<PAGE>
                                                                    Exhibit 10.5


                                 EMPLOYMENT CONTRACT

         EMPLOYMENT CONTRACT, dated as of July 25, 1997 among Donna Karan
International Inc., a Delaware corporation with offices at 550 Seventh Avenue,
New York, New York 10018 (the "Company"), The Donna Karan Company, a New York
partnership with offices at 550 Seventh Avenue, New York, New York 10018
("DKCo."),  and John D. Idol residing at 225 Elderfields Road, Manhasset, New
York 11030 ("Executive").  The Company, DKCo. (to the extent expressly set forth
herein),  and Executive agree as follows:

         1.   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 August 11, 1997 and ending on June 30, 2002, unless earlier
terminated pursuant to the terms hereof; provided, however, that this Agreement
will automatically renew for an indefinite term (the  "Renewal Term") unless and
until either party gives the other 12 months' written notice of termination at
any time to be effective on June 30, 2002 or any time thereafter or this
Agreement is otherwise terminated as provided for herein.  The period during
which Executive is employed hereunder (including the Renewal Term) is
hereinafter referred to as the "Employment Period."  During the Renewal Term,
Executive shall have the same duties and responsibilities as described
hereunder, and receive the same base salary, bonus, and benefits set forth in
Section 3 hereof as in effect on the last day of the preceding period.

         2.   DUTIES AND SERVICES.

              (a)  During the Employment Period, Executive shall be employed as
Chief Executive Officer of the Company and if the individual serving on the date
hereof as President and Chief Operating Officer of the Company shall cease to
hold either such position, 

<PAGE>

Executive shall also be employed in such capacity or capacities, and shall
perform all duties and services consistent with such positions, when and as
requested by the Board of Directors of the Company (the "Board"), for the
Company and for each of the affiliated companies or partnerships set forth on
Schedule A attached hereto and such other affiliated companies or partnerships
or successors to any thereof, in whole or in part, which may be designated by
the Board (such affiliated companies, partnerships, and successors, together
with the Company, shall be referred to herein as the "DK Companies").  Except as
set forth in the remainder of this paragraph, the Executive shall (subject to
the direction of the Board) have executive authority over all aspects of the
business and affairs of the Company and all of the DK Companies. 
Notwithstanding the foregoing, so long as (but only for so long as) Ms. Donna
Karan shall serve in the position of either Chief Designer or Chairman of the
Board of the Company, Executive shall not have authority over, and shall not be
responsible for, creative and artistic matters, including, but not limited to,
control over the creative and artistic aspects of design, advertising,
marketing, and exploitation of all items and programs produced by the DK
Companies.  Notwithstanding anything to the contrary in the preceding portions
of this Section, so long as (but only for so long as) Ms. Donna Karan shall
serve in the position of either Chief Designer or Chairman of the Board, Ms.
Karan shall have control over the creative and artistic aspects of the DK
Companies as described in the preceding sentence, which responsibilities
including hiring and firing of creative personnel shall be carried out in
accordance with the DK Companies' strategic plan and annual plan described
herein; and the budget relating to such creative and artistic aspects of the DK
Companies as set forth in the Company's annual plan shall be prepared and
presented to the Board for its approval by Executive after collaboration with
Ms. Karan 



                                         -2-
<PAGE>

(provided Ms. Karan shall serve in the position of either Chief Designer or
Chairman of the Board).  Executive shall have equal authority and responsibility
with Ms. Karan (provided Ms. Karan shall serve in the position of either the
Chief Designer or Chairman of the Board) with respect to the development of the 
annual design budgets, creative budgets and the Company's strategic plans 
(including licensing strategies consistent with the Company's License Agreement
dated July 3, 1996 with Gabrielle Studio, Inc.) for presentation to  the Board
for its approval, public relations policies, and hiring and firing of key
executive officers of the Company.  Executive shall perform his duties and
services hereunder, within his expertise and experience, as may be assigned to
him by, and subject to the direction of, the Board.

              (b)  Executive shall prepare and propose, for approval of the
Board, an annual financial and operating plan ("annual plan") at the time and in
the detail prescribed by the Board, which annual plan shall be prepared in
conformity with the Board-approved overall strategic plan of the Company.  Each
annual plan shall include financial, operating and licensing plans with respect
to the DK Companies' business relating to each DK Company and each division and
subsidiary thereof.  Upon the Board's written approval of any annual plan,
Executive shall have the authority and responsibility for implementing such
annual plan, and such annual plan may be changed only by the Board.  

              (c)  Executive agrees to his employment as described in this
Section 2 and shall devote all of his normal working time and efforts to the
performance of his duties under this Agreement, excepting disabilities, illness,
and vacation time; provided, however, that Executive may devote reasonable
amounts of time to serving as a director or a member of charitable, religious,
educational, or business organizations, as long as, in the opinion of the 


                                         -3-
<PAGE>

Board, such services do not result in a conflict of interest with the interests
of the DK Companies and the services do not interfere with the performance of
Executive's services hereunder.  Executive shall travel on behalf of the Company
as the needs of the business require.

              (d)  All executives of the Company and each DK Company, other
than the Chief Designer (so long as Ms. Donna Karan occupies such position),
Chairman of the Board and the present Vice Chairman of the Board, shall report
to Executive.  If the Company acquires or forms a new company, the reporting
structure for executives of such new company shall be as set forth in the
preceding sentence.

              (e)  During the Employment Period, the Company shall nominate
Executive for election to the Board and shall use its best efforts to cause
Executive to be elected as a member of the Board.

         3.   COMPENSATION AND OTHER BENEFITS.

              (a)  BASE SALARY.  As compensation for his services hereunder,
the Company and DKCo. jointly and severally, agree to pay Executive, during the
Employment Period, commencing with the 1997 fiscal year (I.E., the year ending
December 28, 1997), a base salary (the "Base Salary") for the periods indicated,
payable in equal installments on the regular payroll dates of the Company, as
follows:  $345,206 for the period from August 11, 1997 through December 28,
1997; $900,000 for the 1998 and 1999 fiscal years; $950,000 for the 2000 and
2001 fiscal years; $475,000 for the period from the beginning of the 2002 fiscal
year through June 30, 2002 if this Agreement is not renewed as set forth in
Section 1 hereof; and $950,000 for each fiscal year thereafter (except as
modified by the Board pursuant to this Agreement).



                                         -4-
<PAGE>

         Notwithstanding the foregoing, Executive's Base Salary shall be
subject to review by the Board and may be increased (but not decreased) at any
time, in which event Base Salary for any subsequent year shall be not less than
the increased Base Salary, and, provided further, that, in the event Executive
remains employed during the Renewal Term, the Board shall review and set his
Base Salary every year of such Renewal Term (provided that such Base Salary may
not be less than $950,000 in any year during such Renewal Term).

