Exhibit 10.5

 

EMPLOYMENT AGREEMENT

 

THIS AGREEMENT (“Agreement”), dated as of July 1, 2007, between THE ESTÉE LAUDER
COMPANIES INC., a Delaware corporation (the “Company”), and JOHN DEMSEY, a
resident of [OMITTED] (the “Executive” or “you”),

 

W I T N E S S E T H:

 

WHEREAS, the Company and its subsidiaries are principally engaged in the
business of manufacturing, marketing and selling skin care, makeup, fragrance
and hair care products and related services (the “Business”); and

 

 WHEREAS, the Company and the Executive are parties to an employment agreement
dated as of November 1, 2004; and

 

WHEREAS, the Company desires to continue to retain the services of the Executive
as Group President from July 1, 2007 through June 30, 2010, and the Executive
desires to provide services in such capacities to the Company, upon the terms
and subject to the conditions hereinafter set forth; and

 

WHEREAS, the Compensation Committee of the Board of Directors of the Company
(the “Compensation Committee”) and the Stock Plan Subcommittee of the
Compensation Committee have approved the terms of this Agreement; and

 

NOW, THEREFORE, in consideration of the foregoing and of the mutual covenants
and obligations hereinafter set forth, the parties hereto, intending to be
legally bound, hereby agree as follows:

 

1.             Employment Term.

 

The Company hereby agrees to employ the Executive, and the Executive hereby
agrees to enter into employment as Group President from July 1, 2007 through
June 30, 2010, unless terminated sooner pursuant to Section 6 hereof (the “Term
of Employment”).  The twelve-month period commencing on July 1, 2007 and ending
on June 30, 2008 shall be the “First Contract Year” hereunder, and subsequent
twelve-month periods shall be subsequent Contract Years.

 

2.             Duties and Extent of Services.

 

(a)           During the Term of Employment, the Executive shall serve as Group
President of the Company from July 1, 2007 through June 30, 2010, reporting to
the Chief Operating Officer, (or such other direct supervisor as determined by
the Chief Executive Officer from time to time) and, in such capacities, shall
render such executive, managerial, administrative and other services as
customarily are associated with and incident to such positions, and as the
Company may, from time to time, reasonably require of him consistent with such
positions.

 

(b)           The Executive shall also hold such other positions and executive
offices of the Company and/or of any of the Company’s subsidiaries or affiliates
as may from time to

 

--------------------------------------------------------------------------------

 

time be agreed by the Executive or assigned by the Chief Operating Officer (or
the Executive’s direct supervisor if not the Chief Operating Officer), the Chief
Executive Officer or the Board of Directors.  The Executive shall not be
entitled to any compensation other than the compensation provided for herein for
serving during the Term of Employment in any other office or position of the
Company or any of its subsidiaries or affiliates, unless the Board of Directors
of the Company or the appropriate committee thereof shall specifically approve
such additional compensation.

 

(c)           The Executive shall be a full-time employee of the Company and
shall exclusively devote all his business time and efforts faithfully and
competently to the Company and shall diligently perform to the best of his
ability all of the duties required of him as Group President, and in the other
positions or offices of the Company or its subsidiaries or affiliates assigned
to him hereunder.  Notwithstanding the foregoing provisions of this section, the
Executive may serve as a non-management director of such business corporations
(or in a like capacity in other for-profit or not-for-profit organizations) as
the Chief Operating Officer (or the Executive’s direct supervisor if not the
Chief Operating Officer), the Chief Executive Officer or the Board of Directors
of the Company may approve, such approval not to be unreasonably withheld.

 

(d)           The Executive shall comply with the Company’s stock ownership
guidelines applicable to the Executive as they may be implemented and/or amended
by the Board of Directors or the Compensation Committee of the Board of
Directors.

 

3.  Base Salary and Incentive Bonus Compensation.

 

(a) Base Salary.  As compensation for all services to be rendered pursuant to
this Agreement and as payment for the rights and interests granted by Executive
hereunder, the Company shall pay or cause any of its subsidiaries to pay the
Executive a base salary (the “Base Salary”) during the Term of Employment
subject to the provisions of Section 3(c) below at the annualized rate of not
less than $1,000,000.00.  Subject to Section 6(l) of this Agreement, all amounts
of Base Salary provided for hereunder shall be payable in accordance with the
regular payroll policies of the Company in effect from time to time.

 

(b)  Incentive Bonus Compensation.  The Compensation Committee has established
for the Executive the target bonus payout for the aggregate opportunities that
may be awarded in respect of each fiscal year of the Company under the Company’s
Executive Annual Incentive Plan or any subsequent Bonus Plan for executives that
is approved by the stockholders of the Company (the “Bonus Plan”) in respect of
each Contract Year under this Agreement.   The target bonus payout for the
aggregate opportunities in respect of each Contract Year shall be no less than
$2,000,000.00.  All such opportunities shall be subject to the terms and
conditions of the Bonus Plan, which are incorporated herein by reference;
provided, however, that except with respect to bonuses deferred in accordance
with Section 3(c) hereof, and as otherwise indicated under Section 6, the bonus
payout with respect to any fiscal year shall be paid to Executive no later than
the 15th day of the third month following the end of such fiscal year.

 

(c) Deferral.

 

(i)  Deferral Elections—In General.  The Executive may elect to defer payment of
all or any part of any incentive bonus compensation payable under
Section 3(b) by making an election, in a manner prescribed by the Company, on or
before December 31 of the

 

2

--------------------------------------------------------------------------------

 

calendar year before the Contract Year begins (or such earlier date as may be
necessary to comply with the applicable tax laws and regulations).

 

(ii)  Deferral Elections—Performance-Based Compensation.  For any incentive
bonus compensation that qualifies as performance-based compensation under Treas.
Reg. Section 1.409A-1(e) and is based upon a performance period of at least 12
months, the Executive may make a deferral election at any time before the date
that is six months before the applicable performance period ends, but only if
(i) the incentive bonus compensation is not readily ascertainable when the
election is made and (ii) the service provider has performed services
continuously from the later of the beginning of the performance period or the
date the performance criteria are established.

 

(iii)  Amounts Subject to Section 162(m).  If any amount of Base Salary, any
amount payable under the Bonus Plan, or any other amount payable to the
Executive is not currently deductible under Section 162(m) of the Internal
Revenue Code of 1986, as amended (the “Code”), or like or successor provisions
(a “Non-Deductible Amount”), the Company will defer payment of the
Non-Deductible Amount until section 162(m) no longer applies to the Executive. 
Any amounts so deferred will be credited to a bookkeeping account in the name of
the Executive as of the date scheduled for payment (the “Deferred Compensation
Account”).  The Deferred Compensation Account will be credited with interest as
of each June 30 during the term of deferral, compounded annually, at an annual
rate equal to the annual rate of interest announced by Citibank N.A. in New
York, New York as its base rate in effect on such June 30, but limited to a
maximum annual rate of 9%.

