Exhibit 10.4
EMPLOYMENT AGREEMENT
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THIS AGREEMENT ("Agreement"), dated as of July 1, 2006, between THE ESTEE
LAUDER COMPANIES INC., a Delaware corporation (the "Company"), and RICHARD W.
KUNES, a resident of [ADDRESS] (the "Executive" or "you"),
W I T N E S S E T H:
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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 and the Executive are parties to an employment
agreement dated as of July 1, 2003; and
WHEREAS, the Company desires to continue to retain the services of the
Executive as Executive Vice President, Chief Financial Officer and the Executive
desires to provide 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; and
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.
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The Company hereby agrees to employ the Executive, and the Executive hereby
agrees to enter into employment, as Executive Vice President, Chief Financial
Officer of the Company for the period commencing on July 1, 2006 and ending June
30, 2009 unless terminated sooner pursuant to Section 6 hereof (the "Term of
Employment"). The twelve-month period commencing on July 1, 2006 and ending on
June 30, 2007 shall be the "First Contract Year" hereunder, and subsequent
twelve-month periods shall be subsequent Contract Years.
2. Duties and Extent of Services.
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(a) During the Term of Employment, the Executive shall serve as Executive
Vice President, Chief Financial Officer of the Company reporting to the Chief
Executive Officer, and, in such capacity, shall render such executive,
managerial, administrative and other services as customarily are associated with
and incident to such position, and as the Company may, from time to time,
reasonably require of him consistent with such position.
(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 Chief
Executive Officer or the Executive's direct supervisor if not the Chief
Executive Officer, or the Board of Directors, provided that each such position
shall be commensurate with the Executive's standing in the business community
as Executive Vice President, Chief Financial Officer. 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 Executive Vice President, Chief Financial Officer,
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 Chief Executive Officer or the Board of
Directors of the Company may approve, such approval not to be unreasonably
withheld.
(d) The Executive shall comply with the Company's stock ownership
guidelines applicable to the Executive as they may be implemented and/or amended
by the Board of Directors or the Compensation Committee of the Board of
Directors.
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 (the "Base Salary") during the Term of
Employment subject to the provisions of Section 3(c) below at the annualized
rates not less than the following:
For The First Contract Year $800,000.00
For The Second Contract Year $835,000.00
For The Third Contract Year $870,000.00
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 the target bonus payout for the aggregate
opportunities that may be awarded in respect of each fiscal year of the Company
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") in respect of each Contract Year under this Agreement. The target bonus
payout for the aggregate opportunities in respect of each Contract Year shall be
no less than the following:
For The First Contract Year $650,000.00
For The Second Contract Year $675,000.00
For The Third Contract Year $700,000.00
All such opportunities shall be subject to the terms and conditions of the Bonus
Plan, which are incorporated herein by reference; provided, however, that the
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bonus payout with respect to any
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fiscal year shall be paid to Executive no later than the 15th day of the third
month following the end of such fiscal year.
(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 December 31 of the calendar
year prior to the commencement of such Contract Year (or such earlier date as
may be necessary to comply with the applicable tax laws and regulations);
provided, however, in the case of incentive bonus compensation in respect of any
Contract Year which qualifies as performance-based compensation (within the
meaning of Prop. Reg. Section 1.409A-2(a)(7)) and is based upon a performance
period of at least twelve (12) months, such notice can be given at any time
prior to the date that is six (6) months prior to the end of the applicable
performance period so long as the incentive bonus compensation is not
substantially certain to be paid and readily ascertainable at the time such
election is made. 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 shall 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 (the "Deferred Compensation Account"). 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 amounts credited to such
bookkeeping account on or prior to December 31, 2004 and interest credited
thereon shall be paid in cash to the Executive (or the Executive's designated
beneficiary in the event of death; in each case subject to 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 or dates and the Company agrees to such request. The amounts credited
to the Deferred Compensation Account after December 31, 2004 and interest
credited thereon shall, subject to Section 6(l) hereof, be paid to the Executive
(or to the Executive's designated beneficiary in the event of his death in each
case subject to applicable withholding taxes) on, or as soon as practicable
after, the date of the termination of the Executive's employment with the
Company; provided that the Non-Deductible Amount shall be paid either at the
earliest date at which the Company reasonably expects that the deduction will
not be limited or eliminated by Section 162(m) of the Code or the calendar year
in which the Executive's employment is terminated. 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) Equity-Based Compensation. In respect of each Contract Year,
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
Amended and Restated Fiscal 2002 Share Incentive Plan (the "Share Incentive
Plan"), which are incorporated herein by reference, or successor plan and
subject to the provisions of Section 6(k) 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-
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based compensation awards shall be set forth in separate grant letters approved
by the Stock Plan Subcommittee of the Compensation Committee. The recommended
annual equity-based compensation awards shall be of an equivalent value to a
grant of stock options 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.
