SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14a INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a party other than the Registrant
Check the appropriate box:
Preliminary Proxy Statement Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
Definitive Additional Materials
Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
THE ESTEE LAUDER COMPANIES INC.
--------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
--------------------------------------------------------------------------------
(Name of Person(s) filing Proxy Statement, if other that the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
Fee computed on table below per Exchange Act Rules 14a-6(I)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
--------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
--------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee
is calculated and state how it was determined):
--------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
--------------------------------------------------------------------------------
(5) Total fee paid:
--------------------------------------------------------------------------------
Fee paid previously with preliminary materials.
Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, of
the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
--------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement no.:
--------------------------------------------------------------------------------
(3) Filing Party:
--------------------------------------------------------------------------------
(4) Date Filed:
--------------------------------------------------------------------------------
The Estee Lauder Companies Inc.
767 Fifth Avenue
New York, NY 10153
[ESTEE LAUDER LOGO]
Leonard A. Lauder
Chairman
October 3, 2001
Dear Fellow Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders. It
will be held on Wednesday, October 31, 2001, at 10:00 a.m., local time, at The
Essex House in New York City.
The enclosed notice and proxy statement contain details concerning the
meeting. The Board of Directors recommends a vote "FOR" all the following items
of business:
1. Election of three Directors to serve until the 2004 Annual Meeting of
Stockholders;
2. Approval of the Fiscal 2002 Share Incentive Plan; and
3. Ratification of the Board's appointment of Arthur Andersen LLP as
independent auditors for the 2002 fiscal year.
Please sign and return your proxy card in the enclosed envelope at your
earliest convenience to assure that your shares will be represented and voted at
the meeting even if you cannot attend.
I look forward to seeing you at the Annual Meeting.
/s/ Leonard A. Lauder
THE ESTEE LAUDER COMPANIES INC.
767 FIFTH AVENUE
NEW YORK, NEW YORK 10153
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
DATE AND TIME:
Wednesday, October 31, 2001, at 10:00 a.m., local time
PLACE:
The Essex House
Grand Salon
160 Central Park South
New York, New York 10019
ITEMS OF BUSINESS:
1. To elect three Directors to serve until the 2004 Annual Meeting of
Stockholders;
2. To approve the Fiscal 2002 Share Incentive Plan; and
3. To ratify the Board's appointment of Arthur Andersen LLP as
independent auditors for the 2002 fiscal year.
We also will transact such other business as may properly come before the
meeting and any adjournments or postponements.
WHO MAY VOTE?
Stockholders of record of the Class A Common Stock and Class B Common Stock
at the close of business on September 14, 2001 are entitled to notice of and to
vote at the meeting and any adjournments or postponements.
ADMISSION TO THE MEETING:
ADMISSION TO THE MEETING WILL REQUIRE A TICKET. If you are a stockholder of
record and plan to attend, please check the appropriate box on the proxy card
and an admission ticket will be mailed to you. If you are a stockholder whose
shares are held through an intermediary such as a bank or broker and you plan to
attend, please request a ticket by writing to the Investor Relations Department
at The Estee Lauder Companies Inc., 767 Fifth Avenue, New York, New York 10153.
Evidence of your ownership, which you can obtain from your bank, broker or
other intermediary, must accompany your letter.
By Order of the Board of Directors
PAUL E. KONNEY
SENIOR VICE PRESIDENT,
GENERAL COUNSEL AND SECRETARY
New York, New York
October 3, 2001
YOU ARE URGED TO SIGN AND RETURN THE ENCLOSED PROXY PROMPTLY. IN THE EVENT
YOU DECIDE TO ATTEND THE MEETING, YOU MAY, IF YOU DESIRE, REVOKE THE PROXY AND
VOTE THE SHARES IN PERSON.
[This page intentionally left blank]
THE ESTEE LAUDER COMPANIES INC.
767 FIFTH AVENUE
NEW YORK, NEW YORK 10153
October 3, 2001
PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD OCTOBER 31, 2001
This Proxy Statement is furnished in connection with the solicitation of
proxies on behalf of the Board of Directors of The Estee Lauder Companies Inc.
(the "Company", "we" or "us"), a Delaware corporation, to be voted at the Annual
Meeting of Stockholders to be held in the Grand Salon at The Essex House, 160
Central Park South, New York, New York, on Wednesday, October 31, 2001, at 10:00
a.m., local time, and at any adjournment or postponement thereof.
All proxies delivered pursuant to this solicitation are revocable at any
time before they are exercised at the option of the persons signing them by
giving written notice to the Secretary of the Company, by delivering a
later-dated proxy or by voting in person at the Annual Meeting. The mailing
address of our principal executive offices is 767 Fifth Avenue, New York, New
York 10153. The approximate date on which this Proxy Statement and form of proxy
are first being sent or given to stockholders is October 3, 2001.
All properly signed proxies delivered pursuant to this solicitation and not
revoked will be voted at the Annual Meeting in accordance with the directions
given. In the election of Directors to serve until the Annual Meeting of
Stockholders in 2004, stockholders may vote in favor of all nominees or withhold
their votes as to any or all nominees. Regarding the other proposals to be voted
upon, stockholders may vote in favor of a proposal, may vote against a proposal
or may abstain from voting. Stockholders should specify their choices on the
enclosed form of proxy. If no specific instructions are given, the shares
represented by a signed proxy will be voted:
1. FOR the election of all nominees as director;
2. FOR the proposal to approve the Fiscal 2002 Share Incentive Plan; and
3. FOR the proposal to ratify the appointment of Arthur Andersen LLP as
independent auditors.
Directors will be elected by a plurality of the votes cast by the holders
of the shares of Class A Common Stock and Class B Common Stock voting in person
or by proxy at the Annual Meeting. Under our bylaws, approval of the Fiscal 2002
Share Incentive Plan and ratification of the appointment of Arthur Andersen LLP
require the affirmative vote of a majority of the votes cast "For" or "Against"
the proposal by holders of Class A Common Stock and Class B Common Stock.
Accordingly, abstentions and broker non-votes, while not included in calculating
vote totals for these proposals, will have the practical effect of reducing the
number of "For" votes needed to approve them.
Only owners of record of shares of Class A Common Stock and Class B Common
Stock at the close of business on September 14, 2001 are entitled to vote at the
Annual Meeting or adjournments or postponements thereof. Each owner of record of
Class A Common Stock on the record date is entitled to one vote for each share
of Class A Common Stock so held. Each owner of record of Class B Common Stock on
the record date is entitled to ten votes for each share of Class B Common Stock
so held. On September 14, 2001, there were 125,249,725 shares of Class A Common
Stock and 113,490,293 shares of Class B Common Stock issued and outstanding.
A list of stockholders as of the close of business on September 14, 2001
will be available for inspection during normal business hours from October 17,
2001 through October 30, 2001, at the office of Spencer G. Smul, Associate
Counsel and Assistant Secretary of the Company, at 767 Fifth Avenue, New York,
New York 10153.
ELECTION OF DIRECTORS
(ITEM 1)
BOARD OF DIRECTORS
The Board of Directors has fixed the number of Directors at ten. The
Directors are divided into three classes, each serving for a period of three
years.
The stockholders elect approximately one-third of the members of the Board
of Directors annually. The Directors whose terms will expire at the 2001 Annual
Meeting of Stockholders are Lynn Forester, William P. Lauder and Richard D.
Parsons, each of whom has been nominated to stand for reelection as a Director
at the 2001 Annual Meeting, to hold office until the 2004 Annual Meeting and
until his or her successor is elected and qualifies.
In the unanticipated event that one or more of these nominees is unable or
declines to serve for any reason, the Board of Directors may reduce the number
of Directors or may designate a substitute nominee or nominees, in which event
the persons named in the enclosed proxy will vote proxies for the election of
such substitute nominee or nominees.
THE BOARD RECOMMENDS A VOTE FOR EACH NOMINEE AS A DIRECTOR TO HOLD OFFICE
UNTIL THE 2004 ANNUAL MEETING. PROXIES RECEIVED BY THE BOARD WILL BE SO VOTED
UNLESS A CONTRARY CHOICE IS SPECIFIED IN THE PROXY.
--------------------------------------------------------------------------------
NOMINEES FOR ELECTION TO TERM EXPIRING 2004 (CLASS II)
--------------------------------------------------------------------------------
[PHOTO OMITTED] Lynn Forester Director since 2000
Age 47
Ms. Forester is co-Chair of FirstMark Communications Europe,
LLC and CEO of FirstMark Holdings, Inc. From 1990 to 1997,
Ms. Forester was President and CEO of FirstMark
Communications Inc. Prior to that, Ms. Forester was
Executive Vice President for Development at Metromedia
Telecommunications, Inc. She began her career in 1980 as an
associate at the law firm of Simpson, Thacher and Bartlett,
where she practiced corporate law until 1984. Ms. Forester
is Chairman of the New York City Scholarship Fund and a
trustee of the Outward Bound Trust. Ms Forester is a member
of the Council on Foreign Relations and the Foreign Policy
Association, and she served during the Clinton
Administration as a member of the Secretary of Energy
Advisory Board and a member of the National Information
Infrastructure Advisory Committee.
Ms. Forester is a member of the Audit Committee, the
Compensation Committee and the Stock Plan Subcommittee.
--------------------------------------------------------------------------------
[PHOTO OMITTED] William P. Lauder Director since 1996
Age 41
Mr. Lauder became Group President of the Company in July
2001. He leads the worldwide business of Clinique and
Origins and our retail store and on-line operations. From
1998 to 2001, he was President of Clinique Laboratories,
Inc. Prior to 1998, he was President of Origins Natural
Resources Inc., and he had been the senior officer of that
division since its inception in 1990. Prior thereto, he
served in various positions since joining the Company in
1986. He is a member of the Board of Trustees of The Trinity
School in New York City and the Boards of Directors of The
Fragrance Foundation, the Fresh Air Fund and the 92nd Street
Y.
--------------------------------------------------------------------------------
2
--------------------------------------------------------------------------------
[PHOTO OMITTED] Richard D. Parsons Director since 1999
Age 53
Mr. Parsons has been Co-Chief Operating Officer of AOL Time
Warner Inc. since January 2001. From 1995 until the merger
with America On-Line Inc., he was President of Time Warner
Inc. From 1990 through 1994, he was Chairman and Chief
Executive Officer of Dime Bancorp, Inc. Mr. Parsons is a
director of AOL Time Warner Inc. and Citigroup. Among his
numerous community activities, he is Chairman of Upper
Manhattan Empowerment Zone Development Corporation and the
Apollo Theatre Foundation, and serves of the boards of
Colonial Williamsburg Foundation, Lincoln Center and the
Museum of Modern Art. He is also a trustee of Howard
University.
Mr. Parsons is Chairman of the Compensation Committee and a
member of the Nominating and Board Affairs Committee.
--------------------------------------------------------------------------------
INCUMBENT DIRECTORS -- TERM EXPIRING 2002 (CLASS III)
--------------------------------------------------------------------------------
[PHOTO OMITTED] Charlene Barshefsky Director since 2001
Age 51
Ms. Barshefsky is Senior International Partner at the law
firm of Wilmer, Cutler & Pickering in Washington, D.C. Prior
to joining the law firm, she was The United States Trade
Representative from March 1997 until January 2001 and Deputy
United States Trade Representative and Acting United States
Trade Representative from June 1993 until March 1997. From
February 2001 until July 2001, Ms. Barshefsky was a Public
Policy Scholar at the Woodrow Wilson International Center
for Scholars in Washington, D.C. Ms. Barshefsky is also a
director of American Express Company.
Ms. Barshefsky is a member of the Audit Committee.
--------------------------------------------------------------------------------
[PHOTO OMITTED] Leonard A. Lauder Director since 1958
Age 68
Mr. Lauder has been Chairman of the Board of Directors since
1995. He served as Chief Executive Officer of the Company
from 1982 through 1999 and as President from 1972 until
1995. Mr. Lauder formally joined the Company in 1958 after
serving as an officer in the United States Navy. Since
joining the Company, he has held various positions,
including executive officer positions other than those
described above. He is Chairman of the Board of Trustees of
the Whitney Museum of American Art, a Charter Trustee of the
University of Pennsylvania and a Trustee of The Aspen
Institute. He also served as a member of the White House
Advisory Committee on Trade Policy and Negotiations under
President Reagan.
Mr. Lauder is a member of the Nominating and Board Affairs
Committee.
--------------------------------------------------------------------------------
[PHOTO OMITTED] Ronald S. Lauder Director since 1988 and
from 1968 to 1986
Age 57
Mr. Lauder has served as Chairman of Clinique Laboratories,
Inc. and Chairman of Estee Lauder International, Inc. since
returning from government service in 1987. Mr. Lauder joined
the Company in 1964 and has served in various capacities.
From 1983 to 1986, Mr. Lauder served as Deputy Assistant
Secretary of Defense for European and NATO Affairs. From
1986 to 1987, he was U.S. Ambassador to Austria. He is
non-executive Chairman of the Board of Directors of Central
European Media Enterprises Ltd. He is also Chairman of the
Board of Trustees of the Museum of Modern Art.
--------------------------------------------------------------------------------
3
--------------------------------------------------------------------------------
[PHOTO OMITTED] Marshall Rose Director since 1996
Age 64
Mr. Rose is a managing partner of The Georgetown Group, a
privately held real estate development and financial service
firm. He is a Trustee of BRT Realty Trust and a Director of
One Liberty Properties Inc. Among his numerous civic
activities, he is Chairman Emeritus of The New York Public
Library, a Director and member of the Executive Committee of
Bryant Park Restoration Corporation, and a member of the
Executive Committee of the Board of Advisors of The Graduate
School and University Center of the City University of New
York.
Mr. Rose is a member of the Audit Committee, the
Compensation Committee and the Stock Plan Subcommittee.
--------------------------------------------------------------------------------
INCUMBENT DIRECTORS -- TERM EXPIRING 2003 (CLASS I)
--------------------------------------------------------------------------------
[PHOTO OMITTED] Irvine O. Hockaday, Jr. Director since 2001
Age 65
Mr. Hockaday is President and Chief Executive Officer of
Hallmark Cards, Inc. Prior to joining Hallmark in 1983, he
was President and Chief Executive Officer of Kansas City
Southern Industries, Inc. Mr. Hockaday has been a member of
the Hallmark Board of Directors since 1978. He is also a
director of the Ford Motor Company, Dow Jones & Co., Inc.,
Sprint Corp., UtiliCorp United and Crown Media Holdings. He
is a member of the Princeton University Board of Trustees
and is a trustee emeritus of the Aspen Institute.
Mr. Hockaday is a member of the Audit Committee.
--------------------------------------------------------------------------------
[PHOTO OMITTED] Fred H. Langhammer Director since 1996
Age 57
Mr. Langhammer has been Chief Executive Officer since 2000
and President of the Company since 1995. He was Chief
Operating Officer from 1985 through 1999. Mr. Langhammer
joined the Company in 1975 as President of its operations in
Japan and, in 1982, he was appointed Managing Director of
the Company's operations in Germany. He is a member of the
Board of Directors of Inditex, S.A. (an apparel manufacturer
and retailer), the Cosmetics, Toiletries and Fragrance
Association, the German American Chamber of Commerce, Inc.,
and the American Institute for Contemporary German Studies
at Johns Hopkins University. He is also a Senior Fellow of
the Foreign Policy Association.
--------------------------------------------------------------------------------
[PHOTO OMITTED] Faye Wattleton Director since 1996
Age 58
Ms. Wattleton is the President of the Center for Gender
Equality and is an author, lecturer, media commentator and
consultant to businesses, health organizations and
non-profit entities. She is a past president of Planned
Parenthood Federation of America, Inc. (from 1978 to 1992).
She is a director of Empire Blue Cross & Blue Shield, the
Quidel Corporation, Bio-Technology General Corp., The
Eisenhower Fellowships, the Institute for International
Education, Jazz at Lincoln Center and the United Nations
Association of the United States of America. She is the
holder of 12 honorary degrees and was inducted into the
National Women's Hall of Fame in 1993.
Ms. Wattleton is Chairman of the Audit Committee and of the
Nominating and Board Affairs Committee.
--------------------------------------------------------------------------------
4
OWNERSHIP OF SHARES
The following table sets forth certain information regarding the beneficial
ownership of the Company's Class A Common Stock and Class B Common Stock as of
September 14, 2001 (or such other date specified in the notes to the table) by
(i) each person known by the Company to own beneficially more than 5% of the
outstanding shares of either Class A Common Stock or Class B Common Stock, (ii)
each of the Company's directors, (iii) each of the executive officers whose
names appear in the summary compensation table and (iv) all directors and
executive officers as a group. Except as set forth in the notes to the table,
the business address of each 5% stockholder is 767 Fifth Avenue, New York, New
York 10153. AS DESCRIBED IN THE NOTES TO THE TABLE, THE NAMED INDIVIDUALS SHARE
VOTING AND/OR INVESTMENT POWER WITH RESPECT TO CERTAIN SHARES OF COMMON STOCK.
CONSEQUENTLY, SUCH SHARES ARE SHOWN AS BENEFICIALLY OWNED BY MORE THAN ONE
PERSON.
CLASS B VOTING
CLASS A COMMON STOCK(1) COMMON STOCK POWER++
-------------------------------------------- -------------------- -------
SHARES
UNDERLYING
DIRECTORS, EXECUTIVE OFFICERS STOCK EXERCISABLE
AND 5% STOCKHOLDERS NUMBER % UNITS (2) OPTIONS (#) NUMBER % %
------------------------------------------- ---------- ----- ------- ----------- ----------- ---- ----
The Estee Lauder 1994 Trust (3)(4) ........ 4,698,951 3.8 -- -- 12,189,852 10.7 10.0
Leonard A. Lauder (4)(5) .................. 15,498,779 12.4 -- 2,246,602 58,741,546 51.8 47.8
Ronald S. Lauder (4)(6) ................... 8,051,093 6.4 -- 550,002 45,372,503 40.0 36.6
Ira T. Wender, as trustee (4)(7) .......... 5,367,515 4.3 -- -- 16,036,006 14.1 13.2
William P. Lauder (4)(8) .................. 4,313,573 3.4 -- 136,332 6,093,254 5.4 5.2
Gary M. Lauder (4)(9) ..................... 2,616,625 2.1 -- -- 3,852,086 3.4 3.3
Joel S. Ehrenkranz,
as trustee (4)(10) ...................... 2,677,714 2.1 -- -- 7,675,370 6.8 6.3
Richard D. Parsons, individually
and as trustee (4)(11) .................. 4,017,605 3.2 -- 6,673 20,304,638 17.9 16.4
Janus Capital Corporation (12) ............ 10,123,950 8.1 -- -- -- -- 0.8
FMR Corp. (13) ............................ 6,666,727 5.3 -- -- -- -- 0.5
Goldman Sachs & Co. (14) .................. 6,552,947 5.2 -- -- -- -- 0.5
Fred H. Langhammer (15) ................... 100,050 0.1 245,879 900,002 -- -- *
Charlene Barshefsky ....................... 0 * -- -- -- -- *
Lynn Forester (16) ........................ 2,000 * -- -- -- -- *
Irvine O. Hockaday, Jr. (17) .............. 1,000 * 891 -- -- -- *
Marshall Rose (18) ........................ 15,449 * 3,403 6,673 -- -- *
Faye Wattleton (19) ....................... 833 * -- 6,673 -- -- *
Daniel J. Brestle (20) .................... 5,367 * -- 99,668 -- -- *
Patrick Bousquet-Chavanne (21) ............ 1,322 * -- 50,000 -- -- *
All directors and executive officers
as a group (18 persons) (22) ............ 17,662,604 14.1 250,173 4,107,555 110,629,781 97.5 89.2
----------
++ Voting power represents combined voting power of Class A Common Stock (one
vote per share) and Class B Common Stock (10 votes per share) owned
beneficially by such person or persons.