 

(iv)  Payment of Amounts Deferred And Vested On Or Before December 31, 2004. 
Amounts credited to the Executive’s Deferred Compensation Account on or before
December 31, 2004, and any subsequently credited interest, will be paid in cash
to the Executive (or the Executive’s designated beneficiary if the Executive
dies before payment,)  subject to applicable withholding taxes.  The Company
will choose the payment date, which will be no later than ninety (90) days after
Executive’s employment with the Company terminates, unless the Executive
requests before terminating a later payment date or dates and the Company agrees
to the request.

 

(v)  Payment of Amounts Deferred and Vested After December 31, 2004.  Subject to
Section 6(l), amounts credited to the Executive’s Deferred Compensation Account
after December 31, 2004 will be paid to the Executive (or the Executive’s
designated beneficiary if the Executive dies before payment), subject to
applicable withholding taxes on, or as soon as practicable after, the date the
Executive separates from service with the Company (as defined in Treas. Reg.
Section 1.409A-1(h)).  The Non-Deductible Amount will be paid at the earliest
date at which the Company reasonably expects that the deduction will not be
limited or eliminated by Code section 162(m).  The Company, in its sole
discretion, may provide an investment facility for all or a portion of such
deferred amounts, but is not required to do so.

 

4.             Equity-Based Compensation.

 

(a)           General.  In respect of each Contract Year, the Company shall
recommend to the Stock Plan Subcommittee of the Compensation Committee that the
Executive be awarded under the terms and conditions of the Amended and Restated
Fiscal 2002 Share Incentive Plan (the “Share Incentive Plan”), which are
incorporated herein by reference, or successor plan and subject to the
provisions of Section 6(k) below, equity-based compensation awards in accordance
with the policies and procedures of the Company as in

 

3

--------------------------------------------------------------------------------

 

effect from time to time for its Executive Officers. The terms of such
equity-based compensation awards shall be set forth in separate grant letters
approved by the Stock Plan Subcommittee of the Compensation Committee.  The
recommended annual equity-based compensation awards shall be of an equivalent
value to a grant of stock options with respect to 125,000 shares of the
Company’s Class A Common Stock and determined in accordance with procedures
generally utilized by the Company for its financial reporting at the time of
grant.

 

(b)         Certain Conditions.  Executive acknowledges and agrees that any
grant of equity-based compensation otherwise provided for in this Section 4
shall be effective as provided herein only to the extent permitted by the Share
Incentive Plan, and this Agreement shall not obligate the Company to adopt any
successor plan providing for the grant of equity-based compensation.  If
authority over the Company’s equity compensation programs is changed from the
Stock Plan Subcommittee to the Compensation Committee (or other committee), then
after such change, references herein to the Stock Plan Subcommittee shall be to
the appropriate committee.

 

5.                                       Benefits.

 

(a)                                  Standard Benefits.  During the Term of
Employment, the Executive shall be entitled to participate in all pension and
retirement savings, fringe benefit and welfare plans, including life insurance,
medical, health and accident, disability, and vacation plans and programs
maintained by the Company from time to time for senior executives at a level
commensurate with his position.  The Executive acknowledges that participation
in such programs may result in the receipt by him of additional taxable income.

 

(b)  Perquisite Reimbursement; Financial Counseling.  During the Term of
Employment, the Company shall reimburse the Executive for the actual expenses
incurred by him in connection with his professional standing, in accordance with
the guidelines set out in the Company’s Senior Executive Compensation Program
Perquisite Plan and upon presentation of proper expense statements or vouchers
or such other supporting information as the Company may reasonably require of
the Executive.  Such reimbursement shall generally occur within seventy-five
(75) days after the end of the calendar year of presentment, provided that such
presentment occurs within ninety (90) days after the date the related expense
were incurred.  Notwithstanding the above, to the extent that the expenses were
incurred in one calendar year and presentment occurs in the following calendar
year, such reimbursement shall occur by the end of the calendar year in which
the presentment occurs.  In no event shall the gross amount of such
reimbursements be greater than $15,000.00 in respect of any calendar year during
the Term of Employment, nor shall amounts that are not reimbursed in one
calendar year up to the $15,000.00 per year limitation be able to be used in
another calendar year or otherwise be made available to the Executive. 
Additionally, the Company will pay directly to the service provider following
presentment of invoice(s) reasonably acceptable to the Company up to $5,000.00
per year for reasonable financial counseling services for the Executive, and in
no event shall amounts up to the $5,000.00 per year limitation that are not paid
in one calendar year be able to used in another calendar year or otherwise be
made available to the executive.  The Executive acknowledges that participation
in such programs will result in the receipt by him  of additional taxable
income.

 

(c)  Executive Auto. The Executive will participate in the Executive Automobile
Program of the Company, and may elect to be provided an automobile having an
acquisition value of up to $50,000.00.  Alternatively, the Executive may receive
an automobile allowance in

 

4

--------------------------------------------------------------------------------

 

the gross monthly amount of $1,100.00.  The Executive acknowledges that
participation in this program will result in the receipt by him of additional
taxable income.

 

(d)  Expenses. The Company agrees to reimburse the Executive for all reasonable
and necessary travel (inclusive of first class air travel), business
entertainment and other business out-of-pocket expenses incurred or expended by
him in connection with the performance of his duties hereunder upon presentation
of proper expense statements or vouchers or such other supporting information as
the Company may reasonably require of the Executive.  The timing of payment of
such reimbursements and presentation by the Executive of expenses incurred shall
be in accordance with the rules described in Section 5(b).

 

(e)  Spousal Travel. The Executive may upon prior approval of the Chief
Executive Officer (or the Executive’s direct supervisor if not the Chief
Executive Officer) or his or her designee arrange for his spouse or domestic
partner to accompany him on up to two (2) business related travel itineraries
per fiscal year, on a reasonable basis, at Company expense.  Any reimbursement
for such travel shall require presentation of proper expense statements or
vouchers or such other supporting information as the Company may reasonably
require of the Executive, in accordance with the timeframe described in
Section 5(b).  The Executive acknowledges that participation in this program
will result in the receipt by him of additional taxable income.

 

(f)  Executive Term Life Insurance.  During the Term of Employment, the Company
shall pay premiums on a term life insurance policy with a face amount of
$5,000,000.00.  Such obligation to pay premiums is subject to standard
underwriting conditions.  The Executive acknowledges that this coverage will
result in the receipt by him of additional taxable income.

