<PAGE>

                                                                   Exhibit 10.21


December 18, 1998

Mr. Lee Goldenberg
63 Brush Hill Road
Kinnelon, New Jersey 07405

Dear Lee:

On behalf of The Donna Karan Company (the "Company"), a New York general
partnership, I am pleased to confirm your employment with the Company on the
terms set forth in this letter agreement. If you agree with the following terms,
please sign a copy of this letter agreement and return it to me upon our receipt
of which it will become a binding contract.

1. Duties. You (the "Executive") shall be employed as Executive Vice President -
Worldwide Operations of the Company or in a substantially equivalent-level
position. You shall perform such duties and services commensurate with your
position, including assisting in the day-to-day business operations of the
Company and its Affiliates (as hereinafter defined), and such other duties and
services commensurate with your position as are from time to time assigned to
you by the Chief Executive Officer of the Company or such other senior officers
or executives as the Chief Executive Officer may designate. Executive shall
devote Executive's full working time and efforts to the Company's business and
to the performance of Executive's duties under this Agreement. Executive shall
be available to travel as the needs of the business require, which travel shall
be in accordance with the Company's travel policy applicable to similarly
situated employees of the Company and its Affiliates. As used herein,
"Affiliates" shall mean all companies or entities which the Company directly or
indirectly controls, is controlled by, or is under common control with.

2. Term. The Company agrees to employ Executive and Executive agrees to serve,
on the terms and conditions of this Agreement, for a period commencing as of the
date hereof and ending on December 31, 2000, unless earlier terminated pursuant
to the terms hereof (the "Initial Employment Term"). The Initial Employment Term
shall be extended for successive one-year terms (each, an "Additional Employment
Term") unless the Company or the Executive gives written notice of non-extension
at least 90 days prior to the end of the Initial Employment Term or the then
Additional Employment Term, unless earlier terminated pursuant to the terms
hereof. Additionally, Executive shall have the right to terminate Executive's
employment at any time upon 60 days' prior

<PAGE>

written notice to the Chief Executive Officer of the Company. During the term
Executive is employed hereunder, the Initial Employment Term and the Additional
Employment Terms, if applicable, collectively shall be referred to as the
"Employment Term."

3. Compensation.

      (a) Base Salary. For Executive's services under this Agreement, the
Company shall pay Executive a minimum annual base salary of $350,000 payable in
accordance with the Company's customary payroll practices from time to time in
effect. The Company will review Executive's compensation annually and may, in
its sole discretion, increase Executive's base salary.

      (b) Annual Cash Bonuses.

            i. During the Employment Term, Executive shall be entitled to a cash
bonus (the "Bonus") with a target of between 50% and 100% of Executive's annual
base salary, in accordance with the terms and provisions of the Company's then
existing executive bonus plan (the "Bonus Plan"). The Bonus shall be determined
annually at the same time bonuses are determined for similarly situated
employees of the Company, in accordance with the Bonus Plan, and shall be
payable at the same time and in the same manner as bonuses are paid to other
similarly situated employees of the Company.

            ii. For fiscal 1998, fifty percent (50%) of the Bonus shall be based
on the corporate performance of Donna Karan International Inc. ("DKI"), and
fifty percent (50%) of the Bonus shall be based upon the divisional performance
of the division for which Executive is then responsible. A copy of the 1998
Executive Bonus Program previously has been furnished to you.

            iii. During the Employment Term, the targets and performance goals,
including but not limited to the extent to which they will be based on corporate
performance, divisional performance, or other criteria, shall be established
annually by the Company in accordance with the Bonus Plan.

      (c) Stock Options. Commencing in 1998 and for each fiscal year during the
term hereof, Executive will be eligible to receive annual grants of options, in
accordance with the Company's then current annual option grant program. A copy
of the 1998 Option Grant Program previously has been furnished to you.

      (d) Deferred Compensation Program. Commencing in 1998 and for each fiscal
year during the term hereof, Executive also shall be eligible to participate in
a deferred compensation program in accordance with the Company's then current
deferred compensation program. A copy of the 1998 Wealth Accumulation Program
previously has been furnished to you.

      (e) Participation in Benefit Plans and other Benefits. Executive also
shall be entitled to (i) participate in all other Executive benefit plans
generally available to similarly situated employees of the Company, subject to
Executive's eligibility therefor, (ii) a car allowance of $1,200 per month, and
(iii) four weeks of paid vacation per annum.


                                       2
<PAGE>

      (f) Successor Executive Compensation Programs. The Company hereby reserves
the right from time to time to amend, alter, or rescind the executive bonus,
annual option, and deferred compensation programs and plans referred to in
Sections 3(b), 3(c), and 3(d); provided, however, that the Company agrees that
during the term of employment hereunder Executive shall be entitled to
participate in executive compensation programs of a similar type, subject to the
approval of such programs and plans by the applicable compensation committee of
the Board of Directors and legal limitations.

