Document:

Exhibit 10.16b

 

Form of

Stock Option
Agreement for Elective Stock Options

Under

The Estée Lauder Companies Inc.

Non-Employee Director Share Incentive
Plan (the “Plan”)

 

This STOCK OPTION
AGREEMENT provides for the granting of Stock Options (“Options”) by The Estée
Lauder Companies Inc., a Delaware corporation (the “Company”), to the
participant, a Non-Employee Director of the Company  (a “Non-Employee Director”), to purchase shares of the Company’s
Class A Common Stock, par value $0.01 (the “Shares”), on the terms and subject
to the conditions hereinafter provided. 
The Stock Options described herein are being granted pursuant to
Section 8(e) of the Company’s Non-Employee Director Share Incentive Plan,
as may be amended or restated from time to time (the “Plan”), and are subject
in all respects to the provisions of the Plan. 
The Stock Options granted hereunder are not Incentive Stock Options (as
defined in Section 422(b) of the Internal Revenue Code of 1986, as amended
(the “Code”)).  This Stock Option Agreement
incorporates and is subject to all terms, conditions, limitations and
restrictions contained in the Plan, which shall be controlling in the event of
any conflicting or inconsistent provisions. 
Capitalized terms not defined herein shall have the meanings ascribed
thereto in the Plan.

 

The name of the
“Non-Employee Director”, the “Grant Date”, the aggregate number of Shares that
may be purchased pursuant to this agreement, and the “Exercise Price” per Share
are stated in the attached “Notice of Grant”, and incorporated herein by
reference.  The other terms and
conditions of the Options are stated in this agreement and in the Plan.

 

1.  Payment of Exercise Price.  The Company will provide and communicate to the
Non-Employee Director various methods of exercise.  These methods may include the ability to receive Shares of Class
A Common Stock of the Company or cash at exercise.  To facilitate exercise, the Company may enter into agreements for
coordinated procedures with one or more brokerage firms or financial
institutions.

 

2.  Exercise Period.

 

 (i)  General. Each Stock Option granted to a Non-Employee
Director hereunder shall become exercisable beginning on the first anniversary
of the date of grant; provided, however, any such Stock
Option granted to a Non-Employee Director shall become immediately exercisable
in the event of (A) a Change in Control of the Company or (B) the death of the
Non-Employee Director.  Each Stock
Option shall terminate on the tenth anniversary of the date of grant unless
terminated earlier pursuant to the Plan or later pursuant to
Section 2(d)(ii) hereof.

 

(ii)  Extension of Term.  The term of exercise of all outstanding
Stock Options held by a Non-Employee Director that have a remaining term of
less than one year on the date of such Non-Employee Director’s death shall
automatically be extended to the first anniversary of the date of death.

 

3.  Post-Directorship Exercises.  The exercise of any Stock Option after a
Non-Employee Director ceases to serve as a director shall be subject to
satisfaction of the conditions precedent that the former Non-Employee Director
neither (i) competes with, or takes employment with or renders services as a
director or in any other capacity to a competitor of, the Company, its
subsidiaries or affiliates without the written consent of the Company, nor (ii)
conducts himself or herself in a manner adversely affecting the Company.  If a Stock Option shall be exercised by the
legal or personal representative of a deceased Non-Employee Director or former
Non-Employee Director, or by a person who acquired a Stock Option granted
hereunder by bequest or inheritance or by reason of the death of any
Non-Employee Director or former Non-Employee Director, written notice of such
exercise shall be accompanied by a certified copy of letters

 

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testamentary or
equivalent proof of the right of such legal representative or other person to
exercise such Stock Option.

 

4.  Withholding.  All payments or distributions made hereunder of Shares covered by
Stock Options shall be net of any amounts required to be withheld pursuant to
applicable federal, national, state and local tax withholding requirements
imposed by each taxing authority having jurisdiction.  The Company may require the Non-Employee Director to remit to it
an amount sufficient to satisfy such tax withholding requirements prior to the
delivery of any certificates for such Shares. 
The Company may, in its discretion and subject to such rules as it may
adopt (including any as may be required to satisfy applicable tax and/or
non-tax regulatory requirements), permit the Non-Employee Director pay the
minimum amount of the federal, national, state and local withholding taxes
arising in connection with any Stock Option by electing to have the Company
withhold Shares of Class A Common Stock having a Market Value equal to the
amount to be withheld.

