SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549-1004
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
FOR THE FISCAL YEAR ENDED JUNE 30, 2003 COMMISSION FILE NUMBER 1-14064
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
THE ESTEE LAUDER COMPANIES INC.
(Exact name of registrant as specified in its charter)
DELAWARE 11-2408943
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
767 FIFTH AVENUE, NEW YORK, NEW YORK 10153
(Address of principal executive offices) (Zip Code)
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REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE 212-572-4200
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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Class A Common Stock, $.01 par value New York Stock Exchange
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SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
NONE
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X]
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes [X] No [ ]
The aggregate market value of the registrant's voting common equity held by non-affiliates of the registrant was approximately $3.33 billion at December 31, 2002 (the last business day of the registrant's most recently completed second quarter).*
At September 12, 2003, 120,840,387 shares of the registrant's Class A Common Stock, $.01 par value, and 107,162,533 shares of the registrant's Class B Common Stock, $.01 par value, were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
DOCUMENT WHERE INCORPORATED
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Proxy Statement for Annual Meeting of Part III
Stockholders to be held November 5, 2003
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* Calculated by excluding all shares held by executive officers and directors of registrant and certain trusts without conceding that all such persons are "affiliates" of registrant for purposes of the Federal securities laws.
THE ESTEE LAUDER COMPANIES INC.
INDEX TO ANNUAL REPORT ON FORM 10-K
PAGE
PART I:
Item 1. Business........................................................ 2
Item 2. Properties...................................................... 13
Item 3. Legal Proceedings............................................... 13
Item 4. Submission of Matters to a Vote of Security Holders............. 14
PART II:
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters..................................... 15
Item 6. Selected Financial Data......................................... 16
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations........................................... 17
Item 7A. Quantitative and Qualitative Disclosures About Market Risk...... 37
Item 8. Financial Statements and Supplementary Data..................... 37
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure............................. 37
Item 9A. Controls and Procedures......................................... 37
PART III:
Items 10 - 14.............................................................. 37
PART IV:
Item 15. Exhibits, Financial Statement Schedules and Reports on
Form 8-K ...................................................... 38
Signatures................................................................. 41
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FORWARD-LOOKING STATEMENTS
THIS ANNUAL REPORT ON FORM 10-K INCLUDES "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. SUCH STATEMENTS INCLUDE, WITHOUT LIMITATION, OUR EXPECTATIONS REGARDING SALES, EARNINGS OR OTHER FUTURE FINANCIAL PERFORMANCE AND LIQUIDITY, PRODUCT INTRODUCTIONS, ENTRY INTO NEW GEOGRAPHIC REGIONS, INFORMATION SYSTEMS INITIATIVES, NEW METHODS OF SALE AND FUTURE OPERATIONS OR OPERATING RESULTS. ALTHOUGH WE BELIEVE THAT OUR EXPECTATIONS ARE BASED ON REASONABLE ASSUMPTIONS WITHIN THE BOUNDS OF OUR KNOWLEDGE OF OUR BUSINESS AND OPERATIONS, WE CANNOT ASSURE THAT ACTUAL RESULTS WILL NOT DIFFER MATERIALLY FROM OUR EXPECTATIONS. FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER FROM EXPECTATIONS ARE DESCRIBED HEREIN; IN PARTICULAR, SEE "ITEM 7. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- FORWARD-LOOKING INFORMATION."
PART I
ITEM 1. BUSINESS.
The Estee Lauder Companies Inc., founded in 1946 by Estee and Joseph Lauder, is one of the world's leading manufacturers and marketers of quality skin care, makeup, fragrance and hair care products. Our products are sold in over 130 countries and territories under the following well-recognized brand names: Estee Lauder, Clinique, Aramis, Prescriptives, Origins, M.A.C, Bobbi Brown, La Mer, jane, Aveda, Stila, Jo Malone, Bumble and bumble, Darphin and Rodan & Fields. We are also the global licensee for fragrances and cosmetics sold under the Tommy Hilfiger, Donna Karan, kate spade and Michael Kors brands. Each brand is distinctly positioned within the market for beauty products.
We are a pioneer in the cosmetics industry and believe we are a leader in the industry due to the global recognition of our brand names, our leadership in product innovation, our strong market position in key geographic markets and the consistently high quality of our products. We sell our prestige products principally through limited distribution channels to complement the images associated with our brands. These channels, encompassing over 16,900 points of sale, consist primarily of upscale department stores, specialty retailers, upscale perfumeries and pharmacies and, to a lesser extent, freestanding company-owned stores and spas, our own and authorized retailer web sites, stores on cruise ships, in-flight and duty-free shops. We believe that our strategy of pursuing limited distribution strengthens our relationships with retailers, enables our brands to be among the best selling product lines at the stores and heightens the aspirational quality of our brands.
We also sell products at self-select outlets (jane) and prestige salons (Aveda and Bumble and bumble).
We have been controlled by the Lauder family since the founding of our company. Members of the Lauder family, some of whom are directors, executive officers and/or employees, beneficially own, directly or indirectly, as of September 12, 2003, shares of Class A Common Stock and Class B Common Stock having approximately 91.3% of the outstanding voting power of the Common Stock.
Unless the context requires otherwise, references to "we," "us," "our" and the "Company" refer to The Estee Lauder Companies Inc. and its subsidiaries.
PRODUCTS
SKIN CARE - Our broad range of skin care products addresses various skin care needs for women and men. These products include moisturizers, creams, lotions, cleansers, sun screens and self-tanning products, a number of which are developed for use on particular areas of the body, such as the face or the hands or around the eyes. Skin care products accounted for approximately 37% of our net sales in fiscal 2003.
MAKEUP - We manufacture, market and sell a full array of makeup products, including lipsticks, mascaras, foundations, eyeshadows, nail polishes and powders. Many of the products are offered in an extensive array of shades and colors. We also sell related items such as compacts, brushes and other makeup tools. Makeup products accounted for approximately 37% of our net sales in fiscal 2003.
FRAGRANCE - We offer a variety of fragrance products for women and men. The fragrances are sold in various forms, including eau de parfum sprays and colognes, as well as lotions, powders, creams and soaps that are based on a particular fragrance. Fragrance products accounted for approximately 21% of our net sales in fiscal 2003.
HAIR CARE - Hair care products are offered mainly in salons and in freestanding retail stores and include styling products, shampoos, conditioners and finishing sprays. In fiscal 2003, hair care products accounted for approximately 5% of our net sales.
Given the personal nature of our products and the wide array of consumer preferences and tastes, as well as competition for the attention of consumers, our strategy has been to market and promote our products through distinctive brands seeking to address broad preferences and tastes. Each brand has a single global image that is promoted with consistent logos, packaging and advertising designed to enhance its image and differentiate it from other brands.
ESTEE LAUDER - Estee Lauder brand products, which have been sold since 1946, are positioned as luxurious, classic and aspirational. We believe that Estee Lauder brand products are technologically advanced and innovative and have a worldwide reputation for excellence. The broad product line principally consists of skin care, makeup and fragrance products that are presented in high quality packaging.
CLINIQUE - First introduced in 1968, Clinique skin care and makeup products are all allergy tested and 100% fragrance free and have been designed to address individual skin types and needs. The products are based on the research and related expertise of leading dermatologists. Clinique skin care products are generally marketed as part of the 3-Step System: Cleanse, Exfoliate, Moisturize. Clinique also offers fragrances for men and women and a line of hair care products.
ARAMIS - We pioneered the marketing of prestige men's grooming and skin care products and fragrances with the introduction of Aramis products in 1964. Aramis continues to offer one of the broadest lines of prestige men's products and has extended the line to include fragrances for women.
PRESCRIPTIVES - We developed and introduced Prescriptives in 1979. Prescriptives is positioned as a color authority with an advanced collection of highly individualized products primarily addressing the makeup and skin care needs of contemporary women with active lifestyles. The products are characterized by simple concepts, minimalist design and an innovative image and, through a system of color application and extensive range of makeup shades, accommodate a diverse group of consumers.
ORIGINS - Origins, our most recent internally developed brand, was introduced in 1990. It is positioned as a plant-based cosmetics line of skin care, makeup and aromatherapy products that combine time-tested botanical ingredients with modern science to promote total well-being. Origins sells its products at our freestanding Origins stores and through stores-within-stores (which are designed to replicate the Origins store environment within a department store), at traditional retail counters, in perfumeries and directly to consumers over the Internet.
TOMMY HILFIGER - We have an exclusive global license arrangement to develop and market men's and women's fragrances and cosmetics under the Tommy Hilfiger brand. We launched the line in 1995 with a men's fragrance, "tommy". Today, we manufacture and sell a variety of fragrances and ancillary products for men and women.
M.A.C - M.A.C products comprise a broad line of color-oriented, professional cosmetics and professional makeup tools targeting makeup artists and fashion-conscious consumers. The products are sold through a limited number of department and specialty stores, at freestanding M.A.C stores and directly to consumers over the Internet. We acquired Make-Up Art Cosmetics Limited, the manufacturer of M.A.C products, in three stages: in December 1994, March 1997 and February 1998.
BOBBI BROWN - In October 1995, we acquired the Bobbi Brown line of color cosmetics, professional makeup brushes and skin care products. Bobbi Brown products are manufactured to our specifications, primarily by third parties, and sold through a limited number of department and specialty stores and directly to consumers over the Internet.
LA MER - La Mer products primarily consist of moisturizing creams, lotions, cleansers, toners and other skin care products. The line, which is available in very limited distribution in the United States and certain other countries, is an extension of the initial Creme de la Mer product that we acquired in 1995.
jane - In October 1997, we acquired Sassaby, Inc., the owner of the jane brand of color cosmetics targeted to young consumers. jane products are currently distributed only in the United States in the self-select distribution channel.
DONNA KARAN COSMETICS - In November 1997, we obtained the exclusive global license to develop, market and distribute a line of fragrances and other cosmetics under the Donna Karan New York and DKNY trademarks, including certain products that were originally sold by The Donna Karan Company. We launched the first DKNY women's fragrance in fiscal 2000 and the first DKNY men's fragrance in fiscal 2001. Under this license, fragrances have been expanded to include extensive lines of companion bath and body products.
AVEDA - We acquired the Aveda business in December 1997 and have since acquired selected Aveda distributors and retail stores. Aveda, a prestige hair care leader, is a manufacturer and marketer of plant-based hair care, skin care, makeup and fragrance products. We sell Aveda products to third-party distributors and prestige salons and spas, cosmetology schools and specialty retailers, and directly to consumers at our own freestanding Aveda Experience Centers and certain Aveda Institutes.
STILA - In August 1999, we acquired the business of Los Angeles-based Stila Cosmetics, Inc. Stila is known for its stylish, wearable makeup products and eco-friendly packaging and has developed a following among young, fashion-forward consumers. Stila products are currently available at the brand's flagship store in Los Angeles, California, and also in limited distribution in the United States and certain other countries.
JO MALONE - We acquired London-based Jo Malone Limited in October 1999. Jo Malone is known for its prestige skin care, fragrance and hair care products showcased at its flagship store in London. Products are also available through a company catalogue, at freestanding stores and at a very limited group of specialty stores in the United States, Canada and the United Kingdom.
BUMBLE AND BUMBLE - In June 2000, we acquired a controlling majority equity interest in Bumble and Bumble Products, LLC, a marketer and distributor of quality hair care products, and Bumble and Bumble, LLC, the operator of a premier hair salon in New York City. Bumble and bumble styling and other hair care products are distributed to top-tier salons and select specialty stores. The founder and two of his partners own the remaining equity interests and have continued to manage the domestic operations.
kate spade beauty - In November 1999, we obtained exclusive worldwide rights to use the kate spade trademark and related trademarks for the manufacture, marketing, distribution and sale of beauty products. During fiscal 2002, we launched the first products - a distinctive and personal signature fragrance and companion products.
DARPHIN - In April 2003, we acquired Laboratoires Darphin, the Paris-based company dedicated to the development, manufacture and marketing of prestige skin care and makeup products which are distributed through high-end independent pharmacies and specialty stores.
MICHAEL KORS - In May 2003, we entered into a license agreement for fragrances and beauty products under the "Michael Kors" trademarks and purchased certain related rights and inventory from another party. All fragrances including MICHAEL, MICHAEL for Men and KORS Michael Kors, as well as ancillary bath and body products, are sold in departments stores, specialty stores, at freestanding Michael Kors boutiques and over the Internet.
RODAN & FIELDS - In July 2003, we acquired the Rodan & Fields skin care line launched in 2002 by Stanford University-trained dermatologists Katie Rodan, M.D. and Kathy Fields, M.D. The line offers solutions for specific skin problems, targeting them with individually packaged, dedicated regimens with the mission of maximizing the health and well-being of the skin. The line is currently sold in three U.S. specialty stores and over the Internet at rodanandfields.com.
In addition to the foregoing brands, we manufacture and sell Kiton and Toni Gard products as a licensee.
DISTRIBUTION
We sell our products principally through limited distribution channels to complement the images associated with our core brands. These channels include more than 16,900 points of sale in over 130 countries and territories and consist primarily of upscale department stores, specialty retailers, upscale perfumeries and pharmacies and, to a lesser extent, freestanding company-owned stores and spas, our own and authorized retailer web sites, stores on cruise ships, in-flight and duty-free shops.
We maintain a dedicated sales force which sells to our retail accounts in North America and in the major overseas markets, such as Western Europe and Japan. We have wholly-owned operations in over 30 countries, and a controlling interest in a joint venture that operates in three other countries, through which we market, sell and distribute our products. In certain markets, we sell our products through selected local distributors under contractual arrangements designed to protect the image and position of the brands. In addition, we sell certain products in select domestic and international military locations and over the Internet. For information regarding our net sales and long-lived assets by geographic region, see Note 18 of Notes to Consolidated Financial Statements, which is incorporated herein by reference. Our net sales in the United States in fiscal 2003, 2002 and 2001 were $2,774.4 million, $2,696.0 million and $2,669.6 million, respectively. Our long-lived assets in the United States at June 30, 2003, 2002 and 2001 were $420.1 million, $442.4 million and $435.2 million, respectively.
There are risks inherent in foreign operations, including changes in social, political and economic conditions. We are also exposed to risks associated with changes in the laws and policies that govern foreign investment in countries where we have operations as well as, to a lesser extent, changes in United States laws and regulations relating to foreign trade and investment. In addition, our results of operations and the value of our foreign assets are affected by fluctuations in foreign currency exchange rates. Changes in such rates also may affect the relative prices at which we and foreign competitors sell products in the same markets. Similarly, the cost of certain items required in our operations may be affected by changes in the value of the relevant currencies.
With the acquisitions of jane and Aveda in fiscal 1998, a controlling majority equity interest in Bumble and bumble in fiscal 2000 and the acquisition of Darphin in fiscal 2003, we broadened our distribution in new and existing channels, namely self-select outlets, salons and high-end independent pharmacies. jane products are currently sold only in the United States in approximately 14,200 points of sale, including mass merchandise stores, drug stores and specialty stores. We principally sell Aveda products to third-party distributors and prestige salons and spas, cosmetology schools and specialty retailers, and directly to consumers at our own freestanding Aveda Experience Centers and certain Aveda Institutes. There are currently about 7,300 points of sale, primarily in the United States, that sell Aveda products. Bumble and bumble products are principally sold to approximately 1,400 independent salons, primarily in the United States. Darphin products are sold through high-end independent pharmacies, principally in Europe, representing approximately 2,400 points of sale.
As part of our strategy to diversify our distribution, primarily in the United States, we have been expanding the number of single-brand, freestanding stores that we own and operate. The Origins, Aveda and M.A.C brands are the primary focus for this method of distribution. To date, we operate approximately 420 single-brand, freestanding stores worldwide and expect that number to increase moderately over the next several years.
We sell some of our products directly to consumers over the Internet through our own web sites (Estee Lauder, Clinique, Origins, Bobbi Brown, M.A.C and Rodan & Fields), and through Gloss.com (Estee Lauder, Clinique, Prescriptives, Origins, M.A.C, Bobbi Brown, La Mer and Stila). Gloss.com is currently a joint venture in which we own a controlling majority interest. Chanel, Inc. and Clarins (U.S.A.) Inc. became partners in the venture in August 2000 and Chanel and Clarins products are also available on the web site.
As is customary in the cosmetics industry, our practice is to accept returns of our products from retailers. In accepting returns, we typically provide a credit to the retailer against sales and accounts receivable from that retailer on a dollar-for-dollar basis. In recognition of this practice, and in accordance with generally accepted accounting principles, we report sales levels on a net basis, which is computed by deducting the amount of actual returns received and an amount established for anticipated returns from gross sales. As a percent of gross sales, returns were 5.2% in fiscal 2003 and 4.9% in each of fiscal 2002 and 2001.
CUSTOMERS
Our strategy has been to build strong strategic relationships with selected retailers globally. Senior management works with executives of our major retail accounts on a regular basis, and we believe we are viewed as an important supplier to these customers.
For the fiscal years ended June 30, 2003, 2002 and 2001, our three largest customers accounted for 24%, 25% and 28%, respectively, of our net sales. Individually no customer accounted for more than 10% of our net sales during fiscal 2003 or 2002. Customers affiliated with Federated Department Stores, Inc. (e.g., Bloomingdale's, Burdines, Macy's and Rich's/Lazarus) accounted for 11% of our net sales in fiscal 2001. The May Department Stores Company (e.g., Foley's, Lord & Taylor and Robinsons-May) accounted for 10% of our net sales in fiscal 2001.
MARKETING
Our marketing strategy is built around our vision statement: "Bringing the Best to Everyone We Touch." Mrs. Estee Lauder formulated this marketing philosophy to provide high-quality service and products as the foundation for a solid and loyal consumer base.
Our marketing efforts focus principally on promoting the quality and benefits of our products. Each of our brands is distinctively positioned, has a single global image, and is promoted with consistent logos, packaging and advertising designed to enhance its image and differentiate it from other brands. We regularly advertise our products on television and radio, in upscale magazines and prestigious newspapers and through direct mail and photo displays at international airports. Promotional activities and in-store displays are designed to introduce existing consumers to different products in the line and to attract new consumers. Our marketing efforts also benefit from cooperative advertising programs with retailers, some of which are supported by coordinated promotions, such as purchase with purchase and gift with purchase. At in-store counters, sales representatives offer personal demonstrations to market individual products as well as to provide education on basic skin care and makeup application. We conduct extensive sampling programs and we pioneered gift with purchase as a sampling program. We believe that the quality and perceived benefits of sample products have been effective inducements to purchases by new and existing consumers.
Starting with the launch of the Clinique website in 1996, we have used the Internet to educate and inform consumers about certain of our brands. Currently, we have fourteen single-brand marketing sites, six of which have e-commerce capabilities, and Gloss.com, our majority-owned, multi-brand marketing and e-commerce site.
Most of our creative marketing work is done by in-house creative teams. The creative staff designs and produces the sales materials, advertisements and packaging for all products in each brand. Total advertising and promotional expenditures were $1,425.6 million, $1,326.2 million and $1,255.3 million for fiscal 2003, 2002 and 2001, respectively. These amounts include expenses relating to purchase with purchase and gift with purchase promotions that are reflected in net sales and cost of sales. In addition, our products receive extensive editorial coverage in prestige publications and other media worldwide.
Our marketing and sales executives spend considerable time in the field meeting with consumers and key retailers and consulting with sales representatives at the points of sale. These include Estee Lauder Beauty Advisors, Clinique Consultants, Aramis Selling Specialists, Prescriptives Analysts and Origins Guides.
MANAGEMENT INFORMATION SYSTEMS
Management information systems support business processes including product
development, marketing, sales, order processing, production, distribution and
finance. Of the many systems currently being utilized, the most significant to
our business needs are: (i) a centralized data repository of essential
attributes for each of the products we offer, or plan to offer, which enables us
to globally manufacture and market products of consistent quality; (ii) a sales
analysis system to track weekly sales at the stock keeping unit (SKU) level at
most significant retail sales locations (i.e. sell-through data), increasing our
understanding of consumer preferences and enabling us to coordinate more
effectively our product development, manufacturing and marketing strategies;
(iii) an automated replenishment system with many of our key domestic customers,
allowing us to replenish inventories for individual points of sale
automatically, with minimal paperwork; and (iv) an inventory management system
to provide us with a global view of finished goods availability relative to
actual requirements, resulting in improved inventory control and distribution
for both existing product lines and new product launches.
The efficiencies provided by these systems have resulted in increased sales, fewer out-of-stocks and reduced retail inventories. We expect that these systems will continue to provide inventory and sales efficiencies in the short and medium terms.
As part of our ongoing effort to enhance these efficiencies, we are evaluating enterprise-wide global programs that could deliver a single set of integrated data, processes, and technologies, which would be scalable and used to standardize business processes across brands, operating units, and sales affiliates.
RESEARCH AND DEVELOPMENT
We believe that we are an industry leader in the development of new products. Marketing, product development and packaging groups work with our research and development group to identify shifts in consumer preferences, develop new products and redesign or reformulate existing products. In addition, research and development personnel work closely with quality assurance and manufacturing personnel on a worldwide basis to ensure consistent global standards for our products and to deliver products with attributes that fulfill consumer expectations.
We maintain ongoing research and development programs primarily at our facilities in Melville, New York; Oevel, Belgium; Tokyo, Japan; Markham, Ontario; and Blaine, Minnesota. As of June 30, 2003, we had approximately 400 employees engaged in research and development. Research and development expenditures totaled $60.8 million, $61.3 million and $57.3 million in fiscal 2003, 2002 and 2001, respectively. Our research and development group makes significant contributions toward improving existing products and developing new products and provides ongoing technical assistance and know-how to our manufacturing activities. The research and development group has had long-standing working relationships with several U.S. and international medical and educational facilities, which supplement internal capabilities. We do not conduct animal testing of our products.
MANUFACTURING AND RAW MATERIALS
We manufacture skin care, makeup, fragrance and hair care products primarily in the United States, Belgium, Switzerland, the United Kingdom and Canada. We continue to streamline our manufacturing processes and identify sourcing opportunities to improve innovation, increase efficiencies and reduce costs. Our major manufacturing facilities operate as "focus" plants that primarily manufacture one type of product (e.g., lipsticks) for all of the principal brands. Our plants are modern and our manufacturing processes are substantially automated. While we believe that our manufacturing facilities are sufficient to meet current and reasonably anticipated manufacturing requirements, we continue to identify opportunities to make significant improvements in capacity and productivity. Some of our finished products are manufactured to our specifications by third parties.
The principal raw materials used in the manufacture of our products are essential oils, alcohol and specialty chemicals. We also purchase packaging components that are manufactured to our design specifications. Procurement of materials for all manufacturing facilities is generally made on a global basis through our centralized supplier relations department. A concentrated effort in supplier rationalization has been made with the specific objective of reducing costs, increasing innovation and improving quality. As a result of sourcing initiatives, there is increased dependency on certain suppliers, but we believe that these suppliers have adequate resources and facilities to overcome any unforeseen interruption of supply. We are continually benchmarking the performance of the supply chain and will add or delete suppliers based upon the changing needs of the business. We have, in the past, been able to obtain an adequate supply of essential raw materials and currently believe we have adequate sources of supply for virtually all components of our products. As we integrate acquired brands, we continually seek new ways to leverage our production and sourcing capabilities to improve manufacturing performance.
COMPETITION
The skin care, makeup, fragrance and hair care businesses are characterized by vigorous competition throughout the world. Brand recognition, quality, performance and price have a significant influence on consumers' choices among competing products and brands. Advertising, promotion, merchandising, the pace and timing of new product introductions, line extensions and the quality of in-store sales staff, also have a significant impact on consumers' buying decisions. We compete against a number of manufacturers and marketers of skin care, makeup, fragrance and hair care products, some of which have substantially greater resources than we do.
Our principal competitors among manufacturers and marketers of skin care, makeup, fragrance and hair care products include:
o L'Oreal S.A., which markets Lancome, Ralph Lauren, Giorgio Armani, Garnier, L'Oreal, Maybelline, Biotherm, Helena Rubinstein, Redken, Matrix, Kiehl's Since 1851, Shu Uemura and other brands;
o Unilever N.V., which markets Calvin Klein, Cerruti, Vera Wang, Pond's, Thermasilk, Vaseline Intensive Care and other brands;
o The Procter & Gamble Company, which markets Cover Girl, Olay, Giorgio Beverly Hills, Hugo Boss, Rochas, Escada, Max Factor, Vidal Sassoon, Pantene, Clairol, Wella, Valentino, Gucci, Sebastian, Aussi and other brands;
o Beiersdorf AG, which markets Nivea, Eucerine, La Prairie, Juvena and other brands;
o Avon Products Inc., a direct marketer of Avon Color, Anew, Skin-so-soft, Mark, Avon Wellness, BeComing and other products;
o Shiseido Company, Ltd., which markets Shiseido, Cle de Peau Beaute, Zirh, Nars, Decleor, Issey Miyake, Jean Paul Gaultier, Helene Curtis, Za and other brands;
o LVMH Moet Hennessey Louis Vuitton ("LVMH"), which markets Christian Dior, Kenzo, Givenchy, Guerlain, Bliss, Benefit, Make Up For Ever, Fresh, Aqua di Parma and other brands;
o Coty, Inc., which markets Lancaster, Davidoff, Isabella Rossellini, Rimmel, Yue-Sai, Astor, Adidas, The Healing Garden, Chopard, Jennifer Lopez, Kenneth Cole, Marc Jacobs, Stetson and other brands;
o Revlon, Inc., which markets Revlon, Almay, Ultima II and other brands;
o Chanel, Inc.;
o Clarins S.A., which markets Clarins, Azzaro, Hermes, Lacoste, Burberry, Thierry Mugler and other brands; and
o Elizabeth Arden, Inc., which markets Elizabeth Arden, Elizabeth Taylor fragrances, Geoffrey Beene, Halston and other brands.
We also face competition from retailers that have developed their own brands, such as:
o Gap Inc., which markets The Gap and Banana Republic products;
o Intimate Brands, which markets Victoria's Secret Beauty, Bath and Body Works, and, in a venture with Shiseido, Aura Science; and
o Sephora.
Some retailers have acquired brands, such as Neiman Marcus Group, which acquired Laura Mercier.
Some of our competitors also have ownership interests in retailers that are customers of ours. For example, LVMH has interests in DFS Group LTD, Miami Cruiseline Services, Le Bon Marche, la Samaritaine, eLuxury and Sephora.
TRADEMARKS, PATENTS AND COPYRIGHTS
We own all of the material trademark rights used in connection with the manufacturing, marketing and distribution of our major products both in the United States and in the other principal countries where such products are sold, except for the trademark rights relating to Tommy Hilfiger (including "tommy" and "tommy girl"), Donna Karan New York, DKNY, Michael Kors and kate spade, as to which we are the exclusive worldwide licensee for fragrances, cosmetics and related products. Trademarks for our principal products are registered in the United States and in most of the countries in which such products are sold. The major trademarks used in our business include the brand names Estee Lauder, Clinique, Aramis, Prescriptives, Origins, Tommy Hilfiger, Donna Karan New York, DKNY, M.A.C, Bobbi Brown, La Mer, jane, Aveda, Stila, Jo Malone, Bumble and bumble, kate spade, Darphin and Michael Kors and the names of many of the products sold under each of these brands. We consider the protection of our trademarks to be important to our business.
A number of our products incorporate patented or patent-pending formulations. In addition, several products are covered by design patents, patent applications or copyrights. While we consider these patents and copyrights, and the protection thereof, to be important, no single patent or copyright is considered material to the conduct of our business.
EMPLOYEES
At June 30, 2003, we had approximately 21,500 full-time employees worldwide (including sales representatives at points of sale who are employed by us), of whom approximately 10,800 are employed in the United States and Canada. None of our employees in the United States is covered by a collective bargaining agreement. In certain other countries a limited number of employees are covered by a works council agreement or other syndicate arrangements. We believe that relations with our employees are good. We have never encountered a material strike or work stoppage in the United States or in any other country where we have a significant number of employees.
GOVERNMENT REGULATION
We and our products are subject to regulation by the Food and Drug Administration and the Federal Trade Commission in the United States, as well as by various other Federal, state, local and international regulatory authorities and the regulatory authorities in the countries in which our products are produced or sold. Such regulations principally relate to the ingredients, labeling, packaging and marketing of our products. We believe that we are in substantial compliance with such regulations, as well as with applicable Federal, state, local and international and other countries' rules and regulations governing the discharge of materials hazardous to the environment. There are no significant capital expenditures for environmental control matters either planned in the current year or expected in the near future. Along with other unrelated parties, we have been named as a potentially responsible party by the Office of the Attorney General of the State of New York with regard to two landfills in Long Island, New York. See "Item 3. Legal Proceedings."
SEASONALITY
Our results of operations in total, by region and by product category, are subject to seasonal fluctuations, with net sales in the first and second fiscal quarters typically being slightly higher than in the third and fourth fiscal quarters. The higher net sales in the first two fiscal quarters are attributable to the increased levels of purchasing by retailers for the holiday selling season and for fall fashion makeup introductions. In addition, fluctuations in net sales, operating income and product category results in any fiscal quarter may be attributable to the level and scope of new product introductions. Additionally, gross margins and operating expenses are impacted on a quarter-by-quarter basis by variations in our launch calendar and the timing of promotions, including purchase with purchase and gift with purchase promotions.
AVAILABILITY OF REPORTS
We make available financial information, news releases and other information on
our Web site at www.elcompanies.com. There is a direct link from the Web site to
our Securities and Exchange Commission filings via the EDGAR database, where our
annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on
Form 8-K and any amendments to these reports filed or furnished pursuant to
Section 13(a) or 15(d) of the Securities Exchange Act of 1934 are available free
of charge as soon as reasonably practicable after we file such reports and
amendments with, or furnish them to, the Securities and Exchange Commission.
Stockholders may also contact Investor Relations at 767 Fifth Avenue, New York,
New York 10153 or call 800-308-2334 to obtain a hard copy of these reports
without charge.
EXECUTIVE OFFICERS
The following table sets forth certain information with respect to our executive officers.
NAME AGE POSITION(S) HELD ---- --- ---------------- Patrick Bousquet-Chavanne 45 Group President Daniel J. Brestle 58 Group President Andrew J. Cavanaugh 56 Senior Vice President - Global Human Resources Richard W. Kunes 50 Senior Vice President and Chief Financial Officer Fred H. Langhammer 59 President and Chief Executive Officer and a Director Evelyn H. Lauder 67 Senior Corporate Vice President Leonard A. Lauder 70 Chairman of the Board of Directors Ronald S. Lauder 59 Chairman of Clinique Laboratories, Inc. and a Director William P. Lauder 43 Chief Operating Officer and a Director Sara E. Moss 56 Senior Vice President, General Counsel and Secretary Cedric Prouve 43 Group President, International Philip Shearer 50 Group President Edward M. Straw 64 President, Global Operations Sally Susman 41 Senior Vice President - Global Communications |
PATRICK BOUSQUET-CHAVANNE became Group President responsible for Estee Lauder, M.A.C and our fragrance brands (principally Aramis, Tommy Hilfiger and Donna Karan) on a worldwide basis in July 2001. Michael Kors was added in May 2003. From 1998 to 2001, he was the President of Estee Lauder International, Inc. ("ELII"). From 1992 to 1996, Mr. Bousquet-Chavanne was Senior Vice President - General Manager/Travel Retailing of ELII. From 1989 to 1992, he was Vice President and General Manager of Aramis International, a division of ELII. From 1996 to 1998, he was Executive Vice President/General Manager International Operations of Parfums Christian Dior S.A., based in Paris.
DANIEL J. BRESTLE became Group President responsible for our specialty brands, such as Aveda, Bobbi Brown, Bumble and bumble, La Mer, Prescriptives, jane, Jo Malone, kate spade and Stila on a worldwide basis in July 2001. He is also responsible for the recently acquired brands, Darphin and Rodan & Fields. From July 1998 through June 2001, he was President of Estee Lauder (USA & Canada). Prior to July 1998, he was President of Clinique Laboratories, Inc. and had been the senior officer of that division since 1992. From 1988 through 1992, he was President of Prescriptives U.S.A. Mr. Brestle joined us in 1978.
ANDREW J. CAVANAUGH has been Senior Vice President - Global Human Resources since 1999. He was Senior Vice President - Corporate Human Resources from 1994 through 1999. Mr. Cavanaugh joined the Company in 1988 as Executive Director - Human Resources.
RICHARD W. KUNES became Senior Vice President and Chief Financial Officer
in October 2000. He joined the Company in 1986 and served in various
finance-related positions until November 1993, when he was named Vice President
- Operations Finance Worldwide. From January 1998 through September 2000, Mr.
Kunes was Vice President - Financial Administration and Corporate Controller.
Prior to joining the Company, he held finance and controller positions at the
Colgate-Palmolive Company. Mr. Kunes is on the Board of Directors of Make-a-Wish
Foundation of Suffolk County, NY, Inc.
FRED H. 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. 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., The Gillette Company, The Germany Fund and Co-Chairman of the American Institute for Contemporary German Studies at Johns Hopkins University. He is also a Senior Fellow of the Foreign Policy Association and a Director of the Japan Society.
EVELYN H. LAUDER has been Senior Corporate Vice President of the Company since 1989, and previously served as Vice President and in other executive capacities since first joining the Company in 1959 as Education Director. She is a member of the Board of Overseers, Memorial Sloan-Kettering Cancer Center, a member of the Boards of Trustees of Central Park Conservancy, Inc. and The Trinity School in New York City (Trustee Emirata), a member of the Board of Directors of New Yorkers for Parks, an Honorary Board Member of Cold Spring Harbor Laboratories and the Founder and Chairman of The Breast Cancer Research Foundation.
LEONARD A. 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 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.
RONALD S. LAUDER has served as Chairman of Clinique Laboratories, Inc. since returning from government service in 1987. He was Chairman of Estee Lauder International, Inc. from 1987 through 2002. Mr. Lauder joined the Company in 1964 and has held various positions, including those described above, since then. From 1983 to 1986, Mr. Lauder was Deputy Assistant Secretary of Defense for European and NATO Affairs. From 1986 to 1987, he served as 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.
WILLIAM P. LAUDER became Chief Operating Officer in January 2003. From July 2001 until December 2002 he served as Group President 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 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.
SARA E. MOSS joined the Company as Senior Vice President, General Counsel and Secretary in September 2003. She was Senior Vice President and General Counsel of Pitney Bowes Inc. from 1996 to February 2003, and Senior Litigation Partner for Howard, Smith & Levin (now part of Covington & Burling) in New York from 1984 to 1996. Prior to 1984, Ms. Moss served as an Assistant United States Attorney in the Criminal Division in the Southern District of New York, was an associate at the law firm of Davis, Polk & Wardwell and was Law Clerk to the Honorable Constance Baker Motley, a U.S. District Judge in the Southern District of New York.
CEDRIC PROUVE became Group President, International, effective January 2003. He is responsible for sales and profits in all markets outside of North America and for all of the activities of our sales affiliates and distributor relationships worldwide. He also oversees the Company's travel retail business. From August 2000 through 2002 he was the General Manager of our Japanese sales affiliate. From January 1997 to August 2000, he was Vice President, General Manager, Travel Retail. He started with us in 1994 as General Manager, Travel Retailing - Asia Pacific Region and was given the added responsibility of General Manager of the Company's Singapore affiliate in 1995. Prior to joining us he spent time with L'Oreal serving in sales and management positions of increasing responsibility in the Americas and Asia/Pacific.
PHILIP SHEARER became Group President responsible for Clinique, Origins and our On-line operations in January 2003. He joined the Company as Group President, International in September 2001. Prior thereto, from 1998 to 2001, he was President of the Luxury Products Division of L'Oreal U.S.A., which included Lancome, Helena Rubinstein, Ralph Lauren fragrances, Giorgio Armani and Kiehl's Since 1851. He served in various positions at L'Oreal from 1987, including management positions in the United Kingdom and in Japan.
EDWARD M. STRAW is President, Global Operations responsible for research and development, procurement, manufacturing, packaging, distribution, quality assurance, information systems, international merchandising development, store planning and design development, corporate sales, security, environmental affairs and safety, and corporate security and trademark protection. Prior to joining us in 2000, Mr. Straw was Senior Vice President, Global Supply Chain and Manufacturing for the Compaq Computer Corporation. From 1997 to 1998, he was President of Ryder Global Logistics, Inc., and prior to joining Ryder, he served for 35 years in the United States Navy, retiring in 1996 as a Vice Admiral and Director of the Defense Logistics Agency.
SALLY SUSMAN has been Senior Vice President - Global Communications since September 2000 and is responsible for all media relations, internal communications and consumer relations for the Company and its brands. Prior to joining the Company, Ms. Susman held several high-level communications and government relations positions at American Express Company from 1990 to 1993 and 1995 to 2000. From 1993 to 1995, she was the Deputy Assistant Secretary for Legislative Affairs at the U.S. Department of Commerce. Ms. Susman is a Commissioner on the New York City Commission on Women's Issues and is a member of the Boards of Directors of Parsons School of Design and The National Partnership for Women and Families and is a Trustee of Connecticut College.
Each executive officer serves for a one-year term ending at the next annual meeting of the Board of Directors, subject to his or her applicable employment agreement and his or her earlier death, resignation or removal.
ITEM 2. PROPERTIES.
The following table sets forth our principal owned and leased manufacturing and research and development facilities as of September 10, 2003. The leases expire at various times through 2015, subject to certain renewal options.
APPROXIMATE
LOCATION USE SQUARE FOOTAGE
-------- --- --------------
THE AMERICAS
Melville, New York (owned) Manufacturing 300,000
Melville, New York (owned) R&D 78,000
Blaine, Minnesota (owned) Manufacturing and R&D 275,000
Oakland, New Jersey (leased) Manufacturing 148,000
Bristol, Pennsylvania (leased) Manufacturing 67,000
Agincourt, Ontario, Canada (owned) Manufacturing 96,000
Markham, Ontario, Canada (leased) Manufacturing 58,000
Markham, Ontario, Canada (leased) R&D 26,000
EUROPE, THE MIDDLE EAST & AFRICA
Oevel, Belgium (owned) Manufacturing 113,000
Oevel, Belgium (owned) R&D 2,000
Petersfield, England (owned) Manufacturing 225,000
Lachen, Switzerland (owned) Manufacturing 53,000
ASIA/PACIFIC
Tokyo, Japan (leased) R&D 4,000
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We own, lease and occupy numerous offices, assembly and distribution facilities and warehouses in the United States and abroad. We consider our properties to be generally in good condition and believe that our facilities are adequate for our operations and provide sufficient capacity to meet anticipated requirements. We lease approximately 310,000 square feet of rentable space for our principal offices in New York, New York and own an office building of approximately 57,000 square feet in Melville, New York. In July 2003, we signed a new lease for our principal offices at the same location. Our occupancy under the new lease will commence in 2005 and expire in 2020. As of September 10, 2003, we operated 483 freestanding retail stores, including 16 for the Estee Lauder brand, 15 for Clinique, 139 for Origins, 104 for M.A.C, 130 for Aveda, 2 for Bobbi Brown, 8 for Jo Malone, 1 for Bumble and bumble, 3 for Stila and 65 multi-brand stores.
ITEM 3. LEGAL PROCEEDINGS.
We are involved in various routine legal proceedings incident to the ordinary course of business. In management's opinion, the outcome of pending legal proceedings, separately and in the aggregate, will not have a material adverse effect on our business or consolidated financial condition.
In July 2003, the U.S. Magistrate Judge appointed by the U.S. District Judge, Southern District of New York, issued his report and recommendation finding in favor of the Company and its subsidiaries with respect to, among other things, our motion for summary judgment of non-infringement in the case brought against us in August 2000 by an affiliate of Revlon, Inc. Revlon claimed, among other things, that five Estee Lauder products, two Origins foundations, a La Mer concealer and a jane foundation infringed its patent. Revlon sought, among other things, treble damages, punitive damages, equitable relief and attorneys' fees. Revlon has objected to this opinion. The Company has responded to the objection. Revlon also may appeal the decision to the Court of Appeals for the Federal Circuit.
In July 2003, we entered into a settlement agreement with the plaintiffs, the other Manufacturer Defendants (as defined below) and the Department Store Defendants (as defined below) in a consolidated class action lawsuit that had been pending in the Superior Court of the State of California in Marin County since 1998. In connection with the settlement, the case has been refiled in the United States District Court for the Northern District of California on behalf of a nationwide class of consumers of prestige cosmetics in the United States. The settlement requires Court approval and, if approved by the Court, will result in the plaintiffs' claims being dismissed, with prejudice, in their entirety. There has been no finding or admission of any wrongdoing by the Company in this lawsuit. We entered into the settlement agreement solely to avoid protracted and costly litigation. In connection with the settlement agreement, the defendants, including the Company, will provide consumers with certain free products and pay the plaintiffs' attorneys' fees. To meet its obligations under the settlement, the Company took a special pre-tax charge of $22.0 million, or $13.5 million after-tax, equal to $.06 per diluted common share in the fourth quarter of fiscal 2003. The charge will not have a material adverse effect on the Company's financial condition. In the federal action, the plaintiffs, purporting to represent a class of all U.S. residents who purchased prestige cosmetics products at retail for personal use from eight department stores groups that sold such products in the United States (the "Department Store Defendants"), alleged that the Department Store Defendants, the Company and eight other manufacturers of cosmetics (the "Manufacturer Defendants") conspired to fix and maintain retail prices and to limit the supply of prestige cosmetics products sold by the Department Store Defendants in violation of state and federal laws. The plaintiffs sought, among other things, treble damages, equitable relief, attorneys' fees, interest and costs.
In 1998, the Office of the Attorney General of the State of New York (the "State") notified the Company and ten other entities that they are potentially responsible parties ("PRPs") with respect to the Blydenburgh landfill in Islip New York. Each PRP may be jointly and severally liable for the costs of investigation and cleanup, which the State estimates to be $16 million. While the State has sued other PRPs in connection with the site (including Hickey's Carting, Inc., Dennis C. Hickey and Maria Hickey, collectively the "Hickey Parties"), the State has not sued the Company. The Company and certain other PRPs are in discussions with the State regarding possible settlement of the matter. On September 9, 2002, the Hickey Parties brought contribution actions against the Company and other Blydenburgh PRPs in the State's lawsuit against the Hickey Parties in the U.S. District Court for the Eastern District of New York. These actions seek to recover, among other things, any damages for which the Hickey Parties are found liable in the State's lawsuit against them, and related costs and expenses, including attorneys' fees. The Company intends to defend the contribution claim vigorously. While no assurance can be given as to the ultimate outcome, management believes that the Blydenburgh matters will not have a material adverse effect on the Company's consolidated financial condition.
In 1998, the State notified the Company and fifteen other entities that they are PRPs with respect to the Huntington/East Northport landfill. The cleanup costs are estimated at $20 million. No litigation has commenced. The Company and other PRPs are in discussions with the State regarding possible settlement of the matter. While no assurance can be given as to the ultimate outcome, management believes that the matter will not have a material adverse effect on the Company's consolidated financial condition.
In June 2003, a lawsuit was filed in the U.S. District Court, Eastern District of New York, on behalf of two former employees and one former temporary employee alleging race and disability discrimination, harassment and retaliation. The complaint seeks $10 million in damages for each of seven causes of action. We intend to defend the action vigorously. While no assurances can be given as to the ultimate outcome, we believe that this matter will not have a material adverse effect on the Company's consolidated financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders during the quarter ended June 30, 2003.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our Class A Common Stock is publicly traded on the New York Stock Exchange under the symbol "EL." The following table shows the high and low sales prices as reported on the New York Stock Exchange Composite Tape and the cash dividends per share declared in fiscal 2003 and fiscal 2002.
FISCAL 2003 FISCAL 2002
---------------------------- ----------------------------
CASH CASH
HIGH LOW DIVIDENDS HIGH LOW DIVIDENDS
------ ------ --------- ------ ------ ---------
First Quarter $35.99 $25.80 $ -- $43.55 $30.30 $ .05
Second Quarter 30.10 25.20 .20 34.90 29.25 .05
Third Quarter 31.04 25.73 -- 35.75 29.25 .05
Fourth Quarter 35.99 28.91 -- 38.80 33.50 .05
------ ------
Year 35.99 25.20 $ .20 43.55 29.25 $ .20
====== ======
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We expect to continue the payment of cash dividends in the future, but there can be no assurance that the Board of Directors will continue to declare them. In May 2002, after declaring the $.05 per share dividend that was paid in July 2002, the Board of Directors determined that it would pay future cash dividends on its common stock annually rather than quarterly. The Board of Directors declared the first annual dividend of $.20 per share in the second quarter of fiscal 2003 which was paid in January 2003.
As of September 12, 2003, there were approximately 4,254 record holders of Class A Common Stock and 17 record holders of Class B Common Stock.
ITEM 6. SELECTED FINANCIAL DATA.
The table below summarizes selected financial information. For further information, refer to the audited consolidated financial statements and the notes thereto beginning on page F-1 of this report.
YEAR ENDED OR AT JUNE 30
---------------------------------------------------------
2003 2002 2001 2000 1999
-------- -------- -------- -------- --------
(IN MILLIONS, EXCEPT PER SHARE DATA)
STATEMENT OF EARNINGS DATA:
Net sales (a) ................................... $5,117.6 $4,743.7 $4,667.7 $4,440.3 $4,040.3
Gross profit (a) ................................ 3,781.9 3,470.3 3,441.3 3,202.3 2,877.5
Operating income ................................ 495.1 341.4 495.6 515.8 456.9
Earnings before income taxes, minority interest
and accounting change ......................... 487.0 331.6 483.3 498.7 440.2
Net earnings .................................... 319.8(b) 191.9(c) 305.2(d) 314.1 272.9
Preferred stock dividends ....................... 23.4 23.4 23.4 23.4 23.4
Net earnings attributable to common stock ....... 296.4(b) 168.5(c) 281.8(d) 290.7 249.5
CASH FLOW DATA:
Net cash flows provided by operating activities . $ 548.5 $ 518.0 $ 305.4 $ 442.5 $ 352.3
Net cash flows used for investing activities .... (192.5) (217.0) (206.3) (374.3) (200.3)
Net cash flows used for financing activities .... (550.4) (121.8) (63.5) (87.9) (73.2)
PER SHARE DATA:
Net earnings per common share:
Basic ......................................... $ 1.27(b) $ .71(c) $ 1.18(d) $ 1.22 $ 1.05
Diluted ....................................... $ 1.26(b) $ .70(c) $ 1.16(d) $ 1.20 $ 1.03
Weighted average common shares outstanding:
Basic ......................................... 232.6 238.2 238.4 237.7 237.0
Diluted ....................................... 234.7 241.1 242.2 242.5 241.2
Cash dividends declared per common share ........ $ .20 $ .20 $ .20 $ .20 $ .1775
BALANCE SHEET DATA:
Working capital ................................. $ 791.3 $ 968.0 $ 882.2 $ 716.7 $ 708.0
Total assets .................................... 3,349.9 3,416.5 3,218.8 3,043.3 2,746.7
Total debt ...................................... 291.4 410.5 416.7 425.4 429.1
Redeemable preferred stock ...................... 360.0 360.0 360.0 360.0 360.0
Stockholders' equity ............................ 1,423.6 1,461.9 1,352.1 1,160.3 924.5
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(b) Net earnings, net earnings attributable to common stock and net earnings per common share for the year ended June 30, 2003 included a special charge related to the proposed settlement of a legal action of $13.5 million, after-tax, or $.06 per diluted common share.
(c) Net earnings, net earnings attributable to common stock and net earnings per common share for the year ended June 30, 2002 included a restructuring charge of $76.9 million, after-tax, or $.32 per diluted common share, and a one-time charge of $20.6 million, or $.08 per diluted common share, attributable to the cumulative effect of adopting Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets."
(d) Net earnings, net earnings attributable to common stock and net earnings per common share for the year ended June 30, 2001 included restructuring and other non-recurring charges of $40.3 million, after-tax, or $.17 per diluted common share, and a one-time charge of $2.2 million, after-tax, or $.01 per diluted common share, attributable to the cumulative effect of adopting SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities."
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in conformity with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses reported in those financial statements. These judgments can be subjective and complex, and consequently actual results could differ from those estimates. Our most critical accounting policies relate to revenue recognition; concentration of credit risk; inventory; pension and other postretirement benefit costs; goodwill and other intangible assets; income taxes; and derivatives.
REVENUE RECOGNITION
Generally, revenues from merchandise sales are recorded at the time the product is shipped to the customer. We report our sales levels on a net sales basis, which is computed by deducting from gross sales the amount of actual returns received and an amount established for anticipated returns.
As is customary in the cosmetics industry, our practice is to accept returns of our products from retailers if properly requested, authorized and approved. In accepting returns, we typically provide a credit to the retailer against sales and accounts receivable from that retailer on a dollar-for-dollar basis.
Our sales return accrual is a subjective critical estimate that has a direct impact on reported net sales. This accrual is calculated based on a history of gross sales and actual returns by region and product category. In addition, as necessary, specific accruals may be established for future known or anticipated events. As a percentage of gross sales, sales returns were 5.2%, 4.9% and 4.9% in fiscal 2003, 2002 and 2001, respectively.
CONCENTRATION OF CREDIT RISK
An entity is more vulnerable to concentrations of credit risk if it is exposed to risk of loss greater than it would have had it mitigated its risk through diversification of customers. Such risks of loss manifest themselves differently, depending on the nature of the concentration, and vary in significance.
We have three major customers that owned and operated retail stores that in the aggregate accounted for approximately $1.24 billion, or 24%, of our consolidated net sales in fiscal 2003 and $179.8 million, or 28%, of our accounts receivable at June 30, 2003. These customers sell products primarily within North America. Although management believes that these customers are sound and creditworthy, a severe adverse impact on their business operations could have a corresponding material adverse effect on our net sales, cash flows, and/or financial condition.
In the ordinary course of business, we have established an allowance for doubtful accounts and customer deductions in the amount of $31.8 million and $30.6 million as of June 30, 2003 and 2002, respectively. Our allowance for doubtful accounts is a subjective critical estimate that has a direct impact on reported net earnings. This reserve is based upon the evaluation of accounts receivable aging, specific exposures and historical trends.
INVENTORY
We state our inventory at the lower of cost or fair market value, with cost being determined on the first-in, first-out (FIFO) method. We believe FIFO most closely matches the flow of our products from manufacture through sale. The reported net value of our inventory includes saleable products, promotional products, raw materials and componentry that will be sold or used in future periods. Inventory cost includes raw materials, direct labor and overhead.
We also record an inventory obsolescence reserve, which represents the difference between the cost of the inventory and its estimated market value, based on various product sales projections. This reserve is calculated using an estimated obsolescence percentage applied to the inventory based on age, historical trends and requirements to support forecasted sales. In addition, and as necessary, we may establish specific reserves for future known or anticipated events.
PENSION AND OTHER POSTRETIREMENT BENEFIT COSTS
We offer the following benefits to some or all of our employees: a domestic trust-based noncontributory defined benefit pension plan ("U.S. Plan"); an unfunded, nonqualified domestic noncontributory pension plan to provide benefits in excess of statutory limitations; a contributory defined contribution plan; international pension plans, which vary by country, consisting of both defined benefit and defined contribution pension plans; deferred compensation; and certain other postretirement benefits.
The amounts necessary to fund future payouts under these plans are subject to numerous assumptions and variables. Certain significant variables require us to make assumptions that are within our control such as an anticipated discount rate, expected rate of return on plan assets and future compensation levels. We evaluate these assumptions with our actuarial advisors and we believe they are within accepted industry ranges, although an increase or decrease in the assumptions or economic events outside our control could have a direct impact on reported net earnings.
The pre-retirement discount rate for each plan used for determining future pension obligations is based on a review of highly rated long-term bonds. At June 30, 2003, we used a pre-retirement discount rate for our U.S. Plan of 5.75% and varying rates on our international plans of between 2.75% and 7.0%. For fiscal 2003, we used an expected return on plan assets of 8.5% for our U.S. Plan and varying rates of between 4.5% and 8.25% for our international plans. In determining the long-term rate of return for a plan, we consider the historical rates of return, the nature of the plan's investments and an expectation for the plan's investment strategies. The U.S. Plan asset allocation as of June 30, 2003 was approximately 58% equity investments, 23% fixed income investments, 13% cash and 6% other investments.
For fiscal 2004, we will use a pre-retirement discount rate for the U.S. Plan of 5.75% and anticipate using an expected return on plan assets of 8.00%. The change in this assumption from that used in fiscal 2003 will cause an increase in pension expense in fiscal 2004. We will continue to monitor the market conditions relative to these assumptions and adjust them accordingly.
GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill is calculated as the excess of the cost of purchased businesses over the value of their underlying net assets. Other intangible assets principally consist of purchased royalty rights and trademarks. Goodwill and other intangible assets that have an indefinite life are not amortized.
On an annual basis, we test goodwill and other intangible assets for impairment. To determine the fair value of these intangible assets, there are many assumptions and estimates used that directly impact the results of the testing. We have the ability to influence the outcome and ultimate results based on the assumptions and estimates we choose. To mitigate undue influence, we use industry accepted valuation models and set criteria that are reviewed and approved by various levels of management. Additionally, we evaluate our recorded goodwill with the assistance of a third-party valuation firm.
INCOME TAXES
We have accounted for, and currently account for, income taxes in accordance with SFAS No. 109, "Accounting for Income Taxes." This Statement establishes financial accounting and reporting standards for the effects of income taxes that result from an enterprise's activities during the current and preceding years. It requires an asset and liability approach for financial accounting and reporting of income taxes.
As of June 30, 2003, we have current net deferred tax assets of $116.0 million and non-current net deferred tax assets of $38.7 million. These net deferred tax assets assume sufficient future earnings for their realization, as well as the continued application of current tax rates. Included in net deferred tax assets is a valuation allowance of approximately $2.9 million for deferred tax assets, which relates to foreign tax loss carryforwards not utilized to date, where management believes it is more likely than not that the deferred tax assets will not be realized in the relevant jurisdiction. Based on our assessments, no additional valuation allowance is required. If we determine that a deferred tax asset will not be realizable, an adjustment to the deferred tax asset will result in a reduction of earnings at that time.
Furthermore, we provide tax reserves for Federal, state and international exposures relating to audit results, planning initiatives and compliance responsibilities. The development of these reserves requires judgments about tax issues, potential outcomes and timing, and is a subjective critical estimate.
DERIVATIVES
We currently account for derivative financial instruments in accordance with SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended, which establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. This Statement also requires the recognition of all derivative instruments as either assets or liabilities on the balance sheet and that they be measured at fair value.
We currently use derivative financial instruments to hedge certain anticipated transactions and interest rates, as well as receivables and payables denominated in foreign currencies. We do not utilize derivatives for trading or speculative purposes. Hedge effectiveness is documented, assessed and monitored by our employees who are qualified to make such assessments and monitor the instruments. Variables that are external to us such as social, political and economic risks may have an impact on our hedging program and the results thereof.
RESULTS OF OPERATIONS
We manufacture, market and sell skin care, makeup, fragrance and hair care products which are distributed in over 130 countries and territories. The following is a comparative summary of operating results for fiscal 2003, 2002 and 2001 and reflects the basis of presentation described in Note 2 and Note 18 to the Notes to Consolidated Financial Statements for all periods presented. Products and services that do not meet our definition of skin care, makeup, fragrance and hair care have been included in the "other" category.
2003 2002 2001
-------- -------- --------
(IN MILLIONS)
NET SALES
BY REGION:
The Americas ...................... $2,953.4 $2,878.2 $2,857.8
Europe, the Middle East & Africa .. 1,506.4 1,261.1 1,221.8
Asia/Pacific ...................... 657.8 610.6 596.1
-------- -------- --------
5,117.6 4,749.9 4,675.7
Restructuring * ................... -- (6.2) (8.0)
-------- -------- --------
$5,117.6 $4,743.7 $4,667.7
======== ======== ========
BY PRODUCT CATEGORY:
Skin Care ......................... $1,893.7 $1,703.3 $1,660.7
Makeup ............................ 1,909.4 1,790.5 1,721.6
Fragrance ......................... 1,059.6 1,017.3 1,085.1
Hair Care ......................... 228.9 215.8 180.7
Other ............................. 26.0 23.0 27.6
-------- -------- --------
5,117.6 4,749.9 4,675.7
Restructuring * ................... -- (6.2) (8.0)
-------- -------- --------
$5,117.6 $4,743.7 $4,667.7
======== ======== ========
OPERATING INCOME
BY REGION:
The Americas ...................... $ 246.7 $ 222.9 $ 299.9
Europe, the Middle East & Africa .. 227.7 179.9 201.8
Asia/Pacific ...................... 42.7 56.0 56.9
-------- -------- --------
517.1 458.8 558.6
Restructuring and Special Charges* (22.0) (117.4) (63.0)
-------- -------- --------
$ 495.1 $ 341.4 $ 495.6
======== ======== ========
BY PRODUCT CATEGORY:
Skin Care ......................... $ 273.2 $ 248.4 $ 266.9
Makeup ............................ 198.0 183.2 212.5
Fragrance ......................... 32.1 13.4 63.6
Hair Care ......................... 14.8 13.7 13.1
Other ............................. (1.0) 0.1 2.5
-------- -------- --------
517.1 458.8 558.6
Restructuring and Special Charges * (22.0) (117.4) (63.0)
-------- -------- --------
$ 495.1 $ 341.4 $ 495.6
======== ======== ========
|
* Refer to the following tables and discussion for further information regarding these charges.
The following table presents certain consolidated earnings data as a percentage of net sales:
2003 2002 2001
----- ----- -----
Net sales ......................................... 100.0% 100.0% 100.0%
Cost of sales ..................................... 26.1 26.8 26.3
----- ----- -----
Gross profit ...................................... 73.9 73.2 73.7
----- ----- -----
Operating expenses:
Selling, general and administrative ........... 63.4 63.3 61.5
Restructuring ................................. -- 2.3 0.8
Special charges ............................... 0.4 -- 0.3
Related party royalties ....................... 0.4 0.4 0.5
----- ----- -----
64.2 66.0 63.1
----- ----- -----
Operating income .................................. 9.7 7.2 10.6
Interest expense, net ............................. 0.2 0.2 0.2
----- ----- -----
Earnings before income taxes, minority interest
and accounting change ........................... 9.5 7.0 10.4
Provision for income taxes ........................ 3.1 2.4 3.7
Minority interest, net of tax ..................... (0.1) (0.1) (0.1)
----- ----- -----
Net earnings before accounting change ............. 6.3 4.5 6.6
Cumulative effect of a change in accounting
principle, net of tax ........................... -- (0.4) (0.1)
----- ----- -----
Net earnings ...................................... 6.3% 4.1% 6.5%
===== ===== =====
|
The following tables present reconciliations of our financial results for the fiscal years ended June 30, 2003, 2002 and 2001 as reported in conformity with generally accepted accounting principles in the United States ("GAAP") and those results adjusted to exclude certain charges described above each table. We have presented these reconciliations because of the special nature of the charges or the fact that they are not necessarily comparable from period to period. We believe that such measures provide investors with a view of our ongoing business trends and results of operations. This is consistent with the approach used by management in its evaluation and monitoring of such trends and results and provides investors with a base for evaluating future periods.
While we consider the non-GAAP financial measures useful in analyzing our results, it is not intended to replace, or act as a substitute for, any presentation included in the consolidated financial statements prepared in conformity with GAAP.
The table below reconciles the fiscal 2003 results as reported and results prior to adjustment for a special pre-tax charge of $22.0 million, or $13.5 million after-tax, equal to $.06 per diluted common share, in connection with the proposed settlement of a class action lawsuit brought against us and a number of other defendants (see "Item 3. Legal Proceedings."). The amount of the charge in this case is significantly larger than similar charges we have incurred individually or in the aggregate for legal proceedings in any prior year and we do not expect to take a charge of a similar magnitude for a single matter like it in the near future.
YEAR ENDED JUNE 30, 2003
------------------------------------
(In millions, except per share data)
RESULTS RECONCILING NON-GAAP
AS REPORTED ITEMS RESULTS
------------ ----------- ---------
Net sales .............................. $ 5,117.6 $ -- $ 5,117.6
Cost of sales .......................... 1,335.7 -- 1,335.7
--------- --------- ---------
Gross profit ........................... 3,781.9 -- 3,781.9
--------- --------- ---------
GROSS MARGIN ....................... 73.9% 73.9%
Operating expenses ..................... 3,286.8 22.0 3,264.8
--------- --------- ---------
OPERATING EXPENSE MARGIN ........... 64.2% 63.8%
Operating income ....................... 495.1 22.0 517.1
--------- --------- ---------
OPERATING INCOME MARGIN ............ 9.7% 10.1%
Provision (benefit) for income taxes ... 160.5 (8.5) 169.0
--------- --------- ---------
Net earnings ........................... $ 319.8 $ 13.5 $ 333.3
========= ========= =========
Diluted net earnings per common share .. $ 1.26 $ .06 $ 1.32
========= ========= =========
|
The table below reconciles the fiscal 2002 results as reported and results prior to adjustment for (i) pre-tax restructuring charges of $117.4 million, or $76.9 million after-tax, equal to $.32 per diluted common share (see "Results of Operations - Fiscal 2002 as Compared with Fiscal 2001"); and (ii) a $20.6 million charge, equal to $.08 per diluted common share, in connection with the cumulative effect of a change in accounting principle upon adoption of SFAS No. 142, "Goodwill and Other Intangible Assets" (see Note 2 "Summary of Significant Accounting Policies" in the accompanying Consolidated Financial Statements). The restructuring charges were related to repositioning certain businesses as part of a globalization and reorganization initiative and are described in greater detail in Note 5 to Notes to Consolidated Financial Statements. The restructuring and the adoption of the new accounting pronouncement were not considered part of our core business operations in fiscal 2002. Management also excludes the related charges in evaluating its performance when comparing fiscal 2002 to future periods.
YEAR ENDED JUNE 30, 2002
------------------------------------
(In millions, except per share data)
RESULTS RECONCILING NON-GAAP
AS REPORTED ITEMS RESULTS
----------- ----------- ---------
Net sales .............................. $ 4,743.7 $ 6.2 $ 4,749.9
Cost of sales .......................... 1,273.4 0.8 1,272.6
--------- --------- ---------
Gross profit ........................... 3,470.3 7.0 3,477.3
--------- --------- ---------
GROSS MARGIN ....................... 73.2% 73.2%
Operating expenses ..................... 3,128.9 110.4 3,018.5
--------- --------- ---------
OPERATING EXPENSE MARGIN ........... 66.0% 63.5%
Operating income ....................... 341.4 117.4 458.8
--------- --------- ---------
OPERATING INCOME MARGIN ............ 7.2% 9.7%
Provision (benefit) for income taxes ... 114.4 (40.5) 154.9
--------- --------- ---------
Net earnings before accounting change .. 212.5 76.9 289.4
Cumulative effect of a change in
accounting principle ................. (20.6) 20.6 --
--------- --------- ---------
Net earnings ........................... $ 191.9 $ 97.5 $ 289.4
========= ========= =========
Diluted net earnings per common share .. $ .70 $ .40 $ 1.10
========= ========= =========
|
The table below reconciles the fiscal 2001 results as reported and results prior to adjustment for (i) pre-tax restructuring and special charges of $63.0 million, or $40.3 million after-tax, equal to $.17 per diluted common share (see "Results of Operations - Fiscal 2002 as Compared with Fiscal 2001"); (ii) $13.4 million after-tax adjustment, equal to $.06 per diluted common share, to reflect the retroactive impact of the adoption of SFAS No. 142, "Goodwill and Other Intangible Assets" (see Note 2 "Summary of Significant Accounting Policies" in the accompanying Consolidated Financial Statements); and (iii) a one-time charge of $2.2 million after-tax, or $.01 per diluted common share, attributable to the cumulative effect of adopting SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." We adopted a restructuring plan in the fourth quarter of fiscal 2001, our first since the initial public offering in 1995. The particular restructuring and special charges relating to the plan are described in Note 5 to Notes to Consolidated Financial Statements. These costs, as well as those resulting from the adoption of new accounting standards, were not considered part of our core business in fiscal 2001. Management also excludes the related charges in evaluating its performance when comparing fiscal 2001 to future periods.
