Document:

EXHIBIT 10.7

 

THE ESTEE LAUDER COMPANIES INC.

 

EXECUTIVE ANNUAL INCENTIVE PLAN

 

1.               PURPOSE.

 

The principal
purposes of The Estee Lauder Companies Inc. Executive Annual Incentive Plan
(the “Plan”) are to provide incentives and rewards to the Executive Officers of
The Estee Lauder Companies Inc. (the “Company”), including those who may be
employed by any of the Company’s subsidiaries and affiliates, and to assist the
Company in motivating them to achieve the Company’s annual performance goals.

 

2.               ADMINISTRATION OF THE PLAN.

 

The
Plan will be administered by a committee (the “Committee”) appointed by the
Board of Directors of the Company from among its members (which may be the
Compensation Committee) and shall be comprised, unless otherwise determined by
the Board of Directors, solely of not less than two members who shall be “outside
directors” within the meaning of Treasury Regulation Section 1.162-27(e)(3) under
Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”).

 

The
Committee shall have all the powers vested in it by the terms of this Plan,
such powers to include authority (within the limitations described herein) to
select the persons to be granted opportunities under the Plan, to determine the
time when opportunities will be granted, to determine whether objectives and
conditions for achieving an opportunity have been met, to determine whether
opportunities will be paid out at the end of the opportunity period or
deferred, and to determine whether an opportunity or payout of an opportunity
should be reduced or eliminated.

 

The
Committee shall have full power and authority to administer and interpret the
Plan and to adopt such rules, regulations, agreements, guidelines and
instruments for the administration of the Plan and for the conduct of its
business as the Committee deems necessary or advisable. The Committee’s
interpretations of the Plan, and all actions taken and determinations made by
the Committee pursuant to the powers vested in it hereunder, shall be
conclusive and binding on all parties concerned, including the Company, its
stockholders and any person granted an opportunity under the Plan.

 

The
Committee may delegate all or a portion of its administrative duties under the
Plan to such officers or other employees of the Company as it shall determine;
provided, however, that no delegation shall be made regarding the selection of
Executive Officers of the Company who shall be granted opportunities under the
Plan, the amount and timing thereof, or the objectives and conditions
pertaining thereto.

 

 

3.               ELIGIBILITY.

 

The Committee, in its discretion, may grant
opportunities to Executive Officers for each fiscal year of the Company as it
shall determine. For purposes of the Plan, Executive Officers shall be defined
as those persons who shall be denoted as such from time to time by the Company
in the Company’s filings with the Securities and Exchange Commission and those
other persons as may be designated as such from time to time by the
Compensation Committee. Executive Officers granted opportunities for a fiscal
year of the Company are referred to as “participants” for such fiscal year.

 

4.               OPPORTUNITIES.

 

(a)          Setting of Opportunities. For each fiscal year of the
Company commencing with the fiscal year beginning July 1, 2003, each
participant shall be granted an opportunity (or opportunities) under the Plan
as soon as practicable after the start of such fiscal year and no later than 90
days after the commencement of such fiscal year; provided, however, that if an
individual becomes eligible to participate during a fiscal year and after such
90 day period that individual may be granted an opportunity (or opportunities)
for a portion of such fiscal year ending on the last day of such fiscal year if
such opportunity (or opportunities) is granted after no more than 25% of the
period of service to which the opportunity (or opportunities) relates has
elapsed. The aggregate of opportunities shall be limited to 200% of the annual
base salary of the participant (except in the case of the Chief Executive
Officer of the Company to whom such limitation shall not apply) and shall not
exceed the amount provided for in Section 4(f) hereof.