 

5.  Nontransferability. 
The Stock Options granted hereby are not transferable except
by will or the laws of descent and distribution.  Notwithstanding the preceding sentence, the Stock Options granted
hereby may be transferred by the Non-Employee Director for no consideration,
upon ten business days prior written notice to the Company, solely to the
Non-Employee Director’s spouse, siblings, parents, children and/or
grandchildren, or to trusts for the benefit of such persons, or to
partnerships, corporations, limited liability companies or other entities owned
solely by such persons, including trusts for such persons, subject to all restrictions
included in this Stock Option Agreement and subject to the Non-Employee
Director and permitted transferee executing an agreement of transfer
satisfactory to the Board in its sole discretion.

 

6.  Tenure.
A Non-Employee Director’s right, if any, to continue to serve as a director of
the Company or any of its subsidiaries or affiliates shall not be enlarged or
otherwise affected by his or her designation as a participant under this Plan.

 

7.  Notices. 
Any notice required or permitted under this Stock Option Agreement shall
be deemed to have been duly given if delivered, telecopied or mailed, certified
or registered mail, return receipt requested (a) to the Non-Employee Director
at such address as the Company shall maintain for the Non-Employee Director or
(b) to the Company to the Senior Vice President, General Counsel and Secretary
at the Company’s principal executive office.

 

8.  Failure to Enforce Not a Waiver.  The failure of the Company to enforce at any
time any provision of this Stock Option Agreement shall in no manner be
construed to be a waiver of such provision or of any other provision hereof.

 

9.  Governing Law.  The Stock Option Agreement shall be governed by and construed
according to the laws of the State of New York, applicable to agreements made
and performed in that state.

 

10.  Partial Invalidity.  The invalidity or illegality of any
provision herein shall not be deemed to affect the validity of any other
provision.

 

 

	
   

  	
  The Estée Lauder
  Companies Inc.

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  

 

2

 

Notice of Grant for Elective Stock
Options

Under

The Estée Lauder Companies Inc.

Non-Employee Director Share Incentive
Plan (the “Plan”)

 

This is to confirm that
you were awarded options to purchase shares of Class A Common Stock of The
Estee Lauder Companies Inc. (the “Shares”) in accordance with the Plan.  These options are granted under and governed
by the terms and conditions of the Plan and the Stock Option Agreement (the
“Agreement”) attached hereto and made part hereof.  A Summary Plan Description is also attached.  Please read these documents and keep them
for future reference.  The specific
terms of your award are as follows:

 

Non-Employee Director:

 

SSN or Tax ID:

 

Grant Date:

 

Type of Award:  Non-Qualified Stock Options

 

Exercise Price per Share:

 

Aggregate number of
Shares subject to your options:

 

Exercise Period: Your options
shall become exercisable on the following dates (or in the event of a “Change
in Control” of the Company or upon death, disability, if these occurrences are
earlier), but are subject to termination or forfeiture as per the Agreement:

 

	
  Number of Shares

  	
   

  	
  Date
  Exercisable

  	
   

  	
  Expiration
  Date

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  

 

Questions regarding the
stock option program can be directed to
              
at
             
or
                
at
             .  If you wish to accept this grant, please
sign this Notice and return within the next two weeks to:

 

Compensation Department

767 Fifth Avenue, 41st
Floor

New York, New York 10153

Attention: 

 

The undersigned hereby
accepts, and agrees to, all terms and provisions of the Agreement, including
those contained in this Notice of Grant.

 

 

	
  By

  	
   

  	
   

  	
  Date

  	
   

  	
   

  

 

3Exhibit
10.18

 

EMPLOYMENT AGREEMENT

 

THIS
AGREEMENT (the “Agreement”), dated as of January 1, 2003, between THE
ESTÉE LAUDER COMPANIES INC., a Delaware corporation (the “Company”), and PHILIP
A. SHEARER, a resident of New York, New York (the “Executive” or “you”).

 

W I T N E S S E T H
:

 

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

 

WHEREAS,
the Company and the Executive previously entered into an employment agreement
dated May 7, 2001 (the ‘Prior Agreement”); and

 

WHEREAS,
the Company desires to continue to retain the services of the Executive, and
continue his appointment as Group President, and the Executive desires to
provide such services in such capacity to the Company, upon the terms and
subject to the conditions hereinafter set forth; and

 

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

 

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

 

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1.                                       Employment
Term.

 

(a)                                  The
Company hereby agrees to employ the Executive, and the Executive hereby agrees
to enter into such employment as Group President of the Company for the period
commencing on January 1, 2003 and ending on June 30, 2005 unless
terminated sooner pursuant to Section 6 hereof (“the Term of Employment”).  The six-month period commencing on January 1,
2003 and ending on June 30, 2003 shall be the “First Contract Year”
hereunder, and subsequent twelve-month periods shall be subsequent Contract
Years.