YEAR ENDED JUNE 30, 2001
------------------------------------
(In millions, except per share data)
RESULTS RECONCILING NON-GAAP
AS REPORTED ITEMS RESULTS
----------- ----------- ---------
Net sales ................................. $ 4,667.7 $ 8.0 $ 4,675.7
Cost of sales ............................. 1,226.4 1.1 1,225.3
--------- --------- ---------
Gross profit .............................. 3,441.3 9.1 3,450.4
--------- --------- ---------
GROSS MARGIN ........................... 73.7% 73.8%
Operating expenses ........................ 2,945.7 53.9 2,891.8
--------- --------- ---------
OPERATING EXPENSE MARGIN ............... 63.1% 61.9%
Operating income .......................... 495.6 63.0 558.6
--------- --------- ---------
OPERATING INCOME MARGIN ................ 10.6% 11.9%
Provision (benefit) for income taxes ...... 174.0 (22.7) 196.7
--------- --------- ---------
Net earnings before accounting change ..... 307.4 40.3 347.7
2001 amortization of goodwill, net of tax . -- 13.4 13.4
Cumulative effect of a change in accounting
principle, net of tax .................. (2.2) 2.2 --
--------- --------- ---------
Net earnings .............................. $ 305.2 $ 55.9 $ 361.1
========= ========= =========
Diluted net earnings per common share ..... $ 1.16 $ .23 $ 1.39
========= ========= =========
|
FISCAL 2003 AS COMPARED WITH FISCAL 2002
NET SALES
Net sales increased 8% or $373.9 million to $5,117.6 million, reflecting growth in all product categories and each of our geographic regions. Product category results were led by skin care, and our regions were led by Europe, the Middle East & Africa, where results benefited from favorable foreign exchange rates to the U.S. dollar and improvements in the travel retail business. Travel retail improved during the middle of fiscal 2003 compared with lower results during the middle of fiscal 2002 but was adversely affected during the last quarter of fiscal 2003 by certain world events, including the lingering effects of the war in Iraq and concerns relating to SARS. Such events may affect our future sales and earnings. Excluding the impact of foreign currency translation, net sales increased 4%.
PRODUCT CATEGORIES
SKIN CARE
Net sales of skin care products increased 11% or $190.4 million to $1,893.7 million, which was primarily attributable to the recent launches of Perfectionist Correcting Serum for Lines/Wrinkles and Resilience Lift OverNight Face and Throat Creme by Estee Lauder, and the Repairwear line of products and Advanced Stop Signs from Clinique. Additionally, the increase was supported by strong sales of Comforting Cream Cleanser, Moisture Surge Extra Thirsty Skin Relief and Moisture Surge Eye Gel, and products in the 3-Step Skin Care System by Clinique, as well as by Re-Nutriv Ultimate Lifting Creme from Estee Lauder, and A Perfect World line of products by Origins. Partially offsetting this increase were lower net sales of certain existing products such as Stop Signs, Total Turnaround Cream and Turnaround Cream by Clinique and Idealist Skin Refinisher by Estee Lauder. Excluding the impact of foreign currency translation, skin care net sales increased 7%.
MAKEUP
Makeup net sales increased 7% or $118.9 million to $1,909.4 million due to strong sales of our makeup artist lines and current year launches of Dewy Smooth Anti-Aging Makeup and Colour Surge Lipstick by Clinique, and MagnaScopic Maximum Volume Mascara and Artist's Lip and Eye Pencils from Estee Lauder. Also contributing to growth were strong sales from Estee Lauder brand products including So Ingenious Multi-Dimension Liquid Makeup and Loose Powder, as well as from new and existing products in the Pure Color line. Offsetting this increase were lower net sales of certain existing products such as Sumptuous Lipstick from Estee Lauder, and Gentle Light Makeup and Powder and High Impact Eye Shadow Duos by Clinique. Excluding the impact of foreign currency translation, makeup net sales increased 4%.
FRAGRANCE
Net sales of fragrance products increased 4% or $42.3 million to $1,059.6 million, primarily reflecting the effects of favorable foreign currency exchange rates to the U.S. dollar. The fragrance industry continues to experience a difficult environment. The travel retail business, which depends substantially on fragrance products, began to improve in the middle of the fiscal year relative to the prior year, however the latter part of fiscal 2003 was adversely affected by international uncertainties stemming from events in Iraq and concerns relating to SARS. In fiscal 2003, we successfully launched Estee Lauder pleasures intense, T girl by Tommy Hilfiger, Clinique Happy Heart, Lauder Intuition for Men and Donna Karan Black Cashmere. Net sales also benefited from strong sales of Beautiful by Estee Lauder and Aromatics Elixir from Clinique. Offsetting these increases and sales from new product launches were lower net sales of certain Tommy Hilfiger products, Intuition by Estee Lauder and Estee Lauder pleasures. Excluding the impact of foreign currency translation, fragrance net sales were relatively unchanged from the prior year.
HAIR CARE
Hair care net sales increased 6% or $13.1 million to $228.9 million. This increase was primarily the result of sales growth from Aveda and Bumble and bumble products. We also increased the number of Company-owned Aveda Experience Centers and strategically decreased the number of salons that offer Aveda products. Partially offsetting the increase were lower net sales of Clinique's Simple Hair Care System.
The introduction of new products may have some cannibalizing effect on sales of existing products, which we take into account in our business planning.
GEOGRAPHIC REGIONS
Net sales in the Americas increased 3% or $75.2 million to $2,953.4 million primarily reflecting growth from our newer brands as well as the success of new and recently launched products. Despite the increase, we continue to experience a soft retail environment in the United States.
In Europe, the Middle East & Africa, net sales increased 19% or $245.3 million to $1,506.4 million. Net sales in the United Kingdom, Spain, Italy, France, Switzerland and Greece experienced double-digit growth. Also contributing to the increase with double-digit growth was our worldwide travel retail business, as sales recovered from the levels experienced after September 11, 2001. However, our travel retail business was adversely affected at the end of fiscal 2003 by certain world events including the lingering effects of the war in Iraq and concerns associated with SARS. Excluding the impact of foreign currency translation, Europe, the Middle East & Africa net sales increased 8%.
Net sales in Asia/Pacific increased 8% or $47.2 million to $657.8 million primarily due to higher net sales in Korea, Japan, Australia and Thailand. Despite increased net sales in Japan, the country remains a difficult market due to local economic conditions and competition. Excluding the impact of foreign currency translation, Asia/Pacific net sales increased 3%.
We strategically stagger our new product launches by geographic market, which may account for differences in regional sales growth.
COST OF SALES
Cost of sales as a percentage of total net sales improved to 26.1% from 26.8%, reflecting production and supply chain efficiencies and lower costs from promotional activities.
We continued to emphasize sourcing initiatives and overall supply chain management which resulted in lower manufacturing costs, whereas in the prior year we experienced under-absorption of overhead as a result of the impact of the events of September 11, 2001.
The inclusion of promotional merchandise as a component of cost of sales results in lower margins. A strategic shift to reduce these activities has contributed to the improvement in our gross profit margin for the year. The inclusion of the cost of purchase with purchase and gift with purchase merchandise as a component of cost of sales resulted from our adoption of EITF Issue No. 01-9. Since the cost of these promotional activities is a component of cost of sales and the timing and level of promotions vary with our promotional calendar, we have experienced, and expect to continue to experience, fluctuations in the cost of sales percentage.
OPERATING EXPENSES
Operating expenses decreased to 64.2% of net sales as compared with 66.0% of net sales in the prior-year period. The current year results were impacted by a charge related to the pending settlement of a legal proceeding of $22.0 million or 0.4% of net sales. Prior-year operating expenses included a restructuring charge of $110.4 million or 2.3% of net sales. Before considering the effect of these two charges, operating expenses increased slightly to 63.8% of net sales compared with 63.5% of net sales in the prior year. The increase in spending primarily related to advertising, sampling and merchandising activities particularly during the early portion of fiscal 2003 (excluding purchase with purchase and gift with purchase activities, discussed as a component of cost of sales) which supported our sales growth and built momentum going into the second half of fiscal 2003. Changes in advertising, sampling and merchandising spending result from the type, timing and level of activities related to product launches and rollouts, as well as the markets being emphasized.
OPERATING RESULTS
Operating income increased 45% or $153.7 million to $495.1 million as compared with the prior-year period. Operating margins were 9.7% of net sales in the current period as compared with 7.2% in the prior-year period. These results include a charge related to the pending settlement of a legal proceeding of $22.0 million in the current year and a prior year restructuring charge of $117.4 million. Absent these items, operating income increased 13% or $58.3 million to $517.1 million and operating margins increased to 10.1% as compared with 9.7% in fiscal 2002. These increases in operating income and operating margin reflect sales growth, including the benefits from favorable foreign currency exchange rates to the U.S. dollar and gross margin improvement, as well as benefits from our prior restructurings and our continued cost containment efforts.
Net earnings and net earnings per diluted share increased approximately 67% and 80%, respectively. Net earnings improved $127.9 million to $319.8 million and net earnings per diluted share increased by $.56 from $.70 to $1.26. Absent the cumulative effect of a change in accounting principle in fiscal 2002, net earnings increased by $107.3 million or 50% and diluted earnings per common share increased 62% to $1.26 from $.78 in the prior year. Before the fiscal 2003 charge related to the pending settlement of a legal proceeding and the fiscal 2002 restructuring and the cumulative effect of adopting a new accounting principle, net earnings increased 15% to $333.3 million and diluted earnings per common share increased 20% to $1.32 from $1.10 in the prior year.
The following discussions of Operating Results by PRODUCT CATEGORIES and GEOGRAPHIC REGIONS exclude the impact of the fiscal 2003 charge related to the pending settlement of a legal proceeding and the fiscal 2002 restructuring. We believe the following analysis of operating income better reflects the manner in which we conduct and view our business. The tables on page 21 reconcile these results to operating income as reported in the consolidated statement of earnings.
PRODUCT CATEGORIES
Operating income more than doubled to $32.1 million in fragrance due primarily to improved results from our travel retail business. Operating income increased 10% to $273.2 million in skin care and 8% to $198.0 million in makeup reflecting higher net sales, partially offset by strategic spending on advertising, sampling and merchandising, particularly in the earlier portion of the current year. Operating income increased $1.1 million or 8% to $14.8 million in hair care, reflecting improvements in Aveda and Bumble and bumble, as well as higher profits in the latter portion of the year outside the United States.
GEOGRAPHIC REGIONS
Operating income in the Americas increased 11% or $23.8 million to $246.7 million due to sales growth, the benefits of our prior restructurings and continued cost containment efforts. Operating income also benefited from the results of strategic efforts related to product support spending in the earlier part of the year that led to increased net sales during the year. In Europe, the Middle East & Africa, operating income increased 27% or $47.8 million to $227.7 million primarily due to the improved operating results in the United Kingdom as well as increased results generated from our travel retail business. As described elsewhere, profitability in the region has been and will continue to be affected by current international uncertainties. In Asia/Pacific, operating income decreased 24% or $13.3 million to $42.7 million. This decrease reflects improved results in Korea and Thailand, which were more than offset by a decrease in Australia, which derived a benefit in the prior-year period from a change in our retailer arrangements.
INTEREST EXPENSE, NET
Net interest expense was $8.1 million as compared with $9.8 million in the prior year. The decrease in net interest expense was primarily due to lower outstanding net borrowings and higher interest income generated by higher invested cash balances. This improvement was partially offset by a higher effective interest rate, which resulted from the increased proportion of fixed rate debt as compared with variable rate debt in the same period last year. In May 2003, we executed a fixed-to floating interest rate swap on our $250.0 million 6% Senior Notes due 2012. See "Liquidity and Capital Resources" for further details.
PROVISION FOR INCOME TAXES
The provision for income taxes represents Federal, foreign, state and local income taxes. The effective rate for income taxes for the fiscal year was 33.0% as compared with 34.5% in the prior-year period. These rates differ from statutory rates, reflecting the effect of state and local taxes, tax rates in foreign jurisdictions and certain nondeductible expenses. The decrease in the effective tax rate was principally attributable to ongoing tax planning initiatives, including the favorable settlement of certain tax negotiations and the reduction of the overall tax rate relating to the Company's foreign operations. In addition, the tax effect of the charge related to the pending settlement of a legal proceeding in late fiscal 2003 contributed to an effective tax rate slightly lower than previously expected.
FISCAL 2002 AS COMPARED WITH FISCAL 2001
NET SALES
Net sales increased 2% or $76.0 million to $4.74 billion reflecting growth in the makeup, skin care and hair care categories, partially offset by a decline in fragrance net sales. Excluding the impact of foreign currency translation, net sales increased 3%. The unusual events that occurred during fiscal 2002 and their effect on the economy, particularly in the United States, adversely impacted our business. In addition, the decline in worldwide travel during most of fiscal 2002 led to a 13% reduction in our travel retail sales. Sales growth from certain newer brands and recently launched products partially offset these decreases.
The following discussions of Net Sales by PRODUCT CATEGORIES and GEOGRAPHIC REGIONS exclude the impact of the restructurings in fiscal 2002 and fiscal 2001. Neither restructuring was material to our net sales, and we believe the following analysis of net sales better reflects the manner in which we conduct and view our business. For a discussion of the restructurings, see "Operating Expenses - Restructuring and Special Charges" in this section. The tables on pages 21 and 22 reconcile these results to operating income as reporting in the consolidated statement of earnings.
PRODUCT CATEGORIES
SKIN CARE
Net sales of skin care products increased 3% or $42.6 million to $1.70 billion. The net sales increase is primarily attributable to recently launched products such as Total Turnaround Visible Skin Renewer, Advanced Night Repair Eye Recovery Complex, Moisture Surge Extra Thirsty Skin Relief and Moisture Surge Eye Gel, A Perfect World line of products, LightSource Transforming Moisture Lotion and Cream, and Re-Nutriv Ultimate Lifting Creme. Partially offsetting these increases were lower net sales of certain existing products such as Turnaround Cream and Resilience Lift, as well as products in Clinique's 3-Step Skin Care System.
MAKEUP
Makeup net sales increased 4% or $68.9 million to $1.79 billion. Newer brands such as M.A.C, Bobbi Brown and Stila, which are primarily makeup products, contributed through growth at existing doors and increased distribution. In addition, strong sales of the Pure Color Line of products, the worldwide launch of Gentle Light Makeup and Illusionist Mascara contributed positively to net sales growth. Partially offsetting the increase in net sales were lower sales of Two-in-One Eye Shadow, Lucidity Makeup, and Long Last Soft Shine Lipstick.
FRAGRANCE
Net sales of fragrance products decreased 6% or $67.8 million to $1.02 billion. This category was impacted by the softness of the fragrance business in the United States and the decline in our travel retail business, which depends substantially on fragrance products. Lower net sales of Beautiful, Estee Lauder pleasures, DKNY for Women and certain existing Tommy Hilfiger products were partially offset by the launch of T, a fragrance in the Tommy Hilfiger line, and Intuition for Men, as well as strong sales of Donna Karan Cashmere Mist.
HAIR CARE
Hair care net sales increased 19% or $35.1 million to $215.8 million. This increase was primarily the result of growth from Aveda, which benefited from the launch of texture lotion products and Color Conserve Shampoo and an increase in the number of Company-owned Aveda Experience Centers. Sales of Bumble and bumble products increased due to an expanded product line and an increase in the number of points of sale. The results were partially offset by lower sales from Clinique's Simple Hair Care System when compared with the prior-year launch.
The introduction of new products may have some cannibalizing effect on sales of existing products, which we take into account in our business planning.
GEOGRAPHIC REGIONS
Net sales in the Americas increased 1% or $20.4 million to $2.88 billion. The increase was primarily due to the success of most newer brands, partially offset by economic weakness and uncertainty in the United States during most of the fiscal year. In Europe, the Middle East & Africa, net sales increased 3% or $39.3 million to $1.26 billion. This increase was primarily the result of higher net sales in the United Kingdom, Spain and Greece, where in fiscal 2002 we formed a joint venture, in which we own a controlling majority interest, with our former distributor. The increase was partially offset by lower net sales in our travel retail business, which has been adversely affected by a decrease in worldwide travel. Excluding the impact of our travel retail business, net sales in Europe, the Middle East & Africa increased 8% or $77.8 million. Net sales in Asia/Pacific increased 2% or $14.5 million to $610.6 million primarily due to higher net sales in Korea and Thailand, as well as in Australia where we benefited from a change in retailer arrangements. The increased sales were partially offset by lower net sales in Japan. Japan continued to be a difficult market due to local economic conditions and increasing competition. The challenges were made more difficult by the weakness of the Japanese yen during fiscal 2002 as compared with the U.S. dollar. Excluding the impact of foreign currency translation, Asia/Pacific net sales increased 9%.
We strategically stagger our new product launches by geographic market, which may account for differences in regional sales growth.
COST OF SALES
Cost of sales as a percentage of total net sales was 26.8% as compared with 26.3% in the prior year. The lower margin can be attributed in part to production volume decreases resulting in under-absorption of overhead, as well as lower than planned raw material purchases that reduced anticipated savings from sourcing initiatives. Partially offsetting these negative factors were lower sales volumes of products with a higher cost of goods, particularly in travel retail and fragrance.
OPERATING EXPENSES
Operating expenses increased to 66.0% of net sales as compared with 63.1% of net sales in the prior year. The increase in operating expenses primarily related to restructuring expenses, continued advertising and promotional spending and the cost to expand and operate our retail stores. The increase in operating expenses as a percentage of net sales reflects a slower growth rate in sales than operating expenses, primarily due to economic conditions in the United States as discussed above. As part of our long-term strategies, we continued to emphasize the building of "brand equities" through advertising and promotional spending and retail store expansion despite difficult economic times. Changes in advertising and promotional spending result from the type, timing and level of advertising and promotional activities related to product launches and rollouts, as well as the markets being emphasized. Excluding the impact of restructuring and special charges, operating expenses were 63.5% and 61.9% of net sales for the fiscal years ended 2002 and 2001, respectively.
RESTRUCTURING AND SPECIAL CHARGES
During the fourth quarter of fiscal 2002, we recorded charges for a restructuring related to repositioning certain businesses as part of our ongoing efforts to drive long-term growth and increase profitability. The restructuring focused on cost reduction opportunities related to the Internet, our supply chain, globalization of the organization and distribution channel refinements. We committed to a defined plan of action, which resulted in an aggregate pre-tax charge of $117.4 million, of which $59.4 million is cash related. On an after-tax basis, the aggregate charge was $76.9 million, equal to $.32 per diluted share.
Specifically, the charge included the following:
o INTERNET. In an effort to achieve strategic objectives, reduce costs and improve profitability, we outsourced Gloss.com platform development and maintenance efforts to a third-party provider. Additionally, Gloss.com closed its San Francisco facility and consolidated its operations in New York. As a result, included in the charge was a $23.9 million provision for restructuring the Gloss.com operations, including benefits and severance packages for 36 employees as well as asset write-offs. We also took a $20.1 million charge to write off the related Gloss.com acquisition goodwill.
o SUPPLY CHAIN. Building on previously announced supply chain initiatives, we restructured certain manufacturing, distribution, research and development, information systems and quality assurance operations in the United States, Canada and Europe, which included benefits and severance for 110 employees. A charge of $23.7 million was recorded related to this effort.
o GLOBALIZATION OF ORGANIZATION. We continued to implement our transition, announced in 2001, to a global brand structure designed to streamline the decision-making process and increase innovation and speed-to-market. The next phase of this transition entailed eliminating duplicate functions and responsibilities, which resulted in charges for benefits and severance for 122 employees. We recorded a charge of $27.1 million associated with these efforts.
o DISTRIBUTION. We evaluated areas of distribution relative to our financial targets and decided to focus our resources on the most productive sales channels and markets. As a result, we closed our operations in Argentina and the remaining customers are being serviced by our Chilean affiliate. We began to close all remaining in-store "tommy's shops" and we identified for closing other select points of distribution. We recorded a $22.6 million provision related to these actions, which included benefits and severance for 85 employees.
Following is a summary of the charges as recorded in the consolidated statement of earnings for fiscal 2002:
RESTRUCTURING
-------------------------------------
NET COST OF OPERATING
SALES SALES EXPENSES TOTAL
------ ------- --------- ------
(IN MILLIONS)
Internet ............................ $ -- $ -- $ 44.0 $ 44.0
Supply Chain ........................ -- -- 23.7 23.7
Globalization of Organization ....... -- -- 27.1 27.1
Distribution ........................ 6.2 0.8 15.6 22.6
------ ------ ------ ------
TOTAL CHARGE ........................ $ 6.2 $ 0.8 $110.4 117.4
====== ====== ======
Tax effect .......................... (40.5)
------
NET CHARGE .......................... $ 76.9
======
|
The restructuring charge was recorded in other accrued liabilities or, where applicable, as a reduction of the related asset. During fiscal 2002, $9.3 million related to this restructuring was paid. We expected to, and did, settle a majority of the remaining obligations by the end of fiscal 2003 with certain additional payments to be made ratably through fiscal 2006.
During the fourth quarter of fiscal 2001, we recorded charges for restructuring and special charges related to repositioning certain businesses as part of our ongoing efforts to drive long-term growth and increase profitability. The restructuring and special charges focused on four areas: product fixtures for the jane brand; in-store "tommy shops"; information systems and other assets; and global brand reorganization. We committed to a defined plan of action, which resulted in an aggregate pre-tax charge of $63.0 million, of which $35.9 million is cash related. On an after-tax basis, the aggregate charge was $40.3 million, equal to $.17 per diluted share. As of June 30, 2003, the remaining obligation was $2.6 million with payments expected to be made ratably through fiscal 2004.
OPERATING RESULTS
Operating income decreased 31% or $154.2 million to $341.4 million as compared with the prior year. Operating margins were 7.2% of net sales in fiscal 2002 as compared with 10.6% in the prior year. The decrease in operating margin was primarily due to restructuring expenses, lower than expected sales levels, increased support spending and new distribution channel costs. This was partially offset by the exclusion of amortization expense due to the adoption of SFAS No. 142, "Goodwill and Other Intangible Assets," in fiscal 2002 and the November 2000 expiration of amortization related to purchased royalty rights. Operating income reflected the inclusion of restructuring and special charges of $117.4 million and $63.0 million in fiscal 2002 and 2001, respectively. Before consideration of the restructuring and special charges, operating income decreased 18% to $458.8 million and operating margins were 9.7% in fiscal 2002 as compared with 11.9% in fiscal 2001.
Net earnings and net earnings per diluted share decreased approximately 37% and 39%, respectively. Net earnings declined $113.3 million to $191.9 million and net earnings per diluted share was lower by $.46 per diluted share from $1.16 to $.70. On a comparable basis, before restructuring and special charges, before the cumulative effect of adopting a new accounting principle, and excluding goodwill amortization in fiscal 2001, net earnings were $289.4 million, representing a decrease of 20% over the prior year, and diluted earnings per common share decreased 21% to $1.10 from $1.39 in the prior year.
The following discussions of Operating Results by PRODUCT CATEGORIES and GEOGRAPHIC REGIONS exclude the impact of restructuring and special charges. We believe the following analysis of operating income better reflects the manner in which we conduct and view our business. The tables on pages 21 and 22 reconcile these results to operating income as reported in the consolidated statement of earnings.
PRODUCT CATEGORIES
Operating income decreased 79% to $13.4 million in fragrance, 14% to $183.2 million in makeup and 7% to $248.4 million in skin care, primarily due to lower than anticipated sales levels, coupled with continued advertising and promotional spending to promote new and recently launched products. Hair care operating income increased 5%, from a smaller base, to $13.7 million, primarily due to sales growth from Aveda and Bumble and bumble.
GEOGRAPHIC REGIONS
Operating income in the Americas decreased 26% or $77.0 million to $222.9 million, primarily due to lower sales attributable to weakness in the U.S. economy and continued advertising and promotional spending. In Europe, the Middle East & Africa, operating income decreased 11% or $21.9 million to $179.9 million, primarily due to the significant decrease in our travel retail business. Partially offsetting the decrease were improved operating results in Italy, the United Kingdom, Spain and Germany. We also benefited from the inclusion of operating results from our majority-owned joint venture in Greece. In Asia/Pacific, operating income decreased slightly to $56.0 million due to lower income in China and Hong Kong offset by higher results in Korea, in Australia, where we benefited from a change in retailer arrangements, and in Japan, where we were able to reduce operating expenses.
INTEREST EXPENSE, NET
Net interest expense was $9.8 million as compared with $12.3 million in the prior year. The decrease in net interest expense resulted from a lower effective interest rate compared with the prior year. This was primarily due to our interest rate risk management strategy that relied on commercial paper and variable-rate term loans. In January 2002, we took advantage of prevailing market rates and issued fixed rate long-term notes to replace our variable-rate debt.
PROVISION FOR INCOME TAXES
The Company's effective tax rate will change from year to year based on non-recurring and recurring factors including, but not limited to, the geographical mix of earnings, the timing and amount of foreign dividends, state and local taxes, tax audit settlements and the interaction of various global tax strategies.
The provision for income taxes represents Federal, foreign, state and local income taxes. The effective rate for income taxes for fiscal 2002 was 34.5% compared with 36% in the prior year. These rates reflect the effect of state and local taxes, changes in tax rates in foreign jurisdictions, tax credits and certain non-deductible expenses. The decrease in the effective income tax rate was attributable to ongoing tax planning initiatives, as well as a decrease in non-deductible domestic royalty expense and the elimination of certain non-deductible goodwill amortization resulting from the implementation of SFAS No. 142, "Goodwill and Other Intangible Assets."
FINANCIAL CONDITION
LIQUIDITY AND CAPITAL RESOURCES
Our principal sources of funds historically have been cash flows from operations and borrowings under commercial paper, borrowings from the issuance of long-term debt and committed and uncommitted credit lines provided by banks in the United States and abroad. At June 30, 2003, we had cash and cash equivalents of $364.1 million compared with $546.9 million at June 30, 2002.
At June 30, 2003, our outstanding borrowings of $291.4 million included: (i) $257.1 million of 6% Senior Notes due January 2012 consisting of $250.0 million principal, an unamortized debt discount of $1.0 million, and an $8.1 million adjustment to reflect the fair value of an outstanding interest rate swap; (ii) a 3.0 billion yen term loan (approximately $25.2 million at current exchange rates), which is due in March 2006; (iii) $7.8 million of other short-term borrowings; and (iv) $1.3 million of other long-term borrowings.
In May 2003, we entered into an interest rate swap agreement with a notional amount of $250.0 million to effectively convert the fixed rate interest on our outstanding $250.0 million 6% Senior Notes to variable interest rates based on LIBOR. In the short-term, this will provide us with a lower level of interest expense related to the 6% Senior Notes based on current variable interest rates, however, over the life of the notes, interest expense may be greater than 6% based upon the fluctuations of LIBOR.
We have a $750.0 million commercial paper program under which we may issue commercial paper in the United States. Our commercial paper is currently rated A-1 by Standard & Poor's and P-1 by Moody's. Our long-term credit ratings are A+ by Standard & Poor's and A1 by Moody's. At June 30, 2003, we had no commercial paper outstanding. We also have an effective shelf registration statement covering the potential issuance of up to $500.0 million in debt securities. As of June 30, 2003, we had an unused $400.0 million revolving credit facility, expiring on June 28, 2006, and $156.6 million in additional uncommitted credit facilities.
Our business is seasonal in nature and, accordingly, our working capital needs vary. From time to time, we may enter into investing and financing transactions that require additional funding. To the extent that these needs exceed cash from operations, we could, subject to market conditions, issue commercial paper, issue long-term debt securities or borrow under the revolving credit facility.
The effects of inflation have not been significant to our overall operating results in recent years. Generally, we have been able to introduce new products at higher selling prices or increase selling prices sufficiently to offset cost increases, which have been moderate.
We believe that cash on hand, cash generated from operations, available credit lines and access to credit markets will be adequate to support currently planned business operations and capital expenditures on both a near-term and long-term basis.
CASH FLOWS
Net cash provided by operating activities was $548.5 million in fiscal 2003 as compared with $518.0 million in fiscal 2002 and $305.4 million in fiscal 2001. The improved operating cash flow primarily reflects increased earnings and seasonal levels of operating assets and liabilities. Operating assets and liabilities reflect an improvement in accounts receivable collections, and a higher level of accounts payable, partially offset by increased inventories in anticipation of product launches in the first half of fiscal 2004 and the impact of acquisitions on required inventory levels. The improvement in net cash flows for fiscal 2002 compared to fiscal 2001 was generated primarily by a reduction of inventory. Inventory levels were unseasonably high at the end of fiscal 2001 and were lowered during fiscal 2002 as part of our effort to keep inventory levels in line with forecasted sales. Operating cash flows were generally not impacted by the fiscal 2002 restructuring as lower net earnings were offset by the non-cash portion of the charge and the increase in other accrued liabilities.
Net cash used for investing activities was $192.5 million in fiscal 2003, compared with $217.0 million in fiscal 2002 and $206.3 million in fiscal 2001. Net cash used in investing activities in fiscal 2003 primarily relates to capital expenditures and the acquisition of Darphin and certain Aveda distributors. Net cash used in investing activities during fiscal 2002 and fiscal 2001 relates primarily to capital expenditures.
Capital expenditures amounted to $163.1 million, $203.2 million and $192.2 million in fiscal 2003, 2002 and 2001, respectively. Spending in all three years primarily reflected the continued upgrade of manufacturing equipment, dies and molds, new store openings, store improvements, counter construction and information technology enhancements. The reduced level of capital expenditures in fiscal 2003 reflects tight control on our spending in light of economic conditions, fewer retail store openings and reduced spending related to leasehold improvements.
Cash used for financing activities was $550.4 million, $121.8 million and $63.5 million in fiscal 2003, 2002 and 2001, respectively. The net cash used for financing activities in 2003 primarily relates to common stock repurchases, the repayment of long-term debt and dividend payments. Net cash used for financing during fiscal 2002 primarily relates to dividend payments and common stock repurchases. The net cash used in fiscal 2001 was primarily related to dividend payments.
DIVIDENDS
The Board of Directors declared, and we paid on our Class A Common Stock and Class B Common Stock, an annual dividend of $.20 per share in fiscal 2003 and quarterly dividends at the rate of $.05 per share in each quarter of fiscal 2002 and 2001. The last quarterly dividend of $.05 per share was paid in the first quarter of fiscal 2003. As previously disclosed, the Board of Directors determined that, at its discretion, it would declare and the Company would pay dividends on its common stock annually rather than quarterly commencing in fiscal 2003. In fiscal 2003, 2002 and 2001, dividends declared on our common stock totaled $46.5 million, $47.5 million and $47.7 million, respectively. Total dividends declared, including dividends on the $6.50 Cumulative Redeemable Preferred Stock, were $69.9 million, $70.9 million and $71.1 million in fiscal 2003, 2002 and 2001, respectively.
SHARE REPURCHASE PROGRAM
In September 1998, our Board of Directors authorized a share repurchase program to repurchase a total of up to 8.0 million shares of Class A Common Stock in the open market or in privately negotiated transactions, depending on market conditions and other factors. In October 2002, the Board of Directors authorized the repurchase of up to 10.0 million additional shares of Class A Common Stock, increasing the total authorization under the share repurchase program to 18.0 million shares. During fiscal 2003, we purchased 11.2 million shares for $352.4 million. As of June 30, 2003, we have purchased approximately 13.8 million shares under this program. Subsequent to year-end, we purchased an additional 0.4 million shares for $12.3 million bringing the cumulative total of acquired shares to 14.2 million.
PENSION PLAN FUNDING AND EXPENSE
We maintain pension plans covering substantially all of our full-time employees for our U.S. operations and a majority of our international operations. Several plans provide pension benefits based primarily on years of service and employees' earnings. In the United States, we maintain a trust-based, noncontributory defined benefit pension plan ("U.S. Plan"). Additionally, we have an unfunded, nonqualified domestic benefit plan to provide benefits in excess of Internal Revenue Code limitations. Our international pension plans are comprised of defined benefit and defined contribution plans.
Several factors influence our annual funding requirements. For the U.S. Plan, our funding policy consists of an annual contribution at a rate that provides for future plan benefits and maintains appropriate funded percentages. Such contribution is not less than the minimum required by the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and subsequent pension legislation and is not more than the maximum amount deductible for income tax purposes. For each international plan, our funding policies are determined by local laws and regulations. In addition, amounts necessary to fund future obligations under these plans could vary depending on estimated assumptions (as detailed in "Critical Accounting Polices and Estimates"). The effect on operating results in the future of pension plan funding will depend on economic conditions, employee demographics, mortality rates, the number of participants electing to take lump-sum distributions, investment performance and funding decisions.
During fiscal 2003, we changed certain of the underlying assumptions associated with our pension plans based upon the recent past performance and outlook of the securities markets, resulting in a larger funding requirement. In addition, the assets associated with the pension plans experienced negative investment returns, which also affected our funding requirements. Even after considering the impact of these factors, there was no minimum contribution to the U.S. Plan required by ERISA for fiscal 2003 and 2002. However, at management's discretion, we made cash contributions to the U.S. Plan of $76.0 million and $43.0 million during fiscal 2003 and 2002, respectively.
In addition, at June 30, 2003, we recognized a liability on our balance sheet for each pension plan if the fair market value of the assets of that plan was less than the accumulated benefit obligation and, accordingly, a charge is recorded in accumulated other comprehensive income (loss) in shareholders' equity. During fiscal 2003 and 2002, we recorded a charge to accumulated other comprehensive income (loss) of $20.3 million and $7.9 million, respectively. This charge had no impact on our consolidated net earnings or liquidity.
COMMITMENTS AND CONTINGENCIES
We will be required to redeem the outstanding $6.50 Cumulative Redeemable Preferred Stock on June 30, 2005. However, in the event that Mrs. Estee Lauder were to pass away before such date, then we would have the right to redeem the shares from the current holders, and the holders of such shares would have the right to put the shares to us, at $100 per share (for an aggregate cost of $360.0 million). If shares of $6.50 Cumulative Redeemable Preferred Stock are put to us, we would have up to 120 days after notice to purchase such shares.
Certain of our business acquisition agreements include "earn-out" provisions. These provisions generally require that we pay to the seller or sellers of the business additional amounts based on the performance of the acquired business. The payments typically are made after a certain period of time and our next "earn-out" payment is expected to be made after the end of fiscal 2005. Since the size of each payment depends upon performance of the acquired business, we do not expect that such payments will have a material adverse impact on our future results of operations or financial condition.
Under agreements covering our purchase of trademarks for a percentage of related sales, royalty payments totaling $20.3 million, $16.5 million and $16.0 million in fiscal 2003, 2002 and 2001, respectively, have been charged to expense. Such payments were made to Mrs. Estee Lauder. This obligation is not necessarily fixed and determinable, and therefore has been excluded from the following contractual obligation table.
CONTRACTUAL OBLIGATIONS
The following table summarizes scheduled maturities of our contractual obligations for which cash flows are fixed and determinable as of June 30, 2003.
Payments Due in Fiscal
----------------------------------------------------------------
Total 2004 2005 2006 2007 2008 Thereafter
-------- -------- -------- -------- -------- -------- ----------
(In millions)
Long-term debt including current portion (1) $ 291.4 $ 7.8 $ 1.3 $ 25.2 $ -- $ -- $ 257.1
Redeemable preferred stock (2) 360.0 -- 360.0 -- -- -- --
Lease commitments (3) 605.6 120.1 104.6 74.4 61.9 54.8 189.8
Unconditional purchase obligations (4) 698.7 346.9 37.8 42.6 27.3 25.5 218.6
-------- -------- -------- -------- -------- -------- --------
Total contractual obligations $1,955.7 $ 474.8 $ 503.7 $ 142.2 $ 89.2 $ 80.3 $ 665.5
======== ======== ======== ======== ======== ======== ========
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(1) Refer to Note 8 of Notes to Consolidated Financial Statements.
(2) Refer to Note 12 of Notes to Consolidated Financial Statements.
(3) Includes operating lease commitments, and to a lesser extent, minimal capital lease commitments. Refer to Note 15 of Notes to Consolidated Financial Statements.
(4) Unconditional purchase obligations primarily include inventory commitments, estimated future earn-out payments, estimated royalty payments pursuant to license agreements, advertising commitments and capital improvement commitments.
In July 2003, we signed a new lease for our principal offices at the same location. Our rental obligations under the new lease will commence in fiscal 2005 and expire in fiscal 2020. Obligations pursuant to the lease in fiscal 2005, 2006, 2007, 2008 and thereafter are $5.9 million, $23.6 million, $23.6 million, $24.1 million and $324.2 million, respectively.
BUSINESS ACQUISITIONS AND LICENSE AGREEMENTS
In April 2003, we acquired the Paris-based Darphin group of companies that develops, manufactures and markets the "Darphin" brand of skin care products. The initial purchase price, paid at closing, was funded by cash provided by operations, and did not have a material effect on our results of operations or financial condition. An additional payment is expected to be made in fiscal 2009, the amount of which will depend on future net sales and earnings of the Darphin business.
In May 2003, we entered into a license agreement to manufacture and sell fragrances and beauty products under the "Michael Kors" trademarks with Michael Kors L.L.C. At the same time, we purchased certain related rights and inventory from American Designer Fragrances, a division of LVMH.
DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES
We address certain financial exposures through a controlled program of risk management that includes the use of derivative financial instruments. We primarily enter into foreign currency forward exchange contracts and foreign currency options to reduce the effects of fluctuating foreign currency exchange rates. We also enter into interest rate derivative contracts to manage the effects of fluctuating interest rates. We categorize these instruments as entered into for purposes other than trading.
For each derivative contract entered into where we look to obtain special hedge accounting treatment, we formally document the relationship between the hedging instrument and hedged item, as well as its risk-management objective and strategy for undertaking the hedge. This process includes linking all derivatives that are designated as fair-value, cash-flow, or foreign-currency hedges to specific assets and liabilities on the balance sheet or to specific firm commitments or forecasted transactions. We also formally assess, both at the hedge's inception and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items. If it is determined that a derivative is not highly effective, then we will be required to discontinue hedge accounting with respect to that derivative prospectively.
FOREIGN EXCHANGE RISK MANAGEMENT
We enter into forward exchange contracts to hedge anticipated transactions as well as receivables and payables denominated in foreign currencies for periods consistent with our identified exposures. The purpose of the hedging activities is to minimize the effect of foreign exchange rate movements on our costs and on the cash flows that we receive from foreign subsidiaries. Almost all foreign currency contracts are denominated in currencies of major industrial countries and are with large financial institutions rated as strong investment grade by a major rating agency. We also enter into foreign currency options to hedge anticipated transactions where there is a high probability that anticipated exposures will materialize. The forward exchange contracts and foreign currency options entered into to hedge anticipated transactions have been designated as cash-flow hedges. As of June 30, 2003, these cash-flow hedges were highly effective, in all material respects.
As a matter of policy, we only enter into contracts with counterparties that have at least an "A" (or equivalent) credit rating. The counterparties to these contracts are major financial institutions. We do not have significant exposure to any one counterparty. Our exposure to credit loss in the event of nonperformance by any of the counterparties is limited to only the recognized, but not realized, gains attributable to the contracts. Management believes risk of loss under these hedging contracts is remote and in any event would not be material to the consolidated financial results. The contracts have varying maturities through the end of June 2004. Costs associated with entering into such contracts have not been material to our consolidated financial results. We do not utilize derivative financial instruments for trading or speculative purposes. At June 30, 2003, we had foreign currency contracts in the form of forward exchange contracts and option contracts in the amount of $476.7 million and $57.7 million, respectively. The foreign currencies included in forward exchange contracts (notional value stated in U.S. dollars) are principally the Euro ($114.0 million), Swiss franc ($61.9 million), Japanese yen ($56.0 million), British pound ($49.8 million), Canadian dollar ($37.7 million), South Korean won ($37.6 million) and Australian dollar ($30.6 million). The foreign currencies included in the option contracts (notional value stated in U.S. dollars) are principally the Swiss franc ($21.9 million), Canadian dollar ($21.0 million) and Euro ($11.7 million).
INTEREST RATE RISK MANAGEMENT
We enter into interest rate derivative contracts to manage the exposure to fluctuations of interest rates on our funded and unfunded indebtedness, as well as cash investments, for periods consistent with the identified exposures. All interest rate derivative contracts are with large financial institutions rated as strong investment grade by a major rating agency.
In May 2003, we entered into an interest rate swap agreement with a notional amount of $250.0 million to effectively convert fixed interest on the existing $250.0 million 6% Senior Notes to variable interest rates based on LIBOR. We designated the swap as a fair value hedge. As of June 30, 2003, the fair value hedge was highly effective, in all material respects.
Additionally, in May 2003, we entered into a series of treasury lock agreements on a notional amount totaling $195.0 million at a weighted average all-in rate of 4.53%. These treasury lock agreements expire in September 2003 and are used to hedge the exposure to a possible rise in interest rates prior to the anticipated issuance of debt. The agreements will be settled upon the issuance of the new debt, if completed, and any realized gain or loss to be received or paid by us will be amortized in interest expense over the life of the new debt. We designated the treasury lock agreements as cash flow hedges. As of June 30, 2003, the cash flow hedges were highly effective, in all material respects.
MARKET RISK
We use a value-at-risk model to assess the market risk of our derivative financial instruments. Value-at-risk represents the potential losses for an instrument or portfolio from adverse changes in market factors for a specified time period and confidence level. We estimate value-at-risk across all of our derivative financial instruments using a model with historical volatilities and correlations calculated over the past 250-day period. The measured value-at-risk, calculated as an average, for the twelve months ended June 30, 2003 related to our foreign exchange contracts was $7.6 million. As of June 30, 2003, the measured value-at-risk related to our interest rate contracts was $10.3 million. The model estimates were made assuming normal market conditions and a 95 percent confidence level. We used a statistical simulation model that valued our derivative financial instruments against one thousand randomly generated market price paths.
Our calculated value-at-risk exposure represents an estimate of reasonably possible net losses that would be recognized on our portfolio of derivative financial instruments assuming hypothetical movements in future market rates and is not necessarily indicative of actual results, which may or may not occur. It does not represent the maximum possible loss or any expected loss that may occur, since actual future gains and losses will differ from those estimated, based upon actual fluctuations in market rates, operating exposures, and the timing thereof, and changes in our portfolio of derivative financial instruments during the year.
We believe, however, that any loss incurred would be offset by the effects of market rate movements on the respective underlying transactions for which the hedge is intended.
OFF-BALANCE SHEET ARRANGEMENTS
We do not maintain any off-balance sheet arrangements, transactions, obligations or other relationships with unconsolidated entities that would be expected to have a material current or future effect upon our financial condition or results of operations.
RECENTLY ISSUED ACCOUNTING STANDARDS
In May 2003, the Financial Accounting Standards Board ("FASB") issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity" ("SFAS No. 150"). SFAS No. 150 established standards for classifying and measuring certain financial instruments with characteristics of both liabilities and equity. It specifically requires that mandatorily redeemable instruments, instruments with repurchase obligations which embody, are indexed to, or obligate the repurchase of, the issuer's own equity shares, and instruments with obligations to issue a variable number of the issuer's own equity shares, be classified as a liability. Initial and subsequent measurements of the instruments differ based on the characteristics of each instrument and as provided for in the statement. SFAS No. 150 is effective for all freestanding financial instruments entered into or modified after May 31, 2003 and otherwise became effective at the beginning of the first interim period beginning after June 15, 2003. We have adopted this statement effective for all instruments entered into or modified after May 31, 2003 and will adopt the statement for any existing financial instruments in the first quarter of fiscal 2004. Based on the provisions of this statement, beginning in fiscal 2004, we will be classifying the $6.50 Cumulative Redeemable Preferred Stock as a liability and the related dividends thereon will be characterized as interest expense. Restatement of financial statements for earlier years presented is not permitted. The adoption of this statement will result in the inclusion of the dividends on the preferred stock (equal to $23.4 million per year) as interest expense. While the inclusion will impact net earnings, net earnings attributable to common stock and earnings per common share will be unaffected. Given that the dividends are not deductible for income tax purposes, the inclusion of the preferred stock dividends as an interest expense will cause an increase in our effective tax rate. The adoption of SFAS No. 150 will have no impact on our financial condition.
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure" ("SFAS No. 148"). SFAS No. 148 provides alternative methods of transition for a voluntary change to the fair value method of accounting for stock-based employee compensation as originally defined by SFAS No. 123 "Accounting for Stock-Based Compensation." Additionally, SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to require prominent disclosure in both the annual and interim financial statements about the method of accounting for stock-based compensation and the effect of the method used on reported results. The transitional requirements of SFAS No. 148 are effective for all financial statements for fiscal years ending after December 15, 2002. We adopted the disclosure portion of this statement for the fiscal quarter ended March 31, 2003. The application of the disclosure portion of this standard has no impact on our consolidated financial position or results of operations. The FASB recently indicated that it will require stock-based employee compensation to be recorded as a charge to earnings pursuant to a standard on which it is currently deliberating. The FASB anticipates issuing an Exposure Draft in the fourth quarter of 2003 and a final statement in the second quarter of 2004. We will continue to monitor the FASB's progress on the issuance of this standard as well as evaluate our position with respect to current guidance.
FORWARD-LOOKING INFORMATION
We and our representatives from time to time make written or oral forward-looking statements, including statements contained in this and other filings with the Securities and Exchange Commission, in our press releases and in our reports to stockholders. The words and phrases "will likely result," "expect," "believe," "planned," "will," "will continue," "may," "could," "anticipated," "estimate," "project" or similar expressions are intended to identify "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These statements include, without limitation, our expectations regarding sales, earnings or other future financial performance and liquidity, product introductions, entry into new geographic regions, information systems initiatives, new methods of sale and future operations or operating results. Although we believe that our expectations are based on reasonable assumptions within the bounds of our knowledge of our business and operations, actual results may differ materially from our expectations. Factors that could cause actual results to differ from expectations include, without limitation:
(1) increased competitive activity from companies in the skin care, makeup, fragrance and hair care businesses, some of which have greater resources than we do;
(2) our ability to develop, produce and market new products on which future operating results may depend;
(3) consolidations, restructurings, bankruptcies and reorganizations in the retail industry causing a decrease in the number of stores that sell our products, an increase in the ownership concentration within the retail industry, ownership of retailers by our competitors and ownership of competitors by our customers that are retailers;
(4) shifts in the preferences of consumers as to where and how they shop for the types of products and services we sell;
(5) social, political and economic risks to our foreign or domestic manufacturing, distribution and retail operations, including changes in foreign investment and trade policies and regulations of the host countries and of the United States;
(6) changes in the laws, regulations and policies that affect, or will affect, our business, including changes in accounting standards, tax laws and regulations, trade rules and customs regulations, and the outcome and expense of legal or regulatory proceedings;
(7) foreign currency fluctuations affecting our results of operations and the value of our foreign assets, the relative prices at which we and our foreign competitors sell products in the same markets and our operating and manufacturing costs outside of the United States;
(8) changes in global or local economic conditions that could affect consumer purchasing, the willingness of consumers to travel, the financial strength of our customers, the cost and availability of capital, which we may need for new equipment, facilities or acquisitions, and the assumptions underlying our critical accounting estimates;
(9) shipment delays, depletion of inventory and increased production costs resulting from disruptions of operations at any of the facilities which, due to consolidations in our manufacturing operations, now manufacture nearly all of our supply of a particular type of product (i.e. focus factories);
(10) real estate rates and availability, which may affect our ability to increase the number of retail locations at which we sell our products and the costs associated with our other facilities;
(11) changes in product mix to products which are less profitable;
(12) our ability to acquire or develop e-commerce capabilities, and other new information and distribution technologies, on a timely basis and within our cost estimates;
(13) our ability to capitalize on opportunities for improved efficiency, such as globalization, and to integrate acquired businesses and realize value therefrom; and
(14) consequences attributable to the events that are currently taking place in Iraq and that took place in New York City and Washington, D.C. on September 11, 2001, including further attacks, retaliation and the threat of further attacks or retaliation.
We assume no responsibility to update forward-looking statements made herein or otherwise.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The information required by this item is set forth in Item 7 of this Annual Report on Form 10-K under the caption "Liquidity and Capital Resources - Market Risk" and is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information required by this item appears beginning on page F-1 of this Annual Report on Form 10-K and is incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
On April 12, 2002, the Board of Directors of the Company, upon recommendation of the Audit Committee, decided to end the engagement of Arthur Andersen LLP ("Arthur Andersen") as the Company's independent public accountants, effective April 30, 2002, and authorized the engagement of KPMG LLP ("KPMG") to serve as the Company's independent public accountants for the fiscal year ending June 30, 2002. None of Arthur Andersen's reports on the Company's consolidated financial statements for the fiscal year ended June 30, 2001 contained an adverse opinion or disclaimer of opinion, nor was any such report qualified or modified as to uncertainty, audit scope or accounting principles.
During the fiscal years ended June 30, 2002 and 2001, there were no disagreements between the Company and Arthur Andersen on any matter of accounting principle or practice, financial statement disclosure, or auditing scope or procedure which, if not resolved to Arthur Andersen's satisfaction, would have caused them to make reference to the subject matter in connection with their report on the Company's consolidated financial statements for such years; and there were no reportable events as defined in Item 304(a)(1)(v) of Regulation S-K.
During the fiscal year ended June 30, 2001 and prior to their appointment as the Company's independent public accountants, the Company did not consult KPMG LLP with respect to the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on the Company's consolidated financial statements, or any other matters or reportable events as set forth in Items 304(a)(2)(i) and (ii) of Regulation S-K.
ITEM 9A. CONTROLS AND PROCEDURES.
Our disclosure controls and procedures (as defined in Rules13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) are designed to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission. The Chief Executive Officer and the Chief Financial Officer, with assistance from other members of management, have reviewed the effectiveness of our disclosure controls and procedures as of June 30, 2003 and, based on their evaluation, have concluded that the disclosure controls and procedures were effective as of such date.
There has been no change in our internal control over financial reporting (as defined in Rules13a-15(f) and 15d-15(f) of the Exchange Act) that occurred during the fourth quarter of fiscal 2003 that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.
PART III
The information required by Item 10 (Directors and Executive Officers of the
Registrant), Item 11 (Executive Compensation), Item 12 (Security Ownership of
Certain Beneficial Owners and Management and Equity Compensation Plan
Information), Item 13 (Certain Relationships and Related Transactions) and Item
14 (Principal Accountant Fees and Services) of Form 10-K, and not already
provided herein under "Item 1. Business - Executive Officers," will be included
in our Proxy Statement for the 2003 Annual Meeting of Stockholders, which will
be filed within 120 days after the close of the fiscal year ended June 30, 2003,
and such information is incorporated herein by reference.
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) 1, 2. Financial Statements and Schedules - See index on Page F-1.
3. Exhibits-
EXHIBIT
NUMBER DESCRIPTION
------- -----------
3.1 Restated Certificate of Incorporation, dated November 16,
1995.
3.2 Certificate of Amendment to Restated Certificate of
Incorporation (filed as Exhibit 3.1 to our Quarterly Report
on Form 10-Q for the quarter ended December 31, 1999).*
3.3 Amended and Restated By-laws (filed as Exhibit 3.2 to our
Quarterly Report on Form 10-Q for the quarter ended December
31, 1999).*
4.1 Indenture, dated as of November 5, 1999, between the Company
and State Street Bank and Trust Company, N.A. (filed as
Exhibit 4 to Amendment No. 1 to our Registration Statement
on Form S-3 (No. 333-85947) on November 5, 1999).*
4.2 Officers' Certificate, dated January 10, 2002, defining
certain terms of the 6% Senior Notes due 2012 (filed as
Exhibit 4.2 to our Quarterly Report on Form 10-Q for the
quarter ended December 31, 2001 (the "FY 2002 Q2 10-Q")).*
4.3 Global Note for the 6% Senior Notes due 2012 (filed as
Exhibit 4.3 to the FY 2002 Q2 10-Q).*
10.1 Stockholders' Agreement, date November 22, 1995.
10.1a Amendment No. 1 to Stockholders' Agreement (filed as Exhibit
10.1 to our Quarterly Report on Form 10-Q for the quarter
ended September 30, 1996).*
10.1b Amendment No. 2 to Stockholders' Agreement (filed as Exhibit
10.2 to our Quarterly Report on Form 10-Q for the quarter
ended December 31, 1996).*
10.1c Amendment No. 3 to Stockholders' Agreement (filed as Exhibit
10.2 to our Quarterly Report on Form 10-Q for the quarter
ended March 31, 1997 (the "FY 1997 Q3 10-Q")).*
10.1d Amendment No. 4 to Stockholders' Agreement (filed as Exhibit
10.1d to our Annual Report on Form 10-K for the year ended
June 30, 2000 (the "FY 2000 10-K")).*
10.1e Amendment No. 5 to Stockholders' Agreement (filed as Exhibit
10.1e to our Annual Report on Form 10-K for the year ended
June 30, 2002 (the "FY 2002 10-K")).*
10.2 Registration Rights Agreement, dated November 22, 1995.
10.2a First Amendment to Registration Rights Agreement (filed as
Exhibit 10.3 to our Annual Report on Form 10-K for the
fiscal year ended June 30, 1996).*
10.2b Second Amendment to Registration Rights Agreement (filed as
Exhibit 10.1 to the FY 1997 Q3 10-Q).*
10.2c Third Amendment to Registration Rights Agreement (filed as
Exhibit 10.2c to our Annual Report on Form 10-K for the year
ended June 30, 2001 (the "FY 2001 10-K")).*
10.3 Fiscal 1996 Share Incentive Plan. +
10.4 Fiscal 1999 Share Incentive Plan (filed as Exhibit 4(c) to
our Registration Statement on Form S-8 (No. 333-66851) on
November 5, 1998).* +
10.5 The Estee Lauder Companies Retirement Growth Account Plan. +
10.6 The Estee Lauder Inc. Retirement Benefits Restoration Plan
(filed as Exhibit 10.6 to our Annual Report on Form 10-K for
the fiscal year ended June 30, 1999).* +
10.7 Executive Annual Incentive Plan (filed as Exhibit 10.2 to
our Quarterly Report on Form 10-Q for the quarter ended
December 31, 1998).* +
10.8 Employment Agreement with Leonard A. Lauder (filed as
Exhibit 10.8 to the FY 2001 10-K).* +
10.8a Amendment to Employment Agreement with Leonard A. Lauder
(filed as Exhibit 10.8a to the FY 2002 10-K).* +
10.8b Option Agreement, dated November 16, 1995, with Leonard A.
Lauder (Exhibit B to Mr. Lauder's 1995 employment
agreement). +
10.9 Employment Agreement with Ronald S. Lauder (filed as Exhibit
10.1 to our Quarterly Report on Form 10-Q for the quarter
ended September 30, 2000).* +
|
10.9a Amendment to Employment Agreement with Ronald S. Lauder
(filed as Exhibit 10.9a to the FY 2002 10-K).* +
10.9b Option Agreement, dated November 16, 1995, with Ronald S.
Lauder (Exhibit B to Mr. Lauder's 1995 employment
agreement). +
10.10 Employment Agreement with Fred H. Langhammer (filed as
Exhibit 10.10 to the FY 2000 10-K).* +
10.10a Amendment to Employment Agreement with Fred H. Langhammer
(filed as Exhibit 10.10a to the FY 2001 10-K).* +
10.10b Amendment to Employment Agreement with Fred H. Langhammer
(filed as Exhibit 10.10b to the FY 2002 10-K).* +
10.10c Share unit and Option Agreement with Fred H. Langhammer. +
10.11 Employment Agreement with Daniel J. Brestle (filed as
Exhibit 10.11 to the FY 2001 10-K).* +
10.11a Amendment to Employment Agreement with Daniel J. Brestle
(filed as Exhibit 10.11a to the FY 2002 10-K).* +
10.11b Option Agreement, dated November 16, 1995, with Daniel J.
Brestle (Schedule A to Mr. Brestle's 1995 employment
agreement).+
10.12 Employment Agreement with William P. Lauder (filed as
Exhibit 10.1 to our Quarterly Report on Form 10-Q for the
quarter ended March 31, 2003).* +
10.13 Employment Agreement with Patrick Bousquet-Chavanne (filed
as Exhibit 10.1 to our Quarterly Report on Form 10-Q for the
quarter ended September 30, 2001).* +
10.13a Amendment to Employment Agreement with Patrick
Bousquet-Chavanne (filed as Exhibit 10.13a to the FY 2002
10-K).* +
10.14 Form of Deferred Compensation Agreement (interest-based)
with Outside Directors (filed as Exhibit 10.14 to the FY
2001 10-K).* +
10.15 Form of Deferred Compensation Agreement (stock-based) with
Outside Directors (filed as Exhibit 10.15 to the FY 2001
10-K).* +
10.16 Non-Employee Director Share Incentive Plan (filed as Exhibit
4(d) to our Registration Statement on Form S-8 (No.
333-49606) filed on November 9, 2000).* +
10.17 Fiscal 2002 Share Incentive Plan (filed as Exhibit 4(d) to
our Registration Statement on Form S-8 (No. 333-72684) on
November 1, 2001).* +
21.1 List of significant subsidiaries.
23.1 Consent of KPMG LLP.
23.2 Notice regarding consent of Arthur Andersen LLP.
24.1 Power of Attorney.
31.1 Certification pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002 (CEO).
31.2 Certification pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002 (CFO).
32.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(CEO). (furnished)
32.2 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(CFO). (furnished)
----------
|
* Incorporated herein by reference.
+ Exhibit is a management contract or compensatory plan or arrangement.
(b) Reports on Form 8-K.
On April 30, 2003, we furnished a Current Report on Form 8-K. Pursuant to Item 12 of Form 8-K, we furnished our press release reporting our fiscal 2003 third-quarter results.
On May 9, 2003, we furnished a Current Report on Form 8-K. Pursuant to Item 9 of Form 8-K, we announced that we had entered into a license agreement for fragrances and beauty products under the "Michael Kors" trademark with Michael Kors L.L.C. and acquired the related business previously conducted by American Designer Fragrances, a division of LVMH.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
THE ESTEE LAUDER COMPANIES INC.
By /s/ RICHARD W. KUNES
--------------------------------
Richard W. Kunes
Senior Vice President
and Chief Financial Officer
Date: September 15, 2003
|
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated.
SIGNATURE TITLE (S) DATE
--------- --------- ----
/s/ FRED H. LANGHAMMER President, Chief Executive Officer September 15, 2003
-------------------------------------- and a Director
Fred H. Langhammer (Principal Executive Officer)
LEONARD A. LAUDER* Chairman of the Board of September 15, 2003
-------------------------------------- Directors
Leonard A. Lauder
CHARLENE BARSHEFSKY * Director September 15, 2003
--------------------------------------
Charlene Barshefsky
ROSE MARIE BRAVO* Director September 15, 2003
--------------------------------------
Rose Marie Bravo
IRVINE O. HOCKADAY, JR.* Director September 15, 2003
--------------------------------------
Irvine O. Hockaday, Jr.
RONALD S. LAUDER* Director September 15, 2003
--------------------------------------
Ronald S. Lauder
WILLIAM P. LAUDER* Director September 15, 2003
--------------------------------------
William P. Lauder
RICHARD D. PARSONS* Director September 15, 2003
--------------------------------------
Richard D. Parsons
MARSHALL ROSE* Director September 15, 2003
--------------------------------------
Marshall Rose
LYNN FORESTER DE ROTHSCHILD* Director September 15, 2003
--------------------------------------
Lynn Forester De Rothschild
/s/ RICHARD W. KUNES Senior Vice President and September 15, 2003
-------------------------------------- Chief Financial Officer
Richard W. Kunes (Principal Financial and
Accounting Officer)
|
By /s/ RICHARD W. KUNES
---------------------------------
Richard W. Kunes
(Attorney-in-Fact)
|
THE ESTEE LAUDER COMPANIES INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE
PAGE
FINANCIAL STATEMENTS:
Independent Auditors' Report.............................................. F-2
Copy of Report of Independent Public Accountants (Arthur Andersen LLP).... F-3
Consolidated Statements of Earnings....................................... F-4
Consolidated Balance Sheets............................................... F-5
Consolidated Statements of Stockholders' Equity and Comprehensive Income.. F-6
Consolidated Statements of Cash Flows..................................... F-7
Notes to Consolidated Financial Statements................................ F-8
FINANCIAL STATEMENT SCHEDULE:
Independent Auditors' Report on Schedule.................................. S-1
Copy of Report of Independent Public Accountants
(Arthur Andersen LLP) on Schedule.................................... S-2
Schedule II - Valuation and Qualifying Accounts........................... S-3
|
All other schedules are omitted because they are not applicable or the required information is included in the consolidated financial statements or notes thereto.
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
The Estee Lauder Companies Inc.:
We have audited the accompanying consolidated balance sheets of The Estee Lauder Companies Inc. and subsidiaries as of June 30, 2003 and 2002, and the related consolidated statements of earnings, stockholders' equity and comprehensive income and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. The 2001 financial statements of The Estee Lauder Companies Inc. and subsidiaries were audited by other auditors who have ceased operations. Those auditors expressed an unqualified opinion on those financial statements, before the revision described in Note 2 to the financial statements, in their report dated August 10, 2001.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of The Estee Lauder Companies Inc. and subsidiaries as of June 30, 2003 and 2002, and the results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.
As discussed above, the 2001 consolidated financial statements of The Estee Lauder Companies Inc. and subsidiaries were audited by other auditors who have ceased operations. As described in Note 2, these financial statements have been revised to include the transitional disclosures required by Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets," which was adopted by the Company as of July 1, 2001. In our opinion, the disclosures for 2001 in Note 2 are appropriate. However, we were not engaged to audit, review, or apply any procedures to the 2001 consolidated financial statements of The Estee Lauder Companies Inc. and subsidiaries other than with respect to such disclosures and, accordingly, we do not express an opinion or any other form of assurance on the 2001 consolidated financial statements taken as a whole.
KPMG LLP
New York, New York
August 8, 2003
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To The Estee Lauder Companies Inc.:
We have audited the accompanying consolidated balance sheets of The Estee Lauder Companies Inc. (a Delaware corporation) and subsidiaries as of June 30, 2001 and 2000, and the related consolidated statements of earnings, stockholders' equity and comprehensive income and cash flows for each of the three years in the period ended June 30, 2001. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of The Estee Lauder Companies Inc. and subsidiaries as of June 30, 2001 and 2000, and the results of their operations and their cash flows for each of the three years in the period ended June 30, 2001 in conformity with accounting principles generally accepted in the United States.
ARTHUR ANDERSEN LLP
New York, New York
August 10, 2001
This is a copy of the audit report previously issued by Arthur Andersen LLP in connection with our filing on Form 10-K for the fiscal year ended June 30, 2001. This audit report has not been reissued by Arthur Andersen LLP in connection with this filing on Form 10-K. See Exhibit 23.2 for further discussion.
THE ESTEE LAUDER COMPANIES INC.
