 and continuing
until the final payroll period which ends immediately on or before
October 29, 2011 (the “Payment Period”), salary
continuation payments equal to 18 months of your base salary,
payable in equal bi-weekly installments, less any and all required
taxes and other withholdings. The period from your Separation Date
through October 29, 2011 is your Continuation Period. The
aggregate amount of such lump sum amount and such salary
continuation payments will be equivalent to two year’s base
salary which for these purposes is $1,500,000.
You will not accrue any vacation
days during the Continuation Period (defined as beginning on the
day after the Separation Date and continuing through the expiration
of the Payment Period) or thereafter.
3. Tax-Qualified Retirement
Plans .
You will not be entitled to continue
to participate in the Avon Personal Savings Account Plan (the
“PSA”) after the Separation Date. You may elect to
receive your PSA benefits at any time after your Separation
Date.
You are 100% vested in your Avon
Products, Inc. Personal Retirement Account Plan (“PRA”)
benefit. You will be considered a terminated participant for
purposes of the PRA at the end of the Continuation Period. You may
elect the time and form of the PRA benefit payment at the end of
the Continuation Period.
4. Restoration Plan . You are
100% vested in your Benefit Restoration Pension Plan of Avon
Products, Inc. (the “Restoration Plan”) benefit. You
will be considered a terminated participant on your Separation Date
for purposes of the Restoration Plan and your benefit will be
calculated in accordance with the terms of the Restoration Plan.
Benefits under the Restoration Plan are normally payable during the
month following the month of the participant’s Separation
Date. However, because you will be a “specified
employee” on your Separation Date, your Restoration Plan
payment will be delayed until May 2010. You have already elected
the form of the Restoration Plan payment.
5. EIP Annual Incentive Program
Awards . You will be eligible for a 2009 Annual Incentive
Program award under the Avon Products, Inc. 2008-2012 Executive
Incentive Plan (the “2009 EIP Annual Award”). The 2009
EIP Annual Award, if any, will be based on actual performance and
will be prorated for your period of service through
October 30, 2009. Any such 2009 EIP Annual Award will be paid
to you
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in 2010 at the same time the 2009 EIP Annual
Award is payable to all participants. You will not be permitted to
defer the 2009 EIP Annual Award into the Avon Products, Inc.
Deferred Compensation Plan (the “DCP”). You will not be
eligible for a 2010 or 2011 EIP Annual Award.
6. EIP Long-Term Incentive
Program Awards . You will be eligible for a 2008-2010 EIP
Long-Term Incentive Program award under the Avon Products, Inc.
2008-2012 Executive Incentive Plan (“2008-2010 EIP Long-Term
Incentive Award”). The 2008-2010 EIP Long-Term Incentive
Award, if any, will be based upon actual performance and will be
prorated for your period of service through October 30, 2009.
Any such 2008-2010 EIP Long-Term Incentive Award will be paid to
you in 2011 at the same time the 2008-2010 EIP Long-Term Incentive
Award is payable to all participants. You will not be permitted to
defer the 2008-2010 EIP Long-Term Incentive Award into the
DCP.
You will not be eligible to
participate in any other future performance plans established on or
after the date of this letter under the Avon Products, Inc.
2008-2012 Executive Incentive Plan or under any other plan and you
hereby waive any such right that you may have to participate in any
other future performance plans established on or after the date of
this letter.
7. Participation in Deferred
Compensation Plan . As a participant in DCP, distributions
under the DCP will be made in accordance with the terms of the DCP.
After the Separation Date, you will no longer be eligible to defer
any compensation into the DCP and you waive any right to
participate therein.
8. Stock Options and Restricted
Stock Units .
Prior to your scheduled Separation
Date, your outstanding stock options and outstanding restricted
stock units will continue to vest according to the terms of the
applicable stock option agreement(s) and restricted stock unit
agreement(s), respectively, and all other aspects of your stock
options and restricted stock units will continue to be governed by
the applicable stock option agreement(s) and restricted stock unit
agreement(s), respectively.
Your performance-based restricted
stock units granted in 2007 will be vested on a pro-rata basis as
of your Separation Date and will be payable, if at all, in March
2010, assuming the performance goals have been achieved.
During your Continuation Period,
your stock options will continue to vest in accordance with the
stock option agreements. In accordance with your stock option
agreements, you will have 90 days after the end of the Continuation
Period to exercise your vested options before they
expire.
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Notwithstanding the preceding
paragraph, in exchange for an extended non-solicitation/no-hire and
non-competition period (collectively, the “Non-Competition
Period” as defined in Paragraph 11(f)) through April 30,
2012, on the last day of the Continuation Period (October 29,
2011), 195,745 stock options (approximately 88% of your 2009 stock
option grant) will be vested. You will have 90 days after the end
of the Continuation Period to exercise your vested options before
they expire.