* Less than 0.1%.
(1) Each share of Class B Common Stock is convertible at the option of the
holder into one share of Class A Common Stock and is automatically
converted into a share of Class A Common Stock upon transfer to a person
who is not a Lauder Family Member (as defined below). The number of shares
of Class A Common Stock and percentages contained under this heading do not
account for such conversion right.
(2) The stock units beneficially owned by Mr. Langhammer are payable in a like
number of shares of Class A Common Stock. The stock units beneficially
owned by Mr. Hockaday and Mr. Rose are to be paid out in cash and represent
a deferral of retainers and meeting fees.
(FOOTNOTES CONTINUED ON NEXT PAGE)
5
(FOOTNOTES CONTINUED FROM PREVIOUS PAGE)
(3) Includes up to 3,988,438 shares of Class A Common Stock that may be
delivered pursuant to a forward purchase contract to the Estee Lauder
Common Exchange Security Trust II (the "TRACES II Trust") on February 23,
2002 (subject to extension and subsequent acceleration). The TRACES II
Trust is not affiliated with the Company, The Estee Lauder 1994 Trust or
its trustees.
(4) Leonard A. Lauder, Ronald S. Lauder, William P. Lauder, Gary M. Lauder,
each individually and as trustees of various trusts, Ira T. Wender, as
trustee, Joel S. Ehrenkranz, as trustee, and Richard D. Parsons, as
trustee, are parties to a Stockholders' Agreement, pursuant to which each
has agreed to vote his or the trust's shares for the election of Leonard A.
Lauder, Ronald S. Lauder and their respective designees as directors of the
Company. See notes (5) through (8) and (10) for certain exceptions. Shares
owned by each such individual are not attributed to the others by reason of
such voting arrangement.
(5) Includes shares owned beneficially or deemed to be owned beneficially by
Leonard A. Lauder as follows: 4,901,280 shares of Class A Common Stock
directly and with respect to which he has sole voting and investment power
(including 3,394,986 shares of Class A Common Stock which are owed to
Leonard A. Lauder by Ronald S. Lauder; such loan is secured by a pledge of
3,394,986 shares of Class B Common Stock); 3,579,302 shares of Class A
Common Stock and 42,705,540 shares of Class B Common Stock as the sole
individual general partner and the majority stockholder of the sole
corporate general partner of a limited partnership and with respect to
which he has sole voting and investment power; 4,698,951 shares of Class A
Common Stock and 12,189,852 shares of Class B Common Stock as co-trustee of
The Estee Lauder 1994 Trust with respect to which he shares voting power
with Ronald S. Lauder, as co-trustee, and investment power with Ronald S.
Lauder and Ira T. Wender, as co-trustees (see note (3) above); 1,300,000
shares of Class A Common Stock as co-trustee of the Estee Lauder 2001
Charitable Trust with respect to which he shares voting power with Ronald
S. Lauder; 15,384 shares of Class A Common Stock and 3,846,154 shares of
Class B Common Stock as an individual general partner of a limited
partnership and as co-trustee of a trust (the "LAL Trust"), which is a
general partner of the same limited partnership, and with respect to which
he shares voting power with Ronald S. Lauder, who also is an individual
general partner of the limited partnership and co-trustee of another trust
(the "RSL Trust"), which is a general partner of the limited partnership,
and investment power with Ronald S. Lauder, as an individual general
partner of the limited partnership and as co-trustee of the RSL Trust,
Richard D. Parsons and Ira T. Wender, as co-trustees of the RSL Trust, and
Joel S. Ehrenkranz and Ira T. Wender, as co-trustees of the LAL Trust;
313,862 shares of Class A Common Stock as a director of The Lauder
Foundation and with respect to which he shares voting and investment power;
300,000 shares of Class A Common Stock as a director of the American Art
Foundation, Inc. ("AAF") and with respect to which he shares voting and
investment power; and 390,000 shares of Class A Common Stock owned by
Evelyn H. Lauder. Shares owned by the Estee Lauder 2001 Charitable Trust,
The Lauder Foundation and the AAF are not subject to the Stockholders'
Agreement. Leonard A. Lauder disclaims beneficial ownership of the shares
of Class A Common Stock owned by The Lauder Foundation and Evelyn H.
Lauder. Exercisable options include options with respect to 46,600 shares
granted to Evelyn H. Lauder. In addition, Leonard A. Lauder has options
with respect to another 2,999,998 shares granted to him pursuant to his
prior employment agreement that are not yet exercisable. Evelyn H. Lauder
has options with respect to another 108,400 shares granted to her pursuant
to the Company's share incentive plans that are not yet exercisable.
(6) Includes shares owned beneficially or deemed to be owned beneficially by
Ronald S. Lauder as follows: 1,000,000 shares of Class A Common Stock and
29,333,315 shares of Class B Common Stock directly and with respect to
which he has sole voting and investment power; 3,182 shares of Class A
Common Stock and 3,182 shares of Class B Common Stock as sole trustee of a
trust for the benefit of his children and with respect to which he has sole
voting and investment power; 4,698,951 shares of Class A Common Stock and
12,189,852 shares of Class B Common Stock as co-trustee of The Estee Lauder
1994 Trust with respect to which he shares voting power with Leonard A.
Lauder, as co-trustee, and investment power with Leonard A. Lauder and Ira
T. Wender, as co-trustees (see note (3) above); 1,300,000 shares of Class A
Common Stock as co-trustee of the Estee Lauder 2001 Charitable Trust with
respect to which he shares voting power
(FOOTNOTES CONTINUED ON NEXT PAGE)
6
(FOOTNOTES CONTINUED FROM PREVIOUS PAGE)
with Leonard A. Lauder; 15,384 shares of Class A Common Stock and 3,846,154
shares of Class B Common Stock as an individual general partner of a
limited partnership and as co-trustee of the RSL Trust, which is a general
partner of the same limited partnership, and with respect to which he
shares voting power with Leonard A. Lauder, who also is an individual
general partner of the limited partnership and co-trustee of the LAL Trust,
which is a general partner of the limited partnership, and investment power
with Leonard A. Lauder, as an individual general partner of the limited
partnership and as co-trustee of the LAL Trust, Richard D. Parsons and Ira
T. Wender, as co-trustees of the RSL Trust, and Joel S. Ehrenkranz and Ira
T. Wender, as co-trustees of the LAL Trust; 313,862 shares of Class A
Common Stock as a director of The Lauder Foundation and with respect to
which he shares voting and investment power; 36,457 shares of Class A
Common Stock as a Director of the Ronald S. Lauder Foundation with respect
to which he shares voting and investment power; 530,000 shares of Class A
Common Stock as a Director of the Neue Galerie New York and with respect to
which he shares voting and investment power; and 153,257 shares of Class A
Common Stock as a Director of The Jewish Renaissance Foundation with
respect to which he shares voting and investment power. Shares owned by the
Estee Lauder 2001 Charitable Trust, The Lauder Foundation, Neue Galerie New
York and The Jewish Renaissance Foundation are not subject to the
Stockholders' Agreement. Ronald S. Lauder disclaims beneficial ownership of
the shares of Class A Common Stock and Class B Common Stock owned by trusts
for the benefit of one or more of his children, The Lauder Foundation, the
Ronald S. Lauder Foundation, Neue Galerie New York and The Jewish
Renaissance Foundation. Ronald S. Lauder borrowed shares of Class A Common
Stock from certain Family Controlled Trusts (as defined below) and Leonard
A. Lauder, which he sold in the Company's initial public offering. Ronald
S. Lauder is obligated to repay the outstanding loans, which in the
aggregate are in respect of 7,394,986 shares of Class A Common Stock, by
delivering to the lending Family Controlled Trusts and Leonard A. Lauder
shares equal in number to the borrowed shares. This obligation is secured
by pledges of 1,000,000 of shares of Class A Common Stock and 6,394,986
shares of Class B Common Stock owned by Ronald S. Lauder as to which he has
sole voting power and shares investment power with the respective pledgees.
Ronald S. Lauder also has options with respect to 749,998 shares granted to
him pursuant to his prior employment agreement that are not yet
exercisable.
(7) Includes shares owned beneficially or deemed to be owned beneficially by
Ira T. Wender as follows: 3,000 shares of Class A Common Stock owned by his
wife; 4,698,951 shares of Class A Common Stock and 12,189,852 shares of
Class B Common Stock as co-trustee of The Estee Lauder 1994 Trust and with
respect to which he shares investment power with Leonard A. Lauder and
Ronald S. Lauder (see note (3) above); 15,384 shares of Class A Common
Stock and 3,846,154 shares of Class B Common Stock as co-trustee of the LAL
Trust and as co-trustee of the RSL Trust, each of which trusts are general
partners of a limited partnership, which owns the shares and with respect
to which he shares investment power with Leonard A. Lauder, as co-trustee
of the LAL Trust and as an individual general partner of the limited
partnership, Ronald S. Lauder, as co-trustee of the RSL Trust and as an
individual general partner of the limited partnership, Joel S. Ehrenkranz,
as co-trustee of the LAL Trust, and Richard D. Parsons, as co-trustee of
the RSL Trust; and 650,180 shares of Class A Common Stock with respect to
which he has sole voting power as sole trustee of the RSL 4201 Trust. Mr.
Wender disclaims beneficial ownership of such shares. Shares owned by the
Estee Lauder 2001 Charitable Trust and the RSL 4201 Trust are not subject
to the Stockholders' Agreement. Mr. Wender's business address is 1133
Avenue of the Americas, New York, New York 10036.
(8) Includes shares owned beneficially or deemed to be owned beneficially by
William P. Lauder as follows: 1,168,240 shares of Class A Common Stock and
2,264,038 shares of Class B Common Stock directly and with respect to which
he has sole voting and investment power; 2,531,471 shares of Class A Common
Stock and 3,829,216 shares of Class B Common Stock as co-trustee of a trust
and with respect to which he shares voting power with Gary M. Lauder, as
co-trustee, and investment power with Gary M. Lauder and Joel Ehrenkranz,
as co-trustees; 313,862 shares of Class A Common Stock as a director of The
Lauder Foundation and with respect to which he shares voting and investment
power; and 300,000 shares of Class A Common Stock as director of the AAF
and with respect to which he shares voting and investment power.
(FOOTNOTES CONTINUED ON NEXT PAGE)
7
(FOOTNOTES CONTINUED FROM PREVIOUS PAGE)
Shares owned by The Lauder Foundation and the AAF are not subject to the
Stockholders' Agreement. William P. Lauder disclaims beneficial ownership
with respect to shares of Class A Common Stock owned by The Lauder
Foundation and the AAF. William P. Lauder also has options with respect to
393,668 shares of Class A Common Stock granted to him pursuant to the
Company's share incentive plans that are not yet exercisable.
(9) Includes shares owned beneficially or deemed to be owned beneficially by
Gary M. Lauder as follows: 79,920 shares of Class A Common Stock directly
and with respect to which he has sole voting and investment power;
2,531,471 shares of Class A Common Stock and 3,829,216 shares of Class B
Common Stock as co-trustee of a trust and with respect to which he shares
voting power with William P. Lauder, as co-trustee, and investment power
with William P. Lauder and Mr. Ehrenkranz, as co- trustees; and (iii) 5,234
shares of Class A Common Stock and 22,870 shares of Class B Common Stock as
custodian for his nieces. Mr. Lauder disclaims beneficial ownership of the
shares held by him as custodian. Gary M. Lauder's business address is ICTV
Inc., 14600 Winchester Boulevard, Los Gatos, California 95030.
(10) Includes shares owned beneficially or deemed to be owned beneficially by
Joel S. Ehrenkranz as follows: 2,500 shares of Class A Common Stock
directly; 2,531,471 shares of Class A Common Stock and 3,829,216 shares of
Class B Common Stock as co-trustee of a trust and with respect to which he
shares investment power with William P. Lauder and Gary M. Lauder, as
co-trustee; 15,384 shares of Class A Common Stock and 3,846,154 shares of
Class B Common Stock as co-trustee of the LAL Trust, which is a general
partner of a limited partnership, which owns the shares and with respect to
which he shares investment power with Leonard A. Lauder, who is an
individual general partner of the limited partnership and also a co-trustee
of the LAL Trust, Ronald S. Lauder, who is an individual general partner of
the limited partnership and also a co-trustee of the RSL Trust, Richard D.
Parsons and Ira T. Wender, as co-trustees of the RSL Trust, and Ira T.
Wender, as co-trustee of the LAL Trust; and 128,359 shares of Class A
Common Stock with respect to which he has sole voting power as sole trustee
of the LAL 4002 Trust. Mr. Ehrenkranz disclaims beneficial ownership of all
such shares except the shares he owns directly. Shares owned by the LAL
4002 Trust are not subject to the Stockholders' Agreement. Mr. Ehrenkranz's
business address is 375 Park Avenue, New York, New York 10152.
(11) Includes shares owned beneficially or deemed to be owned beneficially by
Richard D. Parsons as follows: 2,221 shares of Class A Common Stock
directly and with respect to which he has sole voting and investment power;
4,000,000 shares of Class A Common Stock and 16,458,484 shares of Class B
Common Stock as trustee of trusts for the benefit of Aerin Lauder and Jane
Lauder and with respect to which Mr. Parsons has sole voting and investment
power; and 15,384 shares of Class A Common Stock and 3,846,154 shares of
Class B Common Stock as co-trustee of the RSL Trust, which is a general
partner of a limited partnership, which owns the shares and with respect to
which he shares investment power with Ronald S. Lauder, who is an
individual general partner of the limited partnership and also a co-trustee
of the LAL Trust, Leonard A. Lauder, who is an individual general partner
of the limited partnership and also a co-trustee of the LAL Trust, Ira T.
Wender, as co-trustee of the RSL Trust, and Joel S. Ehrenkranz and Ira T.
Wender, as co-trustees of the LAL Trust. Mr. Parsons disclaims beneficial
ownership of all such shares, other than those owned by him directly. All
of the shares of Class A Common Stock owned by trusts for the benefit of
Aerin Lauder and Jane Lauder represent shares owed to the trusts by Ronald
S. Lauder to secure repayment of stock loans made to Mr. Lauder. Such
loans, which were made to Mr. Lauder at the time of the Company's initial
public offering, are secured by a pledge of 1,000,000 shares of Class A
Common Stock and 3,000,000 shares of Class B Common Stock. The options
become exercisable on November 9, 2001. Mr. Parson's business address is 75
Rockefeller Plaza, New York, New York 10019.
(12) Based on a Schedule 13G filed February 15, 2001 by Janus Capital
Corporation, a registered investment adviser, and Thomas H. Bailey, its
Chairman of the Board and President (collectively, "Janus"). Janus has sole
voting and dispositive power over the shares. The principal address of
Janus is 100 Fillmore Street, Denver, Colorado 80206-4923.
(FOOTNOTES CONTINUED ON NEXT PAGE)
8
(FOOTNOTES CONTINUED FROM PREVIOUS PAGE)
(13) Based on a Schedule 13G filed February 14, 2001 by FMR Corp., a holding
company, Edward C. Johnson 3d, its Chairman, Abigail P. Johnson, one of its
directors, and Fidelity Management & Research Company, a registered
investment company (collectively "FMR"). FMR shares dispositive power over
the shares, and FMR Corp. has sole power to vote, or to direct the vote of,
1,399,757 shares of Class A Common Stock. The principal address of FMR is
82 Devonshire Street, Boston, Massachusetts 02109.
(14) Based on a Schedule 13G filed February 14, 2001 by Goldman, Sachs & Co., a
broker dealer, partnership and investment adviser, and The Goldman Sachs
Group, Inc., a holding company (collectively, "Goldman"). Goldman shares
voting and dispositive power with respect to the shares. The principal
address of Goldman is 85 Broad Street, New York, New York 10004.
(15) Excludes stock options with respect to 3,199,998 shares of Class A Common
Stock granted to Mr. Langhammer under his prior employment agreement and
the Fiscal 1999 Share Incentive Plan that are not exercisable.
(16) Includes 2,000 shares of Class A Common Stock to be granted to Ms. Forester
on October 31, 2001.
(17) Mr. Hockaday defers the cash portion of his board retainer and meeting fees
in the form of cash-payout stock units.
(18) Includes shares of Class A Common Stock owned beneficially by Mr. Rose as
follows: 7,449 shares directly, 1,000 shares indirectly as a director of a
private foundation, and 7,000 shares as trustee of one of his children's
trusts, in each case with respect to which he has sole voting and
investment power. Mr. Rose disclaims beneficial ownership of shares owned
by the foundation and by his child's trust. In addition, Mr. Rose defers
the cash portion of his board retainer and meeting fees in the form of
cash-payout stock units. The options become exercisable on November 9,
2001.
(19) The options become exercisable on November 9, 2001.
(20) Excludes stock options with respect to 466,998 shares of Class A Common
Stock granted to Mr. Brestle under a previous employment agreement and the
Company's Fiscal 1999 Share Incentive Plan that are not yet exercisable.
(21) Excludes stock options with respect to 400,000 shares of Class A Common
Stock granted to Mr. Bousquet-Chavanne under the Company's Fiscal 1999
Share Incentive Plan that are not yet exercisable.
(22) See notes (3) through (6), (8), (11) and (15) through (21). Also excludes
stock options with respect to an aggregate of 805,070 shares of Class A
Common Stock granted to the executive officers whose names do not appear in
this table or the notes thereto, which are not yet exercisable.
ADDITIONAL INFORMATION REGARDING THE BOARD OF DIRECTORS
STOCKHOLDERS' AGREEMENT. All Lauder Family Members (other than The Lauder
Foundation, Aerin Lauder, Jane Lauder, the LAL 4002 Trust, the RSL 4201 Trust,
The 4202 Corporation and the Estee Lauder 2001 Charitable Trust) that
beneficially own shares of Common Stock have agreed pursuant to the
Stockholders' Agreement to vote all shares beneficially owned by them for
Leonard A. Lauder, Ronald S. Lauder and one person, if any, designated by each
as a director of the Company. Lauder Family Members who are parties to the
Stockholders' Agreement beneficially owned, in the aggregate, on September 14,
2001, shares of Common Stock having approximately 89.1% of the voting power of
the Company. The right of each of Leonard A. Lauder and Ronald S. Lauder to
designate a nominee exists only when he (including his descendants) beneficially
owns (other than by reason of the Stockholders' Agreement) shares of Common
Stock with at least 10% of the total voting power of the Company. Currently,
William P. Lauder is the nominee of Leonard A. Lauder and Richard D. Parsons is
the nominee of Ronald S. Lauder. The right of each of Leonard A. Lauder and
Ronald S. Lauder to be nominated will exist so long as he (including his
descendants) beneficially owns shares of Common Stock with at least 5% of the
total voting power of the Company. In the event that Leonard A. Lauder ceases to
be a member of the Board of Directors by reason of his death or disability, then
his sons, William P. Lauder and Gary M. Lauder, will succeed to his rights to be
nominated as a director and to designate one nominee. If either son is unable to
serve by reason of his death or disability, the other son will have the right to
designate a nominee.