(b) Certain Conditions. Executive acknowledges and agrees that any
grant of 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 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.
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(a) Standard Benefits. During the Term of Employment, the Executive
shall be entitled to participate in all pension and retirement savings, fringe
benefit and welfare plans, including life insurance, medical, health and
accident, disability, and vacation plans and programs maintained by the Company
from time to time for senior executives at a level commensurate with his
position. The Executive acknowledges that participation in such programs may
result in the receipt by him of additional taxable income.
(b) 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 and upon presentation of
proper expense statements or vouchers or such other supporting information as
the Company may reasonably require of the Executive, within seventy-five (75)
days after the end of the calendar year of presentment. In no event shall the
gross amount of such reimbursements be greater than $15,000.00 in respect of any
calendar year during the Term of Employment. Additionally, the Company will pay
directly to the service provider following presentment of invoice(s) reasonably
acceptable to the Company up to $5,000.00 per year for reasonable financial
counseling services for the Executive. The Executive acknowledges that
participation in such programs will result in the receipt by him of additional
taxable income.
(c) 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 $50,000.00. Alternatively, the
Executive may receive an automobile allowance in the gross monthly amount of
$1,100.00. The Executive acknowledges that participation in this program will
result in the receipt by him of additional taxable income.
(d) Expenses. The Company agrees to reimburse the Executive
for all reasonable and necessary travel (inclusive of first class air travel),
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.
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(e) Spousal Travel. The Executive may upon prior approval of the
Chief Executive Officer or his or her designee arrange for his spouse or
domestic partner to accompany him on up to two (2) business related travel
itineraries per fiscal year, on a reasonable basis, at Company expense. Any
reimbursement for such travel shall require presentation of proper expense
statements or vouchers or such other supporting information as the Company may
reasonably require of the Executive, and shall be payable within seventy-five
(75) days after the end of the calendar year of presentment. The Executive
acknowledges that participation in this program will result in the receipt by
him of additional taxable income.
(f) Executive Term Life Insurance. During the Term of Employment,
the Company shall continue to pay premiums on the existing term life insurance
policy with a face amount of $5,000,000.00. Such obligation to pay premiums is
subject to standard underwriting conditions. The Executive acknowledges that
this coverage will result in the receipt by him of additional taxable income.