9. Welfare Benefits and
Perquisites .
(a) Your participation in the
Short-Term and Long-Term Disability plans and the Flexible Spending
Accounts will cease following your last day of active employment
(except that you may continue to participate for the remainder of
the calendar year in the Health Care Flexible Spending Account in
accordance with the federal law known as COBRA and assuming you
satisfy the requirements of COBRA). You will receive separate
paperwork required to elect COBRA continuation coverage for the
Health Care Flexible Spending Account.
(b) Provided that you are a
participant in such plans as of the Separation Date, you will be
eligible to: (i) continue to participate in the Supplemental
Life Plan of Avon Products, Inc. and Avon’s group life
insurance program through the end of the Continuation Period;
(ii) participate in the Company’s Medical Plan on an
after-tax basis, subject to the limitations in the final sentence
of this paragraph, at the contribution levels previously selected
through the end of the Continuation Period; (iii) receive your
transportation allowance through January 29, 2010,
(iv) receive your personal auto insurance coverage through
January 29, 2010; (v) receive an Executive Health Plan
exam no later than December 31, 2009, assuming you have not
received your exam by your Separation Date; (vi) receive
financial planning and tax preparation services through
December 31, 2011; and (vii) receive twelve months of
outplacement services, with an additional twelve months available
in one month extensions; provided that (x) to the extent that
any such benefit is provided via reimbursement to you, no such
reimbursement will be made by the Company later than the end of the
year following the year in which the underlying expense is
incurred, (y) any such benefit provided by the Company in any
year will not be affected by the amount of any such benefit
provided by the Company in any other year except for any maximum
lifetime benefit under the Medical Plan, and (z) under no
circumstances will you be permitted to liquidate or exchange any
such benefit for cash or any other benefit. Any payment or
reimbursement to you for the benefits set forth in this Paragraph
shall not be made before May 2010.
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In the event that, during the
Continuation Period, you should become employed by another employer
and are provided with medical and/or dental insurance coverage, you
may either drop your Avon coverage or continue your coverage under
both plans. Under the second alternative, your coverage will be
coordinated between the two plans, with your new employer’s
plan serving as the primary payer. Employment with another company,
however, will not cause any change in your continued entitlement to
salary continuation and continued life insurance coverage. In the
event that your health insurance coverage ceases during the
Continuation Period due to a “qualifying event,” or due
to the expiration of the Continuation Period, you will then be
entitled to elect continued coverage under COBRA at your own
expense, assuming you satisfy the requirements of COBRA.
The American Recovery and
Reinvestment Act of 2009 (“ARRA”) provides a 65% COBRA
premium subsidy for up to nine months for Avon employees who are
involuntarily terminated between September 1, 2008 and
December 31, 2009 and who lose health coverage from Avon
during that period, and who meet certain other conditions set forth
in ARRA and related IRS guidance. At Avon, COBRA generally begins
after the end of the Continuation Period because, during the
Continuation Period, employees may continue to receive
Avon-subsidized health coverage. If the Continuation Period ends
before January 1, 2010, you may be eligible to receive this
subsidy. At the time your COBRA paperwork is sent to you, you will
receive information about this subsidy.
(d) Any continued participation in
Avon’s employee benefit plans (including the plans listed in
this Paragraph 9) will be in accordance with the provisions of the
relevant plan documents, including any amendments to those plans
that may be enacted from time to time, and any applicable elections
that you may have on file with Avon. Nothing in this letter is
intended to limit Avon’s right to amend, modify or terminate
any or all of its employee benefit plans and programs.
10. E-mail and Voicemail .
Your e-mail and voicemail will be discontinued as of the Separation
Date.
11. Your Obligations to Avon
. In consideration of and as a condition to your receiving the
benefits being provided to you hereunder, you agree to the
following provisions.
(a) Effectiveness of Our
Agreement and Your Continued Service Obligation . You will not
be entitled to receive the benefits set forth in this letter unless
you have signed and delivered to me this letter which includes a
general release and this document has become effective (the
“Effective Date”).
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(b) Non-Disclosure of
Information . You will not knowingly use or disclose, directly
or through persons interposed, without Avon’s written consent
(which may only be provided by the Chief Executive Officer of
Avon), as and from this date, and at any time, any secret,
confidential, or proprietary information or knowledge relating to
Avon or any of its affiliated companies, and their respective
businesses, agents, and independent sales representatives, that you
obtained during or as a result of your employment at Avon, such as,
but not limited to, fina