         (b)  PERFORMANCE BONUS.  Subject to Section 10 hereunder and in
accordance with, and subject to, the provisions of this Section 3(b), Executive
shall be entitled to receive, commencing with the 1998 fiscal year, a
performance bonus (the "Performance Bonus") based on satisfying the criteria,
and in the amounts, set forth in the Performance Bonus Award established by the
Incentive Compensation Sub-Committee of the Board  (the "Committee") (and signed
by the parties for identification purposes) for each fiscal year which ends
during the Employment Period (or a partial fiscal year in the case of death or a
Disability termination).  For purposes of this Section 3, "fiscal year" shall
mean the current fiscal year period even if the Company changes its fiscal year.
The Performance Bonus, if any, for each fiscal year, except as otherwise
provided herein in the case of death or a Disability termination, shall be paid
in cash after the close of each fiscal year at the same time and in the same
manner as bonuses are paid to other executives of the Company, but only after
the Committee  has certified achievement of the applicable criteria in writing
and any necessary stockholder approval has been obtained.  The calculation of
the amounts to be received by Executive pursuant to the Performance Bonus Award
shall be determined from the Company's books and records as audited by the
Company's principal auditing firm.  In no event shall the amount of the
Performance Bonus for any fiscal 


                                         -5-
<PAGE>

year exceed $750,000.  Notwithstanding anything else herein, the Performance
Bonus shall be subject to the terms of the Performance Bonus Award, which by its
terms includes the provisions delineated in this Section 3(b) and elsewhere in
this Agreement with regard to the Performance Bonus (all of which have been
approved as part of the Award by the Committee).  The Company agrees to submit
to the stockholders the Performance Bonus for approval at the annual
stockholders meeting in 1998.  The Performance Bonus Award shall be subject to
stockholder approval at such time or times as required by Section 162(m) of the
Code.  It is agreed that the Committee may revise the Performance Bonus Award
document setting forth the provisions of such Performance Bonus to include the
provisions of the Performance Bonus set forth herein and made part of the Award,
as well as any other provision required for compliance with the
performance-based compensation exemption from Section 162(m) of the Code and
administrative provisions (but not change the current substance of the
Performance Bonus Award).

         (c)  INCENTIVE BONUS.  Subject to Section 10 hereunder and in
accordance with, and subject to, the provisions of this Section 3(c), in
addition to any other compensation to be received pursuant to this Agreement,
Executive shall be entitled to receive, commencing with the 1998 fiscal year, an
incentive bonus (the "Incentive Bonus") based on satisfying the criteria, and in
the amounts set forth in the Incentive Bonus Award established by the Committee
(and signed by the parties for identification purposes) for each fiscal year
ending during the Employment Period as specifically provided in this Agreement
and for the fiscal year in which the Employment Period ends The Incentive Bonus,
if any, for any fiscal year shall be paid in cash after the close of each fiscal
year, at the same time and in the same manner as 



                                         -6-
<PAGE>

bonuses are paid to other executives of the Company, but only after the
Committee has certified achievement of the applicable criteria in writing and
any necessary stockholder approval has been obtained.  The calculation of the
amounts to be received by Executive pursuant to the Incentive Bonus Award shall
be determined from the Company's books and records as audited by the Company's
principal auditing firm.  In no event shall the amount of the Incentive Bonus
for any full fiscal year (prorated for any partial fiscal year) exceed $2
million.  Notwithstanding anything else herein, the Incentive Bonus plan shall
be subject to the terms of the Incentive Bonus Award, which by its terms
includes the provisions delineated in this Section 3(c) and elsewhere in this
Agreement (all of which have been approved as part of the Award by the
Committee).  The Company agrees to submit to the stockholders the Incentive
Bonus Award for approval at the annual stockholders' meeting in 1998.  The
Incentive Bonus Award shall be subject to stockholder approval at such time or
times as required by Section 162(m) of the Code.  It is agreed that the
Committee may revise the Incentive Bonus Award document setting forth the
provisions of such Incentive Bonus to include the provisions of the Incentive
Bonus set forth herein and made part of the Award, as well as with any other
provision required for compliance with the performance-based compensation
exemption from Section 162(m) of the Code and administrative provisions (but not
change the current substance of the Incentive Bonus Award).

         (d)  DEFERRED COMPENSATION.  In addition to any other compensation to
be received pursuant to this Agreement, Executive shall be entitled to receive
from the Company and DKCo., jointly and severally, $750,000 plus accrued
interest at the annual rate of 8% compounded monthly, payable in a single lump
sum in cash within thirty (30) days of the earliest 


                                         -7-
<PAGE>

to occur of (A) the third anniversary of this Agreement, (B) termination of
Executive's employment for any reason, including termination for Disability (as
defined in Section 10(a)(i)), or (C) a Change of Control (as defined in Section
11(b)).

         (e)  SPECIAL BONUS.  In addition to any other compensation to be
received pursuant to this Agreement, Executive shall be entitled to receive from
the Company and DKCo., jointly and severally, $535,000 as a special bonus
payable in a lump sum in cash no later than December 28, 1997.

         (f)  PARTICIPATION IN BENEFIT PLANS AND OTHER BENEFITS.  During the
Employment Period, Executive shall be entitled to participate (subject to any
waiting periods) in all group health and insurance programs, and all other
benefits, fringe benefits, and perquisites available generally to senior
executives of the Company, which plans, benefits, fringe benefits, and
perquisites in existence on the date hereof are set forth on Schedule B attached
hereto.

         (g)  OPTIONS.  The Company hereby undertakes to recommend to the
Committee at the applicable time that Executive be granted (i) options (the
"Options") as follows:  (A) Options to purchase 200,000 shares of common stock
of the Company (as presently constituted) upon commencement of Executive's
employment hereunder or as soon thereafter as practicable;  (B) on or about
August 1, 1998, Options to purchase 100,000 shares of common stock of the
Company (as presently constituted) irrespective of profitability; and (C) on or
about April 1, 1999, 2000 and 2001, Options to purchase 100,000 shares of common
stock of the Company (as presently constituted), provided that the Company has
any income before income taxes and as adjusted for extraordinary items occurring
in the prior fiscal year, calculated by the 



                                         -8-
<PAGE>

Company's principal auditing firm in accordance with then-applicable generally
accepted accounting principles as consistently applied by the Company, and whose
determination shall be binding on the parties hereto,  and further provided that
the Company shall have the discretion to recommend to the Committee the grant,
and the Committee shall have discretion to grant, whether or not recommended,
such Options even if the Company has no such income before income taxes and
extraordinary items; and (ii) special options (the "Special Options") to
purchase 200,000 shares of Common Stock of the Company (as presently
constituted) upon commencement of Executive's employment hereunder or as soon
thereafter as practicable.  For purposes of this Agreement "extraordinary items"
shall mean all items of gain, loss or expense for the fiscal year determined to
be extraordinary or unusual in nature or infrequent in occurrence or related to
the disposal of a segment of a business or related to a change in accounting
principle all as determined in accordance with standards established by opinion
No. 30 of the Accounting Principles Board.  The Options shall be incentive stock
options (within the meaning of Section 422 of the Code), to the maximum extent
possible, subject to qualification of such Options or any portion thereof for
treatment as incentive stock options under Section 422 of the Code.  The Options
shall each vest at the rate of 25% per year commencing on the first anniversary
of the date of grant provided the Executive is employed by DK Companies on the
vesting date, provide for accelerated vesting as set forth elsewhere in this
Agreement have an exercise price equal to the fair market value (as determined
under the Company's 1996 Stock Incentive Plan (the "Plan")) of the common stock
of the Company on the date of grant and have a ten (10) year term (subject to
earlier termination upon ceasing of the Executive to be an employee of the DK
Companies based on the "default" provisions in the Plan.)  The Special Opt ions
shall vest five 