 

2.                                       Duties
and Extent of Services.

 

(a)                                  During
the Term of Employment, the Executive shall serve as Group President of the
Company, and, in such capacity, shall serve as the senior-most executive
responsible for one or more of the Company’s brands and/or business units as he
may be assigned to from time to time reporting to the Chief Executive Officer.  In such capacity, he shall render such
executive, managerial, administrative and other services as customarily
associated with and incident to such positions, and as the Company may, from
time to time, reasonably require of him consistent with such positions.  Executive’s initial appointment hereunder
shall be as Group President for the Global Clinique and Origins brands, as well
as oversight of the Company’s corporate on-line activities, provided that any
subsequent additional appointments shall be at least commensurate in status and
responsibility with the foregoing.

 

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

 

2

 

Company, the
Chairman of the Board of Directors of the Company or the Board of Directors of
the Company, provided that each such position shall be commensurate with the
Executive’s standing in the business community as Group President of the
Company.  The Executive shall not be
entitled to any compensation other than the compensation provided for herein
for serving during the Term of Employment in any other office or position of
the Company or any of its subsidiaries or affiliates, unless the Board of
Directors of the Company or appropriate committee thereof shall specifically
approve such additional compensation.

 

(c)                                  The
Executive shall be a full-time employee of the Company and shall exclusively
devote all his business time and efforts faithfully and competently to the
Company and shall diligently perform to the best of his ability all of the
duties required of him as Group President of the Company, and in the other
positions or offices of the Company or its subsidiaries or affiliates required
of him hereunder.  Notwithstanding the
foregoing provisions of this Section 2(c), the Executive may serve as a non-management
director of such business corporations (or in a like capacity in other
for-profit or not-for-profit organizations) as the Board of Directors, Chairman
of the Board, or Chief Executive Officer of the Company may approve, such
approval not to be unreasonably withheld.

 

3.                                       Compensation.

 

(a)                                  Base
Salary.  As compensation for all
services to be rendered pursuant to this Agreement and as payment for the
rights and interests granted by Executive hereunder, the Company shall pay or
cause any of its subsidiaries to pay the

 

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Executive a base
salary (the “Base Salary”) during the Term of Employment at the annualized
rates as follows:

 

	
  For the First Contract Year

  	
   

  	
  $

  	
  950,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  For the Second Contract Year

  	
   

  	
  $

  	
  1,000,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  For the Third Contract Year

  	
   

  	
  $

  	
  1,000,000

  	
   

  

 

All amounts of Base Salary provided for hereunder shall be payable in
accordance with the regular payroll policies of the Company in effect from time
to time.

 

(b)                                 Incentive
Bonus Compensation.  During the Term
of Employment, in addition to the Base Salary set forth in Section 3(a)
hereof, the Compensation Committee of the Board of Directors has established
for the Executive annual incentive bonus opportunities (i.e., the
maximum incentive bonus that may be awarded in respect of each fiscal year of
the Company) under the Company’s Executive Annual Incentive Plan or any
subsequent Incentive Bonus Plan for executives that is approved by the
stockholders of the Company), as follows:

 

•                                          For
the period from January 1, 2003 through the end of the First Contract
Year, the annual incentive bonus opportunity shall be $650,000 (annualized,
$1,300,000), which amount shall be payable in addition to a pro rated bonus
opportunity based on the full-year bonus opportunity for the six-month period ending
December 31, 2002 as provided in the Prior Agreement;

 

•                                          For
the Second Contract Year, the
annual incentive bonus opportunity shall be $1,500,000; and

 

•                                          For
the Third Contract Year, the
annual incentive bonus opportunity shall be $1,600,000.

 

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The amount of the actual bonus award paid to the Executive shall be
calculated with reference to the attainment of performance goals for the
relevant Contract Year by the Company, the Executive’s Group and the Executive,
which goals shall be established by the Board of Directors of the Company upon
the recommendation of the Compensation Committee thereof and after consultation
with the Chief Executive Officer and the Executive.