9
Similarly, Aerin Lauder and Jane Lauder, Ronald S. Lauder's daughters, will
succeed to their father's rights if he should cease to be a director by reason
of his death or disability. If either daughter is unable to serve by reason of
her death or disability, the other daughter will have the right to designate a
nominee. In the event none of Leonard A. Lauder and his sons and Ronald S.
Lauder and his daughters are able to serve as directors by reason of death or
disability, then the rights under the Stockholders' Agreement to be a nominee
and to designate a nominee will cease.
BOARD COMMITTEES. The Board of Directors has established four
committees--the Audit Committee, the Compensation Committee, the Stock Plan
Subcommittee and the Nominating and Board Affairs Committee.
The Audit Committee members are Charlene Barshefsky, Lynn Forester, Irvine
O. Hockaday, Jr., Marshall Rose and Faye Wattleton, Chairman. The Committee,
among other things, makes recommendations to the Board of Directors regarding
the appointment of independent auditors, reviews the independence of such
auditors, approves the scope of the annual audit activities of the independent
auditors and the Company's Internal Control Department and reviews audit
results.
The Compensation Committee members are Lynn Forester, Richard D Parsons,
Chairman, and Marshall Rose. The Committee, among other things, has the
authority to establish and approve compensation plans and arrangements with
respect to the Company's executive officers and administers certain employee
benefit plans, including the executive annual incentive plan. The Stock Plan
Subcommittee, whose members are Lynn Forester and Marshall Rose, has the
authority to adopt and administer the Company's share incentive plans.
The Nominating and Board Affairs Committee members are Leonard A. Lauder,
Richard D. Parsons and Faye Wattleton, Chairman. The Committee, among other
things, recommends nominees for election as members of the Board, considers and
makes recommendations regarding Board practices and procedures and reviews the
compensation for service as a Board member.
BOARD AND BOARD COMMITTEE MEETINGS. In fiscal 2001, the Board of Directors
met five times, the Compensation Committee met twice, the Stock Plan
Subcommittee met once, the Audit Committee met four times and the Nominating and
Board Affairs Committee met six times. The total combined attendance for all
Board and Committee meetings was 97%.
COMPENSATION OF DIRECTORS. Each Non-Employee Director receives an annual
cash retainer of $60,000 payable quarterly and a grant of ten-year options to
purchase 5,000 shares of Class A Common Stock. Committee Chairmen receive an
additional annual retainer of $15,000 each.
An additional $25,000 is payable to each Non-Employee Director by a grant
of stock units (accompanied by dividend equivalent rights) as an annual stock
retainer in the fourth quarter of the calendar year. Each stock unit is
convertible into shares of Class A Common Stock on or after the first business
day of the calendar year following the one in which the director ceases to be a
member of the Board. The number of stock units to be awarded is determined by
dividing $25,000 by the average closing price of the Class A Common Stock on the
twenty trading days next preceding the date of grant. In lieu of receiving stock
units, a director may elect to receive options in respect of Class A Common
Stock. The number of shares subject to such option grant is determined by
dividing $75,000 by the closing price per share of the Class A Common Stock on
the date of grant. Such price per share is also the exercise price per share of
the options. Options have 10-year terms (subject to post-service limitations).
In no event will stock units or stock options representing more than 5,000
shares be granted in connection with the annual stock retainer.
On the date of the first annual meeting of stockholders which is more than
six months after a Non-Employee Director's initial election to the Board, the
director receives a grant of 2,000 shares of Class A Common Stock (plus a cash
payment in an amount to cover related taxes).
Non-Employee Directors receive $1,500 for each board or committee meeting
attended plus reimbursement of reasonable expenses of attending such meetings.
For services rendered outside Board or committee meetings, which are in
furtherance of Board and/or committee business, Non-Employee Directors may
receive an additional fee of $1,500 per day.
Non-Employee Directors may elect to defer receipt of all or part of their
cash-based compensation. The deferrals may take the form of stock equivalent
units (accompanied by dividend equivalent rights) to be paid out in cash or may
simply accrue interest until paid out in cash.
10
Directors who are also employees of the Company receive no additional
compensation for service as directors.
DIRECTOR NOMINEES. The Nominating and Board Affairs Committee will consider
stockholder recommendations of nominees with proven business judgment and
experience and impeccable reputations. Proposed nominees should be able to
satisfy the independence and other requirements to serve on our Board's Audit
and/or Compensation Committees and the Stock Plan Subcommittee. Stockholders who
wish to suggest qualified candidates should send their written recommendation to
Paul E. Konney, Senior Vice President, General Counsel and Secretary, The Estee
Lauder Companies Inc., 767 Fifth Avenue, New York, New York 10153. Any
recommendation should be accompanied by detailed information regarding the
proposed nominee's experience and qualifications and the stockholder making the
recommendation. For stockholders intending to nominate an individual for
election as a director, there are specific procedures set forth in our bylaws.
See "Stockholder Proposals and Nominations".
AUDIT COMMITTEE REPORT
The Audit Committee of the Board of Directors, consisting solely of
"independent directors" as defined by the Board and consistent with the rules of
the New York Stock Exchange, has:
1. reviewed and discussed the Company's audited financial statements for
the fiscal year ended June 30, 2001 with management and
representatives of Arthur Andersen LLP;
2. discussed with Arthur Andersen the matters required to be discussed by
SAS 61, as modified or supplemented; and
3. received the written disclosures and letter from Arthur Andersen
required by Independence Standards Board Standard No. 1 and discussed
Arthur Andersen's independence with representatives of Arthur
Andersen.
Based on the review and discussions referred to above, the Audit Committee
recommended to the Board of Directors that the audited financial statements for
the fiscal year ended June 30, 2001 be included in the Company's annual report
on Form 10-K filed with the Securities and Exchange Commission.
The Board of Directors has adopted a written charter for the Audit
Committee. A copy of the charter is attached to this Proxy Statement as Appendix
A.
The Audit Committee
Faye Wattleton, Chairman
Charlene Barshefsky
Lynn Forester
Irvine O. Hockaday, Jr.
Marshall Rose
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors, and any persons who own more than ten percent of the
Class A Common Stock, to file forms reporting their initial beneficial ownership
of common stock and subsequent changes in that ownership with the Securities and
Exchange Commission and the New York Stock Exchange. Officers, directors and
greater-than-ten-percent beneficial owners also are required to furnish the
Company with copies of all forms they file under Section 16(a). Based solely
upon a review of the copies of the forms furnished to the Company, or a written
representation from a reporting person that no Form 5 was required, the Company
believes that during the 2001 fiscal year all Section 16(a) filing requirements
were satisfied.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
FAMILY RELATIONSHIPS. Mrs. Estee Lauder and her late husband, Joseph
Lauder, founded the Company. Until September 1995, Mrs. Lauder was Chairman of
the Board of Directors. She is currently Founding
11
Chairman, an honorary position. Her son, Leonard A. Lauder, is the Chairman of
the Board of Directors. Her other son, Ronald S. Lauder, is a Senior Vice
President and Director of the Company and Chairman of Estee Lauder
International, Inc. and Clinique Laboratories, Inc. Leonard A. Lauder's wife,
Evelyn H. Lauder, is Senior Corporate Vice President of the Company. Leonard A.
Lauder and his wife have two sons, William P. Lauder and Gary M. Lauder. William
P. Lauder is Group President and a Director of the Company. Gary M. Lauder is
not an employee of the Company. Ronald S. Lauder and his wife, Jo-Carole Lauder,
have two daughters, Aerin Lauder and Jane Lauder. Aerin Lauder is Vice
President--Global Advertising for Estee Lauder. Jane Lauder is Vice President of
Marketing for Stila Cosmetics, Inc., a subsidiary of the Company.
As used in this Proxy Statement, the term "Lauder Family Members" includes
only the following persons: (i) Mrs. Estee Lauder and her estate, guardian,
conservator or committee; (ii) each descendant of Mrs. Lauder (a "Lauder
Descendant") and their respective estates, guardians, conservators or
committees; (iii) each "Family Controlled Entity" (as defined below); and (iv)
the trustees, in their respective capacities as such, of each "Family Controlled
Trust" (as defined below). The term "Family Controlled Entity" means (i) any
not-for-profit corporation if at least 80% of its board of directors is composed
of Mrs. Estee Lauder and/or Lauder Descendants; (ii) any other corporation if at
least 80% of the value of its outstanding equity is owned by Lauder Family
Members; (iii) any partnership if at least 80% of the value of its partnership
interests are owned by Lauder Family Members; and (iv) any limited liability or
similar company if at least 80% of the value of the company is owned by Lauder
Family Members. The term "Family Controlled Trust" includes certain trusts
existing on November 16, 1995 and trusts the primary beneficiaries of which are
Mrs. Estee Lauder, Lauder Descendants, spouses of Lauder Descendants and/or
charitable organizations, provided that if the trust is a wholly charitable
trust, at least 80% of the trustees of such trust consist of Mrs. Lauder and/or
Lauder Descendants.
ROYALTY ARRANGEMENTS. In 1969, the Company acquired from Mrs. Estee Lauder
ownership of the trademark Estee Lauder outside the United States in exchange
for royalty payments on sales of Estee Lauder brand products during Mrs.
Lauder's lifetime. The royalty payments also relate to sales of Prescriptives
products, which initially were sold under the Estee Lauder brand. The royalty
with respect to those sales continues to be an obligation of the Company until
Mrs. Estee Lauder's death. The royalty paid to Mrs. Lauder for fiscal 2001
amounted to $16.0 million.
REGISTRATION RIGHTS AGREEMENT. Leonard A. Lauder, Ronald S. Lauder, The
Estee Lauder 1994 Trust, William P. Lauder, Gary M. Lauder, Aerin Lauder, Jane
Lauder, certain Family Controlled Entities and other Family Controlled Trusts,
Morgan Guaranty Trust Company of New York ("Morgan Guaranty") and the Company
are parties to a Registration Rights Agreement (the " Registration Rights
Agreement"), pursuant to which each of Leonard A. Lauder, Ronald S. Lauder and
Morgan Guaranty have three demand registration rights and The Estee Lauder 1994
Trust has six demand registration rights in respect of shares of Class A Common
Stock (including Class A Common Stock issued upon conversion of Class B Common
Stock) held by them. Three of the demand rights granted to The Estee Lauder 1994
Trust may be used only by a pledgee of The Estee Lauder 1994 Trust's shares of
Common Stock. All the parties to the Registration Rights Agreement (other than
the Company) also have an unlimited number of piggyback registration rights in
respect of their shares. The rights of Morgan Guaranty and any pledgee of The
Estee Lauder 1994 Trust under the Master Registration Rights Agreement will be
exercisable only in the event of a default under certain loan arrangements.
Leonard A. Lauder and Ronald S. Lauder may assign their demand registration
rights to Lauder Family Members. The Company is not required to effect more than
one registration of Class A Common Stock in any consecutive twelve-month period.
The piggyback registration rights allow the holders to include their shares of
Class A Common Stock in any registration statement filed by the Company, subject
to certain limitations.
The Company is required to pay all expenses (other than underwriting
discounts and commissions of the selling stockholders, taxes payable by the
selling stockholders and the fees and expenses of the selling stockholders'
counsel) in connection with any demand registrations, as well as any
registration pursuant to the exercise of piggyback rights. The Company has
agreed to indemnify the selling stockholders against certain liabilities,
including liabilities arising under the Securities Act of 1933.
STOCKHOLDERS' AGREEMENT. All Lauder Family Members (other than The Lauder
Foundation, Aerin Lauder, Jane Lauder, the LAL 4002 Trust, the RSL 4201 Trust,
The 4202 Corporation and the Estee Lauder 2001 Charitable Trust) that
beneficially own shares of Common Stock are parties to a stockholders' agreement
with the Company (the "Stockholders' Agreement"). The stockholders who are
parties to the Stockholders' Agreement
12
beneficially owned, in the aggregate, shares of Common Stock having
approximately 89.1% of the voting power of the Company on September 14, 2001.
Such stockholders have agreed to vote in favor of the election of Leonard A.
Lauder and Ronald S. Lauder and one designee of each as directors. See
"Additional Information Regarding the Board of Directors--Stockholders'
Agreement." The Stockholders' Agreement also contains certain limitations on the
transfer of shares of Class A Common Stock and Class B Common Stock. In
addition, each stockholder who is a party to the Stockholders' Agreement (the
"Offering Stockholder") has granted to each other party (the "Offeree") a right
of first offer to purchase shares of Class A Common Stock the Offering
Stockholder intends to sell to a person (or group of persons) who is not a
Lauder Family Member, except in certain circumstances, such as sales in a widely
distributed underwritten public offering or sales made in compliance with Rule
144 under the Securities Act of 1933. Each Offeree has the opportunity to
purchase the Offeree's pro rata portion of the shares to be offered by the
Offering Stockholder, as well as additional shares not purchased by other
Offerees. Any shares not purchased pursuant to the right of first offer may be
sold at or above 95% of the price offered to the Offerees. The Stockholders'
Agreement will terminate upon the occurrence of certain specified events,
including the transfer of shares of Common Stock by a party to the Stockholders'
Agreement that causes all parties thereto immediately after such transaction to
own beneficially in the aggregate shares having less than 10% of the total
voting power of the Company.
OTHER ARRANGEMENTS. The Company has subleased certain of its office space
in New York to an affiliate of Ronald S. Lauder. For fiscal 2001, the rent paid
or accrued was approximately $570,000, which equals the Company's lease payments
for that space. The Company also has agreed to provide such affiliate with
certain services, such as phone systems, payroll service and office and
administrative services, which are reimbursed at a rate approximating the
Company's incremental cost thereof. On account of fiscal 2001, the affiliate
paid approximately $26.3 million pursuant to such agreement.
13
EXECUTIVE COMPENSATION
The following table sets forth a summary of all compensation awarded or
paid to or earned by the chief executive officer and the four other most highly
compensated executive officers of the Company in the last fiscal year for
services rendered in all capacities to the Company (including its subsidiaries)
for the fiscal years ended June 30, 2001, 2000 and 1999.
SUMMARY COMPENSATION TABLE
LONG-TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
------------------------- ---------------------------------
SECURITIES
FISCAL RESTRICTED STOCK UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) AWARDS($) OPTIONS(#)(a) COMPENSATION($)
-------------------------------- ------ ------------ ---------- ---------------- ------------- --------------
LEONARD A. LAUDER, 2001 1,800,000 1,676,000 -- -- 475,790(c)
Chairman of the Board (b) 2000 1,920,000 4,880,000 -- 1,000,000 673,139
1999 1,840,000 4,005,400 -- 1,000,000 742,971
FRED H. LANGHAMMER, 2001 2,000,000 2,793,000 2,000,000(d) 500,000 1,817,615(e)
President and Chief Executive 2000 1,900,000 2,400,000 1,500,000(d) 1,400,000 348,144
Officer (b) 1999 1,725,000 1,725,000 1,500,000(d) 400,000 298,722
PATRICK BOUSQUET-CHAVANNE, 2001 1,481,000(g) 1,072,000 -- 100,000 17,342(h)
President of Estee Lauder 2000 1,425,000(g) 700,000 -- 100,000 8,963
International, Inc. (f) 1999 1,384,000(g) 600,000 -- 150,000 4,550
DANIEL J. BRESTLE, 2001 1,024,800(j) 850,000 -- 100,000 20,377(h)
President of Estee Lauder 2000 1,014,700(j) 900,000 -- 100,000 20,555
(USA & Canada) (i) 1999 1,015,000(j) 850,000 -- 100,000 20,629
WILLIAM P. LAUDER, 2001 965,000(k) 850,000 -- 100,000 4,950(h)
President of Clinique 2000 976,000(k) 808,000 -- 100,000 5,250
Laboratories, Inc. (i) 1999 954,000(k) 750,000 -- 100,000 4,550
----------
(a) The numbers of shares of Class A Common Stock underlying the options
granted in fiscal 1999 have been restated to reflect the two-for-one stock
split on June 2, 1999.
(b) Prior to January 1, 2000, Mr. Lauder was Chairman of the Board and Chief
Executive Officer and Mr. Langhammer was President and Chief Operating
Officer.
(c) Amounts reported under "All Other Compensation" for fiscal 2001 include the
estimated dollar value of the benefit to Mr. Lauder of Company-paid
premiums in the amount of $471,290 on split dollar life insurance. A trust
established by Mr. Lauder pays the term-life portion of the policy. The
Company will recover all premiums paid by it at the time death benefits are
paid, and may recover such amounts earlier under certain circumstances. The
maximum potential value is calculated as if the fiscal year premiums were
advanced to Mr. Lauder without interest until the time the Company expects
to recover the premiums (i.e., upon his death). The amount reported for Mr.
Lauder in fiscal 2001 also includes $4,500 of matching contributions made
pursuant to the Company's qualified defined contribution plan.
(d) Reflects the dollar value (without consideration of the restrictions) of
restricted stock units granted to Mr. Langhammer pursuant to his employment
agreement. Additional stock units are credited to Mr. Langhammer in
connection with dividends, which are payable in additional units. At the
end of fiscal 2001, Mr. Langhammer held 197,699 restricted stock units.
Based on the closing price of the Company's Class A Common Stock at the end
of fiscal 2001, the value of such units (without consideration of the
restrictions) was $8,521,000. The stock units are payable in shares of
Class A Common Stock within 90 days after Mr. Langhammer's termination of
employment. Pursuant to his employment agreement and the Fiscal 1999 Share
Incentive Plan, he received an additional grant of 47,934 restricted stock
units on July 1, 2001 and an additional grant of 246 restricted stock units
pursuant to dividend equivalent rights on July 3, 2001.
(FOOTNOTES CONTINUED ON NEXT PAGE)
14
(FOOTNOTES CONTINUED FROM PREVIOUS PAGE)
(e) Amounts reported in fiscal 2001 include the estimated dollar value of the
Company-paid premiums for split dollar life insurance calculated on the
same basis as disclosed in note (c) above but assuming a recovery by the
Company of all premiums in calendar 2013.
(f) Mr. Bousquet-Chavanne became an executive officer when he rejoined the
Company in September 1998 as president of Estee Lauder International, Inc.
He became Group President responsible for Estee Lauder, MAC and designer
fragrance brands in July 2001.
(g) Includes (i) a signing bonus of $200,000, approximately $419,000 relating
to the forgiveness of a portion of a loan from the Company and $15,000 for
executive perquisites for fiscal 1999, (ii) $440,000 related to forgiveness
of a portion of a loan and $35,000 for executive perquisites for fiscal
2000 and (iii) $466,000 relating to the forgiveness of the remaining
portion of the loan made to him pursuant to his prior employment agreement
and $15,000 for executive perquisites for fiscal 2001.
(h) Amounts reported in fiscal 2001 include: (i) the estimated dollar value of
the benefit to the named executive officer of Company-paid premiums for
split dollar life insurance (calculated on the same basis as disclosed in
note (c) above) as follows: Mr. Bousquet-Chavanne, $12,925, and Mr.
Brestle, $15,277; and (ii) matching contributions made on behalf of named
executive officer pursuant to the Company's qualified defined contribution
plan as follows: Mr. Bousquet-Chavanne, $4,417, Mr. Brestle, $5,100 and Mr.