                                         -9-
<PAGE>

years from the date of grant; provided Executive is then employed by any of the
DK Companies and further  provided, such vesting shall accelerate as follows: 
(i) if for any fiscal year income before income taxes and extraordinary items
(using the same definition as in the Performance Bonus Award) ("IBT") is at
least $30 million, one third of the Special Options less the amount previously
vested, shall vest; (ii) if for any fiscal year IBT is at least $50 million, two
thirds of the Special Options, less the amount previously vested, shall vest,
and (iii) if for any fiscal year IBT is at least $75 million, all of the Special
Options shall vest but only in each case if Executive is employed by any of the
DK Companies on the last day of the fiscal year.  The exercise price of the
Special Options shall be equal to the fair market value (as determined under the
Plan) on the date of grant.  The special Options shall have a ten (10) year
term, subject to earlier termination upon ceasing of Executive to be an employee
of the DK Companies based on the "default provisions" in the Plan.

         (h)  RESTRICTED STOCK.  The Company hereby undertakes to recommend to
the Committee that Executive be granted 150,000 shares of restricted common
stock under the Plan (the "Restricted Stock") upon commencement of Executive's
employment hereunder or as soon thereafter as practicable.  The Restricted Stock
shall vest as follows; provided the Executive is then employed by any of the DK
Companies: 20% upon the price per share of the common stock attaining $16; $20%
upon the price per share of the common stock attaining, $18; 20% upon the price
per share of the common stock attaining $20; 20% upon the price per share of the
Common Stock attaining $22; and 20% upon the price per share of the common stock
attaining $24; and shall vest in any case at the end of five (5) years from the
date of grant.  The recommended grant shall provide that upon the termination of
employment of the Executive 


                                         -10-

<PAGE>

from the DK Companies, any unvested restricted stock shall be forfeited, except
as specifically provided elsewhere herein.  The measurement of "attaining" shall
be on the same basis as the restricted stock grants being made on or about the
date hereof.

         4.   EXPENSES.  Executive shall be entitled to reimbursement for all
reasonable travel and other out-of-pocket expenses incurred in the performance
of his duties hereunder ("Reimbursable Expenses"), upon submission and approval
of written statements and bills in accordance with the then regular procedures
of the Company as approved by the Board.  Notwithstanding the foregoing, after
notice of termination by the Company or Executive pursuant to Section 10,
Executive shall be entitled to reimbursement for material Reimbursable Expenses
incurred by Executive after the date of such notice of termination, only if such
expenses are approved in advance by the Board, or any member thereof, excluding
Executive.

         5.   REPRESENTATIONS AND WARRANTIES OF EXECUTIVE.  Executive
represents and warrants to the Company that Executive has provided to the
Company all material employment, compensation, non-compete, restrictive and
similar agreements or arrangements to which he was subject prior to execution of
this Agreement or which may continue in force or may restrict his activities or
employment in any manner subsequent to the execution of this Agreement. 

         6.   NON-COMPETITION.

              (a)  In view of the unique and valuable services it is expected
Executive will render to the DK Companies and their affiliates, Executive's
knowledge of the customers, trade secrets, and other proprietary information
relating to the business of the DK Companies and their affiliates and their
customers, suppliers, and licensees and similar knowledge regarding the DK
Companies and their affiliates which Executive has obtained and 


                                         -11-
<PAGE>

will continue to obtain during his employment, and in consideration of the
compensation to be received hereunder, Executive agrees (i) that he will not
during the Employment Period Participate In (as herein defined) any other
business or organization, whether or not such business or organization now is or
shall then be competing with or of a nature similar to the business of such DK
Companies, unless the Board consents to such participation, and (ii) for a
period of one year after the date of the termination of Executive's employment
under this Agreement or otherwise, for any reason other than Good Reason (as
defined in Section 10(b)), he will not compete with or be engaged in, or
Participate In (to the extent such participation could reasonably be expected to
have a material adverse effect on any of the DK Companies) any other business or
organization which competes with or is engaged in, the same business as the
Company, any other DK Company, or any licensee of the DK Companies to which
Executive renders services hereunder, with respect to any product or service
sold or activity in which the Company, such other DK Company, or licensee
engages (a "DK Business"), up to the time of termination of employment in any
geographical area in which at the time of termination such DK Business is
engaged in by the Company, such other DK Company, or licensee, except that in
each case the provisions of this Section 6 will not be deemed breached merely
because Executive (a) beneficially owns (i) any publicly-traded debt securities
or (ii) not more than 5% of the outstanding common stock of a corporation if, at
the time of its acquisition by Executive, such stock is listed on a national
securities exchange, is reported on the Automated Quotation System of the
National Association of Securities Dealers Inc., or is regularly traded in the
over-the-counter market by a member of a national securities exchange, or (b)
serves as a director or member of a charitable, religious, or educational
organization.



                                         -12-
<PAGE>

         (b)  For purposes of Section 6(a)(i), the term "Participate In" shall
mean:  "directly or indirectly, for his 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, employee, partner, consultant, agent,
independent contractor, or otherwise with, or acquiesce in the use of his name
in." 

         (c)  Executive further agrees that, during the Employment Period and
until the first anniversary of the date of the termination of Executive's
employment by the Company or any other DK Company under this Agreement (the
"Restricted Period"), he will not directly or indirectly, solicit, or endeavor
to entice away from the Company or any other DK Company, any of its suppliers,
customers, senior level management employees (I.E., employees in a position
equivalent or senior to vice president), members of the design staff, licensees,
or agents (including in each case, any supplier, customer, senior level
management employee, member of the design staff, licensee, or agent of the
Company or any other DK Company who held any such position during the one year
period prior to the termination of Executive's employment by the Company or any
other DK Company under this Agreement).  Executive agrees that, during the
Restricted Period, he will not directly or indirectly interfere with any
relationship, contract, arrangement or understanding between the Company or any
other DK Company and any of the persons or entities described in the preceding
sentence.  During the Restricted Period, Executive will not directly or
indirectly employ any person who, at any time up to such termination, was a
senior level management employee or a member of the design staff 


                                         -13-
<PAGE>

of any of the DK Companies, within a period of one year after such person leaves
the employ of any such company.

         (d)  Executive agrees that the provisions of this Section 6 are
necessary and reasonable to protect the DK Companies in the conduct of their
business.  If any restriction contained in this Section 6 shall be deemed to be
invalid, illegal, or unenforceable by reason of the extent, duration, or
geographical scope thereof, or otherwise, with respect to a particular set of
facts, then the parties agree that the court 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.