CONSOLIDATED STATEMENTS OF EARNINGS
YEAR ENDED JUNE 30
-----------------------------------
2003 2002 2001
--------- --------- ---------
(IN MILLIONS, EXCEPT PER SHARE DATA)
NET SALES ................................................ $ 5,117.6 $ 4,743.7 $ 4,667.7
Cost of sales ............................................ 1,335.7 1,273.4 1,226.4
--------- --------- ---------
GROSS PROFIT ............................................. 3,781.9 3,470.3 3,441.3
--------- --------- ---------
Operating expenses:
Selling, general and administrative .................. 3,244.5 3,002.0 2,869.2
Restructuring ........................................ -- 110.4 37.6
Special charges ...................................... 22.0 -- 16.3
Related party royalties .............................. 20.3 16.5 22.6
--------- --------- ---------
3,286.8 3,128.9 2,945.7
--------- --------- ---------
OPERATING INCOME ......................................... 495.1 341.4 495.6
Interest expense, net .................................... 8.1 9.8 12.3
--------- --------- ---------
EARNINGS BEFORE INCOME TAXES, MINORITY INTEREST
AND ACCOUNTING CHANGE ................................... 487.0 331.6 483.3
Provision for income taxes ............................... 160.5 114.4 174.0
Minority interest, net of tax ............................ (6.7) (4.7) (1.9)
--------- --------- ---------
NET EARNINGS BEFORE ACCOUNTING CHANGE .................... 319.8 212.5 307.4
Cumulative effect of a change in accounting principle,
net of tax .............................................. -- (20.6) (2.2)
--------- --------- ---------
NET EARNINGS ............................................. 319.8 191.9 305.2
Preferred stock dividends ................................ 23.4 23.4 23.4
--------- --------- ---------
NET EARNINGS ATTRIBUTABLE TO COMMON STOCK ................ $ 296.4 $ 168.5 $ 281.8
========= ========= =========
Basic net earnings per common share:
Net earnings attributable to common stock before
accounting change ................................... $ 1.27 $ .79 $ 1.19
Cumulative effect of a change in accounting principle,
net of tax .......................................... -- (.08) (.01)
--------- --------- ---------
Net earnings attributable to common stock ............ $ 1.27 $ .71 $ 1.18
========= ========= =========
Diluted net earnings per common share:
Net earnings attributable to common stock before
accounting change ................................... $ 1.26 $ .78 $ 1.17
Cumulative effect of a change in accounting principle,
net of tax .......................................... -- (.08) (.01)
--------- --------- ---------
Net earnings attributable to common stock ............ $ 1.26 $ .70 $ 1.16
========= ========= =========
Weighted average common shares outstanding:
Basic ................................................ 232.6 238.2 238.4
Diluted .............................................. 234.7 241.1 242.2
|
See notes to consolidated financial statements.
THE ESTEE LAUDER COMPANIES INC.
CONSOLIDATED BALANCE SHEETS
JUNE 30
--------------------
2003 2002
-------- --------
(IN MILLIONS)
ASSETS
CURRENT ASSETS
Cash and cash equivalents .................................................... $ 364.1 $ 546.9
Accounts receivable, net ..................................................... 634.2 624.8
Inventory and promotional merchandise, net ................................... 599.0 544.5
Prepaid expenses and other current assets .................................... 247.6 211.4
-------- --------
TOTAL CURRENT ASSETS ..................................................... 1,844.9 1,927.6
-------- --------
PROPERTY, PLANT AND EQUIPMENT, NET ........................................... 607.7 580.7
-------- --------
OTHER ASSETS
Investments, at cost or market value ......................................... 14.0 30.3
Deferred income taxes ........................................................ 38.7 72.7
Goodwill, net ................................................................ 695.3 675.6
Other intangible assets, net ................................................. 65.4 18.4
Other assets, net ............................................................ 83.9 111.2
-------- --------
TOTAL OTHER ASSETS ....................................................... 897.3 908.2
-------- --------
TOTAL ASSETS ........................................................ $3,349.9 $3,416.5
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term debt .............................................................. $ 7.8 $ 6.6
Accounts payable ............................................................. 229.9 216.4
Accrued income taxes ......................................................... 111.9 110.0
Other accrued liabilities .................................................... 704.0 626.6
-------- --------
TOTAL CURRENT LIABILITIES ................................................ 1,053.6 959.6
-------- --------
NONCURRENT LIABILITIES
Long-term debt ............................................................... 283.6 403.9
Other noncurrent liabilities ................................................. 216.8 220.9
-------- --------
TOTAL NONCURRENT LIABILITIES ............................................. 500.4 624.8
-------- --------
COMMITMENTS AND CONTINGENCIES (see Note 15)
$6.50 CUMULATIVE REDEEMABLE PREFERRED STOCK, AT REDEMPTION VALUE ............. 360.0 360.0
-------- --------
MINORITY INTEREST ............................................................ 12.3 10.2
-------- --------
STOCKHOLDERS' EQUITY
Common stock, $.01 par value; 650,000,000 shares Class A authorized; shares
issued: 133,616,710 in 2003 and 131,567,986 in 2002; 240,000,000 shares
Class B authorized; shares issued and outstanding: 107,462,533 in 2003 and
108,412,533 in 2002 ...................................................... 2.4 2.4
Paid-in capital .............................................................. 293.7 268.8
Retained earnings ............................................................ 1,613.6 1,363.7
Accumulated other comprehensive income (loss) ................................ (53.1) (92.5)
-------- --------
1,856.6 1,542.4
Less: Treasury stock, at cost; 13,623,060 Class A shares at June 30, 2003 and
2,377,860 Class A shares at June 30, 2002 ................................ (433.0) (80.5)
-------- --------
TOTAL STOCKHOLDERS' EQUITY ............................................... 1,423.6 1,461.9
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY .......................... $3,349.9 $3,416.5
======== ========
|
See notes to consolidated financial statements.
THE ESTEE LAUDER COMPANIES INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
AND COMPREHENSIVE INCOME
YEAR ENDED JUNE 30
--------------------------------
2003 2002 2001
-------- -------- --------
(IN MILLIONS)
STOCKHOLDERS' EQUITY
Common stock, beginning of year ....................... $ 2.4 $ 2.4 $ 2.4
-------- -------- --------
Common stock, end of year ............................. 2.4 2.4 2.4
-------- -------- --------
Paid-in capital, beginning of year .................... 268.8 258.3 237.1
Stock compensation programs ........................... 24.9 10.5 21.2
-------- -------- --------
Paid-in capital, end of year .......................... 293.7 268.8 258.3
-------- -------- --------
Retained earnings, beginning of year .................. 1,363.7 1,242.7 1,008.6
Preferred stock dividends ............................. (23.4) (23.4) (23.4)
Common stock dividends ................................ (46.5) (47.5) (47.7)
Net earnings for the year ............................. 319.8 191.9 305.2
-------- -------- --------
Retained earnings, end of year ........................ 1,613.6 1,363.7 1,242.7
-------- -------- --------
Accumulated other comprehensive loss, beginning of year (92.5) (120.5) (57.1)
Other comprehensive income (loss) ..................... 39.4 28.0 (63.4)
-------- -------- --------
Accumulated other comprehensive loss, end of year ..... (53.1) (92.5) (120.5)
-------- -------- --------
Treasury stock, beginning of year ..................... (80.5) (30.8) (30.7)
Acquisition of treasury stock ......................... (352.5) (49.7) (0.1)
-------- -------- --------
Treasury stock, end of year ........................... (433.0) (80.5) (30.8)
-------- -------- --------
TOTAL STOCKHOLDERS' EQUITY ................... $1,423.6 $1,461.9 $1,352.1
======== ======== ========
COMPREHENSIVE INCOME
Net earnings .......................................... $ 319.8 $ 191.9 $ 305.2
-------- -------- --------
Other comprehensive income (loss):
Net unrealized investment gains (losses) .......... 0.8 (3.0) (11.0)
Net derivative instrument gains (losses) .......... 7.6 (7.1) (2.0)
Net minimum pension liability adjustments ......... (20.3) (7.9) (12.4)
Translation adjustments ........................... 51.3 46.0 (38.0)
-------- -------- --------
Other comprehensive income (loss) ................. 39.4 28.0 (63.4)
-------- -------- --------
TOTAL COMPREHENSIVE INCOME ................... $ 359.2 $ 219.9 $ 241.8
======== ======== ========
|
See notes to consolidated financial statements.
THE ESTEE LAUDER COMPANIES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED JUNE 30
--------------------------
2003 2002 2001
------ ------ ------
(IN MILLIONS)
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings .......................................................... $319.8 $191.9 $305.2
Adjustments to reconcile net earnings to net cash flows provided by
operating activities:
Depreciation and amortization .................................... 174.8 162.0 156.3
Amortization of purchased royalty rights ......................... -- -- 6.6
Deferred income taxes ............................................ 36.5 (22.6) 4.7
Minority interest ................................................ 6.7 4.7 1.9
Non-cash stock compensation ...................................... 1.5 (0.1) 0.7
Cumulative effect of a change in accounting principle ............ -- 20.6 2.2
Non-cash portion of restructuring and other non-recurring expenses -- 58.0 27.1
Other non-cash items ............................................. 0.9 0.9 --
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable, net .................. 38.6 (15.4) (57.3)
Decrease (increase) in inventory and promotional merchandise, net (15.7) 102.2 (102.1)
Increase in other assets ......................................... (15.3) (11.7) (53.6)
Increase (decrease) in accounts payable .......................... (8.4) (32.6) 14.2
Increase in accrued income taxes ................................. 5.4 28.8 5.9
Increase (decrease) in other accrued liabilities ................. 52.7 59.6 (23.4)
Increase (decrease) in other noncurrent liabilities .............. (49.0) (28.3) 17.0
------ ------ ------
NET CASH FLOWS PROVIDED BY OPERATING ACTIVITIES ................ 548.5 518.0 305.4
------ ------ ------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures .................................................. (163.1) (203.2) (192.2)
Acquisition of businesses, net of acquired cash ....................... (50.4) (18.5) (16.0)
Proceeds from disposition of long-term investments .................... 21.0 4.7 1.9
------ ------ ------
NET CASH FLOWS USED FOR INVESTING ACTIVITIES ................... (192.5) (217.0) (206.3)
------ ------ ------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase (decrease) in short-term debt, net ........................... 2.9 0.6 (0.1)
Proceeds from issuance of long-term debt, net ......................... -- 247.2 24.5
Repayments of long-term debt .......................................... (135.8) (256.6) (30.1)
Net proceeds from employee stock transactions ......................... 16.7 7.7 13.3
Payments to acquire treasury stock .................................... (352.5) (49.7) (0.1)
Dividends paid ........................................................ (81.7) (71.0) (71.0)
------ ------ ------
NET CASH FLOWS USED FOR FINANCING ACTIVITIES ................... (550.4) (121.8) (63.5)
------ ------ ------
Effect of Exchange Rate Changes on Cash and Cash Equivalents .............. 11.6 21.0 (9.2)
------ ------ ------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS .................. (182.8) 200.2 26.4
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR ........................ 546.9 346.7 320.3
------ ------ ------
CASH AND CASH EQUIVALENTS AT END OF YEAR .............................. $364.1 $546.9 $346.7
====== ====== ======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION (see Note 17)
Cash paid during the year for:
Interest ......................................................... $ 17.7 $ 17.6 $ 26.7
====== ====== ======
Income Taxes ..................................................... $134.7 $120.5 $176.6
====== ====== ======
|
See notes to consolidated financial statements.
THE ESTEE LAUDER COMPANIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- DESCRIPTION OF BUSINESS
The Estee Lauder Companies Inc. manufactures, markets and sells skin care, makeup, fragrance and hair care products around the world. Products are marketed under the following brand names: Estee Lauder, Clinique, Aramis, Prescriptives, Origins, M.A.C, Bobbi Brown, La Mer, jane, Aveda, Stila, Jo Malone, Bumble and bumble and Darphin. The Estee Lauder Companies Inc. is also the global licensee of the Tommy Hilfiger, Donna Karan, kate spade and Michael Kors brands for fragrances and cosmetics.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of The Estee Lauder Companies Inc. and its subsidiaries (collectively, the "Company"). All significant intercompany balances and transactions have been eliminated.
Certain amounts in the consolidated financial statements of prior years have been reclassified to conform to current year presentation for comparative purposes.
NET EARNINGS PER COMMON SHARE
Net earnings per common share ("basic EPS") is computed by dividing net earnings, after deducting preferred stock dividends on the Company's $6.50 Cumulative Redeemable Preferred Stock, by the weighted average number of common shares outstanding and contingently issuable shares (which satisfy certain conditions). Net earnings per common share assuming dilution ("diluted EPS") is computed by reflecting potential dilution from the exercise of stock options.
A reconciliation between the numerators and denominators of the basic and diluted EPS computations is as follows:
YEAR ENDED JUNE 30
-----------------------------
2003 2002 2001
------- ------- -------
(IN MILLIONS, EXCEPT PER SHARE DATA)
NUMERATOR:
Net earnings before accounting change ............................ $ 319.8 $ 212.5 $ 307.4
Preferred stock dividends ........................................ (23.4) (23.4) (23.4)
------- ------- -------
Net earnings attributable to common stock before accounting change 296.4 189.1 284.0
Cumulative effect of a change in accounting principle, net of tax -- (20.6) (2.2)
------- ------- -------
Net earnings attributable to common stock ........................ $ 296.4 $ 168.5 $ 281.8
======= ======= =======
DENOMINATOR:
Weighted average common shares outstanding - Basic ............... 232.6 238.2 238.4
Effect of dilutive securities: Stock options ..................... 2.1 2.9 3.8
------- ------- -------
Weighted average common shares outstanding - Diluted ............. 234.7 241.1 242.2
======= ======= =======
BASIC NET EARNINGS PER COMMON SHARE:
Net earnings before accounting change ............................ $ 1.27 $ .79 $ 1.19
Cumulative effect of a change in accounting principle, net of tax -- (.08) (.01)
------- ------- -------
Net earnings ..................................................... $ 1.27 $ .71 $ 1.18
======= ======= =======
DILUTED NET EARNINGS PER COMMON SHARE:
Net earnings before accounting change ............................ $ 1.26 $ .78 $ 1.17
Cumulative effect of a change in accounting principle, net of tax -- (.08) (.01)
------- ------- -------
Net earnings ..................................................... $ 1.26 $ .70 $ 1.16
======= ======= =======
|
THE ESTEE LAUDER COMPANIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of June 30, 2003, 2002 and 2001, options to purchase 13.6 million, 12.1 million and 10.5 million shares, respectively, of Class A Common Stock were not included in the computation of diluted EPS because the exercise prices of those options were greater than the average market price of the common stock and their inclusion would be anti-dilutive. The options were still outstanding at the end of the applicable periods.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include $76.2 million and $104.6 million of short-term time deposits at June 30, 2003 and 2002, respectively. The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents.
ACCOUNTS RECEIVABLE
Accounts receivable is stated net of the allowance for doubtful accounts and customer deductions of $31.8 million and $30.6 million as of June 30, 2003 and 2002, respectively.
CURRENCY TRANSLATION AND TRANSACTIONS
All assets and liabilities of foreign subsidiaries and affiliates are translated at year-end rates of exchange, while revenue and expenses are translated at weighted average rates of exchange for the year. Unrealized translation gains or losses are reported as cumulative translation adjustments through other comprehensive income. Such adjustments amounted to $51.3 million, $46.0 million and $(38.0) million of unrealized translation gains (losses) in fiscal 2003, 2002 and 2001, respectively.
The Company enters into forward foreign exchange contracts and foreign currency options to hedge foreign currency transactions for periods consistent with its identified exposures. Accordingly, the Company categorizes these instruments as entered into for purposes other than trading.
The accompanying consolidated statements of earnings include net exchange losses of $15.0 million and $6.8 million in fiscal 2003 and 2002, respectively, and net exchange gains of $9.2 million in fiscal 2001.
INVENTORY AND PROMOTIONAL MERCHANDISE
Inventory and promotional merchandise only includes inventory considered saleable or usable in future periods, and is stated at the lower of cost or fair-market value, with cost being determined on the first-in, first-out method. Promotional merchandise is charged to expense at the time the merchandise is shipped to the Company's customers.
2003 2002
------ ------
(IN MILLIONS)
Inventory and promotional merchandise consists of:
Raw materials ................................. $137.7 $117.5
Work in process ............................... 34.1 27.0
Finished goods ................................ 296.6 272.2
Promotional merchandise ....................... 130.6 127.8
------ ------
$599.0 $544.5
====== ======
|
THE ESTEE LAUDER COMPANIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is carried at cost less accumulated depreciation and amortization. For financial statement purposes, depreciation is provided principally on the straight-line method over the estimated useful lives of the assets ranging from 3 to 40 years. Leasehold improvements are amortized on a straight-line basis over the shorter of the lives of the respective leases or the expected useful lives of those improvements.
2003 2002
-------- --------
(IN MILLIONS)
Land ......................................... $ 13.5 $ 13.0
Buildings and improvements ................... 152.7 144.0
Machinery and equipment ...................... 676.7 611.7
Furniture and fixtures ....................... 95.3 86.1
Leasehold improvements ....................... 538.6 447.2
-------- --------
1,476.8 1,302.0
Less accumulated depreciation and amortization 869.1 721.3
-------- --------
$ 607.7 $ 580.7
======== ========
|
Depreciation and amortization of property, plant and equipment was $157.0 million, $140.5 million and $112.1 million in fiscal 2003, 2002 and 2001, respectively.
GOODWILL AND OTHER INTANGIBLE ASSETS
Effective July 1, 2001, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 141, "Business Combinations" and SFAS No. 142, "Goodwill and Other Intangible Assets." These statements established financial accounting and reporting standards for acquired goodwill and other intangible assets. Specifically, the standards address how acquired intangible assets should be accounted for both at the time of acquisition and after they have been recognized in the financial statements. The provisions of SFAS No. 141 apply to all business combinations initiated after June 30, 2001. In accordance with SFAS No. 142, intangible assets, including purchased goodwill, must be evaluated for impairment. Those intangible assets that will continue to be classified as goodwill or as other intangibles with indefinite lives are no longer amortized.
In accordance with SFAS No. 142, the Company completed its transitional impairment testing of intangible assets during the first quarter of fiscal 2002. That effort, and preliminary assessments of the Company's identifiable intangible assets, indicated that little or no adjustment would be required upon adoption of this pronouncement. The impairment testing is performed in two steps: (i) the Company determines impairment by comparing the fair value of a reporting unit with its carrying value, and (ii) if there is an impairment, the Company measures the amount of impairment loss by comparing the implied fair value of goodwill with the carrying amount of that goodwill. Subsequent to the first quarter of fiscal 2002, with the assistance of a third-party valuation firm, the Company finalized the testing of goodwill. Using conservative, but realistic, assumptions to model the Company's jane business, the Company determined that the carrying value of this unit was slightly greater than the derived fair value, indicating an impairment in the recorded goodwill. To determine fair value, the Company relied on three valuation models: guideline public companies, acquisition analysis and discounted cash flow. For goodwill valuation purposes only, the revised fair value of this unit was allocated to the assets and liabilities of the business unit to arrive at an implied fair value of goodwill, based upon known facts and circumstances, as if the acquisition occurred currently. This allocation resulted in a write-down of recorded goodwill in the amount of $20.6 million, which has been reported as the cumulative effect of a change in accounting principle, as of July 1, 2001, in the accompanying consolidated statements of earnings. On a product category basis, this write-down would have primarily impacted the Company's makeup category.
During fiscal 2002, the Company recorded a goodwill impairment charge related to its Gloss.com business as a component of its restructuring expense (see Note 5).
THE ESTEE LAUDER COMPANIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table presents adjusted net earnings and earnings per share data restated to include the retroactive impact of the adoption of SFAS No. 142.
YEAR ENDED JUNE 30
------------------------------
2003 2002 2001
------- ------- -------
(IN MILLIONS, EXCEPT PER SHARE DATA)
Reported Net Earnings before Accounting Change ...................... $ 319.8 $ 212.5 $ 307.4
Cumulative effect of a change in accounting principle, net of tax -- (20.6) (2.2)
------- ------- -------
Net Earnings .................................................... 319.8 191.9 305.2
Preferred stock dividends ....................................... 23.4 23.4 23.4
------- ------- -------
Reported Net Earnings Attributable to Common Stock .................. 296.4 168.5 281.8
Add back:
Goodwill amortization, net of tax ............................... -- -- 13.4
------- ------- -------
Adjusted Net Earnings ............................................... $ 296.4 $ 168.5 $ 295.2
======= ======= =======
BASIC NET EARNINGS PER COMMON SHARE:
Reported net earnings attributable to
common stock before accounting change ........................ $ 1.27 $ .79 $ 1.19
Cumulative effect of a change in accounting principle, net of tax -- (.08) (.01)
------- ------- -------
Net earnings attributable to common stock ....................... 1.27 .71 1.18
Goodwill amortization, net of tax ............................... -- -- .06
------- ------- -------
Adjusted net earnings attributable to common stock .............. $ 1.27 $ .71 $ 1.24
======= ======= =======
DILUTED NET EARNINGS PER COMMON SHARE:
Reported net earnings attributable to
common stock before accounting change ........................ $ 1.26 $ .78 $ 1.17
Cumulative effect of a change in accounting principle, net of tax -- (.08) (.01)
------- ------- -------
Net earnings attributable to common stock ....................... 1.26 .70 1.16
Goodwill amortization, net of tax ............................... -- -- .06
------- ------- -------
Adjusted net earnings attributable to common stock .............. $ 1.26 $ .70 $ 1.22
======= ======= =======
Weighted average common shares outstanding:
Basic ........................................................... 232.6 238.2 238.4
Diluted ......................................................... 234.7 241.1 242.2
|
THE ESTEE LAUDER COMPANIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
GOODWILL
The change in the carrying amount of goodwill is as follows:
YEAR ENDED JUNE 30
---------------------
2003 2002
------ ------
(IN MILLIONS)
Net beginning balance..................................................... $675.6 $699.7
Goodwill impairment loss upon adoption of new accounting principle..... -- (20.6)
Restructuring write-off of Gloss.com acquisition goodwill.............. -- (20.1)
Goodwill acquired during the period.................................... 19.7 16.6
------ ------
Net ending balance ....................................................... $695.3 $675.6
====== ======
|
OTHER INTANGIBLE ASSETS
Other intangible assets consist of the following:
JUNE 30, 2003
--------------------------------------------
GROSS CARRYING ACCUMULATED TOTAL NET
VALUE AMORTIZATION BOOK VALUE
-------------- ------------ ----------
(IN MILLIONS)
License agreements............ $ 32.4 $ 7.9 $ 24.5
Trademarks and other.......... 46.7 6.7 39.9
Patents....................... 1.6 0.6 1.0
-------- ------- --------
Total......................... $ 80.7 $ 15.3 $ 65.4
======== ======= ========
JUNE 30, 2002
--------------------------------------------
GROSS CARRYING ACCUMULATED TOTAL NET
VALUE AMORTIZATION BOOK VALUE
-------------- ------------ ----------
(IN MILLIONS)
License agreements............ $ 15.0 $ 6.2 $ 8.8
Trademarks and other.......... 15.2 6.7 8.5
Patents....................... 1.6 0.5 1.1
-------- ------- --------
Total......................... $ 31.8 $ 13.4 $ 18.4
======== ======= ========
|
Pursuant to the adoption of SFAS No. 142 and effective July 1, 2001, trademarks have been classified as indefinite lived assets and are no longer amortized, and are evaluated periodically for impairment. The cost of other intangible assets is amortized on a straight-line basis over their estimated useful lives. The aggregate amortization expenses related to amortizable intangible assets for the years ended June 30, 2003, 2002 and 2001 were $1.9 million, $1.5 million and $9.6 million, respectively.
LONG-LIVED ASSETS
In accordance with SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets in question may not be recoverable. An impairment would be recorded in circumstances where undiscounted cash flows expected to be generated by an asset are less than the carrying value of that asset.
THE ESTEE LAUDER COMPANIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ACCUMULATED OTHER COMPREHENSIVE INCOME
The components of accumulated other comprehensive income (loss) ("OCI") included in the accompanying consolidated balance sheets consist of the following:
YEAR ENDED JUNE 30
---------------------------
2003 2002 2001
------ ------ ------
(IN MILLIONS)
Net unrealized investment gains (losses), beginning of year $ (0.1) $ 2.9 $ 13.9
Unrealized investment gains (losses) ....................... 1.4 (5.0) (18.3)
Provision for deferred income taxes ........................ (0.6) 2.0 7.3
------ ------ ------
Net unrealized investment gains (losses), end of year ...... 0.7 (0.1) 2.9
------ ------ ------
Net derivative instruments, beginning of year .............. (9.1) (2.0) --
Gain (loss) on derivative instruments ...................... (1.6) (16.1) 8.8
Provision for deferred income taxes ........................ 0.5 5.5 (3.1)
Reclassification to earnings during the year ............... 13.3 5.3 (12.0)
Provision for deferred income taxes on reclassification .... (4.6) (1.8) 4.3
------ ------ ------
Net derivative instruments, end of year .................... (1.5) (9.1) (2.0)
------ ------ ------
Net minimum pension liability adjustments, beginning of year (20.3) (12.4) --
Minimum pension liability adjustments ...................... (30.8) (11.6) (19.4)
Provision for deferred income taxes ........................ 10.5 3.7 7.0
------ ------ ------
Net minimum pension liability adjustments, end of year ..... (40.6) (20.3) (12.4)
------ ------ ------
Cumulative translation adjustments, beginning of year ...... (63.0) (109.0) (71.0)
Translation adjustments .................................... 51.3 46.0 (38.0)
------ ------ ------
Cumulative translation adjustments, end of year ............ (11.7) (63.0) (109.0)
------ ------ ------
Accumulated other comprehensive income (loss) .............. ($53.1) ($92.5) ($120.5)
====== ====== ======
|
Of the $1.5 million, net of tax, derivative instruments loss recorded in OCI at June 30, 2003, $3.2 million, net of tax, related to foreign currency derivatives that the Company estimates will be classified to earnings as losses during the next twelve months assuming exchange rates at the time of settlement are equal to the forward rates as of June 30, 2003. Offsetting the aforementioned was a $1.7 million, net of tax, gain relating to treasury lock agreements that expire in September 2003 which will be settled upon the issuance of new debt, if completed. Any realized gain or loss to be received or paid by the Company will be amortized in interest expense over the life of the new debt.
REVENUE RECOGNITION
Generally, revenues from merchandise sales are recorded at the time the product is shipped to the customer. The Company reports its sales levels on a net sales basis, which is computed by deducting from gross sales the amount of actual returns received and an amount established for anticipated returns. As a percent of gross sales, returns were 5.2% in fiscal 2003 and 4.9% in each of fiscal 2002 and 2001.
ADVERTISING AND PROMOTION
Costs associated with advertising are expensed during the year as incurred. Global advertising expenses, which primarily include television, radio and print media, and promotional expenses, such as products used as sales incentives, were $1,425.6 million, $1,326.2 million and $1,255.3 million in fiscal 2003, 2002 and 2001, respectively. These amounts include expenses relating to purchase with purchase and gift with purchase promotions that are reflected in net sales and cost of sales. Advertising and promotional expenses included in operating expenses were $1,227.3 million, $1,122.0 million and $1,060.8 million in fiscal 2003, 2002, and 2001, respectively.
THE ESTEE LAUDER COMPANIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
RESEARCH AND DEVELOPMENT
Research and development costs, which amounted to $60.8 million, $61.3 million and $57.3 million in fiscal 2003, 2002 and 2001, respectively, are expensed as incurred.
RELATED PARTY ROYALTIES AND TRADEMARKS
Under agreements covering the Company's purchase of trademarks for a percentage of related sales, royalty payments totaling $20.3 million, $16.5 million and $16.0 million in fiscal 2003, 2002 and 2001, respectively, have been charged to expense. Such payments were made to Mrs. Estee Lauder. During fiscal 1996, the Company purchased a stockholder's rights to receive certain U.S. royalty payments for $88.5 million, which was fully amortized by November 2000. In fiscal 2001, $6.6 million was amortized as a charge to expense.
STOCK COMPENSATION
The Company observes the provisions of SFAS No. 123, "Accounting for Stock-Based Compensation," ("SFAS No. 123") by continuing to apply the provisions of Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB No. 25").
The Company applies the intrinsic value method as outlined in APB No. 25 and related interpretations in accounting for stock options and share units granted under these programs. Under the intrinsic value method, no compensation expense is recognized if the exercise price of the Company's employee stock options equals the market price of the underlying stock on the date of the grant. Accordingly, no compensation cost has been recognized on options granted to employees. SFAS No. 123 requires that the Company provide pro forma information regarding net earnings and net earnings per common share as if compensation cost for the Company's stock option programs had been determined in accordance with the fair value method prescribed therein. The Company adopted the disclosure portion of SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure" requiring quarterly SFAS No. 123 pro forma disclosure. The following table illustrates the effect on net earnings and earnings per common share as if the fair value method had been applied to all outstanding awards in each period presented.
YEAR ENDED JUNE 30
------------------------------
2003 2002(i) 2001(ii)
------- ------- --------
(IN MILLIONS, EXCEPT PER SHARE DATA)
Net earnings attributed to common stock, as reported ..... $ 296.4 $ 168.5 $ 281.8
Deduct: Total stock-based employee compensation expense
determined under fair value method for all awards,
net of related tax effects ....................... 22.9 2.7 24.4
------- ------- -------
Pro forma net earnings, attributable to common stock ..... $ 273.5 $ 165.8 $ 257.4
======= ======= =======
EARNINGS PER COMMON SHARE:
Net earnings per common share - Basic, as reported ....... $ 1.27 $ .71 $ 1.18
======= ======= =======
Net earnings per common share - Basic, pro forma ......... $ 1.18 $ .70 $ 1.08
======= ======= =======
Net earnings per common share - Diluted, as reported ..... $ 1.26 $ .70 $ 1.16
======= ======= =======
Net earnings per common share - Diluted, pro forma ....... $ 1.16 $ .68 $ 1.06
======= ======= =======
|
(ii) In fiscal 2001, the Company determined the pro forma charge for compensation cost assuming all options were immediately vested upon the date of grant.
THE ESTEE LAUDER COMPANIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The fair value of each option grant was estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions:
2003 2002 2001
------- ------- -------
Average expected volatility........... 31% 31% 31%
Average expected option life.......... 7 years 7 years 7 years
Average risk-free interest rate....... 4.2% 4.9% 5.9%
Average dividend yield................ .6% .5% .5%
|
CONCENTRATION OF CREDIT RISK
The Company is a worldwide manufacturer, marketer and distributor of skin care, makeup, fragrance and hair care products. Domestic and international sales are made primarily to department stores, specialty retailers, perfumeries and pharmacies. The Company grants credit to all qualified customers and does not believe it is exposed significantly to any undue concentration of credit risk.
For the fiscal years ended June 30, 2003, 2002 and 2001, the Company's three largest customers accounted for an aggregate of 24%, 25% and 28%, respectively, of net sales. No single customer accounted for more than 10% of the Company's net sales during fiscal 2003 or 2002. One department store group accounted for 11% of the Company's net sales in the fiscal year ended June 30, 2001. In the same year, another department store group accounted for 10% of the Company's net sales.
Additionally, as of June 30, 2003 and 2002, the Company's three largest customers accounted for an aggregate of 28% of its outstanding accounts receivable.
MANAGEMENT ESTIMATES
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses reported in those financial statements. Actual results could differ from those estimates and assumptions.
DERIVATIVE FINANCIAL INSTRUMENTS
Effective July 1, 2000, the Company adopted SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended by SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities." These statements established accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. SFAS No. 133, as amended, requires the recognition of all derivative instruments as either assets or liabilities in the statement of financial position measured at fair value.
In accordance with the provisions of SFAS No. 133, as amended, the Company recorded a non-cash charge to earnings of $2.2 million, after tax, to reflect the change in time-value from the dates of the derivative instruments' inception through the date of transition (July 1, 2000). This charge is reflected as the cumulative effect of a change in accounting principle in fiscal 2001 in the accompanying consolidated statements of earnings.
THE ESTEE LAUDER COMPANIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
RECENTLY ISSUED ACCOUNTING STANDARDS
In May 2003, the Financial Accounting Standards Board ("FASB") issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity" ("SFAS No. 150"). SFAS No. 150 established standards for classifying and measuring certain financial instruments with characteristics of both liabilities and equity. It specifically requires that mandatorily redeemable instruments, instruments with repurchase obligations which embody, are indexed to, or obligate the repurchase of, the issuer's own equity shares, and instruments with obligations to issue a variable number of the issuer's own equity shares, be classified as a liability. Initial and subsequent measurements of the instruments differ based on the characteristics of each instrument and as provided for in the statement. SFAS No. 150 is effective for all freestanding financial instruments entered into or modified after May 31, 2003 and otherwise became effective at the beginning of the first interim period beginning after June 15, 2003. The Company has adopted this statement effective for all instruments entered into or modified after May 31, 2003 and will adopt the statement for any existing financial instruments in the first quarter of fiscal 2004. Based on the provisions of this statement, beginning in fiscal 2004, the Company will be classifying the $6.50 Cumulative Redeemable Preferred Stock as a liability and the related dividends will be characterized as interest expense. Restatement of financial statements for earlier years presented is not permitted. The adoption of this statement will result in the inclusion of the dividends on the preferred stock (equal to $23.4 million per year) as interest expense. While the inclusion will impact net earnings, net earnings attributable to common stock and earnings per common share will be unaffected. Given that the dividends are not deductible for income tax purposes, the inclusion of the preferred stock dividends as interest expense will cause an increase in the Company's effective tax rate. The adoption of SFAS No. 150 will have no impact on the Company's financial condition.
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure" ("SFAS No. 148"). SFAS No. 148 provides alternative methods of transition for a voluntary change to the fair value method of accounting for stock-based employee compensation as originally defined by SFAS No. 123. Additionally, SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to require prominent disclosure in both the annual and interim financial statements about the method of accounting for stock-based compensation and the effect of the method used on reported results. The transitional requirements of SFAS No. 148 are effective for all financial statements for fiscal years ending after December 15, 2002. The Company adopted the disclosure portion of this statement for the fiscal quarter ended March 31, 2003. The application of the disclosure portion of this standard has no impact on the Company's consolidated financial position or results of operations. The FASB recently indicated that it will require stock-based employee compensation to be recorded as a charge to earnings pursuant to a standard on which it is currently deliberating. The FASB anticipates issuing an Exposure Draft in the fourth quarter of 2003 and a final statement in the second quarter of 2004. The Company will continue to monitor the FASB's progress on the issuance of this standard as well as evaluate its position with respect to current guidance.
NOTE 3 -- PUBLIC OFFERINGS
During October 2001, a member of the Lauder family sold 5,000,000 shares of Class A Common Stock in a registered public offering. The Company did not receive any proceeds from the sale of these shares.
NOTE 4 -- ACQUISITION OF BUSINESSES AND LICENSE ARRANGEMENTS
On April 30, 2003, the Company completed the acquisition of the Paris-based Darphin group of companies that develops, manufactures and markets the "Darphin" brand of skin care and makeup products. The initial purchase price, paid at closing, was funded by cash provided by operations, the payment of which did not have a material effect on the Company's results of operations or financial condition. An additional payment is expected to be made in fiscal 2009, the amount of which will depend on future net sales and earnings of the Darphin business.
At various times during fiscal 2003, 2002 and 2001, the Company acquired businesses engaged in the wholesale distribution and retail sale of Aveda products, as well as other products, in the United States and other countries. In fiscal 2002, the Company purchased an Aveda wholesale distributor business in Korea and acquired the minority interest of its Aveda joint venture in the United Kingdom.
THE ESTEE LAUDER COMPANIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In fiscal 2001, the Company purchased a wholesale distributor business in Israel, a majority interest of the wholesale distributor business in Chile and created a joint venture in Greece in which the Company owns a controlling majority interest. In fiscal 2002, the Company acquired the remaining minority interest of its joint venture in Chile.
The aggregate purchase price for these transactions, which includes acquisition costs, was $50.4 million, $18.5 million, and $16.0 million in fiscal 2003, 2002 and 2001, respectively, and each transaction was accounted for using the purchase method of accounting. Accordingly, the results of operations for each of the acquired businesses are included in the accompanying consolidated financial statements commencing with its date of original acquisition. Pro forma results of operations, as if each of such businesses had been acquired as of the beginning of the year of acquisition, have not been presented, as the impact on the Company's consolidated financial results would not have been material.
Subsequent to year-end, the Company acquired the Rodan & Fields skin care line (see Note 20).
In May 2003, the Company entered into a license agreement for fragrances and beauty products under the "Michael Kors" trademarks with Michael Kors L.L.C. and purchased certain related rights and inventory from American Designer Fragrances, a division of LVMH.
NOTE 5 -- RESTRUCTURING AND SPECIAL CHARGES
During the fourth quarter of fiscal 2003, the Company recorded a special pre-tax charge of $22.0 million, or $13.5 million after-tax, equal to $.06 per diluted common share, in connection with the proposed settlement of a legal proceeding brought against a number of defendants including the Company (see Note 15). The amount of the charge in this case is significantly larger than similar charges the Company has incurred individually or in the aggregate for legal proceedings in any prior year.
During the fourth quarter of fiscal 2002, the Company recorded a restructuring charge related to repositioning certain businesses as part of its ongoing efforts to drive long-term growth and increase profitability. The restructuring focused on cost reduction opportunities related to the Internet, supply chain, globalization of the organization and distribution channel refinements. The Company committed to a defined plan of action, which resulted in an aggregate pre-tax charge of $117.4 million, of which $59.4 million is cash related. On an after-tax basis, the aggregate charge was $76.9 million, equal to $.32 per diluted share.
Specifically, the charge includes the following:
o INTERNET. In an effort to achieve strategic objectives, reduce costs and improve profitability, the Company outsourced Gloss.com platform development and maintenance efforts to a third-party provider. Additionally, Gloss.com closed its San Francisco facility and consolidated its operations in New York. As a result, included in the charge is a $23.9 million provision for restructuring the Gloss.com operations, including benefits and severance packages for 36 employees as well as asset write-offs. The Company also took a $20.1 million charge to write-off the related Gloss.com acquisition goodwill.
o SUPPLY CHAIN. Building on previously announced supply chain initiatives, the Company restructured certain manufacturing, distribution, research and development, information systems and quality assurance operations in the United States, Canada and Europe, which included benefits and severance packages for 110 employees. A charge of $23.7 million was recorded related to this effort.
o GLOBALIZATION OF ORGANIZATION. The Company continued to implement its transition, announced in fiscal 2001, to a global brand structure designed to streamline the decision making process and increase innovation and speed-to-market. The next phase of this transition entailed eliminating duplicate functions and responsibilities, which resulted in charges for benefits and severance for 122 employees. The Company recorded a charge of $27.1 million associated with these efforts.
THE ESTEE LAUDER COMPANIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
o DISTRIBUTION. The Company evaluated areas of distribution relative to its financial targets and decided to focus its resources on the most productive sales channels and markets. As a result, the Company closed its operations in Argentina and the remaining customers are being serviced by the Company's Chilean affiliate. The Company began closing all remaining in-store "tommy shops" and other select points of distribution. The Company recorded a $22.6 million provision related to these actions, which included benefits and severance for 85 employees.
Following is a summary of the charges as recorded in the consolidated statement of earnings for fiscal 2002:
RESTRUCTURING
------------------------------
NET COST OF OPERATING
SALES SALES EXPENSES TOTAL
------ ------- --------- ------
(IN MILLIONS)
Internet .................... $ -- $ -- $ 44.0 $ 44.0
Supply chain ................ -- -- 23.7 23.7
Globalization of organization -- -- 27.1 27.1
Distribution ................ 6.2 0.8 15.6 22.6
------ ------ ------ ------
TOTAL CHARGE ................ $ 6.2 $ 0.8 $110.4 117.4
====== ====== ======
Tax effect .................. (40.5)
------
NET CHARGE .................. $ 76.9
======
|
The restructuring charge was recorded in other accrued liabilities or, where applicable, as a reduction of the related asset. During fiscal 2003 and 2002, $32.2 million and $9.3 million, respectively, related to this restructuring was paid. As of June 30, 2003 and 2002, the restructuring accrual balance was $21.9 million and $54.1 million, respectively, and the Company expects to settle a majority of the remaining obligations by the end of fiscal 2004 with certain additional payments made ratably through fiscal 2006.
During the fourth quarter of fiscal 2001, the Company recorded one-time charges for restructuring and special charges related to repositioning certain businesses as part of the Company's ongoing efforts to drive long-term growth and increase profitability. The restructuring and special charges focused on four areas: product fixtures for the jane brand; in-store "tommy shops"; information systems and other assets; and global brand reorganization. The Company committed to a defined plan of action, which resulted in an aggregate pre-tax charge of $63.0 million, of which $35.9 million is cash related. On an after-tax basis, the aggregate charge was $40.3 million, equal to $.17 per diluted share.
Specifically, the charge included the following:
o jane. jane switched from its traditional wall displays to a carded program. The charge included a $16.1 million write-down of existing jane product fixtures and the return of uncarded product from virtually all of the distribution outlets in the United States.
o "tommy shops". The Company restructured the in-store "tommy shops" to focus on the most productive locations and decided to close certain shops that underperformed relative to expectations. As a result, the Company recorded a $6.3 million provision for the closing of 86 under-performing in-store tommy's shops, located in the United States, and for related product returns.
o INFORMATION SYSTEMS AND OTHER ASSETS. In response to changing technology and the Company's new strategic direction, the charge included a $16.2 million provision for costs associated with the reevaluation of supply chain systems that the Company no longer utilized and with the elimination of unproductive assets related to the change to standard financial systems.
o GLOBAL BRAND REORGANIZATION. The Company recorded $20.8 million related to benefits and severance packages for 75 management employees who were affected by the reconfiguration to a global brand structure and another $3.6 million related to infrastructure costs.
THE ESTEE LAUDER COMPANIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Following is a summary of the charges as recorded in the consolidated statement of earnings for fiscal 2001:
RESTRUCTURING
-----------------------------
NET COST OF OPERATING SPECIAL
SALES SALES EXPENSES CHARGES TOTAL
----- ------- --------- ------- -----
(IN MILLIONS)
jane ............................... $ 5.7 $ 1.5 $ 4.8 $ 4.1 $16.1
"tommy shops" ...................... 2.3 (0.4) 4.4 -- 6.3
Information systems and other assets -- -- 4.6 11.6 16.2
Global brand reorganization ........ -- -- 23.8 0.6 24.4
----- ----- ----- ----- -----
TOTAL CHARGE ....................... $ 8.0 $ 1.1 $37.6 $16.3 63.0
===== ===== ===== =====
Tax effect ......................... (22.7)
-----
NET CHARGE ......................... $40.3
=====
|
The restructuring charge was recorded in other accrued liabilities or as a reduction of fixed assets. During fiscal 2003, 2002 and 2001, $4.7 million, $26.7 million and $0.7 million, respectively, was paid. As of June 30, 2003 and 2002, the remaining obligation was $2.6 million and $7.1 million, respectively, with remaining payments expected to be made ratably through fiscal 2004.
NOTE 6 -- INCOME TAXES
The provision for income taxes is comprised of the following:
2003 2002 2001
------ ------ ------
(IN MILLIONS)
Current:
Federal .......................... $ 34.8 $ 38.3 $ 72.3
Foreign .......................... 84.0 92.2 89.3
State and local .................. 5.2 6.5 7.7
------ ------ ------
124.0 137.0 169.3
------ ------ ------
Deferred:
Federal .......................... 33.5 (13.2) 3.7
Foreign .......................... 1.9 (8.9) 0.5
State and local .................. 1.1 (0.5) 0.5
------ ------ ------
36.5 (22.6) 4.7
------ ------ ------
$160.5 $114.4 $174.0
====== ====== ======
|
THE ESTEE LAUDER COMPANIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A reconciliation between the provision for income taxes computed by applying the statutory Federal income tax rate to earnings before income taxes and minority interest and the actual provision for income taxes is as follows:
2003 2002 2001
------ ------ ------
(IN MILLIONS)
Provision for income taxes at statutory rate $170.4 $116.1 $169.2
Increase (decrease) due to:
State and local income taxes, net of
Federal tax benefit .................. 4.1 3.9 5.3
Effect of foreign operations ........... (1.0) (0.9) (2.9)
Domestic royalty expense not
deductible for U.S. tax purposes ..... -- -- 1.6
Other nondeductible expenses ........... 1.7 3.2 3.8
Tax credits ............................ (12.5) (2.1) --
Other, net ............................. (2.2) (5.8) (3.0)
------ ------ ------
Provision for income taxes ................. $160.5 $114.4 $174.0
====== ====== ======
Effective tax rate ......................... 33.0% 34.5% 36.0%
====== ====== ======
|
Significant components of the Company's deferred income tax assets and liabilities as of June 30, 2003 and 2002 were as follows:
2003 2002
------ ------
(IN MILLIONS)
Deferred tax assets:
Deferred compensation and other payroll related expenses ... $ 55.4 $ 53.3
Inventory obsolescence and other inventory related reserves 55.9 58.5
Pension plan reserves ...................................... 7.1 26.2
Postretirement benefit obligations ......................... 22.9 25.9
Various accruals not currently deductible .................. 76.4 72.0
Net operating loss and credit carryforwards ................ 16.3 1.5
Other differences between tax and financial statement values 8.0 9.4
------ ------
242.0 246.8
Valuation allowance for deferred tax assets ................ (2.9) (1.5)
------ ------
Total deferred tax assets ............................... 239.1 245.3
------ ------
Deferred tax liabilities:
Depreciation and amortization .............................. (84.0) (60.2)
Other differences between tax and financial statement values (0.4) --
------ ------
Total deferred tax liabilities .......................... (84.4) (60.2)
------ ------
Total net deferred tax assets ........................ $154.7 $185.1
====== ======
|
As of June 30, 2003 and 2002, the Company had current net deferred tax assets of $116.0 million and $112.4 million, respectively, which are included in prepaid expenses and other current assets in the accompanying consolidated balance sheets, and noncurrent net deferred tax assets of $38.7 million and $72.7 million, respectively.
Federal income and foreign withholding taxes have not been provided on $476.6 million, $473.5 million and $476.4 million of undistributed earnings of international subsidiaries at June 30, 2003, 2002 and 2001, respectively. The Company intends to permanently reinvest these earnings in its foreign operations, except where it is able to repatriate these earnings to the United States without any material incremental tax provision.
THE ESTEE LAUDER COMPANIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of June 30, 2003 and 2002, certain international subsidiaries had tax loss carryforwards for local tax purposes of approximately $14.7 million and $10.2 million, respectively. With the exception of $3.9 million of losses with an indefinite carryforward period as of June 30, 2003, these losses expire at various dates through fiscal 2008. Deferred tax assets in the amount of $2.9 million and $1.5 million as of June 30, 2003 and 2002, respectively, have been recorded to reflect the tax benefits of the losses not utilized to date. A full valuation allowance has been provided since, in the opinion of management, it is more likely than not that the deferred tax assets will not be realized.
Earnings before income taxes and minority interest include amounts contributed by the Company's international operations of $393.1 million, $283.4 million and $307.2 million for fiscal 2003, 2002 and 2001, respectively. Some of these earnings are taxed in the United States.
NOTE 7 -- OTHER ACCRUED LIABILITIES
Other accrued liabilities consist of the following:
2003 2002
------ ------
(IN MILLIONS)
Advertising and promotional accruals ......... $266.2 $213.5
Employee compensation ........................ 195.9 169.9
Restructuring and special charges ............ 46.5 61.2
Other ........................................ 195.4 182.0
------ ------
$704.0 $626.6
====== ======
|
NOTE 8 -- DEBT
The Company's short-term and long-term debt and available financing consist of the following:
DEBT AT AVAILABLE FINANCING AT
JUNE 30 JUNE 30
------------------- ------------------------------------------
COMMITTED UNCOMMITTED
------------------ --------------------
2003 2002 2003 2002 2003 2002
-------- -------- -------- -------- -------- --------
(IN MILLIONS)
Commercial paper with an average
interest rate of 1.81% in fiscal 2002 ... $ -- $ 130.0 $ -- $ -- $ 750.0 $ 620.0
6% Senior Notes, due January 15, 2012 .... 257.1 248.9 -- -- -- --
2% Japan loan payable, due in installments
through April 2003 ...................... -- 5.8 -- -- -- --
1.45% Japan loan payable, due on
March 28, 2006 .......................... 25.2 25.0 -- -- -- --
Other long-term borrowings ............... 1.3 -- -- -- -- --
Other short-term borrowings .............. 7.8 0.8 -- -- 156.6 22.9
Revolving credit facility ................ -- -- 400.0 400.0 -- --
Shelf registration for debt securities ... -- -- -- -- 500.0 150.0
-------- -------- -------- -------- -------- --------
291.4 410.5 $ 400.0 $ 400.0 $1,406.6 $ 792.9
======== ======== ======== ========
Less current maturities .................. (7.8) (6.6)
-------- --------
$ 283.6 $ 403.9
======== ========
|
Historically, outstanding commercial paper had been classified as long-term debt based upon the Company's intent and ability to refinance maturing commercial paper on a long-term basis. It is the Company's policy to maintain backup facilities to support the commercial paper program and its classification as long-term debt. During fiscal 2003, the Company repaid all of its outstanding commercial paper obligations.
THE ESTEE LAUDER COMPANIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of June 30 2003, the Company had outstanding $257.1 million of 6% Senior Notes due January 2012 ("6% Senior Notes") consisting of $250.0 million principal, an unamortized debt discount of $1.0 million, and an $8.1 million adjustment to reflect the fair value of an outstanding interest rate swap. The 6% Senior Notes, when issued in January 2002, were priced at 99.538% with a yield of 6.062%. Interest payments are required to be made semi-annually on January 15 and July 15 of each year. In May 2003, the Company entered into an interest rate swap agreement with a notional amount of $250.0 million to effectively convert the fixed rate interest on our outstanding 6% Senior Notes to variable interest rates based on LIBOR.
During fiscal 1998, the Company entered into a 2% loan payable in Japan. Principal repayments of 350.0 million yen, approximately $2.9 million at current rates, were made semi-annually through 2003. As of June 30, 2003, this loan had been repaid.
As of June 30, 2003, other long-term borrowings consisted primarily of several term loans held by the Darphin group of companies, which was acquired by the Company in April 2003 (see Note 4). These loans have various maturities through July 2007 with variable and fixed interest rates ranging from 2.5% to 5.8%.
The Company maintains uncommitted credit facilities in various regions throughout the world. Interest rate terms for these facilities vary by region and reflect prevailing market rates for companies with strong credit ratings. During fiscal 2003 and 2002, the monthly average amount outstanding was approximately $1.4 million and $12.9 million, respectively, and the annualized monthly weighted average interest rate incurred was approximately 5.4% and 4.1%, respectively.
Effective June 28, 2001, the Company entered into a five-year $400.0 million revolving credit facility, expiring on June 28, 2006, which includes an annual fee of .07% on the total commitment. At June 30, 2003 and 2002, the Company was in compliance with all related financial and other restrictive covenants, including limitations on indebtedness and liens.
The Company also had an effective shelf registration statement covering the potential issuance of up to $500.0 million and $150.0 million in debt securities at June 30, 2003 and 2002, respectively.
NOTE 9 -- FINANCIAL INSTRUMENTS
DERIVATIVE FINANCIAL INSTRUMENTS
The company addresses certain financial exposures through a controlled program of risk management that includes the use of derivative financial instruments. The Company primarily enters into foreign currency forward exchange contracts and foreign currency options to reduce the effects of fluctuating foreign currency exchange rates. The Company, if necessary, enters into interest rate derivatives to manage the effects of interest rate movements on the Company's aggregate liability portfolio. The Company categorizes these instruments as entered into for purposes other than trading.
THE ESTEE LAUDER COMPANIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
All derivatives are recognized on the balance sheet at their fair value. On the date the derivative contract is entered into, the Company designates the derivative as (i) a hedge of the fair value of a recognized asset or liability or of an unrecognized firm commitment ("fair value" hedge), (ii) a hedge of a forecasted transaction or of the variability of cash flows to be received or paid related to a recognized asset or liability ("cash flow" hedge), (iii) a foreign-currency fair-value or cash-flow hedge ("foreign currency" hedge), (iv) a hedge of a net investment in a foreign operation, or (v) other. Changes in the fair value of a derivative that is highly effective as (and that is designated and qualifies as) a fair-value hedge, along with the loss or gain on the hedged asset or liability that is attributable to the hedged risk (including losses or gains on firm commitments), are recorded in current-period earnings. Changes in the fair value of a derivative that is highly effective as (and that is designated and qualifies as) a cash-flow hedge are recorded in other comprehensive income, until earnings are affected by the variability of cash flows (e.g., when periodic settlements on a variable-rate asset or liability are recorded in earnings). Changes in the fair value of derivatives that are highly effective as (and that are designated and qualify as) foreign-currency hedges are recorded in either current-period earnings or other comprehensive income, depending on whether the hedge transaction is a fair-value hedge (e.g., a hedge of a firm commitment that is to be settled in a foreign currency) or a cash-flow hedge (e.g., a foreign-currency-denominated forecasted transaction). If, however, a derivative is used as a hedge of a net investment in a foreign operation, its changes in fair value, to the extent effective as a hedge, are recorded in accumulated other comprehensive income within equity. Furthermore, changes in the fair value of other derivative instruments are reported in current-period earnings.
For each derivative contract entered into where the Company looks to obtain special hedge accounting treatment, the Company formally documents all relationships between hedging instruments and hedged items, as well as its risk-management objective and strategy for undertaking the hedge transaction. This process includes linking all derivatives that are designated as fair-value, cash-flow, or foreign-currency hedges to specific assets and liabilities on the balance sheet or to specific firm commitments or forecasted transactions. The Company also formally assesses, both at the hedge's inception and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items. If it is determined that a derivative is not highly effective, or that it has ceased to be a highly effective hedge, the Company will be required to discontinue hedge accounting with respect to that derivative prospectively.
FOREIGN EXCHANGE RISK MANAGEMENT
The Company enters into forward exchange contracts to hedge anticipated transactions as well as receivables and payables denominated in foreign currencies for periods consistent with the Company's identified exposures. The purpose of the hedging activities is to minimize the effect of foreign exchange rate movements on costs and on the cash flows that the Company receives from foreign subsidiaries. Almost all foreign currency contracts are denominated in currencies of major industrial countries and are with large financial institutions rated as strong investment grade by a major rating agency. The Company also enters into foreign currency options to hedge anticipated transactions where there is a high probability that anticipated exposures will materialize. The forward exchange contracts and foreign currency options entered into to hedge anticipated transactions have been designated as cash-flow hedges. As of June 30, 2003, these cash-flow hedges were highly effective, in all material respects.
THE ESTEE LAUDER COMPANIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As a matter of policy, the Company only enters into contracts with counterparties that have at least an "A" (or equivalent) credit rating. The counterparties to these contracts are major financial institutions. The Company does not have significant exposure to any one counterparty. Exposure to credit loss in the event of nonperformance by any of the counterparties is limited to only the recognized, but not realized, gains attributable to the contracts. Management believes risk of loss under these hedging contracts is remote and in any event would not be material to the Company's consolidated financial results. The contracts have varying maturities through the end of June 2004. Costs associated with entering into such contracts have not been material to the Company's consolidated financial results. The Company does not utilize derivative financial instruments for trading or speculative purposes. At June 30, 2003, the Company had foreign currency contracts in the form of forward exchange contracts and option contracts in the amount of $476.7 million and $57.7 million, respectively. The foreign currencies included in forward exchange contracts (notional value stated in U.S. dollars) are principally the Euro ($114.0 million), Swiss franc ($61.9 million), Japanese yen ($56.0 million), British pound ($49.8 million), Canadian dollar ($37.7 million), South Korean won ($37.6 million) and Australian dollar ($30.6 million). The foreign currencies included in the option contracts (notional value stated in U.S. dollars) are principally the Swiss franc ($21.9 million), Canadian dollar ($21.0 million) and Euro ($11.7 million). At June 30, 2002, the Company had foreign currency contracts in the form of forward exchange contracts in the amount of $227.2 million. The foreign currencies included in these contracts (notional value stated in U.S. dollars) are principally the Japanese yen ($70.7 million), Euro ($31.7 million), British pound ($26.2 million), Australian dollar ($16.0 million), Swiss franc ($11.8 million), Danish krone ($11.6 million) and Canadian dollar ($10.5 million).
INTEREST RATE RISK MANAGEMENT
The Company enters into interest rate derivative contracts to manage the exposure to fluctuations of interest rates on its funded and unfunded indebtedness, as well as cash investments, for periods consistent with the identified exposures. All interest rate derivative contracts are with large financial institutions rated as strong investment grade by a major rating agency.
In May 2003, the Company entered into an interest rate swap agreement with a notional amount of $250.0 million to effectively convert fixed interest on the existing 6% Senior Notes to a variable interest rate based on LIBOR. The interest rate swap was designated as a fair value hedge. As of June 30, 2003, the fair value hedge was highly effective, in all material respects.
Information regarding the interest rate swap is presented in the following table:
YEAR ENDED OR AT JUNE 30, 2003
----------------------------------------
WEIGHTED AVERAGE
NOTIONAL ---------------------------
(IN MILLIONS) AMOUNT PAY RATE RECEIVE RATE
--------------------------------------------------------------------------------
Interest rate swap $ 250.0 3.21% 6.00%
--------------------------------------------------------------------------------
|
Additionally, in May 2003, the Company entered into a series of treasury lock agreements on a notional amount totaling $195.0 million at a weighted average all-in rate of 4.53%. These treasury lock agreements expire in September 2003 and are used to hedge the exposure to a possible rise in interest rates prior to the anticipated issuance of new debt, if completed. The agreements will be settled upon the issuance of the new debt and any realized gain or loss to be received or paid by the Company will be amortized in interest expense over the life of new debt. The treasury lock agreements were designated as cash flow hedges. As of June 30, 2003, the cash flow hedges were highly effective, in all material respects.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value:
Cash and cash equivalents:
The carrying amount approximates fair value, primarily because of
the short maturity of cash equivalent instruments.
THE ESTEE LAUDER COMPANIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Long-term debt:
The fair value of the Company's long-term debt was estimated based on
the current rates offered to the Company for debt with the same
remaining maturities. Included in such amount, where applicable, is the
fair value of the Company's commercial paper.
Cumulative redeemable preferred stock:
The fair value of the cumulative redeemable preferred stock is
estimated utilizing a cash flow analysis at a discount rate equal to
rates available for debt with terms similar to the preferred stock.
Foreign exchange and interest rate contracts:
The fair value of forwards, swaps, options and treasury rate locks is
the estimated amount the Company would receive or pay to terminate the
agreements.
The estimated fair values of the Company's financial instruments are as follows:
JUNE 30
-------------------------------------------
2003 2002
------------------- --------------------
CARRYING FAIR CARRYING FAIR
(IN MILLIONS) AMOUNT VALUE AMOUNT VALUE
------------------------------------------------- -------- ------- -------- --------
NONDERIVATIVES
Cash and cash equivalents........................ $ 364.1 $364.1 $ 546.9 $ 546.9
Long-term debt, including current portion........ 291.4 320.9 410.5 415.6
Cumulative redeemable preferred stock............ 360.0 389.8 360.0 374.9
DERIVATIVES
Forward exchange contracts....................... (6.5) (6.5) (14.8) (14.8)
Foreign currency option contracts................ 3.6 3.6 -- --
Interest rate swap contract...................... 8.1 8.1 -- --
Treasury rate lock contracts..................... 2.6 2.6 -- --
|
NOTE 10 -- PENSION, DEFERRED COMPENSATION AND POSTRETIREMENT BENEFIT PLANS
The Company maintains pension plans covering substantially all of its full-time employees for its U.S. operations and a majority of its international operations. Several plans provide pension benefits based primarily on years of service and employees' earnings. In certain instances, the Company adjusts benefits in connection with international employee transfers.
RETIREMENT GROWTH ACCOUNT PLAN (U.S.)
The Retirement Growth Account Plan is a trust-based, noncontributory defined benefit pension plan. The Company's funding policy consists of an annual contribution at a rate that provides for future plan benefits and maintains appropriate funded percentages. Such contribution is not less than the minimum required by the Employee Retirement Income Security Act of 1974, as amended, ("ERISA") and subsequent pension legislation and is not more than the maximum amount deductible for income tax purposes.
RESTORATION PLAN (U.S.)
The Company also has an unfunded, nonqualified domestic benefit Restoration Plan to provide benefits in excess of Internal Revenue Code limitations.
INTERNATIONAL PENSION PLANS
The Company maintains International Pension Plans, the most significant of which are defined benefit pension plans. The Company's funding policies for these plans are determined by local laws and regulations.
THE ESTEE LAUDER COMPANIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
POSTRETIREMENT BENEFITS
The Company maintains a domestic contributory postretirement benefit plan which provides certain medical and dental benefits to eligible employees. Employees hired after January 1, 2002 will not be eligible for retiree medical benefits when they retire. Certain retired employees who are receiving monthly pension benefits are eligible for participation in the plan. Contributions required and benefits received by retirees and eligible family members are dependent on the age of the retiree. It is the Company's practice to fund these benefits as incurred. The cost of the Company-sponsored programs is not significant.
Certain of the Company's international subsidiaries and affiliates have postretirement plans, although most participants are covered by government-sponsored or administered programs.