W. Lauder, $4,950.
(i) Prior to July 2001, Mr. Brestle was President of Estee Lauder (USA &
Canada) and Mr. W. Lauder was President of Clinique Laboratories, Inc. As
of July 1, 2001, Mr. Brestle and Mr. W. Lauder are Group Presidents
responsible for various brands and business operating units.
(j) Includes $24,800, $14,700 and $15,000 for executive perquisites in fiscal
2001, 2000 and 1999 respectively.
(k) Includes $15,000, $26,000 and $4,000 for executive perquisites in fiscal
2001, 2000 and 1999 respectively.
15
OPTION GRANTS IN FISCAL 2001
INDIVIDUAL GRANTS
-----------------------------------------------------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS
UNDERLYING GRANTED TO EXERCISE GRANT DATE
OPTIONS EMPLOYEES IN PRICE EXPIRATION PRESENT VALUES
(#)(1)(2) FISCAL YEAR ($/SH)(2) DATE ($)(3)
---------- ------------ -------- ---------- --------------
Leonard A. Lauder ............... 0 0% N.A. N.A. N.A.
Fred H. Langhammer .............. 500,000 18.45% 43.6875 8/16/10 8,765,000
Patrick Bousquet-Chavanne ....... 100,000 3.69% 43.6875 8/16/10 1,753,000
Daniel J. Brestle ............... 100,000 3.69% 43.6875 8/16/10 1,753,000
William P. Lauder ............... 100,000 3.69% 43.6875 8/16/10 1,753,000
----------
(1) The options granted in fiscal 2001 to the named executive officers have a
term of 10 years and were granted pursuant to the Fiscal 1999 Share
Incentive Plan.
(2) In accordance with Securities and Exchange Commission rules, the
Black-Scholes option pricing model was chosen to estimate the Grant Date
Present Value of the options set forth in this table. The Company's use of
this model should not be construed as an endorsement of its accuracy for
valuing options. All stock option models require a prediction about the
future movement of the stock price. The following assumptions were made for
purposes of calculating Grant Date Present Value: expected average time of
exercise of seven years, volatility of 31%, dividend yield of 0.5% and
average risk-free rate of return of 6.0%. The real value of the options in
this table depends upon the actual performance of the Company's stock
during the applicable period and upon the date when they are exercised.
AGGREGATED OPTION EXERCISES IN FISCAL 2001 AND 2001 FISCAL YEAR-END OPTIONS
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
SHARES VALUE OPTIONS AT FISCAL YEAR-END(#) FISCAL YEAR-END($)(1)
ACQUIRED ON REALIZED ---------------------------- ---------------------------
EXERCISE(#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- --- ------------ -------------- ------------ -------------
Leonard A. Lauder ............... -- -- 2,200,002 2,999,998 56,720,041 27,731,209
Fred H. Langhammer .............. 100,000 3,111,838 900,002 2,699,998 23,290,041 11,092,459
Patrick Bousquet-Chavanne ....... -- -- 50,000 300,000 797,188 1,594,375
Daniel J. Brestle ............... 100,002 2,420,212 99,668 366,998 1,643,379 3,876,480
William P. Lauder ............... -- -- 136,332 293,668 2,883,660 1,159,965
----------
(1) The closing price per share on June 29, 2001, the last trading day in
fiscal 2001, was $43.10.
PENSION PLANS
The Company provides retirement benefits to its employees in the United
States through a defined benefit plan, which is intended to be qualified under
Section 401 of the Internal Revenue Code, and a related non-qualified
restoration plan. In general, for employees who were at least 50 years old and
had five years of Company qualifying employment on January 1, 1993 or who had
ten years of Company qualifying employment as of that date, retirement benefits
pursuant to the plans are calculated as a multiple of years of qualifying
Company employment, times final qualifying average compensation, times a
percentage (currently 1.5%), offset by certain amounts calculated with reference
to Social Security entitlements. For other employees, retirement benefits under
the plans are the aggregate amount of annual credits (calculated with reference
to total annual compensation, with certain items excluded) plus interest credits
thereon. The benefits payable to Leonard A. Lauder and Fred H. Langhammer are
calculated with reference to supplemental undertakings.
Leonard A. Lauder has 43 years of qualifying Company employment and is
retirement eligible. If he were to retire currently, his annual retirement
benefits would be approximately $940,000. He (or his wife, estate or designee)
also would be paid approximately $1.8 million per year, pursuant to an
arrangement in his current and former employment agreements. Payments under such
arrangement will commence upon the earliest to occur of
16
his retirement, his death or his 70th birthday and will continue for ten years
thereafter.
Mr. Langhammer currently has 26 years of qualifying Company employment. If
he retired at normal retirement age with 34 years of qualifying Company
employment, his projected annual retirement benefit would be approximately $2.4
million payable during his lifetime.
Mr. Bousquet-Chavanne currently has ten years of qualifying Company
employment. If he retired at normal retirement age with 32 years of qualifying
Company employment, his projected annual retirement benefit would be
approximately $367,000 payable during his lifetime.
Mr. Brestle currently has 23 years of qualifying Company employment. If he
retired at normal retirement age with 32 years of qualifying Company employment,
his projected annual retirement benefit would be approximately $472,000 payable
during his lifetime.
William P. Lauder currently has 15 years of qualifying Company employment.
If he retired at normal retirement age with 39 years of qualifying Company
employment, his projected annual retirement benefit would be approximately
$430,000 payable during his lifetime.
EMPLOYMENT AGREEMENTS
LEONARD A. LAUDER. Mr. Lauder's current employment agreement (the "2000
Agreement") provides for his employment as Chairman of the Board of the Company
until such time as he resigns, retires or is terminated. The agreement provides
for a base salary of $1.8 million per year. Mr. Lauder is entitled to
participate in standard benefit plans, such as the Company's pension and medical
plans, and has a supplemental pension arrangement discussed above. Mr. Lauder's
aggregate annual bonus opportunities for fiscal 2002 under the Executive Annual
Incentive Plan amount to $1.8 million. Mr. Lauder may elect to defer a certain
portion of his cash compensation. Mr. Lauder is entitled to participate in the
Fiscal 1999 Share Incentive Plan and Fiscal 2002 Share Incentive Plan, if
approved by stockholders, but no grants have been made to him under either plan
to date. The Company may terminate Mr. Lauder's employment at any time if he
becomes "permanently disabled", in which event Mr. Lauder will be entitled to
(i) receive his base salary for a period of two years after termination, (ii)
receive bonus compensation at an annual rate equal to the average of the actual
bonuses paid to him prior to such termination under the 2000 Agreement or, if no
bonuses have been paid, his base salary (the "Leonard Lauder Bonus
Compensation") and (iii) participate in the Company's benefit plans for two
years. In the event of Mr. Lauder's death during the term of his employment, for
a period of one year from the date of Mr. Lauder's death, his beneficiary or
legal representative will be entitled to receive Mr. Lauder's base salary and
the Leonard Lauder Bonus Compensation. Mr. Lauder may terminate his employment
at any time upon six months' written notice to the Company, in which event Mr.
Lauder will be entitled to receive his base salary and the Leonard Lauder Bonus
Compensation for the six-month period following termination. In addition, the
Company may terminate Mr. Lauder's employment for any reason upon 60 days'
written notice. In the event of termination by the Company (other than for
cause) or a termination by Mr. Lauder for good reason after a change of control,
(a) Mr. Lauder, for a period of three years from the date of termination, will
be entitled to (i) receive his base salary in effect at the time of termination,
(ii) receive the Leonard Lauder Bonus Compensation and (iii) participate in the
Company's benefit plans and (b) in the case of termination by the Company (other
than for cause), Mr. Lauder will not be subject to a non-competition covenant
contained in the 2000 Agreement. If Mr. Lauder receives any severance payments,
then he is entitled to be reimbursed for any excise taxes that may be imposed on
them. Upon termination for any reason, options previously granted to Mr. Lauder
will remain exercisable for the remainder of their respective terms, subject to
certain non-competition and good conduct provisions.
FRED H. LANGHAMMER. Mr. Langhammer's employment agreement provides for his
employment as President and Chief Executive Officer of the Company through June
30, 2005, unless earlier terminated. The agreement provides for an annual base
salary of $2.0 million. Mr. Langhammer is entitled to participate in standard
benefit plans, such as the Company's pension and medical plans. Mr. Langhammer
is entitled to additional pension payments under a supplemental undertaking by
the Company. See "Pension Plans" above. His employment agreement provides that
his annual bonus opportunities under the Executive Annual Incentive Plan will
not exceed 150% of his base salary. Mr. Langhammer may elect to defer certain of
his cash compensation. He was granted options with respect to 1.0 million shares
of Class A Common Stock on January 1, 2000 with an exercise price of $50.4375
per share. His agreement provides for additional annual option grants in respect
of
17
500,000 shares. The grant made for fiscal 2001 has an exercise price of $43.6875
per share and the grant made for fiscal 2002 has an exercise price of $40.50 per
share. In addition, Mr. Langhammer's agreement provides for the grant to him of
$2.0 million worth of restricted stock units each year. On July 1, 2001, Mr.
Langhammer received stock units with respect to 47,934 shares, accompanied by
dividend equivalents which are payable in additional stock units. Stock units
awarded in any fiscal year may be forfeited under certain circumstances if Mr.
Langhammer is terminated during such year. The stock units will be paid in
shares of Class A Common Stock at a time to be determined by the Company, but in
no event later than ninety days after the termination of Mr. Langhammer's
employment. Including grants that remain outstanding from his prior agreement,
Mr. Langhammer currently holds restricted stock units in respect of 245,879
shares of Class A Common Stock. The Company may terminate Mr. Langhammer's
employment at any time if he becomes "permanently disabled", in which event Mr.
Langhammer will be entitled to (i) receive his base salary in effect at the time
of termination (the "Langhammer Base Salary") for a period of one year after
termination, (ii) receive his pro rata bonus through the date of termination and
(iii) participate in the Company's benefit plans through the date of
termination. In the event of Mr. Langhammer's death during the term of his
employment, his beneficiary or legal representative will be entitled to receive
the benefits of certain Company-sponsored insurance, including supplemental
split-dollar arrangements. The Company may terminate Mr. Langhammer's employment
for any reason upon 60 days' written notice. In the event of (X) the Company's
termination of the agreement (other than for cause) or (Y) Mr. Langhammer's
termination of the agreement as a result of the Company's material breach
thereof, which would include a material reduction in Mr. Langhammer's duties or
responsibilities, or (Z) Mr. Langhammer's termination of his employment for good
reason after a change of control of the Company, (a) Mr. Langhammer, for a
period of three years from the date of termination (or until June 30, 2005),
will be entitled to (i) receive the Langhammer Base Salary, (ii) receive his
average bonus paid during the term of the agreement and (iii) participate in the
Company's benefit plans and (b) Mr. Langhammer will not be subject to a covenant
not to compete contained in such agreement. Mr. Langhammer may terminate his
employment for any other reason at any time upon six months' written notice to
the Company, in which event the Company shall have no further obligations after
termination. If Mr. Langhammer receives any severance payments, then he is
entitled to be reimbursed for any excise taxes that may be imposed on them. Upon
termination for any reason, options granted to Mr. Langhammer will remain
exercisable for the remainder of their respective terms, subject to certain
non-competition and good conduct provisions.
PATRICK BOUSQUET-CHAVANNE. Mr. Bousquet-Chavanne's current employment
agreement provides for his employment as Group President through June 30, 2004,
unless earlier terminated. The agreement provides for an annual base salary of
$1 million. Mr. Bousquet-Chavanne is entitled to participate in standard benefit
plans, such as the Company's pension and medical plans. The Compensation
Committee has granted to Mr. Bousquet-Chavanne target bonus opportunities equal
to $1.3 million for fiscal 2002, $1.4 million for fiscal 2003 and $1.5 million
for fiscal 2004. Mr. Bousquet-Chavanne may elect to defer certain of his cash
compensation. Mr. Bousquet-Chavanne has been granted options with respect to
100,000 shares of Class A Common Stock with an exercise price of $40.50 per
share so far during the term of the agreement and the agreement contemplates
additional stock option grants of 100,000 shares of Class A Common Stock in each
of fiscal 2003 and fiscal 2004. The Company may terminate Mr.
Bousquet-Chavanne's employment at any time if he becomes "permanently disabled",
in which event Mr. Bousquet-Chavanne will be entitled to (i) receive for a
period of one year from the date of termination his base salary in effect at the
time of termination, (ii) receive unpaid bonus compensation otherwise payable
for the fiscal year in which such disability occurred pro-rated to the date of
termination, and (iii) participate in the Company's benefit plans for such
one-year period. In the event of Mr. Bousquet-Chavanne's death during the term
of his employment, his beneficiary or legal representative will be entitled to
receive (i) for a period of one year Mr. Bousquet-Chavanne's base salary in
effect at the time of death and (ii) bonus compensation otherwise payable in
respect of the fiscal year prior to that in which he dies. The Company may
terminate his employment agreement for any reason upon 60 days' written notice.
In the event of the Company's termination of the agreement (other than for
cause), Mr. Bousquet-Chavanne will be entitled to (i) receive for the
Post-Termination Period (as defined below), his base salary in effect at the
time of termination, (ii) receive bonus compensation equal to 50% of the average
of incentive compensation bonuses previously paid or payable to him during the
contract term and (iii) participate in the Company's benefit plans during the
Post-Termination Period. "Post-Termination Period" means the longest from the
date of termination of (a) one year, (b) the period until June 30, 2004, and (c)
the period set forth in the Company's policy (which in no event will be more
than two years). If the Company does not renew the term of his employment, Mr.
Bousquet-Chavanne
18
will be entitled to receive during the Post-Termination Period his base salary
and other benefits consistent with Company policy. In addition to his employment
agreement, the Company made a loan in the amount of $2 million to Mr.
Bousquet-Chavanne. A separate agreement provides that the loan shall be forgiven
in its entirety as to principal if he remains with the Company through July 1,
2005 and shall be forgiven in its entirety with a gross-up for taxes if he
remains with the Company through July 1, 2006.
DANIEL J. BRESTLE. Mr. Brestle's current employment agreement provides for
his employment as Group President through June 30, 2004, unless earlier
terminated. The agreement provides for an annual base salary of $1 million. Mr.
Brestle is entitled to participate in standard benefit plans, such as the
Company's pension and medical plans. The Compensation Committee has granted to
Mr. Brestle target bonus opportunities equal to $1.3 million for fiscal 2002,
$1.4 million for fiscal 2003 and $1.5 million for fiscal 2004. Mr. Brestle may
elect to defer certain of his cash compensation. Mr. Brestle has been granted
options with respect to 100,000 shares of Class A Common Stock with an exercise
price of $40.50 per share so far during the term of this agreement and the
agreement contemplates additional stock option grants of 100,000 shares of Class
A Common Stock in each of fiscal 2003 and fiscal 2004. The Company may terminate
Mr. Brestle's employment at any time if he becomes "permanently disabled", in
which event Mr. Brestle will be entitled to (i) receive for a period of one year
from the date of termination his base salary in effect at the time of
termination, (ii) receive unpaid bonus compensation otherwise payable for the
fiscal year in which such disability occurred pro-rated to the date of
termination, and (iii) participate in the Company's benefit plans for such
one-year period. In the event of Mr. Brestle's death during the term of his
employment, his beneficiary or legal representative will be entitled to receive
(i) for a period of one year Mr. Brestle's base salary in effect at the time of
death and (ii) bonus compensation otherwise payable in respect of the fiscal
year prior to that in which he dies. The Company may terminate his employment
agreement for any reason upon 60 days' written notice. In the event of the
Company's termination of the agreement (other than for cause), Mr. Brestle will
be entitled to (i) receive for the Post-Termination Period his base salary in
effect at the time of termination, (ii) receive bonus compensation equal to 50%
of the average of incentive compensation bonuses previously paid or payable to
him during the contract term and (iii) participate in the Company's benefit
plans during the Post-Termination Period. If the Company does not renew the term
of his employment, Mr. Brestle will be entitled to receive during the
Post-Termination Period his base salary and certain other benefits consistent
with the Company's policy. Upon termination for any reason, options previously
granted to Mr. Brestle will remain exercisable for the remainder of their
respective terms, subject to certain non-competition and good conduct
provisions.
WILLIAM P. LAUDER. Mr. Lauder's current employment agreement provides for
his employment as Group President through June 30, 2004, unless earlier
terminated. The agreement provides for a base salary of $1 million. Mr. Lauder
is entitled to participate in standard benefit plans, such as the Company's
pension and medical plans. The Compensation Committee has granted to Mr. Lauder
target bonus opportunities equal to $1.3 million for fiscal 2002, $1.4 million
for fiscal 2003 and $1.5 million for fiscal 2004. Mr. Lauder may elect to defer
certain of his cash compensation. Mr. Lauder has been granted options with
respect to 100,000 shares of Class A Common Stock with an exercise price of
$40.50 per share so far during the term of this agreement and the agreement
contemplates additional stock option grants of 100,000 shares of Class A Common
Stock in each of fiscal 2003 and fiscal 2004. The Company may terminate Mr.
Lauder's employment at any time if he becomes "permanently disabled", in which
event Mr. Lauder will be entitled to (i) receive for a period of one year from
the date of termination his base salary in effect at the time of termination,
(ii) receive unpaid bonus compensation otherwise payable for the fiscal year in
which such disability occurred pro-rated to the date of termination, and (iii)
participate in the Company's benefit plans for such one-year period. In the
event of Mr. Lauder's death during the term of his employment, his beneficiary
or legal representative will be entitled to receive (i) for a period of one year
Mr. Lauder's base salary in effect at the time of death and (ii) bonus
compensation otherwise payable in respect of the fiscal year prior to that in
which he dies. The Company may terminate his employment agreement for any reason
upon 60 days' written notice. In the event of the Company's termination of the
agreement (other than for cause), Mr. Lauder will be entitled to (i) receive for
the Post-Termination Period his base salary in effect at the time of
termination, (ii) receive bonus compensation equal to 50% of the average of
incentive compensation bonuses previously paid or payable to him during the
contract term and (iii) participate in the Company's benefit plans during the
Post-Termination Period. If the Company does not renew the term of his
employment, Mr. Lauder will be entitled to receive during the Post-Termination
Period his base salary and certain other benefits consistent with Company
policy.
19
Each agreement described above provides that the Company may require the
executive to defer certain amounts to be received by him to the extent such
amounts may not be deductible by reason of Section 162(m) of the Internal
Revenue Code. Each employment agreement also contains certain confidentiality
and non-competition provisions.
COMPENSATION COMMITTEE AND STOCK PLAN SUBCOMMITTEE REPORT
The Company's executive compensation program is designed to attract and
retain high quality senior executives, and to motivate them to achieve both
short-term and long-term Company, divisional and individual goals. The program
currently in place is essentially a continuation of the program existing before
the Company's initial public offering with the addition of stock-based elements.
The Board of Directors formalized the program in fiscal 1996 after review by two
compensation consultants. For fiscal 2001, compensation was paid primarily
pursuant to employment agreements, the share incentive plans (which provide for
stock-based compensation) and the Executive Annual Incentive Plan (for cash
bonuses).
The Compensation Committee, consisting solely of outside directors,
oversees and approves compensation arrangements for the executive officers of
the Company (including the opportunities and bonuses paid under the Executive
Annual Incentive Plan). Beginning in May 2001, the Stock Plan Subcommittee was
created and was authorized to administer the Company's share incentive plans.
Until then, the Compensation Committee administered the share incentive plans.