         7.   COPYRIGHTS, INVENTIONS, ETC.  Any interest in patents, patent
applications, inventions, copyrights, developments, and processes ("Such
Inventions") which Executive may develop during the Employment Period relating
to the fields in which the DK Companies may then be engaged shall belong to the
DK Companies; and forthwith upon request of the DK Companies, Executive shall
execute all such assignments and other documents and take all such other action
as the DK Companies may reasonably request in order to vest in the DK Companies
all his right, title, and interest in and to Such Inventions free and clear of
all liens, charges, and encumbrances.

         8.   CONFIDENTIAL INFORMATION.  All confidential information relating
to the business of the Company or any other DK Company or of any customer,
supplier, or licensee of the Company or any other DK Company or confidential
information relating to Ms. Donna Karan or Mr. Stephan Weiss, which Executive
may now possess, may obtain during or after 



                                         -14-
<PAGE>

(during the noncompetition period) the Employment Period, or may create prior to
the end of the Employment Period, shall not knowingly be furnished, published,
disclosed, or made accessible by him to any other person, firm, or corporation
either during or after the termination of his employment or used by him except
during the Employment Period in the business and for the benefit of the DK
Companies, in each case without the prior written permission of the Company.  To
the extent required to do so by law, or by order of any governmental or
quasi-governmental agency, Executive shall have the right to disclose
"confidential information," provided that Executive gives the Company at least
10 days prior written notice (or such lesser time as may be practicable under
the circumstances) of his intent to disclose such information in order to
provide the DK Companies with a reasonable opportunity to obtain a temporary
restraining order, protective order, injunction, or similar relief and that
Executive agrees to reasonably assist the DK Companies, at the DK Companies'
expense, in obtaining such temporary restraining order, protective order,
injunction or similar relief, provided that such assistance shall not
unreasonably burden the Executive.  Executive shall return all of such
confidential information to the DK Companies prior to or on the date of
termination of Executive's employment.  As used in this Section 8, except as the
context otherwise requires, "confidential information" shall mean any
information relating to the business of any of the DK Companies, excluding
information which is or comes into the public domain through no fault of
Executive or which Executive obtains after the termination of his employment by
the DK Companies under this Agreement or otherwise from a third party who to the
knowledge of Executive has the right to disclose such information.

         9.   LIFE INSURANCE.  During the Employment Period, the Company shall
maintain in force at its expense a life insurance policy (the "Insurance
Policy"), which policy 


                                         -15-
<PAGE>

shall be payable to Executive's beneficiaries in the amount of $5,000,000.  If
Executive is determined to be suffering from a congenital defect or other
illness or condition which would preclude the Company, after reasonable efforts,
from obtaining such $5,000,000 insurance policy at a cost substantially
equivalent to the cost of obtaining such insurance for a healthy individual of
Executive's age and gender, the Company shall purchase the amount of insurance,
if any, that can be purchased at a cost substantially equivalent to the cost of
obtaining such insurance for a healthy individual of Executive's age and gender.

         10.  TERMINATION.

              (a)  TERMINATION BY THE COMPANY.  This Agreement and the
Executive's employment shall terminate earlier than as provided in Section 1
hereof as follows:

                   (i)  Executive shall be physically or mentally incapacitated
or disabled or otherwise unable fully to discharge his duties hereunder, as set
forth in a written determination by (A) a physician who is licensed to practice
in the State of New York, mutually selected by the Board and Executive, or (B)
if the Board and Executive cannot agree on a physician, a physician selected by
the Board who is a chairman of a department of medicine at a
university-affiliated hospital in the City of New York, for a period of six
consecutive months ("Disability"), then the Company shall have the right to give
notice of termination of Executive's services hereunder as of a date (not
earlier than 10 days from Executive's receipt of such notice) to be specified in
such notice and this Agreement and Executive's employment shall terminate on the
date so specified in such notice;

                   (ii)  Either (A) Executive shall commit an illegal act or
acts, that were intended to and did defraud any DK Company, (B) Executive shall
be grossly negligent or 


                                         -16-
<PAGE>

engage in willful misconduct or dishonest activities in the discharge of his
duties hereunder, or (C) Executive shall breach Section 5, 6(a), 6(b), 6(c), 7,
or 8 and, if curable, fail to correct any such breach within 60 days after
written notice by the Company to Executive of his commission of the same,
specifying the particular act or acts or failure to act that is or are the basis
for the decision to so terminate the Executive's employment for Cause, then, and
in each such case, the Board shall have the right to terminate Executive's
services hereunder for any of the reasons described in Sections 10(a)(ii)(A)
through 10(a)(ii)(C) ("Cause") upon thirty (30) days notice in the case of (A)
or (B) above or upon the sixty (60) day notice referred to in the case of (C)
above.  Within thirty (30) days after the aforesaid notice and prior to any such
termination, Executive shall be given an opportunity to make a presentation to
the Board at a meeting of the Board.  Following such meeting, the Board shall
determine whether to terminate Executive's services for "Cause" pursuant to this
Section 10(a)(ii) and shall notify Executive of its determination.  The Company
may suspend the Executive with pay pending such Board meeting without it being
deemed Good Reason or a breach hereunder.

                   (iii)  Executive shall die, then this Agreement shall
terminate on the date of death; or

                   (iv)  The Company shall terminate Executive's employment for
any reason other than the reasons provided above in clauses (i) and (ii)
("Without Cause"), then the Company shall give Executive not less than three
months' written notice of termination of his employment "Without Cause," and
this Agreement and Executive's employment shall terminate on the date so
specified in such notice.


                                         -17-
<PAGE>

              (b)  TERMINATION BY EXECUTIVE FOR GOOD REASON.  The Executive may
terminate his employment hereunder for Good Reason.  For purposes of this
Agreement, the term "Good Reason" shall mean and shall be deemed to exist if,
without the prior written consent or waiver of the Executive, (i) the Executive
is assigned duties or responsibilities that are inconsistent in any material
respect with the scope of the duties or responsibilities associated with his
titles or position, as set forth in this Agreement (or which he may receive
during the Employment Period), (ii) the Executive's duties or responsibilities
are significantly reduced, except with respect to (A) sale of the Beauty
Division, and (B) any corporate action initiated or recommended by Executive and
approved by the Board, (iii) the Company fails to grant Executive the Options or
Special Options required to be recommended to be granted pursuant to Section
3(g) or the Restricted Stock required to be recommended to be granted pursuant
to Section 3(h), (iv) the Company fails to perform substantially any material
term or provision of this Agreement, (v) the Executive's office location is
relocated to one that is more than fifty (50) miles from the location at which
the Executive was based immediately prior to the relocation, (iv) the Company
fails to obtain the full assumption of this Agreement by a successor entity,
(vii) the Executive is not elected to the Board or is not reelected thereto or
is forced to resign therefrom for any reason not constituting Cause, or (viii)
either the Performance Bonus Award or the Incentive Bonus Award, as described in
Sections 3(b) and 3(c), respectively, is not approved by the stockholders at
such time or times as such approval is required; provided however, that
Executive first provides written notice to the Board within 60 days of any of
the events specified in this Section 10(b)(i-viii) of his intention to terminate
specifying the circumstances relating thereto, and the Company fails to cure any
such defects, as identified in such notice, within 60 



                                         -18-
<PAGE>

days of receipt of such notice, and Executive reaffirms in writing his election
to terminate within 10 business days of expiration of any curative period.