6. Termination.
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(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 to receive (i) any accrued but unpaid
salary and other amounts to which the Executive otherwise is entitled hereunder
prior to the date of his termination of employment, in accordance with Section
3(a) and other applicable payment provisions herein; (ii) bonus compensation
earned but not paid under Section 3(b) hereof that relates to any Contract Year
ended prior to the date of his termination of employment, in accordance with
Section 3(b) hereof; (iii) a pro-rata portion of the annual bonus payout that
the Executive would have been entitled to receive had he remained in employment
through the end of the Contract Year during which termination due to permanent
disability occurred, based on the portion of the Contract Year that has elapsed
prior to such termination, and paid in accordance with Section 3(b) hereof; (iv)
reimbursement for financial counseling services under Section 5(b) hereof for a
period of one (1) year from the date of termination, in accordance with Section
5(b) hereof; and (v) his Base Salary under Section 3(a) hereof for a period of
one (1) year from the date of termination as a result of permanent disability,
in accordance with Section 3(a) hereof; provided, however, that the Company
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shall only be required to pay that amount of the Executive's Base Salary which
shall not be covered by short-term disability payments or benefits or long-term
disability payments or benefits, if any, to the Executive under any Company plan
or arrangement. In addition, upon termination for permanent disability, the
Executive shall continue to participate, to the extent permitted by applicable
law and regulations and the applicable benefit plan, program or arrangement, in
any and all qualified and non-qualified pension and qualified retirement
savings, healthcare, life insurance and accidental death and dismemberment
insurance benefit plans, programs or arrangements of the Company during the
period the Executive is continuing to receive his Base Salary in accordance with
this Section 6(a) (the "Disability Continuation Period"); provided, however,
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that if and to the extent the Executive is not permitted to participate in the
Company's plans, programs or arrangements as described in the foregoing clause
by reason of the Executive being subject to a six-month delay of payments
following termination of employment, as provided in Section 6(l) herein, then
the Company shall provide to the Executive, subject to Section 6(l), cash
payments, in accordance with the regular payroll policies of the Company in
effect from time to time, equal to the 409A Replacement Payment (as defined in
Section 6(c))
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with respect to the Disability Continuation Period. 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. Except as
otherwise provided in this Section 6(a), the Company will have no further
obligations under Sections 3, 4 and 5 hereof or otherwise. 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, Executive's employment and 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) any accrued but unpaid salary and other amounts to which the
Executive otherwise is entitled hereunder prior to the date of his death, in
accordance with Section 3(a) and other applicable payment provisions herein;
(ii) bonus compensation earned but not paid under Section 3(b) hereof that
relates to any Contract Year ended prior to the date of his death, in accordance
with Section 3(b) hereof; (iii) a pro-rata portion of the annual bonus payout
the Executive would have been entitled to receive had he remained in the employ
of the Company through the end of the Contract Year during which termination due
to his death occurred, based on the portion of the Contract Year that has
elapsed prior to such termination, and paid in accordance with Section 3(b)
hereof; (iv) reimbursement for financial counseling services under Section 5(b)
hereof for a period of one (1) year from the date of termination, in accordance
with Section 5(b) hereof; and (v) 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, in accordance with Section 3(a) hereof; provided,
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however, that, except as otherwise provided in this Section 6(b), the Company
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will have no further obligations under Sections 3, 4 and 5 hereof or otherwise.
(c) Termination Without Cause. The Company shall have the right,
upon ninety (90) days prior written notice given to the Executive, to terminate
the Executive's employment for any reason whatsoever (excluding for Cause (as
defined below)). In the event of such termination, the Company shall have no
further obligations hereunder, except that the Executive shall be entitled to
(i) receive any accrued but unpaid salary and other amounts to which the
Executive otherwise is entitled hereunder prior to the date of his termination
without Cause, in accordance with Section 3(a) and other applicable payment
provisions herein; (ii) receive bonus compensation earned but not paid under
Section 3(b) hereof that relates to any Contract Year ended prior to the date of
his termination without Cause, in accordance with Section 3(b) hereof; (iii)
receive a pro-rata portion of the annual bonus payout 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 without Cause occurred, based on
the portion of the Contract Year that has elapsed prior to such termination, and
paid in accordance with Section 3(b) hereof; (iv) receive as damages (A) for a
period ending on a date two (2) years from the date of termination without
Cause, in accordance with the regular payroll policies of the Company in effect