 

(b)         Performance Targets. For each fiscal year of the Company
commencing with the fiscal year beginning July 1, 2003, the annual
performance target for each opportunity shall be determined by the Committee in
writing, by resolution of the Committee or other appropriate action, not later
than 90 days after the commencement of such fiscal year, and each such performance
target shall state, in terms of an objective formula or standard, the method
for computing the amount of compensation payable to the applicable participant
if such performance target is attained; provided, however, that if an
individual becomes eligible to participate during a fiscal year and after such
90 day period that individual’s performance target (or targets) may be
determined by the Committee in writing, by resolution of the Committee or other
appropriate action, after no more than 25% of the period of service to which
the performance target (or targets) relates has elapsed. The annual performance
target for each opportunity shall be based on achievement of hurdle rates,
targets and/or growth in one or more business criteria that apply to the individual
participant, one or more business units or the Company as a whole. The business
criteria shall be as follows, individually or in combination: (i) net
earnings; (ii) earnings per share; (iii) net sales; (iv) market
share; (v) net operating profit; (vi) expense control; (vii) working
capital relating to inventory and/or accounts receivable; (viii) operating
margin; (ix) return on equity; (x) return on assets; (xi) planning
accuracy (as measured by comparing planned results to actual results); (xii) market
price per share; and (xiii) total

 

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return
to stockholders. In addition, the annual performance targets may include
comparisons to performance at other companies, such performance to be measured
by one or more of the foregoing business criteria.

 

(c)          Payout of Opportunities. As a condition to the right of a
participant to receive cash payout of an opportunity granted under this Plan,
the Committee shall first be required to certify in writing, by resolution of
the Committee or other appropriate action, that the achievement of the
opportunity has been accurately determined in accordance with the provisions of
this Plan. Opportunities for a fiscal year shall be payable as soon as
practicable following the certification thereof by the Committee for such
fiscal year.

 

(d)         Discretion. After an opportunity has been granted, the
Committee shall not increase such opportunity, and after a performance target
has been determined, the Committee shall not revise such performance target.
Notwithstanding the attainment by the Company and a participant of the
applicable targets, the Committee has the discretion, by participant, to
reduce, prior to the certification of the opportunity, some or all of an
opportunity that otherwise would be paid.

 

(e)          Deferral. The Committee may determine that the payout of an
opportunity or a portion of an opportunity shall be deferred, the periods of
such deferrals and any interest, not to exceed a reasonable rate, to be paid in
respect of deferred payments. The Committee may also define such other
conditions of payouts of opportunities as it may deem desirable in carrying out
the purposes of the Plan.

 

(f)            Maximum Payout per Fiscal Year. No individual participant
may receive aggregate opportunities or a payout under the Plan which are more
than $5 million on account of any fiscal year.

 

5.               MISCELLANEOUS PROVISIONS.

 

(a)          Guidelines.  The
Committee may adopt from time to time written policies for its implementation
of the Plan.

 

(b)         Withholding Taxes. 
The Company (or the relevant subsidiary or affiliate) shall have the
right to deduct from all payouts of opportunities hereunder any federal, state,
local or foreign taxes required by law to be withheld with respect to such
payouts.

 

(c)          No Rights to Opportunities. 
Except as set forth herein, no Executive Officer shall have any claim or
right to be granted an opportunity under the Plan. Neither the Plan nor any
action taken hereunder shall be construed as giving any Executive Officer any
right to be retained in the employ of the Company or any of its subsidiaries,
divisions or affiliates.

 

(d)         Costs and Expenses. The cost and expenses of administering
the Plan shall be borne by the Company and not charged to any opportunity or
payout nor to any Executive Officer receiving an opportunity or a payout.

 

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(e)          Funding of Plan. The Plan shall be unfunded. The Company
shall not be required to establish any special or separate fund or to make any
other segregation of assets to assure the payout of any opportunity under the
Plan.

 

(f)            Governing Law.  The
Plan, opportunities granted hereunder and actions taken in connection herewith
shall be governed and construed in accordance with the laws of the State of New
York (regardless of the law that might otherwise govern under the applicable
New York principles of conflict of laws).