              (c)  SEVERANCE PAYMENTS. 

                   (i)  In the event of termination pursuant to Section
10(a)(ii), Executive shall receive no severance, and shall be entitled to
receive, in lieu of any other payments or benefits, (x) his accrued but unpaid
salary at the rate provided in Section 3(a), plus any amounts due but unpaid for
any prior completed fiscal year including any Performance Bonus or Incentive
Bonus ("Accrued Obligations"), (y) a special payment (the "Special Payment")
equal to the product of the ratio of the number of days in the fiscal year prior
to his termination to 365 days ("Pro Rata")  times his Performance Bonus, if
any, for the prior fiscal year, and his accrued Pro Rata Incentive Bonus (if,
and to the extent the criteria of the Incentive Bonus Award are satisfied at the
end of the fiscal year in which termination takes place) to the date on which
termination shall take effect, and (z) any Reimbursable Expenses.   Any such
Accrued Obligations, Special Payment or other amounts shall be promptly paid in
a lump sum in cash, provided, however, the Incentive Bonus shall be paid
subsequent to the fiscal year in which it is earned, at the same time and in the
same manner as Incentive Bonuses are paid to other executives of the Company for
such fiscal year and Accrued Obligations shall be paid in accordance with their
terms.

                   (ii)  In the event of termination pursuant to Section
10(a)(iii), Executive's estate or beneficiaries, as the case may be, shall be
entitled to receive, in lieu of any other payments or benefits, the proceeds
from the Insurance Policy, any Accrued Obligations, a Pro Rata Performance Bonus
and a Pro Rata Incentive Bonus (based in the case of the 


                                         -19-
<PAGE>

Performance Bonus on $750,000, and, in the case of the Incentive Bonus on the
amount of Incentive Bonus that would have been paid for the full fiscal year if
he was employed for the full fiscal year), Reimbursable Expenses and, as
provided in the grants, all Options and Special Options that are unvested at the
date of termination shall, in accordance with their grants, vest, and the
restrictions on any Restricted Stock held by Executive shall terminate.  Such
amounts shall be paid promptly in a lump sum, other than any amount which by its
terms is due thereafter, which shall be paid in accordance with its terms.

                   (iii)  In the event of termination pursuant to Section
10(a)(iv) or by Executive for Good Reason, Executive shall be entitled to
receive in lieu of any other payments or benefits, (a) if prior to June 30,
2002, Accrued Obligations plus the sum of  2.99 times his Base Salary plus two
times his total bonus compensation (I.E., Performance Bonus and Incentive Bonus)
for the immediately preceding fiscal year (or if termination occurs prior to the
end of the 1998 fiscal year, then such total bonus compensation as doubled shall
be $1,500,000 ), payable (other than Accrued Obligations, which shall be paid in
accordance with their terms) in a lump sum in cash within 30 days after the date
of termination, continuation, at the Company's expense, of any group health
(which may be provided by payment of COBRA continuation coverage premiums) and
life insurance and long-term disability coverage at the level in effect on the
Executive's date of termination for a period of eighteen months following such
date of termination (or shall receive from the Company the economic equivalent
of such coverage in cash), all Options and Special Options that are unvested at
the date of termination shall, in accordance with their grants, vest, and the
restriction on any Restricted Stock held by Executive shall, in accordance with
their grants, terminate or (b) if on or after June 30, 2002, the amounts 



                                         -20-
<PAGE>

payable under Section 10(e) as if notice of nonrenewal has been given by the
Company and Executive had immediately thereafter terminated employment pursuant
to Section 10(e).

                   (iv)  If Executive shall voluntarily resign for other than
"Good Reason," he shall be entitled only to Accrued Obligations, the Special
Payment, Pro Rata Incentive Bonus (if, and to the extent the criteria of the
Incentive Award are satisfied at the end of the fiscal year in which termination
takes place), and Reimbursable Expenses, through the date of such resignation or
termination, and that any such accrued but unpaid salary, Special Payment or
other amounts shall be promptly paid in a lump sum in cash (except with respect
to the Incentive Bonus which shall be paid subsequent to the fiscal year in
which it is earned, at the same time and in the same manner as Incentive Bonuses
are paid to other executives of the Company for such fiscal year and Accrued
Obligations which shall be paid in accordance with their terms).

                   (v)  If the Executive's employment hereunder is terminated
as a result of Disability, in lieu of any other payments or benefits other than
any such disability benefits he may receive (but subject to Section 10(c)(vi),
and Accrued Obligations, he shall be paid a single lump sum in cash within
thirty (30) days of the date of his termination in an amount equal to one year's
Base Salary.  In addition, in accordance with the grants, the nonvested portion
of any Options and Special Options held by the Executive on such date shall
become vested and exercisable and any restrictions on Restricted Stock held by
the Executive shall terminate.

                   (vi)  The severance amounts in this Section 10(c) shall be
in lieu of any severance policies or payments otherwise applicable to Executive,
including those under 


                                         -21-
<PAGE>

Section 11; provided, however, that any payments made to Executive upon
termination of this Agreement as a result of the Disability (as defined in
Section 10(a)(i)) of Executive shall be reduced by any disability payments and
benefits which Executive receives pursuant to any disability plan or policy paid
for by the Company (or by Executive if the Company directly or indirectly
reimburses the Executive) otherwise applicable to Executive during the one-year
period for which the severance compensation is being paid (which benefits for
such one-year period Executive shall assign to the Company).

                   (vii)  Prior to Executive's receipt of any severance payment
under this Section 10(c), Executive shall issue a general release to the
Released Parties, as defined on Schedule C, in such form as the Company may
reasonably require, which release shall extinguish all actual or potential
claims or causes of action he has, may have had, or hereafter may have against
the Released Parties; provided, however, that Executive shall not release any
indemnification or contribution rights or obligations that he may have under
this Agreement or any other agreement or any rights or obligations he may have
under this Agreement, unless otherwise agreed to by the parties in writing.  The
Company shall simultaneously provide a release to Executive in the form MUTATIS
MUTANDIS given to the Company by Executive.

              (d)  OTHER PAYMENTS UPON TERMINATION.  If notice of termination
of Executive is given by Executive or the Company, except as otherwise provided
in this Agreement, Executive shall continue to receive his Base Salary, bonus
payments, and benefits as provided in Section 3 until the date of termination,
and shall also be entitled to reimbursement for Reimbursable Expenses as set
forth in Section 4.