The significant components of the above mentioned plans as of and for the year ended June 30 are summarized as follows:
OTHER THAN
PENSION PLANS PENSION PLANS
--------------------------------------- ----------------
U.S. INTERNATIONAL POSTRETIREMENT
----------------- ----------------- ----------------
(IN MILLIONS) 2003 2002 2003 2002 2003 2002
------ ------ ------ ------ ------ ------
CHANGE IN BENEFIT OBLIGATION:
Benefit obligation at beginning of year ............ $310.3 $280.4 $154.7 $131.5 $ 43.7 $ 43.2
Service cost .................................... 15.1 13.5 8.5 7.9 2.2 1.8
Interest cost ................................... 21.2 20.6 8.1 7.2 3.2 2.9
Plan participant contributions .................. -- -- 1.1 0.9 0.1 0.1
Actuarial loss (gain) ........................... 19.8 10.8 18.9 3.6 14.5 (1.9)
Foreign currency exchange rate impact ........... -- -- 15.0 13.8 -- --
Benefits paid ................................... (11.5) (14.9) (6.0) (10.2) (1.9) (1.9)
Plan amendments ................................. 3.8 (0.1) -- -- -- (0.5)
Settlements and curtailments .................... -- -- (9.3) -- -- --
------ ------ ------ ------ ------ ------
Benefit obligation at end of year .................. 358.7 310.3 191.0 154.7 61.8 43.7
------ ------ ------ ------ ------ ------
CHANGE IN PLAN ASSETS:
Fair value of plan assets at beginning of year ..... 201.8 179.7 116.3 104.6 -- --
Actual return on plan assets .................... 9.3 (9.5) (13.2) (0.9) -- --
Foreign currency exchange rate impact ........... -- -- 9.9 10.5 -- --
Employer contributions .......................... 77.8 46.5 16.4 11.4 1.8 1.8
Plan participant contributions .................. -- -- 1.1 0.9 0.1 0.1
Settlements and curtailments .................... -- -- (3.6) -- -- --
Benefits paid from plan assets .................. (11.5) (14.9) (6.0) (10.2) (1.9) (1.9)
------ ------ ------ ------ ------ ------
Fair value of plan assets at end of year ........... 277.4 201.8 120.9 116.3 -- --
------ ------ ------ ------ ------ ------
Funded status ...................................... (81.3) (108.5) (70.1) (38.4) (61.8) (43.7)
Unrecognized net actuarial loss (gain) ............. 128.1 104.4 73.4 37.2 6.4 (8.1)
Unrecognized prior service cost .................... 7.6 4.0 2.4 2.5 (0.2) (0.2)
Unrecognized net transition (asset) obligation ..... -- (1.5) 0.3 0.6 -- --
------ ------ ------ ------ ------ ------
Prepaid (accrued) benefit cost ..................... $ 54.4 ($ 1.6) $ 6.0 $ 1.9 ($55.6) ($52.0)
====== ====== ====== ====== ====== ======
AMOUNTS RECOGNIZED IN THE BALANCE SHEETS CONSIST OF:
Prepaid benefit cost ............................ $101.5 $ 39.5 $ 12.9 $ 10.1 $ -- $ --
Accrued benefit liability ....................... (56.4) (47.3) (60.6) (40.1) (55.6) (52.0)
Intangible asset ................................ 0.7 0.2 0.5 1.0 -- --
Minimum pension liability ....................... 8.6 6.0 53.2 30.9 -- --
------ ------ ------ ------ ------ ------
Net amount recognized ........................... $ 54.4 ($ 1.6) $ 6.0 $ 1.9 ($55.6) ($52.0)
====== ====== ====== ====== ====== ======
|
THE ESTEE LAUDER COMPANIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OTHER THAN
PENSION PLANS PENSION PLANS
------------------------------------------------------------ --------------------------
U.S. INTERNATIONAL POSTRETIREMENT
---------------------------- --------------------------- --------------------------
2003 2002 2001 2003 2002 2001 2003 2002 2001
------ ------ ------ ------ ------ ------ ------ ------ ------
WEIGHTED-AVERAGE ASSUMPTIONS
Pre-retirement discount rate . 5.75% 7.00% 7.50% 2.75- 2.75- 3.00- 5.75% 7.00% 7.50%
7.00% 7.00% 7.25%
Postretirement discount rate . 4.75% 5.75% 6.00% -- -- -- -- -- --
Expected return on assets .... 8.50% 9.00% 9.00% 4.50- 4.50- 5.00- N/A N/A N/A
8.25% 8.25% 8.50%
Rate of compensation 3.00- 4.50- 5.00- 1.75- 1.75- 2.00- N/A N/A N/A
increase .................... 9.50% 11.00% 11.50% 4.00% 4.00% 5.50%
COMPONENTS OF NET PERIODIC
BENEFIT COST (IN MILLIONS)
Service cost, net ............ $ 15.1 $ 13.5 $ 12.3 $ 8.5 $ 8.0 $ 8.0 $ 2.2 $ 1.8 $ 1.9
Interest cost ................ 21.2 20.6 19.7 8.1 7.2 6.7 3.2 2.9 3.0
Expected return on assets .... (18.3) (17.3) (16.2) (9.2) (8.3) (7.4) -- -- --
Amortization of:
Transition (asset) obligation (1.5) (1.5) (1.4) 0.3 0.2 0.2 -- -- --
Prior service cost .......... 0.2 0.4 0.4 0.2 0.2 0.2 -- -- --
Actuarial loss (gain) ....... 5.1 2.6 1.1 1.5 1.0 0.9 (0.1) (0.4) (0.2)
Settlements and curtailments -- -- -- 2.3 -- -- -- -- --
------ ------ ------ ------ ------ ------ ------ ------ ------
Net periodic benefit cost .... $ 21.8 $ 18.3 $ 15.9 $ 11.7 $ 8.3 $ 8.6 $ 5.3 $ 4.3 $ 4.7
====== ====== ====== ====== ====== ====== ====== ====== ======
|
Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. A one-percentage-point change in assumed health care cost trend rates for fiscal 2003 would have had the following effects:
ONE-PERCENTAGE-POINT ONE-PERCENTAGE-POINT
(IN MILLIONS) INCREASE DECREASE
-------------------- --------------------
Effect on total service and interest costs $0.7 ($0.6)
---- -----
Effect on postretirement benefit obligations $6.8 ($6.1)
---- -----
|
The projected benefit obligation, accumulated benefit obligation and fair value of plan assets for the Company's pension plans at June 30 are as follows:
PENSION PLANS
---------------------------------------------------------------
RETIREMENT GROWTH
ACCOUNT RESTORATION INTERNATIONAL
----------------- ---------------- -----------------
(IN MILLIONS) 2003 2002 2003 2002 2003 2002
---- ---- ---- ---- ---- ----
Projected Benefit Obligation....... $286.6 $244.7 $72.1 $65.6 $191.0 $154.7
Accumulated Benefit Obligation..... 238.7 191.5 56.4 47.3 160.7 127.9
Fair Value of Plan Assets.......... 277.4 201.8 -- -- 120.9 116.3
|
THE ESTEE LAUDER COMPANIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
International pension plans with accumulated benefit obligations in excess of the plans' assets had aggregate projected benefit obligations of $137.8 million and $113.3 million, aggregate accumulated benefit obligations of $119.1 million and $97.2 million and aggregate fair value of plan assets of $68.9 million and $66.3 million at June 30, 2003 and 2002, respectively.
401(K) SAVINGS PLAN (U.S.)
The Company's 401(k) Savings Plan ("Savings Plan") is a contributory defined contribution plan covering substantially all regular U.S. employees who have completed the hours and service requirements, as defined by the plan document. Effective January 1, 2002, regular full-time employees are eligible to participate in the Plan on the first day of the second month following their date of hire. The Savings Plan is subject to the applicable provisions of ERISA. The Company matches a portion of the participant's contributions after one year of service under a predetermined formula based on the participant's contribution level and years of service. The Company's contributions were approximately $9.1 million in fiscal 2003 and $6.7 million for the fiscal years ended June 30, 2002 and 2001. Shares of the Company's Class A Common Stock are not an investment option in the Savings Plan and the Company does not use such shares to match participants' contributions.
DEFERRED COMPENSATION
The Company accrues for deferred compensation and interest thereon and for the increase in the value of share units pursuant to agreements with certain key executives and outside directors. The amounts included in the accompanying consolidated balance sheets under these plans were $109.2 million and $95.7 million as of June 30, 2003 and 2002, respectively. The expense for fiscal 2003 was $17.4 million and for fiscal 2002 and 2001 was $11.6 million in each year.
NOTE 11 -- POSTEMPLOYMENT BENEFITS OTHER THAN TO RETIREES
The Company provides certain postemployment benefits to eligible former or inactive employees and their dependents during the period subsequent to employment but prior to retirement. These benefits include health care coverage and severance benefits. Generally, the cost of providing these benefits is accrued and any incremental benefits were not material to the Company's consolidated financial results.
NOTE 12 -- $6.50 CUMULATIVE REDEEMABLE PREFERRED STOCK, AT REDEMPTION VALUE
As of June 30, 2003, the Company's authorized capital stock included 23.6 million shares of preferred stock, par value $.01 per share, of which 3.6 million shares are outstanding and designated as $6.50 Cumulative Redeemable Preferred Stock. The outstanding preferred stock was issued in June 1995 in exchange for nonvoting common stock of the Company owned by The Estee Lauder 1994 Trust.
Holders of the $6.50 Cumulative Redeemable Preferred Stock are entitled to receive cumulative cash dividends at a rate of $6.50 per annum per share payable in quarterly installments. Such dividends have preference over all other dividends of stock issued by the Company. Shares are subject to mandatory redemption on June 30, 2005 at a redemption price of $100 per share. Following such date and so long as such mandatory redemption obligations have not been discharged in full, no dividends may be paid or declared upon the Class A or Class B Common Stock, or on any other capital stock ranking junior to or in parity with such $6.50 Cumulative Redeemable Preferred Stock and no shares of Class A or Class B Common Stock or such junior or parity stock may be redeemed or acquired for any consideration by the Company. Under certain circumstances, the Company may redeem the stock, in whole or in part, prior to the mandatory redemption date. Holders of such stock may put such shares to the Company at a price of $100 per share upon the occurrence of certain events.
The Company recorded the $6.50 Cumulative Redeemable Preferred Stock at its redemption value of $360.0 million and charged this amount, net of the par value of the shares of nonvoting common stock exchanged, to stockholders' equity in fiscal 1995.
THE ESTEE LAUDER COMPANIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13 -- COMMON STOCK
As of June 30, 2003, the Company's authorized common stock consists of 650 million shares of Class A Common Stock, par value $.01 per share, and 240 million shares of Class B Common Stock, par value $.01 per share. Class B Common Stock is convertible into Class A Common Stock, in whole or in part, at any time and from time to time at the option of the holder, on the basis of one share of Class A Common Stock for each share of Class B Common Stock converted. Holders of the Company's Class A Common Stock are entitled to one vote per share and holders of the Company's Class B Common Stock are entitled to ten votes per share.
Information about the Company's common stock outstanding is as follows:
CLASS A CLASS B
--------- ---------
(SHARES IN THOUSANDS)
BALANCE AT JUNE 30, 2000 .............. 124,181.7 113,679.3
Acquisition of treasury stock ......... (0.9) --
Conversion of Class B to Class A ...... 189.0 (189.0)
Stock option programs ................. 806.2 --
--------- ---------
BALANCE AT JUNE 30, 2001 .............. 125,176.0 113,490.3
Acquisition of treasury stock ......... (1,500.0) --
Conversion of Class B to Class A ...... 5,077.8 (5,077.8)
Stock option programs ................. 436.3 --
--------- ---------
BALANCE AT JUNE 30, 2002 .............. 129,190.1 108,412.5
Acquisition of treasury stock ......... (11,245.2) --
Conversion of Class B to Class A ...... 950.0 (950.0)
Share grants .......................... 4.0 --
Share units converted ................. 0.8 --
Stock option programs ................. 1,094.0 --
--------- ---------
BALANCE AT JUNE 30, 2003 .............. 119,993.7 107,462.5
========= =========
|
On September 18, 1998, the Company's Board of Directors authorized a share repurchase program to repurchase a total of up to 8.0 million shares of Class A Common Stock in the open market or in privately negotiated transactions, depending on market conditions and other factors. In October 2002, the Board of Directors authorized the repurchase of up to 10.0 million additional shares of Class A Common Stock increasing the total authorization under the share repurchase program to 18.0 million shares. As of June 30, 2003, approximately 13.8 million shares have been purchased under this program.
NOTE 14 -- STOCK PROGRAMS
The Company has established the Fiscal 2002 Share Incentive Plan, the Fiscal 1999 Share Incentive Plan, the Fiscal 1996 Share Incentive Plan and the Non-Employee Director Share Incentive Plan (collectively, the "Plans") and, additionally, has made available stock options and share units that were, or will be, granted pursuant to these Plans and certain employment agreements. These stock-based compensation programs are described below.
Total net compensation expense attributable to the granting of share units and the increase in value of existing share units was $1.4 million and $0.7 million in fiscal 2003 and 2001, respectively. Total net compensation income attributable to the granting of share units and the related decrease in value of existing share units was $0.2 million in fiscal 2002.
THE ESTEE LAUDER COMPANIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SHARE INCENTIVE PLANS
The Plans provide for the issuance of 30,750,000 shares to be awarded in the form of stock options, stock appreciation rights and other stock awards to key employees and stock options, stock awards and stock units to non-employee directors of the Company. As of June 30, 2003, 6,457,000 shares of Class A Common Stock were reserved and were available to be granted pursuant to the Plans. The exercise period for all stock options generally may not exceed ten years from the date of grant. Pursuant to the Plans, stock option awards in respect of 6,651,200, 2,175,300 and 2,709,500 shares were granted in fiscal 2003, 2002 and 2001, respectively, and share units in respect of 57,800, 50,000 and 43,100 shares were granted in fiscal 2003, 2002 and 2001, respectively. During 2003, approximately 800 share units were converted into shares of Class A Common Stock. During fiscal 2002, 40,700 share units were cancelled without the issuance of any shares, but the value of such units was transferred to a deferred compensation account. Generally, the stock option awards become exercisable at various times through January 2007, while the share units will be paid out in shares of Class A Common Stock at a time to be determined by the Company.
In addition to awards made by the Company, certain outstanding stock options were assumed as part of the October 1997 acquisition of Sassaby. Of the 221,200 originally issued options to acquire shares of the Company's Class A Common Stock, 14,100 were outstanding as of June 30, 2003, all of which were exercisable and will expire through May 2007.
EXECUTIVE EMPLOYMENT AGREEMENTS
The executive employment agreements provide for the issuance of 11,400,000 shares to be awarded in the form of stock options and other stock awards to certain key executives. The Company has reserved 661,600 shares of its Class A Common Stock pursuant to such agreements as of June 30, 2003. In accordance with such employment agreements approximately 1,400 share units were granted in fiscal 2003 and 900 share units were granted in fiscal 2002 and 2001. The reserve is solely for dividend equivalents on units granted pursuant to one of the agreements. Most of the stock options granted pursuant to the agreements are exercisable and expire at various times from November 2005 through July 2009. The share units will be paid out in shares of Class A Common Stock at a time to be determined by the Company, but no later than 90 days subsequent to the termination of employment of the executive.
A summary of the Company's stock option programs as of June 30, 2003, 2002 and 2001, and changes during the years then ended, is presented below:
2003 2002 2001
---------------------- ---------------------- -----------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
(SHARES IN THOUSANDS) SHARES PRICE SHARES PRICE SHARES PRICE
--------------------------------------- ---------- --------- ---------- --------- ---------- ---------
Outstanding at beginning of year....... 24,843.5 $35.10 23,393.2 $34.55 21,914.1 $33.14
Granted at fair value............... 6,651.2 32.02 2,175.3 39.07 2,709.5 42.80
Exercised........................... (1,094.0) 15.16 (435.4) 17.85 (806.0) 16.50
Cancelled or Expired................ (858.5) 43.10 (289.6) 46.38 (424.4) 48.19
--------- --------- ---------
Outstanding at end of year............. 29,542.2 34.93 24,843.5 35.10 23,393.2 34.55
========= ========= =========
Options exercisable at year-end........ 16,425.6 32.31 13,149.5 27.59 8,497.6 21.69
========= ========= =========
Weighted-average fair value of
options granted during the year..... $ 12.35 $ 16.02 $ 17.01
========= ========= =========
|
THE ESTEE LAUDER COMPANIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Summarized information about the Company's stock options outstanding and exercisable at June 30, 2003 is as follows:
OUTSTANDING EXERCISABLE
---------------------------------- -----------------------
EXERCISE AVERAGE AVERAGE AVERAGE
PRICE RANGE OPTIONS (a) LIFE (b) PRICE (c) OPTIONS (a) PRICE (c)
-------------------- ----------- -------- --------- ----------- ---------
$ 3.10 14.1 4.3 $ 3.10 14.1 $ 3.10
$13.00 to $20.813 2,668.8 2.4 13.08 2,668.8 13.08
$21.313 to $30.52 5,960.1 4.1 23.88 5,478.9 23.37
$31.875 to $47.625 14,541.2 7.6 36.14 4,371.3 37.30
$49.75 to $53.50 6,358.0 6.1 51.77 3,892.5 52.14
-------- --------
$ 3.10 to $53.50 29,542.2 34.93 16,425.6 32.31
======== ========
|
Subsequent to June 30, 2003, the Company granted options under the terms of the Plans described above to purchase an additional 2,211,200 of the Company's Class A Common Stock with an exercise price equal to fair market value on the date of grant. In addition, subsequent to June 30, 2003 the Company granted approximately 58,500 share units to a key executive pursuant to the terms of the Fiscal 2002 Share Incentive Plan.
NOTE 15 -- COMMITMENTS AND CONTINGENCIES
Total rental expense included in the accompanying consolidated statements of earnings was $147.8 million in fiscal 2003, $142.8 million in fiscal 2002 and $120.9 million in fiscal 2001. At June 30, 2003, the future minimum rental commitments under long-term operating leases are as follows:
YEAR ENDING JUNE 30 (IN MILLIONS)
-------------------
2004..................................... $ 118.5
2005..................................... 103.7
2006..................................... 74.1
2007..................................... 61.8
2008..................................... 54.7
Thereafter............................... 189.8
--------
$ 602.6
========
|
In July 2003, the Company signed a new lease for its principal offices at the same location. Rental obligations under the new lease will commence in fiscal 2005 and expire in fiscal 2020. Obligations pursuant to the lease in fiscal 2005, 2006, 2007, 2008 and thereafter are $5.9 million, $23.6 million, $23.6 million, $24.1 million and $324.2 million, respectively.
In July 2003, the U.S. Magistrate Judge appointed by the U.S. District Judge, Southern District of New York, issued his report and recommendation finding in favor of the Company and its subsidiaries with respect to, among other things, their motion for summary judgment of non-infringement in the case brought against them in August 2000 by an affiliate of Revlon, Inc. Revlon claimed, among other things, that five Estee Lauder products, two Origins foundations, a La Mer concealer and a jane foundation infringed its patent. Revlon sought, among other things, treble damages, punitive damages, equitable relief and attorneys' fees. Revlon has objected to this opinion. The Company has responded to the objection. Revlon also may appeal the decision to the Court of Appeals for the Federal Circuit.
THE ESTEE LAUDER COMPANIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In July 2003, the Company entered into a settlement agreement with the plaintiffs, the other manufacturer defendants and the department store defendants in a consolidated class action lawsuit that had been pending in the Superior Court of the State of California in Marin County since 1998. In connection with the settlement, the case has been refiled in the United States District Court for the Northern District of California on behalf of a nationwide class of consumers of prestige cosmetics in the United States. The settlement requires Court approval and, if approved by the Court, will result in the plaintiffs' claims being dismissed, with prejudice, in their entirety. There has been no finding or admission of any wrongdoing by the Company in this lawsuit. The Company entered into the settlement agreement solely to avoid protracted and costly litigation. In connection with the settlement agreement, the defendants, including the Company, will provide consumers with certain free products and pay the plaintiffs' attorneys' fees. To meet its obligations under the settlement, the Company took a special pre-tax charge of $22.0 million, or $13.5 million after-tax, equal to $.06 per diluted common share in the fourth quarter of fiscal 2003.
In 1998, the Office of the Attorney General of the State of New York (the "State") notified the Company and ten other entities that they are potentially responsible parties ("PRPs") with respect to the Blydenburgh landfill in Islip, New York. Each PRP may be jointly and severally liable for the costs of investigation and cleanup, which the State estimates to be $16 million. While the State has sued other PRPs in connection with the site, the State has not sued the Company. The Company and certain other PRPs are in discussions with the State regarding possible settlement of the matter. While no assurance can be given as to the ultimate outcome, management believes that the matter will not have a material adverse effect on the Company's consolidated financial condition.
In 1998, the State notified the Company and fifteen other entities that they are PRPs with respect to the Huntington/East Northport landfill. The cleanup costs are estimated at $20 million. No litigation has commenced. The Company and other PRPs are in discussions with the State regarding possible settlement of the matter. While no assurance can be given as to the ultimate outcome, management believes that the matter will not have a material adverse effect on the Company's consolidated financial condition.
In June 2003, a lawsuit was filed in the U.S. District Court, Eastern District of New York, on behalf of two former employees and one former temporary employee alleging race and disability discrimination, harassment and retaliation. The complaint seeks $10 million in damages for each of seven causes of action. The Company intends to defend the action vigorously. While no assurances can be given as to the ultimate outcome, management believes that this matter will not have a material adverse effect on the Company's consolidated financial condition.
The Company is involved in various routine legal proceedings incident to the ordinary course of its business. In management's opinion, the outcome of pending legal proceedings, separately and in the aggregate, will not have a material adverse effect on the Company's business or consolidated financial results.
NOTE 16 -- NET UNREALIZED INVESTMENT GAINS
Under SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities," available-for-sale securities are recorded at market value. Unrealized holding gains and losses, net of the related tax effect, on available-for-sale securities are excluded from earnings and are reported as a component of stockholders' equity until realized. The Company's investments subject to the provisions of SFAS No. 115 are treated as available-for-sale and, accordingly, the applicable investments have been adjusted to market value with a corresponding adjustment, net of tax, to net unrealized investment gains in accumulated other comprehensive income. Included in accumulated other comprehensive income was an unrealized investment gain (net of deferred taxes) of $0.7 million at June 30, 2003 and an unrealized investment loss (net of deferred taxes) of $0.1 million at June 30, 2002.
NOTE 17 -- STATEMENT OF CASH FLOWS
SUPPLEMENTAL DISCLOSURE OF SIGNIFICANT NON-CASH TRANSACTIONS
As a result of stock option exercises, the Company recorded tax benefits of $7.9 million, $2.9 million and $7.2 million during fiscal 2003, 2002 and 2001, respectively, which are included in additional paid-in capital in the accompanying consolidated financial statements.
As of June 30, 2003, the Company had a current asset and an equal and offsetting increase in long-term debt of $8.1 million reflecting the fair market value of an interest rate swap which was classified as a fair value hedge of the 6% Senior Notes (see Note 8).
THE ESTEE LAUDER COMPANIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 18 -- SEGMENT DATA AND RELATED INFORMATION
Reportable operating segments, as defined by SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information," include components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker (the "Chief Executive") in deciding how to allocate resources and in assessing performance. As a result of the similarities in the manufacturing, marketing and distribution processes for all of the Company's products, much of the information provided in the consolidated financial statements is similar to, or the same as, that reviewed on a regular basis by the Chief Executive. Although the Company operates in one business segment, beauty products, management also evaluates performance on a product category basis.
While the Company's results of operations are also reviewed on a consolidated basis, the Chief Executive reviews data segmented on a basis that facilitates comparison to industry statistics. Accordingly, net sales, depreciation and amortization, and operating income are available with respect to the manufacture and distribution of skin care, makeup, fragrance, hair care and other products. These product categories meet the Financial Accounting Standards Board's definition of operating segments and therefore, additional financial data are provided below. The "other" segment includes the sales and related results of ancillary products and services that do not fit the definition of skin care, makeup, fragrance and hair care.
The Company evaluates segment performance based upon operating income, which represents earnings before income taxes, minority interest and net interest income or expense. The accounting policies for each of the reportable segments are the same as those described in the summary of significant accounting policies, except for depreciation and amortization charges, which are allocated, primarily, based upon net sales. The assets and liabilities of the Company are managed centrally and are reported internally in the same manner as the consolidated financial statements, thus no additional information is produced for the Chief Executive or included herein.
2003 2002 2001
-------- -------- --------
(IN MILLIONS)
SEGMENT DATA
NET SALES:
Skin Care..................... $1,893.7 $1,703.3 $1,660.7
Makeup........................ 1,909.4 1,790.5 1,721.6
Fragrance..................... 1,059.6 1,017.3 1,085.1
Hair Care..................... 228.9 215.8 180.7
Other......................... 26.0 23.0 27.6
-------- -------- --------
5,117.6 4,749.9 4,675.7
Restructuring................. -- (6.2) (8.0)
-------- -------- --------
$5,117.6 $4,743.7 $4,667.7
======== ======== ========
DEPRECIATION AND AMORTIZATION:
Skin Care..................... $ 62.2 $ 58.3 $ 48.6
Makeup........................ 69.2 60.0 64.1
Fragrance..................... 35.5 36.0 32.6
Hair Care..................... 7.1 6.5 9.6
Other......................... 0.8 1.2 1.4
-------- -------- --------
$ 174.8 $ 162.0 $ 156.3
======== ======== ========
|
THE ESTEE LAUDER COMPANIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED JUNE 30
--------------------------------
2003 2002 2001
-------- -------- --------
(IN MILLIONS)
OPERATING INCOME:
Skin Care................................ $ 273.2 $ 248.4 $ 266.9
Makeup................................... 198.0 183.2 212.5
Fragrance................................ 32.1 13.4 63.6
Hair Care................................ 14.8 13.7 13.1
Other.................................... (1.0) 0.1 2.5
-------- -------- --------
517.1 458.8 558.6
Reconciliation:
Restructuring and special charges........ (22.0) (117.4) (63.0)
Interest expense, net.................... (8.1) (9.8) (12.3)
-------- -------- --------
Earnings before Income Taxes, Minority
Interest and Accounting Change......... $ 487.0 $ 331.6 $ 483.3
======== ======== ========
GEOGRAPHIC DATA
NET SALES:
The Americas............................. $2,953.4 $2,878.2 $2,857.8
Europe, the Middle East & Africa......... 1,506.4 1,261.1 1,221.8
Asia/Pacific............................. 657.8 610.6 596.1
-------- -------- --------
5,117.6 4,749.9 4,675.7
Restructuring............................ -- (6.2) (8.0)
-------- -------- --------
$5,117.6 $4,743.7 $4,667.7
======== ======== ========
OPERATING INCOME:
The Americas............................. $ 246.7 $ 222.9 $ 299.9
Europe, the Middle East & Africa......... 227.7 179.9 201.8
Asia/Pacific............................. 42.7 56.0 56.9
-------- -------- --------
517.1 458.8 558.6
Restructuring and special charges........ (22.0) (117.4) (63.0)
-------- -------- --------
$ 495.1 $ 341.4 $ 495.6
======== ======== ========
JUNE 30
--------------------------------
2003 2002 2001
-------- -------- --------
(IN MILLIONS)
Total Assets:
The Americas............................. $2,272.7 $2,467.1 $2,379.9
Europe, the Middle East & Africa......... 831.1 703.3 610.3
Asia/Pacific............................. 246.1 246.1 228.6
-------- -------- --------
$3,349.9 $3,416.5 $3,218.8
======== ======== ========
LONG-LIVED ASSETS (property, plant
and equipment):
The Americas............................. $ 446.2 $ 458.4 $ 445.2
Europe, the Middle East & Africa......... 132.2 99.6 70.5
Asia/Pacific............................. 29.3 22.7 13.0
-------- -------- --------
$ 607.7 $ 580.7 $ 528.7
======== ======== ========
|
THE ESTEE LAUDER COMPANIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 19 -- UNAUDITED QUARTERLY FINANCIAL DATA
The following summarizes the unaudited quarterly operating results of the Company for the years ended June 30, 2003 and 2002:
QUARTER ENDED
-------------------------------------------------
SEPTEMBER 30 DECEMBER 31 MARCH 31 JUNE 30 TOTAL YEAR
------------ ----------- --------- --------- ----------
(IN MILLIONS, EXCEPT PER SHARE DATA)
FISCAL 2003
Net sales ............. $ 1,242.5 $ 1,412.7 $ 1,239.4 $ 1,223.0 $ 5,117.6
Gross profit .......... 885.4 1,041.3 922.8 932.4 3,781.9
Operating income ...... 114.4 170.0 127.8 82.9 495.1
Net earnings .......... 73.4 109.6 83.8 53.0 319.8
Basic EPS ............. .29 .45 .34 .21 1.27
Diluted EPS ........... .28 .44 .33 .20 1.26
FISCAL 2002
Net sales ............. $ 1,194.8 $ 1,298.2 $ 1,121.7 $ 1,129.0 $ 4,743.7
Gross profit .......... 849.5 954.9 803.4 862.5 3,470.3
Operating income (loss) 152.9 143.5 81.1 (36.1) 341.4
Net earnings (loss) ... 97.1(a) 90.1 50.7 (25.4) 212.5(a)
Basic EPS ............. .30(a) .35 .19 (.13) .71(a)
Diluted EPS ........... .30(a) .35 .19 (.13) .70(a)
|
(a) Net earnings for the Quarter ended September 30, 2001 includes a one-time charge of $20.6 million or $.08 per common share, attributable to the cumulative effect of adopting SFAS No. 142, "Goodwill and Other Intangible Assets."
NOTE 20 -- UNAUDITED SUBSEQUENT EVENT
Pursuant to the Company's authorized share repurchase program, subsequent to June 30, 2003, the Company purchased an additional 0.4 million shares of Class A Common Stock for $12.3 million bringing the cumulative total of acquired shares to 14.2 million under this program.
Subsequent to June 30, 2003, the Company acquired the Rodan & Fields skin care line. The initial purchase price, paid at closing, was funded by cash provided by operations, the payment of which did not have a material effect on the Company's results of operations or financial condition. The Company expects to make additional payments between fiscal 2007 and 2011 based on certain conditions.
INDEPENDENT AUDITORS' REPORT ON SCHEDULE
The Board of Directors and Stockholders
The Estee Lauder Companies Inc.:
Under date of August 8, 2003, we reported on the consolidated balance sheets of The Estee Lauder Companies Inc. and subsidiaries as of June 30, 2003 and 2002, and the related consolidated statements of earnings, stockholders' equity and comprehensive income, and cash flows for the years then ended, which are included in this filing on Form 10-K. In connection with our audits of the aforementioned consolidated financial statements, we also audited the related consolidated financial statement schedule (Schedule II - Valuation and Qualifying Accounts) for 2003 and 2002 in this filing on Form 10-K. This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion on this financial statement schedule based on our audits.
In our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
/s/ KPMG LLP
New York, New York
August 8, 2003
|
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE
To The Estee Lauder Companies Inc.:
We have audited, in accordance with auditing standards generally accepted in the United States, the financial statements of The Estee Lauder Companies Inc. and subsidiaries included in this Annual Report on Form 10-K and have issued our report thereon dated August 10, 2001. Our audit was made for the purpose of forming an opinion on the basic financial statements taken as a whole. This schedule (Schedule II - Valuation and Qualifying Accounts) is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in our audits of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole.
Arthur Andersen LLP
New York, New York
August 10, 2001
This is a copy of the audit report previously issued by Arthur Andersen LLP in connection with our filing on Form 10-K for the fiscal year ended June 30, 2001. This audit report has not been reissued by Arthur Andersen LLP in connection with this filing on Form 10-K. See Exhibit 23.2 for further discussion.
THE ESTEE LAUDER COMPANIES INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
THREE YEARS ENDED JUNE 30, 2003
(IN MILLIONS)
------------------------------------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D COL. E
------------------------------------------------------------------------------------------------------------
ADDITIONS
------------------------
(1) (2)
BALANCE CHARGED TO CHARGED TO BALANCE
AT BEGINNING COSTS AND OTHER AT END OF
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
-------------------------------------- ------------ ---------- ---------- ---------- ---------
Reserves deducted in the balance sheet
from the assets to which they apply:
ALLOWANCE FOR DOUBTFUL ACCOUNTS:
Year ended June 30, 2003 $ 30.6 $ 31.5 -- $ 30.3(a) $ 31.8
====== ====== ====== ======
Year ended June 30, 2002 $ 26.8 $ 28.6 -- $ 24.8(a) $ 30.6
====== ====== ====== ======
Year ended June 30, 2001 $ 31.7 $ 20.7 -- $ 25.6(a) $ 26.8
====== ====== ====== ======
ACCRUED RESTRUCTURING AND SPECIAL CHARGES:
Year ended June 30, 2003 (b) $ 61.2 $ 22.0 -- $ 36.7 $ 46.5
====== ====== ====== ======
Year ended June 30, 2002 (b) $ 35.2 $ 62.3 -- $ 36.3 $ 61.2
====== ====== ====== ======
Year ended June 30, 2001 (b) $ -- $ 35.9 -- $ 0.7 $ 35.2
====== ====== ====== ======
|
THE ESTEE LAUDER COMPANIES INC.
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
------- -----------
3.1 Restated Certificate of Incorporation, dated November 16, 1995.
3.2 Certificate of Amendment to Restated Certificate of Incorporation
(filed as Exhibit 3.1 to our Quarterly Report on Form 10-Q for
the quarter ended December 31, 1999).*
3.3 Amended and Restated By-laws (filed as Exhibit 3.2 to our
Quarterly Report on Form 10-Q for the quarter ended December 31,
1999).*
4.1 Indenture, dated as of November 5, 1999, between the Company and
State Street Bank and Trust Company, N.A. (filed as Exhibit 4 to
Amendment No. 1 to our Registration Statement on Form S-3 (No.
333-85947) on November 5, 1999).*
4.2 Officers' Certificate, dated January 10, 2002, defining certain
terms of the 6% Senior Notes due 2012 (filed as Exhibit 4.2 to
our Quarterly Report on Form 10-Q for the quarter ended December
31, 2001(the "FY 2002 Q2 10-Q")).*
4.3 Global Note for the 6% Senior Notes due 2012 (filed as Exhibit
4.3 to the FY 2002 Q2 10-Q).*
10.1 Stockholders' Agreement, dated November 22, 1995.
10.1a Amendment No. 1 to Stockholders' Agreement (filed as Exhibit 10.1
to our Quarterly Report on Form 10-Q for the quarter ended
September 30, 1996).*
10.1b Amendment No. 2 to Stockholders' Agreement (filed as Exhibit 10.2
to our Quarterly Report on Form 10-Q for the quarter ended
December 31, 1996).*
10.1c Amendment No. 3 to Stockholders' Agreement (filed as Exhibit 10.2
to our Quarterly Report on Form 10-Q for the quarter ended March
31, 1997 (the "FY 1997 Q3 10-Q")).*
10.1d Amendment No. 4 to Stockholders' Agreement (filed as Exhibit
10.1d to our Annual Report on Form 10-K for the year ended June
30, 2000 (the "FY 2000 10-K")).*
10.1e Amendment No. 5 to Stockholders' Agreement (filed as Exhibit
10.1e to our Annual Report on Form 10-K for the year ended June
30, 2002 (the "FY 2002 10-K")).*
10.2 Registration Rights Agreement, dated November 22, 1995.
10.2a First Amendment to Registration Rights Agreement (filed as
Exhibit 10.3 to our Annual Report on Form 10-K for the fiscal
year ended June 30, 1996).*
10.2b Second Amendment to Registration Rights Agreement (filed as
Exhibit 10.1 to the FY 1997 Q3 10-Q).*
10.2c Third Amendment to Registration Rights Agreement (filed as
Exhibit 10.2c to our Annual Report on Form 10-K for the year
ended June 30, 2001 (the "FY 2001 10-K")).*
10.3 Fiscal 1996 Share Incentive Plan.+
10.4 Fiscal 1999 Share Incentive Plan (filed as Exhibit 4(c) to our
Registration Statement on Form S-8 (No. 333-66851) on November 5,
1998).* +
10.5 The Estee Lauder Companies Retirement Growth Account Plan. +
10.6 The Estee Lauder Inc. Retirement Benefits Restoration Plan (filed
as Exhibit 10.6 to our Annual Report on Form 10-K for the fiscal
year ended June 30, 1999)).* +
10.7 Executive Annual Incentive Plan (filed as Exhibit 10.2 to our
Quarterly Report on Form 10-Q for the quarter ended December 31,
1998).* +
10.8 Employment Agreement with Leonard A. Lauder (filed as Exhibit
10.8 to the FY 2001 10-K).* +
10.8a Amendment to Employment Agreement with Leonard A. Lauder (filed
as Exhibit 10.8a to the FY 2002 10-K).* +
10.8b Option Agreement, dated November 16, 1995, with Leonard A. Lauder
(Exhibit B to Mr. Lauder's 1995 employment agreement). +
10.9 Employment Agreement with Ronald S. Lauder (filed as Exhibit 10.1
to our Quarterly Report on Form 10-Q for the quarter ended
September 30, 2000).* +
|
THE ESTEE LAUDER COMPANIES INC.
INDEX TO EXHIBITS
10.9a Amendment to Employment Agreement with Ronald S. Lauder (filed as
Exhibit 10.9a to the FY 2002 10-K).* +
10.9b Option Agreement, dated November 16, 1995, with Ronald S. Lauder
(Exhibit B to Mr. Lauder's 1995 employment agreement). +
10.10 Employment Agreement with Fred H. Langhammer (filed as Exhibit
10.10 to the FY 2000 10-K).* +
10.10a Amendment to Employment Agreement with Fred H. Langhammer (filed
as Exhibit 10.10a to the FY 2001 10-K).* +
10.10b Amendment to Employment Agreement with Fred H. Langhammer (filed
as Exhibit 10.10b to the FY 2002 10-K).* +
10.10c Share unit and Option Agreement with Fred H. Langhammer. +
10.11 Employment Agreement with Daniel J. Brestle (filed as Exhibit
10.11 to the FY 2001 10-K).* +
10.11a Amendment to Employment Agreement with Daniel J. Brestle (filed
as Exhibit 10.11a to the FY 2002 10-K).* +
10.11b Option Agreement, dated November 16, 1995, with Daniel J. Brestle
(Schedule A to Mr. Brestle's 1995 employment agreement).+
10.12 Employment Agreement with William P. Lauder (filed as Exhibit
10.1 to our Quarterly Report on Form 10-Q for the quarter ended
March 31, 2003).* +
10.13 Employment Agreement with Patrick Bousquet-Chavanne (filed as
Exhibit 10.1 to our Quarterly Report on Form 10-Q for the quarter
ended September 30, 2001).* +
10.13a Amendment to Employment Agreement with Patrick Bousquet-Chavanne
(filed as Exhibit 10.13a to the FY 2002 10-K).* +
10.14 Form of Deferred Compensation Agreement (interest-based) with
Outside Directors (filed as Exhibit 10.14 to the FY 2001 10-K).*+
10.15 Form of Deferred Compensation Agreement (stock-based) with
Outside Directors (filed as Exhibit 10.15 to the FY 2001 10-K).*+
10.16 Non-Employee Director Share Incentive Plan (filed as Exhibit 4(d)
to our Registration Statement on Form S-8 (No. 333-49606) filed
on November 9, 2000).* +
10.17 Fiscal 2002 Share Incentive Plan (filed as Exhibit 4(d) to our
Registration Statement on Form S-8 (No. 333-72684) on November 1,
2001).* +
21.1 List of significant subsidiaries.
23.1 Consent of KPMG LLP.
23.2 Notice regarding consent of Arthur Andersen LLP.
24.1 Power of Attorney.
31.1 Certification pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002 (CEO).
31.2 Certification pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002 (CFO).
32.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (CEO).
(furnished)
32.2 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (CFO).
(furnished)
----------
|
* Incorporated herein by reference.
+ Exhibit is a management contract or compensatory plan or arrangement.
EXHIBIT 3.1
RESTATED CERTIFICATE OF INCORPORATION
OF
THE ESTEE LAUDER COMPANIES INC.
(Originally Incorporated December 9, 1976 under the name of
The EJL Corporation)
ARTICLE I
NAME
The name of the corporation is "The Estee Lauder Companies Inc." (the "Corporation").
ARTICLE II
OFFICE AND REGISTERED AGENT
The address of the office of the Corporation in the State of Delaware is 32 Loockerman Square, Suite L-100, in the City of Dover, County of Kent. The name of its registered agent at such address is The Prentice-Hall Corporation System, Inc.
ARTICLE III
PURPOSE
The purpose of the Corporation is to engage in, carry on and conduct any lawful act or activity for which corporations may be organized under the Delaware General Corporation Law ("DGCL").
ARTICLE IV
CAPITAL STOCK
4.1. AUTHORIZED CAPITAL STOCK. The total number of shares of stock that the Corporation shall have authority to issue is four hundred forty three million six hundred thousand (443,600,000) shares, consisting of (a) three hundred million (300,000,000) shares of Class A Common Stock, par value $.01 per share (the "Class A Common Stock"); (b) one hundred twenty million (120,000,000) shares of Class B Common Stock, par value $.01 per share (the "Class B Common Stock"); (c) twenty million (20,000,000) shares of preferred stock, par value $.01 per share (the "Preferred Stock"), issuable in one or more series as hereinafter provided; and (d) three million six
hundred thousand (3,600,000) shares of $6.50 Cumulative Redeemable Preferred Stock, par value $.01 per share (the "$6.50 Cumulative Redeemable Preferred Stock"). The Class A Common Stock and Class B Common Stock shall hereinafter collectively be called "Common Stock," and the Preferred Stock and $6.50 Cumulative Redeemable Preferred Stock shall hereinafter collectively be called "Preference Stock." The number of authorized shares of any class or classes of capital stock of the Corporation may be increased or decreased (but not below the number of shares thereof then outstanding) by the affirmative vote of the holders of a majority of the voting power of the stock of the Corporation entitled to vote generally in the election of directors irrespective of the provisions of Section 242(b)(2) of the DGCL or any corresponding provision hereinafter enacted.
4.2. TERMS OF COMMON STOCK. All shares of Class A Common Stock and Class B Common Stock will be identical and will entitle the holders thereof to the same rights and privileges, except as otherwise provided herein.
(a) VOTING RIGHTS. The holders of shares of Class A Common Stock and of Class B Common Stock shall have the following voting rights:
(i) Each share of Class A Common Stock shall entitle the holder thereof to one vote on all matters submitted to a vote of the stockholders of the Corporation.
(ii) Each share of Class B Common Stock shall entitle the holder thereof to ten votes on all matters submitted to a vote of the stockholders of the Corporation.
(iii) Except as otherwise required by applicable law, the holders of shares of Class A Common Stock and the holders of shares of Class B Common Stock shall vote together as one class on all matters submitted to a vote of stockholders of the Corporation (or, if any holders of shares of Preference Stock are entitled to vote together with the holders of Class A Common Stock and Class B Common Stock, as a single class with such holders of shares of Preference Stock).
(b) DIVIDENDS AND DISTRIBUTIONS. Subject to the preferences applicable to Preference Stock outstanding at any time, the holders of shares of Class A Common Stock and the holders of shares of Class B Common Stock shall be entitled to receive such dividends and other distributions in cash, property or shares of stock of the Corporation as may be declared thereon by the Board of Directors from time to time out of assets or funds of the Corporation legally available therefor; provided, that, subject to the provisions of this Section 4.2(b), the Corporation shall pay dividends to the holders of each class of Common Stock that are equal. In the case of dividends or other distributions payable in Class A Common Stock or Class B Common Stock, including distributions pursuant to stock splits or divisions of Class A Common Stock or Class B Common Stock which occur after the first date upon which the Corporation has issued shares of both Class A Common Stock and Class B Common Stock, only shares of Class A Common Stock shall be distributed with respect to Class A Common Stock and only
shares of Class B Common Stock shall be distributed with respect to Class B Common Stock. Whenever a dividend or distribution, including distributions pursuant to stock splits or divisions of the Class A Common Stock or Class B Common Stock, is payable in shares of Class A Common Stock or Class B Common Stock, the number of shares of each class of Common Stock payable per share of such class of Common Stock shall be equal in number. In the case of dividends or other distributions consisting of other voting securities of the Corporation, the Corporation shall declare and pay such dividends in two separate classes of such voting securities, identical in all respects, except that the voting rights of each such security paid to the holders of Class A Common Stock shall be one- tenth of the voting rights of each such security paid to the holders of Class B Common Stock, and such security paid to the holders of Class B Common Stock shall convert into the security paid to the holders of Class A Common Stock upon the same terms and conditions applicable to the Class B Common Stock. In the case of dividends or other distributions consisting of securities convertible into, or exchangeable for, voting securities of the Corporation, the Corporation shall provide that such convertible or exchangeable securities and the underlying securities be identical in all respects (including, without limitation, the conversion or exchange rate), except that the voting rights for the underlying securities of the convertible or exchangeable security paid to the holders of Class A Common Stock shall be one-tenth of the voting rights of each underlying security of the convertible or exchangeable security paid to the holders of the Class B Common Stock, and such underlying securities paid to the holders of Class B Common Stock shall convert into the underlying securities paid to the holders of Class A Common Stock upon the same terms and conditions applicable to the Class B Common Stock.
(c) TRANSFER OF CLASS B COMMON STOCK.
(i) No Class B Holder (as defined below) may voluntarily or involuntarily transfer, sell, assign, devise, distribute or bequeath any of such Class B Holder's interest in his, her or its shares of Class B Common Stock (including, without limitation, the power to vote or provide a consent with respect to his, her or its shares of Class B Common Stock by proxy or otherwise, except for proxies given to any Permitted Transferee (as defined below) of the Class B Holder or to a person designated by the Board of Directors of the Corporation who is soliciting proxies on behalf of the Corporation), and the Corporation and the transfer agent for the Class B Common Stock, if any (the "Transfer Agent"), shall not register the transfer of such shares of Class B Common Stock, whether by sale, grant or proxy, assignment, gift, devise, bequest, distribution, appointment or otherwise, except to the Corporation or a Permitted Transferee; provided, however, such restrictions on transfer shall not apply to a merger, consolidation or business combination of the Corporation with or into another corporation, whether or not the Corporation is the surviving corporation. For the purposes of this Article IV, a "Permitted Transferee" shall include only the following persons: (A) Mrs. Estee Lauder and her estate, guardian, conservator or committee; (B) each descendant of Mrs. Estee Lauder (a "Lauder Descendant") and their respective estates, guardians, conservators or committees; (C) each Family Controlled Entity; and (D) the trustees, in their respective capacities as such, of each Family Controlled Trust.
For purposes of this Article IV, the term "Family Controlled Entity" shall mean (A) any not-for-profit corporation if at least 80% of its board of directors is composed of Mrs. Estee Lauder and/or Lauder Descendants; (B) any other corporation if at least 80% of the value of its outstanding equity is owned by Permitted Transferees; (C) any partnership if at least 80% of the value of its partnership interests are owned by Permitted Transferees; and (D) any limited liability or similar company if at least 80% of the value of the company is owned by Permitted Transferees. For purposes of this Article IV, the term "Family Controlled Trust" shall mean (A) the trusts set forth on Schedule A hereto and (B) any trust the primary beneficiaries of which are Mrs. Estee Lauder, Lauder Descendants, Spouses of Lauder Descendants and/or charitable organizations (collectively, "Lauder Beneficiaries"); provided, that, if the trust is a wholly charitable trust, at least 80% of the trustees of such trust consist of Mrs. Estee Lauder and/or Lauder Descendants. For purposes of this provision, the primary beneficiaries of a trust will be deemed to be Lauder Beneficiaries if, under the maximum exercise of discretion by the trustee in favor of persons who are not Lauder Beneficiaries, the value of the interests of such persons in such trust, computed actuarially, is 20% or less. The factors and methods prescribed in section 7520 of the Internal Revenue Code of 1986, as amended, for use in ascertaining the value of certain interests shall be used in determining a beneficiary's actuarial interest in a trust for purposes of applying this provision. For purposes of this provision, the actuarial value of the interest in a trust of any person in whose favor a testamentary power of appointment may be exercised shall be deemed to be zero. For purposes of this provision, in the case of a trust created by a Lauder Descendant, the actuarial value of the interest in such trust of any person who may receive trust property only at the termination of the trust and then only in the event that, at the termination of the trust, there are no living issue of such Lauder Descendant shall be deemed to be zero. For purposes of this Article IV, the term "Spouses of Lauder Descendants" shall mean those individuals who at any time were married to any Lauder Descendant whether or not such marriage is subsequently dissolved by death, divorce, or by any other means.
(ii) Notwithstanding anything to the contrary set
forth herein, any Class B Holder may pledge such Class B Holder's shares of
Class B Common Stock to a financial institution pursuant to a bona fide pledge
of such shares as collateral security for indebtedness due to the pledgee;
provided, that, such shares shall remain subject to the provisions of this
Section 4.2(c) and may not be transferred to, or voted by, the pledgee, except
as otherwise permitted by the provisions of Section 4.2(c). In the event of
foreclosure or other similar action by the pledgee, such pledged shares of Class
B Common Stock may only be transferred to a Permitted Transferee or converted
into shares of Class A Common Stock, as the pledgee may elect.
(iii) For purposes of this Section 4.2(c):
1. the relationship of any person that is derived by or through legal adoption shall be considered a natural relationship;
2. a minor who is a descendant of Mrs. Estee Lauder and for whom shares of Class B Common Stock are held pursuant to a Uniform Gifts to Minors Act or similar law shall be considered a Class B Holder
of such shares and the custodian who is the record holder of such shares shall not be considered a Class B Holder;
3. an incompetent stockholder who is a Permitted transferee but whose shares are owned or held by a guardian or conservator shall be considered a Class B Holder of such shares and such guardian or conservator who is the holder of such shares shall not be considered a Class B Holder;
4. unless otherwise specified, the term "person" means and includes natural persons, corporations, partnerships, unincorporated associations, firms, joint ventures, trusts and all other entities; and
5. except as provided in clauses 2 and 3 above, the term "Class B Holder" shall mean in respect of any share of Class B Common Stock, the record holder of such share; provided, however, that if such record holder is a nominee, the Class B Holder shall be the first person in the chain of ownership of such share of Class B Common Stock who is not holding such share solely as a nominee.
(iv) The Corporation may, in connection with preparing a list of stockholders entitled to vote at any meeting of stockholders, or as a condition to the transfer or the registration of shares of Class B Common Stock on the Corporation's books, or at any other time, require the furnishing of such affidavits or other proof as it deems necessary to establish that a Class B Holder is a Permitted Transferee. Upon the determination by the Board of Directors of the Corporation or a committee thereof that a Class B Holder is not a Permitted Transferee, each share of Class B Common Stock held by such Class B Holder shall thereupon be converted automatically into one (1) fully paid and nonassessable share of Class A Common Stock pursuant to the procedures set forth in Section 4.2(d)(iii).
(v) Each certificate representing shares of Class B Common Stock shall be endorsed with a legend that states that shares of Class B Common Stock are not transferable other than to certain transferees and are subject to certain restrictions as set forth in this Restated Certificate of Incorporation filed by the Corporation with the Secretary of State of the State of Delaware.
(d) CONVERSION OF CLASS B COMMON STOCK.
(i) If, on the record date for any meeting of stockholders of the Corporation, the number of shares of Class B Common Stock then outstanding constitutes less than 10% of the aggregate number of shares of Common Stock then outstanding, as determined by the Board of Directors of the Corporation, each share of Class B Common Stock then issued or outstanding shall thereupon be converted automatically as of such record date into one (1) fully paid and nonassessable share of Class A Common Stock and will have one vote per share at such meeting. Upon making such determination, notice of such automatic conversion shall be given by the Corporation by means of a press release and written notice to all Class B Holders and
shall be given as soon as practicable, but no later than the next meeting of stockholders of the Corporation, and the Secretary of the Corporation shall be instructed to, and shall promptly request from each Class B Holder that each holder promptly deliver, and each holder shall promptly deliver, the certificate representing each such share of Class B Common Stock to the Corporation for exchange hereunder, together with instruments of transfer, in form satisfactory to the Corporation and Transfer Agent, duly executed by such holder or such holder's duly authorized attorney, and together with transfer tax stamps or funds therefore, if required pursuant to Section 4.2(d)(vii).
(ii) Each Class B Holder shall be entitled to convert, at any time and from time to time, any or all of the shares of such holder's Class B Common Stock, on a one-for-one basis, into the same number of fully paid and nonassessable shares of Class A Common Stock. Such right shall be exercised by the surrender of the certificate or certificates representing the shares of Class B Common Stock to be converted to the Corporation at any time during normal business hours at the principal executive offices of the Corporation or at the office of the Transfer Agent, accompanied by a written notice of the holder of such shares stating that such holder desires to convert such shares, or a stated number of the shares represented by such certificate or certificates, into an equal number of shares of the Class A Common Stock, and (if so required by the Corporation or the Transfer Agent) by instruments of transfer, in form satisfactory to the corporation and to the Transfer Agent, duly executed by such holder or such holder's duly authorized attorney, and transfer tax stamps or funds therefor, if required pursuant to Section 4.2(d)(vii).
(iii) As set forth in Section 4.2(c)(iv), upon the determination by the Board of Directors of the Corporation or a committee thereof that a Class B Holder is not a Permitted Transferee, each share of Class B Common Stock, or any beneficial interest therein, held by such Class B Holder shall thereupon be converted automatically into one (1) fully paid and nonassessable share of Class A Common Stock. A determination by the Board of Directors of the Corporation that a Class B Holder is not a Permitted Transferee and therefore a conversion is required shall be conclusive. Upon making such a determination, the Secretary of the Corporation shall be instructed to, and shall promptly request from the holder of record of each such share of Class B Common Stock that each such holder promptly deliver, and each such holder shall promptly deliver, the certificate representing each such share of Class B Common Stock to the Corporation for exchange hereunder, together with instruments of transfer, in form satisfactory to the Corporation and Transfer Agent, duly executed by such holder or such holder's duly authorized attorney, and together with transfer tax stamps or funds therefore, if required pursuant to Section 4.2(d)(vii).
(iv) As promptly as practicable following the surrender for conversion of a certificate representing shares of Class B Common Stock in the manner provided in Section 4.2(d)(i), (ii) or (iii), as applicable, and the payment in cash of any amount required by the provisions of Section 4.2(d)(vii), the Corporation will deliver or cause to be delivered at the office of the Transfer Agent, a certificate or certificates representing the number of full shares of Class A Common Stock issuable upon such conversion, issued in such name or names as such holder may direct. In the case of a conversion
under Section 4.2(d)(i), such conversion shall be deemed to have been made on the record date for such meeting of stockholders on which the condition set forth in Section 4.2(d)(i) is determined by the Board of Directors of the Corporation to have occurred. In the case of a conversion under Section 4.2(d)(ii), such conversion shall be deemed to have been effected immediately prior to the close of business on the date of the surrender of the certificate or certificates representing shares of Class B Common Stock. In the case of a conversion under Section 4.2(d)(iii), such conversion shall be deemed to have been made on the date of transfer. Upon the date any conversion under Section 4.2(d)(i) is made or effected, all rights of the holder of such shares as such holder shall cease, and the person or persons in whose name or names the certificate or certificates representing the shares of Class A Common Stock are to be issued shall be treated for all purposes as having become the record holder or holders of such shares of Class A Common Stock. Upon the date any conversion under Section 4.2(d)(ii) is made or effected, all rights of the holder of such shares as such holder shall cease, and the person or persons in whose name or names the certificate or certificates representing the shares of Class A Common Stock are to be issued shall be treated for all purposes as having become the record holder or holders of such shares of Class A Common Stock; provided, however, that if any such surrender and payment occurs on any date when the stock transfer books of the Corporation shall be closed, the person or persons in whose name or names the certificate or certificates representing shares of Class A Common Stock are to be issued shall be deemed the record holder or holders thereof for all purposes immediately prior to the close of business on the next succeeding day on which the stock transfer books are open. Upon the date any conversion under Section 4.2(d)(iii) is made, all rights of the holder of such shares as such holder shall cease, and the new owner or owners of such shares shall be treated for all purposes as having become the record holder or holders of such shares of Class A Common Stock.
(v) In the event of a reclassification or other similar transaction as a result of which the shares of Class A Common Stock are converted into another security, then a Class B Holder shall be entitled to receive upon conversion the amount of such security that such holder would have received if such conversion had occurred immediately prior to the record date of such reclassification or other similar transaction. No adjustments in respect of dividends shall be made upon the conversion of any share of Class B Common Stock; provided, however, that if a share shall be converted subsequent to the record date for the payment of a dividend or other distribution on shares of Class B Common Stock but prior to such payment, then the registered holder of such share at the close of business on such record date shall be entitled to receive the dividend or other distribution payable on such share on such date notwithstanding the conversion thereof or the Corporation's default in payment of the dividend due on such date.
(vi) The Corporation covenants that it will at all times reserve and keep available out of its authorized but unissued shares of Class A Common Stock, solely for the purpose of issuance upon conversion of the outstanding shares of Class B Common Stock, such number of shares of Class A Common Stock that shall be issuable upon the conversion of all such outstanding shares of Class B Common Stock; provided, that, nothing contained herein shall be construed to preclude the Corporation from satisfying its obligations in respect of the conversion of the outstanding shares of Class B Common
Stock by delivery of purchased shares of Class A Common Stock which are held in the treasury of the Corporation. The Corporation covenants that if any shares of Class A Common Stock required registration with or approval of any governmental authority under any federal or state law before such shares of Class A Common Stock may be issued upon conversion, the Corporation will cause such shares to be duly registered or approved, as the case may be. The Corporation will endeavor to use its best efforts to list the shares of Class A Common Stock required to be delivered upon conversion prior to such delivery upon each national securities exchange upon which the outstanding Class A Common Stock is listed at the time of such delivery. The Corporation covenants that all shares of Class A Common Stock that shall be issued upon conversion of the shares of fully paid and nonassessable Class B Common Stock will, upon issue, be fully paid and nonassessable.
(vii) The issuance of certificates for shares of Class A Common Stock upon conversion of shares of Class B Common Stock shall be made without charge to the holders of such shares for any stamp or other similar tax in respect of such issuance; provided, however, that, if any such certificate is to be issued in a name other than that of the holder of the share or shares of Class B Common Stock converted, then the person or persons requesting the issuance thereof shall pay to the Corporation the amount of any tax that may be payable in respect of any transfer involved in such issuance or shall establish to the satisfaction of the Corporation that such tax has been paid.
(viii) Shares of Class B Common Stock that are converted into shares of Class A Common Stock as provided herein shall continue to be authorized shares of Class B Common Stock and available for reissue by the Corporation; provided, however, that no shares of Class B Common Stock shall be reissued except as expressly permitted by Sections 4.2(b), 4.2(e) and 4.2(f) of this Restated Certificate of Incorporation.
(e) STOCK SPLITS. The Corporation shall not in any manner subdivide (by any stock split, stock dividend, reclassification, recapitalization or otherwise) or combine (by reverse stock split, reclassification, recapitalization or otherwise) the outstanding shares of one class of Common Stock unless the outstanding shares of all classes of Common Stock shall be proportionately subdivided or combined.
(f) OPTIONS, RIGHTS OR WARRANTS. (i) The Corporation shall not make any offering of options, rights or warrants to subscribe for shares of Class B Common Stock. The Corporation may make offerings of options, rights or warrants to subscribe for shares of any other class or classes of capital stock (other than Class B Common Stock) to all holders of Class A Common Stock or Class B Common Stock if an identical offering is made simultaneously to the holders of the other class. All such options, rights or warrants offerings shall offer the respective holders of Class A Common Stock and Class B Common Stock the right to subscribe at the same rate per share.
(ii) Subject to Sections 4.2(d)(v) and 4.2(f)(i), the Corporation shall have the power to create and issue, whether or not in connection with the issue and sale of any shares of stock or other securities of the Corporation, rights or options entitling the holders thereof to purchase from the Corporation any shares of its capital
stock of any class or classes at the time authorized (other than Class B Common Stock), such rights or options to have such terms and conditions, and to be evidenced by or in such instrument or instruments, as shall be approved by the Board of Directors.
(g) MERGERS, CONSOLIDATION, ETC. In the event that the Corporation shall enter into any consolidation, merger, combination or other transaction in which shares of Common Stock are exchanged for or changed into other stock or securities, cash and/or any other property, then, and in such event, the shares of each class of Common Stock shall be exchanged for or changed into an amount per share equal to the amount of stock, securities, cash and/or any other property, as the case may be, into which or for which each share of any other class of Common Stock is exchanged or changed; provided, however, that if shares of Class A Common Stock and Class B Common Stock are exchanged for or changed into shares of capital stock, such shares so exchanged for or changed into may differ to the extent and only to the extent that the Class A Common Stock and Class B Common Stock differ as provided herein.
(h) LIQUIDATION RIGHTS. In the event of any dissolution, liquidation or winding up of the affairs of the Corporation, whether voluntary or involuntary, after payment or provision for payment of the debts and other liabilities of the Corporation and after making provision for the holders of each series of Preference Stock, if any, the remaining assets and funds of the Corporation, if any, shall be divided among and paid ratably to the holders of the Class A Common Stock and the Class B Common Stock treated as a single class.
(i) NO PRE-EMPTIVE RIGHTS. The holders of shares of Common Stock are not entitled to any preemptive right to subscribe for, purchase or receive any part of any new or additional issue of stock of any class, whether now or hereafter authorized, or of bonds, debentures or other securities convertible into or exchangeable for stock.
4.3. PREFERRED STOCK. Shares of Preferred Stock may be issued from time to time in one or more series. The Board of Directors is authorized, by resolution adopted and filed in accordance with law, to provide for the issue of such series of shares of Preferred Stock. Each series of shares of Preferred Stock (a) may have such voting powers, full or limited, or may be without voting powers; provided, however, that, unless holders of at least seventy-five percent (75%) of the outstanding shares of Class B Common Stock have approved the issuance of such shares of Preferred Stock, the Board of Directors may not issue any shares of Preferred Stock that have the right (i) to vote for the election of directors under ordinary circumstances or (ii) under any circumstances to elect fifty percent (50%) or more of the directors of the Corporation; (b) may be subject to redemption at such time or times and at such prices; (c) may be entitled to receive dividends (which may be cumulative or non-cumulative) at such rate or rates, on such conditions and at such times, and payable in preference to, or in such relation to, the dividends payable on any other class or classes or series of stock; (d) may have such rights upon the dissolution of, or upon any distribution of the assets of, the Corporation; (e) may be made convertible into, or exchangeable for, shares of any other class or classes or of any other series of the same or any other class or classes of stock of the Corporation or such other corporation or other entity at such price or prices or at such
rates of exchange and with such adjustments; (f) may be entitled to the benefit of a sinking fund to be applied to the purchase or redemption of shares of such series in such amount or amounts; (g) may be entitled to the benefit of conditions and restrictions upon the creation of indebtedness of the Corporation or any subsidiary, upon the issue of any additional shares (including additional shares of such series or of any other series) and upon the payment of dividends or the making of other distributions on, and the purchase, redemption or other acquisition by the Corporation or any subsidiary of, any outstanding shares of the Corporation; and (h) may have such other relative, participating, optional or other special rights, qualifications, limitations or restrictions thereof, all as shall be stated in said resolution or resolutions providing for the issue of such shares of Preferred Stock. Shares of Preferred Stock of any series that have been redeemed or repurchased by the Corporation (whether through the operation of a sinking fund or otherwise) or that, if convertible or exchangeable, have been converted or exchanged in accordance with their terms shall be retired and have the status of authorized and unissued shares of Preferred Stock of the same series and may be reissued as a part of the series of which they were originally a part or may, upon the filing of an appropriate certificate with the Delaware Secretary of State, be reissued as part of a new series of shares of Preferred Stock to be created by resolution or resolutions of the Board of Directors or as part of any other series of shares of Preferred Stock, all subject to the conditions or restrictions on issuance set forth in the resolution or resolutions adopted by the Board of Directors providing for the issue of any series of shares of Preferred Stock.
4.4. $6.50 Cumulative Redeemable Preferred Stock.
(a) (i) The holders of shares of $6.50 Cumulative Redeemable Preferred Stock shall be entitled to receive, when, as and if declared by the Board of Directors out of funds of the Corporation legally available therefor, cumulative cash dividends on the shares of $6.50 Cumulative Redeemable Preferred Stock at the rate of $6.50 per annum per share, and no more, payable in equal quarterly installments on March 31, June 30, September 30, and December 31, in each year, commencing September 30, 1995. Such dividends shall accrue and be cumulative from the date of original issue of each share of $6.50 Cumulative Redeemable Preferred Stock, whether or not declared and whether or not there shall be funds legally available for the payment thereof. Each such dividend shall be paid to the holders of record of the shares of $6.50 Cumulative Redeemable Preferred Stock as they appear on the share register of the Corporation on such record date, not more than 30 calendar days nor less than 10 calendar days preceding the dividend payment date thereof, as shall be fixed by the Board of Directors or a duly authorized committee thereof. Dividends in arrears may be declared and paid at any time without reference to any regular dividend payment date.