Salary and Bonuses
The Committee believes that Company tenure and the level of responsibility
undertaken by individual executives should be appropriately reflected in the
establishment of base salary amounts. Additionally, the Committee believes that
the performance-based bonus structure provided under the Company's Executive
Annual Incentive Plan is of key importance. Accordingly, for executive officers
in charge of sales divisions, a material portion of total bonus eligibility is
tied to year-to-year improvement in financial and operational indicators
measured at the divisional level. For executive officers in charge of corporate
departments, bonuses are based in large part on improvements in the Company's
net earnings. Bonuses also are based, in part, on the Company's performance
against a comparative group. The comparative group includes all companies in the
peer group in the proxy statement Performance Graph and a broader range of
companies, which also compete with the Company for executive talent in the
Committee's view. The Committee believes that both measurement standards serve
to align the interests of executives with the interests of their fellow
stockholders. Executive compensation is targeted at the 75th percentile of
compensation levels at comparative group companies.
Stock-Based Compensation
In fiscal 2001, the Compensation Committee granted stock options to the
executive officers under the Fiscal 1999 Share Incentive Plan. The size of each
award reflected the recipient's position and anticipated level of future
contribution. In certain cases, grants also were made to reward past
performance.
Compensation of the Chief Executive Officer
Mr. Langhammer's salary reflects his long service with the Company, the
exceptional results he has achieved and his stature in the industry. His bonus
for fiscal 2001 was based on the Company's results individually and as compared
to those achieved by the comparative group. The option grant and stock unit
grant in fiscal 2001 were made to Mr. Langhammer in accordance with his
employment agreement. The grants also reflect the principles described above for
grants to other executive officers. The grant of stock units to Mr. Langhammer
in July 2000 was made in accordance with his employment agreement. The increases
in compensation payable under his agreement as compared to prior years reflect
the additional responsibilities undertaken by Mr. Langhammer and are intended to
provide incentives for him to lead the Company to further success in the near
and long-term.
The Committee is aware of the limitations on deductibility for income tax
purposes of certain compensation paid to its most highly compensated executive
officers and considers the deduction limitation in determining compensation. The
Company's compensation program as it applied to such persons in fiscal 2001 was
designed
20
to take advantage of the "performance-based" exception to the deduction
limitation. Furthermore, each employment agreement with the named executive
officers provides that amounts payable pursuant thereto may be deferred to the
extent such amounts would not be deductible.
The Compensation Committee The Stock Plan Subcommittee
Lynn Forester Lynn Forester
Richard D. Parsons, Chairman Marshall Rose
Marshall Rose
PERFORMANCE GRAPH
The following graph compares the cumulative total stockholder return (stock
price appreciation plus dividends) on the Company's Class A Common Stock with
the cumulative total return of the S&P 500 Index and a market weighted index of
publicly traded peers. The returns are calculated by assuming an investment of
$100 in the Class A Common Stock and each in index on June 30, 1996. The
publicly traded companies included in the peer group are: Avon Products, Inc.,
Groupe Clarins S.A., L'Oreal S.A., LVMH Moet Hennessy Louis Vuitton, The Procter
& Gamble Company, Shiseido Company, Ltd. and Unilever N.V.
[The table below represents a line chart in the printed piece.]
"The Estee Lauder Companies, Inc." "S & P 500" "Peer Group"
"6/96" 100 100 100
"6/97" 119.78 134.7 156.27
"6/98" 167.11 175.33 206.46
"6/99" 241.55 215.22 209.33
"6/00" 239.35 230.83 163.01
"6/01" 209.67 196.59 177.81
21
APPROVAL OF THE ESTEE LAUDER COMPANIES INC.
FISCAL 2002 SHARE INCENTIVE PLAN
(ITEM 2)
BACKGROUND
The Board of Directors is proposing for stockholder approval The Estee
Lauder Companies Inc. Fiscal 2002 Share Incentive Plan (the "2002 Share Plan").
For the past three years the Company has used its Fiscal 1999 Share Incentive
Plan (the "1999 Share Plan") as one means of attracting, retaining, motivating
and rewarding highly competent key employees and further aligning their
interests with those of the Company's other stockholders. As of September 14,
2001, there were no shares of Class A Common Stock remaining available for grant
under the 1999 Share Plan. The 2002 Share Plan is similar to the 1999 Share
Plan, and the Board of Directors is proposing the 2002 Share Plan in order to
continue to provide this important compensation element. As of November 2000,
Non-Employee Directors ceased participation in the 1999 Share Plan and are not
eligible to participate in the 2002 Share Plan.
The 2002 Share Plan is intended to provide incentives which will attract,
retain, motivate and reward highly competent people as officers and key
employees of, and consultants to, the Company, its subsidiaries and its
affiliates, by providing them with opportunities to acquire shares of Class A
Common Stock or to receive monetary payments based on the value of such shares
pursuant to the Benefits (as defined below). In addition, the 2002 Share Plan is
intended to assist in further aligning the interests of the Company's officers,
key employees and consultants with those of its other stockholders. On July 26,
2001, the Stock Plan Subcommittee (the "Subcommittee") adopted, and the Board of
Directors ratified, subject to stockholder approval, the 2002 Share Plan. In
structuring the 2002 Share Plan, the Subcommittee sought to provide for a
variety of awards that could be administered flexibly to carry out the purposes
of the 2002 Share Plan. This authority will permit the Company to keep pace with
changing developments in management compensation and remain competitive with
those companies that offer creative incentives to attract and retain officers,
key employees and consultants. Many other companies have addressed these same
issues in recent years and adopted "omnibus" types of plans similar to the 2002
Share Plan. The 2002 Share Plan grants the Subcommittee discretion in
establishing the terms and restrictions deemed appropriate for particular awards
as circumstances warrant.
The following summary of the 2002 Share Plan is not intended to be complete
and is qualified in its entirety by reference to the terms of the 2002 Share
Plan, which is attached to this Proxy Statement as Appendix B.
SHARES AVAILABLE
The maximum number of shares of Class A Common Stock that may be delivered
to participants under the 2002 Share Plan, subject to certain adjustments, is an
aggregate of 12,000,000 shares plus up to 5,000,000 shares of Class A Common
Stock that are represented by awards granted under any prior plan of the Company
(e.g., the 1999 Share Plan and the Fiscal 1996 Share Incentive Plan) or under
any employment agreement with the Company, which are forfeited, expire or are
cancelled without the delivery of shares or which result in the forfeiture of
shares back to the Company. In addition, any shares of Class A Common Stock
subject to a stock option or stock appreciation right which for any reason is
cancelled or terminated without having been exercised, any shares subject to
stock awards, performance awards or stock units which are forfeited, any shares
subject to performance awards settled in cash or any shares delivered to the
Company as part or full payment for the exercise of a stock option or stock
appreciation right, shall again be available for Benefits (as defined below)
under the 2002 Share Plan. The 2002 Share Plan also imposes certain additional
aggregate and individual maximums. The aggregate number of shares of Class A
Common Stock that may be delivered through stock options shall be the lesser of
(i) 17,000,000 and (ii) the maximum number of shares that may be delivered under
the plan. During the term of the 2002 Share Plan, the number of shares of Class
A Common Stock with respect to which Benefits or stock options and stock
appreciation rights may be granted to an individual participant under the 2002
Share Plan shall not exceed 5,000,000.
ADMINISTRATION
The 2002 Share Plan provides for administration by a committee of the Board
of Directors of the Company appointed from among its members, which is
comprised, unless otherwise determined by the Board of Directors,
22
solely of not less than two members who shall be (i) "Non-Employee Directors"
within the meaning of Rule 16b-3(b)(3) (or any successor rule) promulgated under
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and (ii)
"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 Board of Directors has determined that the
Subcommittee shall administer the 2002 Share Plan. References to the
Subcommittee below shall include any subsequent committee authorized by the
Board to administer the 2002 Share Plan.
The Subcommittee is authorized, subject to the provisions of the 2002 Share
Plan, to establish such rules and regulations as it deems necessary for the
proper administration of the 2002 Share Plan and to make such determinations and
interpretations and to take such action in connection with the 2002 Share Plan
and any Benefits granted as it deems necessary or advisable. Thus, among the
Subcommittee's powers are the authority to select officers and other key
employees of the Company and its subsidiaries to receive Benefits, and to
determine the form, amount and other terms and conditions of Benefits. The
Subcommittee also has the power to modify or waive restrictions on Benefits, to
amend Benefits and to grant extensions and accelerations of Benefits.
ELIGIBILITY FOR PARTICIPATION
Officers and key employees of, and consultants to, the Company or any of
its subsidiaries and affiliates are eligible to participate in the 2002 Share
Plan. The selection of participants from this group is within the discretion of
the Subcommittee. The estimated number of officers and key employees who are
currently eligible to participate in the 2002 Share Plan is 1,200. The estimated
number of consultants who are eligible to participate in the 2002 Share Plan is
less than 100.
TYPES OF BENEFITS
The 2002 Share Plan provides for the grant of any or all of the following
types of benefits (collectively, "Benefits"): (1) stock options, including
incentive stock options and non-qualified stock options; (2) stock appreciation
rights; (3) stock awards; (4) performance awards; and (5) stock units. Benefits
may be granted singly, in combination, or in tandem as determined by the
Subcommittee. Stock awards, performance awards and stock units may, as
determined by the Subcommittee in its discretion, constitute Performance-Based
Awards, as described below.
STOCK OPTIONS
Under the 2002 Share Plan, the Subcommittee may grant awards in the form of
options to purchase shares of Class A Common Stock. Options may either be
incentive stock options, qualifying for special tax treatment, or non-qualified
options; however, no incentive stock option shall be issued to a participant in
tandem with a nonqualified stock option. The Subcommittee will, with regard to
each stock option, determine the number of shares subject to the option, the
manner and time of the option's exercise and vesting, and the exercise price per
share of stock subject to the option. The exercise price will not be less than
100% of the fair market value of the Class A Common Stock on the date the stock
option is granted (the "Fair Market Value"). The exercise price may be paid in
cash or, in the discretion of the Subcommittee, by the delivery of shares of
Class A Common Stock then owned by the participant, by the withholding of shares
of Class A Common Stock for which a stock option is exercisable, or by a
combination of these methods. In the discretion of the Subcommittee, payment
also may be made by delivering a properly executed exercise notice to the
Company together with a copy of irrevocable instructions to a broker to deliver
promptly to the Company the amount of sale or loan proceeds to pay the exercise
price. The Subcommittee may prescribe any other method of paying the exercise
price that it determines to be consistent with applicable law and the purposes
of the 2002 Share Plan. In determining which methods a participant may utilize
to pay the exercise price, the Subcommittee may consider such factors as it
determines are appropriate. No stock option is exercisable later than ten years
after the date it is granted except in the event of a participant's death, in
which case, the exercise period may be extended but not longer than one year
after the participant's death. The exercise of any option which remains
exercisable after termination of employment will be subject to satisfaction of
the conditions precedent that the holder thereof neither (a) competes with or
takes employment with or renders services to a competitor of the Company, its
subsidiaries or affiliates without the consent of the Company nor (b) conducts
himself or herself in a manner adversely affecting the Company. The Subcommittee
may, at the time of grant, provide for the grant of a subsequent "restoration"
23
stock option if the exercise price is paid by delivering previously owned shares
of Class A Common Stock of the Company. Restoration stock options (i) may be
granted in respect of no more than the number of shares of Class A Common Stock
tendered in exercising the predecessor option, (ii) shall have an exercise price
equal to the Fair Market Value of the Class A Common Stock on the date the
restoration stock option is granted, and (iii) shall have an exercise period
that does not extend beyond the remaining term of the predecessor option.
STOCK APPRECIATION RIGHTS ("SARS")
The 2002 Share Plan authorizes the Subcommittee to grant an SAR either in
tandem with a stock option or independent of a stock option. An SAR is a right
to receive a payment, in cash, Class A Common Stock, or a combination thereof,
equal to the excess of (x) the Fair Market Value, or other specified valuation,
of a specified number of shares of Class A Common Stock on the date the right is
exercised over (y) the Fair Market Value, or other specified valuation (which
shall not be less than Fair Market Value), of such shares of Class A Common
Stock on the date the right is granted, all as determined by the Subcommittee.
SARs granted under the 2002 Share Plan are subject to terms and conditions
relating to exercisability that are similar to those imposed on stock options,
and each SAR is subject to such terms and conditions as the Subcommittee shall
impose from time to time.
STOCK AWARDS
The Subcommittee may, in its discretion, grant Stock Awards (which may
include mandatory payment of bonus incentive compensation in stock) consisting
of Class A Common Stock issued or transferred to participants with or without
payments therefor. Stock Awards may be subject to such terms and conditions as
the Subcommittee determines appropriate, including, without limitation,
restrictions on the sale or other disposition of such shares, the right of the
Company to reacquire such shares for no consideration upon termination of the
participant's employment within specified periods, and may constitute
Performance-Based Awards, as described below. The Stock Award will specify
whether the participant will have, with respect to the shares of Class A Common
Stock subject to a Stock Award, all of the rights of a holder of shares of Class
A Common Stock, including the right to receive dividends and to vote the shares.
PERFORMANCE AWARDS
The 2002 Share Plan allows for the grant of performance awards which may
take the form of shares of Class A Common Stock or stock units, or any
combination thereof and which may constitute Performance-Based Awards. Such
awards will be contingent upon the attainment over a period to be determined by
the Subcommittee of certain performance goals. The length of the performance
period, the performance goals to be achieved and the measure of whether and to
what degree such goals have been achieved will be determined by the
Subcommittee. Payment of earned performance awards will be made in accordance
with terms and conditions prescribed or authorized by the Subcommittee. The
participant may elect to defer, or the Subcommittee may require the deferral of,
the receipt of performance awards upon such terms as the Subcommittee deems
appropriate.
STOCK UNITS
The Subcommittee may, in its discretion, grant Stock Units to participants,
which may constitute Performance-Based Awards. A "Stock Unit" is a notional
account representing one share of Class A Common Stock. The Subcommittee
determines the criteria for the vesting of Stock Units and whether a participant
granted a Stock Unit shall be entitled to Dividend Equivalent Rights (as defined
in the 2002 Share Plan). Upon vesting of a Stock Unit, unless the Subcommittee
has determined to defer payment with respect to such unit or a participant has
elected to defer receipt of payment, shares of Class A Common Stock representing
the Stock Units will be distributed to the participant (unless the Subcommittee,
with the consent of the participant, provides for the payment of the Stock Units
in cash, or partly in cash and partly in shares of Class A Common Stock, equal
to the value of the shares of Class A Common Stock which would otherwise be
distributed to the participant).
PERFORMANCE-BASED AWARDS
Certain Benefits granted under the 2002 Share Plan may be granted in a
manner such that the Benefit qualifies for the performance-based compensation
exemption to Section 162(m) of the Code ("Performance-Based
24
Awards"). As determined by the Subcommittee in its sole discretion, either the
granting or vesting of such Performance-Based Awards will be based upon
achievement of hurdle rates and/or growth in one or more of the following
business criteria: (i) net earnings; (ii) earnings per share; (iii) net sales;
(iv) market share; (v) net operating profit; (vi) expense targets; (vii) working
capital targets 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 return to stockholders. In addition,
Performance-Based Awards may include comparisons to the performance of other
companies, such performance to be measured by one or more of the foregoing
criteria. With respect to Performance-Based Awards, the Subcommittee shall
establish in writing (x) the performance goals applicable to a given period,
specifying by an objective formula or standard, the method for computing the
amount of compensation payable to the participant if such performance goals are
obtained and (y) the individual employees or class of employees to which such
performance goals apply no later than 90 days after the commencement of such
period (but in no event after one quarter of such period has elapsed). No
Performance-Based Award shall be payable to, or vest with respect to, any
participant for a given fiscal period until the Subcommittee certifies in
writing that the objective performance goals (and any other material terms)
applicable to such period have been satisfied.
OTHER TERMS
The 2002 Share Plan provides that Benefits may be transferred by will or
the laws of descent and distribution. The Subcommittee determines the treatment
to be afforded to a participant in the event of termination of employment for
any reason including death, disability or retirement. Except with respect to
incentive stock options, the Subcommittee may permit a Benefit to be transferred
by a participant to certain members of the participant's immediate family or
trusts for the benefit of such persons or other entities owned by such person.
Upon the grant of any Benefit under the 2002 Share Plan, the Subcommittee
may, by way of an agreement with the participant, establish such other terms,
conditions, restrictions and/or limitations covering the grant of the Benefit as
are not inconsistent with the 2002 Share Plan. The 2002 Share Plan shall
terminate on July 26, 2011, and no Benefit may be granted after July 26, 2011.
The Subcommittee reserves the right to amend, suspend or terminate the 2002
Share Plan at any time. However, no amendment may be made without approval of
the stockholders of the Company if the amendment will: (i) disqualify any
incentive stock options granted under the plan; (ii) increase the aggregate
number of shares of Class A Common Stock that may be delivered through Stock
Options under the plan; (iii) increase either of the maximum amounts which can
be paid to an individual participant under the plan; (iv) change the types of
business criteria on which Performance-Based Awards are to be based under the
plan; or (v) modify the requirements as to eligibility for participation in the
plan.
The 2002 Share Plan contains provisions for equitable adjustment of
Benefits in the event of a merger, consolidation, reorganization,
recapitalization, stock dividend, stock split, reverse stock split, split up,
spinoff, combination of shares, exchange of shares, dividend in kind or other
similar change in capital structure or distribution (other than normal cash
dividends) to stockholders of the Company. In addition, if there is a Change in
Control (as defined in the 2002 Share Plan) of the Company (other than, among
other things, by reason of changes in the relative beneficial ownership among
members of the Lauder family and family-controlled entities), outstanding stock
options and SARs will become exercisable immediately.
The Subcommittee may grant Benefits to participants who are subject to the
tax laws of nations other than the United States, which Benefits may have terms
and conditions as determined by the Subcommittee as necessary to comply with
applicable foreign laws. The Subcommittee may take any action which it deems
advisable to obtain approval of such Benefits by the appropriate foreign
governmental entity; provided, however, that no such Benefits may be granted,
and no action may be taken which would violate the Exchange Act, the Code or any
other applicable law.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The statements in the following paragraphs of the principal U.S. federal
income tax consequences of Benefits under the 2002 Share Plan are based on
statutory authority and judicial and administrative interpretations, as of the
date of this Proxy Statement, which are subject to change at any time (possibly
with retroactive effect). The law is technical and complex, and the discussion
below represents only a general summary.
25
INCENTIVE STOCK OPTIONS
Incentive stock options ("ISOs") granted under the 2002 Share Plan are
intended to meet the definitional requirements of Section 422(b) of the Code for
"incentive stock options." An employee who receives an ISO does not recognize
any taxable income upon the grant of such ISO. Similarly, the exercise of an ISO
generally does not give rise to federal income tax to the employee, provided
that (i) the federal "alternative minimum tax," which depends on the employee's
particular tax situation, does not apply and (ii) the employee is employed by
the Company from the date of grant of the option until three months prior to the
exercise thereof, except where such employment terminates by reason of
disability (where the three month period is extended to one year) or death
(where this requirement does not apply). If an employee exercises an ISO after
the requisite periods referred to in clause (ii) above, the ISO will be treated
as an NSO (as defined below) and will be subject to the rules set forth below
under the caption "Non-Qualified Stock Options and Stock Appreciation Rights."