 

6.                                       Termination.

 

(a)                                  Permanent Disability.  In the event of the
“permanent disability” (as hereinafter defined) of the Executive during the Term
of Employment, the Company shall have the right, upon written notice to the
Executive, to terminate the Executive’s employment hereunder, effective upon the
giving of such notice (or such later date as shall be specified in such notice).
In the event of such termination, the Company shall have no further obligations
hereunder, except that the Executive shall be entitled to receive (i) any
accrued but unpaid salary and other amounts to which the Executive otherwise is
entitled hereunder prior to the date of his termination of employment, such
salary to be paid in accordance with Section 3(a) and such other amounts to be
paid in accordance with applicable payment provisions herein; (ii) bonus
compensation earned but not paid under Section 3(b) hereof that relates to any
Contract Year ended prior to the date of his termination of employment, to be
paid in accordance with Section 3(b) hereof; (iii) a pro-rata portion of the
annual bonus payout that the Executive would have been entitled to receive had
he remained in employment through the end of the Contract Year during which
termination due to permanent disability occurred, based on the portion of the
Contract Year that has elapsed prior to such termination, and paid in accordance
with Section 3(b) hereof; (iv) reimbursement for financial counseling services
specified under Section 5(b) hereof in the amount of $5,000.00 for a period of
one (1) year from the date of termination, in accordance with
Section 5(b) hereof; and (v) his Base Salary under Section 3(a) hereof for a
period of one (1) year from the date of termination as a result of permanent
disability (the “Disability Continuation Period”), paid in accordance with
Section 6(l)(i) hereof; provided, however, that the Company shall only be
required to pay that amount of the Executive’s Base Salary which shall not be
covered by short-term disability payments or benefits or long-term

 

5

--------------------------------------------------------------------------------

 

disability payments or benefits, if any, to the Executive under any Company plan
or arrangement.  In addition, upon termination for permanent disability, the
Executive shall continue to participate, to the extent permitted by applicable
law and regulations and the applicable benefit plan, program or arrangement, in
any and all healthcare, life insurance and accidental death and dismemberment
insurance benefit plans, programs or arrangements of the Company during the
Disability Continuation Period (disregarding any required delay in payments
under Section 6(l)).  Thereafter, the Executive’s rights to participate in such
programs and plans, or to receive similar coverage, if any, shall be as
determined under such programs.  Because continued participation in any
qualified pension and qualified retirement savings plans of the Company is not
permitted during the Disability Continuation Period, the Company shall provide
to the Executive, subject to Section 6(l), cash payments, to be paid in
accordance with Section 6(l)(i), equal to the sum of (x) the maximum qualified
defined contribution retirement savings plan match for pre-tax and after-tax
contributions allowable by the plan and by applicable laws and regulations for
each year during the Disability Continuation Period (or other period as
expressly provided herein), and (y) the excess of the benefit that would have
been received by the Executive had he been credited with additional years of age
and service equal to the Disability Continuation Period (or other period as
expressly provided herein) over the actual benefit to which the Executive is
entitled, in each case, under any and all qualified and non-qualified defined
benefit pension plans and qualified defined contribution retirement savings
plans in which the Executive participates as of the date of termination of
employment, calculated as of and based upon the Executive’s date of termination
(such sum, the “Pension Replacement Payment”).  Notwithstanding the above, any
amounts payable under this Section 6(a) that are separation pay as described
under Treas. Reg. §1.409A-1(b)(9)(iii)(A) shall be paid no later than
December 31 of the second calendar year following the year in which the
Executive’s termination for permanent disability occurs; any amounts payable
under this Section 6(a) that are not otherwise exempt from Code section 409A are
subject to, and payable in accordance with, Section 6(l) of this Agreement. 
Except as otherwise provided in this Section 6(a), the Company will have no
further obligations under Sections 3, 4 and 5 hereof or otherwise.  For purposes
of this Section 6(a), “permanent disability” means any disability as defined
under the Company’s applicable disability insurance policy or, if no such policy
is available, any physical or mental disability or incapacity that renders the
Executive incapable of performing the services required of him in accordance
with his obligations under Section 2 hereof for a period of six (6) consecutive
months or for shorter periods aggregating six (6) months during any twelve-month
period.

 

(b)           Death.  In the event of the death of the Executive during the Term
of Employment, Executive’s employment and this Agreement shall automatically
terminate.  In the event of such termination the Company shall have no further
obligations hereunder, except to pay the Executive’s beneficiary or legal
representative (i) any accrued but unpaid salary and other amounts to which the
Executive otherwise is entitled hereunder prior to the date of his death, in
accordance with Section 3(a) and other applicable payment provisions herein;
(ii) bonus compensation earned but not paid under Section 3(b) hereof that
relates to any Contract Year ended prior to the date of his death, in accordance
with Section 3(b) hereof; (iii) a pro-rata portion of the annual bonus payout
the Executive would have been entitled to receive had he remained in the employ
of the Company through the end of the Contract Year during which termination due
to his death occurred, based on the portion of the Contract Year that has
elapsed prior to such termination, and paid in accordance with
Section 3(b) hereof; (iv) reimbursement for financial counseling services
specified under Section 5(b) hereof in the amount of $5,000.00 per year for a
period of one (1) year from the date of termination, in accordance with
Section 5(b) hereof; and (v) for a period of one (1) year from the date of his
death, the Executive’s Base Salary as established under Section 3(a) hereof as
of the date of

 

6

--------------------------------------------------------------------------------

 

his death, paid in accordance with Section 3(a) hereof; provided, however, that,
except as otherwise provided in this Section 6(b), the Company will have no
further obligations under Sections 3, 4 and 5 hereof or otherwise.

 

(c)           Termination Without Cause.  The Company shall have the right, upon
ninety (90) days’ prior written notice given to the Executive, to terminate the
Executive’s employment for any reason whatsoever (excluding for Cause (as
defined below)).  In the event of such termination, the Company shall have no
further obligations hereunder, except that the Executive shall be entitled to
(i) receive any accrued but unpaid salary and other amounts to which the
Executive otherwise is entitled hereunder prior to the date of his termination
without Cause, such salary to be paid in accordance with Section 3(a) and such
other amounts to be paid in accordance with applicable payment provisions
herein; (ii) receive bonus compensation earned but not paid under
Section 3(b) hereof that relates to any Contract Year ended prior to the date of
his termination without Cause, to be paid in accordance with Section 3(b)
hereof; (iii) receive a pro-rata portion of the annual bonus payout that the
Executive would have been entitled to receive had he remained in employment
through the end of the Contract Year during which the termination without Cause
occurred, based on the portion of the Contract Year that has elapsed prior to
such termination, and paid in accordance with Section 3(b) hereof; (iv) receive
as damages (A) for a period ending on a date two (2) years from the date of
termination without Cause, to be paid in accordance with Section 6(l)(i), his
Base Salary as established under and in accordance with Section 3(a) hereof and
(B) bonus compensation equal to fifty percent (50%) of the average of the actual
annual bonuses paid or payable (with respect to completed Contract Years) to the
Executive during the Term of Employment , or, if such termination occurs prior
to the payment of any bonus hereunder, $1,000,000.00, to be paid in accordance
with Section 6(l)(i); (v) receive reimbursement for financial counseling
services specified under Section 5(b) hereof in the amount of $10,000.00 for a
period of two (2) years from the date of termination, in accordance with
Section 5(b) hereof; and (vi) participate for a period ending on a date two
(2) years from the date of termination without Cause (the “Without Cause
Continuation Period”), to the extent permitted by applicable law and regulations
and the applicable benefit plan, program or arrangement, in any and all
healthcare, life insurance and accidental death and dismemberment insurance
benefit plans, programs or arrangements, on terms identical to those applicable
to full-term senior officers of the Company.  Because continued participation in
any qualified pension and qualified retirement savings plans of the Company is
not permitted during the Without Cause Continuation Period, the Company shall
provide to the Executive, subject to Section 6(l), cash payments, to be paid in
accordance with Section 6(l)(i), equal to the Pension Replacement Payment (as
defined in Section 6(a)) with respect to the Without Cause Continuation Period. 
Notwithstanding the above, any amounts payable under this Section 6(c) that are
separation pay as described under Treas. Reg. §1.409A-1(b)(9)(iii)(A) shall be
paid no later than December 31 of the second calendar year following the year in
which the Executive’s termination pursuant to this Section 6(c) occurs; any
amounts payable under this Section 6(c) that are not otherwise exempt from Code
section 409A are subject to, and payable in accordance with, Section 6(l) of
this Agreement. Except as otherwise provided in this Section 6(c), the Company
will have no further obligations under Sections 3, 4 and 5 hereof or otherwise. 
In the event of termination pursuant to this Section 6(c), the Executive shall
not be required to mitigate his damages hereunder.

