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                                                                    EXHIBIT 10.1
 
July 5, 1995



Mr. Michael S. Krause
Gables Court #V-211
1000 Stevens Entry
Peachtree City, GA  30269

Dear Mr. Krause:

     We are pleased to confirm the terms of your employment with Tambrands Inc.
(the "Company").

          1.    Duties.  You will become an employee of the Company on July 5,
                ------                                                        
1995 (the "Commencement Date").
 
          You will be placed on the Company payroll at the rate of $1.00 per
month until you physically report for duty, which will be no later than the 1st
of August, 1995, at which time your base salary will be treated in accordance
with item 2 below.  Effective as of such date, you will be the Senior Vice
President - Global Operations of the Company.  You shall report directly to the
Company's President and Chief Executive Officer.  All other terms and conditions
of this agreement will be in effect as of the "Commencement Date."

          Immediately upon your appointment as Senior Vice President - Global
Operations of the Company, you will devote all of your skill, knowledge and full
working time (reasonable vacation time and absence for sickness or disability
excepted) solely and exclusively to the performance of your duties hereunder.

          2.    Base Salary.  As compensation for the duties to be performed by
                -----------                                                    
you under the terms of this letter agreement, the Company will pay you a base
salary in the amount of $200,000 per annum, payable in semi-monthly installments
at the same time as the Company pays salary to its other executive employees and
subject to all applicable deductions or reductions therein made pursuant to your
elections under the Company's compensation plans or programs.  It is
contemplated that the Company will review your base salary from time to time
and, at the discretion of the Compensation Committee of the Board of Directors,
may increase your base salary based upon your performance, then generally
prevailing industry salary scales and other relevant factors, including, without
limitation, the Company's general compensation practices for its executive
officers.  (Such annual base salary, as it may hereafter be increased, will be
referred to as your "Base Salary").
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          3.    Incentive Bonus.  While you are providing services pursuant to
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this letter, you will be entitled to participate in the Company's Annual
Incentive Plan (the "AIP") as in effect from time to time.  Your annual bonus
opportunity under the AIP at the target level of performance will be equal to
42% of your Base Salary.  Under the terms of the AIP, you may receive more or
less than 42% of your Base Salary if performance exceeds or falls short of
target levels. Any bonus payable to you under the AIP will be paid to you at the
same time as bonuses are paid to other executives under the AIP and subject to
the terms and conditions of the AIP.

     Notwithstanding the foregoing, in no event shall the amount payable to you
as an annual bonus in respect of 1995 services be less than 42% of the base
salary payable to you for 1995 services.  In addition, contingent on forfeiture
of your annual incentive at The Quaker Oats Company, the Company will provide a
cash payment equal to the prorated target incentive you would have received for
the portion of 1995 you worked at The Quaker Oats Company.  The sum of the
bonuses payable in accordance with the two preceding sentences, if the 1995
Quaker Oats Company annual incentive is forfeited, or the annualized bonus
payable in accordance with the second preceding sentence, if the 1995 Quaker
annual incentive is not forfeited, is referred to in this agreement as the "1995
Targeted Bonus".

          4.    Stock Options.  Effective as of the Commencement Date, you will
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be granted a stock option having a ten-year term for 25,000 shares of the
Company's common stock (the "Option") under the terms of the Company's 1991
Stock Option Plan (the "1991 Plan").  The Option will be exercisable in three
approximately equal annual installments on each of the first three anniversaries
of the Commencement Date, but will become exercisable earlier upon the date, if
any, on which a Change of Control (as defined in the 1991 Plan) occurs or on
which your employment terminates due to your (i) death, (ii) Disability (as
                                              -          --                
defined in the 1991 Plan), (iii) retirement prior to age 65 with the consent of
                            ---                                                
the committee responsible for administering the 1991 Plan or (iv) retirement at
                                                              --               
age 65.  The per share exercise price for the shares subject to the Option will
be determined in accordance with the following schedule:


Number of Shares          Exercise Price
----------------          --------------

 12,500                  Fair market value of a share on July 5, 1995 as
                         determined under the 1991 Plan (hereafter referred to
                         as the "Fair Market Value").

  4,167                  Fair Market Value plus $5.00
 
  4,167                  Fair Market Value plus $10.00
 
  4,166                  Fair Market Value plus $15.00
 
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<PAGE>
 
All other terms of the Option will be as provided in the 1991 Plan and the
agreement relating to such grant, which terms shall be no less favorable than
the terms that would apply under the 1991 Plan if there were no limitation upon
their scope under the option agreement.