Further, if after exercising an ISO, an employee disposes of the Class A Common
Stock so acquired more than two years from the date of grant and more than one
year from the date of transfer of the Class A Common Stock pursuant to the
exercise of such ISO (the "applicable holding period"), the employee will
generally recognize capital gain or loss equal to the difference, if any,
between the amount received for the shares and the exercise price. If, however,
an employee does not hold the shares so acquired for the applicable holding
period--thereby making a "disqualifying disposition"--the employee would
recognize ordinary income equal to the excess of the fair market value of the
shares at the time the ISO was exercised over the exercise price and the
balance, if any, would generally be treated as capital gain. If the
disqualifying disposition is a sale or exchange that would permit a loss to be
recognized under the Code (were a loss in fact to be realized), and the sales
proceeds are less than the fair market value of the shares on the date of
exercise, the employee's ordinary income therefrom would be limited to the gain
(if any) realized on the sale. An employee who exercises an ISO by delivering
Class A Common Stock previously acquired pursuant to the exercise of another ISO
is treated as making a "disqualifying disposition" of such Class A Common Stock
if such shares are delivered before the expiration of their applicable holding
period. Upon the exercise of an ISO with previously acquired shares as to which
no disqualifying disposition occurs, despite some uncertainty, it appears that
the employee would not recognize gain or loss with respect to such previously
acquired shares. The Company will not be allowed a federal income tax deduction
upon the grant or exercise of an ISO or the disposition, after the applicable
holding period, of the Class A Common Stock acquired upon exercise of an ISO. In
the event of a disqualifying disposition, the Company generally will be entitled
to a deduction in an amount equal to the ordinary income included by the
employee, provided that such amount constitutes an ordinary and necessary
business expense to the Company and is reasonable and the limitations of
Sections 280G and 162(m) of the Code (discussed below) do not apply.
NON-QUALIFIED STOCK OPTIONS AND STOCK APPRECIATION RIGHTS
Non-qualified stock options ("NSOs") granted under the 2002 Share Plan are
options that do not qualify as ISOs. An employee who receives an NSO or an SAR
will not recognize any taxable income upon the grant of such NSO or SAR.
However, the employee generally will recognize ordinary income upon exercise of
an NSO in an amount equal to the excess of the fair market value of the shares
of Class A Common Stock at the time of exercise over the exercise price.
Similarly, upon the receipt of cash or shares pursuant to the exercise of an
SAR, the individual generally will recognize ordinary income in an amount equal
to the sum of the cash and the fair market value of the shares received. As a
result of Section 16(b) of the Exchange Act, under certain circumstances, the
timing of income recognition may be deferred (generally for up to six months
following the exercise of an NSO or SAR (the "Deferral Period")) for any
individual who is an executive officer or director of the Company or a
beneficial owner of more than ten percent (10%) of any class of equity
securities of the Company. Absent a Section 83(b) election (as described below
under "Other Awards"), recognition of income by the individual will be deferred
until the expiration of the Deferral Period, if any. The ordinary income
recognized with respect to the receipt of shares or cash upon exercise of an NSO
or an SAR will be subject to both wage withholding and other employment taxes.
In addition to the customary methods of satisfying the withholding tax
liabilities that arise upon the exercise of an SAR for shares or upon the
exercise of an NSO, the Company may satisfy the liability in whole or in part by
withholding shares of Class A Common Stock from those that otherwise would be
issuable to the individual or by the employee tendering other shares owned by
him or her, valued at their fair market value as of the date that the tax
withholding obligation arises. A federal income tax deduction generally will be
allowed to the Company in an amount equal to the ordinary income included by the
individual with respect to his or her NSO or SAR, provided that such amount
constitutes an ordinary and
26
necessary business expense to the Company and is reasonable and the limitations
of Sections 280G and 162(m) of the Code do not apply. If an individual exercises
an NSO by delivering shares of Class A Common Stock, other than shares
previously acquired pursuant to the exercise of an ISO which is treated as a
"disqualifying disposition" as described above, the individual will not
recognize gain or loss with respect to the exchange of such shares, even if
their then fair market value is different from the individual's tax basis. The
individual, however, will be taxed as described above with respect to the
exercise of the NSO as if he or she had paid the exercise price in cash, and the
Company likewise generally will be entitled to an equivalent tax deduction.
If the Subcommittee permits an individual to transfer an NSO to a member or
members of the individual's immediate family or to a trust for the benefit of
such persons or other entity owned by such persons and such individual makes
such a transfer and such transfer constitutes a completed gift for gift tax
purposes (which determination may depend on a variety of factors) then such
transfer will be subject to federal gift tax except, generally, to the extent
protected by the individual's $10,000 per donee annual exclusion, by his or her
lifetime unified credit or by the marital deduction. The amount of the
individual's gift is the value of the NSO at the time of the gift. If the
transfer of the NSO constitutes a completed gift, the NSO generally will not be
included in his or her gross estate for federal estate tax purposes. The
transfer of the NSO will not cause the transferee to recognize taxable income at
the time of the transfer. If the transferee exercises the NSO while the
transferor is alive, the transferor will recognize ordinary income as described
above as if the transferor had exercised the NSO. If the transferee exercises
the NSO after the death of the transferor, it is uncertain which of the
transferor's estate or the transferee will recognize ordinary income for federal
income tax purposes.
OTHER AWARDS
With respect to other Benefits under the 2002 Share Plan that are settled
either in cash or in shares of Class A Common Stock that are either transferable
or not subject to a substantial risk of forfeiture (as defined in the Code and
the regulations thereunder), employees generally will recognize ordinary income
equal to the amount of cash or the fair market value of the Class A Common Stock
received. With respect to Benefits under the 2002 Share Plan that are settled in
shares of Class A Common Stock that are restricted to transferability and
subject to a substantial risk of forfeiture--absent a written election pursuant
to Section 83(b) of the Code filed with the Internal Revenue Service within 30
days after the date of transfer of such shares pursuant to the award (a "Section
83(b) election")--an individual will recognize ordinary income at the earlier of
the time at which (i) the shares become transferable or (ii) the restrictions
that impose a substantial risk of forfeiture of such shares lapse, in an amount
equal to the excess of the fair market value (on such date) of such shares over
the price paid for the award, if any. If a Section 83(b) election is made, the
individual will recognize ordinary income, as of the transfer date, in an amount
equal to the excess of the fair market value of the Class A Common Stock as of
that date over the price paid for such award, if any. The ordinary income
recognized with respect to the receipt of cash, shares of Class A Common Stock
or other property under the 2002 Share Plan will be subject to both wage
withholding and other employment taxes. The Company generally will be allowed a
deduction for federal income tax purposes in an amount equal to the ordinary
income recognized by the employee, provided that such amount constitutes an
ordinary and necessary business expense and is reasonable and the limitations of
Sections 280G and 162(m) of the Code do not apply.
DIVIDENDS AND DIVIDEND EQUIVALENTS
To the extent Benefits under the 2002 Share Plan earn dividends or dividend
equivalents, whether paid currently or credited to an account established under
the 2002 Share Plan, an individual generally will recognize ordinary income with
respect to such dividends or dividend equivalents.
CHANGE IN CONTROL
In general, if the total amount of payments to an individual that are
contingent upon a "change in ownership or control" of the Company (as defined in
Section 280G of the Code), which could include payments under the 2002 Share
Plan that vest upon a Change in Control, equals or exceeds three times the
individual's "base amount" (generally, such individual's average annual
compensation for the five calendar years preceding the change in control), then,
subject to certain exceptions, the payments may be treated as "parachute
payments" under the Code, in which case a portion of such payments would be
non-deductible to the Company and the individual would be subject to a 20%
excise tax on such portion of the payments.
27
CERTAIN LIMITATIONS ON DEDUCTIBILITY OF EXECUTIVE COMPENSATION
With certain exceptions, Section 162(m) of the Code denies a deduction to
publicly held corporations for compensation paid to certain executive officers
in excess of $1 million per executive per taxable year (including any deduction
with respect to the exercise of an NSO or SAR or the disqualifying disposition
of stock purchased pursuant to an ISO). One such exception applies to certain
performance-based compensation provided that stockholders in a separate vote
have approved such compensation and certain other requirements are met. If the
2002 Share Plan is approved by its stockholders, the Company believes that stock
options, SARs and Performance-Based Awards granted under the 2002 Share Plan
should qualify for the performance-based compensation exception to Section
162(m) of the Code provided that such grants are made by the Subcommittee,
consisting solely of not less than two "outside directors" within the meaning of
Section 162(m) of the Code.
OTHER INFORMATION
The closing price of a share of Class A Common Stock on September 24, 2001
was $33.30 per share. Approval of the 2002 Share Plan requires the affirmative
vote of a majority of the votes cast by the holders of the shares of Class A
Common Stock and Class B Common Stock of the Company voting in person or by
proxy at the 2001 Annual Meeting of Stockholders. If stockholders do not approve
the 2002 Share Plan, the Company will reconsider the alternatives available with
respect to the compensation of officers and key employees of, and consultants
to, the Company.
NEW PLAN BENEFITS
FISCAL 2002 SHARE INCENTIVE PLAN
NAME AND POSITION NUMBER OF UNITS(1)
------------------------------- ------------------
LEONARD A. LAUDER, Chairman of the Board ...................... 0
FRED H. LANGHAMMER, President and Chief Executive Officer ..... 1,500,000(2)
PATRICK BOUSQUET-CHAVANNE, Group President .................... 200,000
DANIEL J. BRESTLE, Group President ............................ 200,000
WILLIAM P. LAUDER, Group President ............................ 200,000
EXECUTIVE GROUP (12 Persons) .................................. 2,350,000
NON-EXECUTIVE DIRECTOR GROUP .................................. 0
NON-EXECUTIVE OFFICER EMPLOYEE GROUP .......................... 300,000
----------
(1) Refers to number of shares of Class A Common Stock underlying options that
may be granted pursuant to existing arrangements.
(2) In accordance with his employment agreement, Mr. Langhammer also will
receive stock units on each of July 1, 2002, 2003 and 2004 with a value
equal to $2 million worth of Class A Common Stock (based on the 20-day
average stock price prior to each grant date) and dividend equivalents
relating to such stock units. The stock units are excluded since the number
or value cannot be determined at this time.
THE BOARD BELIEVES THAT THE FISCAL 2002 SHARE INCENTIVE PLAN IS IN THE BEST
INTEREST OF THE COMPANY AND ITS STOCKHOLDERS AND THEREFORE RECOMMENDS THAT THE
STOCKHOLDERS VOTE FOR THE APPROVAL OF THE FISCAL 2002 SHARE INCENTIVE PLAN.
PROXIES RECEIVED BY THE BOARD WILL BE SO VOTED UNLESS STOCKHOLDERS SPECIFY IN
THEIR PROXIES A CONTRARY CHOICE.
28
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
(ITEM 3)
The Board of Directors of the Company, on the recommendation of the Audit
Committee, has appointed the firm of Arthur Andersen LLP to serve as independent
auditors of the Company for the fiscal year ending June 30, 2002, subject to
ratification of this appointment by the stockholders of the Company. Arthur
Andersen LLP has served as independent auditors of the Company for many years
and is considered by management of the Company to be well qualified. The firm
has advised the Company that neither it nor any of its members has any direct or
material indirect financial interest in the Company.
For the fiscal year ended June 30, 2001, the Company paid (or will pay) the
following fees to Arthur Andersen LLP (and its affiliates) for services rendered
during the year or for the audit in respect of that year:
(in 000's)
Audit Fees $1,505.3
Financial Information Systems Design
and Implementation 645.9
All Other Fees 3,790.3
-------------
Total $5,941.5
=============
The Audit Committee of the Board of Directors has considered whether the
provision of non-audit services by Arthur Andersen LLP is compatible with
maintaining auditor independence.
One or more representatives of Arthur Andersen LLP will be present at the
Annual Meeting of Stockholders, will have an opportunity to make a statement if
he or she desires to do so and will be available to respond to appropriate
questions.
Ratification of the appointment of the independent auditors requires the
affirmative vote of a majority of the votes cast by the holders of the shares of
Class A Common Stock and Class B Common Stock of the Company voting in person or
by proxy at the Annual Meeting of Stockholders. If the stockholders do not
ratify the appointment of Arthur Andersen LLP, the Board of Directors will
reconsider the appointment.
THE BOARD RECOMMENDS A VOTE FOR THE PROPOSAL TO RATIFY THE APPOINTMENT OF
ARTHUR ANDERSEN LLP AS INDEPENDENT AUDITORS OF THE COMPANY FOR THE FISCAL YEAR
ENDING JUNE 30, 2002. PROXIES RECEIVED BY THE BOARD WILL BE SO VOTED UNLESS A
CONTRARY CHOICE IS SPECIFIED IN THE PROXY.
PROXY PROCEDURE AND EXPENSES OF SOLICITATION
The Company will hold the votes of all stockholders in confidence from the
Company, its directors, officers and employees except: (i) as necessary to meet
applicable legal requirements and to assert or defend claims for or against the
Company; (ii) in case of a contested proxy solicitation; (iii) in the event that
a stockholder makes a written comment on the proxy card or otherwise
communicates his/her vote to management; or (iv) to allow the independent
inspectors of election to certify the results of the vote. The Company will
retain an independent tabulator to receive and tabulate the proxies and
independent inspectors of election to certify the results.
All expenses incurred in connection with the solicitation of proxies will
be borne by the Company. The Company will reimburse brokers, fiduciaries and
custodians for their costs in forwarding proxy materials to beneficial owners of
Common Stock held in their names.
Solicitation may be undertaken by mail, telephone, electronic means and
personal contact by directors, officers and employees of the Company without
additional compensation.
STOCKHOLDER PROPOSALS AND NOMINATIONS
If a stockholder intends to present a proposal for action at the 2002
Annual Meeting and wishes to have such proposal considered for inclusion in the
Company's proxy materials in reliance on Rule 14a-8 under the Securities
Exchange Act of 1934, the proposal must be submitted in writing and received by
the Secretary of the Company by June 4, 2002. Such proposal also must meet the
other requirements of the rules of the Securities and Exchange Commission
relating to stockholder proposals.
29
The Company's bylaws establish an advance notice procedure with regard to
certain matters, including stockholder proposals and nominations of individuals
for election to the Board of Directors. In general, notice of a stockholder
proposal or a director nomination for an annual meeting must be received by the
Company not less than 60 days nor more than 90 days prior to the first
anniversary of the date on which the Company first mailed its proxy materials
for the preceding annual meeting of stockholders and must contain specified
information and conform to certain requirements, as set forth in the bylaws. If
the chairman at any stockholders meeting determines that a stockholder proposal
or director nomination was not made in accordance with the bylaws, the Company
may disregard such proposal or nomination.
In addition, if a stockholder submits a proposal outside of Rule 14a-8 for
the 2002 Annual Meeting and the proposal fails to comply with the advance notice
procedure prescribed by the bylaws, then the Company's proxy may confer
discretionary authority on the persons being appointed as proxies on behalf of
the Board of Directors to vote on the proposal. Proposals and nominations should
be addressed to Paul E. Konney, Senior Vice President, General Counsel and
Secretary, The Estee Lauder Companies Inc., 767 Fifth Avenue, New York, New York
10153.
OTHER INFORMATION
Management of the Company does not know of any matters that may properly
come before the meeting other than those referred to in the accompanying Notice
of Annual Meeting of Stockholders or other matters incident to the conduct of
the meeting. As to any other matter or proposal that may properly come before
the meeting, including voting for the election of any person as a Director in
place of a nominee named herein who becomes unable or declines to serve and
voting on a proposal omitted from this Proxy Statement pursuant to the rules of
the Securities and Exchange Commission, proxies will be voted in accordance with
the discretion of the proxy holders.
PAUL E. KONNEY
SENIOR VICE PRESIDENT,
GENERAL COUNSEL AND SECRETARY
New York, New York
October 3, 2001
THE ANNUAL REPORT TO STOCKHOLDERS OF THE COMPANY FOR THE FISCAL YEAR ENDED
JUNE 30, 2001, WHICH INCLUDES FINANCIAL STATEMENTS, HAS BEEN MAILED TO
STOCKHOLDERS OF THE COMPANY. THE ANNUAL REPORT DOES NOT FORM ANY PART OF THE
MATERIAL FOR THE SOLICITATIONS OF PROXIES.
30
APPENDIX A
THE ESTEE LAUDER COMPANIES INC.
AUDIT COMMITTEE CHARTER
(ADOPTED BY THE BOARD OF DIRECTORS ON MAY 4, 2000)
MISSION STATEMENT
The audit committee (the "committee") is charged with assisting the board
of directors in fulfilling its responsibilities to oversee the Company's systems
of internal accounting and financial control, the Company's financial reporting
process, the annual independent audit of the Company's financial statements and
the Company's process for assessing significant business risks.
AUTHORITY
The committee is accountable to the board of directors. It has full
authority and unrestricted access to the resources, information and personnel
necessary to achieve its mission. It has the power to conduct or authorize
investigations into any matters within the committee's scope of responsibilities
and retain independent counsel, accountants or others to assist in the conduct
of such investigations.
The committee's role is one of oversight. The Company's management is
responsible for preparing the Company's financial statements, and the
independent accountants are responsible for auditing the financial statements.
The independent accountants are ultimately accountable to the board and the
committee. However, in carrying out its oversight responsibilities, the
committee is not providing any expert or special assurance as to the Company's
financial statements or any professional certification as to the independent
accountants' work.
MEMBERSHIP
o The committee is comprised of at least three independent directors;
that is, directors who, in the judgment of the board, have no
relationship with the Company that may interfere with the independent
performance of their responsibilities.
o Only independent directors may serve as members of the committee.
o Each member of the committee shall be financially literate, as defined
by the board from time to time, or shall become so within a reasonable
time.
o At least one member of the committee shall have accounting or related
financial management expertise, as defined by the board from time to
time.
o The chairman of the committee is appointed by the board, or in the
absence of such an appointment, designated by the committee.
RESPONSIBILITIES
To create a best practices internal control environment the committee will:
o Maintain an open avenue of communication between the internal auditor,
the independent accountants and the board of directors.
o Review the qualifications, scope of services (including audit and
management consulting services), performance and fees of the
independent accountants.
o Request from the independent accountants annually a formal written
statement delineating all relationships between the independent
accountants and the Company; discuss with the independent accountants
any such disclosed relationships and their impact on the independent
accountants' independence; and recommend that the board take
appropriate action in response to the independent accountants' report
to satisfy itself of their independence.
A-1
o Recommend to the board of directors the appointment or, where
appropriate, the replacement of the independent accountants.
o Review with management the annual audit report and recommendations of
the independent accountants.
o Review with management and the independent accountants the audited
financial statements to be included in the Company's Annual Report on
SEC Form 10-K, and review with the independent accountants the matters
required to be discussed by Statement of Auditing Standards ("SAS")
No. 61 as it may be modified or supplemented.
o Review with the independent accountants the Company's interim
financial statements to be included in the Company's Quarterly Report
on SEC Form 10-Q and the matters required to be discussed by SAS No.