 

6.               EFFECTIVE DATE, AMENDMENTS AND TERMINATION.

 

(a)          Effective Date. The Plan shall be effective as of May 28,
2003,  the date on which the Plan was
adopted by the Committee (the “Effective Date”), provided that the Plan is
approved by the stockholders of the Company at an annual meeting or any special
meeting of stockholders of the Company within 12 months of the Effective Date,
and such approval of stockholders shall be a condition to the right of each
participant to receive any opportunities or payouts hereunder. Any
opportunities granted under the Plan prior to such approval of stockholders
shall be effective as of the date of grant (unless, with respect to any
opportunity, the Committee specifies otherwise at the time of grant), but no
such opportunity may be paid out prior to such stockholder approval, and if
stockholders fail to approve the Plan as specified hereunder, any such opportunity
shall be cancelled.

 

(b)         Amendments. The Committee may at any time terminate or from
time to time amend the Plan in whole or in part, but no such action shall
adversely affect any rights or obligations with respect to any opportunities
theretofore granted under the Plan. Unless the stockholders of the Company
shall have first approved thereof, no amendment of the Plan shall be effective
which would: (i) increase the maximum amount which can be paid to any
participant under the Plan; (ii) change the types of business criteria on
which performance targets are to be based under the Plan; or (iii) modify
the requirements as to eligibility for participation in the Plan.

 

(c)          Termination. No opportunities shall be granted under the
Plan after ten (10) years after the Effective Date.

 

4EXHIBIT 10.12

 

EMPLOYMENT
AGREEMENT

 

THIS AGREEMENT (“Agreement”), dated
as of July 1, 2004, between THE ESTÉE LAUDER COMPANIES INC., a Delaware
corporation (the “Company”), and PATRICK BOUSQUET-CHAVANNE, 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 skin care, makeup, fragrance and hair care products and
related services (the “Business”); and

 

WHEREAS, the Company desires to
continue to retain the services of the Executive, and to appoint him 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 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:

 

1.             Employment Term.

 

The Company hereby agrees to employ
the Executive, and the Executive hereby agrees to enter into employment, as
Group President of the Company for the period commencing on July 1, 2004 and
ending June 30, 2007 unless terminated sooner pursuant to Section 6
hereof (the “Term of Employment”).  The
twelve-month period commencing on July 1, 2004 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, he 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
from time to time.  In such capacity, he
shall render such executive, managerial, administrative and other services as
customarily are associated with and incident to such positions, and as the
Company may, from time to time, reasonably require of him consistent with such
positions.

 

(b)           The Executive shall also hold
such other positions and executive offices of the Company and/or of any of the
Company’s subsidiaries or affiliates as may from time to time be agreed by the
Executive or assigned by the President and Chief Executive Officer of the
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.  The Executive shall not be entitled to any
compensation other than the compensation provided for herein for serving during
the Term of Employment in any other office or position of the Company or any of
its subsidiaries or affiliates, unless the Board of Directors of the Company or
the appropriate committee thereof shall specifically approve such additional
compensation.

 

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

 

3.             (a) Base Salary.  As compensation for all services to be
rendered pursuant to this Agreement and as payment for the rights and interests
granted by Executive hereunder, the Company shall pay or cause any of its
subsidiaries to pay the Executive a base salary of $83,333.33 per month (which
equates to $1,000,000 per annum) (the “Base Salary”).  All amounts of Base Salary provided for
hereunder shall be payable in accordance with the regular payroll policies of
the Company in effect from time to time.

 

(b)           Incentive Bonus Compensation.  The Compensation Committee has established
for the Executive annual opportunities under the Company’s Executive Annual
Incentive Plan or any subsequent Bonus Plan for executives that is approved by
the stockholders of the Company (the “Bonus Plan”) with aggregate target
payouts of $1,750,000 in respect of the First Contract Year, $1,900,000 in
respect of the Second Contract Year and $2,000,000 in respect of the Third
Contract Year, subject to the terms and conditions of the Bonus Plan, which are
incorporated herein by reference.

 

(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 such earlier date as may be
necessary to comply with the applicable tax laws and regulations).  Additionally, in the event that in respect of
any fiscal year of the Company any amount of Base Salary, any amount payable
under the 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 of 1986, 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 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 on a date to be chosen by the Company, but in no event

 

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later than 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 or dates 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.