from time to time, his Base Salary as established under and in accordance with
Section 3(a) hereof and (B) bonus compensation equal to fifty percent (50%) of
the average of the actual annual bonuses paid or payable (with respect to
completed Contract Years) 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, $325,000.00; (v) receive reimbursement for
financial counseling services under Section 5(b) hereof for a period of two (2)
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years from the date of termination, in accordance with Section 5(b) hereof;
and (vi) participate for a period ending on a date two (2) years from the date
of termination without Cause (the "Without Cause Continuation Period"), to the
extent permitted by applicable law and regulations and the applicable benefit
plan, program or arrangement, in any and all qualified and non-qualified pension
and qualified retirement savings, healthcare, life insurance and accidental
death and dismemberment insurance benefit plans, programs or arrangements, on
terms identical to those applicable to full-term senior officers of the Company;
provided, however, that if and to the extent the Executive is not permitted to
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participate in the Company's plans, programs or arrangements as described in the
foregoing clause (vi) by reason of the Executive being subject to a six-month
delay of payments following termination of employment, as provided in Section
6(l) herein, then the Company shall provide to the Executive, subject to Section
6(l), cash payments, in accordance with the regular payroll policies of the
Company in effect from time to time, equal to the sum of (x) the Company's
actual cost of providing (absent employee contribution or premium cost) to the
Executive healthcare (including for his eligible dependents), life insurance and
accidental death and dismemberment benefits during such Without Cause
Continuation Period (or other period as expressly provided herein), (y) the
maximum qualified defined contribution retirement savings plan match for pre-tax
and after-tax contributions allowable by the plan and by applicable laws and
regulations for each year during the Without Cause Continuation Period (or other
period as expressly provided herein), and (z) the excess of the benefit that
would have been received by the Executive had he been credited with additional
years of age and service equal to the Without Cause Continuation Period (or
other period as expressly provided herein) over the actual benefit to which the
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Executive is entitled, in each case, under any and all qualified and
non-qualified Company defined benefit pension plans and qualified defined
contribution retirement savings plans in which the Executive participates as of
the date of termination of employment, calculated as of and based upon the
Executive's date of termination (such sum, the "409A Replacement Payment").
Except as otherwise provided in this Section 6(c), the Company will have no
further obligations under Sections 3, 4 and 5 hereof or otherwise. 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
his accrued but unpaid salary, in accordance with Section 3(a) hereof, and
provide the Executive with any benefit under the employee benefit programs and
plans of the Company as determined under such programs and plans upon and as of
such a termination for Cause. Except as otherwise provided in this Section 6(d),
the Company will have no further obligations under Sections 3, 4 and 5 hereof or
otherwise.
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 a material adverse effect on the Company or any of its subsidiaries or
affiliates (the determination of
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Cause to be made by the Chief Executive Officer in his or her reasonable
judgment or the Company's Board of Directors in its reasonable judgment);
(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 a material 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 (the determination of Cause to be made by the Chief
Executive Officer in his or her reasonable judgment or the Company's Board of
Directors in its reasonable judgment);
(iv) the Executive's failure to follow a lawful directive of the
Chief Executive Officer or the Board of Directors 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 or the Board of Directors of the Company
specifying the performance required;
(v) any violation by the Executive of a policy contained in the Code
of Conduct of the Company (the determination of Cause to be made by the Chief
Executive Officer in his or her reasonable judgment or the Company's Board of
Directors in its reasonable judgment);
(vi) drug or alcohol abuse by the Executive that materially affects
the Executive's performance of his duties under this Agreement; or
(vii) conviction of, or the entry of a plea of guilty or nolo
contendere by the Executive for, any felony.
(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, upon ninety (90) days prior written
notice to the Company. Upon such termination, the Company shall have no further
obligations hereunder other than to (i) pay the Executive his accrued but unpaid
salary, in accordance with Section 3(a) hereof; (ii) provide bonus compensation,
if any, earned but not paid under Section 3(b) hereof that relates to any
Contract Year ended prior to the date of such a termination by the Executive, in
accordance with Section 3(b) hereof; and (iii) provide the Executive with any
benefit under the employee benefit programs and plans of the Company as
determined under such programs and plans upon and as of such a termination by
the Executive. Except as otherwise provided in this Section 6(e), the Company
will have no further obligations under Sections 3, 4 and 5 hereof or otherwise.