                                         -22-
<PAGE>

              (e)  COMPANY'S OPTION TO TERMINATE EXECUTIVE AFTER NOTICE OF
TERMINATION.  The Company, or, if notice is given by the Company, the Executive,
may, at any time during the period after notice of termination by Executive or
the Company and before the date of termination specified in the notice, given in
accordance with either Section 1 or Section 10(a)(iv), as the case may be (the
"Notice Period"), elect to terminate this Agreement immediately and Executive's
employment hereunder.  In such event the Company shall pay Executive (i) his
Accrued Obligations, (ii) a lump sum equivalent to the Base Salary payments he
would have received for the duration of the Notice Period at the rate provided
in Section 3(a), (iii) a lump sum payment equal to the sum of his Performance
Bonus and Incentive Bonus, received with respect to the prior fiscal year and
(iv) his Reimbursable Expenses.  Such lump sums shall be paid within thirty (30)
days after Executive's employment terminates.  The foregoing shall be in lieu of
any other payment to Executive except as may be provided in any other non
severance employee benefit plan in which he participates.

              (f)  RESIGNATION OF OFFICES AND DIRECTORSHIPS.  Effective upon
notice of termination by Executive or the Company, Executive shall be deemed to
have resigned as an officer and director, if applicable, of the Company and the
other DK Companies, if applicable, and shall execute any documents required by
the Company and the DK Companies to evidence the same.

              (g)  RETURN OF COMPANY PROPERTY.  Upon termination of employment
hereunder or otherwise, Executive shall immediately return all property which
belongs to the DK Companies.


                                         -23-
<PAGE>

         11.  MERGER, CHANGE OF CONTROL, ETC.

              (a)  In the event of a future disposition of the properties and
business of the Company substantially as an entirety by merger, consolidation,
sale of assets or otherwise, then the Company may elect:

                   (i)  to assign this Agreement and all of its rights and
obligations hereunder to the acquiring or surviving entity; provided that such
entity shall assume in writing all of the obligations of the Company hereunder;
and provided, further, that the Company (in the event and so long as it remains
in existence) shall remain liable for the performance of its obligations
hereunder in the event of a breach by the acquiring entity of this Agreement; or

                   (ii)  in addition to its other rights of termination, to
terminate this Agreement upon at least 90 days' written notice and by paying
Executive the sum of three times his Base Salary plus three times his total
bonus compensation (I.E., Performance Bonus and Incentive Bonus) for the
immediately preceding fiscal year (or if termination occurs prior to the end of
the 1998 fiscal year, then such aggregate total bonus compensation as trebled
shall be $2,250,000),  payable in a single lump sum within 30 days after the
date of termination.  In addition, (i) as provided in the grants, all Options
and Special Options which the Executive then holds which are not vested shall
vest and be exercisable immediately, (ii) as provided in the grants, the
restrictions on any Restricted Stock held by the Executive shall terminate,
(iii) Executive, at the Company's expense, shall continue to be a participant in
any group health (which may be provided by payment of the COBRA continuation
coverage premiums) and life insurance and long-term disability plan or program
maintained by the Company (or shall receive 


                                         -24-

<PAGE>

from the Company the economic equivalent of such coverage in cash) at the level
in effect on the Executive's date of termination for a period of eighteen months
following his date of termination.

              (b)  In the event Executive's employment hereunder is terminated
by the Company other than for Cause within 12 months following a change in
control, as defined in Section II.E.(a) or II.E.(b) of the Plan (a "Change in
Control"), or if Executive terminates his employment for Good Reason within 12
months following a Change in Control, the Company shall pay Executive, upon
Executive's execution of a general release of claims in the form attached hereto
as Schedule D, in lieu of any other payments or benefits, Accrued Obligations
and an amount equal to the sum of three times his Base Salary plus three times
his total bonus compensation (I.E., Performance Bonus and Incentive Bonus) for
the immediately preceding fiscal year (or if termination occurs prior to the end
of the 1998 fiscal year, then such total bonus compensation as trebled shall be
$2,250,000), payable in a single lump sum within 30 days after the date of
termination.  In addition, (i) in accordance with the grants, all Options and
Special Options which the Executive then holds which are not vested shall vest
and be exercisable immediately, (ii) in accordance with the grants, the
restrictions on any Restricted Stock held by the Executive shall terminate,
(iii) Executive, at the Company's expense, shall continue to be a participant in
any group health (which may be provided by payment of COBRA continuation
coverage premiums) and life insurance and long-term disability plan or program
maintained by the Company (or shall receive from the Company the economic
equivalent of such coverage in cash) at the level in effect on the Executive's
date of termination for a period of eighteen months following his date of
termination.


                                         -25-
<PAGE>

              (c)  In the event that the aggregate present value of the
Executive's payments under this Agreement, and any plan, program or arrangement
maintained by the Company constitutes an "excess parachute payment" (within the
meaning of Section 280G(b)(1) of the Code), and the excise tax on such payment
would cause the net parachute payments (after taking into account federal, state
and local income and excise taxes) to which the Executive otherwise would be
entitled to be less than what the Executive would have netted (after taking into
account federal, state and local taxes) had the present value of his total
parachute payments equalled $1.00 less than three times his "base amount"
(within the meaning of Section 280G(b)(2)(A) of the Code), his payments
hereunder (starting with any lump sum payment) shall be reduced (by the minimum
possible amount) so that the aggregate present value equals $1.00 less than
three times such base amount.  For purposes of this calculation, it shall be
assumed that the Executive's tax rate is the maximum marginal federal, state and
local income tax rate on earned income, with such maximum federal rate to be
computed with regard to Code Section 1(g), if applicable.  The determination of
the amount of any such reduction shall be made by the Executive in the first
instance but in the event the Company disagrees with such determination, the
Executive shall select, at the Company's expense, a law firm or accounting firm
from among those regularly consulted by the Company in the twelve months
preceding the Change in Control regarding federal income tax or employee benefit
matters and such law firm or accounting firm shall determine the amount of such
reduction and such determination shall be final and binding on the Executive and
the Company.




                                         -26-
<PAGE>

              (d)  Any amounts paid pursuant to this Section 11 shall be in
lieu of any other severance policies or payments otherwise applicable to
Executive, including those under Section 10(c).

         12.  SURVIVAL.  The covenants, agreements, representations, and
warranties contained in or made pursuant to this Agreement, which by their terms
imply survival after the termination of this Agreement because of post
employment obligations or rights of one of the parties, shall survive
termination of this Agreement and Executive's employment.

         13.  SPECIFIC PERFORMANCE.  Executive acknowledges that since a breach
of the provisions of Sections 6, 7, or 8 could not adequately be compensated by
money damages, the Company shall be entitled, in addition to any other right and
remedy available to it, to an injunction restraining such breach or a threatened
breach, and in either case no bond or other security shall be required in
connection therewith, and Executive hereby consents to the issuance of such
injunction; provided that the foregoing shall not prevent Executive from
contesting the issuance of any such injunction on the ground that no violation
of this Agreement has occurred.