 

(d)           Cause.  The Company shall have the right, upon notice to the
Executive, to terminate the Executive’s employment under this Agreement for
“Cause” (as defined below), effective upon the Executive’s receipt of such
notice (or such later date as shall be specified in such notice), and the
Company shall have no further obligations hereunder, except to pay the Executive
his accrued but unpaid salary, in accordance with Section 3(a) hereof, and
provide

 

7

--------------------------------------------------------------------------------

 

the Executive with any benefit under the employee benefit programs and plans of
the Company as determined under such programs and plans upon and as of such a
termination for Cause.  Except as otherwise provided in this Section 6(d), the
Company will have no further obligations under Sections 3, 4 and 5 hereof or
otherwise.

 

For purposes of this Agreement, “Cause” means:

 

(i)            a material breach of, or the willful failure or refusal by the
Executive to perform and discharge duties or obligations he has agreed to
perform or assume under this Agreement (other than by reason of disability or
death) that, if capable of correction, is not corrected within ten (10) business
days following notice thereof to the Executive by the Company, such notice to
state with specificity the nature of the breach, failure or refusal;

 

(ii)           willful misconduct by the Executive, unrelated to the Company or
any of its subsidiaries or affiliates, that could reasonably be anticipated to
have a material adverse effect on the Company or any of its subsidiaries or
affiliates (the determination of Cause to be made by the Chief Executive Officer
in his or her reasonable judgment or the Company’s Board of Directors in its
reasonable judgment);

 

(iii)          the Executive’s gross negligence, whether related or unrelated to
the business of the Company or any of its subsidiaries or affiliates which could
reasonably be anticipated to have a material adverse effect on the Company or
any of its subsidiaries or affiliates that, if capable of correction, is not
corrected within ten (10) business days following notice thereof to the
Executive by the Company, such notice to state with specificity the nature of
the conduct complained of (the determination of Cause to be made by the Chief
Executive Officer in his or her reasonable judgment or the Company’s Board of
Directors in its reasonable judgment);

 

(iv)          the Executive’s failure to follow a lawful directive of the Chief
Operating Officer (or the Executive’s direct supervisor if not the Chief
Operating Officer) or the Board of Directors of the Company that is within the
scope of the Executive’s duties for a period of ten (10) business days after
notice from Chief Operating Officer (or the Executive’s direct supervisor if not
the Chief Operating Officer) or the Board of Directors of the Company specifying
the performance required;

 

(v)           any violation by the Executive of a policy contained in the Code
of Conduct of the Company (the determination of Cause to be made by the Chief
Executive Officer in his or her reasonable judgment or the Company’s Board of
Directors in its reasonable judgment);

 

(vi)          drug or alcohol abuse by the Executive that materially affects the
Executive’s performance of his duties under this Agreement; or

 

(vii)         conviction of, or the entry of a plea of guilty or nolo contendere
by the Executive for, any felony.

 

(e)           Termination by Executive.  The Executive shall have the right,
exercisable at any time during the Term of Employment, to terminate his
employment for any reason whatsoever, upon ninety (90) days’ prior written
notice to the Company.  Upon such termination, the Company shall have no further
obligations hereunder other than to (i) pay the Executive his accrued but unpaid
salary, in accordance with Section 3(a) hereof; (ii) provide bonus

 

8

--------------------------------------------------------------------------------

 

compensation, if any, earned but not paid under Section 3(b) hereof that relates
to any Contract Year ended prior to the date of such a termination by the
Executive, in accordance with Section 3(b) hereof; and (iii) provide the
Executive with any benefit under the employee benefit programs and plans of the
Company as determined under such programs and plans upon and as of such a
termination by the Executive to the extent that any such benefit is permitted by
applicable law and regulations and provided that any such benefit shall not be
provided beyond a period ending on a date two (2) years from the date of such
termination by the Executive.  Any amounts payable under this Section 6(e) that
are not otherwise exempt from Code section 409A are subject to, and payable in
accordance with, Section 6(l) of this Agreement. Except as otherwise provided in
this Section 6(e), the Company will have no further obligations under Sections
3, 4 and 5 hereof or otherwise.

 

(f)            Termination by Executive for Material Breach.  The Executive
shall have the right, exercisable by notice to the Company, to terminate his
employment effective ninety (90) days after the giving of such notice, if, at
any time during the Term of Employment, the Company shall be in material breach
of its obligations hereunder; provided, however, that such notice must be
provided to the Company within thirty (30) days of the date on which the
Executive obtains knowledge or reasonably should obtain knowledge of such
material breach; and provided further, that such termination will not become
effective if within thirty (30) days after receiving the notice the Company
shall have cured all such material breaches of its obligations hereunder.  For
purposes of this Section 6(f), a material breach shall only be, (i) a material
reduction in the Executive’s authority, functions, duties or responsibilities
provided in Section 2 hereof, or (ii) the Company’s failure to pay any award
that the Executive is entitled to receive pursuant to the terms of this
Agreement. Such termination shall be deemed to be a termination without Cause
and shall be controlled by the provisions of Section 6(c) hereof.  Any amounts
payable under this Section 6(f) that are not otherwise exempt from Code section
409A are subject to, and payable in accordance with, Section 6(l) of this
Agreement.  Except as otherwise provided in this Section 6(f), the Company will
have no further obligations under Sections 3, 4 and 5 hereof or otherwise.

 

(g)           Change of Control.