 

4.             (a)   Stock Options.  The Stock Plan Subcommittee of the Compensation
Committee has approved the grant to the Executive of options to purchase no
fewer than 100,000 shares of the Company’s Class A Common Stock (“Stock
Options”) under the Fiscal 2002 Share Incentive Plan (the “Share Incentive Plan”)
and subject to the provisions of
Section 6(i) below in respect of the First Contract Year. Such grant shall be
made at such time during the Contract Year determined by Stock Plan
Subcommittee.  The option grant is
subject to the terms and conditions of the Share Incentive Plan (or applicable
successor plan), which are incorporated herein by reference.  The terms of the options shall be set forth
in a separate grant letter approved by the Stock Plan Subcommittee of the
Compensation Committee.

 

(b)   Equity-Based
Compensation.  In respect of the
Second and Third Contract Years, the Company shall recommend to the Stock Plan
Subcommittee of the Compensation Committee that the Executive be awarded under
the terms and conditions of the Fiscal 2002 Share Incentive Plan (which are
incorporated herein by reference) or successor plan and subject to the
provisions of Section 6(i) below Equity-Based Compensation awards in
accordance with the policies and procedures of the Company as in effect from
time to time for its Executive Officers. The terms of such Equity-Based
Compensation awards shall be set forth in a separate grant letter approved by
the Stock Plan Subcommittee of the Compensation Committee.  The recommended equity-based compensation
awards shall be of an equivalent value to a grant of stock option with respect
to 100,000 shares of the Company’s Class A Common Stock determined in
accordance with procedures generally utilized by the Company for its financial
reporting at the time of grant.

 

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

 

5.             Benefits.

 

(a)           Standard Benefits. 
During the Term of Employment, the Executive shall be entitled to (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 Inc. Benefit
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; (ii) participate in the
Company’s automobile program now in effect and hereinafter adopted and
generally made available by the Company

 

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to its senior officers and, in accordance with such program, may elect
to be provided with an automobile having an acquisition value of up to $50,000;
and (iii) 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. 
The prior services of the Executive with the Company or its subsidiaries
shall be recognized for all purposes related to employment benefit plans of the
Company, in accordance with the provisions of such plans.

 

(b)           Perquisite
Reimbursement; Financial Counseling.  The Company shall reimburse the Executive the
actual expense incurred by him in connection with his professional standing, in
accordance with the guidelines set out in the Company’s executive perquisite
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 reimburse the Executive for up to $5,000
per year in financial counseling services. 
The Executive acknowledges that participation in such programs will
result in the receipt by him of additional taxable income.

 

(c)           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.

 

(d)           Spousal Travel. The Executive may upon prior approval
of the President and 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.  In addition,
during each full year of employment, the Executive will be provided first class
air fare for two round trips from New York to Paris and back to New York for
himself, his wife and his children.

 

(e)           Executive Term Life Insurance. 
During the Term of Employment, the Company shall continue to pay
premiums on the existing term life insurance policy.

 

6.             Termination.

 

(a)           Permanent Disability.  In the event of the “permanent disability” (as
hereinafter defined) of the Executive during the Term of Employment, the
Company shall have the right, upon written notice to the Executive, to
terminate the Executive’s employment hereunder, effective upon the giving of
such notice (or such later date as shall be specified in such notice).  In the event of such termination, the Company
shall have no further obligations hereunder, except that the Executive shall be
entitled (i) to receive any amounts or benefits to which the Executive may
otherwise have been entitled prior to the effective date of termination; (ii) to
be paid his Base Salary 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).

 

4

 

Thereafter, the Executive’s rights to participate in such programs and
plans, or to receive similar coverage, if any, shall be as determined under
such programs; provided, however,
that, except as otherwise provided in this Section 6(a), the Company will
have no further obligations under Sections 3(b) and 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 of actual 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 $875,000;
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 Sections 3(b) hereof.

 

(c)           Termination Without Cause.  The Company shall have the right, upon one
hundred eighty (180) days’ prior written notice given to the Executive, to
terminate the Executive’s employment for any reason whatsoever.  In the event of such termination, 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, 2007, 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; 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 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 $875,000.  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 notice
to the Executive, to terminate the Executive’s employment under this Agreement
for “Cause” (as defined below), effective upon the Executive’s receipt of such
notice (or such later date as shall be specified in such notice), and the
Company shall have no further obligations hereunder, except to pay the
Executive any amounts otherwise payable 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.