 

(c)                                  Deferral.  The Executive may elect to defer payment of
all or any part of his incentive bonus compensation payable in accordance with
Section 3(b) hereof in respect of any Contract Year during the Term of
Employment, by giving to the Company written notice thereof, on or before March 31
of such Contract Year or part year. 
Additionally, in the event that in respect of any fiscal year of the
Company any amount of Base Salary, any amount payable under the Incentive Bonus
Plan or any other amount payable to the Executive hereunder or otherwise shall,
either alone or in combination with other amounts payable hereunder or
otherwise, result in the payment by the Company of any amount that shall not be
currently deductible by it pursuant to the provisions of Section 162(m) of
the Internal Revenue Code, as amended (the “Code”), or like or successor
provisions (a “Non-Deductible Amount”), the Company may elect to defer the
payment of the Non-Deductible Amount. 
Any amounts so deferred, either by election of the Executive or by
election of the Company, shall be credited to a bookkeeping account in the name
of the Executive as of the date scheduled for payment hereunder.  Such amounts shall be credited with interest
as of each June 30 during the term of deferral, compounded annually, at a
rate per annum equal to the annual rate of interest announced by Citibank N.A.
in New York, New York as its base rate in effect on

 

5

 

such June 30,
but in no event shall such rate exceed 9%. 
The entire amount credited to such bookkeeping account shall be paid to
the Executive (subject to all applicable withholding taxes) on a date to be
chosen by the Company, but in no event later than ninety (90) days after the
termination of the Executive’s employment with the Company, unless the
Executive requests prior to termination of his employment from the Company to
continue the deferral of such payments until a later date and the Company
agrees to such request.  The Company, in
its sole discretion, may provide an investment facility for all or a portion of
such deferred amounts, but shall not be required to do so.

 

(d)                                 Supplemental
Deferral.  The Company shall credit
to a bookkeeping account in the name of the Executive an annual supplemental
deferral amount of $200,000 on January 1, 2003 and each January 1
thereafter during the Term, of Employment. 
This supplemental deferral is established in recognition of pension
benefits forgone as a result of the Executive’s termination of employment with
his prior employer to accept employment with the Company.  Such amounts shall be credited with interest
as of each June 30 for the duration of this supplemental pension
bookkeeping account, compounded annually, at a rate per annum equal to the annual
rate of interest announced by Citibank N.A. in New York, New York as its base
rate in effect on such June 30, but in no event shall such rate exceed
9%.  The entire amount credited to such
bookkeeping account shall be paid to the Executive (subject to all applicable
withholding taxes) on a date to be chosen by the Company, but in no event later
than ninety (90) days after the termination of the Executive’s employment with
the Company, unless the Executive requests prior to termination of his
employment from the Company to defer payment of such amounts until a later date
and the Company agrees to such request. 
The Company,

 

6

 

in its sole
discretion, may provide an investment facility for all or a portion of such
supplemental pension amounts, but shall not be required to do so.

 

(e)                                  Treatment
of Loan Under Prior Agreement.  The
loan in the principal amount of $1,500,000 previously made to the Executive
pursuant to Section 3(d) of the Prior Agreement shall, as contemplated by
the Prior Agreement, be forgiven in its entirety on June 30, 2004, and all
accrued interest on such loan shall continue to be capitalized and forgiven
annually as provided in Section 3(d) of the Prior Agreement.  In the event of any earlier termination of
the Executive for any reason other than for Cause (as defined below), the
foregoing loan shall be forgiven as set forth in Section 5(h)(Y) of the
Prior Agreement.

 

4.                                       Share
Incentive Plan.

 

(a)                                  Stock
Options.  The Executive shall
participate in the Company’s Fiscal 2002 Share Incentive Plan or successor plan
(“Share Incentive Plan”) according to the terms thereof, and subject to the
provisions of Section 6(h) hereof. 
The Company shall recommend to the Stock Plan Subcommittee of the Compensation
Committee of the Board of Directors that the Executive be awarded under the
terms and conditions of the Share Incentive Plan (which are incorporated herein
by reference) and subject to the provisions of Section 6(h) below, no
fewer than 100,000 options to purchase shares of the Company’s Class A Common
Stock (“Stock Options”) in respect of each of the subsequent Contract
Years.  The terms of the Stock Options
shall be set forth in a separate grant letter approved by the Stock Plan
Subcommittee of the Compensation Committee of the Board of Directors.

 

7

 

(b)                                 Certain
Conditions.  The Executive
acknowledges and agrees that any grant of Stock Options otherwise provided for
in this Section 4 shall be effective as provided herein only to the extent
permitted by the Fiscal 2002 Share Incentive Plan, and this Agreement shall not
obligate the Company to adopt any successor plan providing for the grant of
Stock Options (or substantially similar benefits).

 

5.                                       Benefits.

 

(a)                                  Standard
Benefits.  During the Term of
Employment, the Executive shall be entitled to (i) participate in any and all
benefit programs and arrangements now in effect and hereinafter adopted and
made generally available by the Company to its senior officers, including but
not limited to the Estee Lauder Companies 401(k) Savings Plan (the “401(k)
Savings Plan”), the Estee Lauder Companies Retirement Growth Account Plan (the
“Qualified Plan”), the related Estee Lauder Companies Restoration Plan (the
“Non-Qualified Plan”), contributory and non-contributory Company welfare and
benefit plans, disability plans, and medical, death benefit and life insurance
plans for which the Executive shall be eligible, or may become eligible during
the Term of Employment; and (ii) paid vacations during each year of the Term of
Employment in accordance with the policies and procedures of the Company as in
effect from time to time for its senior officers.