4. Severance Payments.

      (a) Severance Payments. The Company may terminate Executive's employment
at any time with or without Cause (as defined below). If during the Employment
Term, Executive's employment with the Company is terminated by the Company
without Cause (which right the Company shall have at any time during the
Employment Term) and other than as a result of death, notice of non-extension of
Employment Term or as provided in Section 5 of this Agreement, upon Executive's
execution and effectiveness of a general release of claims which is acceptable
in form and substance to the Company, the Company shall pay to Executive an
amount equal to Executive's then current annual base salary (the "Severance
Amount"). The Severance Amount shall be paid in equal installments over a
12-month period in accordance with the Company's customary payroll practices
(but not as an employee). Executive agrees to accept the Severance Amount, as
may be reduced below, in full settlement of all claims against the Company and
its Affiliates and their respective officers, directors, executives and
employees. The Severance Amount payable to Executive under this Section 4(a)
shall be reduced by any compensation actually received, whether or not during
the period, by Executive as a result of Executive's employment or retention by
another employer as an employee or in a consulting capacity for services
rendered during the period. Executive shall advise the Company promptly of any
such employment and/or consulting fees received by Executive and rebate any
amount due to the Company. No Severance Amount shall be payable by reason of
termination due to the death or disability of the Executive, termination for
Cause, or non-extension of the Employment Term in accordance with Section 2 of
this Agreement.

      (b) Termination of Severance Payments. Notwithstanding Section 4(a) above,
if Executive violates the provisions of Section 6 of this Agreement after
Executive's termination of employment by the Company, Executive shall have no
further right to the payment of any Severance Amount payable thereafter under
this Agreement.

      (c) "Cause". As used in this Agreement, "Cause" shall mean (i) a
continuous or substantial dereliction of duties which continues after written
notice by the Company, (ii) failure to promptly follow the written direction of
the Chief Executive Officer or such other senior officers or executives as the
Chief Executive Officer may designate, (iii) dishonesty, fraud or breach of
fiduciary duty with respect to the Company or Executive's duties, (iv) gross
negligence in the performance of Executive's duties, (v) willful misconduct with
regard to the Company, its business, assets or employees which in the good
faith, sole discretion of the Chief Executive Officer is material, (vi)
conviction of, or pleading nolo contendre to, a felony or any other crime
involving fraud, dishonesty or moral turpitude, or (vii) any other material
breach of the terms of this Agreement or the Company's policy manuals as in
effect from time to time which breach continues more than 30 days after written
notice from the Company to the Executive setting forth the conduct


                                       3
<PAGE>

and the provisions of this Agreement or policies alleged to have been breached.
For purposes of this Section 4(c), "Company" shall include Affiliates and
licensees of the Company.

      (d) Salary and Accrued Benefits. If Executive's employment with the
Company is terminated for any reason, including death, the Company shall pay to
Executive (or his estate) any unpaid base salary and other accrued benefits to
which Executive is entitled on the date of termination under the terms of the
Company's compensation plans.

5. Disability, Illness, Etc. If by reason of Executive's physical or mental
incapacity Executive is unable to perform Executive's material duties for a
period of more than 90 days, whether or not consecutive, in any 365-day period,
the compensation otherwise payable to Executive during such period shall be
discontinued for any portion of such period in excess of 90 days, and the
Company, at its option, may at any time after such 90-day period while Executive
is incapacitated terminate this Agreement upon written notice to Executive. In
the event of such termination, Executive will not be entitled to any Severance
Amount.

6. Additional Provisions.

      (a) Confidential Information. All confidential information relating to the
business of Company or its Affiliates or their respective officers, directors,
executives or employees, or of any customer, supplier, or licensee of the
Company or its Affiliates ("Confidential Information") which Executive now or
hereafter possesses as a result of his or her employment by the Company or its
Affiliates shall not be furnished, published, disclosed, or made accessible by
Executive to any other person, firm, or corporation either during or after the
termination of Executive's employment or used by Executive except while employed
hereunder in the regular course of business and for the benefit of the Company
and its Affiliates, in each case without the prior written permission of the
Company. Executive shall return all tangible evidence of such confidential
information to the Company prior to or on the date of termination of Executive's
employment. As used in this Section 6(a), "Confidential Information" shall
exclude that information which is or comes into the public domain through no
fault of Executive or which Executive obtains after the termination of
Executive's employment by the Company from a third party who to the knowledge of
Executive has the right to disclose such information. The foregoing shall not
prohibit compliance with legal process provided that Executive gives the Company
prompt written notice thereof and cooperates with the Company in its efforts to
obtain a protective order for the Confidential Information.