 

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For purposes of this Agreement, “Cause”
means:

 

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

 

(ii)           willful misconduct by the
Executive, unrelated to the Company or any of its subsidiaries or affiliates,
that could reasonably be anticipated to have an adverse effect on the Company
or any of its subsidiaries or affiliates;

 

(iii)          the Executive’s gross
negligence, whether related or unrelated to the business of the Company or any
of its subsidiaries or affiliates which could reasonably be anticipated to have
an adverse effect on the Company or any of its subsidiaries or affiliates that,
if capable of correction, is not corrected within ten (10) business days
following notice thereof to the Executive by the Company, such notice to state
with specificity the nature of the conduct complained of;

 

(iv)          the Executive’s failure to
follow a lawful directive of the chief Executive Officer of the Company that is
within the scope of the Executive’s duties for a period of ten (10) business
days after notice from the Chief Executive Officer specifying the performance
required;

 

(v)           any violation by the
Executive of a policy contained in the Code of Conduct of the Company; or

 

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

 

(e)           Termination by Executive.  The Executive shall have the right, exercisable
at any time during the Term of Employment, to terminate his employment for any
reason whatsoever with six (6) months’ 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.

 

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

 

6

 

(g)           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.

 

(h)           Non-Renewal.  In the event the Company does not offer the
Executive the renewal of the Term of Employment on the basis of terms no less
favorable than those pending at the time of the conclusion of the Term of
Employment, the Executive shall be entitled to a severance arrangement
providing Base Salary and continuation of certain benefits for the greater of
one year or such period consistent with Company policy at that time (which in
no event will exceed two years).

 

(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),   or 6(h) 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, subject to
the applicable share incentive plan and option agreement provisions, 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
herein.  The Executive, however, 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.

 

(j)            Relocation.  In the event of termination of the Executive’s
employment hereunder for any reasons other than for “Cause” pursuant to Section 6(d) hereof,
including non-renewal, the Company shall reimburse the Executive for the actual
cost of relocating Executive and his family from the New York area to Paris,
France.  Such reimbursement shall be
subject to Executive actually undertaking relocation within one year from the
termination of his employment.  In no
event shall such reimbursement exceed the gross amount of $50,000.

 

7.             Confidentiality; Ownership.

 

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

 

(i)            “Protected Information” means
trade secrets, confidential or proprietary information and all other knowledge,
know-how, information, documents or materials owned, developed or possessed by
the Company or any of its subsidiaries or affiliates, whether in tangible or
intangible form, pertaining to the Business or any other business or proposed

 

7

 

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

 

(ii)           “Unauthorized” means: (A) in
contravention of the policies or procedures of the Company or any of its subsidiaries
or affiliates; (B) otherwise inconsistent with the measures taken by the
Company or any of its subsidiaries or affiliates to protect their interests in
any Protected Information; (C) in contravention of any lawful instruction
or directive, either written or oral, of an employee of the Company or any of
its subsidiaries or affiliates empowered to issue such instruction or
directive; or (D) in contravention of any duty existing under law or
contract. Notwithstanding anything to the contrary contained in this Section 7,
the Executive may disclose any Protected Information to the extent required by
court order or decree or by the rules and regulations of a governmental
agency or as otherwise required by law or to his legal counsel and, in
connection with a determination under Section 6(h), to accounting experts;
provided that the Executive shall provide the Company with prompt notice
of such required disclosure in advance thereof so that the Company may seek an
appropriate protective order in respect of such required disclosure.

 

(b)           The Executive acknowledges
that all developments, including, without limitation, inventions (patentable or
otherwise), discoveries, formulas, improvements, patents, trade secrets,
designs, reports, computer software, flow charts and diagrams, procedures,
data, documentation, ideas and writings and applications thereof relating to
the Business or any business or planned business of the Company or any of its
subsidiaries or affiliates that, alone or jointly with others, the Executive
may conceive, create, make, develop, reduce to practice or acquire during the
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, 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.