 

(b)                                 Additional
Insurance.  Pursuant to
Section 4(b) of the Company’s Prior Agreement with the Executive, the Company
has provided to the Executive, additional executive life insurance in the
amount of $5,000,000, and the Company shall continue to pay all premiums with
respect to such life insurance.  The
Executive

 

8

 

acknowledges that
this coverage will result in the receipt by him of additional taxable income.

 

(c)                                  Perquisite
Reimbursement; Financial Counseling. 
The Company shall reimburse the Executive for the actual expenses
incurred by him in connection with his professional standing, in accordance
with the guidelines set out in the Company’s executive perquisites
program.  In no event shall the gross
amount of such reimbursements be greater than $15,000 in respect of any fiscal
year during the Term of Employment. 
Additionally, the Executive will be provided financial consulting
services through a firm chosen by the Company. 
The Executive acknowledges that participation in such programs will
result in the receipt by him of additional taxable income.

 

(d)                                 Executive
Auto.  The Executive will
participate in the Executive Automobile program of the Company, and may elect
to be provided an automobile having an acquisition value of up to $50,000.  Executive acknowledges that participation in
this program will result in the receipt by him of additional taxable income.

 

(e)                                  Expenses.  The Company agrees to reimburse the
Executive for all reasonable and necessary travel (including first class air
fare), business entertainment and other business out-of-pocket expenses incurred
or expended by him in connection with the performance of his duties hereunder
upon presentation of proper expense statements or vouchers or such other
supporting information as the Company may reasonably require of the Executive.  The Company agrees to reimburse the
Executive for his legal fees and expenses in connection with the review,
negotiation and preparation of this Agreement and any related agreements in
respect of the Executive’s employment with the Company in an amount up to
$7,500.

 

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(f)                                    Spousal
Travel.  The Executive may upon
prior approval of the Chief Executive Officer or his designee arrange for his
spouse to accompany him on business related travel itineraries, on a reasonable
basis, at Company expense.

 

6.                                       Termination.

 

(a)                                  Permanent
Disability.  In the event of the
“permanent disability” (as hereinafter defined) of the Executive during the
Term of Employment, the Company shall have the right, upon written notice to
the Executive, to terminate the Executive’s employment hereunder, effective
upon the giving of such notice (or such later date as shall be specified in
such notice).  In the event of such
termination, the Executive shall be entitled (i) to receive any amounts or
benefits to which the Executive may otherwise have been entitled but for the
Executive’s permanent disability prior to the effective date of termination;
(ii) to be paid his Base Salary as established under Section 3(a) hereof
for a period of one (1) year
from the effective date of termination; provided, however,
that the Company shall only be required to pay that amount of the
Executive’s Base Salary which shall not be covered by pension benefits or
long-term disability payments, if any, to the Executive under any Company plan
or arrangement; and (iii) to receive a pro-rata portion of the annual bonus
that the Executive would have been entitled to receive had he remained in
employment through the end of the Contract Year during which the termination
due to permanent disability occurred. 
In addition, upon termination for permanent disability, the Executive
shall continue to participate in any and all pension, insurance and other
benefit plans and programs of the Company during the period the Executive is
continuing to receive his Base Salary in accordance with this
Section 6(a).  Thereafter, the
Executive’s rights to participate in such programs and plans, or to receive

 

10

 

similar coverage,
if any, shall be as determined under such programs; provided, however, that, except as otherwise
provided in this Section 6(a), the Company will have no further
obligations under Sections 3(b) or 4 hereof. 
For purposes of this Section 6(a), “permanent disability” means any
disability as defined under the Company’s applicable disability insurance
policy or, if no such policy is available, any physical or mental disability or
incapacity that renders the Executive incapable of performing the services
required of him in accordance with his obligations under Section 2 hereof
for a period of six (6) consecutive months or for shorter periods aggregating
six (6) months during any twelve-month period.