 

(i)          Definitions.  For purposes of this Agreement,

 

(A)         a “Change of Control” shall be deemed to have occurred upon any of
the following events:

 

(1)           a change in control of a nature that would be required to be
reported in response to Item 6(e) of Schedule 14A of Regulation
14(A) promulgated under the Securities Exchange Act of 1934, as amended; or

 

(2)           during any period of two (2) consecutive years, the individuals
who at the beginning of such period constitute the Company’s Board of Directors
or any individuals who would be “Continuing Directors” (as defined below) cease
for any reason to constitute a majority thereof; or

 

(3)           the Company’s Class A Common Stock shall cease to be publicly
traded; or

 

9

--------------------------------------------------------------------------------

 

(4)           the Company’s Board of Directors shall approve a sale of all or
substantially all of the assets of the Company, and such transaction shall have
been consummated; or

 

(5)           the Company’s Board of Directors shall approve any merger,
exchange, consolidation, or like business combination or reorganization of the
Company, the consummation of which would result in the occurrence of any event
described in Section 6(g)(i)(A)(2) or (3) above, and such transaction shall have
been consummated.

 

Notwithstanding the foregoing, (X) changes in the relative beneficial ownership
among members of the Lauder family and family-controlled entities shall not, by
itself, constitute a Change of Control of the Company, (Y) any spin-off of a
division or subsidiary of the Company to its stockholders  shall not constitute
a Change of Control of the Company.

 

(B)           “Continuing Directors” shall mean (1) the directors in office on
July 1, 2007 and (2) any successor to such directors and any additional director
who after July 1, 2007 was nominated or selected by a majority of the Continuing
Directors in office at the time of his or her nomination or selection.

 

(C)           “Good Reason” means the occurrence of any of the following,
without the express written consent of the Executive, within two (2) years after
the occurrence of a Change in Control:

 

(1)           (a) the assignment to the Executive of any duties inconsistent in
any material adverse respect with the Executive’s position, authority or
responsibilities as contemplated by Section 2 hereof, or (b) any other material
adverse change in such position, including title, authority or responsibilities;

 

(2)           any failure by the Company to comply with any provisions of
Sections 3, 4 or 5 hereof, other than an insubstantial or inadvertent failure
remedied by the Company promptly after receipt of notice thereof given by the
Executive, provided that the Executive provides such notice within ninety (90)
days after the initial date of such failure by the Company and provided the
Company has been provided at least thirty (30) days during which it may remedy
such failure;

 

(3)           the Company’s requiring the Executive to be based at any office or
location more than fifty (50) miles from that location at which he performed his
services specified under the provisions of Section 2 immediately prior to the
Change in Control, except for travel reasonably required in the performance of
the Executive’s responsibilities; or

 

(4)           any failure by the Company to obtain the assumption and agreement
to perform this Agreement by a successor as contemplated by Section 14, unless
such assumption occurs by operation of law.

 

(ii)           Termination for Good Reason.  Within two (2) years after the
occurrence of a Change of Control, the Executive may terminate his employment
for Good Reason.  Such termination shall be deemed to be a termination without
Cause and shall be controlled by the provisions of Section 6(c) and
Section 6(l) hereof, including the required delay in payment for the six-month
period following the date of termination for any amounts determined to be
subject to Code section 409A, as described in Section 6(l).  Except as

 

10

--------------------------------------------------------------------------------

 

otherwise provided in this Section 6(g)(ii), the Company will have no further
obligations under Sections 3, 4 and 5 hereof or otherwise.

 

(h)  Certain Limitations.

 

(i)            Notwithstanding anything to the contrary contained herein, in the
event that any amount or benefit paid or distributed to the Executive pursuant
to this Agreement, taken together with any amounts or benefits otherwise paid or
distributed to the Executive by the Company or any affiliated company
(collectively, the “Covered Payments”), are or become subject to the tax (the
“Excise Tax”) imposed under Section 4999 of the Code, or any similar tax that
may hereafter be imposed, the Covered Payments shall be reduced (but not below
zero) until no portion of such payments would be subject to Excise Tax.

 

(ii)           For purposes of determining whether any of the Covered Payments
will be subject to the Excise Tax and the amount of such Excise Tax,

 

(A)          such Covered Payments will be treated as “parachute payments” to
the extent they exceed the “2.99 base amount threshold” within the meaning of
Section 280G of the Code, and all “parachute payments” in excess of the “base
amount” (as defined under Section 280G(b)(3) of the Code) shall be treated as
subject to the Excise Tax, unless, and except to the extent that, in the good
faith judgment of the Company’s independent certified public accountants
appointed prior to the date of the change in ownership or control or tax counsel
selected by such accountants (the “Accountants”), the Company has a reasonable
basis to conclude that such Covered Payments (in whole or in part) either do not
constitute “parachute payments” or are otherwise not subject to such Excise Tax,
and

 

(B)           the value of any non-cash benefits or any deferred payment or
benefit shall be determined by the Accountants in accordance with the principles
of Section 280G of the Code.

 

(i)  Non-Renewal. In the event the Company does not offer the Executive renewal
of the Term of Employment on the basis of terms no less favorable, in the
aggregate, than those pending at the time of the conclusion of the Term of
Employment and, as a result, the Company terminates the Executive’s employment
with the Company (“Non-Renewal”), such termination shall be deemed to be a
termination without Cause and shall be controlled by the provisions of
Section 6(c) and Section 6(l) hereof, including the required delay in payment
for the six-month period following the date of termination for any amounts
determined to be subject to Code section 409A, as described in Section 6(l). 
Except as otherwise provided in this Section 6(i), the Company will have no
further obligations under Sections 3, 4 and 5 hereof or otherwise.  This
provision shall not apply if at the time for renewal any of (x) the Board of
Directors, (y) the Compensation Committee and/or the Stock Plan Subcommittee of
the Board of Directors or (z) the stockholders of the Company have changed the
Company’s policy regarding the use of written employment agreements for
executives, the form of equity-based compensation, or the mix of cash and
non-cash compensation.

 

(j)            Continued Employment Beyond the Non-Renewal or Expiration of the
Term of Employment.  Unless the parties otherwise agree in writing, continuation
of Executive’s employment with the Company beyond the non-renewal or expiration
of the Term of Employment shall be deemed an employment-at-will and shall not be
deemed to extend any of the provisions of this Agreement, and Executive’s
employment may thereafter be terminated at will by either Executive or the
Company.

 

11

--------------------------------------------------------------------------------

 

(k)           Effect of Termination.  In addition to the foregoing, in the event
that this Agreement shall be terminated pursuant to the provisions of
subparagraphs 6(a), 6(b), 6(c), 6(f), 6(g) or 6(i) above, and the Executive is
not considered to be retirement eligible under the terms and conditions of the
Company’s qualified defined benefit pension plan, if any, notwithstanding
anything to the contrary contained in the Company’s Share Incentive Plan or
other similar equity plan, all stock options granted to the Executive during the
Term of Employment shall become immediately exercisable and shall be exercisable
until the earlier to occur of (A) the end of the stock option term as set forth
in the applicable option agreement(s); or (B) the first anniversary of the date
that Base Salary continuation payments end, after which all such option awards
shall expire and be of no further force or effect.  The vesting and
exercisability provided for in the previous sentence shall be subject to all
provisions relating to post-employment exercises set forth in the applicable
Share Incentive Plan and option agreement(s).  Subject to the preceding
sentences,  upon the termination of the Executive’s employment hereunder for any
reason, the Company shall have no further obligations hereunder, except as
otherwise provided herein.  The Executive, however, shall continue to have the
obligations provided for in Sections 7 and 8 hereof. Furthermore, upon any such
termination, the Executive shall be deemed to have resigned immediately from all
offices and directorships held by him in the Company or any of its subsidiaries.