         14.  ENTIRE AGREEMENT; MODIFICATION.  This Agreement and the Schedules
hereto set forth the entire understanding of the parties with respect to the
subject matter hereof, supersede all existing agreements between them concerning
such subject matter and may be modified only by a written instrument duly
executed by each party.

         15.  NO MITIGATION; NO OFFSET.  In the event of Executive's
termination of employment, he shall be under no obligation to seek other
employment and there shall be no offset against any amounts due Executive
hereunder on account of any remuneration Executive 


                                         -27-
<PAGE>

may obtain from any subsequent employment.  Any amounts due Executive hereunder
are in the nature of liquidated damages, and not in the nature of a penalty.

         16.  LEGAL FEES.  The Company shall promptly pay or reimburse the
Executive for his reasonable costs of this Agreement, including, specifically,
the fees and expenses of his counsel.

         17.  NOTICES.  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 hand or overnight courier against
receipt to the party to whom it is to be given at the address of such party set
forth in the preamble to this Agreement (or to such other address as the party
shall have furnished in writing in accordance with the provisions of this
Section 17) and (a) in the case of the Company or DKCo., with a copy to the
General Counsel of the Company at the address set forth in the preamble to this
Agreement (b) and in the case of Executive, with a copy to Kaye, Scholer,
Fierman, Hays & Handler, LLP, 425 Park Avenue, New York, New York 10022,
Attention:  Arthur F. Woodard, Esq.  Notice to the estate or beneficiaries of
Executive shall be sufficient if addressed to Executive as provided in this
Section 17.  Any notice or other communication under this Agreement shall be
deemed given upon receipt, unless such notice or other communication was given
by certified mail, in which case it shall be deemed given three days after
mailing, except for a notice changing a party's address which shall be deemed
given at the time of receipt thereof.

         18.  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 


                                         -28-

<PAGE>

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 such
waiver.

         19.  BINDING EFFECT.  Executive's rights and obligations under this
Agreement shall not be transferable by assignment or otherwise, such rights
shall not be subject to commutation, encumbrance, or the claims of Executive's
creditors, and any attempt to do any of the foregoing shall be void.  Subject to
Section 11, the provisions of this Agreement shall be binding upon and inure to
the benefit of Executive and his heirs and personal representatives, and shall
be binding upon and inure to the benefit of the Company and its successors and
its assigns under Section 11.

         20.  NO THIRD PARTY BENEFICIARIES.  Other than the DK Companies, this
Agreement does not create, and shall not be construed as creating, any rights
enforceable by any person not a party to this Agreement (except as provided in
Section 19).

         21.  HEADINGS.  The headings in this Agreement are solely for
convenience of reference and shall be given no effect in the construction or
interpretation of this Agreement.

         22.  COUNTERPARTS; GOVERNING LAW.  This Agreement may be executed in
any number of counterparts, each of which shall be deemed an original, but all
of which together shall constitute one and the same instrument.  It shall be
governed by and construed in accordance with the laws of the State of New York,
without giving effect to its conflict of laws rules.


                                         -29-
<PAGE>

         23.  ARBITRATION.  Any and all disputes or controversies arising out
of or relating to this Agreement, other than injunctive relief pursuant to
Section 13, shall be resolved by arbitration at the American Arbitration
Association at its New York City offices before a panel of three arbitrators
under the then existing rules and regulations of the American Arbitration
Association.  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 determination of the arbitrators
shall be final and binding on the parties hereto and judgment on it may be
entered in any court of competent jurisdiction.  Except as required by law,
neither the DK Companies nor Executive shall issue any press release or make any
statement which is reasonably foreseeable to become public with respect to any
arbitration or dispute between the parties without receiving the prior written
consent of the other party to the content of such press release or statement. 
In the event Executive prevails in such proceedings, as determined by the
arbitrators, the Company or any other DK Company shall reimburse Executive for
all expenses (including, without limitation, reasonable legal fees and expenses
of no more than one law firm at standard hourly rates) incurred by Executive in
connection with such proceeding or any other proceeding in which Executive
prevails in contesting or defending any claim or controversy arising out of or
relating to this Agreement.  All such amounts shall be paid promptly, but in any
event within ten (10) business days after Executive provides the Company with a
statement of such amounts to be recovered.  In the event Executive does not
prevail in such proceedings, as determined by the arbitrators, each party hereto
shall be responsible for their own expenses (including, without limitation,
legal fees and expenses) incurred in connection with such proceedings.


                                         -30-
<PAGE>


         24.  D&O INSURANCE.  The Company agrees to use its best efforts to
obtain a directors and officers liability insurance policy covering the
Executive in an amount that is no less than the policy currently in effect for
senior executives or, if no such policy exists, a sufficient amount to provide
such indemnification, and to maintain such policy during the Employment Period
(and for so long thereafter as is practicable in the circumstances, taking into
account the availability of such insurance).





































                                         -31-
<PAGE>

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

                        DONNA KARAN INTERNATIONAL INC.



                        By:
                           -----------------------------------
                           Name:  Donna Karan
                           Title: Chief Executive Officer


                        THE DONNA KARAN COMPANY

                        By: DONNA KARAN INTERNATIONAL INC.,
                          GENERAL PARTNER



                        By:
                           -----------------------------------
                           Name:  Donna Karan
                           Title: Chief Executive Officer


                        EXECUTIVE


                        --------------------------------------
                             John D. Idol




                                         -32-
<PAGE>
                                                                    Exhibit 99.2

                                INCENTIVE BONUS AWARD
                                         for 
                                     John D. Idol

         -------------------------------         -------------------------
         Net Income Before Income Taxes 
                       and                            Amount of Bonus 
            Extraordinary Items (IBT)                   (% of IBT)
                  (in millions)
         -------------------------------         -------------------------
              Over           Up To
         --------------  ---------------         -------------------------
              $30.0          $75.0                        2.0%
         --------------  ---------------         -------------------------
              75.0           100.0                        1.5%
         --------------  ---------------         -------------------------
              100.0                                       1.0%
         --------------  ---------------         -------------------------


         (1)  Subject to the provisions of this Award, the Chief Executive
Officer shall be entitled to receive the Bonus amount for any fiscal year to the
extent of IBT in such fiscal year.

         (2)  The amount shall be cumulative.  For example, if IBT is $90
million, the bonus is two percent (2%) of $45 million plus one and a half
percent (1.5%) of the $15 million above $75 million.

         (3)  In determining IBT, calculations will be based on GAAP as of the
date hereof (ignoring changes therein hereafter).  Extraordinary items shall be
as defined in the Employment Contract referred to below.

         (4)  There shall  be no partial payments if minimum targets are not
achieved.

         (5)  The bonus will commence for the 1998 fiscal year.

         (6)  The maximum amount of Incentive Bonus payable for any fiscal year
to the Chief Executive Officer shall be $2,000,000 (prorated for any partial
years).

         (7)  The Award shall be administered by the Incentive Compensation
Sub-Committee of the Board (the "Committee").