(ii) If dividends are not paid in full, or declared in full and sums set apart for the full payment thereof, upon the shares of $6.50 Cumulative Redeemable Preferred Stock and shares of any other preferred stock ranking on a parity as to dividends and upon liquidation with the $6.50 Cumulative Redeemable Preferred Stock, all dividends declared and paid upon shares of $6.50 Cumulative Redeemable Preferred Stock and of any other preferred stock ranking on a parity as to dividends with the $6.50 Cumulative Redeemable Preferred Stock shall be declared and paid PRO RATA so that in all
cases the amount of dividends declared and paid per share on the $6.50 Cumulative Redeemable Preferred Stock and on such other shares of preferred stock shall bear to each other the same ratio that accumulated dividends per share, including dividends accrued or dividends in arrears, if any, on the shares of the $6.50 Cumulative Redeemable Preferred Stock and such other shares of preferred stock bear to each other. Except as provided in the preceding sentence, unless full cumulative dividends on the shares of the $6.50 Cumulative Redeemable Preferred Stock have been paid or declared in full and sums set aside exclusively for the payment thereof (A) no dividends (other than dividends in shares of the Common Stock (as hereinafter defined) or in shares of any other capital stock of the Corporation ranking junior to the $6.50 Cumulative Redeemable Preferred Stock as to dividends or upon liquidation) shall be paid or declared or set aside for payment or other distribution made upon the Common Stock, or any other capital stock of the Corporation ranking junior to or on a parity with the $6.50 Cumulative Redeemable Preferred Stock as to dividends or upon liquidation; (B) nor shall any shares of the Common Stock or shares of any other capital stock of the Corporation ranking junior to or on a parity with $6.50 Cumulative Redeemable Preferred Stock as to dividends or upon liquidation, or any warrants, rights, calls or options exercisable for or convertible into Common Stock or any such capital stock, be redeemed, purchased or otherwise acquired for any consideration (or any payment made to or available for a sinking fund or any similar fund for the redemption of any such shares) by the Corporation or any, direct or indirect, subsidiary of the Corporation (except in the case of clause (B) by conversion into or exchange for shares of capital stock of the Corporation ranking junior to the $6.50 Cumulative Redeemable Preferred Stock as to dividends and upon liquidation, or any warrants, rights, calls or options exercisable for or convertible into Common Stock or any such capital stock). Holders of shares of $6.50 Cumulative Redeemable Preferred Stock shall not be entitled to any dividends, whether payable in cash, property or shares of capital stock, in excess of full accrued and cumulative dividends as herein provided. No interest or sum of money in lieu of interest shall be payable in respect of any dividend payment or payments on the shares of $6.50 Cumulative Redeemable Preferred Stock that may be in arrears.
The terms "accrued dividends," "dividends accrued" and "dividends in arrears," whenever used herein with reference to shares of Preference Stock shall be deemed to mean an amount that shall be equal to dividends thereon at the annual dividend rates per share for the respective series from the date or dates on which such dividends commence to accrue to the end of the then current quarterly dividend period for such preferred stock (or, in the case of redemption, to the date of redemption), less the amount of all dividends paid, or declared in full and sums set aside for the payment thereof, upon such shares of preferred stock.
(iii) Dividends payable on shares of $6.50 Cumulative Redeemable Preferred Stock for any period less than a full quarterly dividend period shall be computed on the basis of a 360-day year of twelve 30-day months and the actual number of days elapsed in the period for which payable.
(b) (i) On June 30, 2005, to the extent a) the Corporation shall have funds legally available therefor and b) the Corporation shall not have been rendered
insolvent pursuant to the U.S. Bankruptcy Code or any successor statute, the Corporation shall redeem all remaining outstanding shares of $6.50 Cumulative Redeemable Preferred Stock, at a redemption price of $100.00 per share, together with accrued and unpaid dividends thereon to the redemption date, in cash without interest. If, for any reason, the Corporation shall fail to discharge its mandatory redemption obligations pursuant to this Section 4.4(b)(1), such mandatory redemption obligations shall be discharged as soon as the Corporation is able to discharge such obligations. If after June 30, 2005 and so long as any mandatory redemption obligations with respect to the shares of $6.50 Cumulative Redeemable Preferred Stock shall not be fully discharged, (A) no dividends (other than dividends in shares of Common Stock or in shares of any other capital stock of the Corporation ranking junior to the $6.50 Cumulative Redeemable Preferred Stock as to dividends and upon liquidation) shall be paid or declared or set aside for payment or other distribution made upon the Common Stock or any other capital stock of the Corporation ranking junior to or on a parity with the $6.50 Cumulative Redeemable Preferred Stock as to dividends or upon liquidation, and (B) no shares of the Common Stock or shares of any other capital stock of the Corporation ranking junior to or on a parity with the $6.50 Cumulative Redeemable Preferred Stock as to dividends or upon liquidation, or any warrants, rights, calls or options exercisable for or convertible into Common Stock or any such capital stock, shall be redeemed, purchased or otherwise acquired for any consideration (or any payment made to or available for a sinking or other similar fund for the redemption of any such shares) by the Corporation or any direct or indirect subsidiary of the Corporation (except by conversion into or exchange for shares of capital stock of the Corporation ranking junior to the $6.50 Cumulative Redeemable Preferred Stock as to dividends and upon liquidation).
(ii) The shares of $6.50 Cumulative Redeemable Preferred Stock shall be redeemable at the option of the Corporation, in whole or from time to time in part, at a redemption price of $100.00 per share, together with all dividends accrued and unpaid on the shares of $6.50 Cumulative Redeemable Preferred Stock up to the date fixed for redemption, upon giving notice as provided in Section 4.4(b)(iv) below; provided, however, that (A) the Corporation shall be prohibited from redeeming pursuant to this Section 4.4(b)(ii) any shares of $6.50 Cumulative Redeemable Preferred Stock beneficially owned by (1) Estee Lauder, (2) Leonard A. Lauder, Ronald S. Lauder and Ira T. Wender, as trustees (the "Trustees"), u/a/d as of June 2, 1994, as amended, between Estee Lauder, as settlor, and the Trustees and known as "The Estee Lauder 1994 Trust Agreement" (the "Trust"), or (3) the trustees, as trustees of a trust whose primary beneficiary is Leonard A. Lauder (the "LAL Trust"), in each case prior to the death of Estee Lauder, and (B) the Corporation shall be prohibited from redeeming pursuant to this Section 4.4(b)(ii) any shares of $6.50 Cumulative Redeemable Preferred Stock not beneficially owned by Estee Lauder, the Trust or the LAL Trust prior to the fifth anniversary of the date such shares were sold, transferred or otherwise disposed of by Estee Lauder, the Trust or the LAL Trust, as the case may be (provided further that the limitation in this clause (B) shall not affect the redemption provided for in Section 4.4(b)(i)).
(iii) If less than all the outstanding shares of the $6.50 Cumulative Redeemable Preferred Stock permitted to be redeemed in
accordance with Section 4.4(b)(ii) above are to be redeemed, the shares to be redeemed shall be determined PRO RATA.
(iv) At least 30 calendar days but not more than 60 calendar days prior to any date fixed for any redemption of shares of $6.50 Cumulative Redeemable Preferred Stock, a written notice shall be given to each holder of record of shares of $6.50 Cumulative Redeemable Preferred Stock to be redeemed by certified or registered mail in a postage prepaid envelope or by a nationally recognized overnight courier (appropriately marked for overnight delivery) addressed to such holder at its address as shown on the records of the Corporation (and shall be deemed given only upon the later of (A) the date when received by the holder or (B) three days after the Corporation has sent such notice), notifying such holder of the election of the Corporation to redeem such shares, stating the date fixed for redemption thereof (the "Redemption Date"), that the shares shall be deemed to be redeemed at 5:00 p.m., New York time, on such date and the redemption price (including a calculation of all accrued dividends up to and including the Redemption Date), and calling upon such holder to surrender to the Corporation on the Redemption Date at the place designated in such notice its certificate or certificates representing the number of shares specified in such notice of redemption. Each notice of redemption shall be irrevocable. On or after the Redemption Date, upon surrender by each holder of its certificate or certificates for shares of $6.50 Cumulative Redeemable Preferred Stock to be redeemed at the place designated in such notice, the redemption price of such shares (together with all accrued and unpaid dividends thereon up to and including the Redemption Date) shall be paid in immediately available funds to or on the order of the person whose name appears on such certificate or certificates as the owner thereof and each surrendered certificate shall be cancelled. In case less than all the shares represented by any such certificate are redeemed, a new certificate shall be issued representing the unredeemed shares, without cost to the holder thereof. From and after the Redemption Date (unless notice of redemption is not received by each holder of shares as aforesaid, or there shall be a default by the Corporation in payment of the redemption price or the accrued and unpaid dividends up to and including the Redemption Date), all dividends on the shares of $6.50 Cumulative Redeemable Preferred Stock designated for redemption in such notice shall cease to accrue, and all rights of the holders thereof as shareholders of the Corporation, except the right to receive the redemption price of such shares (including all accrued and unpaid dividends up to the Redemption Date) upon the surrender of certificates representing the same, shall cease and terminate, and such shares shall not be deemed to be outstanding for any purpose whatsoever. At its election, if notice of redemption is received by each holder of shares as aforesaid, the Corporation prior to the Redemption Date may deposit the redemption price (including all accrued and unpaid dividends up to the Redemption Date) of the shares of $6.50 Cumulative Redeemable Preferred Stock so called for redemption in trust for the account of holders thereof with a bank or trust company (having a capital surplus and undivided profits aggregating not less than $100,000,000) in the Borough of Manhattan, City and State of New York, in which case the aforesaid notice to holders of shares of $6.50 Cumulative Redeemable Preferred Stock to be redeemed shall state the date of such deposit, shall specify the office of such bank or trust company as the place of payment of the redemption price, and shall call upon such holders to surrender the certificates representing such shares at such place on or after the date fixed in such
redemption notice (which shall not be later than the Redemption Date) against payment of the redemption price (including all accrued and unpaid dividends up to the Redemption Date). Any interest accrued on such funds shall be paid to the Corporation from time to time. Any moneys so deposited that shall remain unclaimed by the holders of such shares of $6.50 Cumulative Redeemable Preferred Stock at the end of two years after the Redemption Date shall be returned by such bank or trust company to the Corporation, and thereafter the holder of any such shares shall look to the Corporation for the payment of the redemption price (and any accrued and unpaid dividends).
(v) Shares of $6.50 Cumulative Redeemable Preferred Stock redeemed, repurchased or retired by the Corporation pursuant to the provisions of this Section 4.4(b) or otherwise, shall thereupon be retired and cancelled and may not be reissued as shares of $6.50 Cumulative Redeemable Preferred Stock. All such shares shall upon their cancellation become authorized but unissued shares of Preferred Stock without designation as to series, and may be reissued as part of any other series of Preferred Stock created by resolution of the Board of Directors, subject to the conditions and restrictions upon issuance set forth herein.
(c) (i) Except as otherwise provided in Section 4.4(c)(ii), in
Section 4.4(e) or as required by law, the holders of shares of $6.50 Cumulative
Redeemable Preferred Stock shall not be entitled to vote on any matter on which
the holders of any voting securities of the Corporation shall be entitled to
vote.
(ii) If at the time of any annual meeting of stockholders for the election of directors, the equivalent of six quarterly dividends (whether or not consecutive) payable on any share or shares of $6.50 Cumulative Redeemable Preferred Stock are in default, the number of directors constituting the Board of Directors of the Corporation shall be increased by two. The holders of record of the $6.50 Cumulative Redeemable Preferred Stock, voting separately as a class, shall be entitled at said meeting of stockholders (and at each subsequent annual meeting of stockholders), unless all dividends in arrears have been paid or declared and set apart for payment prior thereto, to vote for the election of two directors of the Corporation, with the holders of $6.50 Cumulative Redeemable Preferred Stock being entitled to cast one vote per share of $6.50 Cumulative Redeemable Preferred Stock held. Until the default in payments of all dividends which permitted the election of said directors shall cease to exist, any director who shall have been so elected pursuant to the next preceding sentence may be removed at any time, either with or without cause, only by the affirmative vote of the holders of the shares at the time entitled to cast a majority of the votes entitled to be cast for the election of any such director at a special meeting of such holders called for that purpose, and any vacancy thereby created may be filled by the vote of such holders. If and when such default shall cease to exist, the holders of $6.50 Cumulative Redeemable Preferred Stock shall be divested of the foregoing special voting rights, subject to revesting in the event of each and every subsequent like default in payments of dividends. Upon the termination of the foregoing special voting rights, the terms of the office of all persons who may have been elected directors pursuant to said special voting rights shall forthwith terminate, and the number of directors constituting the Board of Directors shall be reduced by two.
(d) (i) In the event of any liquidation, dissolution or winding up of the affairs of the Corporation, whether voluntary or otherwise, the holders of shares of $6.50 Cumulative Redeemable Preferred Stock shall be entitled to receive, in cash, out of the assets of the Corporation available for distribution to stockholders, the amount of One Hundred Dollars ($100.00) for each share of $6.50 Cumulative Redeemable Preferred Stock, plus an amount equal to all dividends accrued and unpaid on each such share up to and including the date fixed for distribution, before any distribution shall be made to the holders of shares of the Common Stock or any other capital stock of the Corporation ranking (as to any such distribution) junior to the $6.50 Cumulative Redeemable Preferred Stock. If upon any liquidation, dissolution or winding up of the Corporation, the assets distributable among the holders of shares of the $6.50 Cumulative Redeemable Preferred Stock and all other classes and series of preferred stock ranking (as to any such distribution) on a parity with the $6.50 Cumulative Redeemable Preferred Stock are insufficient to permit the payment in full to the holders of all such shares of all preferential amounts payable to all such holders, then the entire assets of the Corporation thus distributable shall be distributed ratably among the holders of the shares of $6.50 Cumulative Redeemable Preferred Stock and such other classes and series of preferred stock ranking (as to any such distribution) on a parity with the $6.50 Cumulative Redeemable Preferred Stock in proportion to the respective amounts that would be payable per share if such assets were sufficient to permit payment in full.
(ii) For purposes of this Section 4.4(d), a distribution of assets in any dissolution, winding up or liquidation shall include (A) any consolidation or merger of the Corporation with or into any other corporation, (B) any dissolution, liquidation, winding up or reorganization of the Corporation immediately followed by reincorporation of another corporation or (C) a sale or other disposition of all or substantially all of the Corporation's assets to another corporation; unless in each case, such transaction has been approved as provided in Section 4.4(e).
(iii) After the payment of the full preferential amounts provided for herein to the holders of shares of $6.50 Cumulative Redeemable Preferred Stock or funds necessary for such payment have been set aside in trust for the holders thereof in the manner provided in Section 4.4(b)(iv), such holders shall be entitled to no other or further participation in the distribution of the assets of the Corporation.
(e) In addition to any other rights provided by applicable law, so long as any shares of $6.50 Cumulative Redeemable Preferred Stock are outstanding, the Corporation shall not, without the affirmative vote, or the written consent as provided by law, of the holders of at least two-thirds (2/3) of the outstanding shares of $6.50 Cumulative Redeemable Stock, voting as a separate class (i) modify, amend or rescind the preferences, rights or powers with respect to the $6.50 Cumulative Redeemable Preferred Stock so as to affect the $6.50 Cumulative Redeemable Preferred Stock adversely; provided, that, nothing herein contained shall require such a vote or consent in connection with any increase in the total number of authorized shares of the Common Stock; (ii) engage in any transaction of the type specified in Section 4.4(d)(ii), provided, that, such right to vote on such transactions shall only apply so long as all the outstanding shares of $6.50 Cumulative Redeemable Preferred Stock are owned of record
and beneficially by The Estee Lauder 1994 Trust; or (iii) authorize or increase the authorization of any class or series of stock of the Corporation ranking prior to or on a parity with the $6.50 Cumulative Redeemable Preferred Stock as to dividends or upon liquidation; provided, however, the Corporation may without such vote or consent authorize or increase the authorization of shares of stock of the Corporation on a parity as to dividends or liquidation with the $6.50 Cumulative Redeemable Preferred Stock if the aggregate liquidation preference of all such newly authorized shares (including any such shares authorized pursuant to this proviso and excluding any such shares as to which a vote or consent was obtained) does not exceed $100,000,000. The provisions of this Section 4.4(e) shall not in any way limit the right and power of the Corporation to issue its currently authorized but unissued shares or bonds, notes, mortgages, debentures, and other obligations, and to incur indebtedness to banks and to other lenders.
(f) (i) Subject to the terms and conditions of this Section 4.4(f), each holder of shares of $6.50 Cumulative Redeemable Preferred Stock shall have the right and option, which may be exercised only once by such holder, from and after the later of (A) the date Estee Lauder dies and (B) June 30, 2000, to require the Corporation to purchase from such holder, all or a whole-share portion of the $6.50 Cumulative Redeemable Preferred Stock then owned by such holder (the "Put Right"), at a price per share equal to $100 plus cumulative and unpaid dividends thereon. The closing of the purchase of the shares of $6.50 Cumulative Redeemable Preferred Stock from a holder thereof pursuant to this Section 4.4(f) shall occur on a date not later than one hundred twenty (120) days after the date on which the Put Right is deemed to be exercised by such holder, and at a time and place provided for by the Corporation.
(ii) Any holder of a share or shares of $6.50 Cumulative Redeemable Preferred Stock electing to exercise the Put Right shall deliver the certificate or certificates to be purchased by the Corporation to the principal office of any transfer agent for the Common Stock (or, if none, to the attention of the Secretary of the Corporation at the principal office of the Corporation), with a written notice of exercise of such Put Right duly executed and (if so required by the Corporation or any transfer agent) accompanied by instruments of transfer in form satisfactory to the Corporation and to any transfer agent, duly executed by the registered holder or his, her or its duly authorized attorney. The Put Right with respect to any such shares shall be deemed to have been exercised at the date upon which the certificates therefor shall have been so delivered, and at such time, subject to Section 4.4(f)(i) above, the Corporation's obligation to purchase the shares of $6.50 Cumulative Redeemable Preferred Stock from the holder who delivered the notice of exercise of the Put Right shall be irrevocable.
ARTICLE V
BOARD OF DIRECTORS
5.1. NUMBER OF DIRECTORS. Except as otherwise fixed by or pursuant to the provisions of Article IV of this Restated Certificate of Incorporation relating to the rights of the holders of Preference Stock, the number of Directors shall be determined from time to time by the Board of
Directors of the Corporation by the affirmative vote of directors constituting at least a majority of the entire board. The use of the phrase "entire board" refers to the total number of directors which the Corporation would have if there were no vacancies.
5.2. POWERS OF THE BOARD OF DIRECTORS. The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors selected as provided by law and this Restated Certificate of Incorporation and the Bylaws of the Corporation. In furtherance, and not in limitation, of the powers conferred by the laws of the State of Delaware, the Board of Directors is expressly authorized to:
(a) adopt, amend, alter, change or repeal Bylaws of the Corporation; provided, however, that no Bylaw hereafter adopted shall invalidate any prior act of the Corporation that would have been valid if such new Bylaws had not been adopted;
(b) subject to the Bylaws as from time to time in effect, determine the rules and procedures for the conduct of the business of the Board of Directors and the management and direction by the Board of Directors of the business and affairs of the Corporation, including the power to designate and empower committees of the Board of Directors, to elect, or authorize the appointment of, and empower officers and other agents of the Corporation, and to determine the time and place of, the notice requirements for, and the manner of conducting, Board meetings, as well as other notice requirements for, and the manner of taking, Board action; and
(c) exercise all such powers and do all such acts as may be exercised or done by the Corporation, subject to the provisions of the DGCL and this Restated Certificate of Incorporation and Bylaws of the Corporation.
5.3. CLASSIFIED BOARD OF DIRECTORS. At the first annual meeting of stockholders held after the consummation of an initial offering and sale by the Corporation of any shares of Common Stock pursuant to an effective registration statement under the Securities Act of 1933, as amended (the "Securities Act"), the directors, other than those who may be elected by the holders of Preference Stock pursuant to the terms of Article IV of this Restated Certificate of Incorporation or any resolution or resolutions providing for the issuance of such Preference Stock adopted by the Board of Directors, shall be divided into three classes, designated Class I, Class II and Class III. Initially, Class I directors shall be elected for a one-year term, Class II directors for a two-year term, and Class III directors for a three-year term. At each succeeding annual meeting of stockholders beginning at the annual meeting after such first meeting, successors to the class of directors whose term expires at that annual meeting shall be elected for a three-year term. Any additional director of any class elected to fill a vacancy resulting from an increase in such class shall hold office for a term that shall coincide with the remaining term of that class, but in no case will a decrease in the number of directors shorten the term of any incumbent director. A
director shall hold office until the annual meeting for the year in which his or her term expires and until his or her successor shall be elected, subject, however, to his or her prior death, resignation, retirement or removal from office.
5.4. VACANCIES. Except as otherwise required by law and subject to the rights of the holders of Preference Stock, any vacancy in the Board of Directors for any reason and any newly created directorship resulting by reason of any increase in the number of directors may be filled only by the Board of Directors (and not by the stockholders), by resolution adopted by the affirmative vote of a majority of the remaining directors then in office, even though less than a quorum (or by a sole remaining director); provided, however, that if not so filled, any such vacancy shall be filled by the stockholders at the next annual meeting or at a special meeting called for that purpose. Any director so appointed shall hold office until the next meeting of stockholders at which directors of the class for which such director has been chosen are to be elected and until his or her successor is elected and qualified.
5.5. REMOVAL OF DIRECTORS. Any director (including all members of the Board of Directors) may be removed from office at any time by the affirmative vote of the holders of at least 75% of the voting power of all of the shares of capital stock of the Corporation then entitled to vote generally in the election of directors, voting together as a single class; provided, however, that after the election of directors pursuant to Section 5.3, such removal shall be only for cause. For the purposes of this Section 5.5. of Article V, "cause" shall mean the failure of a director to substantially perform such director's duties to the Corporation (other than any such failure resulting from incapacity due to physical or mental illness) or the wilful engaging by a director in gross misconduct injurious to the Corporation.
5.6. RIGHTS OF PREFERRED STOCK. Notwithstanding the foregoing, whenever the holders of any one or more classes or series of Preference Stock issued by the Corporation shall have the right, voting separately by class or series, to elect directors at an annual or special meeting of stockholders, the election, term of office, filling of vacancies and other features of such directorships shall be governed by the terms of this Restated Certificate of Incorporation or the resolution or resolutions adopted by the Board of Directors, and such directors so elected shall not be divided into classes pursuant to this Article V unless expressly provided by such terms.
ARTICLE VI
VOTE REQUIRED FOR EXTRAORDINARY TRANSACTIONS
AND TRANSACTIONS WITH RELATED PERSONS
6.1. EXTRAORDINARY TRANSACTIONS. Notwithstanding that approval by a lesser percentage vote is permitted by law, the affirmative vote of the holders of not less than seventy-five percent (75%) of the outstanding shares of Voting Stock (as hereinafter defined) of the Corporation shall be required for the approval or authorization of (a) any merger or consolidation requiring the
approval of the Corporation's stockholders under Subchapter IX of the DGCL,
Section 251 ET. SEQ. or any successor provisions or (b) any sale, lease or
exchange of all or substantially all of the Corporation's property and assets
requiring the approval of the Company's stockholders under Section 271 of the
DGCL or any successor provisions.
6.2. TRANSACTIONS WITH RELATED PERSONS.
(a) VOTE REQUIRED FOR CERTAIN TRANSACTIONS WITH RELATED PERSONS. Except as otherwise expressly provided in Section 6.2(b) hereof, in addition to any affirmative vote required by law or by any other provision hereof or by the Bylaws of the Corporation, the affirmative vote of the holders of not less than seventy-five percent (75%) of the outstanding shares of Voting Stock, other than those shares held by a Related Person (as hereinafter defined), shall be required for the approval or authorization of any of the transactions (a "Business Combination") listed below:
(i) any merger, consolidation or share exchange of the Corporation into or with a Related Person, pursuant to which the holders of Common Stock of the Corporation will receive cash, property, securities or other consideration; or
(ii) any sale, lease, exchange or other disposition to or with such Related Person of all or any Substantial Part (as hereinafter defined) of the assets of the Corporation or any of its Subsidiaries.
(b) WHEN HIGHER VOTE IS NOT REQUIRED. Notwithstanding Section 6.2(a) hereof, the seventy-five percent (75%) voting requirement shall not be applicable if (i) any transaction specified above shall have been approved by a vote of not less than a majority of the Continuing Directors (as hereinafter defined) or (ii) in the case of any transaction pursuant to which the holders of the Common Stock of the Corporation are entitled to receive cash, property, securities or other consideration, the cash or fair market value of the property, securities or other consideration (as determined by the Continuing Directors) to be received per share by holders of the Common Stock of the Corporation in such transaction is not less than the higher of (A) the highest price per share paid by the Related Person for any of its holdings of Common Stock of the Corporation within the two-year period immediately prior to the announcement of the proposed transaction (the "Announcement Date"), excluding transactions by and among the individuals or entities included in the definition of Permitted Transferees under Section 4.2(c) of Article IV hereof, or (B) the highest closing sale price per share of Common Stock during the 30-day period immediately preceding the Announcement Date or during the 30-day period immediately preceding the date on which the Related Person became a Related person, whichever is higher. The highest closing sale price shall be determined by the reports of closing sale prices on the Composite Tape for New York Stock Exchange Listed Stocks or, if such stock is not quoted on the Composite Tape, on the New York Stock Exchange or other principal United States securities exchange on which such stock is listed or, for any period when such stock is not listed on any such exchange, the highest closing bid quotation with respect to a share of such stock on the National Association of Securities Dealer, Inc. Automated Quotation System; provided, however, that such price under clause (A) or (B)
shall be proportionately adjusted for any subsequent increase or decrease in the number of issued shares of the Corporation's capital stock resulting from a subdivision or consolidation of shares or any other capital adjustments, the payment of a stock dividend, or other increase or decrease in such shares of capital stock effected without receipt of consideration by the Corporation.
(c) The Board of Directors, with the approval of a majority of the total number of Continuing Directors, shall have the power and duty to determine, on the basis of information known to it after reasonable inquiry, all facts necessary to determine compliance with this Article, including, without limitation, (i) whether a person is a Related Person; (ii) the number of shares of Voting Stock Beneficially Owned by any person; (iii) whether a person is an Affiliate or Associate of another person; (iv) whether the applicable conditions set forth in paragraph (b) of Section 6.2 have been met with respect to any Business Combination; and (v) whether the proposed transaction is a Business Combination. Any such determinations shall be final and conclusive.
6.3. DEFINITIONS.
For the purposes of Section 6.2:
(a) The term "Related Person" shall mean and include any individual, corporation, partnership, or other person, entity or group, as such term is defined in Rule 13d-5 under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), which Beneficially Owns (as hereinafter defined), in the aggregate, ten percent (10%) or more of the outstanding Voting Stock of the Corporation. For purposes of calculating the 75% vote under Section 6.2(a), a Related Person shall also include the seller or sellers from whom the Related Person, during the six months preceding the Announcement Date, acquired at least five percent (5%) of the outstanding shares of Class A Common Stock pursuant to one or more agreements or other arrangements (excluding brokers' transactions) but only if such seller or sellers Beneficially Own shares of Common Stock having an aggregate fair market value in excess of $10 million at the Announcement Date. Notwithstanding the foregoing, neither the Corporation nor any of its Subsidiaries shall be a Related Person.
(b) The terms "Affiliate" and "Associate" shall have the meanings set forth in Rule 12b-2 under the Exchange Act, as in effect on the date this Restated Certificate of Incorporation is filed in the office of the Secretary of State of the State of Delaware.
(c) The term "Beneficially Owns" shall have the
meaning set forth in Rule 13d-3 under the Exchange Act, as in effect on the date this Restated Certificate of Incorporation is filed in the office of the Secretary of State of the State of Delaware.
(d) The term "Continuing Director", with respect to any Business Combination, shall mean any member of the Board of Directors of the Corporation who is not a Related Person with whom such Business Combination is proposed and is neither Affiliated nor Associated with or designated by such Related Person. Notwithstanding the foregoing, any director of the Company elected pursuant to a voting agreement to
which such Related Person is a party but who is not designated by such Related Person and any director of the Company who has a family relation with such Related Person (unless designated by such Related Person) shall not be considered to be an Affiliate or Associate of such Related Person.
(e) The term "Substantial Part" shall mean more than 30% of the fair market value, as determined by two-thirds of the Continuing Directors, of the total consolidated assets of the Corporation and its subsidiaries taken as a whole as of the end of its most recent fiscal year ending prior to the time the determination is being made, subject to adjustments made by the Continuing Directors to take into account transactions made subsequent to year end.
(f) The term "Subsidiary" shall mean any corporation of which a majority of the Voting Stock thereof entitled to vote generally in the election of directors is owned, directly or indirectly, by the Corporation.
(g) The term "Voting Stock" shall mean all outstanding shares of capital stock of the Corporation or another corporation entitled to vote generally in the election of directors, and each reference to a percentage of shares of Voting Stock shall refer to such percentage of the votes entitled to be cast by such shares.
ARTICLE VII
LIABILITY OF DIRECTORS
7.1. LIMITATION ON LIABILITY. No Director of the Corporation shall be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a Director, except for liability (a) for any breach of the Director's duty of loyalty to the Corporation or its stockholders; (b) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law; (c) under Section 174 of the DGCL; or (d) for any transaction from which the Director derived an improper personal benefit. If the DGCL is amended after approval by the stockholders of this article to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of a director of the corporation shall be eliminated or limited to the fullest extent permitted by the DGCL, as so amended.
7.2. AMENDMENTS. Any repeal or modification of Section 7.1 hereof by the stockholders of the Corporation shall not adversely affect any right or protection of a Director of the Corporation existing at the time of such repeal or modification.
ARTICLE VIII
STOCKHOLDERS
8.1. ACTION BY STOCKHOLDERS. Any action required or permitted to be taken by the holders of the issued and outstanding stock of the Corporation may be effected at an annual or special meeting of stockholders duly called and held in accordance with law and this Restated Certificate of Incorporation and the Bylaws, or, as
long as any shares of Class B Common Stock are outstanding, without a meeting, by written consent, setting forth the action so taken, signed by the holders of outstanding shares entitled to vote thereon having not less than the minimum number of votes that would be necessary to authorize or take such action at a stockholders' meeting at which all shares entitled to vote thereon were present. If no shares of Class B Common Stock are outstanding, such written consent shall require the signature by holders of all outstanding shares entitled to vote thereon.
8.2. SPECIAL MEETINGS OF STOCKHOLDERS. Except as otherwise required by law, special meetings of stockholders may be called only by the Chairman of the Board of Directors or the Chief Executive Officer or by the Board of Directors pursuant to a resolution adopted by the affirmative vote of a majority of the entire Board. Except as otherwise required by law, stockholders of the Corporation shall not have the right to request or call a special meeting of the stockholders.
ARTICLE IX
BYLAWS
The Board of Directors shall have the power to adopt, amend or repeal the Bylaws by the affirmative vote of at least a majority of the members then in office. The affirmative vote of the holders of not less than seventy-five percent (75%) of the voting power of all shares of capital stock of the Corporation then entitled to vote generally in the election of directors, voting as a single class shall be required to adopt, amend or repeal the Bylaws (notwithstanding the fact that approval by a lesser percentage may be permitted by the DGCL).
ARTICLE X
AMENDMENT OF RESTATED
CERTIFICATE OF INCORPORATION
The Corporation hereby reserves the right from time to time to
amend, alter, change or repeal any provision contained in this Restated
Certificate of Incorporation in any manner permitted by law and all rights and
powers conferred upon stockholders, directors and officers herein are granted
subject to this reservation. In addition to any vote otherwise required by law,
any such amendment, alteration, change or repeal shall require approval of both
(a) the Board of Directors by the affirmative vote of a majority of the members
then in office and (b) the holders of a majority of the voting power of all the
shares of capital stock of the Corporation entitled to vote generally in the
election of directors, voting together as a single class; provided, however,
that any proposal to amend, alter, change or repeal the provisions of Article V,
Article VI and this Article X shall require the affirmative vote of the holders
of seventy-five percent (75%) of the voting power of all the shares of capital
stock of the Corporation entitled to vote generally in the election of
directors, voting together as a single class.
IN WITNESS WHEREOF, this Restated Certificate of Incorporation of the Corporation, which restates, integrates and amends the provisions of the certificate of incorporation of the Corporation, and which was duly approved pursuant to resolutions set forth in unanimous written consents adopted by the Board of Directors of the Corporation and the holders of all of the outstanding shares of stock of the Corporation in accordance with the requirements of Sections 228, 242 and 245 of the DGCL, has been executed by Saul H. Magram, acting in his capacity as Senior Vice President and General Counsel of the Corporation, this 16th day of November, 1995, and shall become effective on November 16, 1995 at 6:00 p.m.
THE ESTEE LAUDER COMPANIES INC.
/s/ SAUL H. MAGRAM ------------------ Saul H. Magram Senior Vice President and General Counsel |
SCHEDULE A
Trusts
1. Descendants of Leonard Lauder 1966 Trust u/a/d June 14, 1966, between Estee Lauder, as Settlor, and Leonard A. Lauder, as Trustee, for the benefit of the descendants of Leonard A. Lauder.
2. Descendants of Ronald Lauder 1966 Trust u/a/d June 14, 1966, between Estee Lauder, as Settlor and Ronald S. Lauder, as Trustee, for the benefit of the descendants of Ronald S. Lauder.
3. Trust u/a/d December 15, 1976, between Estee Lauder and Joseph H. Lauder, as Grantors, and Leonard A. Lauder, as Trustee, for the benefit of Gary Lauder and William Lauder.
4. Trust u/a/d December 15, 1976, between Estee Lauder and Joseph H. Lauder, as Grantors, and Ronald S. Lauder, as Trustee, for the benefit of Aerin Lauder and Jane Lauder.
5. Trust u/a/d December 15, 1976, between Leonard A. Lauder, as Grantor, and Leonard A. Lauder and Ronald S. Lauder, as Trustees, for the benefit of Gary Lauder and William Lauder.
6. Trust u/a/d December 15, 1976, between Ronald S. Lauder, as Grantor, and Ronald S. Lauder and Leonard A. Lauder, as Trustees, for the benefit of Aerin Lauder and Jane Lauder.
7. Trust u/a/d August 13, 1982, between Estee Lauder and Joseph H. Lauder, as Grantors, and Leonard A. Lauder, as Trustee, for the benefit of Gary Lauder and William Lauder.
8. Leonard A. Lauder Generation-Skipping Securities Trust u/a/d December 23, 1992, between Leonard A. Lauder, as Grantor, and Joel S. Ehrenkranz, as Trustee.
9. Leonard A. Lauder Grantor Retained Annuity Trust u/a/d November 30, 1992, between Leonard A. Lauder, as Grantor, and Joel S. Ehrenkranz, as Trustee.
10. Gary Lauder 1994 Family Trust u/a/d as of December 16, 1994, between Gary Lauder, as Settlor, and Leonard A. Lauder and Laura Lauder, as Trustees.
11. William Lauder 1994 Family Trust u/a/d as of December 14, 1994, between William Lauder, as Settlor, and Leonard A. Lauder and Karen Lauder, as Trustees.
12. Trust u/a/d June 2, 1994, as amended, between Estee Lauder, as Grantor, and Leonard A. Lauder, Ronald S. Lauder and Ira T. Wender, as Trustees.
EXHIBIT 10.1
STOCKHOLDERS' AGREEMENT
STOCKHOLDERS' AGREEMENT (this "Agreement"), dated November 22, 1995, by and among Leonard A. Lauder ("LAL"), Ronald S. Lauder ("RSL"), William P. Lauder ("WPL"), Gary M. Lauder ("GML"), Aerin Lauder ("AL"), Jane Lauder ("JL"), LAL Family Partners L.P., Lauder & Sons L.P., a Delaware limited partnership, and the trustees of the various trusts set forth on the signature pages hereof (hereinafter referred to, together with each other Family Member (as defined below) that hereafter acquires Shares (as defined below), as the "Stockholders"), and THE ESTEE LAUDER COMPANIES INC., a corporation organized under the laws of the State of Delaware (the "Corporation").
W I T N E S S E T H :
WHEREAS, the Stockholders collectively own (a) 42,531,618 shares of the Corporation's outstanding Class A Common Stock, par value $.01 per share (the "Class A Common Stock"), and (b) 56,839,667 shares of the Corporation's outstanding Class B Common Stock, par value $.01 per share (the "Class B Common Stock" and, together with the Class A Common Stock, the "Shares"); and
WHEREAS, the Stockholders and the Corporation are agreed that it would be in the best interests of each Stockholder and the Corporation to assure the continued management of the Corporation by restricting the privilege of ownership of the common stock of the Corporation and, except as hereinafter provided, to provide each of the Stockholders with the opportunity to acquire additional Shares pursuant to the provisions hereof; and
WHEREAS, the Stockholders and the Corporation desire to terminate the Amended and Restated Shareholder Agreement, dated June 2, 1994, as amended on June 29, 1995 (the "Old Shareholder Agreement"), among Mrs. Estee Lauder, LAL, RSL, WPL, GML, the trustees of the various trusts set forth on the signature pages thereof, and the Corporation, and replace such agreement in its entirety with this Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual agreements herein contained, the parties hereto agree as follows:
Article 1.Restriction on Transfer. Each of the Stockholders hereby agrees that he, she or it shall not sell, assign, give, bequeath, transfer, distribute, pledge, hypothecate or otherwise encumber or dispose of (collectively, "Transfer") any Shares owned by him, her or it (whether now owned or hereafter acquired) except as otherwise provided by this Agreement. Any attempted or purported Transfer of any Shares by any Stockholder in violation or contravention of the terms of this Agreement shall be void. The Corporation shall, and shall instruct its transfer agent to, reject and refuse to transfer on its books any Shares which may have been Transferred in violation or contravention of any of the provisions of this Agreement, and shall not recognize any person or persons, estates, executors, administrators, firms, associations or corporations holding such shares as a stockholder, and such
person shall not have any rights as a stockholder. No dividend shall be paid on, nor any distribution made on, any Shares Transferred in breach of this Agreement.
Article 2.Permitted Transfers. The Stockholders shall be permitted to Transfer Shares as provided in Article 3 hereof and, in addition, as follows:
2.1. Public Sales and Certain Gifts, Bequests and Distributions. Any Stockholder may Transfer shares of Class A Common Stock pursuant to a widely distributed public offering of such shares registered under the Securities Act of 1933, as amended (the "Securities Act"), or pursuant to Rule 144 (including subsection (k) thereof) (or any successor rule or regulation to Rule 144) under the Securities Act, without regard to the limitations imposed by this Agreement. In addition, any Stockholder may Transfer to persons who are not Family Members (as defined below) shares of Class A Common Stock by gift, bequest or, in the case of Stockholders who are the trustees of a Family Controlled Trust (as defined below) or the executors of the estate of a Lauder Descendant (as defined below), by distribution from such Family Controlled Trust or such estate to one or more beneficiaries thereof who are not Family Members without regard to the limitations imposed by this Agreement; provided, however, that the amount of shares of Class A Common Stock so Transferred by any one Stockholder to all such transferees in a 90-day period may not exceed 1% of the outstanding Shares. When two or more Stockholders act in concert for the purpose of making gifts or distributions of shares of Class A Common Stock to a person who is not a Family Member (including his, her or its affiliates), such shares shall be aggregated for the purposes of the limitation in the immediately preceding sentence. For purposes of this Section 2.1, the trustees of a Family Controlled Trust in their capacity as trustees of such Family Controlled Trust shall be deemed to be a single Stockholder and the executors of the estate of a Lauder Descendant in their capacity as executors of such estate shall be deemed a single stockholder.
2.2. Intra-Family Transfers. Any Stockholder may Transfer Shares to one or more Family Members without regard to the limitations imposed by this Agreement; provided, however, that, as a condition to such Transfer, any Family Member to whom the Shares are Transferred that is not a party to this Agreement executes and delivers to the Corporation an undertaking in substantially the form attached hereto as Exhibit A.
2.3. Pledges to Institutions. Any Stockholder may grant a lien or security interest in, pledge, hypothecate or encumber (collectively, a "Pledge") any Shares beneficially owned by him, her or it to a nationally or internationally recognized financial or lending institution with assets of not less than $10,000,000,000 (an "Institution"); provided, however, that the Institution must agree in writing at or prior to the time such Pledge is made that (i) no Transfer of Shares in connection with a foreclosure, forfeiture or similar proceeding arising from the operation of such Pledge shall be made except as provided in the immediately following sentence and (ii) if such Institution itself should acquire ownership of Shares in connection with a foreclosure, forfeiture or similar proceeding arising from the operation of such Pledge, it will thereafter Transfer such Shares only in a manner that a
Stockholder would be permitted to do pursuant to Section 2.1, 2.2 or 2.4 hereof. An Institution that has been granted a Pledge of Shares may Transfer Shares in connection with a foreclosure, forfeiture or similar proceeding arising from the operation of such Pledge (a) to such Institution, (b) in a manner a Stockholder would be permitted to do pursuant to Section 2.1, 2.2 or 2.4 hereof or (c) in any other public or private sale so long as (i) the Stockholders are given at least 45 days prior written notice of the time and place initially fixed for such sale (which may be adjourned from time to time to any such time and place as is announced at the time and place theretofore fixed for such sale) and (ii) each Stockholder is entitled to bid to purchase such Shares at such sale subject only to whatever limitations and conditions of general applicability are generally established by such Institution in connection with such sale (including, without limitation, limitations and conditions to assure compliance with the Securities Act of 1933, as amended) (a "Foreclosure Sale"). Shares Pledged to an Institution that are acquired by it in connection with a foreclosure, forfeiture or similar proceeding arising from a Pledge of such Shares may be transferred to the parent corporation of such institution or any affiliated entity controlled by its parent corporation without regard to the limitations imposed by this Agreement so long as the transferee agrees to be bound by the provisions of this Agreement to the same extent such Institution is bound.
2.4. Right of First Offer. (a) Any Stockholder (the "Offering Stockholder") may Transfer any Shares to any person other than a Family Member provided such Offering Stockholder first offers the Shares to be Transferred (the "Offered Shares") to all Family Members who are then parties to this Agreement as provided below (the "Right of First Offer").
(b) In order to offer any Offered Shares, the Offering Stockholder shall give written notice (an "Offer Notice") of the proposed Transfer to all Family Members who then are parties to this Agreement setting forth, in reasonable detail, the Offering Stockholder's intent to make such proposed Transfer, the number or amount of Offered Shares, the proposed date of consummation of such Transfer (if known), the proposed purchase price per Share (including, if known, the amount of cash or other property or consideration to be received upon the consummation of the sale) (the "Offered Price Per Share"), any proposed sales commission or advisory fees, and any other material terms and conditions of the proposed Transfer to the extent then known. If the Transfer is not for value, such as in the case of a gift, bequest or distribution, the Offered Price Per Share shall equal the closing sales price per share of the shares of Class A Common Stock on the last trading day prior to the date the Offer Notice is sent.
(c) Each Family Member who is a party to this Agreement shall then have the irrevocable right, exercisable within thirty (30) days after the Offer Notice is given in accordance with Section 8.2 (the "Notice Period"), to purchase such portion of the Offered Shares as the number of Shares owned by such Family Member bears to the total number of Shares owned by all such Family Members (excluding Shares owned by the Offering Stockholder), at a price per Share equal to the Offered Price Per Share and on the payment terms specified in the Offer Notice; provided, however, that the Offered Price Per Share for the Offered Shares shall be reduced by the difference (if positive) between (i) the
per Share amount of proposed sales commissions and advisory fees specified in the Offer Notice and (ii) the per Share amount of any placement, investment advisory or other similar fees (in the aggregate amount not to exceed 1% of the gross purchase price for the Offered Shares) payable by the Offering Stockholder in respect of the sale of the Offered Shares to Family Members. Each Family Member who is a party to this Agreement may exercise his, her or its Right of First Offer by delivering to the Offering Stockholder notice of such exercise (an "Exercise Notice") within the Notice Period. If any Family Member wishes to purchase less than all of his, her or its proportionate share of the Offered Shares, he, she or it shall specify the amount of Offered Shares he, she or it wishes to purchase in the Exercise Notice. Any Offered Shares that Family Members shall have not elected to purchase during the Notice Period shall be reoffered thereafter to all Family Members who have elected to purchase the full amount of Shares offered to them. Such reoffer shall remain open for ten (10) days commencing on the date on which written notice of such reoffer is given in accordance with Section 8.2. Each such Family Member shall notify the Offering Stockholder in writing within such ten (10) day period of the number of such reoffered Offered Shares such Family Member desires to purchase (such Family Member's "Designated Shares") and shall be entitled to purchase that number of such reoffered Offered Shares equal to the lesser of (x) such Family Member's Designated Shares and (y) the total number of such reoffered Offered Shares multiplied by a fraction the numerator of which is such Family Member's Designated Shares and the denominator of which is the aggregate Designated Shares of all Family Members.
(d) The closing of the purchase and sale of the Offered Shares shall occur on a date (not later than sixty (60) days after the date on which the Exercise Notice is given or such later date as is the earliest date on which the purchase may be completed in compliance with all applicable laws), and at a time and place provided for in the Offer Notice.
(e) If any Offered Shares are not to be so purchased by
Family Members exercising their rights during such thirty (30) day and/or ten
(10) day periods, as the case may be, then, for a period of sixty (60) days
commencing on the day after the last day of such ten (10) day period or, if
there is no reoffer, the last day of such thirty (30) day period (the "Third
Party Sale Period"), the Offering Stockholder shall be entitled to Transfer such
Shares to one or more third parties for a gross price (or, in the case of a
Block Sale (as defined below), a price net of any sales commissions and advisory
fees) which is at least 95% of the Offered Price Per Share, and otherwise on
terms substantially similar to those described in the Offer Notice; provided,
however, that any Transfer of Shares proposed to be made by such Offering
Stockholder after the Third Party Sale Period or for a price per Share below the
price per Share specified in this sentence shall again be subject to the
provisions of this Article 2. The Offering Stockholder shall promptly notify the
Family Members who are parties to this Agreement of the sale (including the
final sale price) of any such Offered Shares to any third party during the Third
Party Sale Period. As used in this Agreement, a "Block Sale" means any sale,
transfer or other disposition, directly or indirectly, in a single transaction
or a series of transactions, of Offered Shares in any Third Party Sale Period in
which beneficial ownership of 80% or more of the aggregate amount of such
Offered Shares is acquired by one or two groups of two or more persons who are
(i) "affiliates" (as such term is defined in Rule 12b-2 under the Exchange Act)
of each other or one another or (ii) "associates" (as such term is defined in
Rule 12b-2 under the Exchange Act) of each other or one another or (iii) members
of a group within the meaning of Section 13(d) of the Exchange Act.
(f) Any Pledge of Shares beneficially owned by a
Stockholder to an Institution shall not give the Family Members any right to
acquire such Shares pursuant to this Section 2.4. However, any proposed Transfer
of such Shares in connection with a foreclosure, forfeiture or similar
proceeding arising from the operation of any Pledge (other than a Transfer (a)
to the Institution to which such Pledge has been granted, (b) pursuant to
Section 2.1 or 2.2 hereof or (c) pursuant to a Foreclosure Sale) shall
constitute a Transfer subject to the provisions of this Section 2.4.
2.5. Family Members. For purposes of this Agreement, the following terms shall have the following meanings:
(a) "Family Member" or "Family Members" shall mean the
following persons: (i) Mrs. Estee Lauder and her estate, guardian,
conservator or committee; (ii) each descendant of Mrs. Estee Lauder
(a "Lauder Descendant") and their respective estates, guardians,
conservators or committees; (iii) each Family Controlled Entity; and
(iv) the trustees, in their respective capacities as such, of each
Family Controlled Trust.
(b) "Family Controlled Entity" shall mean the following entities: (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 Family Members; (iii) any partnership if at least 80% of the value of its partnership interests are owned by Family Members; and (iv) any limited liability or similar company if at least 80% of the value of the company is owned by Family Members.
(c) "Family Controlled Trust" shall mean the following trusts: (i) the trusts set forth on Schedule A hereto and (ii) any trust the primary beneficiaries of which are Mrs. Estee Lauder, Lauder Descendants, Spouses of Lauder Descendants and/or charitable organizations (collectively, "Lauder Beneficiaries"), provided, that, if the trust is a wholly charitable trust, at least 80% of the trustees of such trust consist of Mrs. Estee Lauder and/or Lauder Descendants. For purposes of this provision, the primary beneficiaries of a trust will be deemed to be Lauder Beneficiaries if, under the maximum exercise of discretion by the trustee in favor of persons who are not Lauder Beneficiaries, the value of the interests of such persons in such trust, computed actuarially, is 20% or less. The factors and methods prescribed in section 7520 of the Internal Revenue Code of 1986, as amended, for use in ascertaining the value of certain interests shall be used in determining a beneficiary's actuarial interest in a trust for purposes of applying this provision. For purposes of this provision, the actuarial value
of the interest in a trust of any person in whose favor a testamentary power of appointment may be exercised shall be deemed to be zero. For purposes of this provision, in the case of a trust created by a Lauder Descendant, the actuarial value of the interest in such trust of any person who may receive trust property only at the termination of the trust and then only in the event that, at the termination of the trust, there are no living issue of such Lauder Descendant shall be deemed to be zero.
(d) "Spouses of Lauder Descendants" shall mean those individuals who at any time were married to any Lauder Descendant whether or not such marriage is subsequently dissolved by death, divorce, or by any other means.
Article 3. Transfer Upon Involuntary Transfer. If Shares of a Stockholder are Transferred by operation of law to any person other than a Lauder Family Member, including without limitation, the trustee in bankruptcy of a Stockholder or a purchaser at any creditor's or judicial sale (but not including (a) any Transfer pursuant to the penultimate sentence of Section 2.3 hereof, (b) any Transfer to the guardian, conservator or committee of an incompetent Stockholder or (c) any Transfer in a bankruptcy of Shares that are pledged to an Institution), or if any Stockholder holding Shares ceases to be a Family Member, then, in each case, such Stockholder shall be deemed to have offered all of his, her or its Shares to all Family Members who are parties to this Agreement in the manner described in Section 2.4 hereof, except that the period of time in which the Family Members have the option to purchase such Shares shall be from the date of receipt by the Corporation of notice of such involuntary Transfer or such Stockholder ceasing to be a Family Member, as the case may be, and the Offered Price Per Share shall equal the closing sales price per share of the shares of Class A Common Stock on the last trading day prior to such date. The Corporation shall notify the appropriate Stockholders of the occurrence of such involuntary Transfer or Stockholder ceasing to be a Family Member as soon as practicable after it is notified of the same.
Article 4. Board of Directors. (a) Each of the Stockholders (or his, her or its representative) shall vote his, her or its Shares for the election of LAL, RSL and a designee of each as directors of the Corporation; provided, however, that in the event that either LAL (including descendants of LAL) or RSL (including descendants of RSL), as the case may be, directly or indirectly beneficially owns (other than by reason of this Agreement) Shares representing less than 10% but at least 5% of the total voting power of the Corporation, the Stockholders shall not be required to vote their Shares for the election of LAL's or RSL's designee, as the case may be; and, provided further, that in the event that either LAL (including descendants of LAL) or RSL (including descendants of RSL), as the case may be, directly or indirectly beneficially owns (other than by reason of this Agreement) Shares representing less than 5% of the total voting power of the Corporation, the Stockholders shall not be required to vote their Shares for the election of either LAL and his designee or RSL and his designee, as the case may be.
(b) In the event that the designee of LAL or RSL ceases to be a member of the Board of Directors by virtue of resignation, removal, death or disability, then the Stockholder who designated such person, so long as he
has the right to designate a nominee, shall designate another person to fill that vacancy.
(c) In the event that LAL shall cease to be a member of the Board of Directors by virtue of his death or disability, then WPL and GML shall succeed to LAL's rights under this Article 4. If both WPL and GML are serving as directors, GML shall be considered LAL's nominee. If either WPL or GML are unable to serve by reason of death or disability, the other will have the right to designate a nominee.
(d) In the event that RSL shall cease to be a member of the Board of Directors by virtue of his death or disability, then AL and JL shall succeed to RSL's rights under this Article 4. If both AL and JL are serving as directors, JL shall be considered RSL's nominee. If either AL or JL are unable to serve by reason of death or disability, the other will have the right to designate a nominee.
Article 5.Legend on Certificates. All Shares now or hereafter owned by the Stockholders shall be subject to the provisions of this Agreement and the certificates representing such Shares shall bear the following legend:
THE SALE, ASSIGNMENT, GIFT, BEQUEST, TRANSFER, DISTRIBUTION,
PLEDGE, HYPOTHECATION, OR OTHER ENCUM
BRANCE OR DISPOSITION OF THE SHARES REPRESENTED BY THIS CERTIFICATE IS RESTRICTED BY THE TERMS OF A STOCKHOLDERS' AGREEMENT AMONG CERTAIN MEMBERS OF THE LAUDER FAMILY, CERTAIN FAMILY CONTROLLED ENTITIES, TRUSTEES OF CERTAIN FAMILY CONTROLLED TRUSTS AND THE CORPORATION, A COPY OF WHICH MAY BE EXAMINED AT THE OFFICE OF THE CORPORATION.
Article 6.Termination. (a) The rights and obligations under
this Agreement shall terminate automatically with respect to each Stockholder
upon the earliest to occur of (i) the execution of a written instrument to that
effect by the Corporation and each Stockholder who then owns Shares; (ii) the
merger or consolidation of the Corporation with a corporation upon consummation
of which all Stockholders immediately thereafter own in the aggregate less than
10% of the total voting power of the surviving or resulting corporation and
(iii) the sale, disposition or other transfer of Shares by any Stockholder that
causes all Stockholders immediately after such transaction to own in the
aggregate less than 10% of the total voting power of the Corporation.
(b) The rights and obligations under Article 4 of this Agreement shall terminate automatically at such time as (i) LAL, WPL and GML are unable to serve as directors by reason of death or disability and (ii) RSL, AL and JL are unable to serve as directors by reason of death or disability.
Article 7.Termination of the Old Shareholder Agreement. The Corporation, Mrs. Estee Lauder, the trustees of the Ronald S. Lauder 1992 Grantor Trust and the Stockholders (other than AL and JL) constitute all the parties to the Old Shareholder Agreement. The Corporation, Mrs. Lauder, the
trustees of the Ronald S. Lauder 1992 Grantor Trust and the Stockholders hereby agree that upon the execution and delivery of this Agreement, the Amended and Restated Shareholder Agreement shall be terminated immediately and shall be of no further force or effect.
Article 8.General Provisions
8.1. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware.
8.2. Notices. Any notices and other communications given pursuant to this Agreement shall be in writing and shall be effective upon delivery by hand or on the fifth day after deposit in the mail if sent by certified or registered mail (postage prepaid and return receipt requested) or on the next business day if sent by a nationally recognized overnight courier service (appropriately marked for overnight delivery) or upon transmission if sent by facsimile (with request for immediate confirmation of receipt in a manner customary for communications of such type and with physical delivery of the communication being made by one of the other means specified in this Section 8.2 as promptly as practicable thereafter). Notices are to be addressed as follows:
(i) If to the Company:
The Estee Lauder Companies Inc. 767 Fifth Avenue New York, New York 10153 Attention: President Telecopy: (212) 572-6745
With a copy to:
The Estee Lauder Companies Inc. 767 Fifth Avenue New York, New York 10153 Attention: Secretary Telecopy: (212) 572-3989
and
Weil, Gotshal & Manges 767 Fifth Avenue New York, New York 10153 Attention: Jeffrey J. Weinberg, Esq.
Telecopy: (212) 310-8007
(ii) If to a Stockholder, then as set forth in the second column of Schedule B hereto with a copy to the person or persons listed in the third column of Schedule B hereto.
All notices to a party hereto shall be deemed to have been duly given for all purposes of this Agreement if given to such party (with a copy to such person or persons as specified) in accordance with the first sentence of this Section 8.2 at (a) until notice is given pursuant to this Section 8.2 of a different address, the address provided above or, in the case of any Family Member that hereafter becomes a Stockholder, the address specified in the undertaking delivered pursuant to section 2.2, or (b) after notice has been given pursuant to this Section 8.2 of a different address, the address specified in such notice. No notices hereunder shall be required to be given to any Family Member that hereafter becomes a Stockholder until notice of such Family Member becoming a Stockholder (including a copy of such Family Member's undertaking given pursuant to Section 2.2) is given to the Corporation and to each Stockholder (with a copy to such person or persons as specified) pursuant to this Section 8.2.
8.3. Headings. The headings of the various Articles and Sections of this Agreement have been inserted for convenience only and shall not be deemed to be part of this Agreement.
8.4. Binding Effect. This Agreement will be binding upon and inure to the benefit of the Corporation, its successors and assigns and to the Stockholders and their respective heirs, personal representatives, successors and assigns.
8.5. No Oral Change. This Agreement may not be changed orally, but only by an agreement in writing as signed by the party against whom enforcement of any waiver, change, modification or discharge is sought.
8.6. Entire Understanding. This Agreement sets forth the entire agreement and understanding of the parties hereto in respect of the subject matter hereof and the transactions contemplated hereby and supersedes all prior written and oral agreements, arrangements and understandings relating to the subject matter hereof.
8.7. Remedies. (a) The parties acknowledge that money damages are not an adequate remedy for violations of this Agreement and that any party may, in such party's sole discretion, apply to any court of competent jurisdiction for specific performance or injunctive or such other relief as such court may deem just and proper in order to enforce this Agreement or prevent any violation hereof and, to the extent permitted by applicable law, each party waives any objection to the imposition of such relief.
(b) All rights, powers and remedies provided under this Agreement or otherwise available in respect hereof at law or in equity shall be cumulative and not alternative, and the exercise or beginning of the exercise of any thereof by any party shall not preclude the simultaneous or later exercise of any other such right, power or remedy by such party.
8.8. Trustees' Capacity. With respect to obligations of trustees who are parties hereto in their capacity as trustees of one or more trusts, this Agreement shall be binding upon such trustees only in their capacities as trustees, not individually and not with respect to any Shares other than Shares held by them in their capacity as trustees of such trusts.
8.9. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one instrument. Each counterpart may consist of a number of copies each signed by less than all, but together signed by all, the parties hereto.
8.10. Application of Agreement to After-Acquired Shares. All the provisions of this Agreement shall apply to all of the Shares of the Corporation owned by a person at the time he, she or it is or becomes a party hereto or which may be issued or transferred hereafter to a Stockholder in consequence of any additional issuance, purchase, exchange or reclassification of shares, corporate reorganization, or any other form of recapitalization, or consolidation, or merger, or share split, or share dividend, or which are acquired by a Stockholder in any other manner.
IN WITNESS WHEREOF, the parties hereto have duly executed and delivered this Agreement as of the date first above written.
THE ESTEE LAUDER COMPANIES INC.
By: /s/ Leonard A. Lauder
--------------------------------
Name: Leonard A. Lauder
Title: Chairman and
Chief Executive Officer
/s/ Leonard A. Lauder
------------------------------------
Leonard A. Lauder, (a) individually,
(b) as Managing Partner of LAL
Family Partners L.P., (c) as Trustee
of The Estee Lauder 1994 Trust, (d)
as a Class B General Partner of
Lauder & Sons L.P. and (e) as
Trustee of The 1995 Estee Lauder LAL
Trust (a Class B General Partner of
Lauder & Sons L.P.)
/s/ Ronald S. Lauder
------------------------------------
Ronald S. Lauder, (a) individually,
(b) as Trustee of The Descendents of
RSL 1966 Trust, (c) as Trustee of
The Estee Lauder 1994 Trust, (d) as
a Class B General Partner of Lauder
& Sons L.P. and (e) as Trustee of
The 1995 Estee Lauder RSL Trust (a
Class B General Partner of Lauder &
Sons L.P.)
/s/ William P. Lauder
------------------------------------
William P. Lauder, (a) individually
and (b) as Trustee of the 1992
Leonard A. Lauder Grantor Retained
Annuity Trust
|
/s/ Aerin Lauder ------------------------------------ Aerin Lauder |
/s/ Jane Lauder ------------------------------------ Jane Lauder /s/ Joel S. Ehrenkranz ------------------------------------ Joel S. Ehrenkranz, (a) as Trustee of the 1992 Leonard A. Lauder Grantor Retained Annuity Trust, (b) as Trustee of the Trust f/b/o Gary M. Lauder and William P. Lauder u/a/d December 15, 1976, created by Leonard Lauder, as Grantor and (c) as Trustee of The 1995 Estee Lauder LAL Trust (a Class B General Partner of Lauder & Sons L.P.) /s/ Carol S. Boulanger ------------------------------------ Carol S. Boulanger, as Trustee of the Trust f/b/o Gary M. Lauder and William P. Lauder u/a/d December 15, 1976, created by Leonard Lauder, as Grantor /s/ Richard D. Parsons ------------------------------------ Richard D. Parsons, (a) as Trustee of the Trust f/b/o Aerin Lauder and Jane Lauder u/a/d December 15, 1976, created by Estee Lauder and Joseph H. Lauder, as Grantors, (b) as Trustee of the Trust f/b/o Aerin Lauder and Jane Lauder u/a/d December 15, 1976, created by Ronald S. Lauder, as Grantor and (c) as Trustee of The 1995 Estee Lauder RSL Trust (a Class B General Partner of Lauder & Sons L.P.) /s/ Ira T. Wender ------------------------------------ Ira T. Wender, (a) as Trustee of The Estee Lauder 1994 Trust, (b) as Trustee of The 1995 Estee Lauder LAL Trust (a Class B General Partner of Lauder & Sons L.P.) and (c) as Trustee of The 1995 Estee Lauder RSL Trust (a Class B General Partner of Lauder & Sons L.P.) |
Agreed and accepted solely as to Article 7 hereof:
/s/ Ronald S. Lauder ------------------------------------ Estee Lauder, by Ronald S. Lauder as attorney-in-fact |
/s/ Ronald S. Lauder ------------------------------------ Ronald S. Lauder, as Trustee of the Ronald S. Lauder 1992 Grantor Trust /s/ Leonard A. Lauder ------------------------------------ Leonard A. Lauder, as Trustee of the Ronald S. Lauder 1992 Grantor Trust |
Morgan Guaranty Trust Company of New York, as Trustee of The Ronald S.
Lauder 1992 Grantor Trust
By: /s/
--------------------------------
Name:
Title: As its Vice President
|
Schedule A
Certain Family Controlled Trusts
1. Descendants of Leonard Lauder 1966 Trust u/a/d June 14, 1966, between Estee Lauder, as Settlor, and Leonard A. Lauder, as Trustee, for the benefit of the descendants of Leonard A. Lauder.
2. Descendants of Ronald Lauder 1966 Trust u/a/d June 14, 1966, between Estee Lauder, as Settlor and Ronald S. Lauder, as Trustee, for the benefit of the descendants of Ronald S. Lauder.
3. Trust u/a/d December 15, 1976, between Estee Lauder and Joseph H. Lauder, as Grantors, and Leonard A. Lauder, as Trustee, for the benefit of Gary Lauder and William Lauder.
4. Trust u/a/d December 15, 1976, between Estee Lauder and Joseph H. Lauder, as Grantors, and Ronald S. Lauder, as Trustee, for the benefit of Aerin Lauder and Jane Lauder.
5. Trust u/a/d December 15, 1976, between Leonard A. Lauder, as Grantor, and Leonard A. Lauder and Ronald S. Lauder, as Trustees, for the benefit of Gary Lauder and William Lauder.
6. Trust u/a/d December 15, 1976, between Ronald S. Lauder, as Grantor, and Ronald S. Lauder and Leonard A. Lauder, as Trustees, for the benefit of Aerin Lauder and Jane Lauder.
7. Trust u/a/d August 13, 1982, between Estee Lauder and Joseph H. Lauder, as Grantors, and Leonard A. Lauder, as Trustee, for the benefit of Gary Lauder and William Lauder.
8. Leonard A. Lauder Generation-Skipping Securities Trust u/a/d December 23, 1992, between Leonard A. Lauder, as Grantor, and Joel S. Ehrenkranz, as Trustee.
9. Leonard A. Lauder Grantor Retained Annuity Trust u/a/d November 30, 1992, between Leonard A. Lauder, as Grantor, and Joel S. Ehrenkranz, as Trustee.