 

(l)            Section 409A of the Code.  It is the intention of the parties to
this Agreement that no payment or entitlement pursuant to this Agreement will
give rise to any adverse tax consequences to the Executive under Section 409A of
the Code and Department of Treasury regulations and other interpretive guidance
issued thereunder, including that issued after the date hereof (collectively,
“Section 409A”).  The Agreement shall be interpreted to that end and, consistent
with that objective and notwithstanding any provision herein to the contrary,
the Company may unilaterally take any action it deems necessary or desirable to
amend any provision herein to avoid the application of or excise tax under
Section 409A.  Further, no effect shall be given to any provision herein in a
manner that reasonably could be expected to give rise to adverse tax
consequences under that provision.  The Company shall from time to time compile
a list of “specified employees” as defined in, and pursuant to, Treas. Reg.
Section 1.409A-1(i).  Notwithstanding any other provision herein, if the
Executive is a specified employee on the date of termination, no payment of
compensation under this Agreement shall be made to the Executive during the
period lasting six (6) months from the date of termination unless the Company
determines that there is no reasonable basis for believing that making such
payment would cause the Executive to suffer any adverse tax consequences
pursuant to Section 409A of the Code.  If any payment to the Executive is
delayed pursuant to the foregoing sentence, such payment instead shall be made
on the first business day following the expiration of the six-month period
referred to in the prior sentence, unless specified otherwise in
Section 6(l)(i) hereof. Although the Company shall consult with Executive in
good faith regarding implementation of this Section 6(l), neither the Company
nor its employees or representatives shall have liability to the Executive with
respect to any additional taxes that the Executive may be subject to in the
event that any amounts under this Agreement are determined to violate Code
section 409A.

 

(i)            Notwithstanding the above, amounts described as being subject to
payment in accordance with the provisions of this Section 6(l)(i) shall be
subject to a delay in payment for a six-month period following the date of
termination and shall be paid as follows:  For any Base Salary under
Section 6(a)(v) or Section 6(c)(iv)(A) to be continued beyond the date of
termination and for any Pension Replacement Payment, all payments that would
have been made during the six-month period immediately following the date of
termination shall be

 

12

--------------------------------------------------------------------------------

 

made in a single cash payment on the first business day following the expiration
of such six-month period, and as of the first business day following the
expiration of such six-month period all such payments shall resume in accordance
with the regular payroll practices of the Company until the end of the specified
period; any bonus payments under Section 6(c)(iv)(B) shall be paid in a single
lump sum payment on the first business day following the expiration of such
six-month period.

 

(m)          Release of Claims.  As a condition precedent to the receipt of
payments and benefits pursuant to this Section, the Executive, or, in the case
of his death or Disability that prevents the Executive from performing his
obligation under this Section 6(m), his personal representative, and his
beneficiary, if applicable, will execute an effective general release of claims
against the Company and its subsidiaries and affiliates and their respective
directors, officers, employees, attorneys and agents; provided, however, that
such effective release will not affect any right that the Executive, or in the
event of his death, his personal representative or beneficiary, otherwise has to
any payment or benefit provided for in this Agreement or to any vested benefits
the Executive may have in any employee benefit plan of Company or any of its
subsidiaries or affiliates, or any right the Executive has under any other
agreement between the Executive and the Company or any of its subsidiaries or
affiliates that expressly states that the right survives the termination of the
Executive’s employment.

 

7.             Confidentiality; Ownership.

 

(a)           The Executive agrees that he shall forever keep secret and retain
in strictest confidence and not divulge, disclose, discuss, copy or otherwise
use or suffer to be used in any manner, except in connection with the Business
of the Company, its subsidiaries or affiliates and any other business or
proposed business of the Company or any of its subsidiaries or affiliates, any
“Protected Information” in any “Unauthorized” manner or for any “Unauthorized”
purpose (as such terms are hereinafter defined).

 

(i)            “Protected Information” means trade secrets, confidential or
proprietary information and all other knowledge, know-how, information,
documents or materials owned, developed or possessed by the Company or any of
its subsidiaries or affiliates, whether in tangible or intangible form,
pertaining to the Business or any other business or proposed business of the
Company or any of its subsidiaries or affiliates, including, but not limited to,
research and development, operations, systems, data bases, computer programs and
software, designs, models, operating procedures, knowledge of the organization,
products (including prices, costs, sales or content), processes, formulas,
techniques, machinery, contracts, financial information or measures, business
methods, business plans, details of consultant contracts, new personnel hiring
plans, business acquisition plans, customer lists, business relationships and
other information owned, developed or possessed by the Company or its
subsidiaries or affiliates; provided that Protected Information shall not
include information that becomes generally known to the public or the trade
without violation of this Section 7.

 

(ii)           “Unauthorized” means: (A) in contravention of the policies or
procedures of the Company or any of its subsidiaries or affiliates;
(B) otherwise inconsistent with the measures taken by the Company or any of its
subsidiaries or affiliates to protect their interests in any Protected
Information; (C) in contravention of any lawful instruction or directive, either
written or oral, of an employee of the Company or any of its subsidiaries or
affiliates empowered to issue such instruction or directive; or (D) in
contravention of any duty existing under law or contract. Notwithstanding
anything to the contrary contained in this Section 7, the Executive may disclose
any Protected Information to the extent required by court order or

 

13

--------------------------------------------------------------------------------

 

decree or by the rules and regulations of a governmental agency or as otherwise
required by law or to his legal counsel and, in connection with a determination
under Section 6(h), to accounting experts; provided that the Executive shall
provide the Company with prompt notice of such required disclosure in advance
thereof so that the Company may seek an appropriate protective order in respect
of such required disclosure.