(f) Termination by Executive for Material Breach. The Executive
shall have the right, exercisable by notice to the Company, to terminate his
employment effective ninety (90) 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; provided, however, that such notice must be
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provided to the Company within thirty (30) days of the date on which the
Executive obtains knowledge or reasonably should obtain knowledge of such
material breach; and provided further, that such termination will not become
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effective if within thirty (30) days after receiving the notice the Company
shall have cured all such material breaches of its obligations hereunder. For
purposes of this Section 6(f), a material breach shall only be, (i) a material
reduction in the Executive's authority, functions, duties or responsibilities
provided in Section 2 hereof, or (ii) the Company's failure to pay any award
that the Executive is entitled to
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receive pursuant to the terms of this Agreement. Such termination shall be
deemed to be a termination without Cause and shall be controlled by the
provisions of Section 6(c) hereof. Except as otherwise provided in this Section
6(f), the Company will have no further obligations under Sections 3, 4 and 5
hereof or otherwise.
(g) Change of Control.
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(i) Definitions. For purposes of this Agreement,
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(A) a "Change of Control" shall be deemed to have
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occurred upon any of the following events:
(1) a change in control of a nature that would be
required to be reported in response to Item 6(e) of Schedule 14A of Regulation
14(A) promulgated under the Securities Exchange Act of 1934, as amended; or
(2) during any period of two (2) consecutive years, the
individuals who at the beginning of such period constitute the Company's
Board of Directors or any individuals who would be "Continuing Directors"
(as defined below) cease for any reason to constitute a majority thereof; or
(3) the Company's Class A Common Stock shall cease to
be publicly traded; or
(4) the Company's Board of Directors shall approve a
sale of all or substantially all of the assets of the Company, and such
transaction shall have been consummated; or
(5) the Company's Board of Directors shall approve any
merger, exchange, consolidation, or like business combination or reorganization
of the Company, the consummation of which would result in the occurrence of any
event described in Section 6(g)(i)(A)(2) or (3) above, and such transaction
shall have been consummated.
Notwithstanding the foregoing, (X) changes in the relative beneficial ownership
among members of the Lauder family and family-controlled entities shall not, by
itself, constitute a Change of Control of the Company, (Y) any spin-off of a
division or subsidiary of the Company to its stockholders shall not constitute a
Change of Control of the Company.
(B) "Continuing Directors" shall mean (1) the directors in
office on July 1, 2006 and (2) any successor to such directors and any
additional director who after June 30, 2009 was nominated or selected by a
majority of the Continuing Directors in office at the time of his or her
nomination or selection.
(C) "Good Reason" means the occurrence of any of the
following, without the express written consent of the Executive, within two (2)
years after the occurrence of a Change in Control:
(1) (a) the assignment to the Executive of any duties
inconsistent in any material adverse respect with the Executive's position,
authority or responsibilities as contemplated by Section 2 hereof, or (b) any
other material adverse change in such position, including title, authority or
responsibilities;
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(2) any failure by the Company to comply with any
provisions of Sections 3, 4 or 5 hereof, other than an insubstantial or
inadvertent failure remedied by the Company promptly after receipt of notice
thereof given by the Executive;
(3) the Company's requiring the Executive to be based
at any office or location more than fifty (50) miles from that location at which
he performed his services specified under the provisions of Section 2
immediately prior to the Change in Control, except for travel reasonably
required in the performance of the Executive's responsibilities; or
(4) any failure by the Company to obtain the assumption
and agreement to perform this Agreement by a successor as contemplated by
Section 14, unless such assumption occurs by operation of law.
(ii) Termination for Good Reason. Within two (2) years after the
occurrence of a Change of Control, the Executive may terminate his employment
for Good Reason. Such termination shall be deemed to be a termination without
Cause and shall be controlled by the provisions of Section 6(c) hereof. Except
as otherwise provided in this Section 6(g)(ii), the Company will have no further
obligations under Sections 3, 4 and 5 hereof or otherwise.
(h) Certain Limitations.
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(i) Notwithstanding anything to the contrary contained herein, in
the event that any amount or benefit paid or distributed to the Executive
pursuant to this Agreement, taken together with any amounts or benefits
otherwise paid or distributed to the Executive by the Company or any affiliated
company (collectively, the "Covered Payments"), are or become subject to the tax
(the "Excise Tax") imposed under Section 4999 of the Code, or any similar tax
that may hereafter be imposed, the Covered Payments shall be reduced (but not
below zero) until no portion of such payments would be subject to Excise Tax.