10. Gary Lauder 1994 Family Trust u/a/d as of December 16, 1994, between Gary Lauder, as Settlor, and Leonard A. Lauder and Laura Lauder, as Trustees.
11. William Lauder 1994 Family Trust u/a/d as of December 14, 1994, between William Lauder, as Settlor, and Leonard A. Lauder and Karen Lauder, as Trustees.
12. Trust u/a/d June 2, 1994, as amended, between Estee Lauder, as Grantor, and Leonard A. Lauder, Ronald S. Lauder and Ira T. Wender, as Trustees.
Schedule B
STOCKHOLDERS
Name of Stockholder Notice Address Copies to
------------------- -------------- ---------
Leonard A. Lauder 767 Fifth Avenue Weil, Gotshal & Manges
New York, New York 10153 767 Fifth Avenue
Telecopy: (212) 572-6745 New York, NY 10153
Attn: Jeffrey J. Weinberg, Esq.
Telecopy: (212) 310-8007
Ronald S. Lauder 767 Fifth Avenue Debevoise & Plimpton
New York, New York 10153 875 Third Avenue
Telecopy: (212) 572-4046 New York, New York 10022
Attn: Alan H. Paley, Esq.
Telecopy: (212) 909-6836
Morgan Guaranty Trust
Company of New York, as
pledgee of
Ronald S. Lauder
9 West 57th Street
8th Floor
New York, NY 10019
Attn: Ms. Willa Baynard
Telecopy: (212) 980-6850
Davis Polk & Wardwell
450 Lexington Avenue
New York, NY 10017
Attn: John Fouhey, Esq.
Telecopy: (212) 450-4800
Trustees of The Estee Lauder 1994 Leonard A. Lauder Cravath, Swaine & Moore
Trust 767 Fifth Avenue 825 Eighth Avenue
New York, New York 10153 New York, NY 10019
Telecopy: (212) 572-6745 Attn: Daniel L. Mosley, Esq.
Telecopy: (212) 474-3700
Ronald S. Lauder
767 Fifth Avenue
New York, New York 10153
Telecopy: (212) 572-4046
Ira T. Wender, Esq.
Patterson, Belknap, Webb & Tyler
1133 Avenue of the Americas
New York, New York 10036
Telecopy: (212) 336-2222
|
Name of Stockholder Notice Address Copies to
------------------- -------------- ---------
William P. Lauder 767 Fifth Avenue Debevoise & Plimpton
New York, NY 10153 875 Third Avenue
Telecopy: (212) 572-6967 New York, NY 10022
Attn: Theodore A. Kurz, Esq.
Telecopy: (212) 909-6836
Gary M. Lauder 88 Mercedes Lane Debevoise & Plimpton
Atherton, CA 94027 875 Third Avenue
Telecopy: (415) 323-2171 New York, NY 10022
Attn: Theodore A. Kurz, Esq.
Telecopy: (212) 909-6836
Aerin Lauder 203 East 72nd Street Judah Gribetz, Esq.
New York, NY 10021 180 Maiden Lane
Telecopy: None New York, NY 10038
Telecopy: (212) 248-2655
Jane Lauder 2609 California Street Judah Gribetz, Esq.
San Francisco, CA 94115 180 Maiden Lane
Telecopy: [to be supplied] New York, NY 10038
Telecopy: (212) 248-2655
LAL Family Partners L.P. c/o Leonard A. Lauder Boulanger, Hicks & Churchill
767 Fifth Avenue 135 East 57th Street
New York, NY 10153 New York, NY 10022
Telecopy: (212) 572-6745 Attn: Carol S. Boulanger, Esq.
Telecopy: (212) 753-6971
Trustees of the Trust f/b/o Gary M. Joel S. Ehrenkranz Debevoise & Plimpton
Lauder and William P. Lauder u/a/d 375 Park Avenue 875 Third Avenue
December 15, 1976, created by Leonard New York, NY 10152 New York, NY 10022
Lauder, as Grantor Telecopy: (212) 754-1905 Attn: Theodore A. Kurz, Esq.
Telecopy: (212) 909-6836
Carol S. Boulanger
135 East 57th Street
New York, NY 10022
Attn: Carol Boulanger
Telecopy: (212) 753-6971
Trustee of the Trust f/b/o Aerin Richard D. Parsons Patterson, Belknap, Webb & Tyler
Lauder and Jane Lauder u/a/d December 75 Rockefeller Plaza 1133 Avenue of the Americas
15, 1976, created by Estee Lauder and New York, NY 10019 New York, NY 10036
Joseph H. Lauder, as Grantors Telecopy: (212) 275-3085 Attn: Christopher Angell, Esq.
Telecopy: (212) 336-2222
Trustee of the Trust f/b/o Aerin Richard D. Parsons Patterson, Belknap, Webb & Tyler
Lauder and Jane Lauder u/a/d December 75 Rockefeller Plaza 1133 Avenue of the Americas
15, 1976, created by Ronald S. New York, NY 10019 New York, NY 10036
Lauder, as Grantor Telecopy: (212) 275-3085 Attn: Christopher Angell, Esq.
|
Name of Stockholder Notice Address Copies to
------------------- -------------- ---------
Telecopy: (212) 336-2222
Trustees of the 1992 Leonard A. William P. Lauder Boulanger, Hicks & Churchill
Lauder Grantor Retained Annuity Trust 767 Fifth Avenue 135 East 57th Street
New York, NY 10153 New York, NY 10022
Telecopy: (212) 572-6967 Attn: Carol S. Boulanger, Esq.
Telecopy: (212) 753-6971
Gary M. Lauder
88 Mercedes Lane
Atherton, CA 94027
Telecopy: (415) 323-2171
Joel S. Ehrenkranz
375 Park Avenue
New York, NY 10152
Telecopy: (212) 754-1905
Trustee of The Descendants of RSL Ronald S. Lauder Debevoise & Plimpton
1966 Trust 767 Fifth Avenue 875 Third Avenue
New York, New York 10153 New York, New York 10022
Telecopy: (212) 572-4046 Attn: Alan H. Paley, Esq.
Telecopy: (212) 909-6836
Lauder & Sons L.P. Leonard A. Lauder Weil, Gotshal & Manges
767 Fifth Avenue 767 Fifth Avenue
New York, NY 10153 New York, NY 10153
Telecopy: (212) 572-6745 Attn: Jeffrey J. Weinberg, Esq.
Telecopy: (212) 310-8577
Ronald S. Lauder
767 Fifth Avenue Debevoise & Plimpton
New York, NY 10153 875 Third Avenue
Telecopy: (212) 572-4046 New York, NY 10022
Attn: Alan H. Paley, Esq.
Joel S. Ehrenkranz Telecopy: (212) 909-6836
375 Park Avenue
New York, NY 10152 Patterson, Belknap, Webb & Tyler
Telecopy: (212) 754-1905 1133 Avenue of the Americas
New York, NY 10036
Richard D. Parsons Attn: Christopher Angell, Esq.
75 Rockefeller Plaza Telecopy: (212) 336-2222
New York, NY 10019
Telecopy: (212) 275-3085 Cravath, Swaine & Moore
825 Eighth Avenue
Ira T. Wender, Esq. New York, NY 10019
Patterson, Belknap, Webb & Tyler Attn: Daniel L. Mosley, Esq.
1133 Avenue of the Americas Telecopy: (212) 474-3700
New York, New York 10036
Telecopy: (212) 336-2222
|
Exhibit A
[DATE]
The Estee Lauder Companies Inc.
767 Fifth Avenue
New York, New York 10153
Ladies and Gentlemen:
Reference is made to that certain Stockholders' Agreement (the "Agreement"), dated [o], 1995, by and among Leonard A. Lauder, Ronald S. Lauder, William P. Lauder, Gary M. Lauder, Aerin Lauder, Jane Lauder, LAL Family Partners, L.P., Lauder & Sons L.P., the trustees of the various trusts set forth on Schedule A thereto, and The Estee Lauder Companies Inc. Capitalized terms used herein shall have the meanings ascribed to them in the Agreement.
Pursuant to Section 2.2 of the Agreement, the undersigned
hereby agrees that as a condition to the Transfer of Shares to the undersigned,
the undersigned shall be bound by all of the terms of the Agreement, as amended
through the date hereof, to the same extent as a Stockholder, and the
undersigned shall hereafter be a Stockholder under the Agreement. Set forth
[below][on the attached schedule] are the names and addresses for notices and
copies which should be added to Schedule B to the Agreement.
Very truly yours,
EXHIBIT 10.2
REGISTRATION RIGHTS AGREEMENT
Registration Rights Agreement, dated November 22, 1995 (this "Agreement"), by and between The Estee Lauder Companies Inc., a Delaware corporation (the "Company"), Leonard A. Lauder ("LAL"), Ronald S. Lauder ("RSL"), William P. Lauder ("WPL"), Gary M. Lauder ("GML"), Aerin Lauder, Jane Lauder, LAL Family Partners L.P., Lauder & Sons L.P., a Delaware limited partnership, LAL, RSL and Ira T. Wender, as trustees (the "EL Trustees"), u/a/d as of June 2, 1994, as amended, between Estee Lauder, as settlor, and the EL Trustees, and known as "The Estee Lauder 1994 Trust Agreement" (the "EL Trust"), LAL and Joel S. Ehrenkranz, as trustees (the "LAL Trustees"), u/a/d as of November 16, 1995, between Estee Lauder, as settlor, and the LAL Trustees, and known as the "The LAL 1995 Preferred Stock Trust" (the "LAL Trust"), the trustees of the various other trusts set forth on the signature pages hereof and Morgan Guaranty Trust Company of New York in its capacity as pledgee of RSL ("Morgan").
W I T N E S S E T H:
WHEREAS, the Company and the other parties hereto wish to agree upon the manner in which the Company shall provide registration rights to such other parties for their Registrable Class A Common Stock (as defined below) after consummation of an initial public offering in the United States and abroad (collectively, the "Offerings") of the Company's Class A Common Stock, par value $.01 per share (the "Class A Common Stock"), and Registrable Preferred Stock (as defined below); and
WHEREAS, the Company and the EL Trust have entered into that certain Preferred Stock Registration Rights Agreement (as defined below) which currently provides registration rights to the EL Trust for its Registrable Preferred Stock; and
WHEREAS, the Company and the EL Trust desire to terminate the Preferred Stock Registration Rights Agreement upon the consummation of the Offerings and replace such agreement in its entirety with this Agreement.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants herein contained, the parties hereto hereby agree as follows:
1. DEFINITIONS. As used in this Agreement, the following capitalized terms shall have the following meanings:
BUSINESS DAY: any day on which commercial banks are open for business in New York, New York.
COMMON STOCK DEMAND HOLDER: each of the EL Trust, LAL and RSL (or, if applicable, their respective assigns) and Morgan.
Common Stock Demand Registration: see Section 3(a) hereof.
Common Stock Requesting Holder: see Section (3)(a) hereof.
DEMAND REGISTRATION: a Preferred Stock Demand Registration or a Common Stock Demand Registration, as the case may be.
EXCHANGE ACT: the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.
EXCHANGE AGREEMENT: that certain Exchange Agreement, dated as of June 29, 1995, between the Company and the EL Trust.
HOLDERS: the persons or entities set forth on Schedule A.
PARTICIPATING HOLDER: see Section 4(a) hereof.
PERSON: an individual, partnership, corporation, trust or unincorporated organization, or a government or agency or political subdivision thereof or other entity.
PIGGYBACK REGISTRATION: see Section 4(a) hereof.
PREFERRED STOCK: the Company's $6.50 cumulative redeemable preferred stock, par value $0.01 per share, issued by the Company to the EL Trust in exchange for certain shares of the Company's Class B Non voting Common Stock, no par value per share, pursuant to the Exchange Agreement.
PREFERRED STOCK DEMAND EXERCISE PERIOD: the period, if any, beginning on the date hereof and ending on the date Mrs. Lauder dies; PROVIDED, HOWEVER, that if Mrs. Lauder is alive on June 30, 2000, then the Preferred Stock Demand Exercise Period for the EL Trust shall end on June 30, 2000.
Preferred Stock Demand Registration: see Section 2(a) hereof.
PREFERRED STOCK REGISTRATION RIGHTS AGREEMENT: that certain Registration Rights Agreement, dated as of June 30, 1995, between the Company and the EL Trust.
Preferred Stock Requesting Holder: see Section 2(a) hereof.
PROSPECTUS: the prospectus included in any Registration Statement, as amended or supplemented by any prospectus supplement with respect to the terms of the offering of any portion of the Registrable Securities covered by such Registration Statement and by all other amendments and supplements to the prospectus, including post-effective amendments and all material incorporated by reference in such prospectus.
REGISTRABLE CLASS A COMMON STOCK: the Class A Common Stock held by each Holder (or, if the Holder is Morgan or an EL Trust Pledgee, all or part of the Registrable Class A Common Stock then pledged to, or owned as a result of foreclosure thereon by, such Holder), and any securities of the Company that may be issued or distributed with respect to, or in exchange for, such Class A Common Stock (or other
Registrable Class A Common Stock that can be traced directly or indirectly to such Class A Common Stock), pursuant to a stock dividend or distribution, stock split, merger, consolidation, reorganization, recapitalization, reclassification, conversion right or otherwise, including without limitation, shares of Class A Common Stock issued or issuable upon conversion of shares of Class B Common Stock, par value $.01 per share, of the Company.
REGISTRABLE PREFERRED STOCK: the Preferred Stock held by either the EL Trust or the LAL Trust and any Preferred Stock pledged to, or owned as a result of foreclosure thereon by, an EL Trust Pledgee and any securities of the Company that may be issued or distributed with respect to, or in exchange for, such Preferred Stock (or other Registrable Preferred Stock that can be traced directly or indirectly to such Preferred Stock), pursuant to a stock dividend or distribution, stock split, merger, consolidation, reorganization, recapitalization, reclassification, conversion right or otherwise.
REGISTRABLE SECURITIES: the Registrable Preferred Stock and the Registrable Class A Common Stock.
REGISTRATION STATEMENT: any registration statement of the Company that covers any of the Registrable Securities pursuant to the provisions of this Agreement, including the Prospectus, amendments and supplements to such Registration Statement, including post-effective amendments, all exhibits and all material incorporated by reference in such Registration Statement.
REQUESTING HOLDER: a Common Stock Requesting Holder or a Preferred Stock Requesting Holder, as the case may be.
SEC: the Securities and Exchange Commission.
SECURITIES ACT: the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.
UNDERWRITTEN REGISTRATION or UNDERWRITTEN OFFERING: a registration in which securities of the Company are sold to an underwriter for reoffering to the public.
2. PREFERRED STOCK DEMAND REGISTRATION.
(a) Except as provided herein, during the Preferred Stock Demand Exercise Period, the EL Trust, the LAL Trust or, subject to Section 2(b), an EL Trust Pledgee (the "Preferred Stock Requesting Holder") may make a written request to the Company for registration under the Securities Act of all or part of the Registrable Preferred Stock it then owns (or, if the Preferred Stock Requesting Holder is an EL Trust Pledgee, all or part of the Registrable Preferred Stock then pledged to, or owned as a result of foreclosure thereon by, such Preferred Stock Requesting Holder) (a "Preferred Stock Demand Registration"); PROVIDED, HOWEVER, that the Company shall not be obligated to register any Registrable Preferred Stock if the aggregate value (as determined in good faith by the Company's Board of Directors) of the Registrable Preferred Stock subject to the request of the Preferred Stock Requesting Holder is less
than $50 million. Any such request by the Preferred Stock Requesting Holder shall specify the aggregate amount of Registrable Preferred Stock to be registered and also shall specify the intended method of disposition thereof. Within ten Business Days after receipt of such registration request, the Company shall commence the preparation of the registration of the specified number of shares of Registrable Preferred Stock; PROVIDED, HOWEVER, that the Company may, upon written notice to the Preferred Stock Requesting Holder given within such ten Business Day period, delay such commencement for a reasonable period of time, but not for more than 90 calendar days from the Company's receipt of the request for such Preferred Stock Demand Registration, (x) as is necessary to prepare audited financial statements of the Company for its most recently completed fiscal year or other audited financial statements reasonably required in the Registration Statement or (y) if the Company would be required to disclose in such Registration Statement the existence of any fact relating to a proposed acquisition, financing or other material corporate development not otherwise required to be disclosed and the Board of Directors of the Company shall have in good faith determined that such disclosure would be materially adverse to the Company. Such notice of delay shall explain, in reasonable detail, the reasons for such delay. If the Company shall so delay commencement of the preparation of such Preferred Stock Demand Registration, the Preferred Stock Requesting Holder may, within 30 calendar days after receipt of the notice of delay, notify the Company that it is withdrawing its request for registration and such Preferred Stock Demand Registration shall be deemed to be withdrawn and such request shall be deemed not to have been exercised for purposes hereof. In addition, if the Preferred Stock Requesting Holder so notifies the Company of its determination to withdraw its request for registration and, within the 60 calendar days immediately following the end of the 90-day deferral period, makes a written request to the Company for registration of Registrable Preferred Stock that was subject to the registration withdrawn pursuant to the preceding sentence, the Company shall have no right to defer such registration pursuant to this Section 2(a).
(b) Except as provided by Section 2(d) below and subject to the hold-back restrictions set forth in Section 5 hereof, the EL Trust shall be entitled to six Preferred Stock Demand Registrations (three of which may only be used by a pledgee of the EL Trust (an "EL Trust Pledgee") assigned such rights by the EL Trust hereunder) and the LAL Trust shall be entitled to one Preferred Stock Demand Registration; PROVIDED, HOWEVER, that only one Preferred Stock Demand Registration may be requested by a Preferred Stock Requesting Holder in any three-month period; PROVIDED FURTHER, HOWEVER, that an EL Trust Pledgee may only request a Preferred Stock Demand Registration after a default by the EL Trust in respect of its obligations to the EL Trust Pledgee secured by Registrable Preferred Stock.
(c) The offering of the Registrable Preferred Stock sought to be registered pursuant to any such Preferred Stock Demand Registration shall be in the form of an Underwritten Offering if requested by the Preferred Stock Requesting Holder. If the managing underwriter or underwriters unanimously determine in good faith that the total number of shares of Registrable Preferred Stock proposed to be included in such offering is such as to materially adversely affect the success of such offering, then the
number of shares of Registrable Preferred Stock shall be reduced or limited to the number that, in the reasonable opinion of such managing underwriter or underwriters, can be sold without materially adversely affecting the success of such offering.
(d) If (i) more than one-third of the Preferred Stock Requesting Holder's Registrable Preferred Stock sought to be registered in the Preferred Stock Demand Registration is not included in such registration pursuant to Section 2(c) hereof, (ii) a Preferred Stock Demand Registration is delayed pursuant to Section 2(a) hereof and the Registration Statement filed following such delay does not become effective within 120 days following the 90 days referred to in Section 2(a) hereof, (iii) a Preferred Stock Demand Registration is not delayed pursuant to Section 2(a) hereof and the Registration Statement filed in respect of such Preferred Stock Demand Registration does not for any reason become effective within 120 days after such demand for registration hereunder, (iv) such Registration Statement, after it has become effective, is interfered with by any stop order, injunction or other order or requirement of the SEC or other governmental agency or court by reason of an act or omission by the Company or any of its subsidiaries or (v) the conditions to closing specified in the purchase agreement or underwriting agreement entered into in connection with such registration are not satisfied because of an act or omission by the Company or any of its subsidiaries (other than by reason of facts or circumstances not within the control of the Company or any such subsidiary), then in each such case such Preferred Stock Demand Registration shall not be counted for purposes of calculating the number of demand rights exercised by the EL Trust, the EL Trust Pledgee or the LAL Trust, as the case may be, in Section 2(b) hereof.
(e) Nothing in this Section 2 or in Section 4 hereof shall create any right in the EL Trust, the LAL Trust or an EL Trust Pledgee to require the Company to register any securities other than the Registrable Preferred Stock and in the case of Section 4 hereof, Registrable Class A Common Stock, under the Securities Act.
3. COMMON STOCK DEMAND REGISTRATION.
(a) Except as provided herein, following the consummation of the Offerings, any Common Stock Demand Holder (a "Common Stock Requesting Holder") may make a written request to the Company for registration under the Securities Act of all or part of the Registrable Class A Common Stock he, she or it then owns (or, if the Common Stock Demand Holder is Morgan or an EL Trust Pledgee, all or part of the Registrable Class A Common Stock then pledged to, or owned as a result of foreclosure thereon by, such Common Stock Demand Holder) (a "Common Stock Demand Registration"); PROVIDED, HOWEVER, that the Company shall not be obligated to register any Registrable Class A Common Stock if the aggregate value (as determined in good faith by the Company's Board of Directors) of the Registrable Class A Common Stock subject to the Common Stock Requesting Holder's request is less than $50 million. Any such request by a Common Stock Requesting Holder shall specify the aggregate amount of Registrable Class A Common Stock to be registered and also shall specify the intended method of disposition thereof. Within ten Business Days after receipt of such registration request, the Company shall commence the preparation of the registration of the specified number of shares of Registrable Class A Common Stock; PROVIDED, HOWEVER, that the
Company may, upon written notice to the Common Stock Requesting Holder given within such ten Business Day period, delay such commencement for a reasonable period of time, but not for more than 90 calendar days from the Company's receipt of the request for such Common Stock Demand Registration, (x) as is necessary to prepare audited financial statements of the Company for its most recently completed fiscal year or other audited financial statements reasonably required in the Registration Statement or (y) if the Company would be required to disclose in such Registration Statement the existence of any fact relating to a proposed acquisition, financing or other material corporate development not otherwise required to be disclosed and the Board of Directors of the Company shall have in good faith determined that such disclosure would be materially adverse to the Company. Such notice of delay shall explain, in reasonable detail, the reasons for such delay. If the Company shall so delay commencement of the preparation of such Common Stock Demand Registration, the Common Stock Requesting Holder may, within 30 calendar days after receipt of the notice of delay, notify the Company that it is withdrawing its request for registration and such Common Stock Demand Registration shall be deemed to be withdrawn and such request shall be deemed not to have been exercised for purposes hereof. In addition, if the Common Stock Requesting Holder so notifies the Company of his, her or its determination to withdraw its request for registration and, within the 60 calendar days immediately following the end of the 90-day deferral period, makes a written request to the Company for registration of Registrable Class A Common Stock that was subject to the registration withdrawn pursuant to the preceding sentence, the Company shall have no right to defer such registration pursuant to this Section 3(a).
(b) Except as provided by Section 3(d) below and subject to the hold-back restrictions set forth in Section 5 hereof, the EL Trust shall be entitled to six Common Stock Demand Registrations (three of which may only be used by one or more EL Trust Pledgees assigned such rights by the EL Trust hereunder) and LAL, RSL and Morgan shall be entitled to three Common Stock Demand Registrations each; PROVIDED, HOWEVER, that the Company shall not be required to comply with this Section 3(b) more than once in any 12 calendar month period; PROVIDED FURTHER, HOWEVER, that an EL Trust Pledgee may only request a Common Stock Demand Registration after a default by the EL Trust in respect of its obligations to the EL Trust Pledgee secured by Registrable Class A Common Stock and Morgan may only request a Common Stock Demand Registration after a default by RSL in respect of his obligations to Morgan secured by Registrable Class A Common Stock.
(c) The offering of the Registrable Class A Common Stock sought to be registered pursuant to any such Common Stock Demand Registration shall be in the form of an Underwritten Offering if requested by the Common Stock Requesting Holder. If the managing underwriter or underwriters unanimously determine in good faith that the total number of shares of Registrable Class A Common Stock proposed to be included in such offering is such as to materially adversely affect the success of such offering, then the number of shares of Registrable Class A Common Stock shall be reduced or limited to the number that, in the reasonable opinion of such managing underwriter or underwriters, can be sold without materially adversely affecting the success of such offering.
(d) If (i) more than one-third of any Common Stock Requesting
Holder's Registrable Class A Common Stock sought to be registered in the Common
Stock Demand Registration is not included in such registration pursuant to
Section 3(c), (ii) a Common Stock Demand Registration is delayed pursuant to
Section 3(a) hereof and does not become effective within 120 days following the
90 days referred to in Section 3(a) hereof, (iii) a Common Stock Demand
Registration is not delayed pursuant to Section 3(a) hereof and the Registration
Statement filed in respect of such Common Stock Demand Registration does not for
any reason become effective within 120 days after such Common Stock Requesting
Holder's demand for registration hereunder, (iv) such Registration Statement,
after it has become effective, is interfered with by any stop order, injunction
or other order or requirement of the SEC or other governmental agency or court
by reason of an act or omission by the Company or any of its subsidiaries or (v)
the conditions to closing specified in the purchase agreement or underwriting
agreement entered into in connection with such registration are not satisfied
because of an act or omission by the Company or any of its subsidiaries (other
than by reason of facts or circumstances not within the control of the Company
or any such subsidiary), then in each such case such Common Stock Demand
Registration shall not be counted for purposes of calculating the number of
demand rights exercised by such Common Stock Requesting Holder in Section 3(b).
(e) Nothing in this Section 3 or in Section 4 hereof shall create any right in the EL Trust, LAL, RSL, an EL Trust Pledgee or Morgan to require the Company to register any securities other than the Registrable Class A Common Stock under the Securities Act.
4. PIGGYBACK REGISTRATION.
(a) If the Company at any time proposes to issue and register shares of its equity securities on its own behalf or to register equity securities on behalf of any holder of its equity securities under the Securities Act (other than a registration effected solely to implement an employee benefit plan, a transaction to which Rule 145 promulgated under the Securities Act is applicable or a transaction eligible to be registered on Form S-4 or any successor form), the Company shall give written notice each such time to each Holder of its intention to do so (which notice shall include the anticipated filing date of the Registration Statement and the number of its equity securities proposed to be included in the Registration Statement). Upon the written request of any Common Stock Demand Holder or any other Holder (a "Participating Holder") given within 15 Business Days after receipt of any such notice by such Participating Holder (stating the number of Registrable Securities to be disposed by such Participating Holder (or, if the Participating Holder is Morgan or an EL Trust Pledgee, the number of Registrable Securities then pledged to such Participating Holder and to be disposed by the pledgor of such Registrable Securities or owned by such Participating Holder as a result of foreclosure thereon and to be disposed by such Participating Holder) and the intended method of disposition), the Company shall include the Registrable Securities intended to be disposed of in a Registration Statement under the Securities Act so as to permit disposition (in accordance with the reasonable methods in such request) by such Participating Holder (a "Piggyback Registration").
(b) Notwithstanding any provision of this Section 4, if the registration of which the Company gives notice pursuant to Section 4(a) is for an Underwritten Offering and the managing underwriter or underwriters determine in good faith that the total number of Registrable Securities proposed to be included in such offering is such as to materially adversely affect the success of such offering, then priority for inclusion shall be (1) first to any Requesting Holder exercising demand registration rights, (2) second to the Company for securities being sold for its own account, and (3) third to those Participating Holders exercising piggyback registration rights; PROVIDED, HOWEVER, that the amount of securities of any Participating Holder and such other holders (other than a Requesting Holder exercising demand registration rights) shall be reduced or limited PRO RATA among such Participating Holders and such other holders in proportion to the amount (by value) of securities sought to be registered by each, to the extent necessary to reduce the total amount of Registrable Securities to be included in such offering to the amount that, in the reasonable opinion of such managing underwriter or underwriters, can be sold without materially adversely affecting the success of such offering; and PROVIDED FURTHER, HOWEVER, that if it is necessary for the EL Trust to participate in the Underwritten Offering for the purpose of raising cash to pay for estate and inheritance taxes, the EL Trust's participation in the Underwritten Offering shall not be reduced or limited to the extent that the trustees of the EL Trust certify that the proceeds from the sale of Registrable Securities included in the applicable registration are used to pay estate, inheritance and succession taxes, and all generation-skipping transfer taxes imposed on any direct skip as defined in Section 2612(c) of the Internal Revenue Code of 1986, as amended (but not including any generation-skipping transfer taxes imposed on any direct skip resulting from a disclaimer or exercise of a power of appointment), including all interest in respect of any such taxes, payable by reason of the death of Mrs. Estee Lauder ("Mrs. Lauder") in respect of any property whether or not passing under her will (collectively, "Death Taxes") and all funeral expenses, debts (incurred for the purposes of administering the estate or the payment of taxes) and expenses of administering the estate of Mrs. Lauder (collectively, "Administration Expenses"); PROVIDED FURTHER, HOWEVER, that if such proceeds will not be so used, then the EL Trust's participation may be reduced or limited as provided herein first in respect of the Registrable Class A Common Stock and thereafter in respect of the Registrable Preferred Stock.
(c) If any Participating Holder elects not to participate in any underwriting in which it had previously requested the registration described in Section 4(a), the Participating Holder may elect to withdraw therefrom by delivering written notice to the Company and the managing underwriter or underwriters, if any, at least 30 days prior to the planned effective date of such Piggyback Registration.
(d) Notwithstanding anything to the contrary contained herein
(i) an EL Trust Pledgee may only participate in a Piggyback Registration after a
default by the EL Trust in respect of its obligations to the EL Trust Pledgee
secured by Registrable Securities and (ii) Morgan may only participate in a
Piggyback Registration after a default by RSL in respect of his obligations to
Morgan secured by Registrable Securities.
5. HOLD-BACK AGREEMENTS; PRESS RELEASES.
(a) If any of the Registrable Securities beneficially owned by any Requesting Holder or Participating Holder (or, if the Requesting Holder or Participating Holder, as the case may be, is Morgan or an EL Trust Pledgee, all or part of the Registrable Class A Common Stock then pledged to, or owned as a result of foreclosure thereon by, such Requesting Holder or Participating Holder) are covered by a Registration Statement filed pursuant to Section 2, 3 or 4 hereof, such Requesting Holder or Participating Holder agrees not to effect any public sale or distribution of Registrable Securities of the Company, including a sale pursuant to Rule 144 under the Securities Act (except as part of such Underwritten Registration), during the 30 calendar day period prior to, and during the 180 calendar day period beginning on, the closing date of each Underwritten Offering made pursuant to such Registration Statement, unless the managing underwriter or underwriters agree in writing to waive or shorten any such period for all sellers of the Company's securities. This provision shall not apply to the Requesting Holder or Participating Holder if there is a public sale or distribution of Registrable Securities prior to expiration of such holding period or if such Requesting Holder or Participating Holder is prevented by applicable statute or regulation from entering into any such agreement; PROVIDED, HOWEVER, that the Requesting Holder or Participating Holder shall undertake, in its request to participate in any such Underwritten Offering, not to effect any public sale or distribution of Registrable Securities commencing on the date of such offering unless it has provided 180 calendar days prior written notice of such sale or distribution to the managing underwriter or underwriters (or such fewer number of days as then remains in the 180-day period commencing on the closing date of such offering). The Company agrees to be bound by the foregoing hold-back agreement and to cause each person to which it grants registration rights to be so bound to the same extent as the Requesting Holder or Participating Holder.
(b) Before any Requesting Holder or Participating Holder shall disseminate or announce publicly any information concerning a proposed offering pursuant to Section 2, 3 or 4 hereof that is intended for or may result in public knowledge thereof, such holder shall so advise the Company and shall not disseminate or announce publicly such information without the Company's consent, unless such information is otherwise publicly available or the dissemination thereof is required by applicable law.
(c) Notwithstanding anything to the contrary contained herein, the parties hereto agree not to exercise any registration rights provided herein without the prior written consent of Goldman, Sachs & Co. until 185 days after the date of the prospectus used in connection with the Offerings.
6. REGISTRATION PROCEDURES. In connection with the Company's Demand Registration and Piggyback Registration obligations pursuant to Sections 2, 3 and 4 hereof, the Company will use its reasonable efforts to effect such Demand Registration or Piggyback Registration to permit the sale of Registrable
Securities in accordance with the intended method or methods of distribution thereof, and pursuant thereto the Company will:
(a) prepare and file with the SEC, as soon as practicable after receipt of the registration request referred to in Section 2, 3 or 4 hereof, and use its best efforts to have declared effective, a Registration Statement relating to the Demand Registration or Piggyback Registration on any appropriate form under the Securities Act, which form shall be available for the sale of the Registrable Securities in accordance with the intended method or methods of distribution thereof and shall include all financial statements required by the SEC to be filed therewith, and cooperate and assist in any filings required to be made with any national stock exchange or national computerized market system on which the Registrable Securities sought to be registered are to be listed or quoted; PROVIDED, HOWEVER, that, before filing a Registration Statement or Prospectus or any amendments or supplements thereto, the Company shall furnish to each Requesting Holder and Participating Holder and the managing underwriter or underwriters, if any, copies of all such documents proposed to be filed, which documents shall be subject to the reasonable review of such Holder and the managing underwriter or underwriters, if any, and the Company shall not file any Registration Statement or amendment thereto or any Prospectus or any supplement thereto to which the managing underwriter or underwriters, if any, or such Holders shall reasonably object in writing;
(b) cause the Prospectus to be supplemented by any required Prospectus supplement, and as so supplemented to be filed pursuant to Rule 424 under the Securities Act and comply with the provisions of the Securities Act with respect to the disposition of all the Registrable Securities covered by such Registration Statement during the applicable period in accordance with the intended method or methods of distribution by the Requesting Holder or Participating Holder set forth in such Registration Statement or supplement to the Prospectus; PROVIDED, HOWEVER, that any actions taken by the Company in good faith and for valid business reasons, including, without limitation, the acquisition or divestiture of assets, shall not violate the foregoing so long as the Company promptly thereafter complies with the requirements of Section 6(k) hereof, if applicable;
(c) notify each Requesting Holder and Participating Holder and the managing underwriter or underwriters, if any, and (if requested by any such Person) confirm such notice in writing: (1) when the Registration Statement or any amendment thereto or the Prospectus or any Prospectus supplement or post-effective amendment has been filed, and, with respect to the Registration Statement or any post-effective amendment, when the same has become effective, and to furnish each such Holder and underwriter with copies thereof, (2) of any request by the SEC for amendments or supplements to the Registration Statement or the
Prospectus or for additional information, (3) of the issuance by the SEC of any stop order or similar order suspending the effectiveness of the Registration Statement or the use of any preliminary Prospectus or Prospectus or the initiation or threatening of any proceedings for that purpose, (4) if at any time the representations and warranties of the Company contemplated by Section 6(l) below cease to be true and correct, (5) of the receipt by the Company of any notification with respect to the suspension of the qualification of the Registrable Securities for offering or sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose and (6) of the happening of any event that makes any statement made in the Registration Statement, the Prospectus or any document incorporated therein by reference untrue or that requires the making of any changes in the Registration Statement, the Prospectus or any document incorporated therein by reference in order to make the statements therein not misleading;
(d) make every reasonable effort to obtain the withdrawal of any stop order or other order suspending the effectiveness of the Registration Statement or the use of any preliminary Prospectus or Prospectus, at the earliest possible moment;
(e) if requested by any Requesting Holder or Participating Holder or the managing underwriter or underwriters, if any, incorporate in a Prospectus supplement or post-effective amendment such information as such Holder or the managing underwriter or underwriters, if any, reasonably agree should be included therein relating to the plan of distribution with respect to the Registrable Securities; and make all required filings of such Prospectus supplement or post-effective amendment as soon as notified of the matters to be incorporated in such Prospectus supplement or post-effective amendment; PROVIDED, HOWEVER, that the Company shall not be required to take any actions in this Section 6(e) that will not, in the written opinion of counsel for the Company delivered to each Requesting Holder and Participating Holder, in compliance with applicable law;
(f) furnish to each Requesting Holder and Participating Holder and each managing underwriter or underwriters, if any, without charge, at least one executed copy and as many conformed copies as they may reasonably request of the Registration Statement and any post-effective amendments thereto, including financial statements and schedules, all documents incorporated therein by reference and all exhibits (including those incorporated by reference);
(g) deliver to each Requesting Holder and Participating Holder and the managing underwriter or underwriters, if any, without charge, as many copies of the Prospectus (including each preliminary prospectus) and any amendment or supplement thereto as such Persons may
reasonably request; it being understood and agreed that the Company consents to the use of the Prospectus or any amendment or supplement thereto by each such Holder and the managing underwriter or underwriters, if any, in connection with the offering and sale of the Registrable Securities covered by the Prospectus or any amendment or supplement thereto;
(h) prior to any public offering of Registrable Securities covered by a Registration Statement, use its best efforts to register or qualify, and cooperate with each Requesting Holder and Participating Holder, the managing underwriter or underwriters, if any, and respective counsel in connection with the registration or qualification of, such Registrable Securities for offer and sale under the securities or blue sky laws of such jurisdictions as each such Holder or underwriter reasonably requests in writing and do any and all other acts or things necessary or advisable to enable the disposition in such jurisdictions of the Registrable Securities covered by the Registration Statement; PROVIDED, HOWEVER, that the Company shall not be required: (1) to qualify generally to do business in any jurisdiction where it is not then so qualified or (2) to take any action that would subject it to general service of process in any such jurisdiction where it is not then so subject or subject the Company to any tax in any such jurisdiction where it is not then so subject;
(i) (1) cooperate with each Requesting Holder and
Participating Holder and the managing underwriter or
underwriters, if any, to facilitate the timely preparation and
delivery of certificates representing the Registrable
Securities covered by a Registration Statement to be sold; and
(2) enable the Registrable Securities covered by a
Registration Statement to be in such denominations and
registered in such names as the managing underwriter or
underwriters may request at least two Business Days prior to
any sale of such Registrable Securities to the underwriters;
(j) use its best efforts to cause the Registrable Securities covered by the applicable Registration Statement to be registered with or approved by such other governmental agencies or authorities as may be necessary to enable each Requesting Holder and Participating Holder or the managing underwriter or underwriters, if any, to consummate the disposition of such Registrable Securities; PROVIDED, HOWEVER, that the Company shall not be required to register the Registrable Securities covered by a Registration Statement in any jurisdiction where such registration would subject the Company to general service of process where it is not then so subject, or subject the Company to any tax in any such jurisdiction where it is not then so subject;
(k) upon the occurrence of any event contemplated by clause (6) of Section 6(c) above, prepare a supplement or post-effective amendment to the Registration Statement or the related Prospectus or any
document incorporated therein by reference or file any other required document so that, as thereafter delivered to the purchasers of the Registrable Securities covered by a Registration Statement, the Prospectus will not contain an untrue statement of a material fact or omit to state any material fact necessary to make the statements therein not misleading;
(l) enter into such customary agreements (including
an underwriting agreement) on terms reasonably acceptable to
the Company and use its best efforts to take all such other
actions in order to facilitate the disposition of the
Registrable Securities covered by the Registration Statement
and in such connection, whether or not an underwriting
agreement is entered into and whether or not the registration
is an underwritten registration: (1) make such representations
and warranties to each Requesting Holder and Participating
Holder and the managing underwriter or underwriters, if any,
in form, substance and scope, as are customarily made by
issuers to underwriters in similar underwritten offerings; (2)
obtain opinions of counsel to the Company and updates thereof
(which counsel and opinions (in form, scope and substance)
shall be reasonably satisfactory to the managing underwriter
or underwriters, if any, and not objected to by any Requesting
Holder or Participating Holder) addressed to each Requesting
Holder and Participating Holder and the managing underwriter
or underwriters, if any, covering the matters customarily
covered in opinions requested in underwritten offerings and
such other matters as may be reasonably requested by any such
Holder and the underwriters; (3) obtain "cold comfort" letters
and updates thereof from the Company's independent certified
public accountants addressed to each Requesting Holder and
Participating Holder and the managing underwriter or
underwriters, if any, such letters to be in customary form and
covering matters of the type customarily covered in "cold
comfort" letters by accountants in connection with
underwritten offerings; (4) if an underwriting agreement is
entered into, the same shall set forth certain indemnification
provisions and procedures with respect to all parties to be
indemnified pursuant thereto, which provisions and procedures
shall be normal and customary in the investment banking and/or
financial services industry; and (5) deliver such documents
and certificates as may be reasonably requested by each
Requesting Holder and Participating Holder and the managing
underwriter or underwriters, if any, to evidence compliance
with Section 6(k) above and with any customary conditions
contained in the underwriting agreement or other agreement
entered into by the Company. Each of the above shall be done
at each closing under such underwriting or similar agreement
or as and to the extent required thereunder;
(m) otherwise use its best efforts to comply with all applicable rules and regulations of the SEC, and make generally available to holders of Registrable Securities covered by a Registration Statement, earnings statements satisfying the provisions of Section 11(a) of the Securities Act,
no later than 45 calendar days after the end of any 12-month
period (or 90 calendar days, if such period is a fiscal year):
(l) commencing at the end of any fiscal quarter in which the
Registrable Securities covered by a Registration Statement is
sold to underwriters in a firm or best efforts underwritten
offering or (2) if not sold to underwriters in such an
offering, beginning with the first month of the Company's
first fiscal quarter commencing after the effective date of
the Registration Statement, which statements shall cover said
12-month periods; and
(n) make available for inspection by any Holder of Registrable Securities covered by a Registration Statement (including Morgan or an EL Trust Pledgee if it is a Requesting Holder or Participating Holder in connection therewith), any underwriter participating in any disposition pursuant to such registration statement and any attorney, accountant or other professional retained by any such Holder or underwriter (collectively, the "Inspectors"), all financial and other records, pertinent corporate documents and properties of the Company (collectively, the "Records") as shall be reasonably necessary to enable them to exercise their due diligence responsibility, and cause the Company's officers, directors and employees to supply all information reasonably requested by any Inspectors in connection with such registration statement. Records which the Company determines, in good faith, to be confidential and which it notifies the Inspectors are confidential shall not be disclosed by the Inspectors unless (i) the disclosure of such Records is necessary to avoid or correct a misstatement or omission in such registration statement or (ii) the release of such Records is ordered pursuant to a subpoena or other order from a court of competent jurisdiction. Each such Holder of Registrable Securities covered by a Registration Statement agrees that information obtained by it as a result of such inspections shall be deemed confidential and shall not be used by it as the basis for any market transactions in the securities of the Company or its affiliates unless and until such is made generally available to the public. Each such Holder of Registrable Securities covered by a Registration Statement further agrees that it will, upon learning that disclosure of such Records is sought in a court of competent jurisdiction, give notice to the Company and allow the Company, at its expense, to undertake appropriate action to prevent disclosure of the Records deemed confidential.
The Company may require each Requesting Holder and Participating Holder to furnish to the Company such information regarding the distribution of the Registrable Securities sought to be registered as the Company may from time to time reasonably request in writing, and the Company may exclude from registration the Registrable Securities of any such Holder if it fails to furnish such information within a reasonable time after receiving such request.
Each Requesting Holder and Participating Holder agrees that, upon receipt of any notice from the Company of the happening of any event of the kind described in
clause (3), (5) or (6) of Section 6(c) hereof, such Holder shall forthwith discontinue disposition of the Registrable Securities until it receives copies of the supplemented or amended Prospectus contemplated by Section 6(k) hereof, or until it is advised in writing by the Company that the use of the Prospectus may be resumed, and has received copies of any additional or supplemental filings which are incorporated by reference in the Prospectus, and, if so directed by the Company, each Requesting Holder and Participating Holder will deliver to the Company all copies, other than permanent file copies then in such Holder's possession, of the Prospectus covering such Registrable Securities at the time of receipt of such notice.
7. REGISTRATION EXPENSES.
(a) Except as set forth in Section 7(c) hereof, all expenses incident to the Company's performance of or compliance with this Agreement pursuant to any Demand Registration or any Piggyback Registration, including, without limitation all: (1) registration and filing fees, including National Association of Securities Dealers' fees and fees and expenses associated with filings required to be made with a national securities exchange or national computerized market system, (2) fees and expenses of compliance with state securities or blue sky laws (including reasonable fees and disbursements of counsel for underwriters in connection with blue sky qualifications of the Registrable Securities covered by the Registration Statement and determination of eligibility for investment under the laws of such jurisdictions designated by the managing underwriter or underwriters, if any), (3) printing expenses (including expenses of printing certificates for the Registrable Securities covered by the Registration Statement in a form eligible for deposit with the Depositary Trust Company and of printing prospectuses) and the expenses related to copying any documents or agreements related to such registration, (4) fees and disbursements of counsel for the Company, of all independent certified public accountants of the Company (including the expenses of any special audit and "cold comfort" letters required by or incident to such performance) and of all underwriters and (5) fees and expenses of other Persons, such as any transfer agent or registrar, retained by the Company in connection with such registration shall be borne by the Company, regardless of whether the Registration Statement becomes effective.
(b) The Company shall, under either a Piggyback or Demand Registration, pay its internal expenses (including, without limitation, all salaries and expenses of its officers and employees performing legal or accounting duties), the expense of any annual audit, and the fees and expenses of any Person (other than legal counsel), including special experts, retained by the Company, regardless of whether the Registration Statement becomes effective.
(c) The Requesting Holder or Participating Holder shall bear the following expenses in connection with any Demand or Piggyback Registration, regardless of whether the Registration Statement becomes effective: (1) all discounts, commissions, or fees of underwriters, selling brokers, dealer managers, or similar securities industry professionals relating to the distribution of the Registrable Securities of such Holder, (2) all legal and accounting fees and expenses of such Holder and (3) all taxes of such Holder.
8. INDEMNIFICATION.
(a) INDEMNIFICATION BY COMPANY. The Company agrees to
indemnify and hold harmless, to the full extent permitted by law, each
Requesting Holder and Participating Holder, its trustees, beneficiaries,
employees, directors and officers and each Person who controls any such Holder
(within the meaning of Section 15 of the Securities Act) from and against all
losses, claims, damages, liabilities, and reasonable expenses arising out of or
based upon any untrue or alleged untrue statement of a material fact contained
in any Registration Statement, Prospectus or preliminary Prospectus or any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading,
except insofar as the same are caused by or contained in any information
furnished to the Company in writing by such Holder specifically for use therein;
PROVIDED, HOWEVER, that the Company shall not be liable in any such case to the
extent that any such loss, claim, damage, liability or expense of such Holder
arises out of or is based upon an untrue statement or alleged untrue statement
or omission or alleged omission made in any such preliminary Prospectus if: (1)
such Holder or its agents failed to deliver a copy of the Prospectus to the
Person asserting such loss, claim, damage, liability, or expense after the
Company had furnished such Holder with a sufficient number of copies of the same
and (2) the Prospectus corrected such untrue statement or omission; and PROVIDED
FURTHER that the Company shall not be liable in any such case to the extent that
any such loss, claim, damage, liability, or expense arises out of or is based
upon an untrue statement or alleged untrue statement or omission or alleged
omission in the Prospectus, if such untrue statement or alleged untrue statement
or omission or alleged omission is corrected in an amendment or supplement to
the Prospectus and such Holder or its agent thereafter fails to deliver such
Prospectus as so amended or supplemented prior to or concurrently with the sale
of the Registrable Securities covered by a Registration Statement to the Person
asserting such loss, claim, damage, liability, or expense after the Company had
furnished such Holder with a sufficient number of copies thereof in a manner and
at a time sufficient to permit delivery of the same. The Company will also
indemnify underwriters, selling brokers, dealer managers, and similar securities
industry professionals participating in the distribution, their officers and
directors, and each Person who controls such Persons (within the meaning of
Section 15 of the Securities Act), as then customary in connection with similar
transactions, if requested, including an exception relating to any information
furnished to the Company in writing by such underwriters, selling brokers,
dealer managers and similar securities industry professionals.
(b) INDEMNIFICATION BY HOLDERS. In connection with each Demand Registration and Piggyback Registration hereunder, each Requesting Holder and Participating Holder, respectively, shall furnish to the Company in writing such information as the Company reasonably requests for use in connection with any Registration Statement or Prospectus, and agrees, severally but not jointly, to indemnify and hold harmless, to the full extent permitted by law, the Company, its officers, directors, and employees, and each Person who directly or indirectly controls the Company (within the meaning of Section 15 of the Securities Act), from and against any losses, claims, damages, liabilities, and reasonable expenses resulting from any untrue
statement of a material fact or any omission of a material fact required to be stated in the Registration Statement or Prospectus or preliminary Prospectus or necessary to make the statements therein not misleading, to the extent, but only to the extent, that such untrue statement or omission is contained in such information so furnished by such Holder to the Company specifically for inclusion in such Registration Statement or Prospectus. The Company shall be entitled to receive indemnities from underwriters, selling brokers, dealer managers, and similar securities industry professionals participating in the distribution, to the same extent as provided above with respect to information so furnished in writing by such Persons specifically for inclusion in any Prospectus or Registration Statement. The amount payable by any Requesting Holder or Participating Holder with respect to the indemnification set forth in this subsection (b) in connection with any Demand Registration or Piggyback Registration shall not exceed the amount of gross proceeds received by such Requesting Holder or Participating Holder, as the case may be, from the sale of Registrable Securities sold in the offering made pursuant to such Demand Registration or Piggyback Registration, as the case may be. If Morgan or an EL Trust Pledgee has registered any Registrable Securities pursuant to a Demand Registration or Piggyback Registration at a time when such Registrable Securities were pledged to Morgan or an EL Trust Pledgee (and not owned by Morgan or an EL Trust Pledgee as a result of foreclosure thereon), for purposes of this subsection (b), the "Requesting Holder" or "Participating Holder" with respect to such Registrable Securities shall be deemed to be RSL and not Morgan or the EL Trust and not such EL Trust Pledgee, as the case may be.
(c) CONDUCT OF INDEMNIFICATION PROCEEDINGS. Any Person entitled to indemnification hereunder shall: (1) give prompt written notice to the indemnifying party of any written claim with respect to which it seeks indemnification and (2) permit such indemnifying party to assume the defense of such claim with counsel reasonably satisfactory to the indemnified party; PROVIDED, HOWEVER, that any Person entitled to indemnification hereunder shall have the right to employ separate counsel and to participate in the defense of such claim, but the fees and expenses of such counsel shall be at the expense of such Person unless: (x) the indemnifying party has agreed in writing to pay such fees or expenses, (y) the indemnifying party shall have failed to assume the defense of such claim and employ counsel reasonably satisfactory to such Person or (z) in the reasonable judgment of any such Person, based upon written advice of its counsel, a conflict of interest may exist between such Person and the indemnifying party with respect to such claims (in which case, if the Person notifies the indemnifying party in writing that such Person elects to employ separate counsel at the expense of the indemnifying party, the indemnifying party shall not have the right to assume the defense of such claim on behalf of such Person). If such defense is not assumed by the indemnifying party, the indemnifying party will not be subject to any liability for any settlement made without its consent (but such consent will not be unreasonably withheld). No indemnifying party shall, without the written consent of the indemnified party, effect the settlement of, or consent to the entry of any judgment with respect to, any claim in respect of which indemnification or contribution may be sought hereunder unless such settlement or judgment (i) includes an unconditional release of the indemnified party from all liability arising out of such claim and (ii) does not include a statement as to or an admission of fault by or on behalf of the indemnified party. An
indemnifying party who is not entitled to, or elects not to, assume the defense of a claim will not be obligated to pay the fees and expenses of more than one counsel (together with appropriate local counsel) for all parties indemnified by such indemnifying party with respect to such claim, unless in the reasonable judgment of any indemnified party, based upon written advice of counsel, a conflict of interest may exist between such indemnified party and any other of such indemnified parties with respect to such claim, in which event the indemnifying party shall be obligated to pay the fees and expenses of such additional counsel or counsels.
(d) CONTRIBUTION. If for any reason the indemnification provided for in the preceding Sections 8(a) and 8(b) is unavailable to an indemnified party or insufficient to hold it harmless as contemplated by the preceding Sections 8(a) and 8(b), then the indemnifying party shall contribute to the amount paid or payable by the indemnified party as a result of such loss, claim, damage, or liability in such proportion as is appropriate to reflect not only the relative benefits received by the indemnified party and the indemnifying party, but also the relative fault of the indemnified party and the indemnifying party, as well as any other relevant equitable considerations. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation.
9. PARTICIPATION IN UNDERWRITTEN REGISTRATIONS.
(a) If any of the Registrable Securities covered by a Registration Statement is to be sold in an Underwritten Offering, the investment banker or investment bankers and manager or managers that will administer the offering will be selected by the Requesting Holder in a Preferred Stock Demand Registration and by the Company in all other registrations; PROVIDED, HOWEVER, that in a Common Stock Demand Registration, such selection shall be subject to the consent of the Requesting Holder, which consent shall not be unreasonably withheld.
(b) No Person may participate in any Underwritten Registration hereunder unless such Person: (1) agrees to sell such Person's Registrable Securities on the basis provided in any underwriting arrangements approved by the Persons entitled hereunder to approve such arrangements, and (2) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements, and other documents required under the terms of such underwriting arrangements. Nothing in this Section 9 shall be construed to create any additional rights regarding the registration of Registrable Securities in any Person otherwise than as set forth herein.
10. EFFECTIVENESS AND TERMINATION. The rights and obligations under this Agreement shall become effective upon consummation of the Offerings and, except for continuing obligations pursuant to Sections 7 or 8, shall automatically terminate with respect to each Holder upon the sale or other disposition by such Holder of all his, her or its Registrable Securities.
11. TERMINATION OF PREFERRED STOCK REGISTRATION RIGHTS AGREEMENT. The Company and the EL Trustees constitute all the parties to the Preferred Stock Registration Rights Agreement. The Company and the EL Trustees hereby agree that upon effectiveness of this Agreement, the Preferred Stock Registration Rights Agreement shall be terminated immediately and shall be of no further force or effect.
12. MISCELLANEOUS.
(a) AMENDMENTS AND WAIVERS. This Agreement may be amended or modified at any time upon the agreement of each Holder and the Company by an instrument in writing executed by each such party. In addition, any party may, at its option, by an instrument in writing, waive or extend the time for the fulfillment of any condition herein contained to be fulfilled for the benefit of such party. Waiver by any party of any breach or failure to comply with any provision of this Agreement by another party shall not be construed as, or constitute, a continuing waiver of such provisions, or a waiver of any other breach of or failure to comply with any other provisions of this Agreement.
(b) ENFORCEMENT. Each party hereto hereby agrees that the remedy at law for any breach of this Agreement is inadequate and that should any dispute arise concerning the sale or disposition of any Registrable Securities or any other matter
hereunder, this Agreement shall be enforceable in a court of equity by an injunction or a decree of specific performance. Such remedies shall, however, be cumulative and nonexclusive, and shall be in addition to any other remedies which the parties hereto may have.
(c) ARBITRATION. Any controversy arising under, out of, in connection with, or relating to, this Agreement, and any amendment hereof, or the breach hereof, shall be determined and settled by arbitration in New York, New York, by a person or persons mutually agreed upon, or in the event of a disagreement as to the selection of the arbitrator or arbitrators, in accordance with the rules of the American Arbitration Association. Any award rendered therein shall specify the findings of fact of the arbitrator or arbitrators and the reasons for such award, with the reference to and reliance on relevant law. Any such award shall be final and binding on each and all of the parties thereto and their personal representatives, and judgment may be entered thereon in any court having jurisdiction thereof.
(d) ASSIGNMENT. Except as provided in this Section 12(d), neither this Agreement nor any of the rights, interests or obligations hereunder may be assigned by any of the parties hereto, except, in the case of the Company, by operation of law. Each party hereto (other than the Company) who is a Family Member (as defined below) may assign his, her or its rights and obligations hereunder to another Family Member; PROVIDED that in order to exercise such rights, the assignee must be a Family Member at the time of exercise of any such rights. The EL Trust may assign up to three Class A Common Stock Demand Registration rights and up to three Preferred Stock Demand Registration rights hereunder to an EL Trust Pledgee; PROVIDED, HOWEVER, that the total demand registration right assignments made to all EL Trust Pledgees does not exceed three Class A Common Stock Demand Registration rights and three Preferred Stock Demand Registration Rights. An assignee's exercise of any rights assigned to him, her or it hereunder is evidence of its agreement to be bound, as to him, her or it, to the same obligations as are applicable hereunder to the assignor, and, in the case of an EL Trust Pledgee, such additional conditions specifically set forth herein. For purposes hereof, "Family Member" shall have the meaning ascribed to it in the Stockholders' Agreement, dated the date hereof, among the Company, LAL, RSL, WPL, GML, Aerin Lauder, Jane Lauder, LAL Family Partners L.P., Lauder & Sons L.P. and the trustees of the various trusts set forth on the signature pages thereof. This Agreement will be binding upon, and will inure to the benefit of and be enforceable by, the parties and their permitted successors (which shall include in the case of an individual, such individual's estate, guardian, conservator or committee) and assigns.
(e) NOTICES. Any notices and other communications given pursuant to this Agreement shall be in writing and shall be effective upon delivery by hand or upon receipt if sent by certified or registered mail (postage prepaid and return receipt requested) or by a nationally recognized overnight courier service (appropriately marked for overnight delivery) or upon transmission if sent by facsimile (with request for immediate confirmation of receipt in a manner customary for communications of such type and with physical delivery of the communication being made by one of the other
means specified in this Section 12(e) as promptly as practicable thereafter). Notices are to be addressed as follows:
(i) If to the Company:
The Estee Lauder Companies Inc. 767 Fifth Avenue New York, New York 10153 Attention: President Telecopy: (212) 572-6745
With a copy to:
The Estee Lauder Companies Inc. 767 Fifth Avenue New York, New York 10153 Attention: Secretary Telecopy: (212) 572-3989
and
Weil, Gotshal & Manges 767 Fifth Avenue New York, New York 10153 Attention: Jeffrey J. Weinberg, Esq.
Telecopy: (212) 310-8007
(ii) If to a Holder, then as set forth in the second column of Schedule A hereto with a copy to the person or persons listed in the third column of Schedule A hereto.
(f) ENTIRE AGREEMENT. This Agreement is intended by the parties as a final expression of their agreement and intended to be a complete and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein. There are no restrictions, promises, warranties, or undertakings, other than those set forth or referred to herein, with respect to the registration rights granted by the Company with respect to the Registrable Securities. This Agreement supersedes all prior agreements and understandings between the parties with respect to such subject matter.
(g) GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the internal laws of the State of New York (other than its rules of conflicts of law to the extent the application of the laws of another jurisdiction would be required thereby).
(h) HEADINGS. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning of any of the terms or provisions hereof.
(i) COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, and all of which, when taken together, shall constitute one and the same agreement.
(j) SEVERABILITY. If any provision of this Agreement or the application thereof to any person or circumstances is determined by a court of competent jurisdiction to be invalid, void or unenforceable, the remaining provisions hereof, or the application of such provision to persons or circumstances other than those as to which it has been held invalid or unenforceable, shall remain in full force and effect and shall in no way be affected, impaired or invalidated thereby, so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner adverse to any party. Upon such determination, the parties shall negotiate in good faith in an effort to agree upon a suitable and equitable substitute provision to effect the original intent of the parties.
(k) TRUSTEES' CAPACITY. With respect to obligations of trustees who are parties hereto in their capacity as trustees of one or more trusts, this Agreement shall be binding upon such trustees only in their capacities as trustees, not individually and not with respect to any Registrable Securities other than Registrable Securities held by them in their capacity as trustees of such trusts.
IN WITNESS WHEREOF, the parties hereto have duly executed and delivered this Agreement as of the date first above written.
THE ESTEE LAUDER COMPANIES INC.
By: Name: Leonard A. Lauder Title: Chairman and Chief Executive Officer |
Leonard A. Lauder, (a) individually, (b) as
Managing Partner of LAL Family Partners
L.P., (c) as Trustee of The Estee Lauder
1994 Trust, (d) as a Class B General Partner
of Lauder & Sons L.P., (e) as Trustee of The
1995 Estee Lauder LAL Trust (a Class B
General Partner of Lauder & Sons L.P.) and
(f) as Trustee of the LAL Trust
Ronald S. Lauder, (a) individually, (b) as Trustee of The Descendents of RSL 1966 Trust, (c) as Trustee of The Estee Lauder 1994 Trust, (d) as a Class B General Partner of Lauder & Sons L.P. and (e) as Trustee of The 1995 Estee Lauder RSL Trust (a Class B General Partner of Lauder & Sons L.P.)
William P. Lauder, (a) individually and (b) as Trustee of The 1992 Leonard A. Lauder Grantor Retained Annuity Trust
Gary M. Lauder, (a) individually and (b) as Trustee of The 1992 Leonard A. Lauder Grantor Retained Annuity Trust
Carol S. Boulanger, as Trustee of the Trust f/b/o Gary M. Lauder and William P. Lauder u/a/d December 15, 1976, created by Leonard Lauder, as Grantor
Richard D. Parsons, (a) as Trustee of the
Trust f/b/o Aerin Lauder and Jane Lauder
u/a/d December 15, 1976, created by Estee
Lauder and Joseph H. Lauder, as Grantors,
(b) as Trustee of the Trust f/b/o Aerin
Lauder and Jane Lauder u/a/d December 15,
1976, created by Ronald S. Lauder, as
Grantor and
(c) as Trustee of The 1995 Estee Lauder RSL Trust (a Class B General Partner of Lauder & Sons L.P.)
Ira T. Wender, (a) as Trustee of The Estee
Lauder 1994 Trust, (b) as Trustee of The
1995 Estee Lauder LAL Trust (a Class B
General Partner of Lauder & Sons L.P.) and
(c) as Trustee of The 1995 Estee Lauder RSL
Trust (a Class B General Partner of Lauder &
Sons L.P.)
Morgan Guaranty Trust Company of New York, in its capacity as pledgee of Ronald S.
Lauder
Title:
SCHEDULE A
HOLDERS
NAME OF HOLDER NOTICE ADDRESS COPIES TO
-------------- -------------- ---------
Leonard A. Lauder 767 Fifth Avenue Weil, Gotshal & Manges
New York, New York 10153 767 Fifth Avenue
Telecopy: (212) 572-6745 New York, NY 10153
Attn: Jeffrey J. Weinberg, Esq.
Telecopy: (212) 310-8007
Ronald S. Lauder 767 Fifth Avenue Debevoise & Plimpton
New York, New York 10153 875 Third Avenue
Telecopy: (212) 572-4046 New York, New York 10022
Attn: Alan H. Paley, Esq.
Telecopy: (212) 909-6836
Trustees of Leonard A. Lauder Cravath, Swaine & Moore
The Estee Lauder 767 Fifth Avenue 825 Eighth Avenue
1994 Trust New York, New York 10153 New York, NY 10019
Telecopy: (212) 572-6745 Attn: Daniel L. Mosley, Esq.
Telecopy: (212) 474-3700
Ronald S. Lauder
767 Fifth Avenue
New York, New York 10153
Telecopy: (212) 572-4046
Ira T. Wender, Esq.
Patterson, Belknap,
Webb & Tyler
1133 Avenue of the Americas New
York, New York 10036
Telecopy: (212) 336-2222
William P. Lauder 767 Fifth Avenue Debevoise & Plimpton
New York, NY 10153 875 Third Avenue
Telecopy: (212) 572-6967 New York, NY 10022
Attn: Theodore A. Kurz, Esq.
Telecopy: (212) 909-6836
Gary M. Lauder [INTENTIONALLY OMITTED] Debevoise & Plimpton
875 Third Avenue
New York, NY 10022
Attn: Theodore A. Kurz, Esq.
Telecopy: (212) 909-6836
Aerin Lauder [INTENTIONALLY OMITTED] Judah Gribetz, Esq.
180 Maiden Lane
New York, NY 10038
Telecopy: (212) 248-2655
|
NAME OF HOLDER NOTICE ADDRESS COPIES TO
-------------- -------------- ---------
Jane Lauder 2609 California Street Judah Gribetz, Esq.
San Francisco, CA 94115 180 Maiden Lane
Telecopy: [to be supplied] New York, NY 10038
Telecopy: (212) 248-2655
LAL Family Partners L.P. c/o Leonard A. Lauder Boulanger, Hicks & Churchill
767 Fifth Avenue 135 E. 57th Street
New York, NY 10153 New York, NY 10022
Telecopy: (212) 572-6745 Attn: Carol S. Boulanger, Esq.