          You shall be eligible to receive future awards under the 1991 Plan (or
any successor thereto) at a level commensurate with your position and in
accordance with the Company's compensation practices and policies generally
applicable to the Company's executive officers as in effect from time to time.
You will also be eligible to participate in any amended or newly developed cash
or equity-based executive compensation plans on the same basis as described in
the preceding sentence.  At current Company stock prices and under the Company's
current executive compensation practices, the level of option award for the
Senior Vice President - Global Operations position is approximately 8,100 shares
per year.

          5.    Restricted Stock.  You shall be eligible to receive an award of
                ----------------                                               
600 restricted shares of the Company's common stock (the "Award") under the 1989
Restricted Stock Plan (or any successor thereto)  (the "1989 Plan") in February
1996.  You shall be eligible to receive future awards under the 1989 Plan at a
level commensurate with your position and in accordance with the Company's
compensation practices and policies generally applicable to the Company's
executive officers as in effect from time to time.  At current Company stock
prices and under the Company's current executive compensation practices, the
level of restricted shares awarded for the Senior Vice President - Global
Operations is approximately 600 shares per year.  All terms and conditions of
your Award will be as provided in the 1989 Plan and the agreement relating to
the Award.

          6.    Change of Control Agreement.  As of the date hereof and
                ---------------------------                            
effective as of the Commencement Date, you and the Company will enter into an
"Employment Protection Agreement" substantially in the form attached hereto as
Exhibit A.  If there is a Change in Control prior to August 1, 1995 or prior to
payment of a 1995 annual bonus, the Base Salary and 1995 Targeted Bonus shall be
used in determining the level of salary and bonus under your Employment
Protection Agreement, notwithstanding any contrary provisions of such agreement.

          7.    Employee Benefits.  From and after the Commencement Date, you
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will be eligible to participate in the employee benefit plans and programs
generally available to the Company's U.S. employees (including, but not limited
to, coverage under the Company's medical, dental, life and disability insurance
plans and participation in the Company's Pension Plan and Savings Plan) as in
effect from time to time on the same basis as the Company's other employees,
subject to the terms and provisions of such plans and programs.  You will
receive four weeks paid vacation per annum.

                                       3
<PAGE>
 
          You will at all times during your employment by the Company be
designated as an Executive Participant for purposes of the Company's
Supplemental Executive Retirement Plan as amended and restated effective July 1,
1994 (the "SERP").  As such, your SERP benefit will be calculated under the
"Mid-Career Formula" of the SERP.  You will be eligible to participate in the
SERP to the extent that the benefits that you may accrue, or the compensation
that may be taken into account in calculating the benefits that you may accrue,
under the Company's Pension Plan are affected by any limitation required for the
Pension Plan to satisfy the applicable requirements of the Internal Revenue
Code.  Your SERP benefits will be payable in accordance with the terms of the
SERP such that in the event that your employment with the Company is
"Involuntarily Terminated" within two years following the occurrence of a
"Change of Control" (as each such term is defined in the SERP) your benefits
accrued thereunder shall be calculated as though you had two additional years of
service and you shall be deemed to be fully vested in your entire such benefits.

     For purposes of determining "Actuarial Equivalence" under the SERP, the
actuarial assumptions used shall be no less favorable than (i) the actuarial
assumptions in effect for funding purposes on the date of determination under
the Pension Plan for Employees of Tambrands Inc., as amended from time to time
(the "Pension Plan"), or any successor thereto which is a tax-qualified plan
under the applicable provisions of the Internal Revenue Code of 1986, as
amended, or (ii) the actuarial assumptions in effect for funding purposes under
the Pension Plan as of the date of such Plan's termination, if the Pension Plan
is no longer in effect and there is no such successor plan.

          8.    Executive Perquisites.  You will be eligible to receive the
                ---------------------                                      
perquisites and other personal benefits made available to the Company's senior
executives from time to time, including, without limitation, payment of or
reimbursement for up to $10,000 per annum for personal tax and financial
planning.

          9.    Expenses.  The Company will reimburse you for all reasonable
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expenses incurred by you in connection with your performance of services under
this letter agreement in accordance with the Company's policies, practices and
procedures.

          10.    Termination of Employment.  If the Company terminates your
                 -------------------------                                 
employment prior to age 65 for any reason other than Cause or Disability or you
terminate your employment as a result of a Termination for Good Reason, the
Company will pay you severance benefits in an aggregate amount equal to one and
one-half (1.5) times your then current annual Base Salary in one lump sum
payment, unless you specifically request and the Company agrees to make the
payment of all or any portion of this payment over time, not to exceed 18
months.  In addition, you will be paid a bonus for the year of termination equal
to the target bonus for the year of termination, if

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<PAGE>
 
one has been established, or for the preceding year, if such target has not yet
been established; provided, however, that in calculating the amount of such
                  --------  -------
bonus, performance objectives which relate to individual performance shall be
assumed to have been fully attained and performance objectives which relate to
corporate performance shall take into account actual corporate performance; and
further provided, that the bonus so determined shall be prorated for the number
------- --------
of months worked during the year of termination.