(ii) For purposes of determining whether any of the Covered
Payments will be subject to the Excise Tax and the amount of such Excise Tax,
(A) such Covered Payments will be treated as "parachute
payments" to the extent they exceed the "2.99 base amount threshold" within the
meaning of Section 280G of the Code, and all "parachute payments" in excess of
the "base amount" (as defined under Section 280G(b)(3) of the Code) shall be
treated as subject to the Excise Tax, unless, and except to the extent that, in
the good faith judgment of the Company's independent certified public
accountants appointed prior to the date of the change in ownership or control or
tax counsel selected by such accountants (the "Accountants"), the Company has a
reasonable basis to conclude that such Covered Payments (in whole or in part)
either do not constitute "parachute payments" or are otherwise not subject to
such Excise Tax, and
(B) the value of any non-cash benefits or any deferred
payment or benefit shall be determined by the Accountants in accordance with the
principles of Section 280G of the Code.
(i) Non-Renewal. In the event the Company does not offer the
Executive
10
renewal of the Term of Employment on the basis of terms no less favorable, in
the aggregate, than those pending at the time of the conclusion of the Term of
Employment and, as a result, the Company terminates the Executive's employment
with the Company ("Non-Renewal"), such termination shall be deemed to be a
termination without Cause and shall be controlled by the provisions of Section
6(c) hereof. Except as otherwise provided in this Section 6(i), the Company will
have no further obligations under Sections 3, 4 and 5 hereof or otherwise. This
provision shall not apply if at the time for renewal any of (x) the Board of
Directors, (y) the Compensation Committee and/or the Stock Plan Subcommittee of
the Board of Directors or (z) the stockholders of the Company have changed the
Company's policy regarding the use of written employment agreements for
executives, the form of equity-based compensation, or the mix of cash and
non-cash compensation.
(j) Continued Employment Beyond the Non-Renewal or Expiration of
the Term of Employment. Unless the parties otherwise agree in writing,
continuation of Executive's employment with the Company beyond the non-renewal
or expiration of the Term of Employment shall be deemed an employment-at-will
and shall not be deemed to extend any of the provisions of this Agreement, and
Executive's employment may thereafter be terminated at will by either Executive
or the Company.
(k) 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(f), 6(g) or 6(i) above, and the Executive is
not considered to be retirement eligible under the terms and conditions of the
Company's qualified defined benefit pension plan, if any, notwithstanding
anything to the contrary contained in the Company's Share Incentive Plan or
other similar equity plan, all stock options granted to the Executive during the
Term of Employment shall become immediately exercisable and shall be exercisable
until the earlier to occur of (A) the end of the stock option term as set forth
in the applicable option agreement(s); or (B) the first anniversary of the date
that Base Salary continuation payments end, after which all such option awards
shall expire and be of no further force or effect. The vesting and
exercisability provided for in the previous sentence shall be subject to all
provisions relating to post-employment exercises set forth in the applicable
Share Incentive Plan and option agreement(s). Subject to the preceding
sentences, 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 any 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.
(l) Section 409A of the Code. It is the intention of the
parties to this Agreement that no payment or entitlement pursuant to this
Agreement will give rise to any adverse tax consequences to the Executive under
Section 409A of the Code and Department of Treasury regulations and other
interpretive guidance issued thereunder, including that issued after the date
hereof (collectively, "Section 409A"). The Agreement shall be interpreted to
that end and, consistent with that objective and notwithstanding any provision
herein to the contrary, the Company may unilaterally take any action it deems
necessary or desirable to amend any provision herein to avoid the application of
or excise tax under Section 409A. Further, no effect shall be given to any
provision herein in a manner that reasonably could be expected to give rise to
adverse tax consequences under that provision. The Company shall from time to
time compile a list of "specified employees" as defined in, and pursuant to,
Prop. Reg. Section 1.409A-1(i) or any successor regulation. Notwithstanding any
other provision herein, if the Executive is a specified employee on the date of
termination, no payment of compensation
11
under this Agreement shall be made to the Executive during the period lasting
six (6) months from the date of termination unless the Company determines that
there is no reasonable basis for believing that making such payment would cause
the Executive to suffer any adverse tax consequences pursuant to Section 409A of
the Code. If any payment to the Executive is delayed pursuant to the foregoing
sentence, such payment instead shall be made on the first business day following
the expiration of the six-month period referred to in the prior sentence. The
Company shall consult with Executive in good faith regarding implementation of
this Section 6(l); provided that neither the Company nor its employees
--------
or representatives shall have liability to the Executive with respect thereto.