 

(b)                                 Death.  In the event of the death of the Executive
during the Term of Employment, this Agreement shall automatically
terminate.  In the event of such
termination, the Company shall have no further obligations hereunder, except to
pay the Executive’s beneficiary or legal representative (i) for a period of one
(1) year from the date of his death, the Executive’s Base Salary as established
under Section 3(a) hereof as of the date of his death; (ii) (A) bonus
compensation earned but not paid under Section 3(b) hereof that relates to
any Contract Year ending prior to the date of his death and (B) a one-time
payment equal to fifty percent (50%) of the average annual bonuses paid or
payable during the Term of Employment in accordance with Section 3(b)
hereof, except that if the Executive dies during the First Contract Year, the
sum of $650,000; and (iii) any other amounts to which the Executive otherwise
would have been entitled to hereunder prior to the date of his death; provided, however, that, except as otherwise
provided in this Section 6(b), the Company will have no further
obligations under Section 3(b) hereof.

 

11

 

(c)                                  Termination
Without Cause.  The Company shall
have the right, upon one hundred and twenty (120) days’ prior written notice
given to the Executive, to terminate the Executive’s employment for any reason
whatsoever during the Term of Employment. 
In the event of termination, pursuant to this Section 6(c), for a
period ending on the latest to occur of (x) a date one (1) year from the
effective date of termination, (y) June 30, 2005, or (z) the conclusion of
a severance period consistent with Company policy (which in no event will
exceed two years), the Executive shall be entitled as damages to (i) receive
his Base Salary as established under Section 3(a) hereof as of the date of
such termination; and (ii ) participate
in all pension, insurance and other benefit plans, programs or arrangements, on
terms identical to those applicable to full-term senior officers of the
Company.  In addition, he shall receive
a one-time payment equal to fifty percent (50%) of the average of the actual
annual bonuses paid or payable to the Executive during the Term of Employment
in accordance with Section 3(b) hereof, or, if such termination occurs
prior to the payment of any bonus hereunder, the sum of $650,000.  Except as otherwise provided in this
Section 6(c), the Company will have no further obligations under Sections
3(b) and 4 hereof.  In the event of
termination pursuant to this Section 6(c), the Executive shall not be
required to mitigate his damages hereunder.

 

(d)                                 Cause.  The Company shall have the right, upon
written notice to the Executive, to terminate the Executive’s employment under
this Agreement for “Cause” (as hereinafter defined), effective upon the giving
of such notice (or such later date as shall be specified in such notice), and
the Company shall have no further obligations hereunder, except to pay the
Executive any amounts otherwise payable

 

12

 

pursuant to
Section 3 hereof and provide the Executive any benefits to which the
Executive may have been otherwise entitled prorated to the effective date of
termination.  The Executive’s right to
participate in any of the Company’s retirement, insurance and other benefit
plans and programs shall be as determined under such programs and plans; provided, however, that, except as otherwise
provided in this Section 6(d), the Company will have no further
obligations under Sections 3(b) and 4 hereof.

 

For purposes of this Agreement, “Cause” means only:

 

(i)                                     fraud,
embezzlement or gross insubordination on the part of the Executive or material
breach by the Executive of his obligations under Section 7 or 8 hereof
that has a material adverse impact on the business or reputation of the
Company;

 

(ii)                                  conviction
of, or the entry of a plea of nolo  contendere by the Executive
for, any felony;

 

(iii)                               a
material breach of, or the willful failure or refusal by the Executive to
perform and discharge, his duties, responsibilities or obligations under this
Agreement (other than under Sections 7 and 8 hereof, which shall be governed by
clause (i) above, and other than by reason of disability or death) that is not
corrected within thirty (30) days following written notice thereof to the
Executive by the Company, such notice to state with specificity the nature of
the breach, failure or refusal; provided that if such breach, failure or
refusal is capable of correction but cannot reasonably be corrected within
thirty (30) days of written notice thereof, correction shall be commenced by
the Executive within such period and may be completed within a reasonable
period thereafter; or

 

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(iv)                              any
act of moral turpitude or willful misconduct by the Executive which (A) is
intended to result in substantial personal enrichment of the Executive at the
expense of the Company or any of its subsidiaries or affiliates or (B) has a
material adverse impact on the business or reputation of the Company or any of
its subsidiaries or affiliates (such determination to be made by the Company’s
Board of Directors in its reasonable judgment).