 

8

 

(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 last sentence of this Section 8,
the Executive agrees that during the Term of Employment and for a period of two
(2) years 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 his, her or its
employment with the Company or such subsidiary or affiliate, to become employed
by any person, firm or corporation other than the Company or such subsidiary or
affiliate or approach any such employee, consultant, agent or independent
contractor for any of the foregoing purposes, or authorize or assist in the taking
of any such actions by any third party (for purposes of this Section 8
(a), the terms “employee,” “consultant,” “agent” and “independent contractor”
shall include any persons with such status at any time during the six (6) months
preceding any solicitation in question); or

 

(b)           directly or indirectly
engage, participate, or make any financial investment in, or become employed by
or render consulting, advisory or other services to or for any person, firm,
corporation or other business enterprise, wherever located, which is engaged,
directly or indirectly, in competition with the Business or any business of the
Company or any of its subsidiaries or affiliates as conducted or any business
proposed to be conducted at the time of the expiration or termination of the
Executive’s employment hereunder; 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 0.5% of the aggregate voting power of such business
enterprise.

 

Notwithstanding the foregoing, the
Executive shall not be subject to the terms and provisions of paragraph (b) of
this Section 8 if the Term of Employment is terminated pursuant to Section 6(c) 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 confidential information vital to the Company’s Business and the other
current or planned businesses of it and its subsidiaries and affiliates.  By reason of this, the Executive consents and
agrees that if the Executive violates any of the provisions of Sections 7 or 8
hereof, the Company and its subsidiaries and affiliates would sustain
irreparable injury and that monetary damages would not provide adequate remedy
to the Company and that the Company shall be entitled to have Section 7 or
8 hereof specifically enforced by any court having equity jurisdiction.  Nothing contained herein shall be construed
as prohibiting the Company or any of its subsidiaries or affiliates from
pursuing any other remedies available to it or them for such breach or
threatened breach, including the recovery of damages from the Executive.

 

9

 

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 term life insurance arrangement
between the Company and the Executive , the loan promissory note dated August 2,
2001 between the Company and the Executive, the Qualified Plan and the
Non-Qualified Plan and applicable successor plans or agreements, this Agreement
embodies the entire agreement of the parties with respect to the Executive’s
employment, compensation, perquisites and related items and supersedes any
other prior oral or written agreements, arrangements or understandings between
the Executive and the Company or any of its subsidiaries or affiliates, and any
such prior agreements, arrangements or understandings are hereby terminated and
of no further effect.  This Agreement may
not be changed or terminated orally but only by an agreement in writing signed
by the parties hereto.

 

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

 

13.           Governing Law; Jurisdiction.

 

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

 

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

 

14.           Assignability.  The obligations of the Executive may not be
delegated and, except with respect to the designation of beneficiaries in
connection with any of the benefits payable to the Executive hereunder, the
Executive may not, without the Company’s written consent thereto, assign,
transfer, convey, pledge, encumber, hypothecate or otherwise dispose of this Agreement
or any interest herein.  Any such
attempted delegation or disposition shall be null and void and without
effect.  The Company and the Executive
agree that this

 

10

 

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 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

Attn:       General Counsel

Tel:         (212) 572-3980

Fax:         (212) 572-3989

 

The Executive:

 

Patrick Bousquet-Chavanne

c/o The Estée Lauder Companies Inc.

767 Fifth Avenue

New York, New York 10153

Tel:         (212) 572- 6945

Fax:         (212) 572- 5414

 

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

 

11

 

by certified or registered mail, three days after deposit
(postage prepaid) with the U.S. mail service.

 

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

 

18.           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.

 

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

  	
   

  
	
   

  	
  Name: Andrew J. Cavanaugh

  
	
   

  	
  Title: 

  	
  Senior Vice President, Global Human

  Resources

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   /s/ Patrick
  Bousquet-Chavanne

  	
   

  
	
   

  	
  Patrick Bousquet-Chavanne

  
					

 

12

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