61 as it may be modified or supplemented.
o Review, set policy and evaluate the effectiveness of the Company's
processes for assessing significant risk exposures and measures that
management has taken to minimize such risks.
o Approve and oversee the charter, policies and scope of audit plans of
the Company's internal control department.
o Review and concur in the appointment, annual performance evaluation
and replacement of the vice president of internal control.
o Receive presentations from management personnel on key functional
activities of the Company, including information technology, taxes,
treasury, environmental and legal matters.
o Conduct annual review by category of expenditures of officers' expense
accounts, perquisites and the use of other corporate assets.
o Conduct annual review of the Corporate Code of Conduct and the
effectiveness of the procedures established to monitor compliance at
every level of the Company.
o Review the committee's charter annually and revise as appropriate.
o Meet with the senior vice president and chief financial officer, the
vice president of internal control and the independent accountants, in
separate executive sessions, to discuss any matters that they or the
committee believe should be considered privately.
o Report committee actions to the board of directors and make such
recommendations as the committee deems appropriate.
o Perform such other functions as assigned by law, the Company's
charter, bylaws and board of directors.
MEETINGS
The committee meets at least four times per year.
A-2
APPENDIX B
THE ESTEE LAUDER COMPANIES INC.
FISCAL 2002 SHARE INCENTIVE PLAN
1. PURPOSE. The Estee Lauder Companies Inc. Fiscal 2002 Share Incentive Plan
(the "Plan") is intended to provide incentives which will attract, retain,
motivate and reward highly competent people as officers and key employees of,
and consultants to, The Estee Lauder Companies Inc. (the "Company") and its
subsidiaries and affiliates, by providing them opportunities to acquire shares
of the Class A Common Stock, par value $.01 per share, of the Company ("Class A
Common Stock") or to receive monetary payments based on the value of such shares
pursuant to the Benefits (as defined below) described herein. Additionally, the
Plan is intended to assist in further aligning the interests of the Company's
officers, key employees and consultants to those of its other stockholders.
2. ADMINISTRATION.
(a) 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 or the Stock Plan Subcommittee) and shall be
comprised, unless otherwise determined by the Board of Directors, solely of not
less than two members who shall be (i) "Non-Employee Directors" within the
meaning of Rule 16b-3(b)(3) (or any successor rule) promulgated under the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and (ii)
"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 is authorized, subject to the provisions of
the Plan, to establish such rules and regulations as it deems necessary for the
proper administration of the Plan and to make such determinations and
interpretations and to take such action in connection with the Plan and any
Benefits (as defined below) granted hereunder as it deems necessary or
advisable. All determinations and interpretations made by the Committee shall be
binding and conclusive on all participants and their legal representatives. No
member of the Committee and no employee of the Company shall be liable for any
act or failure to act hereunder, except in circumstances involving his or her
bad faith, gross negligence or willful misconduct, or for any act or failure to
act hereunder by any other member or employee or by any agent to whom duties in
connection with the administration of the Plan have been delegated. The Company
shall indemnify members of the Committee and any agent of the Committee who is
an employee of the Company, a subsidiary or an affiliate against any and all
liabilities or expenses to which they may be subjected by reason of any act or
failure to act with respect to their duties on behalf of the Plan, except in
circumstances involving such person's bad faith, gross negligence or willful
misconduct.
(b) The Committee may delegate to one or more of its members, or to one or
more agents, such administrative duties as it may deem advisable, and the
Committee, or any person to whom it has delegated duties as aforesaid, may
employ one or more persons to render advice with respect to any responsibility
the Committee or such person may have under the Plan. The Committee may employ
such legal or other counsel, consultants and agents as it may deem desirable for
the administration of the Plan and may rely upon any opinion or computation
received from any such counsel, consultant or agent. Expenses incurred by the
Committee in the engagement of such counsel, consultant or agent shall be paid
by the Company, or the subsidiary or affiliate whose employees have benefited
from the Plan, as determined by the Committee.
3. PARTICIPANTS. Participants will consist of such officers and key employees
of, and such consultants to, the Company and its subsidiaries and affiliates as
the Committee in its sole discretion determines to be significantly responsible
for the success and future growth and profitability of the Company and whom the
Committee may designate from time to time to receive Benefits under the Plan.
Designation of a participant in any year shall not require the Committee to
designate such person to receive a Benefit in any other year or, once
designated, to receive the same type or amount of Benefit as granted to the
participant in any other year. The Committee shall consider such factors as it
deems pertinent in selecting participants and in determining the type and amount
of their respective Benefits.
4. TYPE OF BENEFITS. Benefits under the Plan may be granted in any one or a
combination of the following (collectively, "Benefits"): (a) Stock Options, (b)
Stock Appreciation Rights, (c) Stock Awards, (d) Performance Awards and (e)
Stock Units (each as described below). Stock Awards, Performance Awards, and
Stock Units may,
B-1
as determined by the Committee in its discretion, constitute Performance-Based
Awards, as described in Section 11 hereof. Benefits shall be evidenced by
agreements (which need not be identical) in such forms as the Committee may from
time to time approve (each a "Benefit Agreement"); provided, however, that in
the event of any conflict between the provisions of the Plan and any Benefit
Agreement, the provisions of the Plan shall prevail.
5. COMMON STOCK AVAILABLE UNDER THE PLAN.
(a) Subject to the provisions of this Section 5 and any adjustments made
in accordance with Section 13 hereof, the maximum number of shares of Class A
Common Stock that may be delivered to participants (including permitted
assignees) and their beneficiaries under this Plan shall be equal to the sum of:
(i) 12,000,000 shares of Class A Common Stock, which may be authorized and
unissued or treasury shares; and (ii) up to 5,000,000 shares of Class A Common
Stock that are represented by awards granted or to be granted under any prior
plan of the Company or under any employment agreement with the Company, which
are forfeited, expire or are cancelled without the delivery of shares of Class A
Common Stock or which result in the forfeiture of shares of Class A Common Stock
back to the Company. Any shares of Class A Common Stock covered by a Benefit (or
portion of a Benefit) granted under the Plan, which is forfeited or canceled,
expires or, in the case of a Benefit other than a Stock Option, is settled in
cash, shall be deemed not to have been delivered for purposes of determining the
maximum number of shares of Class A Common Stock available for delivery under
the Plan. The preceding sentence shall apply only for purposes of determining
the aggregate number of shares of Class A Common Stock subject to Benefits but
shall not apply for purposes of determining the maximum number of shares of
Class A Common Stock with respect to which Benefits (including the maximum
number of shares of Class A Common Stock subject to Stock Options and Stock
Appreciation Rights) may be granted to an individual participant under the Plan.
(b) If any Stock Option is exercised by tendering shares of Class A Common
Stock, either actually or by attestation, to the Company as full or partial
payment in connection with the exercise of a Stock Option under this Plan or any
prior plan of the Company, only the number of shares of Class A Common Stock
issued net of the shares of Class A Common Stock tendered shall be deemed
delivered for purposes of determining the maximum number of shares of Class A
Common Stock available for delivery under the Plan. Further, shares of Class A
Common Stock delivered under the Plan in settlement, assumption or substitution
of outstanding awards (or obligations to grant future awards) under the plans or
arrangements of another entity shall not reduce the maximum number of shares of
Class A Common Stock available for delivery under the Plan, to the extent that
such settlement, assumption or substitution is as a result of the Company or its
subsidiaries or affiliates acquiring another entity (or an interest in another
entity). This Section 5(b) shall apply only for purposes of determining the
aggregate number of shares of Class A Common Stock subject to Benefits but shall
not apply for purposes of determining (x) the maximum number of shares of Class
A Common Stock with respect to which Benefits (including the maximum number of
shares of Class A Common Stock subject to Stock Options and Stock Appreciation
Rights) may be granted to an individual participant under the Plan or (y) the
maximum number of shares of Class A Common Stock that may be delivered through
Stock Options under the Plan.
(c) Subject to any adjustments made in accordance with Section 13 hereof,
the following additional aggregate and individual maximums are imposed under the
Plan. The aggregate number of shares of Class A Common Stock that may be
delivered through Stock Options shall be the lesser of (i) 17,000,000 and (ii)
the maximum number of shares of Class A Common Stock that may be delivered under
the Plan, as specified in Section 5(a) hereof. The number of shares of Class A
Common Stock with respect to which Stock Options and Stock Appreciation Rights
may be granted to an individual participant under the Plan during the term of
the Plan shall not exceed 5,000,000. The number of shares of Class A Common
Stock with respect to which Benefits may be granted to an individual participant
under the Plan during the term of the Plan shall not exceed 5,000,000.
6. STOCK OPTIONS. Stock Options will consist of awards from the Company that
will enable the holder to purchase a number of shares of Class A Common Stock at
set terms. Stock Options may be "incentive stock options" within the meaning of
Section 422 of the Code ("Incentive Stock Options"), or Stock Options which do
not constitute Incentive Stock Options ("Nonqualified Stock Options"). The
Committee will have the authority to grant to any participant one or more
Incentive Stock Options, Nonqualified Stock Options, or both types of Stock
Options (in each case with or without Stock Appreciation Rights). Each Stock
Option shall be subject to such terms and conditions consistent with the Plan as
the Committee may impose from time to time, subject to the following
limitations:
B-2
(a) EXERCISE PRICE. Each Stock Option granted hereunder shall have such
per-share exercise price as the Committee may determine at the date of grant;
provided, however, subject to subsection (d) below, that the per-share exercise
price shall not be less than 100% of the Fair Market Value (as defined below) of
the Class A Common Stock on the date the Stock Option is granted.
(b) PAYMENT OF EXERCISE PRICE. The exercise price may be paid in cash or,
in the discretion of the Committee, by the delivery of shares of Class A Common
Stock of the Company then owned by the participant, by the withholding of shares
of Class A Common Stock for which a Stock Option is exercisable or by a
combination of these methods. In the discretion of the Committee, payment also
may be made by delivering a properly executed exercise notice to the Company
together with a copy of irrevocable instructions to a broker to deliver promptly
to the Company the amount of sale or loan proceeds to pay the exercise price. To
facilitate the foregoing, the Company may enter into agreements for coordinated
procedures with one or more brokerage firms. The Committee may prescribe any
other method of paying the exercise price that it determines to be consistent
with applicable law and the purposes of the Plan, including, without limitation,
in lieu of the exercise of a Stock Option by delivery of shares of Class A
Common Stock of the Company then owned by a participant, providing the Company
with a notarized statement attesting to the number of shares owned, in which
case upon verification by the Company, the Company would issue to the
participant only the number of incremental shares to which the participant is
entitled upon exercise of the Stock Option. The Committee may, at the time of
grant, provide for the grant of a subsequent Restoration Stock Option if the
exercise price is paid for by delivering previously owned shares of Class A
Common Stock of the Company. Restoration Stock Options (i) may be granted in
respect of no more than the number of shares of Class A Common Stock tendered in
exercising the predecessor Stock Option, (ii) shall have an exercise price equal
to the Fair Market Value of the Class A Common Stock on the date the Restoration
Stock Option is granted, and (iii) may have an exercise period that does not
extend beyond the remaining term of the predecessor Stock Option. In determining
which methods a participant may utilize to pay the exercise price, the Committee
may consider such factors as it determines are appropriate.
(c) EXERCISE PERIOD. Stock Options granted under the Plan shall be
exercisable at such time or times and subject to such terms and conditions as
shall be determined by the Committee; provided, however, that no Stock Option
shall be exercisable later than ten years after the date it is granted except in
the event of a participant's death, in which case, the exercise period of such
participant's Stock Options may be extended beyond such period but no longer
than one year after the participant's death. All Stock Options shall terminate
at such earlier times and upon such conditions or circumstances as the Committee
shall in its discretion set forth in the Benefit Agreement relating to the
option grant.
(d) LIMITATIONS ON INCENTIVE STOCK OPTIONS. Incentive Stock Options may be
granted only to participants who are employees of the Company or one of its
subsidiaries (within the meaning of Section 424(f) of the Code) at the date of
grant. The aggregate Fair Market Value (determined as of the time the Stock
Option is granted) of the Class A Common Stock with respect to which Incentive
Stock Options are exercisable for the first time by a participant during any
calendar year (under all option plans of the Company and of any parent
corporation or subsidiary corporation (as defined in Sections 424(e) and (f) of
the Code, respectively)) shall not exceed $100,000. For purposes of the
preceding sentence, Incentive Stock Options will be taken into account in the
order in which they are granted. The per-share exercise price of an Incentive
Stock Option shall not be less than 100% of the Fair Market Value of the Class A
Common Stock on the date of grant, and no Incentive Stock Option may be
exercised later than ten years after the date it is granted; provided, however,
that Incentive Stock Options may not be granted to any participant who, at the
time of grant, owns stock possessing (after the application of the attribution
rules of Section 424(d) of the Code) more than 10% of the total combined voting
power of all classes of stock of the Company or any parent or subsidiary
corporation of the Company, unless the exercise price is fixed at not less than
110% of the Fair Market Value of the Class A Common Stock on the date of grant
and the exercise of such option is prohibited by its terms after the expiration
of five years from the date of grant of such option. In addition, no Incentive
Stock Option may be issued to a participant in tandem with a Nonqualified Stock
Option.
(e) POST-EMPLOYMENT EXERCISES. The exercise of any Stock Option after
termination of employment shall be subject to satisfaction of the conditions
precedent that the participant neither (i) competes with, or takes employment
with or renders services to a competitor of, the Company, its subsidiaries or
affiliates without the written consent of the Company, nor (ii) conducts himself
or herself in a manner adversely affecting the Company.
B-3
7. STOCK APPRECIATION RIGHTS.
(a) The Committee may, in its discretion, grant Stock Appreciation Rights
to the holders of any Stock Options granted hereunder. In addition, Stock
Appreciation Rights may be granted independently of, and without relation to,
Stock Options. A Stock Appreciation Right is a right to receive a payment in
cash, Class A Common Stock or a combination thereof, in an amount equal to the
excess of (x) the Fair Market Value, or other specified valuation, of a
specified number of shares of Class A Common Stock on the date the right is
exercised over (y) the Fair Market Value, or other specified valuation (which
shall be no less than the Fair Market Value) of such shares of Class A Common
Stock on the date the right is granted, all as determined by the Committee;
PROVIDED, HOWEVER, that if a Stock Appreciation Right is granted in tandem with
or in substitution for a Stock Option, the Fair Market Value designated in the
Benefit Agreement may be the Fair Market Value on the date such Stock Option was
granted. Each Stock Appreciation Right shall be subject to such terms and
conditions as the Committee shall impose from time to time.
(b) Stock Appreciation Rights granted under the Plan shall be exercisable
at such time or times and subject to such terms and conditions as shall be
determined by the Committee; PROVIDED, HOWEVER, that no Stock Appreciation Right
shall be exercisable later than ten years after the date it is granted except in
the event of a participant's death, in which case, the exercise period of such
participant's Stock Appreciation Rights may be extended beyond such period but
no longer than one year after the participant's death. All Stock Appreciation
Rights shall terminate at such earlier times and upon such conditions or
circumstances as the Committee shall in its discretion set forth in such right.
(c) The exercise of any Stock Appreciation Right after termination of
employment shall be subject to satisfaction of the conditions precedent that the
participant neither (i) competes with, or takes other employment with or renders
services to a competitor of, the Company, its subsidiaries or affiliates without
the written consent of the Company, nor (ii) conducts himself or herself in a
manner adversely affecting the Company.
8. STOCK AWARDS. The Committee may, in its discretion, grant Stock Awards
(which may include mandatory payment of bonus incentive compensation in stock)
consisting of Class A Common Stock issued or transferred to participants with or
without payments therefor. Stock Awards may be subject to such terms and
conditions as the Committee determines to be appropriate, including, without
limitation, restrictions on the sale or other disposition of such shares and the
right of the Company to reacquire such shares for no consideration upon
termination of the participant's employment within specified periods, and may
constitute Performance-Based Awards, as described in Section 11 hereof. The
Committee may require the participant to deliver a duly signed stock power,
endorsed in blank, relating to the Class A Common Stock covered by a Stock
Award. The Committee also may require that the stock certificates evidencing
such shares be held in custody or bear restrictive legends until the
restrictions thereon shall have lapsed. The Stock Award shall specify whether
the participant shall have, with respect to the shares of Class A Common Stock
subject to a Stock Award, all of the rights of a holder of shares of Class A
Common Stock of the Company, including the right to receive dividends and to
vote the shares.
9. PERFORMANCE AWARDS.
(a) Performance Awards may be granted to participants at any time and from
time to time, as shall be determined by the Committee. Performance Awards may
constitute Performance-Based Awards, as described in Section 11 hereof. The
Committee shall have complete discretion in determining the number, amount and
timing of awards granted to each participant. Such Performance Awards may be in
the form of shares of Class A Common Stock or Stock Units. Performance Awards
may be awarded as short-term or long-term incentives. Performance targets may be
based upon Company-wide, divisional and/or individual performance, or other
factors as determined by the Committee.
(b) With respect to those Performance Awards that are not intended to
constitute Performance-Based Awards, the Committee shall have the authority at
any time to make adjustments to performance targets for any outstanding
Performance Awards which the Committee deems necessary or desirable unless at
the time of establishment of such targets the Committee shall have precluded its
authority to make such adjustments.
(c) Payment of earned Performance Awards shall be made in accordance with
terms and conditions prescribed or authorized by the Committee. The participant
may elect to defer, or the Committee may require or permit the deferral of, the
receipt of Performance Awards upon such terms as the Committee deems
appropriate.
B-4
10. STOCK UNITS.
(a) The Committee may, in its discretion, grant Stock Units to
participants hereunder. A "Stock Unit" means a notional account representing one
share of Class A Common Stock. The Committee shall determine the criteria for
the vesting of Stock Units. Stock Units may constitute Performance-Based Awards,
as described in Section 11 hereof. A Stock Unit granted by the Committee shall
provide for payment in shares of Class A Common Stock at such time as the
Benefit Agreement shall specify. Shares of Class A Common Stock issued pursuant
to this Section 10 may be issued with or without payments or other consideration
therefor, as may be required by applicable law or as may be determined by the
Committee. The Committee shall determine whether a participant granted a Stock
Unit shall be entitled to a Dividend Equivalent Right. A "Dividend Equivalent
Right" means the right to receive the amount of any dividend paid on the share
of Class A Common Stock underlying a Stock Unit, which shall be payable in cash
or in the form of additional Stock Units.
(b) Upon vesting of a Stock Unit, unless the Committee has determined to
defer payment with respect to such unit or a participant has elected to defer
payment under subsection (c) below, Class A Common Stock shall be distributed to
the participant in respect of the Stock Units unless the Committee, with the
consent of the participant, provides for the payment of the Stock Unit in cash
or partly in cash and partly in shares of Class A Common Stock equal to the
value of the shares of Class A Common Stock which would otherwise be distributed
to the participant.
(c) Prior to the year in which a Stock Unit will vest, the participant may
elect not to receive Class A Common Stock upon the vesting of such Stock Unit
and for the Company to continue to maintain the Stock Unit on its books of
account. In such event, the value of a Stock Unit shall be payable in shares of
Class A Common Stock pursuant to the agreement of deferral.