 

(b)           The Executive acknowledges that all developments, including,
without limitation, inventions (patentable or otherwise), discoveries, formulas,
improvements, patents, trade secrets, designs, reports, computer software, flow
charts and diagrams, procedures, data, documentation, ideas and writings and
applications thereof relating to the Business or any business or planned
business of the Company or any of its subsidiaries or affiliates that, alone or
jointly with others, the Executive may conceive, create, make, develop, reduce
to practice or acquire during the Executive’s employment with the Company or any
of its subsidiaries or affiliates (collectively, the “Developments”) are works
made for hire and shall remain the sole and exclusive property of the Company. 
The Executive hereby assigns to the Company, in consideration of the payments
set forth in Section 3(a) hereof, all of his right, title and interest in and to
all such Developments. The Executive shall promptly and fully disclose all
future material Developments to the Board of Directors of the Company and, at
any time upon request and at the expense of the Company, shall execute,
acknowledge and deliver to the Company all instruments that the Company shall
prepare, give evidence and take all other actions that are necessary or
desirable in the reasonable opinion of the Company to enable the Company to file
and prosecute applications for and to acquire, maintain and enforce all letters
patent and trademark registrations or copyrights covering the Developments in
all countries in which the same are deemed necessary by the Company.  All
memoranda, notes, lists, drawings, records, files, computer tapes, programs,
software, source and programming narratives and other documentation (and all
copies thereof) made or compiled by the Executive or made available to the
Executive concerning the Developments or otherwise concerning the Business or
planned business of the Company or any of its subsidiaries or affiliates shall
be the property of the Company or such subsidiaries or affiliates and shall be
delivered to the Company or such subsidiaries or affiliates promptly upon the
expiration or termination of the Term of Employment.

 

(c)           During the Term of Employment, the Company, its subsidiaries and
affiliates shall have the exclusive right to use the Executive’s name and image
throughout the world in its advertising and promotional materials in connection
with the advertising and promotion of the Company, its subsidiaries and
affiliates, and their products.  After the expiration of the Term of Employment,
the Company, it subsidiaries and affiliates shall have the non-exclusive right
in perpetuity to use the Executive’s name and image throughout the world solely
in connection with promotional materials related to the history of the Company,
it subsidiaries and affiliates, and their products.  The consideration for such
rights is the payments set forth in Section 3(a) hereof.  The rights conveyed
hereby may be assigned by the Company, its subsidiaries or affiliates to a
successor in the interest of the Company or the relevant subsidiary or affiliate
or their businesses or product lines.

 

(d)           The provisions of this Section 7 shall, without any limitation as
to time, survive the expiration or termination of the Executive’s employment
hereunder, irrespective of the reason for any termination.

 

8.             Covenant Not to Compete.  The Executive agrees that during the
Executive’s employment with the Company or any of its subsidiaries or affiliates
and for a period of two (2) years commencing upon the expiration or termination
of the Executive’s employment

 

14

--------------------------------------------------------------------------------

 

for any reason whatsoever (the “Non-Compete Period”), the Executive shall not,
directly or indirectly, without the prior written consent of the Company:

 

(a)           solicit, entice, persuade or induce any employee, consultant,
agent or independent contractor of the Company or of any of its subsidiaries or
affiliates to terminate his, her or its employment with the Company or such
subsidiary or affiliate, to become employed by any person, firm or corporation
other than the Company or such subsidiary or affiliate or approach any such
employee, consultant, agent or independent contractor for any of the foregoing
purposes, or authorize or assist in the taking of any such actions by any third
party (for purposes of this Section 8 (a), the terms “employee,” “consultant,”
“agent” and “independent contractor” shall include any persons with such status
at any time during the six (6) months preceding any solicitation in question);
or

 

(b)           directly or indirectly engage, participate, or make any financial
investment in, or become employed by or render consulting, advisory or other
services to or for any person, firm, corporation or other business enterprise,
wherever located, which is engaged, directly or indirectly, in competition with
the Business or any business of the Company or any of its subsidiaries or
affiliates as conducted or any business proposed to be conducted at the time of
the expiration or termination of the Executive’s employment with the Company and
its subsidiaries and affiliates; provided, however, that nothing in this
Section 8(b) shall be construed to preclude the Executive from making any
investments in the securities of any business enterprise whether or not engaged
in competition with the Company or any of its subsidiaries or affiliates, to the
extent that such securities are actively traded on a national securities
exchange or in the over-the-counter market in the United States or on any
foreign securities exchange and represent, at the time of acquisition, not more
than 3% of the aggregate voting power of such business enterprise.

 

To ensure that the Company is able to enforce these provisions in Sections
8(a) and (b) above, the Executive and the Company further agree that if such
noncompetition and nonsolicitation requirements should be violated during this
additional two-year period after the Executive’s termination of employment, the
remedy (determined at the Company’s option) shall be either equitable relief (in
the form of an injunction to stop the violation), or liquidated damages payable
by the Executive to the Company in an amount equal to (a) (i) (A) twenty-four
(24) minus (B) the number of full months between the date of Executive’s
termination and the date of breach (“Months Complied”) divided by (ii) 12, times
(b) one year’s Base Salary in effect at the time of termination.  In other
words:

 

 

Twenty-four (24) – Months Complied

  x          One Year’s Base Salary

 

12

 

If equitable relief is elected by the Company as an alternative to liquidated
damages, any equitable relief shall not include any forfeiture or cash refund of
monies or benefits.  If liquidated damages is elected by the Company, the
Company may elect not to pay amounts that would otherwise be payable but for the
breach; provided that, the Executive would remain liable to the Company to the
extent that the liquidated damages exceeded the amounts not paid by the Company.
The foregoing shall have no impact on the operation of the provisions of any
other compensation program of the Company or its subsidiaries, including without
limitation the Amended and Restated Fiscal 2002 Share Incentive Plan.

 

15

--------------------------------------------------------------------------------

 

9.             Specific Performance.  The Executive acknowledges that the
services to be rendered by the Executive are of a special, unique and
extraordinary character and, in connection with such services, the Executive
will have access to confidential information vital to the Company’s Business and
the other current or planned businesses of it and its subsidiaries and
affiliates.  By reason of this, the Executive consents and agrees that if the
Executive violates any of the provisions of Sections 7 or 8 hereof, the Company
and its subsidiaries and affiliates would sustain irreparable injury and that
monetary damages would not provide adequate remedy to the Company and that the
Company shall be entitled to have Section 7 or 8 hereof specifically enforced by
any court having equity jurisdiction.  Nothing contained herein shall be
construed as prohibiting the Company or any of its subsidiaries or affiliates
from pursuing any other remedies available to it or them for such breach or
threatened breach, including the recovery of damages from the Executive.  This
provision shall, without any limitation as to time, survive the expiration or
termination of the Executive’s employment hereunder, irrespective of the reason
for any termination.

 

10.           Deductions and Withholding.  The Executive agrees that the Company
or its subsidiaries or affiliates, as applicable, shall withhold from any and
all compensation paid to and required to be paid to the Executive pursuant to
this Agreement, all Federal, state, local and/or other taxes which the Company
determines are required to be withheld in accordance with applicable statutes or
regulations from time to time in effect and all amounts required to be deducted
in respect of the Executive’s coverage under applicable employee benefit plans. 
For purposes of this Agreement and calculations hereunder, all such deductions
and withholdings shall be deemed to have been paid to and received by the
Executive.