                                         -1-
<PAGE>

         (8)  The Award shall be payable for any fiscal year only if the bonus
criteria for such fiscal year  has been achieved, as calculated by the Company
auditor and certified in writing by the Committee, subject to exceptions or pro
rata determination in certain limited cases as provided in the Employment
Agreement of even date hereto between the Company, the Awardee and The Donna
Karan Company.

         (9)  This Award shall be subject to stockholder approval at such time
or times as required under Code Section 162(m) of the Internal Revenue Code of
1986, as amended (the "Code").

         (10) The Award is intended to comply with the exemption for
performance based compensation under Code Section 162(m) and any required
provision required therefore shall be deemed part of the Award and the
provisions of the Award shall be interpreted and construed in accordance
therewith.  References herein to Code Section 162(m) shall include the Treasury
regulations thereunder.

         (11) This Award shall be deemed to include the applicable provisions
of the Employment Contract of even date herewith among the Company, The Donna
Karan Company and Executive referring to the Incentive Bonus, including but not
limited to Section 3(c) thereof.

                        Acknowledged:

                        DONNA KARAN INTERNATIONAL INC.


                        By:
                           ---------------------------------------
                             Donna Karan
                             Chief Executive Officer

                        THE DONNA KARAN COMPANY

                        By:  DONNA KARAN INTERNATIONAL INC.,
                             GENERAL PARTNER

                             By:
                                -----------------------------------------
                                  Donna Karan
                                  Chief Executive Officer

                        EXECUTIVE

                        -------------------------------------------
                        John D. Idol


                                         -2-
<PAGE>
                               PERFORMANCE BONUS AWARD
                                         for 
                                     John D. Idol

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------
                                                Goals                                      Award
------------  ---------------------------------------------------------------------------------------
                   (1)
              Income Before                               (3)
               Income Taxes                             Minimum            (4)
                   and                                 Licensing        Licensing           (5)
              Extraordinary          (2)                Revenues         Revenue           Bonus
Fiscal Year   Items ("IBT")       IBT Growth*           ("MLR")          Growth*           Amount 
------------  ----------------   ----------------     -------------  ----------------  --------------
   <S>        <C>                 <C>                 <C>            <C>                 <C>
------------  ----------------   ----------------     -------------  ----------------  --------------
   1998       $10,000,000         10% increase        $7,000,000     10% increase        $750,000
------------  ----------------    on prior year       -------------  on prior year     --------------
   1999        11,500,000         actual IBT           8,000,000     actual Licensing    $750,000
------------  ----------------                        -------------  Revenue           --------------
   2000        13,250,000                              9,250,000                         $750,000
------------  ----------------                        -------------                    --------------
   2001        15,250,000                             10,500,000                         $750,000
------------  ----------------                        -------------                    --------------
Thereafter      10% per                                 10% per                          $750,000
              fiscal year                             fiscal year                        per year
-----------------------------------------------------------------------------------------------------
</TABLE>
 
         (1)  Subject to the provisions of this Award, the Chief Executive
Officer shall be entitled to receive the Bonus amount set forth in column (5)
for any fiscal year if any of the targets in columns (1) through (4) are
attained for such fiscal year.  

         (2)  Additionally, any amounts attained in excess of the target(s) set
forth for any given fiscal year may be applied to the target(s) for the next
succeeding fiscal year or years.  For example, if IBT for fiscal 1998 is
$22,000,000, then $12,000,000 will be applied toward the fiscal 1999 target and
such target will be deemed achieved if IBT for such year is equal to or greater
than ($500,000), with any unused 1998 and 1999 IBT carried forward for
application in fiscal year 2000 .

         (3)  Further, if a target is not attained in a particular fiscal year
ending during the Employment Period, attainment of such target in a subsequent
fiscal year on a cumulative basis shall result in the Bonus Amount being deemed
earned for such prior and current fiscal years.  For example, if MLR in fiscal
1998 is $6,000,000, no Bonus Amount is deemed earned in fiscal 1998.  However,
if MLR in fiscal 1999 is $9,000,000 then the Bonus Amount for fiscal 1999 will
be deemed earned and the excess $1,000,000 over the target for fiscal 1999 will
be applied to fiscal 1998 and, hence, that too will be deemed earned (with
payment of the Bonus 


                                         -1-
<PAGE>

Amount for both fiscal years to be received at the time of payment of the Bonus
Amount for fiscal 1999).

         (4)  IBT Growth and Licensing Revenue Growth targets shall be based on
actual IBT or Licensing Revenues, as the case may be, of the prior fiscal year. 
For example, if actual IBT or Licensing Revenues, as the case may be, for fiscal
1998 is $6,000,000, and actual IBT or Licensing Revenues, as the case may be,
for fiscal 1999 is $6,600,000, the Bonus Amount for fiscal 1999 will be deemed
earned.

         (5)  In determining IBT, IBT Growth, MLR or Licensing Revenue Growth,
calculations will be based on GAAP as of the date hereof (ignoring changes
therein hereafter). Extraordinary items shall be as defined in the Employment
Contract referred to below.

         (6)  There shall  be no partial payments if targets are not achieved.

         (7)  The bonus will commence for the 1998 fiscal year.

         (8)  The maximum amount of Performance Bonus payable for any fiscal
year to the Chief Executive Officer shall be $750,000 (prorated for any partial
years) plus any amount not earned in prior years with regard to the award,
provided that the maximum amount payable for any fiscal year to the Executive
shall be $3,000,000.

         (9)  The Award shall be administered by the Incentive Compensation
Sub-Committee of the Board (the "Committee").

         (10) The Award shall be payable for any fiscal year only if the bonus
criteria for such fiscal year  has been achieved, as calculated by the Company
auditor and certified in writing by the Committee, subject to exceptions or pro
rata determination in certain limited cases as provided in the Employment
Agreement of even date hereto between the Company, the Awardee and The Donna
Karan Company.

         (11) This Award shall be subject to stockholder approval at such time
or times as required under Code Section 162(m) of the Internal Revenue Code of
1986, as amended (the "Code").

         (12) The Award is intended to comply with the exemption for
performance based compensation under Code Section 162(m).  References herein to
Code Section 162(m) shall include the Treasury regulations thereunder and any
required provision required therefore shall be deemed part of the Award and the
provisions of the Award shall be interpreted and construed in accordance
therewith.


                                         -2-
<PAGE>

         (13) This Award shall be deemed to include the applicable provisions
of the Employment Contract of even date herewith among the Company, The Donna
Karan Company and Executive referring to the Incentive Bonus, including but not
limited to Section 3(c) thereof.


                        Acknowledged:

                        DONNA KARAN INTERNATIONAL INC.


                        By:
                           ----------------------------------
                             Donna Karan
                             Chief Executive Officer

                        THE DONNA KARAN COMPANY

                        By:  DONNA KARAN INTERNATIONAL INC.,
                             GENERAL PARTNER

                             By:
                                -------------------------------------
                                  Donna Karan
                                  Chief Executive Officer


                        EXECUTIVE


                        --------------------------------------
                        John D. Idol



                                         -3-