     In the event your employment terminates (i) due to your death or Disability
                                              -                                 
or after age 65, (ii) is terminated by the Company for Cause or (iii) is
                  --                                             ---    
terminated by you other than as a result of a Termination for Good Reason, you
will be entitled to receive the compensation and benefits payable to you under
the Company's otherwise applicable employee benefit plans or programs.

     Any benefits payable to you pursuant to this Section 10 will be in full
satisfaction of all liabilities to you under this agreement and with respect to
any other claim you may have in conjunction with your termination of employment
(excluding any rights you may have under the 1991 Plan or this letter with
respect to options, under the 1989 Restricted Stock Plan with respect to
restricted stock, any vested benefits you may have under the terms of the
Company's SERP, Pension Plan or Savings Plan, but including, without limitation,
any claim for benefits under the Company's Executive Severance Program).  These
benefits will not be subject to any offset, mitigation or other reduction as a
result of your receiving salary or other benefits by reason of your securing
other employment.

          For purposes of this agreement, the following terms will have the
meanings set forth below:

          "Cause" means (i) your willful failure to perform substantially your
                         -                                                    
     duties as an officer and employee of the Company (other than due to
     physical or mental illness) that results in material economic damage to the
     Company, (ii) your engaging in serious misconduct that results in material
               --                                                              
     economic damage to the Company, (iii) your having been convicted of, or
                                      ---                                   
     entered a plea of nolo contendere to, a crime that constitutes a felony, or
                       ---- ----------                                          
     (iv) your unauthorized disclosure of confidential information (unless such
      --                                                                       
     disclosure was believed by you to be appropriate in the course of properly
     carrying out your duties under this agreement, and other than to the extent
     required by an order of a court having competent jurisdiction or under
     subpoena from an appropriate government agency) that has resulted or is
     likely to result in material economic damage to the Company.  For purposes
     of this definition, no act, or failure to act on your part, shall be
     considered "willful" unless done, or omitted to be done, by you not in good
     faith and without reasonable belief that such action or omission was in the
     best interest of the Company.  Prior to terminating your employment for
     Cause, the Company shall deliver to you reasonable advance written notice
     of any proposed action by the

                                       5
<PAGE>
 
     Board of Directors of the Company (the "Board") relating to your
     termination for Cause specifying the particulars in detail sufficient to
     give you an informed opportunity to be heard before the Board, together
     with your counsel. No termination for Cause shall be effective without the
     Board having decided after such hearing, by the affirmative vote of a
     majority of its members at a meeting of the Board, that you were guilty of
     conduct constituting Cause, as defined herein.

          "Disability" means that, as a result of your incapacity due to
     physical or mental illness, you have been absent from your duties to the
     Company on a substantially full-time basis for 180 days in any twelve-month
     period.

          "Termination for Good Reason" means a voluntary termination of your
     employment which occurs within 90 days following the occurrence of any of
     the following events without your prior written consent: (i) any assignment
                                                               -                
     to you of any duties or authorities which are different from, and result in
     a diminution of, the duties and authorities you are to perform or possess
     as Senior Vice President - Global Operations of the Company pursuant to
     this letter agreement, (ii) your removal from or any failure to reelect or
                             --                                                
     redesignate you to the position of Senior Vice President - Global
     Operations of the Company, except in connection with a termination of your
     employment by the Company for Cause, (iii) any reduction in your Base
                                           ---                            
     Salary or (iv) any action which results in your ceasing to report directly
     to the Company's President and Chief Executive Officer.

          11.    Binding Effect.
                 -------------- 

          (a)  This letter agreement will inure to the benefit of and be
               enforceable by your personal or legal representatives, executors,
               administrators, heirs, distributees, devisees and legatees.  If
               you should die while any amounts would still be payable to you
               under this letter agreement if you had continued to live, all
               such amounts, unless otherwise provided herein, will be paid in
               accordance with the terms of this letter agreement to your
               personal or legal representatives, executors, administrators,
               heirs, distributees, devisees, legatees or estate, as the case
               may be.