      (b) Non-Competition and Non-Solicitation.

            i. In view of the unique and valuable services it is expected
Executive has rendered and will continue to render to the Company and its
Affiliates, the relationship Executive has and will have with the customers of
the Company and its Affiliates, Executive's knowledge of the customers, trade
secrets, and other proprietary information relating to the business of the
Company and its Affiliates and their customers, suppliers and licensees and
similar knowledge regarding the Company and its Affiliates which Executive has
obtained and will continue to obtain, and in consideration of the rights granted
to Executive under this Agreement, Executive agrees that Executive will not
during the period Executive is employed by the Company or any of its Affiliates
Participate In (as herein defined) any other business or organization, whether
or not such business


                                       4
<PAGE>

or organization now is or shall then be competing with or of a nature similar to
the business of the Company or any of its Affiliates.

      ii. Executive further agrees that while Executive is employed by the
Company or any of its Affiliates and thereafter (notwithstanding the reason or
basis for the termination of Executive's employment with the Company or its
Affiliates) for a period of 24 months, Executive shall not, directly or
indirectly, hire, engage or retain, or aid or assist any other person or entity
to hire, engage, or retain (A) (x) any designers of the Company or its
Affiliates, (y) any person who held the position of Director or any equivalent
or more senior position at the Company or any of its Affiliates, or (z) any
person who acted as one of the Company's or its Affiliates' outside consultants,
in each instance at the time of termination of Executive's employment or within
the six-month period prior thereto, (B) any person employed by a licensee of the
Company or its Affiliates who worked on the Donna Karan or DKNY brand at the
time of termination of Executive's employment or within the six-month period
prior thereto, or (C) any person or entity that supplied piece goods or designs
to, or that manufactured or sold apparel to, the Company or any of its
Affiliates during the six-month period prior to such termination.

      (c) "Participate In." For purposes of this Section 6, the term
"Participate In" shall mean: "directly or indirectly, for Executive's own
benefit or for, with, or through any other person, firm, or corporation, own,
manage, operate, control, loan money to, or participate in the ownership,
management, operation, or control of, or be connected as a director, officer,
executive, partner, consultant, agent, independent contractor, or otherwise
with, or acquiesce in the use of Executive's name in."

      (d) Non- Disparagement. During the period of Executive's employment and
thereafter, the Executive agrees that he shall not disparage the Company or its
Affiliates or their respective past or present officers, directors, or
executives, and shall not publish or make any statement which is reasonably
forseeable to become public with respect to the Company or its Affiliates, or
any of their respective past or present directors, officers, or executives.

      (e) Copyrights, Inventions, etc. Any interest in patents, patent
applications, inventions, technological innovations, copyrights, copyrightable
works, developments, discoveries, designs, concepts, ideas and processes ("Such
Inventions") which Executive during the period he is employed by the Company or
any of its Affiliates under this Agreement or otherwise may own or develop
either individually or with others relating to the fields in which any of the
Company or its Affiliates may then be engaged or contemplates being engaged
shall belong to the Company or any of its Affiliates and forthwith upon request
of the Company, Executive shall execute all such assignments and other documents
(including applications for patents, copyrights, trademarks and assignments
thereof) and take all such other action as the Company may reasonably request in
order to assign to and vest in the Company or its Affiliates all Executive's
right, title, and interest (including, but not limited to, waivers to any moral
rights) in and to Such Inventions, throughout the world free and clear of liens,
mortgages, security interests, pledges, charges and encumbrances. The Employee
acknowledges that all copyrightable works created by the Executive as an
employee will be " works made for hire" on behalf of the Company and that the
Company shall have all rights therein in perpetuity throughout the world. The
Executive hereby appoints any officer of the Company as the Executive's duly
authorized attorney-in-fact to execute, file, prosecute and protect Such
Inventions before any government agency, court or authority. If for any reason
the Company does not own any Such Invention, the DK Companies shall have the
exclusive and royalty free right to use in their 


                                       5
<PAGE>

businesses, and to make products therefrom, Such Invention as well as any
improvements or know-how related thereto.

      (f) Equitable Remedies; Survival. Executive acknowledges that a breach or
threatened breach of any of the provisions of this Section 6 will cause
irreparable harm and that any remedy at law may be inadequate and that
accordingly the Company, in addition to its remedies at law, shall be entitled
to seek an injunction or specific performance or any other mode of equitable
relief without the necessity of showing any actual damage, posting a bond or
furnishing other security. The provisions of this Section 6 shall survive the
termination of this Agreement.

7. Expenses. Executive shall be entitled to reimbursement for all reasonable
out-of-pocket expenses incurred in accordance with the Company's then existing
policies, upon submission and approval of written statements and bills in
accordance with the Company's applicable expense reimbursement and related
policies and procedures as in effect from time to time. Notwithstanding the
foregoing, after notice of termination of employment by the Company or
Executive, Executive shall be entitled to reimbursement of such expenses
incurred after the date of such notice of termination only if approved in
advance by the Chief Executive Officer of the Company.