 

(e)                                  Termination
by Executive for Good Cause.  The
Executive shall have the right, exercisable by notice to the Company, to
terminate his employment effective thirty (30) days after the giving of such
notice, if, at any time during the Term of Employment, the Company shall be in
material breach of its obligations hereunder (such termination being for “Good
Cause”); provided, however, that
such notice must be provided to the Company within thirty (30) days after the
Executive’s obtaining knowledge of the occurrence of the circumstances giving
rise to such Good Cause; and provided, further, that such
termination will not become effective if within such thirty (30) day notice
period the Company shall have cured all matters constituting Good Cause
hereunder.  For purposes of this
Section 6(d), a material breach shall include, but not be limited to, (i) a material reduction in the
Executive’s authority, functions, duties or responsibilities provided in
Section 2 hereof; (ii) the Company’s failure to cause the Executive to
serve in the position set forth in Section 1 hereof for any time period in
which he is entitled to so serve or any change in the Executive’s direct
reporting to the Chief Executive Officer of the Company; (iii) the failure of
the Company to make payments of base salary or annual incentive bonus set out
in Section 3, above, according to the terms such Section, and (iv) the
relocation of the Executive’s primary place of

 

14

 

employment from
the New York metropolitan area without the approval of the Executive.  A termination pursuant to the terms of this
Section 6(d) shall be deemed to be a termination by the Company without
cause and shall be controlled by the provisions of Section 6(c) hereof.

 

(f)                                    Failure
to Renew.  In the event that this
Agreement shall expire by its terms and thereafter the Company shall not offer
to continue the employment of Executive on terms not less favorable to
Executive as existing as of the date of such expiry, the termination of
Executive occasioned by such expiration shall be deemed to be a Termination
Without Cause by the Company, and the provisions of subparagraph 6(c) above
shall control.

 

(g)                                 Termination
by Executive for Reasons Other than Good Cause.  The Executive shall have the right, exercisable at any time
during the Term of Employment, to terminate his employment for any reason other
than for Good Cause as provided for in Section 6(e) hereof, upon ninety
(90) days’ prior written notice to the Company.  Upon such termination, the Company shall have no further
obligations hereunder other than to pay the Executive his accrued benefits through
the date of such termination.

 

(h)                                 Certain
Limitations.  Notwithstanding
anything to the contrary contained herein, in the event that any payment
received or to be received by the Executive pursuant to Section 6 hereof
or otherwise (a “Severance Payment”) would be subject to the excise tax (the “Excise
Tax”) imposed by Section 4999 of the Code (in whole or part), the
Severance Payment shall be reduced (but not below zero) until no portion of
such payments would be subject to Excise Tax.

 

15

 

(i)                                     Effect
of Termination.  In addition to the
foregoing, in the event that this Agreement shall be terminated pursuant to the
provisions of subparagraphs 6(a), 6(b), 6(c), 6(e) or 6(f) above,
notwithstanding anything to the contrary contained in the Company’s Share
Incentive Plan or other similar option plan, all Stock Option awards previously
made to the Executive shall vest and become immediately exercisable for the one
(1) year period from the effective date of such termination, after which all
such option awards shall expire and be of no further force or effect.  Subject to the preceding sentence, upon the
termination of the Executive’s employment hereunder for any reason, the Company
shall have no further obligations hereunder, except as otherwise provided in
this Agreement.  In the event of any
termination of this Agreement, the Executive shall continue to have the
obligations provided for in Sections 7 and 8 hereof.  Furthermore, upon such termination, the Executive shall be deemed
to have resigned immediately from all offices and directorships held by him in
the Company or any of its subsidiaries.

 

7.                                       Confidentiality;
Ownership.

 

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

 

(i)                                     “Protected
Information” means trade secrets, confidential or proprietary information and
all other knowledge, know-how, information, documents or

 

16

 

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

 

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

 

17

 

counsel, and in
connection with a determination under Section 6(h), to accounting experts;
provided that the Executive shall provide the Company with prompt notice
of such required disclosure in advance thereof so that the Company may seek an
appropriate protective order in respect of such required disclosure.

 

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

 

18

 

programs,
software, source and programming narratives and other documentation (and all
copies thereof) made or compiled by the Executive or made available to the
Executive concerning the Developments or otherwise concerning the Business or
planned business of the Company or any of its subsidiaries or affiliates shall
be the property of the Company or such subsidiaries or affiliates and shall be
delivered to the Company or such subsidiaries or affiliates promptly upon the
expiration or termination of the Term of Employment.

 

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

 

8.                                       Covenant
Not to Compete.  Subject to the next
to last sentence of this Section 8, the Executive agrees that during the
Term of Employment and for a period of one (1) year commencing upon the
expiration or termination of the Executive’s employment hereunder (the
“Non-Compete Period”), the Executive shall not, directly or indirectly, without
the prior written consent of the Company:

 

(a)                                  solicit,
entice, persuade or induce any employee, consultant, agent or independent
contractor of the Company or of any of its subsidiaries or affiliates to terminate
her or his employment with the Company or such subsidiary or affiliate, to
become employed by any person, firm or corporation other than the Company or
such subsidiary or affiliate or approach any such employee, consultant, agent
or independent contractor for any of the foregoing purposes, or authorize or
assist in the taking of any such actions by any third party (for purposes of
this Section 8(a), the terms “employee,”

 

19

 

“consultant,”
“agent” and “independent contractor” shall include any persons with such status
at any time during the six (6) months preceding any solicitation in question);
or

 

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

 

(c)                                  During
the Non-Compete Period, the Company shall pay or cause to be paid to the
Executive his Base Salary under Section 3(a) hereof for that portion of
the Non-Compete Period during which the Executive is required to comply and
does comply with the provisions of this Section 8.