Telecopy: (212) 753-6971
Trustees of Leonard A. Lauder Boulanger, Hicks & Churchill
The LAL 1995 Preferred Stock 767 Fifth Avenue 135 E. 57th Street
Trust New York, NY 10153 New York, NY 10022
Telecopy: (212) 572-6745 Attn: Carol S. Boulanger, Esq.
Telecopy: (212) 753-6971
Joel S. Ehrenkranz
375 Park Avenue
New York, NY 10152
Telecopy: (212) 754-1905
Trustees of the Joel S. Ehrenkranz Debevoise & Plimpton
Trust f/b/o Gary M. Lauder and 375 Park Avenue 875 Third Avenue
William P. Lauder u/a/d December New York, NY 10152 New York, NY 10022
15, 1976, created by Leonard Telecopy: (212) 754-1905 Attn: Theodore A. Kurz, Esq.
Lauder, as Grantor Telecopy: (212) 909-6836
Carol S. Boulanger
135 E. 57th Street
New York, NY 10022
Telecopy: (212) 753-6971
Trustee of the Richard D. Parsons Patterson, Belknap, Webb & Tyler
Trust f/b/o Aerin Lauder and 75 Rockefeller Plaza 1133 Avenue of the Americas
Jane Lauder u/a/d December 15, New York, NY 10019 New York, NY 10036
1976, created by Estee Lauder Telecopy: (212) 275-3085 Attn: Christopher Angell, Esq.
and Joseph H. Lauder, as Grantors Telecopy: (212) 336-2222
Trustee of the Richard D. Parsons Patterson, Belknap, Webb & Tyler
Trust f/b/o Aerin Lauder and 75 Rockefeller Plaza 1133 Avenue of the Americas
Jane Lauder u/a/d December 15, New York, NY 10019 New York, NY 10036
1976, created by Ronald S. Telecopy: (212) 275-3085 Attn: Christopher Angell, Esq.
Lauder, as Grantor Telecopy: (212) 336-2222
|
NAME OF HOLDER NOTICE ADDRESS COPIES TO
-------------- -------------- ---------
Trustees of the William P. Lauder Boulanger, Hicks & Churchill
1992 Leonard A. Lauder Grantor 767 Fifth Avenue 135 E. 57th Street
Retained Annuity Trust New York, NY 10153 New York, NY 10022
Telecopy: (212) 572-6967 Attn: Carol S. Boulanger, Esq.
Telecopy: (212) 753-6971
Gary M. Lauder
88 Mercedes Lane
Atherton, CA 94027
Telecopy: (415) 323-2171
Joel S. Ehrenkranz
375 Park Avenue
New York, NY 10152
Telecopy: (212) 754-1905
Trustees of Ronald S. Lauder Debevoise & Plimpton
The Descendents of RSL 1966 Trust 767 Fifth Avenue 875 Third Avenue
New York, New York 10153 New York, New York 10022
Telecopy: (212) 572-4046 Attn: Alan H. Paley, Esq.
Telecopy: (212) 909-6836
Morgan Guaranty Trust Company of 9 West 57th Street Davis Polk & Wardwell
New York, in its capacity as Eighth Floor 450 Lexington Avenue
pledgee of Ronald S. Lauder New York, NY 10019 New York, New York 10017
Attn: Ms. Willa Baynard Attn: John Fouhey, Esq.
Telecopy: (212) 450-4800
Telecopy: (212) 980-6850
|
NAME OF HOLDER NOTICE ADDRESS COPIES TO
-------------- -------------- ---------
Lauder & Sons L.P. Leonard A. Lauder Weil, Gotshal & Manges
767 Fifth Avenue 767 Fifth Avenue
New York, NY 10153 New York, NY 10153
Telecopy: (212) 572-6745 Attn: Jeffrey J. Weinberg, Esq.
Telecopy: (212) 310-8577
Ronald S. Lauder
767 Fifth Avenue Debevoise & Plimpton
New York, NY 10153 875 Third Avenue
Telecopy: (212) 572-4046 New York, NY 10022
Attn: Alan H. Paley, Esq.
Joel S. Ehrenkranz Telecopy: (212) 909-6836
375 Park Avenue
New York, NY 10152 Patterson, Belknap, Webb & Tyler
Telecopy: (212) 754-1905 1133 Avenue of the Americas
New York, NY 10036
Richard D. Parsons Attn: Christopher Angell, Esq.
75 Rockefeller Plaza Telecopy: (212) 336-2222
New York, NY 10019
Telecopy: (212) 275-3085 Cravath, Swaine & Moore
825 Eighth Avenue
Ira T. Wender, Esq. New York, NY 10019
Patterson, Belknap, Attn: Daniel L. Mosley, Esq.
Webb & Tyler Telecopy: (212) 474-3700
1133 Avenue of the Americas New
York, New York 10036 Telecopy:
(212) 336-2222
|
EXHIBIT 10.3
THE ESTEE LAUDER COMPANIES INC.
FISCAL 1996 SHARE INCENTIVE PLAN
1. PURPOSE. The Estee Lauder Companies Inc. Fiscal 1996 Share Incentive Plan (the "Plan") is intended to provide incentives which will attract, retain and motivate highly competent persons as non-employee directors, officers and key employees of 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. Furthermore, the Plan is intended to assist in aligning the interests of the Company's officers and key employees to those of its 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), which shall be comprised of not less than two non-employee members of the Board of Directors each of whom qualifies as a "disinterested person" within the meaning of Rule 16b-3 (or any successor rule) promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"); PROVIDED, HOWEVER, that prior to effectiveness under the Exchange Act of a registration statement filed by the Company with the Securities and Exchange Commission, the Committee may be comprised of any two members of the Board of Directors or may be the entire Board of Directors. 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 Board of the Directors, 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 this 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 benefitted from the Plan, as determined by the Committee.
3. PARTICIPANTS. Participants will consist of such officers and key employees of 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. Non-employee directors of the Company shall participate in the Plan only to the extent provided in Section 11(a) hereof. 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 (a) Stock Options, (b) Stock Appreciation Rights, (c) Stock Awards, (d) Performance Awards and (e) Stock Units (each as described below, and collectively, the "Benefits"). Benefits shall be evidenced by agreements (which need not be identical) in such forms as the Committee may from time to time approve; PROVIDED, HOWEVER, that in the event of any conflict between the provisions of the Plan and any such agreements, the provisions of the Plan shall prevail.
5. COMMON STOCK AVAILABLE UNDER THE PLAN. The aggregate number of shares of Common Stock that may be subject to Benefits, including Stock Options, granted under this Plan shall be 4,225,000 shares of Class A Common Stock, which may be authorized and unissued or treasury shares, subject to any adjustments made in accordance with Section 13 hereof. The maximum number of shares of Class A Common Stock with respect to which Benefits may be granted to any individual participant under the Plan shall be 1,000,000. Any shares of 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 of full payment for the exercise of a Stock Option or Stock Appreciation Right shall again be available for Benefits under the Plan, to the extent permitted by Rule 16b-3 under the Exchange Act regarding the availability of such shares.
6. STOCK OPTIONS. Stock Options will consist of awards from the Company that will enable the holder to purchase a specific number of shares of Class A Common Stock, at set terms and at a fixed purchase price. Stock Options may be "incentive stock options" ("Incentive Stock
Options"), within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), 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:
(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, 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 option is granted.
(b) PAYMENT OF EXERCISE PRICE. The option 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, or by a combination of these methods. In the discretion of
the Committee, payment may also 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 purpose 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, where 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 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 later 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 such option at the date of 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 market value (determined as of the time the 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. 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 option price is fixed at not less than 110% of the Fair Market Value of the 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. Notwithstanding anything to the contrary contained herein, no Incentive Stock Option may be exercised later than ten years after the date it is granted.
(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 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 Corporation.
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, options. A Stock Appreciation Right means 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 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 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 retroactively in tandem with or in substitution for a Stock Option, the designated Fair Market Value in the award 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 Rights 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 later 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 such option at the date of grant.
(c) The exercise of any 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 Corporation.
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 other payments therefor as additional compensation for services to the Company. Stock Awards may be subject to such terms and conditions as the Committee 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 conditions requiring that the shares be earned in whole or in part upon the achievement of performance goals established by the Committee over a designated period of time. 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 such an Award. The Committee may also 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. 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. The Committee shall set performance targets at its discretion which, depending on the extent to which they are met, will determine the number and/or value of Performance Awards that will be paid out to the participants, and may attach to such Performance Awards one or more restrictions. Performance targets may be based upon, without limitation, Company-wide, divisional and/or individual performance.
(b) 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 goals 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.
10. STOCK UNITS.
(a) The Committee may, in its discretion, grant Stock Units to participants hereunder. The Committee shall determine the criteria for the vesting of Stock Units. A Stock Unit granted by the Committee shall provide payment in shares of Class A Common Stock at such time as the award agreement shall specify. Shares of Class A Common Stock issued pursuant to this Section 10 may be issued with or without other payments therefor as may be required by applicable law or such other consideration 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 (as defined below).
(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, shares of Class A Common Stock representing the Stock Units shall be distributed to the participant unless the Committee, 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 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 with respect to which a Stock Unit may 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.
(d) A "Stock Unit" means a notional account representing one share of Class A Common Stock. 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.
11. CERTAIN FORMULA AWARDS.
(a) (i) On the date of the first annual meeting of stockholders of the Company which is at least six months after the date a non-employee director is first elected to the Board of Directors of the Company, he or she will be granted 1,000 shares of Class A Common Stock, without restrictions, accompanied by an amount in cash for reimbursement of income taxes related to such grant.
(ii) During the first five years of service as a director of the Company, $10,000 of the annual retainer payable to a non-employee director will automatically be paid in shares of Class A Common Stock, without restrictions, on the date of the annual meeting of stockholders. The number of shares to be received by the non-employee director as part of the annual retainer will be equal to $10,000 divided by the average closing price of the Company's Class A Common Stock for the twenty days on which trading occurred next preceding the date of payment.
(b) The agreements accompanying the awards and grants made under this
Section 11 may contain additional restrictions or limitations not inconsistent
with the provisions of the Plan.
(c) The provisions of this Section 11 shall not be amended more than once every six months, other than to comport with changes in the Code, the Employee Retirement Income Security Act of 1974 or the rules thereunder.
12. FOREIGN OPTIONS AND RIGHTS.
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 as determined by the Committee as 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 such 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.
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 may also 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, 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, (B) any spin-off of a division or subsidiary of the Company to its stockholders and (C) any event listed in (i) through (v) above that the Board of Directors determines not to be a Change in Control of the Company, 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 selected by a majority of the
Continuing Directors in office at the time of his or her nomination or
selection.
The Committee, in its discretion, may determine that, upon the
occurrence of a Change in Control of the Company, each Stock Option and Stock
Appreciation Right outstanding hereunder shall terminate within a specified
number of days after notice to the holder, and such holder shall receive, with
respect to each share of Class A Common Stock subject to such Stock Option or
Stock Appreciation Right, an amount equal to the excess of the Fair Market Value
of such shares of Common Stock immediately prior to the occurrence of such
Change in Control over the exercise price per share of such Stock Option or
Stock Appreciation Right; such amount to be payable in cash, in one or more
kinds of property (including the property, if any, payable in the transaction)
or in a combination thereof, as the Committee, in its discretion, shall
determine. The provisions contained in the preceding sentence shall be
inapplicable to a Stock Option or Stock Appreciation Right granted within six
(6) months before the occurrence of a Change in Control if the holder of such
Stock Option or Stock Appreciation Right is subject to the reporting
requirements of Section 16(a) of the Exchange Act and no exception from
liability under Section 16(b) of the Exchange Act is otherwise available to such
holder.
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.
15. OTHER PROVISIONS. The award of any Benefit under the Plan may also be subject to such other provisions (whether or not applicable to the 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.
16. FAIR MARKET VALUE. For purposes of this Plan and any Benefits awarded hereunder, Fair Market Value shall be the closing price of the Company's 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 Company's Class A Common Stock is readily tradeable on a national securities exchange or other market system, and if the Company's 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 of the Company.
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 recipients an amount sufficient to satisfy such tax withholding requirements prior to the delivery of any certificates for such 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 continue to serve the Company or any of its subsidiaries 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 which 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 established and no segregation of assets shall be made to assure payment of such amounts except as expressly set forth in the Plan. The Plan is not intended to be subject to the Employee Retirement Income Security Act of 1974, as amended.
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; PROVIDED, HOWEVER, that the terms and conditions applicable to any Benefit granted prior to such date may thereafter be amended or modified by mutual agreement between the Company and the participant or such other persons as may then have an interest therein. Also, by mutual agreement between the Company and a participant hereunder, under this Plan or under any other present or future plan of the Company, Benefits may be granted to such participant in substitution and exchange for, and in cancellation of, any Benefits previously granted such participant under this Plan, or any other present or future plan of the Company. The Board of Directors may amend the Plan from time to time or suspend or terminate the Plan at any time. However, no action authorized by this Section 21 shall reduce the amount of any existing Benefit or change the terms and conditions thereof without the participant's consent. No amendment of the Plan shall, without approval of the stockholders of the Company, (i) materially increase the total number of shares which may be issued under the Plan; (ii) materially increase the amount or type of Benefits that may be granted under the Plan; or (iii) materially modify the requirements as to eligibility for Benefits under the Plan; PROVIDED, HOWEVER, that no amendment may be made without approval of the stockholders of the Company if the amendment will disqualify any Incentive Stock Options granted hereunder.
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. COMPLIANCE WITH RULE 16B-3. With respect to persons subject to
Section 16 of the Exchange Act, transactions under the Plan are intended to
comply with all applicable conditions of
Rule 16b-3 (or its successors) promulgated under the Exchange Act. To the extent any provision of the Plan or action by the Committee fails to comply, it shall be deemed null and void, to the extent permitted by law and deemed advisable by the Committee.
24. EFFECTIVE DATE. (a) The Plan shall be effective as of November 14, 1995, which is the date the Plan was adopted by the Board of Directors and approved by the stockholders of the Company (the "Effective Date").
(b) This Plan shall terminate on November 14, 2005 (unless sooner terminated by the Board of Directors).
EXHIBIT 10.5
THE ESTEE LAUDER COMPANIES
RETIREMENT GROWTH ACCOUNT PLAN
AS AMENDED AND RESTATED
GENERALLY EFFECTIVE AS OF JANUARY 1, 2002
AMENDMENT AND RESTATEMENT OF
THE ESTEE LAUDER COMPANIES
RETIREMENT GROWTH ACCOUNT PLAN
SECTION 1
NAME AND CONSTRUCTION
1.1 NAME OF PLAN. This Plan shall be known as the "The Estee Lauder Companies Retirement Growth Account Plan."
1.2 CONSTRUCTION. It is the intention of Estee Lauder that the amended and restated Plan, and its attendant trust fund, will continue to meet the requirements of ERISA and be qualified and exempt from taxes under Sections 401 and 501 of the Code. Effective January 1, 1996, the Plan also is intended to be a "multiple employer plan" within the meaning of Section 413(c) of the Code. The Plan is intended to be a defined benefit plan for purposes of ERISA and the Code.
1.3 EFFECTIVE DATE.
(a) This Amendment and Restatement of the Plan shall generally be effective as of January 1, 2002; PROVIDED, HOWEVER, that:
(i) The provisions of Sections 2.12, 2.16, 5.2, 7.1(a), 7.3, 8.4(b), 8.4(c) and 15 (other than Section 15.5) shall be effective January 1, 1991.
(ii) The provisions of Section 14.10 shall be effective December 12, 1994.
(iii) The provisions of Sections 2.6, 2.10, 2.15, 2.19, 2.21, 15.5 and 16 shall be effective January 1, 1996.
(iv) The provisions of Section 7.1(b) shall be effective October 1, 1996, and prior to such date the terms and conditions of such Section are governed by Section 6.1(b) of the Plan in effect on January 1, 1993.
(v) The provisions of Sections 2.11 and 5.4 shall be effective January 1, 1997.
(vi) The provisions of the last paragraph of Section 5.5 and
Section 8.4(a) shall be effective January 1, 1998.
(vii) The provisions of Appendix A shall be effective January 1, 1999 (except that those provisions thereof which, by their terms, are not limited to periods on and after that date, shall be effective January 1, 1991).
(viii) The changes to such other provisions of the Plan shall be effective as of such dates as are set forth in such provisions.
(ix) Other provisions of the Plan shall be effective as of such other earlier or later dates as shall be necessary to comply with those changes in applicable law which were effective prior to January 1, 2002.
(b) The rights of any person who terminated employment or retired on or before the effective date of any of the relevant provisions of this amendment and restatement of the Plan, including his or her eligibility for benefits, shall be determined solely under the terms of the Plan as in effect on the date of his termination or retirement, unless such person is thereafter reemployed (and, to the extent relevant, again becomes an Active Participant) on or after the effective date of any such provision of amendment and restatement, in which case such provision shall apply to such person.
SECTION 2
DEFINITIONS
2.1 "Accrued Benefit" means a monthly amount of retirement income determined for a Participant as of a specified date, commencing on a Participant's Normal Retirement Date, and payable as a single life annuity. The Accrued Benefit as of a specified date equals the Participant's Retirement Account divided by the applicable factor from Appendix A. For those who were participants in the Prior Plans as of December 31, 1990 and satisfy the applicable requirements set forth in Appendix B, the Accrued Benefit is the greater of the accrued benefit described above or the accrued benefit determined under the Prior Plans, as described in Section 5.5 hereof.
2.2 "Actuarial Equivalent" means, with respect to a Participant's Accrued Benefit, another annuity or benefit that commences at a different date and/or is payable in a different form than the Accrued Benefit, but which has the same present value as the Accrued Benefit, when measured on the basis of the interest rate, mortality table and other factors specified in Appendix A as of the date of commencement of payment of such annuity or benefit, as calculated by or under the supervision of an actuary appointed by Estee Lauder or the Fiduciary Committee, which actuary has been enrolled under Subtitle C of Title III of ERISA.
2.3 "Approved Absence" means (a) any period of absence from work (other than any such absence on account of a period of Disability), with the approval or direction of the Employer, for up to 12 months and, provided said Employee returns to work for the Employer at such time as the Employer may reasonably require, the Approved Absence may exceed such 12-month period but will not be in excess of 24 months, (b) any period of absence during which the Employee was in military service with the armed forces (including Coast Guard and Merchant Marine Service) if the Employee has reemployment rights under applicable laws and complies with the requirements of the law as to reemployment and is reemployed, and (c) any period of Disability, but (except as provided in the last paragraph of Section 5.5) not to exceed twelve months. An Approved Absence will be disregarded for the purpose of the Plan, and the Employee will be regarded as in the service of the Employer during any period of an Approved Absence.
The Hours of Service credited during an Approved Absence shall be those
which would normally have been credited but for such absence, or in any case in
which the Employer is unable to determine such hours normally credited, eight
(8) Hours of Service per day.
2.4 "Average Final Compensation" means the highest average annual "compensation" which is produced by averaging an Employee's compensation for any Five (5) consecutive calendar years within the Employee's Years of Credited Service. For purposes of this Section only, "compensation" means the straight time basic salary or wages paid to an Employee by the Employer for his services during each calendar year, inclusive of salary reduction contributions made by an Employer on behalf of the Employee under a "cash or deferred arrangement" described in Section 401(k) of the Code and pre-tax contributions made by the Employee under a "cafeteria plan" described in Section 125 of the Code and (effective
January 1, 2001) under an arrangement described in Section 132(f)(4) of the
Code, in each case maintained by an Employer, but excluding bonuses, payments
for overtime, other Employer contributions for pension, insurance or other
welfare benefits, or any other special payments. Notwithstanding the foregoing
provisions of this Section 2.4, except to the extent otherwise provided in
Section 5.5, "compensation" for each calendar year shall not exceed $200,000
($150,000 for Plan Years beginning on or after January 1, 1994 and prior to
January 1, 2002), subject to any adjustment, for Plan Years beginning on or
after January 1, 1994, to reflect increases in the cost of living determined by
the Secretary of the Treasury pursuant to Section 401(a)(17) of the Code. In
determining Average Final Compensation for Participants whose retirement or
termination of employment is on or after January 1, 2002, the Participant's
"compensation" for 2001 and prior years shall be subject to the annual
compensation limit in effect under Section 401(a)(17) of the Code on January 1,
2002 ($200,000).
2.5 "Beneficiary" means any individual, trust, estate or other recipient entitled pursuant to Section 7.3 of this Plan to receive benefits, on either a primary or contingent basis, because of the death of a Participant.
2.6 "Board of Directors" or "Board" means the Board of Directors of Estee Lauder.
2.7 "Break in Service" means, with respect to any person, a Plan Year during which such person does not perform more than 500 Hours of Service; provided, however, that for purposes of Years of Eligibility Service, such term shall mean the 12-month period commencing on a person's Employment Commencement Date or a Plan Year, as the case may be (a "computation period"), during which such person does not perform more than 500 Hours of Service. A person who is absent from work for maternity or paternity reasons shall be credited with the lesser of the number of Hours of Service necessary to prevent a Break in Service or the number of hours which otherwise would normally have been credited to such person but for such absence (i) in the computation period in which the absence begins, if necessary to prevent a Break in Service, and (ii) in all other cases, in the following computation period. For purposes of this Section, an absence from work for maternity or paternity reasons means an absence (i) by reason of the pregnancy of the person, (ii) by reason of the birth of a child of the person, (iii) by reason of the placement of a child with the person in connection with the adoption of such child by such person or (iv) for purposes of caring for such child for a period beginning immediately following such birth or placement. No person shall incur a Break in Service solely on account of an absence which qualifies under the Family Medical Leave Act of 1993, to the extent required under the provisions of such Act.
2.8 "Code" means the Internal Revenue Code of 1986, as amended.
2.9 "Committee" means The Estee Lauder Inc. Employee Benefits Committee appointed pursuant to Section 11 hereof.
2.10 "Compensation" means, for a particular Plan Year, the straight time basic salary or wages paid to an Employee by the Employer on and after the Entry Date on which the Employee first becomes eligible to participate in the Plan pursuant to Section 3, inclusive of salary reduction contributions made by an Employer on behalf of the Employee under a "cash or
deferred arrangement" described in Section 401(k) of the Code and pre-tax
contributions made by the Employee under a "cafeteria plan" described in Section
125 of the Code or (effective January 1, 2001) under an arrangement described in
Section 132(f)(4) of the Code, in each case maintained by the Employer, and
including bonuses, shift differential, back-up pay, overtime pay, paid time off,
training and travel time pay, but excluding (i) commissions, (ii) payments in
lieu of unused vacation time, sick time, holidays, seniority days or other
unused paid time off, (iii) referral fees, (iv) gratuities, (v) relocation
payments, (vi) special allowance payments, (vii) sign-on payments; (viii)
on-call compensation, (ix) any other amounts which are not currently included in
the Employee's income for Federal income tax purposes and (x) amounts paid under
Estee Lauder's Short-Term Disability Plan or Long-Term Disability Plan. In
addition to other applicable limitations that may be set forth in the Plan and
notwithstanding any other contrary provision of the Plan, Compensation taken
into account under the Plan for the purpose of calculating a Plan Participant's
Accrued Benefit shall not exceed $200,000 ($150,000 for Plan Years beginning on
or after January 1, 1994 and prior to January 1, 2002), subject to any
adjustment to reflect increases in the cost of living determined by the
Secretary of the Treasury pursuant to Section 401(a)(17) of the Code.
Notwithstanding the foregoing, for Participants who terminate employment on or
after December 1, 2002, the annual amounts credited to their Retirement Account
pursuant to Section 5 for Plan Years prior to 2002 shall be retroactively
adjusted as though the $200,000 dollar limitation in effect under Section
401(a)(17) of the Code for 2002 had been in effect for such prior Plan Years
(subject to the Plan's compliance with Sections 401(a)(4) and 415 of the Code
and the Treasury Regulations thereunder).
2.11 "Disability" means, with respect to any Employee, a condition which constitutes a disability under the terms of the Employer's Long-Term Disability Plan or under Title II of the Federal Social Security Act, regardless of whether such Employee is otherwise in fact entitled to receive benefits under the Employer's Long-Term Disability Plan and/or Title II of the Federal Social Security Act.
2.12 "Early Retirement Date" means the first day of the month which next follows a Participant's termination of employment on or after attainment of at least age 55 and completion of at least ten (10) Years of Service, but prior to the Participant's Normal Retirement Date.
2.13 "Effective Date," with respect to the Plan as amended and restated and set forth herein, means January 1, 2002; PROVIDED, HOWEVER, that certain provisions of the Plan shall be effective as of the dates set forth in Section 1.3.
2.14 "Employee" means any person who is classified as an employee on the payroll records of an Employer, in accordance with the Employer's standard personnel practices. Individuals not classified as employees on the payroll records of the Employer for a particular period shall not be considered "Employees" for such period even if a court or administrative agency subsequently determines that such individuals were common law employees of the Employer during such period. Anything herein to the contrary notwithstanding, the term "Employee" shall not include:
(a) a person who is represented by or included in a collective bargaining unit recognized by the Employer unless the Employer and the collective bargaining agent have agreed that the Plan shall apply to such unit;
(b) with respect to periods prior to July 1, 1998, an In-Store Employee;
(c) a person who would be an In-Store Employee, but for the fact that such person is classified as an international military sales person;
(d) a person who is a nonresident alien who receives no compensation from an Employer which constitutes income from sources within the United States (other than a person employed by Clinique Laboratories, Inc. (Puerto Rico Branch));
(e) any person who is performing services for the Employer pursuant to an agreement between the Employer and a third party leasing organization, staffing firm, professional employer organization or other similar third party organization; or
(f) a person who is classified as an "on-call employee" in accordance with the Employer's standard personnel practices.
Notwithstanding the foregoing, and solely for purposes of determining a person's non-forfeitable benefit and eligibility to become a Participant, if a person who had been a Leased Employee becomes an Employee, such person shall be treated as an Employee from the first date that such person would have first been treated as a Leased Employee, determined without regard to the one-year requirement of Section 414(n)(2)(B) of the Code; provided, however, that such person shall not become a Participant prior to the first Entry Date coincident with or next following becoming an Employee.
2.15 "Employer" means Estee Lauder, and any other company included within the Group that includes Estee Lauder (or any other corporation or unincorporated trade or business not included within the Group that includes Estee Lauder) that adopts the Plan with the approval of Estee Lauder, as provided in Section 15 hereof, and any successor to any such company that participated in this Plan.
2.16 "Employment Commencement Date" means, with respect to any person, the date coincident with or next following the date on which such person first performs an Hour of Service; provided, however, that with respect to a person who incurs a Break in Service and is thereafter reemployed, such term shall mean the date subsequent to such Break in Service on which he first performs an Hour of Service.
2.17 "Entry Date" means each January 1 and July 1; PROVIDED, HOWEVER, that prior to January 1, 1993, with respect to any person who was a regular and non-contingent Employee of the Employer, "Entry Date" means the first date coincident with or next following such person's Employment Commencement Date.
2.18 "ERISA" means the Employee Retirement Income Security Act of 1974, as amended.
2.19 "Estee Lauder" means Estee Lauder Inc., a corporation duly organized under the laws of the State of Delaware, and any successor thereto.
2.20 "Fiduciary Committee" means the Estee Lauder Inc. Fiduciary Investment Committee, the members of which shall be appointed by the Board.
2.21 "Group" means Estee Lauder and any other unit or organization that is related to Estee Lauder as a member of a "controlled group of corporations," a group under "common control" or an "affiliated service group," all as determined pursuant to Sections 414(b), (c), and (m) of the Code. With respect to a participating Employer which is not in the same Group as Estee Lauder, "Group" means such Employer and any other unit or organization that is related to such employer as a member of a "controlled group of corporations," a group under "common control" or an "affiliated service group," all as determined pursuant to Sections 414(b), (c) and (m) of the Code. For purposes of determining whether or not a person is an Employee and the period of employment of such person, each such unit or organization shall be included in the Group only for such period or periods during which it is a "member" of the Group.
2.22 "Hour of Service" means:
(a) Each hour for which an Employee is directly or indirectly compensated, or entitled to be compensated, by the Employer for the performance of duties.
(b) Each hour for which an Employee is credited by the Employer during an Approved Absence.
(c) Except as provided in (b) above, each hour, to a maximum of 501 hours for any single continuous period, for which an Employee is directly or indirectly compensated, or entitled to be compensated, by the Employer for reasons other than the performance of duties (irrespective of whether the employment relationship has terminated) due to vacation, holidays, incapacity, layoff, jury duty or military duty. Hours shall not be credited for payment to an Employee from a plan required by workers' compensation, unemployment compensation or disability insurance laws, nor shall hours be credited for reimbursement of such an Employee for his medical or medically-related expenses.
(d) Each hour for which back pay, irrespective of mitigation of damages, has been awarded or agreed to by the Employer provided that if such award or agreement of back pay is for reasons other than the performance of duties, such hours shall be subject to the restrictions of paragraph (c).
The same Hours of Service shall not be credited under more
than one of the paragraphs above. All Hours of Service shall be computed and
credited to computation periods in accordance with Sections 2530.200b-2(b) and
(c) of the Department of Labor regulations; PROVIDED, HOWEVER, that Hours of
Service under paragraph (a) above, with respect to any payroll period, shall be
credited for the Plan Year in which such payroll period ends. In determining an
Employee's Hours of Service, he shall receive credit for all Hours of Service
performed for any corporation or other entity which is a member of the Group;
provided that (a) he shall not be credited with any Hours of Service performed
for any such corporation or other entity prior to
the time that such entity becomes a member of the Group and (b) the number of Hours of Service so credited with respect to his employment with such entity shall cease at the time such entity is no longer a member of the Group.
Notwithstanding any of the foregoing requirements of this definition, an individual employed by the Employer (or by any other member of the Group which includes the Employer) as a common law employee, but who is not then classified as an Employee (including, but not limited to, an individual who was an Employee and thereafter becomes an Inactive Participant on account of a transfer of employment to a non-Employer member of the Group) shall, except for purposes of determining Years of Credited Service, nevertheless be credited with Hours of Service for all periods with respect to which such person is in fact so employed as a common law employee, to the same extent as if he had been an Employee.
When an Employee's total actual Hours of Service are not specifically tracked during a payroll period, the following equivalencies shall be used in accordance with Section 2530.200b-3(e) of the Department of Labor regulations: Employees shall be credited with the following Hours of Service for each payroll period for which they are required to be credited with at least one Hour of Service:
PAYROLL PERIOD
APPLICABLE
TO EMPLOYEE HOURS OF SERVICE
----------- ----------------
Monthly 190
Semi-monthly 95
Biweekly 90
Weekly 45
Per diem 10
|
2.23 "In-Store Employee" means any person who:
(a) is classified as an employee on the payroll records of the Employer, in accordance with the Employer's standard personnel practices; and
(b) performs services primarily in department stores, or in free-standing stores owned or leased by Estee Lauder or by another member of the Group that make sales to the general public (including stores providing sales of discounted merchandise to the general public).
2.24 "Initial Effective Date" means January 1, 1991.
2.25 "Leased Employee" means an individual who performs services for the Employer, other than as a common law employee, if (a) such services are provided pursuant to a written or oral agreement between the Employer and any other person; (b) the individual has performed during any consecutive 12-month period (i) at least 1,500 Hours of Service for the Employer or (ii) a number of Hours of Service which is at least 501 and which is at least equal to 75% of the median Hours of Service that are customarily performed by an employee of the Employer in the particular position; and (c) such services are performed under the primary direction or control of the Employer.
2.26 "Normal Retirement Date" means the first day of the month which next follows a Participant's attainment of at least age 65 and completion of at least Five (5) Years of Service.
2.27 "Normal Retirement Income" means a Participant's Accrued Benefit payable hereunder at his Normal Retirement Date in the form provided in Section 9.1 hereof.
2.28 "Participant" means any person who has become eligible to participate in the Plan in accordance with Section 3, and who has neither been paid in full any benefit to which he may be entitled under the Plan nor completely forfeited such benefit. An "Active Participant" means a Participant who is an Employee. An "Inactive Participant" means a Participant who is not an Active Participant.
2.29 "Periodic Adjustment Percentage" means the greater of (i) the arithmetic daily average of one-year Treasury Constant Maturities for each calendar year immediately preceding the applicable Plan Year for which it is applied, as published in the FEDERAL RESERVE STATISTICAL RELEASE H.15 (519) of the Board of Governors of the Federal Reserve System, or (ii) 4%.
2.30 "Plan" means The Estee Lauder Companies Retirement Growth Account Plan as effective January 1, 1991, and as it hereafter may be further amended from time to time.
2.31 "Plan Year" means the calendar year.
2.32 "Prior Plan" means the Estee Lauder Inc. Employee Retirement Plan, As Amended Effective July 1, 1975 (incorporating all amendments adopted through December 31, 1990), or the Estee Lauder Hemisphere Corporation Pension Plan, As Amended and Restated Effective January 1, 1986 (incorporating all amendments adopted through December 31, 1990), as such plans were in effect immediately prior to January 1, 1991, whichever plan (if any) is applicable to a Participant. The terms and provisions of the applicable Prior Plan fix and determine the rights and obligations under the Plan with respect to any Employee whose employment terminated prior to January 1, 1991.
2.33 "Retirement Account" means the bookkeeping account maintained with respect to a Participant as described in Section 5.1 hereof.
2.34 "Retirement Income Commencement Date" means the first day of the first period for which a benefit under the Plan is paid as an annuity or any other form.
2.35 "Social Security Covered Compensation" means the thirty-five year
average of the maximum annual wages covered by the Federal Social Security Act
as in effect, ending in the year Social Security retirement age (as defined in
Section 415(b)(8) of the Code) is attained.
2.36 "Surviving Spouse" means a wife or husband of a Participant who has been married to such Participant by legal contract throughout the one-year period ending on the earlier of the death of the Participant or the Participant's Retirement Income Commencement Date; PROVIDED, HOWEVER, that such term shall also include a wife or husband who married the Participant during the one-year period prior to such date and, at the date of the Participant's death, has been married to the Participant for at least one (1) year.
2.37 "Trustee" means the trustee or trustees which may at any time be acting as trustee of the Trust Fund, as provided in Section 12 hereof.
2.38 "Trust Fund" or "Fund" means all funds at any time held by the
Trustee and/or insurance company for the purposes of the Plan, as provided in
Section 12 hereof.
2.39 "Year of Credited Service" means, with respect to any Participant, a Plan Year during which the Participant completes at least 1,000 Hours of Service as an Employee, commencing on such Participant's Entry Date, or, if later, January 1, 1993. In the case of a Participant who participated in the Plan prior to January 1, 1993, Years of Credited Service shall also include all Years of Credited Service accrued under the Plan as of December 31, 1992; fractional Years of Credited Service accrued under the Plan as of December 31, 1992 shall be converted to Hours of Service by crediting such Participant, for the Plan Year commencing on January 1, 1993, with 190 Hours of Service for each calendar month during which the Participant performed an Hour of Service. In the case of a Participant who was a participant in a Prior Plan, Years of Credited Service shall, in addition, include all Credited Service (as defined in the Prior Plan) recognized under such Prior Plan for benefit accrual purposes as of December 31, 1990.
2.40 "Year of Eligibility Service" means, with respect to any person, a consecutive 12-month period beginning on such person's Employment Commencement Date during which he completes at least 1,000 Hours of Service. If such person fails to complete at least 1,000 Hours of Service during such 12-month period, then a "Year of Eligibility Service" shall be determined based on the completion of at least 1,000 Hours of Service in the Plan Year beginning with or within the 12-month period beginning on such person's Employment Commencement Date, and then each Plan Year thereafter.
In the case of a Participant who terminates employment and does not have any nonforfeitable right to his Accrued Benefit, Years of Eligibility Service before a period of consecutive one-year Breaks in Service shall not be taken into account if the number of consecutive one-year Breaks in Service in such period equals or exceeds Five (5). A Participant whose Years of Eligibility Service are disregarded pursuant to the preceding sentence shall, upon his reemployment, be treated as newly employed for eligibility purposes. If a Participant's Years of Service may not thus be disregarded, such Participant shall again become an Active Participant immediately upon the date he first performs an Hour of Service as an Employee.
2.41 "Year of Service" means, with respect to any person, a Plan Year during which the person completes at least 1,000 Hours of Service (except as set forth in Section 8.4 hereof (relating to the "rule of parity")) commencing on the later of January 1, 1993, or
(i) for purposes of Section 5.2 hereof, in the case of any In-Store Employee who becomes a Participant on July 1, 1998 or in the case of employment by a non-Employer member of the Group, the Employment Commencement Date,
(ii) for purposes of Section 5.2, in the case of any Participant not described in the foregoing clause (i), the first day of the Plan Year in which such person's Entry Date occurs, and
(iii) for purposes of Section 8 hereof, the Employment Commencement Date.
In the case of a person who was in the employ of an Employer or other member of the Group prior to January 1, 1993, Years of Service shall also include all Years of Service accrued under the Plan as of December 31, 1992; fractional Years of Service accrued under the Plan as of December 31, 1992 shall be converted to Hours of Service by crediting such person, for the Plan Year commencing on January 1, 1993, with 95 Hours of Service for each semi-monthly period during which the person performed an Hour of Service.
In the case of a person who was a participant in a Prior Plan,
Years of Service shall, in addition, include (i) for purposes of Section 8
hereof, all Service (as defined in the Prior Plan) recognized for purposes of
vesting under such Prior Plan as of December 31, 1990 and (ii) for purposes of
Section 5.2, all Credited Service (as defined in the Prior Plan) recognized
under such Prior Plan for benefit accrual purposes as of December 31, 1990.
The masculine pronoun wherever used herein shall include the feminine pronoun, and the singular shall include the plural.
SECTION 3
PARTICIPATION
3.1 Each Employee who was a participant in a Prior Plan immediately prior to the Initial Effective Date shall become a Participant herein as of the Initial Effective Date.
3.2 Each person who becomes an Employee on or after the Initial Effective Date, or who became an Employee prior to that date but was not a participant in a Prior Plan immediately prior to the Initial Effective Date, shall become a Participant on the first Entry Date on which such person is an Employee coincident with or next following his completion of a Year of Eligibility Service; PROVIDED, HOWEVER, that any person who was an In-Store Employee on June 30, 1998 and completed at least a Year of Eligibility Service at any time on or prior to such date shall become a Participant on July 1, 1998 if such person remains an Employee on such date; and FURTHER, PROVIDED, that, in the case of any Employee whose Entry Date, determined without regard to any Year of Eligibility Service requirement, would otherwise have occurred prior to January 1, 1993, such Employee shall become a Participant as of such Entry Date, without the need to also complete a Year of Eligibility Service.
3.3 If a person who has been in the employ of an Employer or another member of the Group as a non-Employee subsequently becomes an Employee, such Employee shall become a Participant in accordance with Section 3.2 hereof.
3.4 A Participant who has become an Inactive Participant on account of his ceasing to be an Employee, while remaining employed by a member of the Group, shall once again become an Active Participant upon the date on which he first performs an Hour of Service as an Employee following the date he becomes an Inactive Participant.
3.5 Except as otherwise provided in this Section, benefits commencing after Normal Retirement Age shall not be less than the Actuarial Equivalent of the benefits to which the Participant would have been entitled if such benefits had commenced at Normal Retirement Age. Upon written notification to a Participant who elects to remain in service pursuant to Section 4.3 hereof, or to a former retired Participant who returns to the service of an Employer as a Participant herein, the retirement income payments to which the Participant is entitled on and after Normal Retirement Age but before he retires (or, in the case of a former retired Participant, again retires) shall be permanently forfeited so long as such Participant remains in "section 203(a)(3)(B) service," as described in Department of Labor Regulation Section 2530.203-3(c). For this purpose, a Participant's service shall be deemed "section 203(a)(3)(B) service" for any month in which he is credited with at least 40 Hours of Service or such other standard as may be applicable under Section 203(a)(3)(B) of ERISA. In the case of a Participant whose retirement income commenced to be paid before his Normal Retirement Date, upon his subsequent retirement, his retirement income shall be recomputed, based on the amount credited to his Retirement Account pursuant to Section 5 hereof and reduced on an actuarial basis to take account of retirement income payments previously received by him.
SECTION 4
RETIREMENT DATES
4.1 Except as otherwise provided in this Section 4, each Participant may retire on his Normal Retirement Date and shall receive the Normal Retirement Income.
4.2 A Participant may retire on or after his Early Retirement Date and shall be entitled to receive his Accrued Benefit on or after his termination of employment in accordance with the provisions of Sections 9 and 10 hereof.
4.3 Any Participant whose employment is continued by the Employer after the Participant has reached his Normal Retirement Date shall receive retirement income payments commencing on the first day of the month following the date of his actual retirement, based on the amount credited to his Retirement Account at such date.
SECTION 5
PARTICIPANTS' RETIREMENT ACCOUNTS
5.1 A Retirement Account shall be established and maintained for each Participant pursuant to this Section 5 (and for certain individuals who were participants in a Prior Plan) to which credits shall be made in accordance with the provisions of this Section 5. Except as otherwise provided in Section 5 hereof, an Inactive Participant who was a participant in a Prior Plan before January 1, 1991 but is not an Active Participant at any time on or after January 1, 1991 shall be credited with an amount equal to his "Accrued Benefit under the Prior Plan," determined in accordance with Appendix A, but a Retirement Account shall not be established for such Inactive Participant. Except as otherwise provided in Section 5.5 and 5.6 hereof, a Participant's Accrued Benefit under this Plan shall be based on the amount credited to his Retirement Account. The Retirement Account established and maintained pursuant to this Section 5 is intended to be a bookkeeping account. Neither the establishment of such Retirement Account nor the making of credits to such Retirement Account shall be construed as an allocation of assets of the Plan to, or a segregation of such assets in, such account, or otherwise as creating a right of the Participant to receive specific assets of the Plan. Benefits provided under the Plan shall be paid from the general assets of the Plan in the amounts, in the forms and at the times provided in Sections 4, 8, 9 and 10 hereof.
5.2 The annual amount credited to a Participant's Retirement Account pursuant to this Section shall be based upon the Participant's Years of Service and the Participant's Compensation for the applicable Plan Year or portion thereof. Credits pursuant to this Section shall be made to a Participant's Retirement Account as of the last day of each Plan Year beginning with 1991 and ending with the last day of the month in which occurs the Participant's termination of employment.
(a) For each Participant who has fewer than Five (5) Years of Service as of the last day of the Plan Year, credits shall be made to the Participant's Retirement Account in an amount equal to three percent (3%) of the Participant's Compensation earned while an Active Participant for such Plan Year.
(b) For each Participant who has Five (5) Years of Service as of
the last day of the Plan Year, credits shall be made to the Participant's
Retirement Account in an amount equal to the sum of (i) three percent (3%) of
the Participant's Compensation earned while an Active Participant for such Plan
Year multiplied by a fraction, the numerator of which is the number of whole
calendar months in such Plan Year while an Active Participant preceding the
anniversary of his Entry Date ("Anniversary Date") and the denominator of which
is the number of whole months in such Plan Year while an Active Participant, and
(ii) four percent (4%) of the Participant's Compensation earned while an Active
Participant for such Plan Year multiplied by a fraction, the numerator of which
is the number of whole calendar months in such Plan Year while an Active
Participant following the Anniversary Date (including the calendar month in
which the Anniversary Date occurs) and the denominator of which is the number of
whole months in such Plan Year while an Active Participant.
(c) For each Participant who has more than Five (5) but fewer than ten (10) Years of Service as of the last day of the Plan Year, credits shall be made to the Participant's Retirement Account in an amount equal to four percent (4%) of the Participant's Compensation earned while an Active Participant for such Plan Year.
(d) For each Participant who has ten (10) Years of Service as of the last day of the Plan Year, credits shall be made to the Participant's Retirement Account in an amount equal to the sum of (i) four percent (4%) of the Participant's Compensation earned while an Active Participant for such Plan Year multiplied by a fraction, the numerator of which is the number of whole calendar months in such Plan Year while an Active Participant preceding the Anniversary Date and the denominator of which is the number of whole months in such Plan Year while an Active Participant, and (ii) five percent (5%) of the Participant's Compensation earned while an Active Participant for such Plan Year multiplied by a fraction, the numerator of which is the number of whole calendar months in such Plan Year while an Active Participant following the Anniversary Date (including the calendar month in which the Anniversary Date occurs) and the denominator of which is the number of whole months in such Plan Year while an Active Participant.
(e) For each Participant who has more than ten (10) Years of Service as of the last day of the Plan Year, credits shall be made to the Participant's Retirement Account in an amount equal to five percent (5%) of the Participant's Compensation earned while an Active Participant for such Plan Year.
No credits shall be made pursuant to this Section with respect to any period during which a Participant is an Inactive Participant. In the event that a Participant becomes an Inactive Participant by reason of his transfer of employment to a non-Employer member of the Group, no credits shall be made to his Retirement Account pursuant to this Section after the end of the month in which the transfer occurs, and for purposes of this Section his Compensation shall be considered to be $0 after the end of the Plan Year in which the transfer occurs until such time that he again performs an Hour of Service as an Employee (I.E., again becomes an Active Participant); PROVIDED, HOWEVER, that such Participant's Retirement Account balance shall continue to be increased in accordance with Section 5.4 hereof following such transfer.
5.3 In the case of an Active Participant in the Plan who as of the Initial Effective Date had an accrued benefit under a Prior Plan as of December 31, 1990, there shall be credited to the Retirement Account of such Participant as of January 1, 1991, an amount that is the single sum value of his "Accrued Benefit under the Prior Plan," determined in accordance with Appendix A.
5.4 For Plan Years beginning on or after the Initial Effective Date, each Participant's Retirement Account balance on the first day of the Plan Year shall be automatically increased as of the last day of the Plan Year by an amount equal to the Retirement Account balance on the first day of the Plan Year multiplied by the Periodic Adjustment Percentage; PROVIDED, HOWEVER, in the case of a Participant who terminates employment, for any reason, such increase shall continue to be made until the last date as of which a Retirement Account balance is maintained for such Participant; FURTHER PROVIDED, HOWEVER, if such increase is for less than a full Plan Year, the Periodic Adjustment Percentage shall be proportionately reduced.
5.5 In the case of any Participant on or after the Initial Effective
Date who was a Participant under a Prior Plan on December 31, 1990 and satisfies
the applicable requirements set forth in Appendix B, such Participant's Accrued
Benefit shall be the greater of (i) the amount credited to his Retirement
Account or (ii) the accrued benefit which would have been determined for him
under the terms and provisions of the Prior Plan as in effect immediately prior
to the Initial Effective Date, had such Prior Plan continued in effect until the
date of his termination of employment. For this purpose, in the case of the
Prior Plan which is the Estee Lauder Inc. Employee Retirement Plan, the annual
amount of the Participant's Normal Retirement Income is equal to the greater of
(a), (b) or (c) below:
(a) One percent (1%) of that portion of his Average Final Compensation which is not in excess of his Social Security Covered Compensation plus one and one-half percent (1-1/2%) of that portion of such Average Final Compensation which is in excess of such Social Security Covered Compensation, multiplied by the number of his Years of Credited Service.
(b) $2,500 with 25 or more Years of Credited Service and reduced proportionately for Years of Credited Service less than 25.
(c) The sum of (i) the amount that would otherwise have been
determined under (a) above had such Participant terminated employment on
December 31, 1993 (or, if earlier, his actual date of termination of employment)
and had such Participant's "compensation" (as used in Section 1.4) for each Plan
Year during the period ending on such applicable date been limited to $200,000
(or such greater amount as may have been permitted after taking into account
increases for cost of living for such Plan Year, as determined by the Secretary
of the Treasury) and with such dollar limit further applied by taking into
account the family aggregation rules of Section 414(q)(6) of the Code pursuant
to Section 401(a)(17) of the Code (as in effect on such applicable date), and
(ii) the benefit that would otherwise have been determined under (a) above
counting only Years of Credited Service performed after December 31, 1993.
In the case of the Estee Lauder Hemisphere Corporation Pension Plan, the annual amount of the Participant's Normal Retirement Income would be equal to the greater of (a), (b) or (c) below:
(a) One percent (1%) of that portion of his Average Final Compensation which is not in excess of his Social Security Covered Compensation plus one and one-half percent (1-1/2%) of that portion of such Average Final Compensation which is in excess of such Social Security Covered Compensation, multiplied by the number of his Years of Credited Service.
(b) $1,620 with 25 or more Years of Credited Service and reduced proportionately for Years of Credited Service less than 25.
(c) The sum of (i) the amount that would otherwise have been determined under (a) above had such Participant terminated employment on December 31, 1993 (or, if earlier, his actual date of termination of employment) and had such Participant's
"compensation" (as used in Section 1.4) for each Plan Year during the period ending on such applicable date been limited to $200,000 (or such greater amount as may have been permitted after taking into account increases for cost of living for such Plan Year, as determined by the Secretary of the Treasury) and with such dollar limit further applied by taking into account the family aggregation rules of Section 414(q)(6) of the Code pursuant to Section 401(a)(17) of the Code (as in effect on such applicable date), and (ii) the benefit that would otherwise have been determined under (a) above counting only Years of Credited Service after December 31, 1993.
In the case of a Participant whose Accrued Benefit is determined under the terms of a Prior Plan under this Section, a Participant may, subject to consent as provided in Sections 9.4 and 9.5 hereof, elect a reduced retirement income to commence on the first day of any month which is between the date of his Early Retirement Date and his Normal Retirement Date.
In the case of the Estee Lauder Inc. Employee Retirement Plan, the
amount of the percentage of such reduction shall be equal to the sum of (a) the
product derived by multiplying 7/12ths of one percent (1%) times the number of
whole calendar months by which the pension commencement date precedes the
Participant's attainment of age 57 and (b) the product derived by multiplying
5/12ths of one percent (1%) by the excess of (i) the number of whole calendar
months by which the pension commencement date precedes the Participant's
attainment of age 62 over (ii) the number of whole calendar months specified in
(a). No reduction shall be applied to such early retirement income amount if the
pension commencement date occurs on or after the Participant's attainment of age
62.
In the case of the Estee Lauder Inc. Hemisphere Corporation Pension Plan, the amount of the percentage of such reduction shall be equal to the sum of (a) the product derived by multiplying 1/4 of one percent (1%) times the number of whole calendar months (up to and including the first 60 thereof) by which the pension commencement date precedes the Normal Retirement Date and (b) the product derived by multiplying 1/2 of one percent (1%) by the number of calendar months, if any, by which the pension commencement date precedes by more than 60 calendar months the Normal Retirement Date.
Notwithstanding any other provision of the Plan to the contrary:
in the case of any Participant who is eligible for a benefit set forth in this
Section 5.5 and incurs a Disability prior to January 1, 1998, such
Participant (i) shall continue to be credited with Hours of Service
during the period of such Disability, to the same extent as if such
person had not become so disabled, for purposes of determining such
person's Years of Credited Service used in calculating such person's
benefit pursuant to this Section 5.5, and (ii) shall, during the
portion of such Participant's period of such Disability beginning on
January 1st of the year following the year in which such period of
Disability first commenced, be considered to continue to receive
"compensation" for purposes of determining such person's Average Final
Compensation, based upon such person's level of "base pay" as in effect
immediately prior to the incurring of such Disability, and
in the case of any Participant who is eligible for a benefit set forth in this
Section 5.5 and incurs a Disability on or after January 1, 1998, such
Participant (i) shall continue to be credited with Hours of Service
during a period not exceeding the first twelve months of such
Disability, to the same extent as if such person had not become so
disabled, for purposes of determining such person's Years of Credited
Service used in calculating such person's benefit pursuant to this
Section 5.5, and (ii) shall, during that portion (if any) of such
Participant's period of such Disability beginning on January 1st of the
year following the year in which such period of Disability first
commenced during which such Participant continues to be so credited
with Hours of Service pursuant to the immediately preceding clause (i),
be considered to continue to receive "compensation" for purposes of
determining such person's Average Final Compensation, based upon such
person's level of "base pay" as in effect immediately prior to the
incurring of such Disability;
PROVIDED, HOWEVER, that in no event shall such person continue to be so credited with Hours of Service or be imputed with "compensation" for periods after such person's Normal Retirement Date.
5.6 Notwithstanding anything to the contrary provided herein or elsewhere in the Plan, any Participant who retires on or after his Normal Retirement Date with at least Five (5) Years of Credited Service but less than ten (10) Years of Credited Service shall be entitled to a Normal Retirement Income of not less than $100 per month for life, and any Participant who retires on or after his Normal Retirement Date with at least ten (10) Years of Credited Service shall be entitled to a Normal Retirement Income of not less than $200 per month for life.
5.7 The benefits otherwise payable to a Participant or a Beneficiary under this Plan and, where relevant, the Accrued Benefit of a Participant, shall be limited to the extent required, and only to the extent required, by the provisions of Section 415 of the Code and rulings, notices and regulations issued thereunder. To the extent applicable, Section 415 of the Code and rulings, notices and regulations issued thereunder are hereby incorporated by reference into this Plan. In calculating these limits, the following rules shall apply:
(a) Except where otherwise specifically set forth in rulings, notices and regulations incorporated into this Plan by reference, the limitations applicable to alternative forms of benefits (other than a "qualified joint and survivor annuity," as defined in Section 417(b) of the Code) shall be determined using the factors set forth in Appendix A.
(b) If the applicable limits of Section 415 of the Code are increased after a benefit is in pay status by virtue of an adjustment to those limits reflecting a change in the cost of living index or an amendment to the Code, benefit payments to a Participant or his Beneficiary shall be increased automatically to the maximum extent permitted under the revised limits. This increase shall occur only to the extent it would not cause the benefit to exceed the benefit to which the Participant or Beneficiary would have been entitled in the absence of the limits under Section 415 of the Code.
(c) If, upon the death of a Participant whose benefits were limited under this Section, the Surviving Spouse shall be entitled to a benefit payment smaller than that which was payable while the Participant was alive, the benefit payments to the Surviving Spouse shall equal the lesser of:
(i) the benefit payment which would be payable to the Surviving Spouse if benefits under this Plan had not been limited by this Section, and
(ii) the benefit payment which would be payable to the Surviving Spouse if the benefit provided under this Plan had been a "qualified joint and survivor annuity," as defined in Section 417(b) of the Code, with survivor benefits equal to 100% of the amount payable while the Participant was alive, in an amount equal to the maximum limitations provided under this Section.
(d) If the Participant is, or ever has been, covered under one or more qualified defined contribution plans maintained by the Employer or another member of the Group, the combined plan limits of Section 415(e) of the Code shall be calculated by reducing the limits applicable to this Plan first, prior to restricting annual additions to any such defined contribution plan; PROVIDED, HOWEVER, that this paragraph (d) shall apply only with respect to Plan Years commencing prior to January 1, 2000. Notwithstanding the foregoing, or any other provision of this Plan to the contrary, the benefits otherwise payable to (or on account of) any Participant on or after January 1, 2,000 (including any Participant who is already receiving an annuity under the Plan prior to that date) shall, to the maximum extent permitted by the Code, be determined by disregarding any limit which may have been previously imposed on such person's benefits under this Plan pursuant to the provisions of the preceding sentence; PROVIDED, HOWEVER, that there shall be no adjustment in the benefits otherwise paid to such person with respect to periods prior to January 1, 2000; and, FURTHER PROVIDED, that this sentence shall not apply with respect to any person who has, prior to January 1, 2000, received a lump sum distribution under the Plan.
(e) If the Participant is entitled to a benefit under any defined benefit plan which is, or ever has been, maintained by the Employer or another member of the Group, the limits under this Section shall be applied to the combined benefits payable and the benefit payable hereunder shall be reduced to the extent necessary to make the combined benefits meet the limits under this Section.
(f) To calculate average compensation for a Participant's high-three years of service, compensation shall be the Employee's Compensation, and the three-year average shall be calculated using consecutive limitation years. A limitation year shall be a Plan Year for purposes of this Section.
(g) The amendments to Section 415(b) of the Code made by Public Law 103-465 (as modified by Public Law 104-188) shall first be effective January 1, 1999. The amendments to Section 415(b) of the Code made by Public Law 107-16 shall first be effective January 1, 2002.
5.8 Notwithstanding any other provision of the Plan to the contrary, the Accrued Benefit of an Inactive Participant who (i) was a participant in a Prior Plan and (ii) had a condition of Disability as of December 30, 1990, shall continue to be determined under the benefit formula of such Prior Plan, unless such Inactive Participant is eligible for the benefit set forth in Section 5.5 hereof. A Participant who first has a condition of Disability on or after January 1, 1991 shall be covered under the benefit formula of this Plan as of the Initial Effective
Date unless such Participant is eligible for the benefit set forth in Section 5.5 hereof. For purposes of determining the opening Retirement Account balance under this Plan, Average Final Compensation shall be used, except that with respect to any year in which there were no earnings or earnings were reduced because of Disability, such Participant's last year of actual base pay shall be used on an annualized basis.
SECTION 6
CONTRIBUTIONS
6.1 No contributions are to be made by Participants under this Plan.
6.2 Subject to the provisions of Section 13 hereof, the Employer intends to contribute over a period of time such amounts as may be determined by actuarial calculations to be required of the Employer to provide benefits in accordance with the Plan. Any forfeitures arising under the Plan shall not be applied to increase the benefits any Participant would otherwise receive under the Plan but shall be applied to reduce the Employer contributions under the Plan.
6.3 Subject to the provisions of Section 13 hereof, the administrative expenses of the Plan, except to the extent paid by the Employer, shall be paid out of the funds of the Plan.
6.4 Except as provided in paragraphs (a) and (b) below, and except as provided in Section 16 hereof, Employer contributions made under the Plan will be held for the exclusive benefit of Participants, and their joint annuitants or Beneficiaries and may not revert to the Employer.
(a) A contribution made by the Employer under a mistake of fact may be returned to the Employer within one (1) year after it is contributed to the Plan.
(b) A contribution conditioned upon its deductibility under
Section 404 of the Code may be returned, to the extent the deduction is
disallowed, to the Employer within one (1) year after the disallowance. All
contributions to the Plan are hereby conditioned upon their deductibility.
The maximum contribution that may be returned to the Employer will not exceed the amount actually contributed to the Plan, or the value of such contribution on the date it is returned to the Employer, if less.
6.5 In recognition of the fact that the Plan is, effective January 1, 1996, subject to the requirements of Section 413(c) of the Code, the provisions of Section 413(c)(4) of the Code shall, with respect to periods on and after that date, be applied consistent with such rules and procedures as shall be adopted by the actuary appointed under the Plan.
SECTION 7
DEATH BENEFIT
7.1 Death Before Retirement Date.
(a) If a Participant with a nonforfeitable right to the amount
credited to his Retirement Account pursuant to Section 8 hereof dies prior to
commencement of benefits, then his Surviving Spouse, or if (i) the Participant
elects a Beneficiary other than his Surviving Spouse and such Surviving Spouse
consents to such designation pursuant to Section 7.3 of the Plan or (ii) the
Participant is unmarried, the Participant's designated Beneficiary, shall
receive the amount credited to the Retirement Account, payable in a single life
annuity. The Surviving Spouse (or designated Beneficiary, if applicable) may
elect to receive such benefit in a cash lump sum payment; provided, however,
that if the Actuarial Equivalent value of such amount does not exceed $3,500
(with respect to Plan Years beginning prior to January 1, 1998) or $5,000 (with
respect to Plan Years beginning on or after January 1, 1998), such value shall
automatically be paid in a cash lump sum in accordance with the last sentence of
Section 10.1 hereof.
(b) Notwithstanding the foregoing subsection (a), if (i) a
Participant described in such subsection (a) was subject to the provisions of
Section 5.5 and (ii) at the time of his death there is a Surviving Spouse and
the Participant has not designated a Beneficiary other than his Surviving Spouse
with such Surviving Spouse's consent pursuant to Section 7.3, the single life
annuity otherwise payable to such Surviving Spouse pursuant to this Section 7.1
shall not be less than the single life annuity otherwise payable to such person
determined in accordance with the provisions of Section 6.1 or 6.2, as the case
may be, of the appropriate Prior Plan and based solely on such Participant's
Normal Retirement Income determined in accordance with Section 5.5; provided,
however, that if the Actuarial Equivalent value of the single life annuity
otherwise so determined pursuant to this subsection (b) does not exceed $3,500
(with respect to Plan Years beginning prior to January 1, 1998) or $5,000 (with
respect to Plan Years beginning on or after January 1, 1998), such value shall
automatically be paid in a cash lump sum in accordance with the last sentence of
Section 10.1 hereof.
7.2 DEATH AFTER DATE OF COMMENCEMENT OF BENEFITS. In the event of a Participant's death after commencement of benefits, and if an optional form of benefit under Section 9.3 hereof is applicable, then the death benefit payable hereunder, if any, shall be determined in accordance with such optional election. Otherwise, no death benefit shall be payable.
7.3 BENEFICIARY DESIGNATION. If a Participant has a Surviving Spouse, his Surviving Spouse shall be his Beneficiary, unless the Participant designates someone other than his Surviving Spouse as his Beneficiary (other than as a contingent Beneficiary) and the Surviving Spouse consents to such designation. If the Participant does not have a Surviving Spouse or if his Surviving Spouse consents, the Participant shall have the right to designate any person as a Beneficiary, to receive the amount, if any, payable pursuant to this Plan upon his death and may from time to time change any such designation in accordance with procedures established by the Committee. Each such designation shall be submitted to the Committee or its
designee in such form and manner as may be required by the Committee or its designee. In the event that a Participant designates someone other than his Surviving Spouse as his Beneficiary (other than as a contingent Beneficiary), such Beneficiary designation shall not be effective unless (i) the Surviving Spouse consents to such Beneficiary designation in writing, in a form acceptable to the Committee or its designee, and such consent is witnessed by a Plan representative or a notary public or (ii) the Participant provides the Committee or its designee with sufficient evidence to show that the Participant does not have a Surviving Spouse or that his Surviving Spouse cannot be located. The Committee shall decide which Beneficiary, if any, shall have been validly designated. If a Participant does not have a Surviving Spouse and no Beneficiary has been designated, or if a Participant does not have a Surviving Spouse and the Committee determines that a designation made by the Participant is not effective for any reason, the Committee shall designate as Beneficiary the estate of the deceased Participant.
SECTION 8
TERMINATION OF EMPLOYMENT
8.1 A Participant shall be 100% vested in the amount credited to his
Retirement Account after having completed at least Five (5) Years of Service. If
a Participant terminates employment other than by early or normal retirement or
death after having completed at least Five (5) Years of Service, he shall be
entitled to elect payment of the amount credited to his Retirement Account as of
such date of termination in a cash lump sum or, (i) if the Participant has a
Surviving Spouse at the time of such termination of employment, as an annuity of
the form described in Section 9.2 hereof or (ii) if the Participant has no
Surviving Spouse at the time of such termination of employment, as an annuity of
the form of benefit described in Section 9.1 hereof. Such payment shall be made
(or in the case of an annuity, shall commence) in accordance with the last
sentence of Section 10.1 hereof, and such election to be subject to consent as
provided in Sections 9.4 and 9.5 hereof; PROVIDED, HOWEVER, that if the
Actuarial Equivalent value of such amount does not exceed $3,500 (with respect
to Plan Years beginning prior to January 1, 1998) or $5,000 (with respect to
Plan Years beginning on or after January 1, 1998), such value shall
automatically be paid in a cash lump sum in accordance with the last sentence of
Section 10.1 hereof. If such Participant does not elect such lump sum or
annuity, he shall be entitled to receive his Accrued Benefit commencing on the
first day of any month after his termination of employment (but not later than
his Normal Retirement Date), payable in a lump sum or as an annuity, in
accordance with Sections 9.1 or 9.2 hereof, to the extent applicable. For
purposes of this Section 8, a Participant who is terminated for Disability after
a one-year absence because of Disability shall be deemed to have completed at
least Five (5) Years of Service.