(m) Release of Claims. As a condition precedent to the receipt of
payments and benefits pursuant to this Section, the Executive, or, in the case
of his death or Disability that prevents the Executive from performing his
obligation under this Section 6(m), 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 effective 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.
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 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
12
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 Executive's employment with the Company or any
of its subsidiaries or affiliates (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.
(c) During the Term of Employment, the Company, its subsidiaries and
affiliates shall have the exclusive right to use the Executive's name and image
throughout the world in its advertising and promotional materials in connection
with the advertising and promotion of the Company, its subsidiaries and
affiliates, and their products. After the expiration of the Term of Employment,
the Company, it subsidiaries and affiliates shall have the non-exclusive right
in perpetuity to use the Executive's name and image throughout the world solely
in connection with promotional materials related to the history of the Company,
it subsidiaries and affiliates, and their products. The consideration for such
rights is the payments set forth in Section 3(a) hereof. The rights conveyed
hereby may be assigned by the Company, its subsidiaries or affiliates to a
successor in the interest of the Company or the relevant subsidiary or affiliate
or their businesses or product lines.
(d) 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.
13
8. Covenant Not to Compete. The Executive agrees that during the
Executive's employment with the Company or any of its subsidiaries or affiliates
and for a period of two (2) years commencing upon the expiration or termination
of the Executive's employment for any reason whatsoever (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 with
the Company and its subsidiaries and affiliates; 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.
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. This provision 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.
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
14
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 Amended and Restated Fiscal 2002
Share Incentive Plan, the Executive's outstanding stock option and other
equity-compensation agreements, the Executive Annual Incentive Plan, the
Executive Perquisites Program, the Executive Automobile Program, the term life
insurance arrangement between the Company and the Executive, the Company's
qualified and non-qualified defined benefit pension plans, the Company's
qualified defined contribution retirement savings 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,
without regard to conflict of laws principles.
(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 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. Unless assumption occurs by operation of law, 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
15
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
or two-day delivery or sent by registered or certified mail, return receipt
requested, to the following addresses:
The Company:
The Estee Lauder Companies Inc.
767 Fifth Avenue
New York, New York 10153
Attn: General Counsel
Tel: [PHONE NUMBER]
Fax: [FAX NUMBER]
The Executive:
Richard W. Kunes
c/o The Estee Lauder Companies Inc.
767 Fifth Avenue
New York, New York 10153
Tel: [PHONE NUMBER]
Fax: [FAX NUMBER]
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 or two-day
delivery, the next business day or two business days, as applicable, 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 will not (i)
require the consent, approval
16
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. Legal Fees. Following a Change of Control, the Company
shall reimburse the Executive up to $20,000.00, in the aggregate, for all legal
fees and related expenses (including the costs of experts, evidence and counsel)
reasonably and in good faith incurred by the Executive in an action (i) by the
Executive to obtain or enforce any right or benefit to which the Executive is
entitled under this Agreement or (ii) by the Company to enforce a
post-termination covenant referred to in Section 7 or 8 against the Executive,
in each case, provided that the Executive substantially prevails in such action.
19. Cooperation. During the Term of Employment and thereafter
Executive shall provide reasonable cooperation in connection with any action or
proceeding (or any appeal therefrom) that relates to events occurring during
Executive's employment with the Company.
20. 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.
21. 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 ESTEE LAUDER COMPANIES INC.
By: /s/ Amy DiGeso
---------------------------
Name: Amy DiGeso
Title: Executive Vice President,
Global Human Resources
/s/ Richard W. Kunes
-------------------------------
Richard W. Kunes
17