 

(d)                                 Notwithstanding
the foregoing, the Executive shall not be subject to the terms and provisions
of Section 8(b) hereof if the Term of Employment is terminated pursuant to
Section 6(c), 6(e) or 6(f) hereof.

 

9.                                       Specific
Performance.  The Executive
acknowledges that the services to be rendered by the Executive are of a
special, unique and extraordinary character and, in connection with such
services, the Executive will have access to

 

20

 

confidential
information vital to the Company’s Business and the other current or planned
businesses of it and its subsidiaries and affiliates.  By reason of this, the Executive consents and agrees that if the
Executive violates any of the provisions of Sections 7 or 8 hereof, the Company
and its subsidiaries and affiliates would sustain irreparable injury and that
monetary damages would not provide adequate remedy to the Company and that the
Company shall be entitled to have Section 7 or 8 hereof specifically
enforced by any court having equity jurisdiction.  Nothing contained herein shall be construed as prohibiting the
Company or any of its subsidiaries or affiliates from pursuing any other
remedies available to it for such breach or threatened breach, including the
recovery of damages from the Executive.

 

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

 

11.                                 Entire
Agreement.  Except for the Fiscal
2002 Share Incentive Plan, the Executive’s outstanding Stock Option agreements,
the Executive Annual Incentive Plan, the 401(k) Savings Plan, the insurance
arrangement between the Company and the Executive, the Qualified Plan and the
Non-Qualified Plan and

 

21

 

applicable
successor plans or agreements, and the applicable provisions of the Prior
Agreement referenced herein, this Agreement embodies the entire agreement of
the parties with respect to the Executive’s employment, compensation, benefits
and perquisites and related items and supersedes any other prior oral or
written agreements, arrangements or understandings between the Executive and
the Company or any of its subsidiaries or affiliates, and any such prior
agreements, arrangements or understandings are hereby terminated and of no
further effect.  This Agreement may not
be changed or terminated orally but only by an agreement in writing signed by
the parties hereto.

 

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

 

13.                                 Governing
Law; Jurisdiction.

 

(a)                                  This
Agreement shall be subject to, and governed by, the laws of the State of New
York applicable to contracts made and to be performed therein.

 

(b)                                 Any
action to enforce any of the provisions of this Agreement shall be brought in a
court of the State of New York located in the Borough of Manhattan of the City
of New York or in a Federal court located within the Southern District of New
York.  The parties consent to the
jurisdiction of such courts and to the service of process in any manner
provided by New York law.  Each party
irrevocably waives any objection which it may now or hereafter have to the
laying of the venue of any such suit, action or proceeding

 

22

 

brought in such
court and any claim that such suit, action or proceeding brought in such court
has been brought in an inconvenient forum and agrees that service of process in
accordance with the foregoing sentences shall be deemed in every respect
effective and valid personal service of process upon such party.

 

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

 

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

 

23

 

or remaining part
thereof, or the validity or enforceability of this Agreement, which shall be
given full effect without regard to the invalid or unenforceable part thereof.

 

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

 

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

 

The Company:

 

The Estée Lauder Companies Inc.

767 Fifth Avenue

New York, New York 10153

Tel:                            (212)
572-4200

Fax:                           (212)
572-3963

Attn:                    Senior Vice
President – Global Human
Resources

 

The Executive:

 

Philip A. Shearer

[address]

 

With a Copy to:

 

Mason H. Drake, Esq.

Wollmuth Maher & Deutsch, LLP

500 Fifth Avenue

New York, NY 10110

Tel:                            (212)
382-3300

Fax:                           (212)
382-0050

 

24

 

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

 

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

 

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

 

25

 

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

 

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

 

	
   

  	
  THE ESTÉE LAUDER COMPANIES INC.

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Andrew J. Cavanaugh

  
	
   

  	
   

  	
  Andrew J. Cavanaugh

  
	
   

  	
   

  	
  Senior Vice President – Global

  
	
   

  	
   

  	
  Human Resources

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  /s/ Philip A. Shearer

  	
   

  	
   

  	
   

  
	
  Philip A. Shearer

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Date:

  	
  5.29.03

  	
   

  	
   

  	
   

  
						

 

26

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