 

11.           Entire Agreement.  Except for the Amended and Restated Fiscal 2002
Share Incentive Plan, the Executive’s outstanding stock option and other
equity-compensation agreements, the Executive Annual Incentive Plan, the
Executive Perquisites Program, the Executive Automobile Program, the term life
insurance arrangement between the Company and the Executive, the Company’s
qualified and non-qualified defined benefit pension plans, the Company’s
qualified defined contribution retirement savings plan and applicable successor
plans or agreements, this Agreement embodies the entire agreement of the parties
with respect to the Executive’s employment, compensation, perquisites and
related items and supersedes any other prior oral or written agreements,
arrangements or understandings between the Executive and the Company or any of
its subsidiaries or affiliates, and any such prior agreements, arrangements or
understandings are hereby terminated and of no further effect.  This Agreement
may not be changed or terminated orally but only by an agreement in writing
signed by the parties hereto.

 

12.           Waiver.  The waiver by the Company of a breach of any provision of
this Agreement by the Executive shall not operate or be construed as a waiver of
any subsequent breach by him. The waiver by the Executive of a breach of any
provision of this Agreement by the Company shall not operate or be construed as
a waiver of any subsequent breach by the Company.

 

13.           Governing Law; Jurisdiction.

 

(a)           This Agreement shall be subject to, and governed by, the laws of
the State of New York applicable to contracts made and to be performed therein,
without regard to conflict of laws principles.

 

16

--------------------------------------------------------------------------------

 

(b)           Any action to enforce any of the provisions of this Agreement
shall be brought in a court of the State of New York located in the Borough of
Manhattan of the City of New York or in a Federal court located within the
Southern District of New York.  The parties consent to the jurisdiction of such
courts and to the service of process in any manner provided by New York law. 
Each party irrevocably waives any objection which it may now or hereafter have
to the laying of the venue of any such suit, action or proceeding brought in
such court and any claim that such suit, action or proceeding brought in such
court has been brought in an inconvenient forum and agrees that service of
process in accordance with the foregoing sentences shall be deemed in every
respect effective and valid personal service of process upon such party.

 

14.           Assignability.  The obligations of the Executive may not be
delegated and, except with respect to the designation of beneficiaries in
connection with any of the benefits payable to the Executive hereunder, the
Executive may not, without the Company’s written consent thereto, assign,
transfer, convey, pledge, encumber, hypothecate or otherwise dispose of this
Agreement or any interest herein.  Any such attempted delegation or disposition
shall be null and void and without effect.  The Company and the Executive agree
that this Agreement and all of the Company’s rights and obligations hereunder
may be assigned or transferred by the Company to and shall be assumed by and be
binding upon any successor to the Company.  Unless assumption occurs by
operation of law, the Company shall require any successor by an agreement in
form and substance satisfactory to the Executive, expressly to assume and agree
to perform this Agreement in the same manner and to the same extent as the
Company would be required to perform if no such succession had taken place.  The
term “successor” means, with respect to the Company or any of its subsidiaries,
any corporation or other business entity which, by merger, consolidation,
purchase of the assets or otherwise acquires all or a majority of the operating
assets or business of the Company.

 

15.           Severability.  If any provision of this Agreement or any part
thereof, including, without limitation, Sections 7 and 8 hereof, as applied to
either party or to any circumstances shall be adjudged by a court of competent
jurisdiction to be void or unenforceable, the same shall in no way affect any
other provision of this Agreement or remaining part thereof, or the validity or
enforceability of this Agreement, which shall be given full effect without
regard to the invalid or unenforceable part thereof.

 

If any court construes any of the provisions of Section 7 or 8 hereof, or any
part thereof, to be unreasonable because of the duration of such provision or
the geographic scope thereof, such court may reduce the duration or restrict or
redefine the geographic scope of such provision and enforce such provision as so
reduced, restricted or redefined.

 

16.           Notices.  All notices to the Company or the Executive permitted or
required hereunder shall be in writing and shall be delivered personally, by
telecopier or by courier service providing for next-day or two-day delivery or
sent by registered or certified mail, return receipt requested, to the following
addresses:

 

The Company:

 

The Estée Lauder Companies Inc.

767 Fifth Avenue

New York, New York 10153

Attn:

 

General Counsel

Tel:

 

(212) 572-3980

Fax:

 

(212) 572-3989

 

17

--------------------------------------------------------------------------------

 

The Executive:

 

John Demsey

c/o The Estée Lauder Companies Inc.

767 Fifth Avenue

New York, New York 10153

Tel:

 

(212) 572-3737

Fax:

 

(212) 572-3724

 

Either party may change the address to which notices shall be sent by sending
written notice of such change of address to the other party.  Any such notice
shall be deemed given, if delivered personally, upon receipt; if telecopied,
when telecopied; if sent by courier service providing for next-day or two-day
delivery, the next business day or two business days, as applicable, following
deposit with such courier service; and if sent by certified or registered mail,
three days after deposit (postage prepaid) with the U.S. mail service.

 

17.           No Conflicts.  The Executive hereby represents and warrants to the
Company that his execution, delivery and performance of this Agreement and any
other agreement to be delivered pursuant to this Agreement will not (i) require
the consent, approval or action of any other person or (ii) violate, conflict
with or result in the breach of any of the terms of, or constitute (or with
notice or lapse of time or both, constitute) a default under, any agreement,
arrangement or understanding with respect to the Executive’s employment to which
the Executive is a party or by which the Executive is bound or subject.  The
Executive hereby agrees to indemnify and hold harmless the Company and its
directors, officers, employees, agents, representatives and affiliates (and such
affiliates’ directors, officers, employees, agents and representatives) from and
against any and all losses, liabilities or claims (including interest, penalties
and reasonable attorneys’ fees, disbursements and related charges) based upon or
arising out of the Executive’s breach of any of the foregoing representations
and warranties.

 

18.           Legal Fees.  Following a Change of Control, the Company shall
reimburse the Executive up to $20,000.00, in the aggregate, for all legal fees
and related expenses (including the costs of experts, evidence and counsel)
reasonably and in good faith incurred by the Executive in an action (i) by the
Executive to obtain or enforce any right or benefit to which the Executive is
entitled under this Agreement or (ii) by the Company to enforce a
post-termination covenant referred to in Section 7 or 8 against the Executive,
in each case, provided that the Executive substantially prevails in such
action.  Such amount shall be reimbursed to the Executive by the end of the
calendar year in which the Executive substantially prevails in such action,
based on the date of any settlement, judgment, or other official document
evidencing same.

 

19.           Cooperation.  During the Term of Employment and thereafter,
Executive shall provide reasonable cooperation in connection with any action or
proceeding (or any appeal therefrom) that relates to events occurring during
Executive’s employment with the Company.

 

20.           Paragraph Headings.  The paragraph headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.

 

18

--------------------------------------------------------------------------------

 

21.           Counterparts.  This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which
taken together shall constitute one and the same instrument.

 

IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of
the date first written above.

 

 

THE ESTÉE LAUDER COMPANIES INC.

 

 

 

 

 

By:

  /s/ Amy DiGeso

 

Name:

Amy DiGeso

 

Title:

Executive Vice President, Global
Human Resources

 

 

 

 

 

 /s/ John Demsey

 

 John Demsey

 

19

--------------------------------------------------------------------------------