          (b)  The Company will require any successor (whether direct or
               indirect, by purchase, merger, consolidation or otherwise) to all
               or substantially all of the business and/or assets of the
               Company, by agreement in form and substance satisfactory to you,
               to expressly assume and agree to perform this Agreement in the
               same manner and to the same extent that the Company would be
               required to perform if no such succession had taken place.
               Failure of the Company to obtain such agreement prior to the
               effectiveness of any such succession shall be a

                                       6
<PAGE>
 
               breach of this Agreement. As used in this Agreement, "Company"
               shall mean the Company as hereinbefore defined and any successor
               to its business and/or assets as aforesaid which executes and
               delivers the agreement provided for in this Section 11(b) or
               which otherwise becomes bound by all the terms and provisions of
               this Agreement by operation of law.

          12.    Indemnification.  The Company agrees to indemnify you to the
                 ---------------                                             
fullest extent permitted under its By-laws as in effect from time to time.  The
Company shall advance to you all reasonable costs and expenses incurred by you
in connection with any Proceeding within 20 days after receipt by the Company of
a written request for such advance.  Such request shall include an itemized list
of the costs and expenses and an undertaking by you to repay the amount of such
advance if it shall ultimately be determined that you are not entitled to be
indemnified against such costs and expenses.  For purposes of this Section 12, a
"Proceeding" shall mean any action, suit or proceeding, whether civil, criminal,
administrative or investigative, in which you are made, or are threatened to be
made, a party to, or a witness in, such action, suit or proceeding by reason of
the fact that you are or were an officer, director or employee of the Company or
are or were serving as an officer, director, member, employee, trustee or agent
of any other entity at the request of the Company.  The Company shall not settle
any proceeding or claim in any manner which would impose on you any penalty or
limitation without your prior written consent.  You agree that you will not
unreasonably withhold your consent to any proposed settlement.

          13.    General Provisions.  No provisions of this letter agreement may
                 ------------------                                             
be modified, waived or discharged unless such modification, waiver or discharge
is agreed to in a writing signed by you and such Company officer as may be
specifically designated by the Board.  No waiver by either party hereto at any
time of any breach by the other party hereto of, or compliance with, any
condition or provision of this Agreement to be performed by such other party
will be deemed a waiver of similar or dissimilar provisions or conditions at the
same or at any prior or subsequent time.

          Except as set forth in the Employment Protection Agreement referenced
in Section 6 of this letter, no agreements or representations, oral or
otherwise, express or implied, with respect to the subject matter hereof have
been made by either party which are not set forth expressly in this letter
agreement.  The invalidity or unenforceability of any one or more provisions of
this letter agreement will not affect the validity or enforceability of any
other provision of this letter agreement, which will remain in full force and
effect.  This letter agreement may be executed in one or more counterparts, each
of which will be deemed to be an original but all of which together will
constitute one and the same instrument.

                                       7
<PAGE>
 
          All amounts payable to you hereunder will be paid net of any and all
applicable income or employment taxes required to be withheld therefrom under
applicable Federal, State or local laws or regulations.

          The validity, interpretation, construction and performance of this
letter agreement will be governed by the laws of the State of New York, without
giving effect to its conflict of laws provisions.

          14. Due Authorization.  The Company represents and warrants to you
              -----------------                                             
that (i) the Company has all requisite corporate power and authority to enter
into this agreement and the agreements referenced in Sections 6 and 7 of this
agreement, (ii) the execution and delivery of all such agreements and the
performance of the Company's obligations under all such agreements have been
duly authorized by all necessary corporate action on the part of the Company and
(iii) all such agreements have been duly executed by the Company and constitute
the Company's valid and binding obligations, enforceable against it in
accordance with their terms.

          15.  Notice.  For the purpose of this agreement, notices and all other
               ------                                                           
communications provided for in the agreement shall be in writing and shall be
deemed to have been duly given on the third business day following the mailing
of such notice or communication by United States certified or registered mail,
return receipt requested, postage prepaid, addressed as follows:

                    If to you:

                    Mr. Michael S. Krause
                    Gables Court #V-211
                    1000 Stevens Entry
                    Peachtree City, GA  30269

                    If to the Company:

                    Tambrands Inc.
                    777 Westchester Avenue
                    White Plains, NY  10604

                    Attn:  Corporate Counsel


or to such other address as the party to be notified shall have furnished to the
other in writing in accordance herewith, except that notices of change of
address shall be effective only upon receipt.

                    *    *    *     *

                                       8
<PAGE>
 
          If the foregoing accurately sets forth the terms of your employment
with the Company, please so indicate by signing below and returning one signed
copy of this letter agreement to me.

                              Sincerely,

                              TAMBRANDS INC.

                              /s/ Edward T. Fogarty
                              _____________________________
                              Edward T. Fogarty
                              President & CEO

ACCEPTED AND AGREED
as of this 5th day
of July, 1995


/s/ Michael S. Krause

____________________________
Michael S. Krause










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