11. PERFORMANCE-BASED AWARDS. Certain Benefits granted under the Plan may be
granted in a manner such that the Benefits qualify for the performance-based
compensation exception to Section 162(m) of the Code ("Performance-Based
Awards"). As determined by the Committee in its sole discretion, either the
granting or vesting of such Performance-Based Awards shall be based on
achievement of hurdle rates and/or growth rates 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 targets; (vii) working
capital targets 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 return to stockholders. In addition,
Performance-Based Awards may include comparisons to the performance of other
companies, such performance to be measured by one or more of the foregoing
business criteria. With respect to Performance-Based Awards, (i) the Committee
shall establish in writing (x) the performance goals applicable to a given
period specifying in terms of an objective formula or standard the method for
computing the amount of compensation payable to the participant if such
performance goals are achieved and (y) the individual employees or class of
employees to which such performance goals apply no later than 90 days after the
commencement of such period (but in no event after one-quarter of such period
has elapsed) and (ii) no Performance-Based Awards shall be payable to or vest
with respect to any participant for a given period until the Committee certifies
in writing that the objective performance goals (and any other material terms)
applicable to such period have been satisfied. With respect to any Benefits
intended to qualify as Performance-Based Awards, after establishment of a
performance goal, the Committee shall not revise such performance goal or
increase the amount of compensation payable thereunder (as determined in
accordance with Section 162(m) of the Code) upon the attainment of such
performance goal. Notwithstanding the preceding sentence, and unless restricted
by the applicable Benefit Agreement, the Committee may reduce or eliminate the
number of shares of Class A Common Stock or cash granted or the number of shares
of Class A Common Stock vested upon the attainment of such performance goal.
12. FOREIGN LAWS. The Committee may grant Benefits to individual participants
who are subject to the tax laws of nations other than the United States, which
Benefits may have terms and conditions which the Committee determines to be
necessary to comply with applicable foreign laws. The Committee may take any
action which it deems advisable to obtain approval of such Benefits by the
appropriate foreign governmental entity; provided, however, that no Benefits may
be granted pursuant to this Section 12 and no action may be taken which would
result in a violation of the Exchange Act, the Code or any other applicable law.
B-5
13. ADJUSTMENT PROVISIONS; CHANGE IN CONTROL.
(a) If there shall be any change in the Class A Common Stock of the
Company, through merger, consolidation, reorganization, recapitalization, stock
dividend, stock split, reverse stock split, split up, spinoff, combination of
shares, exchange of shares, dividend in kind or other like change in capital
structure or distribution (other than normal cash dividends) to stockholders of
the Company, an adjustment shall be made to each outstanding Stock Option and
Stock Appreciation Right such that each such Stock Option and Stock Appreciation
Right shall thereafter be exercisable for such securities, cash and/or other
property as would have been received in respect of the Class A Common Stock
subject to such Stock Option or Stock Appreciation Right had such Stock Option
or Stock Appreciation Right been exercised in full immediately prior to such
change or distribution, and such an adjustment shall be made successively each
time any such change shall occur. In addition, in the event of any such change
or distribution, in order to prevent dilution or enlargement of participants'
rights under the Plan, the Committee will have authority to adjust, in an
equitable manner, the number and kind of shares that may be issued under the
Plan, the number and kind of shares subject to outstanding Benefits, the
exercise price applicable to outstanding Benefits, and the Fair Market Value of
the Class A Common Stock and other value determinations applicable to
outstanding Benefits. Appropriate adjustments also may be made by the Committee
in the terms of any Benefits under the Plan to reflect such changes or
distributions and to modify any other terms of outstanding Benefits on an
equitable basis, including modifications of performance targets and changes in
the length of performance periods. In addition, other than with respect to Stock
Options, Stock Appreciation Rights, and other awards intended to constitute
Performance-Based Awards, the Committee is authorized to make adjustments to the
terms and conditions of, and the criteria included in, Benefits in recognition
of unusual or nonrecurring events affecting the Company or the financial
statements of the Company, or in response to changes in applicable laws,
regulations, or accounting principles. Notwithstanding the foregoing, (i) each
such adjustment with respect to an Incentive Stock Option shall comply with the
rules of Section 424(a) of the Code, and (ii) in no event shall any adjustment
be made which would render any Incentive Stock Option granted hereunder other
than an incentive stock option for purposes of Section 422 of the Code.
(b) Notwithstanding any other provision of this Plan, if there is a Change
in Control of the Company, all then outstanding Stock Options and Stock
Appreciation Rights shall immediately become exercisable. For purposes of this
Section 13(b), a "Change in Control" of the Company shall be deemed to have
occurred upon any of the following events:
(i) A change in control of the direction and administration of the
Company's business of a nature that would be required to be reported in
response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under
the Exchange Act; or
(ii) 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
hereinafter defined) cease for any reason to constitute at least a majority
thereof; or
(iii) The Company's Class A Common Stock shall cease to be publicly
traded; or
(iv) 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
(v) The Company's Board of Directors shall approve any merger,
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 13(b)(ii) or (iii) above, and such transaction
shall have been consummated.
Notwithstanding the foregoing, (A) changes in the relative beneficial
ownership among members of the Lauder family and family-controlled entities
shall not, by itself, constitute a Change in Control of the Company, and (B) any
spin-off of a division or subsidiary of the Company to its stockholders shall
not constitute a Change in Control of the Company.
For purposes of this Section 13(b), "Continuing Directors" shall mean (x)
the directors of the Company in office on the Effective Date (as defined below)
and (y) any successor to any such director and any additional director who after
the Effective Date was nominated or elected by a majority of the Continuing
Directors in office at the time of his or her nomination or election.
B-6
14. NONTRANSFERABILITY. Each Benefit granted under the Plan to a participant
shall not be transferable otherwise than by will or the laws of descent and
distribution, and shall be exercisable, during the participant's lifetime, only
by the participant. In the event of the death of a participant, each Stock
Option or Stock Appreciation Right theretofore granted to him or her shall be
exercisable during such period after his or her death as the Committee shall in
its discretion set forth in such option or right at the date of grant and then
only by the executor or administrator of the estate of the deceased participant
or the person or persons to whom the deceased participant's rights under the
Stock Option or Stock Appreciation Right shall pass by will or the laws of
descent and distribution. Notwithstanding the foregoing, at the discretion of
the Committee, an award of a Benefit other than an Incentive Stock Option may
permit the transferability of a Benefit by a participant solely to the
participant's spouse, siblings, parents, children and grandchildren or trusts
for the benefit of such persons or partnerships, corporations, limited liability
companies or other entities owned solely by such persons, including trusts for
such persons, subject to any restriction included in the award of the Benefit.
15. OTHER PROVISIONS. The award of any Benefit under the Plan also may be
subject to such other provisions (whether or not applicable to a Benefit awarded
to any other participant) as the Committee determines appropriate, including,
without limitation, for the installment purchase of Class A Common Stock under
Stock Options, for the installment exercise of Stock Appreciation Rights, to
assist the participant in financing the acquisition of Class A Common Stock, for
the forfeiture of, or restrictions on resale or other disposition of, Class A
Common Stock acquired under any form of Benefit, for the acceleration of
exercisability or vesting of Benefits in the event of a change in control of the
Company, for the payment of the value of Benefits to participants in the event
of a change in control of the Company, or to comply with federal and state
securities laws, or understandings or conditions as to the participant's
employment in addition to those specifically provided for under the Plan. The
award of any Benefit under the Plan shall be subject to the receipt of the
Company of consideration required under applicable state law.
16. FAIR MARKET VALUE. For purposes of this Plan and any Benefits awarded
hereunder, Fair Market Value shall be the closing price of the Class A Common
Stock on the date of calculation (or on the last preceding trading date if Class
A Common Stock was not traded on such date) if the Class A Common Stock is
readily tradeable on a national securities exchange or other market system, and
if the Class A Common Stock is not readily tradeable, Fair Market Value shall
mean the amount determined in good faith by the Committee as the fair market
value of the Class A Common Stock.
17. WITHHOLDING. All payments or distributions of Benefits made pursuant to the
Plan shall be net of any amounts required to be withheld pursuant to applicable
federal, state and local tax-withholding requirements. If the Company proposes
or is required to distribute Class A Common Stock pursuant to the Plan, it may
require the recipient to remit to it or to the corporation that employs such
recipient an amount sufficient to satisfy such tax-withholding requirements
prior to the delivery of any certificates for such Class A Common Stock. In lieu
thereof, the Company or the employing corporation shall have the right to
withhold the amount of such taxes from any other sums due or to become due from
such corporation to the recipient as the Committee shall prescribe. The
Committee may, in its discretion and subject to such rules as it may adopt
(including any as may be required to satisfy applicable tax and/or non-tax
regulatory requirements), permit an optionee or award or right holder to pay all
or a portion of the federal, state and local withholding taxes arising in
connection with any Benefit consisting of shares of Class A Common Stock by
electing to have the Company withhold shares of Class A Common Stock having a
Fair Market Value equal to the amount of tax to be withheld, such tax calculated
at rates required by statute or regulation.
18. TENURE. A participant's right, if any, to continued employment with the
Company or any of its subsidiaries or affiliates as an officer, employee, or
otherwise, shall not be enlarged or otherwise affected by his or her designation
as a participant under the Plan.
19. UNFUNDED PLAN. Participants shall have no right, title, or interest
whatsoever in or to any investments that the Company may make to aid it in
meeting its obligations under the Plan. Nothing contained in the Plan, and no
action taken pursuant to its provisions, shall create or be construed to create
a trust of any kind, or a fiduciary relationship between the Company and any
participant, beneficiary, legal representative or any other person. To the
extent that any person acquires a right to receive payments from the Company
under the Plan, such right shall be no greater than the right of an unsecured
general creditor of the Company. All payments to be made hereunder shall be paid
from the general funds of the Company and no special or separate fund shall be
B-7
established and no segregation of assets shall be made to assure payment of such
amounts except as expressly set forth in the Plan.
20. NO FRACTIONAL SHARES. No fractional shares of Class A Common Stock shall be
issued or delivered pursuant to the Plan or any Benefit. The Committee shall
determine whether cash, or Benefits, or other property shall be issued or paid
in lieu of fractional shares or whether such fractional shares or any rights
thereto shall be forfeited or otherwise eliminated.
21. DURATION, AMENDMENT AND TERMINATION. No Benefit shall be granted more than
ten years after the Effective Date. The Committee may amend the Plan from time
to time or suspend or terminate the Plan at any time. No amendment of the Plan
may be made without approval of the stockholders of the Company if the amendment
will: (a) disqualify any Incentive Stock Options granted under the Plan; (b)
increase the aggregate number of shares of Class A Common Stock that may be
delivered through Stock Options under the Plan; (c) increase either of the
maximum amounts which can be paid to an individual participant under the Plan as
set forth in the third and fourth sentences of Section 5(c) hereof; (d) change
the types of business criteria on which Performance-Based Awards are to be based
under the Plan; or (e) modify the requirements as to eligibility for
participation in the Plan.
22. GOVERNING LAW. This Plan, Benefits 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 applicable New York principles of conflict of laws).
23. EFFECTIVE DATE.
(a) The Plan shall be effective as of July 26, 2001, 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 Benefits hereunder. Any Benefits granted under
the Plan prior to such approval of stockholders shall be effective as of the
date of grant (unless, with respect to any Benefit, the Committee specifies
otherwise at the time of grant), but no such Benefit may be exercised or settled
and no restrictions relating to any Benefit may lapse prior to such stockholder
approval, and if stockholders fail to approve the Plan as specified hereunder,
any such Benefit shall be cancelled.
(b) This Plan shall terminate on July 26, 2011 (unless sooner terminated
by the Committee).
B-8
[ESTEE LAUDER LOGO]
[RECYCLE LOGO]
THE ESTEE LAUDER COMPANIES INC.
CLASS A COMMON STOCK
PROXY
ANNUAL MEETING OF STOCKHOLDERS
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
The undersigned, revoking all previous proxies, hereby constitutes and
appoints Fred H. Langhammer, Paul E. Konney and Richard W. Kunes, and each of
them, proxies with full power of substitution to vote for the undersigned all
shares of Class A Common Stock of The Estee Lauder Companies Inc. (the
"Company") which the undersigned would be entitled to vote if personally present
at the Annual Meeting of the Stockholders to be held on October 31, 2001, at The
Essex House, Grand Salon, 160 Central Park South, New York, New York, at 10:00
a.m. (local time), and at any adjournment thereof, upon the matters described in
the accompanying Proxy Statement and upon any other business that may properly
come before the meeting or any adjournment thereof. Said proxies are directed to
vote or refrain from voting as checked on the reverse side upon the matters
listed on the reverse side, and otherwise in their discretion.
THIS PROXY IS CONTINUED ON THE REVERSE SIDE.
PLEASE SIGN ON THE REVERSE SIDE AND RETURN PROMPTLY.
--------------------------------------------------------------------------------
FOLD AND DETACH HERE
This proxy when properly executed, will Please mark [X]
be voted as directed herein. If no your votes as indicated in
direction is given, this proxy will be this example
voted in accordance with recommendations
of the Company's Board of Directors
"FOR" all nominees in Item 1 and "FOR"
Items 2 and 3.
Please mark, date and sign exactly as your name appears hereon and return in the
enclosed envelope. If acting as executor, administrator, trustee, guardian,
etc., you should so indicate when signing. If the signer is a corporation,
please sign the full corporate name, by duly authorized officer. If shares are
held jointly, each stockholder named should sign.
Dated: , 2001
-----------------------
--------------------------------------------------------------------------------
SIGNATURE(S) OF STOCKHOLDER(S)
--------------------------------------------------------------------------------
TITLE:
--------------------------------------------------------------------------------
SIGNATURE(S) OF STOCKHOLDER(S)
--------------------------------------------------------------------------------
TITLE:
Item 1 - Election of three (3) Class II Directors:
Lynn Forester, William P. Lauder and Richard D. Parsons
[ ] FOR ALL NOMINEES [ ] WITHHOLD AUTHORITY FOR ALL NOMINEES
[ ] with exceptions noted
Withheld for the following only:
(Write the name(s) of the Nominee(s)
in the space below)
-------------------------------------
-------------------------------------
FOR AGAINST ABSTAIN
Item 2 - Approval of the Fiscal 2002 [ ] [ ] [ ]
Share Incentive Plan.
Item 3 - Ratification of appointment of [ ] [ ] [ ]
Arthur Andersen LLP as independent
auditors for the 2002 fiscal year.
[ ] By checking the box to the left, I consent to future access of the Annual
Reports, Proxy Statements, prospectuses and other communications
electronically via the Internet. I understand that the Company may no longer
distribute printed materials to me for any future stockholder meeting until
such consent is revoked. I understand that I may revoke my consent at any
time by contacting the Company's transfer agent, Mellon Investor Services,
Ridgefield Park, NJ and that costs normally associated with electronic
access, such as usage and telephone charges, will be my responsibility.
[ ] I plan to attend the Annual Meeting
--------------------------------------------------------------------------------
FOLD AND DETACH HERE
NOTICE: IF YOU PLAN TO ATTEND THE 2001 ANNUAL MEETING,
PLEASE CHECK THE BOX ON THE PROXY CARD ABOVE.
AN ADMISSION TICKET WILL BE MAILED TO YOU.
NO ADMISSION WILL BE GRANTED WITHOUT AN ADMISSION TICKET.
ESTEE
LAUDER
COMPANIES
The Estee Lauder Companies Inc.
Annual Meeting of Stockholders
October 31, 2001, 10:00 A.M. (local time)
The Essex House
Grand Salon
160 Central Park South
New York, New York
--------------------------------------------------------------------------------
If you wish to access future Annual Reports and Proxy Statements electronically
via the Internet and no longer receive the printed materials please provide your
consent with your proxy vote.
You may view the 2001 Annual Report and Proxy Statement at
http://www.elcompanies.com.
--------------------------------------------------------------------------------
THE ESTEE LAUDER COMPANIES INC.
CLASS B COMMON STOCK
PROXY
ANNUAL MEETING OF STOCKHOLDERS
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
The undersigned, revoking all previous proxies, hereby constitutes and
appoints Fred H. Langhammer, Paul E. Konney and Richard W. Kunes, and each of
them, proxies with full power of substitution to vote for the undersigned all
shares of Class B Common Stock of The Estee Lauder Companies Inc. (the
"Company") which the undersigned would be entitled to vote if personally present
at the Annual Meeting of the Stockholders to be held on October 31, 2001, at The
Essex House, Grand Salon, 160 Central Park South, New York, New York, at 10:00
a.m. (local time), and at any adjournment thereof, upon the matters described in
the accompanying Proxy Statement and upon any other business that may properly
come before the meeting or any adjournment thereof. Said proxies are directed to
vote or refrain from voting as checked on the reverse side upon the matters
listed on the reverse side, and otherwise in their discretion.
THIS PROXY IS CONTINUED ON THE REVERSE SIDE.
PLEASE SIGN ON THE REVERSE SIDE AND RETURN PROMPTLY.
--------------------------------------------------------------------------------
FOLD AND DETACH HERE
This proxy when properly executed, will Please mark [X]
be voted as directed herein. If no your votes as indicated in
direction is given, this proxy will be this example
voted in accordance with recommendations
of the Company's Board of Directors
"FOR" all nominees in Item 1 and "FOR"
Items 2 and 3.
Please mark, date and sign exactly as your name appears hereon and return in the
enclosed envelope. If acting as executor, administrator, trustee, guardian,
etc., you should so indicate when signing. If the signer is a corporation,
please sign the full corporate name, by duly authorized officer. If shares are
held jointly, each stockholder named should sign.
Dated: , 2001
-----------------------
--------------------------------------------------------------------------------
SIGNATURE(S) OF STOCKHOLDER(S)
--------------------------------------------------------------------------------
TITLE:
--------------------------------------------------------------------------------
SIGNATURE(S) OF STOCKHOLDER(S)
--------------------------------------------------------------------------------
TITLE:
Item 1 - Election of three (3) Class II Directors:
Lynn Forester, William P. Lauder and Richard D. Parsons
[ ] FOR ALL NOMINEES [ ] WITHHOLD AUTHORITY FOR ALL NOMINEES
[ ] with exceptions noted
Withheld for the following only:
(Write the name(s) of the Nominee(s)
in the space below)
-------------------------------------
-------------------------------------
FOR AGAINST ABSTAIN
Item 2 - Approval of the Fiscal 2002 [ ] [ ] [ ]
Share Incentive Plan.
Item 3 - Ratification of appointment of [ ] [ ] [ ]
Arthur Andersen LLP as independent
auditors for the 2002 fiscal year.
[ ] By checking the box to the left, I consent to future access of the Annual
Reports, Proxy Statements, prospectuses and other communications
electronically via the Internet. I understand that the Company may no longer
distribute printed materials to me for any future stockholder meeting until
such consent is revoked. I understand that I may revoke my consent at any
time by contacting the Company's transfer agent, Mellon Investor Services,
Ridgefield Park, NJ and that costs normally associated with electronic
access, such as usage and telephone charges, will be my responsibility.
[ ] I plan to attend the Annual Meeting
--------------------------------------------------------------------------------
FOLD AND DETACH HERE
NOTICE: IF YOU PLAN TO ATTEND THE 2001 ANNUAL MEETING,
PLEASE CHECK THE BOX ON THE PROXY CARD ABOVE.
AN ADMISSION TICKET WILL BE MAILED TO YOU.
NO ADMISSION WILL BE GRANTED WITHOUT AN ADMISSION TICKET.
ESTEE
LAUDER
COMPANIES
The Estee Lauder Companies Inc.
Annual Meeting of Stockholders
October 31, 2001, 10:00 A.M. (local time)
The Essex House
Grand Salon
160 Central Park South
New York, New York
--------------------------------------------------------------------------------
If you wish to access future Annual Reports and Proxy Statements electronically
via the Internet and no longer receive the printed materials please provide your
consent with your proxy vote.
You may view the 2001 Annual Report and Proxy Statement at
http://www.elcompanies.com.
--------------------------------------------------------------------------------