8. Arbitration. Any dispute arising out of, or in any manner relating to, this
Agreement or the termination of Executive's employment with the Company, other
than injunctive relief pursuant to Section 6(f ), shall be resolved in
arbitration before a panel of three arbitrators before the American Arbitration
Association in the City of New York according to its then existing commercial
rules and regulations. The parties agree that in any such arbitration, the
arbitrators shall not have the power to reform or modify this Agreement in any
way and to that extent their powers are so limited. The parties also agree that
in any such arbitration, the arbitrators may not award punitive damages to any
party. The determination of the arbitrators shall be final and binding on the
parties hereto and judgment thereon may be entered in any court of competent
jurisdiction. Except as required by law, neither the Company nor Executive shall
issue any press release or make any statement which is reasonably foreseeable to
become public with respect to any arbitration or any proceedings in connection
therewith without receiving the prior written consent of the other party to the
content of such press release or statement.

9. Entire Agreement. This Agreement represents the entire understanding among
the parties relating to the subject matter hereof, supersedes all prior oral or
written understandings and agreements relating hereto, and may not be amended,
terminated or discharged except in writing signed by all of the parties hereto.

10. Assignment; Binding Effect. Executive shall not assign or otherwise transfer
its rights or obligations hereunder and such rights shall not be subject to
commutation, encumbrance, or the claims of creditors, and any attempt by
Executive to do any of the foregoing shall be void and of no force or effect.
The provisions of this Agreement shall be binding upon and inure to the benefit
of Executive and Executive's heirs and personal representatives, and shall be
binding upon and inure to the benefit of the Company and its successors and
assigns.

11. Notice. Any notice or other communication required or permitted to be given
hereunder shall be in writing and shall be mailed by certified mail, return
receipt requested, or delivered by overnight courier, by hand or by telecopy
against receipt to the party to whom it is to be given at the address of such
party set forth in this Agreement (or to such other address as the party shall
have furnished 


                                       6
<PAGE>

in writing in accordance with the provisions of this Section 11). Notice to
Executive's estate shall be sufficient if addressed to Executive as provided in
this Section 11. Any notice or other communication shall be deemed given at the
time of receipt thereof.

12. Governing Law. This Agreement shall be deemed entered into in the State of
New York and shall be governed in all respects by the laws of New York
applicable to agreements made and to be performed therein, without giving effect
to conflicts of law principles. The Executive and the Company both consent to
the jurisdiction of the state courts of the State of New York and the Federal
courts whose districts encompass any part of New York in connection with any
dispute arising under this Agreement and hereby waive, to the maximum extent
permitted by law, any objection based on forum non conveniens, to the conducting
of any such proceeding in such jurisdiction. The Executive and the Company each
consent to service of process in any action brought in such courts by registered
or certified mail sent to the address indicated on the first page hereof. The
Executive and the Company both waive trial by jury in connection with the trial
of any action or dispute in connection with this Agreement or matters of a
similar nature.

13. Waiver. Any waiver by either party of a breach of any provision of this
Agreement shall not operate as or be construed to be a waiver of any other
breach of such provision or of any breach of any other provision of this
Agreement. The failure of a party to insist upon strict adherence to any term of
this Agreement on one or more occasions shall not be considered a waiver or
deprive that party of the right thereafter to insist upon strict adherence to
that term or any other term of this Agreement. Any waiver must be in writing,
signed by the party giving the waiver.

14. Separability. If any provision of this Agreement shall be deemed to be
invalid, illegal, or unenforceable by reason of the extent, duration, or
geographical scope thereof, or otherwise, then the parties agree that the
arbitration panel making such determination shall reduce such extent, duration,
geographical scope, or other provisions hereof to the extent required to render
them valid, legal, and enforceable, and in its reduced form such restriction
shall then be enforceable in the manner contemplated hereby.

15. Representations. Executive represents and warrants that the entering into
and performance of this Agreement will not be in violation of any other
agreement to which Executive is a party and no activities of Executive currently
conflict with the non-competition provisions provided herein.


                                       7
<PAGE>

      If the foregoing is correct, please sign and return to us a copy of this
letter agreement, which when signed shall constitute a binding agreement.

                                    THE DONNA KARAN COMPANY
                                    By: Donna Karan International
                                          Inc., a general partner


                                    By:   /s/ JOHN D. IDOL
                                        -----------------------------------
                                        John D. Idol
                                        Chief Executive Officer

Agreed to:

 /s/ LEE GOLDENBERG
---------------------
Lee Goldenberg


                                       8