8.2 In no event shall the retirement income of a terminated Employee who was a participant under a Prior Plan immediately prior to the Initial Effective Date be less than the Actuarial Equivalent of the benefit that would have been payable under the Prior Plan had the Participant's employment terminated immediately prior to the Initial Effective Date.
8.3 Notwithstanding any other provision of this Plan, each Participant shall be 100% vested in his Retirement Account on his Normal Retirement Date.
8.4 (a) If a Participant's service terminates prior to having completed Five (5) Years of Service, and at a time when he is 0% vested in the amount credited to his Retirement Account, he shall, notwithstanding any other provision of the Plan to the contrary, be deemed to automatically receive, as of such person's date of termination of employment, a single lump sum distribution which is the Actuarial Equivalent of his entire vested Accrued Benefit under the Plan, and he shall thereupon forfeit his Retirement Account as of such same date. Any forfeiture resulting from the operation of this Section, or any other provisions of the Plan, shall be used to reduce future Employer contributions.
(b) If a Participant's Retirement Account is forfeited pursuant to the preceding paragraph (a) above and such Participant is subsequently reemployed as an Employee of an Employer (i) after the number of consecutive one-year Breaks in Service equals or exceeds
Five (5), the Years of Service completed prior to the Breaks in Service shall not be aggregated with Years of Service completed after the reemployment date, or (ii) prior to incurring Five (5) or more consecutive one-year Breaks in Service, the amounts previously credited to his Retirement Account will be restored, the Years of Service completed prior to the Breaks in Service will be aggregated with the Years of Service after his reemployment date and the Participant shall become a Participant of the Plan upon his reemployment.
(c) If a Participant's vested percentage is 100% at the time of
his termination of employment, and such Participant is subsequently reemployed
as an Employee of an Employer, Years of Service completed prior to any number of
one-year Breaks in Service shall be aggregated with Years of Service after the
reemployment. If such Participant received a complete distribution of his
benefits under the Plan prior to his reemployment, then the amounts credited to
his Retirement Account as of his date of termination shall be restored on his
reemployment date, but any subsequent distribution paid to the Participant after
his reemployment shall be offset by the present value of any distributions
previously paid to him at any time in accordance with the requirements of
Section 411(a)(7) of the Code and the regulations promulgated thereunder.
(d) For purposes of determining the amount credited to the Retirement Account of a reemployed Participant described in Section 8.4(c) above, (i) if such Participant received a complete distribution of his benefits under the Plan prior to his reemployment, the amount credited to his Retirement Account upon reemployment shall be $0, and (ii) if such Participant received distributions of only a portion of his benefits under the Plan prior to his reemployment, the amount credited to his Retirement Account upon reemployment shall be the amount credited to his Retirement Account at the time of his prior termination of employment less the amount of such distributions, and his Retirement Account shall be increased in accordance with Section 5.4 by applying the Periodic Adjustment Percentage to the undistributed amounts credited to his Retirement Account during the period between his termination of employment and his reemployment. Notwithstanding the foregoing, if the reemployed Participant repays in full his prior distributions plus interest in accordance with Section 411(a)(7) of the Code, the Participant's Retirement Account shall be credited with the full amount credited to such Retirement Account at the time of his prior termination of employment, increased in accordance with Section 5.4 by applying the Periodic Adjustment Percentage to such amount for the period between his termination of employment and his reemployment.
8.5 Notwithstanding the foregoing provisions of this Section 8 and solely in the case of a Participant subject to the provisions of Section 5.5:
(a) if such Participant's Accrued Benefit is in fact determined pursuant to Section 5.5, rather than with reference to the amount credited to his Retirement Account, then the provisions of Section 8.1 shall instead be applied with reference to such Accrued Benefit so determined pursuant to Section 5.5, and in connection therewith, the amount of any cash lump sum shall be the Actuarial Equivalent of such Accrued Benefit; and
(b) regardless of whether such Participant's Accrued Benefit is in fact so determined pursuant to Section 5.5, the provisions of Section 8.4 shall be applied with
reference to both such person's Retirement Account and the amount otherwise calculated pursuant to Section 5.5.
SECTION 9
OPTIONAL FORMS OF BENEFIT
9.1 Normal Form of Benefit.
(a) The normal form of benefit shall be an income payable monthly for life, commencing on the Normal Retirement Date and terminating with the payment preceding death; PROVIDED, HOWEVER, that a Participant may, with spousal consent under the terms of Section 9.4 hereof, if applicable, elect to receive the amount credited to his Retirement Account in a single cash lump sum; FURTHER PROVIDED, HOWEVER, that if the Actuarial Equivalent value of such amount does not exceed $3,500 (with respect to Plan Years beginning prior to January 1, 1998) or $5,000 (with respect to Plan Years beginning on or after January 1, 1998), such value shall automatically be paid to the Participant in a cash lump sum in accordance with the last sentence of Section 10.1 hereof.
(b) Notwithstanding the foregoing subsection (a) and in the case of a Participant subject to the provisions of Section 5.5 or Section 5.6, if such Participant's Accrued Benefit is in fact determined pursuant to Section 5.5 or Section 5.6, rather than with reference to the amount credited to his Retirement Account, then the provisions of the foregoing subsection (a) shall instead be applied with reference to such Accrued Benefit so determined pursuant to Section 5.5 or Section 5.6, and in connection therewith, the amount of any cash lump sum shall be the Actuarial Equivalent of such Accrued Benefit.
9.2 AUTOMATIC POST-RETIREMENT SURVIVING SPOUSE OPTION. Subject to the conditions hereinafter set forth in this Section, if a Participant has a Surviving Spouse at his Retirement Income Commencement Date, the amount of retirement income payment to which he would otherwise be entitled under the normal form of benefit described in Section 9.1 shall be reduced on an Actuarial Equivalent basis to reflect the fact that, if such spouse shall survive him, a retirement income shall be payable under the Plan to his Surviving Spouse during such spouse's remaining lifetime after his death in an amount equal to 50% of the reduced amount of retirement income payments. A married Participant may elect (and may revoke such election and thereafter reelect) that his retirement income not be paid in the 50% joint and survivor form described in the preceding sentence, subject to the provisions of Section 9.4 hereof.
9.3 Notwithstanding the foregoing provisions of this Section 9, a Participant who retires on or after his Early Retirement Date may, subject to consent as provided in Sections 9.4 and 9.5 hereof, elect to receive the value of (i) his entire Accrued Benefit in accordance with one of the following optional forms, except that Option 1 or 2 may not be elected with respect to an Accrued Benefit accrued prior to January 1, 1991; (ii) his Accrued Benefit as of his Retirement Income Commencement Date less the value of his Accrued Benefit as of December 31, 1990 separately in accordance with Option 1 or 2; and (iii) his Accrued Benefit as of December 31, 1990, under a Prior Plan separately in accordance with Option 3, 4 or 5; PROVIDED, HOWEVER, that the Prior Plan benefit may be received separately only if a Participant elects Option 1 or 2 under clause (ii) hereof.
OPTION 1. An Actuarial Equivalent retirement income to be paid to the retired Participant for the rest of his life, and after his death either 50% or 100% (in accordance with his election) of such Actuarial Equivalent retirement income to be paid to his contingent annuitant for the rest of the contingent annuitant's life.
OPTION 2. An Actuarial Equivalent retirement income to be paid
to the retired Participant payable for the greater of his lifetime or a period
of ten (10) years. If the retired Participant dies before the expiration of ten
(10) years, the remaining installments of his Actuarial Equivalent retirement
income shall be paid to his Beneficiary.
OPTION 3. An Actuarial Equivalent retirement income to be paid to the retired Participant for the rest of his life, and after his death either 25%, 66.67%, 75% or 100% (in accordance with his election) of such Actuarial Equivalent retirement income to be paid to his contingent annuitant for the rest of the contingent annuitant's life.
OPTION 4. An Actuarial Equivalent retirement income to be paid to the retired Participant for the rest of his life, and if he dies before receiving 120 monthly payments, such Actuarial Equivalent retirement income to be paid to his Beneficiary for the remainder of the 120 months.
OPTION 5. A Participant who retires early in accordance with
Section 4.2 hereof may elect to receive an Actuarial Equivalent retirement
income providing larger monthly payments, in lieu of the retirement income
otherwise payable upon early retirement, until the earliest date on which his
Social Security benefit could commence; thereafter his monthly retirement income
payments shall be reduced by the estimated monthly amount of his Social Security
benefit computed to commence on such date. This optional form provides, insofar
as practical, a level total retirement income (from this Plan and Social
Security) for the Participant. In the event of the election of this Social
Security adjustment option, the monthly payment of the adjusted retirement
income shall commence at the date of retirement and shall cease with the earlier
of the last payment prior to the death of the Participant or the last payment
payable as calculated under this option.
9.4 The following rules and requirements must be met in order for any optional form of retirement income to be applicable.
(a) The election must be made pursuant to a qualified election (as described in paragraphs (b) and (g) of this Section) and filed with the Committee or its designee within the 90-day period ending on the Retirement Income Commencement Date.
(b) The consent of a contingent annuitant or Beneficiary shall not be required for a qualified election of an option; except that, if a married Participant elects to receive a form of benefit other than the Automatic Post-Retirement Survivor Spouse Option described in Section 9.2 hereof, a qualified election requires that the Surviving Spouse waive such spouse's right to the Automatic Post-Retirement Surviving Spouse Option. Such waiver shall not be effective unless (i) the consent is in writing; (ii) the election designates a specific alternate Beneficiary, including any class of Beneficiaries or any contingent Beneficiaries, which may not be changed without spousal consent (or the Surviving Spouse expressly permits designations by the Participant without any further spousal consent); (ii) the Surviving Spouse's consent acknowledges the effect of the election; (iv) the Surviving Spouse's consent is witnessed by a Plan representative or notary public; and (v) the election designates a form of benefit payment that may not be changed without spousal consent (or the Surviving Spouse expressly permits
designations by the Participant without any further spousal consent). In the
absence of a waiver by such spouse, other than for the reason that such spouse
cannot be located, the election of a form of payment other than as provided in
Section 9.2 hereof shall be null and void. Any consent by a Surviving Spouse
obtained under this provision (or establishment that the consent of a Surviving
Spouse may not be obtained) shall be effective only with respect to such
Surviving Spouse. A consent that permits designations by the Participant without
any requirement of further consent by the Surviving Spouse must acknowledge that
such spouse has the right to limit consent to a specific Beneficiary, and a
specific form of benefit where applicable, and that such spouse voluntarily
elects to relinquish either or both of such rights. A revocation of a prior
waiver may be made by a Participant without the consent of the Surviving Spouse
at any time prior to the commencement of benefits. The number of revocations
shall not be limited. No consent obtained under this provision shall be valid
unless the Participant has received notice as provided in paragraph (g) of this
Section.
(c) An election may not be made nor will it be accepted by the Committee or its designee, or if accepted it shall become null and void, if the Actuarial Equivalent value of the Participant's entire Accrued Benefit as of his Retirement Income Commencement Date would be $3,500 or less (with respect to Plan Years beginning prior to January 1, 1998) or $5,000 or less (with respect to Plan Years beginning on or after January 1, 1998), and such value shall automatically be paid to the Participant in a cash lump sum.
(d) If the stated effective date of the option is prior to the Participant's Normal Retirement Date and the Participant continues in service after such stated effective date, the election shall become null and void but, subject to the rules and requirements contained in this Section, the Participant may thereafter make another election. If the stated effective date is the Participant's Normal Retirement Date or any later date and he continues in service after such stated effective date, the option shall take effect upon his subsequent death or retirement.
(e) If a Participant who has elected Option 4 under
Section 9.3 hereof dies while the option is in effect, and his Beneficiary is a
natural person who survives the Participant but dies before the 120 monthly
payments have been paid to the Participant and the Beneficiary, the lump sum
discounted value of the unpaid balance of such 120 monthly payments shall be
paid to the Beneficiary's estate.
(f) If the contingent annuitant is other than the Surviving Spouse, and if the actuarial present value of the payments to be made to the Participant under an option will be less than 51% of the Actuarial Equivalent value of the normal form of retirement benefit provided in Section 9.1 hereof, the optional benefit shall be adjusted so that the value of the Participant's benefit will be equal to 51% of the Actuarial Equivalent value of the Participant's normal form of retirement benefit.
(g) No election shall be a qualified election unless, at least 30 days (or such a shorter period permitted by the Code and the regulations promulgated thereunder) and no
more than 90 days prior to the Participant's Retirement Income Commencement Date, the Committee shall furnish him (by mail or personal delivery) a statement generally describing the 50% joint and survivor form and explaining the relative financial effects of making an election under Section 9.2 hereof, or an election of an optional form of payment under Section 9.3 hereof. The statement shall also describe the right of the Participant and his Surviving Spouse to waive the 50% joint and survivor form, the effect of such a waiver, and the right to revoke such waiver.
9.5 If the Actuarial Equivalent value of a Participant's vested Accrued Benefit exceeds or, for distributions prior to October 17, 2000, at the time of any prior distribution exceeded $3,500 (with respect to Plan Years beginning prior to January 1, 1998) or $5,000 (with respect to Plan Years beginning on or after January 1, 1998), and the Accrued Benefit is "immediately distributable" (as defined below), the Participant and any Surviving Spouse (or where either the Participant or the spouse has died, the survivor) must consent to any distribution of such Accrued Benefit. An Accrued Benefit is "immediately distributable" if any part of the Accrued Benefit could be distributed to the Participant (or Surviving Spouse) before the Participant attains (or would have attained if not deceased) Normal Retirement Age. The consent of the Participant and any Surviving Spouse shall be obtained in writing within the 90-day period ending on the Retirement Income Commencement Date. The Participant and any Surviving Spouse shall be notified of the right to defer any distribution until the Participant's Accrued Benefit is no longer immediately distributable. Such notification shall include a general description of the material features, and an explanation of the relative values of, the optional forms of benefit available under the Plan in a manner that would satisfy the notice requirements of Section 417(a)(3) of the Code, and shall be provided no less than 30 days (or such shorter period permitted by the Code and the regulations promulgated thereunder) and no more than 90 days prior to the Retirement Income Commencement Date. Notwithstanding the foregoing, only the Participant need consent to the commencement of a distribution in the 50% or 100% joint and survivor form while the Accrued Benefit is immediately distributable. Neither the consent of the Participant nor the Surviving Spouse shall be required to the extent that a distribution is required to satisfy Section 401(a)(9) or 415 of the Code.
SECTION 10
PAYMENT OF RETIREMENT INCOME
10.1 Subject to the provisions of Sections 9 and 11 hereof, retirement income payable in other than a lump sum shall be payable in monthly installments, as of the first day of each month with the first payment to be made as of the appropriate retirement date or earlier date of termination of employment, but in no event later than the 60th day after the later of the close of the Plan Year in which the Participant attains age 65 or terminates employment or in which occurs his tenth (10th) Year of Credited Service, and with final payment to be made as of the first day of the month in which death occurs, or, if earlier, the first day of the month payments cease under the option elected. Subject to the foregoing sentence, retirement income payable in a single cash lump sum shall be paid on or as soon as administratively possible following the date he becomes entitled thereto.
10.2 Anything elsewhere in the Plan to the contrary notwithstanding, the entire nonforfeitable interest of each Participant shall be either:
(a) distributed to the Participant not later than the Participant's "Required Beginning Date" (as defined in Section 10.2(b)), or
(b) distributed to, or for the benefit of, the Participant and the Participant's contingent annuitant in installments beginning not later than the Participant's Required Beginning Date and continuing, in accordance with such regulations as the Secretary of the Treasury may prescribe, (i) over the life of the Participant or over the lives of the Participant and the Participant's contingent annuitant or (ii) over a period certain not extending beyond the life expectancy of the Participant and the Participant's Beneficiary. For purposes of this Section, the "Required Beginning Date" shall mean the later of April 1 of the calendar year which follows the calendar year in which the Participant attains age 70 1/2, or the calendar year in which the Participant retires; PROVIDED, HOWEVER, that a distribution to a Participant who is a five percent owner (as defined in Section 416 of the Code) shall begin no later than April 1 of the calendar year which follows the calendar year in which such Participant attains age 70-1/2. Notwithstanding the foregoing, any Participant who attains age 70-1/2 after December 31, 1995 but on or before December 31, 1997 may elect to nevertheless commence his distribution on April 1 of the calendar year following the calendar year in which the Participant attains age 70-1/2 even if the Participant is still employed by the Employer. In addition to the foregoing, in applying the rules of this Section 10.2, the regulations promulgated under Section 401(a)(9) of the Code are incorporated herein by reference, as are the rules promulgated by the Department of the Treasury and the Internal Revenue Service with respect to compliance with Section 401(a)(9) of the Code without violating Section 411(d)(6) of the Code.
If distribution of a Participant's nonforfeitable interest has begun in accordance with Section 10.2(b) hereof and the Participant dies before his entire nonforfeitable interest has been distributed to him, the remaining portion of such interest shall be distributed at least as rapidly as under the method of distribution being used under Section 10.2(b) hereof as of the date of the Participant's death.
If a Participant dies before distribution of the Participant's nonforfeitable interest has begun in accordance with Section 10.2(b) hereof, the entire nonforfeitable interest shall be distributed within five years after the death of the Participant, except such portion thereof as shall be payable in installments to, or for the benefit of, the Participant's contingent annuitant, beginning not later than one (1) year after the date of the Participant's death and continuing, in accordance with such regulations as the Secretary of the Treasury may prescribe, over the life of the contingent annuitant (or over a period certain not extending beyond the life expectancy of the contingent annuitant); provided, however, that if the Surviving Spouse is the Participant's contingent annuitant, the date on which the distributions are required to begin shall not be later than the Participant's Required Beginning Date and, if the Surviving Spouse dies before the distributions to the Surviving Spouse begin, this paragraph shall be applied as if the Surviving Spouse was the Participant.
SECTION 11
ADMINISTRATION OF THE PLAN
11.1 Except with respect to those responsibilities delegated to the Fiduciary Committee hereunder, the Plan shall be administered by the Committee, which shall be responsible for carrying out the provisions of the Plan. The Committee shall be a "named fiduciary" under Section 402(a)(2) of ERISA. The Committee shall consist of at least three (3) members who shall be appointed in the manner authorized by the Board. Vacancies therein shall be filled in the same manner as appointments. Any member of the Committee may be removed by action of the Board or may resign of his own accord by delivering his written resignation to the Board and to the secretary of the Committee.
11.2 The members of the Committee shall elect from their number a chairman. The chairman shall appoint a secretary, who need not be a member of the Committee. The members of the Committee may appoint from their number subcommittees with such powers as they shall determine, may authorize one or more of their number or any agent to execute or deliver any instrument or make any payment in their behalf, and may employ clerks and may employ such counsel, accountants, and actuaries as may be required in carrying out the provisions of the Plan.
11.3 The Committee shall hold meetings upon such notice, at such time, and at such place as they may determine.
11.4 A majority of the members of the Committee at the time in office shall constitute a quorum for the transaction of business. All resolutions or other actions taken by the Committee shall be by the affirmative vote of a majority of those present at the meeting, or the written consent of a majority of members at the time in office, if they act without a meeting.
11.5 No member of the Committee who is also an Employee shall receive any compensation for his services as such, but the Employer may reimburse any member for any necessary expenses incurred.
11.6 The Committee shall from time to time establish rules for the administration of the Plan and the transaction of its business. Except as herein otherwise expressly provided, the Committee shall have the exclusive right to interpret the Plan and to decide any matters arising thereunder in connection with the administration of the Plan, the eligibility of any person to benefits thereunder and the amounts of such benefits. It shall endeavor to act by general rules so as not to discriminate in favor of any person. Its decisions and the records of the Committee shall be conclusive and binding upon the Employer, the Participants, and all other persons having any interest under the Plan.
The Committee shall have the power to amend the Plan, provided that such amendment does not increase the total cost of providing benefits under the Plan by an amount in excess of $1,000,000 in any Plan Year computed in accordance with generally accepted accounting or actuarial principles; and provided, further, that such amendment does not affect the duties delegated hereunder to the Fiduciary Committee.
The Committee may appoint a Plan administrator for the Plan and shall delegate to the Plan administrator the duty to maintain all records and accounts necessary for the effective administration of the Plan, and to take any actions necessary to comply with the reporting and disclosure requirements imposed by the Code, ERISA and any other applicable federal or state statute or regulation, including any law or regulation promulgated by any foreign governing body which applies to the Plan. The Committee may delegate to any Plan administrator such other duties as it may deem necessary and appropriate. The Committee shall receive reports from each such Plan administrator as the Committee may request.
11.7 The Committee shall cause to be maintained accounts showing the fiscal transactions of the Plan, and in connection therewith shall require the Trustee to submit any necessary reports, and shall keep in convenient form such data as may be necessary for actuarial valuations of the assets and liabilities of the Plan. The Committee may retain counsel, accountants, actuaries and/or other persons to assist in the discharge of its duties.
11.8 The members of the Committee, the Fiduciary Committee, the Board, and the officers and directors of the Employer shall be entitled to rely upon all tables, valuations, certificates, and reports furnished by any duly appointed actuary, upon all certificates and reports made by any duly appointed accountant, and upon all opinions given by any duly appointed legal counsel. The members of the Committee, the Fiduciary Committee, the Board, and the officers and directors of the Employer shall not be held liable for any action taken in good faith in reliance upon any such tables, valuations, certificates, reports, or opinions. All actions so taken shall be conclusive upon each of them and upon all persons having any interest under the Plan. No member of the Committee shall be personally liable by virtue of any instrument executed by him or on his behalf as a member of the Committee, or for any mistake of judgment made by himself or any other member or by anyone employed by the Employer, or for any loss unless resulting from his own actions, including gross negligence or willful misconduct. Each member of the Committee shall be indemnified by the Employer against losses reasonably incurred by him in connection with any claim, proceeding or action to which he may be a party by reason of his membership in the Committee (including amounts paid in a settlement approved by the Employer and reasonable attorney's fees and expenses incurred in connection with such claim, proceeding or action); PROVIDED, HOWEVER, that such indemnification shall not apply to matters as to which he shall be finally adjudged, by a court of competent jurisdiction in a decision from which no appeal may be taken or with respect to which the time to appeal has expired without an appeal having been made, to have engaged in gross negligence or willful misconduct. The foregoing right of indemnification shall be in addition to any other rights to which any such member may be entitled as a matter of law or pursuant to the bylaws of Estee Lauder or any other Employer.
11.9 In the event that any Participant, contingent annuitant or Beneficiary claims to be entitled to a benefit under the Plan, and the Committee determines that such claim should be denied in whole or in part, the Committee shall, in writing, notify such claimant within 90 days of receipt of such claim that his claim has been denied, setting forth the specific reasons for such denial. Such notification shall be written in a manner reasonably expected to be understood by such Participant or other payee and shall set forth the pertinent sections of the Plan relied on and, where appropriate, an explanation of how the claimant can obtain review of such denial. Within 60 days after the mailing or delivery by the Committee of such notice, such
claimant may request, by mailing or delivery of written notice to the Committee, a review by the Committee of the decision denying the claim. If the claimant fails to request such a hearing within such 60-day period, it shall be conclusively determined for all purposes of this Plan that the denial of such claim by the Committee is correct. If such claimant requests a review within such 60-day period, he shall have the opportunity to review pertinent documents and to submit a written statement to the Committee. After such review, the Committee shall determine whether such denial of the claim was correct and shall notify such claimant in writing of its determination within 60 days from receipt of his request and no further review shall thereafter be required by the Committee.
SECTION 12
INVESTMENT OF PLAN ASSETS;
DUTIES OF FIDUCIARY COMMITTEE
12.1 All assets for providing the benefits of the Plan shall be held in trust for the exclusive benefit of Participants, contingent annuitants and Beneficiaries under the Plan, and no part of the corpus or income shall be used for, or diverted to, purposes other than for the exclusive benefit of Participants, contingent annuitants, and Beneficiaries under the Plan except as provided in Sections 6.3 and 16.4 hereof. No Participant, contingent annuitant, or Beneficiary under the Plan, nor any other person, shall have any interest in or right to any part of the earnings of the Trust Fund, or any rights in, to, or under the Trust Fund or any part of its assets, except to the extent expressly provided in the Plan.
12.2 All contributions to the Plan by the Employer shall be committed in trust to the Trustee and/or to an insurance company as provided for in Section 404 of ERISA. The Trustee shall be appointed from time to time by the Fiduciary Committee by the appropriate instrument, with such powers in the Trustee as to investment, reinvestment, control, and disbursement of the funds as the Fiduciary Committee shall approve and as shall be in accordance with the Plan. The Fiduciary Committee may remove, replace, or add a Trustee at any time. Upon the removal, replacement, or resignation of any Trustee, the Fiduciary Committee may designate a successor Trustee.
12.3 In the discretion of the Fiduciary Committee all contributions to the Plan by the Employer committed to the Trustee and/or insurance company may be commingled from time to time in whole or in part with any other fund or funds held by the Trustee and/or insurance company for use in connection with the payment of pensions of any Employee of the Employer or with any other fund or funds held by the Trustee and/or insurance company pursuant to any other retirement plan which is a qualified pension plan under Section 401(a) of the Code. For purposes of this Plan, the word "fund" or "funds" as used in this Section 12 and hereafter in this Plan shall mean the allocable portion of the fund or funds held by the Trustee and/or insurance company in respect of the contributions made pursuant to this Plan.
12.4 The Fiduciary Committee shall determine the manner in which the funds of the Plan shall be disbursed in accordance with the Plan and the provisions of the trust instrument, including the form of voucher or warrant to be used in making disbursements and the qualifications of persons authorized to approve and sign the same and any other matters incident to the disbursement of such funds.
12.5 The Fiduciary Committee shall adopt from time to time actuarial tables to be used as the basis for all actuarial calculations and shall recommend the rates of contribution payable by the Employer to the Plan as provided in Section 6 hereof. The Fiduciary Committee shall determine from time to time the per centum rate of interest to be used as the basis for all calculations. As an aid to the Fiduciary Committee in adopting tables and in recommending the rates of contribution payable by the Employer to the Plan, the actuary appointed by the Fiduciary Committee shall make annual actuarial valuations of the assets and liabilities of the Plan and
shall certify to the Fiduciary Committee the tables and rates of contribution which he would recommend for use by the Fiduciary Committee.
SECTION 13
OBLIGATIONS OF THE EMPLOYER
13.1 All contributions by the Employer for benefits under the Plan shall be voluntary, and the Employer shall be under no legal obligation to make and/or continue to make them. The Employer shall have no liability in respect to payments or benefits or otherwise under the Plan, and the Employer shall have no liability in respect to the administration of the Trust Fund or of the funds, securities, or other assets paid over to the Trustee, and each Participant, each contingent annuitant, and each Beneficiary shall look solely to such Trust Fund for any payments or benefits under the Plan.
SECTION 14
MISCELLANEOUS PROVISIONS
14.1 Except as otherwise provided by law (which shall include a "qualified domestic relations order" pursuant to Section 414(p) of the Code and any other circumstance described in Section 401(a)(13) of the Code and the Treasury regulations promulgated thereunder), no benefit payable under the Plan shall be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, or charge; nor shall any such benefit be in any manner liable for or subject to the debts, contracts, liabilities, engagements, or torts of the person entitled to such benefit.
14.2 If any Participant, contingent annuitant, or Beneficiary under the Plan shall become bankrupt or attempt to anticipate, alienate, sell, transfer, assign, pledge, encumber or charge any benefit in a manner not allowed pursuant to Section 14.1, then such benefit shall, in the discretion of the Committee, cease and terminate. In that event the Committee shall hold or apply the benefit or any part thereof to or for such Participant, contingent annuitant or Beneficiary, his spouse, children, or other dependents, or any of them, in such manner and in such proportions as the Committee shall in its sole discretion determine.
14.3 The establishment and/or maintenance of the Plan shall not be construed as conferring any rights upon any Employee or any person for a continuation of employment, and shall not be construed as limiting in any way the right of the Employer to discharge any Employee or to treat him without regard to the effect which such treatment might have upon him as a Participant of the Plan.
14.4 If any person entitled to receive any benefits from the Trust Fund is a minor or, in the judgment of the Committee, legally, physically or mentally incapable of personally receiving any distributions, the Committee may instruct the Trustee to make distribution to such other person, persons, or institutions that, in the judgment of the Committee, are then maintaining or have custody of such distributee.
14.5 The determination of the Committee as to the identity of the proper payee of any benefit under the Plan and the amount of such benefit properly payable shall be conclusive, and payment in accordance with such determination shall constitute a complete discharge of all obligations on account of such benefit.
14.6 In the event any amount shall become payable from the Trust Fund to a Beneficiary or the estate of any deceased person and if, after written notice from the Trustee mailed to the last known address of such Beneficiary, or of the executor or administrator of such estate (as certified to the Trustee by the Committee), such person or such executor or administrator shall not have presented himself to the Trustee within two years after the mailing of such notice, the Trustee shall notify the Committee, and the Committee shall instruct the Trustee to distribute such amount due to such Beneficiary or such estate among one or more of the spouse and blood relatives of such deceased person, as designated by the Committee.
14.7 This Plan may be adopted, by action of the Board of Directors, with respect to Employees who are United States citizens employed by a foreign subsidiary (as defined in Section 3121(1)(8) of the Code) of the Employer, with such Employees being treated as Employees of an Employer for the purpose described in Section 406 of the Code if the following conditions are met:
(a) the Employer has entered into an agreement under
Section 3121(1) of the Code which applies to the foreign subsidiary by which
such Employees are employed; and
(b) no contributions under another funded plan of deferred compensation (whether or not a plan described in Section 401(a), 403(a), or 405(a) of the Code) are provided by any other Employer with respect to the remuneration paid to such Employees by such subsidiary.
14.8 In the case of any merger or consolidation with, or transfer of assets or liabilities to, any other plan each Participant in the Plan will (if the Plan then terminated) receive a benefit immediately after the merger, consolidation or transfer which is equal to or greater than the benefit he would have been entitled to receive immediately before the merger, consolidation or transfer (if the Plan had then terminated). Such merger, consolidation or transfer shall comply with Section 414(l) of the Code and the regulations promulgated thereunder.
14.9 The rights of any person who terminated employment or retired on or before the effective date of any of the relevant provisions of this restatement, including his eligibility for benefits, shall be determined solely under the terms of the Plan as in effect on the date of his termination of employment or retirement, unless such person is thereafter reemployed and again becomes a Participant.
14.10 Notwithstanding any provision of the Plan to the contrary, contributions, benefits and service credit with respect to qualified military service will be provided in accordance with Section 414(u) of the Code.
SECTION 15
ADOPTION OF PLAN BY MEMBERS OF THE GROUP
15.1 Any member of the Group, other than Estee Lauder, or any other corporation or unincorporated trade or business which is not a member of the Group may, with the consent of the Board of Directors, adopt this Plan, thereby bringing such Group member or other corporation or unincorporated trade or business within the definition of Employer. With respect to such member of the Group or other corporation or unincorporated trade or business, the term "Original Effective Date" of the Plan shall refer to the date as to which such member adopts the Plan or the date as of which the Plan is extended to such member as the case may be.
15.2 The Board of Directors shall, subject to the requirements of ERISA and the Code, determine the extent to which, if at all, the period of employment prior to the extension of the Plan to a member of the Group or other corporation or unincorporated trade or business shall be recognized for purposes of the Plan.
15.3 In the event that a retirement plan or pension plan maintained by a member of the Group, or other corporation or unincorporated trade or business, for any other division, plant, or location is added to this Plan, the rights and benefits of Employees who were covered under such other plan shall, from and after the Original Effective Date of the Plan with respect to said Employer, be determined under such terms and conditions with respect to such Employees as shall be specified by the Board of Directors in the resolution approving the adoption or extension of the Plan as to the said Employees.
The assets under such other plans maintained by a member of the group applicable to Employees to be covered by this Plan shall, to the extent practicable and subject to the provisions of Section 14.8 hereof, be transferred to the Fund under this Plan, and such transferred assets shall be merged with the Fund held under this Plan.
15.4 If any Employer which has come within the definition of Employer pursuant to this Section 15 subsequently withdraws or is withdrawn from the Plan, or discontinues the Plan with respect to all or part of its Employees, the Committee shall determine the share of the Fund which shall be allocated to the Employees of such Employer who are thereby affected. If a separate defined benefit pension plan is being continued for such Employees, such Employer shall, subject to the provisions of Section 14.8 hereof, designate a successor Trustee under a separate instrument to whom such allocable funds shall be transferred with respect to all or the specified classifications of its Employees, as the case may be, unless the Board of Directors shall determine that such Employer and its affected Employees may upon proper action of such Employer continue to participate in the Trust Fund maintained in connection with this Plan. If the Plan is discontinued with respect to all or part of such Employer's Employees, such allocable funds shall be allocated with respect to each Employee affected, and shall be applied pursuant to Section 16.4 hereof.
15.5 If any Employer which is not a member of the Group which includes Estee Lauder adopts the Plan in accordance with Section 15.1, the Plan shall be treated as a "multiple
employer plan" within the meaning of Section 413(c) of the Code, and it shall comply with all the requirements of the Code and ERISA applicable to such plans.
SECTION 16
AMENDMENT AND TERMINATION
16.1 Estee Lauder reserves the right at any time, and from time to time, by action of the Committee to amend, in whole or in part, retroactively or prospectively or both, any or all of the provisions of the Plan; provided, however, that no part of the assets of the Plan shall, by reason of any amendment, be used for or diverted to purposes other than for the exclusive benefit of Participants, contingent annuitants, and Beneficiaries; and further provided that any amendment adopted by the Committee which would cause the Plan and the trust established under the Plan to cease to meet the requirements of Section 401(a) or 501(a) of the Code respectively, shall be null and void; and any actions taken under the Plan pursuant to such amendment, any benefit increases (or decreases) accruing under the Plan as a result of such amendment, and any increases (or decreases) in benefit payments under the Plan made as a result of such amendment, during the period from the date of adoption of such amendment to the date it is determined that such amendment should so cause the Plan and the trust under the Plan to cease to meet such requirements, shall be, respectively, rectified, nullified, and restored as soon as possible to the extent necessary to permit the Plan and the trust under the Plan to continue to meet the requirements of Section 401(a) and 501(a) of the Code, respectively. Notwithstanding the previous paragraph herein, no amendment to the Plan shall:
(a) reduce the Participant's accrued normal retirement income as of the date on which the amendment is adopted,
(b) eliminate or reduce any early retirement benefit or retirement-type subsidy (to be determined by regulation), or an optional form of retirement income under the Plan, with respect to the accrued normal retirement income, or
(c) reduce a retired Participant's retirement income as of the beginning of the Plan Year in which the amendment is effective.
The Board of Directors' approval shall be required for any amendment to the Plan which is anticipated by the Committee to increase the cost to Estee Lauder of maintaining the Plan by an amount in excess of $1,000,000 in any Plan Year, computed in accordance with generally accepted accounting or actuarial principles.
16.2 The Board of Directors may terminate the Plan at any time as to all or any particular group or groups of Participants and such other persons, if any, who have or may become entitled to benefits under the Plan on account of such Participants as to whom the Plan shall have been terminated, which Participants and other persons shall be referred to collectively as the terminated group in this Section 16. After the Plan termination date which is applicable to the terminated group, benefits shall be provided to the terminated group in accordance with Section 16.4 hereof. In the event of such termination, each member of the terminated group will be fully (100%) vested in his accrued benefit.
16.3 The terminated group's portion of the Fund shall equal the sum of that part of the fair market value on the Plan termination date of the entire Fund that would have been
allocated to each person in the terminated group in accordance with Section 16.4 hereof if the Plan had been terminated on such date as to all Participants in the Plan and no expenses were incurred in connection with such termination of the Plan.
16.4 A terminated group's share of the Fund shall be allocated as follows:
(a) first, to provide benefits to each person in the terminated group in accordance with Section 4044(a) of ERISA, and the regulations issued pursuant thereto;
(b) then, to the extent that after the making of the allocation described in (a) above, there remain in the Fund any assets which are applicable to the terminated group, the said assets shall be applied to pay for any unpaid administrative expenses for the administration of the Plan as to the terminated group; and
(c) lastly, to the extent that after making the allocations described in (a) and (b) above, there remain in the Fund any assets which are applicable to the terminated group, then such remaining assets shall be paid to the Employer for its own use and benefit provided that such payment to the Employer does not contravene any provision of law.
SECTION 17
LIMITATION ACCORDING TO
TREASURY DEPARTMENT REQUIREMENTS
The purpose of this Section is to conform the Plan to the requirements of Section 1.401(a)(4)-5(b) of the Income Tax Regulations.
17.1 If a benefit becomes or is payable for a Plan Year to a
Participant who is among the 25 highest paid "highly compensated employees" or
"highly compensated former employees" (each as defined in Section 414(q) of the
Code and regulations and rulings issued thereunder) for a Plan Year, such
benefit cannot exceed an amount equal to the payments that would be made during
the Plan Year on behalf of the Participant under a single life annuity that is
the Actuarial Equivalent of the sum of the Participant's Accrued Benefit and any
other benefits under the Plan; PROVIDED, HOWEVER, that this Section shall not
apply if (i) benefits that would be payable to such a Participant are less than
one percent (1%) of the total value of current liabilities under the Plan, or
(ii) the assets of the Trust Fund exceed, immediately after payment of a benefit
to such a Participant, 110% of the value of current liabilities under the Plan.
(For purposes of this Section, the value of current liabilities shall be as
defined in Section 412(l)(7) of the Code.)
17.2 In the event of a termination of the Plan, the benefit of any highly compensated employee or highly compensated former employee shall be limited to a benefit that is nondiscriminatory under Section 401(a)(4) of the Code.
17.3 In the event Congress should provide by statute, or the Internal Revenue Service or Department of the Treasury should provide by regulation or ruling, that such limitations are no longer necessary for the Plan to meet the requirements of Section 401(a) or other applicable provisions of the Code then in effect, such limitations shall become void and shall no longer apply, without the necessity of further amendment to the Plan.
SECTION 18
TOP-HEAVY PLAN PROVISIONS
18.1 Anything elsewhere in this Plan to the contrary notwithstanding, the provisions of this Section 18 shall apply to the Plan for any Plan Year if, on the last day of the preceding Plan Year, either (i) the present equivalent actuarial value of the cumulative accrued normal retirement income of Key Employees exceeds 60% of the present equivalent actuarial value of the cumulative accrued normal retirement income of all Participants, or (ii) the sum of (A) the present equivalent actuarial value of the cumulative accrued normal retirement income of Key Employees under the Plan, (B) the present equivalent actuarial value of the accumulated accrued benefits of Key Employees under all other qualified defined benefit plans included in the Aggregation Group, and (C) the cumulative accrued benefits of Key Employees under all qualified defined contribution plans included in the Aggregation Group exceeds 60% of the sum of (D) the present equivalent actuarial value of the cumulative accrued normal retirement income of all Participants under the Plan, (E) the present equivalent actuarial value of the accumulated accrued benefits of all Participants under all other qualified defined benefit plans included in the Aggregation Group, and (F) the cumulative accrued benefits of all Participants under all qualified defined contribution plans included in the Aggregation Group. For the purpose of the foregoing sentence, the "equivalent actuarial value" of the cumulative accrued normal retirement income of each Participant under the Plan shall be calculated utilizing a five percent (5%) interest rate assumption and is increased by the amount of the aggregate distributions, if any, made with respect to the Participant under the Plan during the five-year period ending on the last day of the preceding Plan Year (except that for Plan Years beginning on or after January 1, 2002, distributions on account of severance from employment, death or disability shall be taken into account only if made during the one-year period ending on the last day of the preceding Plan Year); and the present equivalent actuarial value of the accumulated accrued benefit of each Participant under all other qualified defined benefit plans and the cumulative accrued benefit of each Participant under any qualified defined contribution plan shall be increased by the amount of the aggregate distributions, if any, made with respect to the Participant under such other plan during that five-year period (or one-year period, as applicable). The term "Aggregation Group" shall mean all plans to which the Employer contributes in which a Key Employee is a Participant and all other plans to which the Employer contributes that enable any such plan to meet the requirements of Section 401(a)(4) or Section 410 of the Code. If a Participant is not a Key Employee for any Plan Year, but was a Key Employee in a prior Plan Year, the accrued normal retirement income for such Participant shall not be taken into account. The accrued normal retirement income of any Participant or former Participant who has not during the five-year period ending on the last day of the preceding Plan Year received from the Employer any compensation other than benefits under the Plan (or for determinations on or after January 1, 2002, who has not during the one-year period ending on the last day of the preceding Plan Year performed any services for the Employer) shall not be taken into account. In any Plan Year for which the provisions of this Section 18 apply and thereafter, each Employee who is a Participant during that Plan Year and has completed at least three (3) Years of Service shall have a nonforfeitable right, in the event he ceases to be an Employee prior to his Normal Retirement Date, otherwise than by death or early retirement, to receive for the remainder of his life (beginning at his Normal Retirement Date if he is still living) a deferred vested retirement
income in an amount per month equal to his accrued normal retirement income computed as of the date he ceases to be an Employee (including benefits accrued before the provisions of this Section 18 apply).
Notwithstanding the foregoing, each such Employee who has completed not less than three (3) Years of Service shall be permitted to elect, within 90 days after the first day of the Plan Year for which the provisions of this Section 18 apply, to have his nonforfeitable percentage computed in accordance with the provisions of Section 8 hereof without regard to this paragraph.
18.2 In any Plan Year for which the provisions of this Section 18 apply, if the accrued normal retirement income of any Participant who is not a Key Employee, when expressed as an equivalent actuarial value of a benefit payable annually in the form of a single life annuity (with no ancillary benefits) beginning when the Participant attains age 65 (without taking into account contributions or benefits under Chapter 2 of Chapter 21 of Title II of the Social Security Act, or any other Federal or State law), is less than the Compensation from Estee Lauder not in excess of $150,000 ($200,000 for Plan Years beginning on or after January 1, 2002), for years in the Participant's Testing Period, then the accrued normal retirement income of that Participant shall be increased to an amount equal at the last day of that Plan Year to such Applicable Percentage of the Participant's average Compensation from the Employer for years in the Participant's Testing Period.
18.3 In any Plan Year for which the provisions of this Section 18 apply, the Compensation from the Employer of each Participant taken into account under the Plan shall not exceed the first $150,000 ($200,000 for Plan Years beginning on or after January 1, 2002) (or such other figure as shall result from such annual cost-of-living adjustments as the Secretary of the Treasury or his delegate shall make pursuant to Section 401(a)(17)(B) of the Code).
18.4 In any Plan Year commencing prior to January 1, 2000 for which the provisions of this Section 18 apply, the figure "1.0" shall be substituted for the figure "1.25" as required by Section 416 of the Code for the purpose of determining an Employee's "defined contribution plan fraction" and "defined benefit plan fraction" under Section 415(e) of the Code.
18.5 For purposes of this Section, the following definitions shall apply:
(a) "Applicable Percentage" means, in respect of any Participant, the lesser of (i) 2 percent multiplied by the number of the Participant's Years of Service (disregarding any Year of Service in which ended a Plan Year for which the provisions of this Section 18 were not applicable and any Year of Service completed in a Plan Year beginning before January 1, 1984) or (ii) 20 percent.
(b) "Compensation" means, for purposes of this Section only, Compensation as defined in Section 2.10 hereof but including any special pay or remuneration reportable to the Internal Revenue Service on Form W-2 for Federal income tax purposes, but with respect to Plan Years commencing prior to January 1, 1998, "Compensation" excludes contributions made by an Employer on behalf of an Employee under a "cash or deferred arrangement" described in Section 401(k) of the Code.
(c) "Key Employee" means a Participant, former Participant or the contingent annuitant of any Participant who, at any time during the Plan Year or, for determinations prior to January 1, 2002, any of the four preceding Plan Years, is or was
(i) an officer of an Employer whose compensation from the Employer for the Plan Year exceeds (A) for determinations prior to January 1, 2002, 50% of the dollar limitation in effect under Section 415(b)(1)(A) of the Code for the calendar year in which such Plan Year ends, or (B) for determinations on or after January 1, 2002, $130,000;
(ii) solely for determinations prior to January 1, 2002, one of the ten employees having annual compensation from the Employer in excess of the limitation in effect under Section 415(c)(1)(A) of the Code and owning (or considered as owning within the meaning of Section 318 of the Code) the largest interests in the Employer;
(iii) the owner of five percent (5%) or more of the outstanding stock of the Employer (or stock possessing more than five percent (5%) of the total combined voting power of all stock of the Employer); or
(iv) an owner of one percent (1%) or more of the outstanding stock of the Employer (or stock possessing more than one percent (1%) of the total combined voting power of all stock of the Employer) whose Compensation from the Employer for the Plan Year is more than $150,000. Any Employee who is not a Key Employee shall be deemed a Non-Key Employee.
(d) "Testing Period" means, in respect of any Participant, the period of consecutive years (not exceeding Five (5)), and disregarding any Year of Service in which ended a Plan Year for which the provisions of this Section 18 were not applicable, any Year of Service completed in a Plan Year beginning before January 1, 1984, and any year that begins after the close of the last Plan Year for which the provisions of this Section 18 were applicable), during which the Participant had the greatest aggregate Compensation from the Employer.
APPENDIX A
1. Except as otherwise noted below, the assumptions to be used to convert a single life annuity into any other form of benefit, other than a lump sum distribution, are as follows:
Interest Rate: 6%
Mortality Table: 1971 TPF&C Mortality Table for male
lives, set back four years
|
2. To the extent that (A) any Participant's Retirement Account is to be converted into an equivalent, immediately payable, annual amount of single life annuity and (B) the distribution of such single life annuity is to begin as of date prior to January 1, 1999, such conversion shall be done by applying an immediate conversion factor to such Participant's Retirement Account, with such factor based upon the above specified mortality table and the Pension Benefit Guaranty Corporation ("PBGC") immediate interest rate applicable to the month as of which the distribution of the single life annuity is otherwise to begin.
To the extent that (A) any Participant's Retirement Account is to be converted into an equivalent, immediately payable, annual amount of single life annuity and (B) the distribution of such single life annuity is to begin as of date during calendar year 1999, such conversion shall be done by applying an immediate conversion factor to such Participant's Retirement Account, with such factor based upon the "applicable mortality table" (as defined under Section 417(e)(3)(A) of the Code, as amended by Public Law 103-465) and whichever of the following two interest rates results in the larger single life annuity:
(i) the "applicable interest rate" (as defined under Section 417(e)(3)(A) of the Code, as amended by Public Law 103-465) as in effect for the second calendar month immediately prior to the first day of the calendar quarter in which falls the date as of which the distribution of the single life annuity is otherwise to begin, and
(ii) such same "applicable interest rate" as in effect for the second calendar month immediately prior to the month in which falls the date as of which such distribution of the single life annuity is otherwise to begin.
To the extent that (A) any Participant's Retirement Account is to
be converted into an equivalent, immediately payable, annual amount of single
life annuity and (B) the distribution of such single life annuity is to begin as
of date on or after January 1, 2000, such conversion shall be done by applying
an immediate conversion factor to such Participant's Retirement Account, with
such factor based upon the "applicable mortality table" (as defined under
Section 417(e)(3)(A) of the Code, as amended by Public Law 103-465) and the
"applicable interest rate" (as defined under Section 417(e)(3)(A) of the Code,
as similarly so amended) as in effect for the second calendar month immediately
prior to the first day of the calendar quarter in which falls the date as of
which the distribution of the single life annuity is otherwise to begin.
For purposes of this Appendix A, the "applicable mortality table" (as defined under Section 401(a)(17) of the Code, as amended by Public Law 103-465) shall be the table prescribed by Revenue Ruling 95-6 for distributions on or after January 1, 1999 and prior to December 31, 2002, and the table prescribed by Revenue Ruling 2001-62 for distributions on or after December 31, 2002.
3. To the extent that (A) any immediately payable, lump sum distribution under the Plan is the equivalent of a single life annuity otherwise deferred to a Participant's Normal Retirement Date and (B) such distribution is to occur as of a date prior to January 1, 1999, such Participant's Retirement Account is converted into an annual amount of such a deferred single life annuity using a deferred conversion factor, with such factor based upon the above specified mortality table and the PBGC immediate/deferred blended interest rate (under Section 417(e)(3) of the Code, as in effect immediately prior to the enactment of Public Law 103-465) applicable to the month as of which the distribution of such lump sum benefit is otherwise to occur.
To the extent that (A) any immediately payable, lump sum distribution under the Plan is the equivalent of a single life annuity otherwise deferred to a Participant's Normal Retirement Date and (B) such distribution is to occur as of a date during calendar year 1999, such Participant's Retirement Account is converted into an annual amount of such a deferred single life annuity using a deferred conversion factor, with such factor based upon the "applicable mortality table" (as defined under Section 417(e)(3)(A) of the Code, as amended by Public Law 103-465) and whichever of the following two interest rates results in the larger single life annuity:
(i) the "applicable interest rate" (as defined under Section 417(e)(3)(A) of the Code, as amended by Public Law 103-465) as in effect for the second calendar month immediately prior to the first day of the calendar quarter in which falls the date as of which such distribution is otherwise to occur, and
(ii) such same "applicable interest rate" as in effect for the second calendar month immediately prior to the month in which falls the date as of which such distribution is otherwise to occur.
To the extent that (A) any immediately payable, lump sum distribution under the Plan is the equivalent of a single life annuity otherwise deferred to a Participant's Normal Retirement Date and (B) such distribution is to occur as of a date on or after January 1, 2000, such Participant's Retirement Account is converted into an annual amount of such a deferred single life annuity using a deferred conversion factor, with such factor based upon the "applicable mortality table" (as defined under Section 417(e)(3)(A) of the Code, as amended by Public Law 103-465) and the applicable interest rate" (as defined under Section 417(e)(3)(A) of the Code, as similarly so amended) as in effect for the second calendar month immediately prior to the first day of the calendar quarter in which falls the date as of which such distribution is otherwise to occur.
4. To the extent that (A) any Participant's single life annuity otherwise payable immediately is converted into an equivalent, immediately payable lump sum distribution
and (B) the distribution of such lump sum benefit is to occur as of a date prior to January 1, 1999, such conversion shall be done by applying an immediate conversion factor to the annual amount of such single life annuity, with such factor based upon the above specified mortality table and the PBGC immediate interest rate applicable to the month as of which the distribution of such lump sum benefit is otherwise to occur.
To the extent that (A) any Participant's single life annuity otherwise payable immediately is converted into an equivalent, immediately payable lump sum distribution and (B) the distribution of such lump sum benefit is to occur as of a date during calendar year 1999, such conversion shall be done by applying an immediate conversion factor to the annual amount of such single life annuity, with such factor based upon the "applicable mortality table" (as defined under Section 417(e)(3)(A) of the Code, as amended by Public Law 103-465) and whichever of the following two interest rates results in the larger single life annuity:
(i) the "applicable interest rate" (as defined under Section 417(e)(3)(A) of the Code, as amended by Public Law 103-465) as in effect for the second calendar month immediately prior to the first day of the calendar quarter in which falls the date as of which such distribution is otherwise to occur, and
(ii) such same "applicable interest rate" as in effect for the second calendar month immediately prior to the month in which falls the date as of which such distribution is otherwise to occur.
To the extent that (A) any Participant's single life annuity otherwise payable immediately is converted into an equivalent, immediately payable lump sum distribution and (B) the distribution of such lump sum benefit is to occur as of a date on or after January 1, 2000, such conversion shall be done by applying an immediate conversion factor to the annual amount of such single life annuity, with such factor based upon the "applicable mortality table" (as defined under Section 417(e)(3)(A) of the Code, as amended by Public Law 103-465) and the "applicable interest rate" (as defined under Section 417(e)(3)(A) of the Code, as also so amended) as in effect for the second calendar month immediately prior to the first day of the calendar quarter in which falls the date as of which such distribution is otherwise to occur.
5. Each Participant's single life annuity otherwise deferred to
such Participant's Normal Retirement Date is, if the distribution of a lump sum
benefit is otherwise to occur as of a date prior to January 1, 1999, converted
into an equivalent, immediately payable lump sum distribution by using a
deferred conversion factor, with such factor based upon the above specified
mortality table and the PBGC immediate/deferred blended interest rate (under
Section 417(e)(3) of the Code, as in effect immediately prior to the enactment
of Public Law 103-465) applicable to the month as of which the distribution of
such lump sum benefit is otherwise to occur.
Each Participant's single life annuity otherwise deferred to such Participant's Normal Retirement Date is, if the distribution of a lump sum benefit is otherwise to occur as of a date during calendar year 1999, converted into an equivalent, immediately payable lump sum
distribution by using a deferred conversion factor, with such factor based upon the "applicable mortality table" (as defined under Section 417(e)(3)(A) of the Code, as amended by Public Law 103-465) and whichever of the following two interest rates results in the larger single life annuity:
(i) the "applicable interest rate" (as defined under Section 417(e)(3)(A) of the Code, as amended by Public Law 103-465) as in effect for the second calendar month immediately prior to the first day of the calendar quarter in which falls the date as of which such distribution is otherwise to occur, and
(ii) such same "applicable interest rate" as in effect for the second calendar month immediately prior to the month in which falls the date as of which such distribution is otherwise to occur.
Each Participant's single life annuity otherwise deferred to such
Participant's Normal Retirement Date is, if the distribution of a lump sum
benefit is otherwise to occur as of a date on or after January 1, 2000,
converted into an equivalent, immediately payable lump sum distribution by using
a deferred conversion factor, with such factor based upon the "applicable
mortality table" (as defined under Section 417(e)(3)(A) of the Code, as amended
by Public Law 103-465) and the "applicable interest rate" (as defined under
Section 417(e)(3)(A) of the Code, as similarly so amended) as in effect for the
second calendar month immediately prior to the first day of the calendar quarter
in which falls the date as of which such distribution is otherwise to occur.
APPENDIX B
In order to receive the benefits described in Section 5.5 of the Plan, a Participant must have been a participant under a Prior Plan on December 31, 1990 and must satisfy the requirements set forth below that correspond to his termination of employment date.
TERMINATION OF EMPLOYMENT DATE REQUIREMENTS
------------------------------ ------------
1. After December 31, 1990 and prior 1. Age 50 with 10 Years of Service on
to July 1, 1991 December 31, 1990; age 55 with 10
Years of Service on his termination of
employment date
2. After June 30, 1991 and prior to 2. Age 55 with 10 Years of Service on his
January 1, 1993 termination of employment date
3. After December 31, 1992 3. Age 50 with 5 Years of Service, or any
age and 10 Years of Service, as of
January 1, 1993
|
APPENDIX C
ADDITIONAL EARLY RETIREMENT BENEFITS
1.1 Eligibility for Additional Benefits
A. Any Participant employed in the United States by an Employer, or on sick leave or long-term disability under the Employer's Long-Term Disability Plan, may elect to retire on August 1, 1991 (such designated date of retirement hereinafter referred to in this Appendix C as the "Retirement Day") and be eligible to receive the additional benefits ("Additional Benefits") set forth under this Appendix C, provided that () on or before July 31, 1991 such Participant shall have attained at least age 55 and completed at least ten Years of Service under the Plan (including periods of disability in which no Years of Service were credited), () the document entitled "Special Retirement Option Agreement," which includes a General Release in favor of the Employer, is signed, witnessed and dated no earlier than July 8, 1991 but no later than July 18, 1991 in strict accordance with the instructions contained therein, and () such Participant shall have made an election to retire on such other forms as the Employer may require during the period commencing forty-five days after such Participant receives the "Special Retirement Option Agreement" from the Employer but ending no later than July 31, 1991. Participants who previously retired on or after January 1, 1991 and before August 1, 1991 and who were employed in the United States by the Employer shall also be eligible for the Additional Benefits under this Appendix C, provided the preceding requirements in clauses (i)-(iii) hereof are satisfied.
B. Notwithstanding the provisions of paragraph A hereof, any individual whose active employment with an Employer ceased by mutual agreement on or before May 17, 1991 shall not be eligible for any benefits under this Appendix C.
C. Notwithstanding the provisions of paragraph A above, any individual who is classified by an Employer as a Corporate Department Head or President of a division shall not be eligible for the Additional Benefits under this Appendix C.
1.2 Additional Benefits
Each Participant eligible for Additional Benefits under this Appendix C to the Plan who elects to retire on the Retirement Day shall be entitled to the following:
A. The Additional Benefits shall be equal to the benefit determined, under Section 5.5 of the Plan, by increasing the Participant's age as of August 1, 1991, by Five (5) years and Years of Service as of August 1, 1991, by Five (5) years. The Additional Benefits shall be added to the regular pension benefit determined under Section 5.5 of the Plan.
B. The reduction contained in Section 5.5 of the Plan, which applies to the early commencement of a Participant's benefits prior to age 62, shall be applied after increasing the Participant's age by Five (5) years as provided under paragraph A above.
C. The Additional Benefits provided under this Appendix C to the Plan shall be payable in the form applicable to the Participant in accordance with the provisions of Section 9 of the Plan.
D. Participants who (i) retired on or after January 1, 1991 and prior to August 1, 1991, (ii) are receiving retirement benefits under the Plan prior to August 1, 1991, and (iii) are eligible under Section 1.01 A hereof, shall have the amount of their retirement benefits recomputed under this Appendix C from the date of their previous retirement and paid in accordance with the form of benefit previously elected under Section 9 of the Plan. No changes to the form of benefit previously elected shall be permitted; however, the Additional Benefits payable for the period of time from the date of the previous retirement to July 31, 1991 shall be paid in the form of a lump sum distribution at the time prescribed under paragraph E hereof. In no event shall Additional Benefits be paid to Participants who retired before January 1, 1991.
E. If a Participant elects the Additional Benefits provided under this Appendix C to the Plan, such Participant's retirement benefits shall be payable commencing in the first month following the month in which the Retirement Day occurs.
APPENDIX D
ADDITIONAL EARLY RETIREMENT BENEFITS
1.1 Eligibility for Additional Benefits
A. Any Participant employed in the Commonwealth of Puerto Rico by the Estee Lauder Hemisphere Division of Clinique (the "Employer"), or on sick leave or long-term disability under the Employer's Long-Term Disability Plan, may elect to retire on December 1, 1991 (such designated date of retirement hereinafter referred to in this Appendix D as the "Retirement Day") and be eligible to receive the additional benefits ("Additional Benefits") set forth under this Appendix D, provided that (i) on or before November 30, 1991 such Participant shall have attained at least age 55 and completed at least ten Years of Service under the Plan (including periods of disability in which no Years of Service were credited), (ii) the document entitled "Special Retirement Option Agreement and General Release," which includes a General Release in favor of the Employer, is signed, witnessed and dated no earlier than November 4, 1991 but no later than November 14, 1991 in strict accordance with the instructions contained therein, and (iii) such Participant shall have made an election to retire on such other forms as the Employer may require during the period commencing forty-five days after such Participant receives the "Special Retirement Option Agreement" from the Employer but ending no later than November 30, 1991. Participants who previously retired on or after January 1, 1991 and before December 1, 1991 and who were employed in the Commonwealth of Puerto Rico by the Employer shall also be eligible for the Additional Benefits under this Appendix D, provided the preceding requirements in clauses (i)-(iii) hereof are satisfied.
B. Notwithstanding the provisions of paragraph A hereof, any individual whose active employment with the Employer ceased by mutual agreement on or before September 19, 1991 shall not be eligible for any benefits under this Appendix D.
C. Notwithstanding the provisions of paragraph A above, any individual who is classified by the Employer as a Corporate Department Head or President of a division shall not be eligible for the Additional Benefits under this Appendix D.
1.2 Additional Benefits
Each Participant eligible for Additional Benefits under this Appendix D to the Plan who elects to retire on the Retirement Day shall be entitled to the following:
A. The Additional Benefits shall be equal to the benefit determined, under Section 5.5 of the Plan, by increasing the Participant's age as of December 1, 1991, by Five (5) years and Years of Service as of December 1, 1991, by Five (5) years. The Additional Benefits shall be added to the regular pension benefit determined under Section 5.5 of the Plan.
B. The reduction contained in Section 5.5 of the Plan, which applies to the early commencement of a Participant's benefits, shall be applied after increasing the Participant's age by Five (5) years as provided under paragraph A above.
C. The Additional Benefits provided under this Appendix D to the Plan shall be payable in the form applicable to the Participant in accordance with the provisions of Section 9 of the Plan.
D. Participants who (i) retired on or after January 1, 1991 and prior to December 1, 1991, (ii) are receiving retirement benefits under the Plan prior to December 1, 1991, and (iii) are eligible under Section 1.01 A hereof, shall have the amount of their retirement benefits recomputed under this Appendix D from the date of their previous retirement and paid in accordance with the form of benefit previously elected under Section 8 of the Plan. No changes to the form of benefit previously elected shall be permitted; however, the Additional Benefits payable for the period of time from the date of the previous retirement to November 30, 1991 shall be paid in the form of a lump sum distribution at the time prescribed under paragraph E hereof. In no event shall Additional Benefits be paid to Participants who retired before January 1, 1991.
E. If a Participant elects the Additional Benefits provided under this Appendix D to the Plan, such Participant's retirement benefits shall be payable commencing in the first month following the month in which the Retirement Day occurs.
APPENDIX E
SECTION 1.1 SCOPE.
The provisions of this Appendix E shall apply with respect to each person who first became an employee of Whitman Packaging Corporation prior to January 1, 1992; other than any such person who, prior to that date, terminated such employment and immediately thereupon transferred to, and became an employee of, an entity which was then an Employer under the Plan as then in effect (a "Whitman Employee"). The provisions of this Appendix E shall apply notwithstanding any contrary provisions of the Plan, of which this Appendix is a part.
Except to the extent expressly provided to the contrary herein, all defined terms shall have the same meanings as provided under the Plan. Each reference to the Plan shall (except with reference to the first sentence of the preceding paragraph) be to the Plan as in effect at the time such provision is applied to a Whitman Employee, as the context shall require.
The provisions of this Appendix E shall not apply with respect to (a) any person described in Appendix F or (b) any person who first becomes an employee of Whitman Packaging Corporation ("Whitman") on or after January 1, 1992.
SECTION 1.2 COMMENCEMENT OF STATUS AS A PARTICIPATING EMPLOYER
Whitman shall become an Employer under the Plan on January 1, 1992.
SECTION 1.3 COMMENCEMENT OF PLAN PARTICIPATION BY WHITMAN EMPLOYEES
No Whitman Employee shall be permitted to become a Participant prior to January 1, 1992. The first date on or after January 1, 1992 on which any such person may become a Participant shall be governed by the otherwise applicable provisions of Section 3 of the Plan. In applying the terms of such participation eligibility provision, there shall be taken into account all of such Whitman Employee's period of employment with Whitman on or after January 1, 1984, but only to the extent that any such period of employment would have been taken into account had Whitman otherwise been an Employer throughout such person's entire such period of employment.
SECTION 1.4 CREDITS TO RETIREMENT ACCOUNTS
In determining the amount to be credited to the Retirement Account of a Whitman Employee who becomes a Participant pursuant to the provisions of Section 5 of the Plan, there shall be taken into account all periods of such person's employment with Whitman on or after January 1, 1984 which would otherwise have been taken into account for such purpose had Whitman otherwise been an Employer throughout such person's entire such period of employment; PROVIDED, HOWEVER, that there shall be taken into account for this purpose with respect to any Whitman Employee who becomes a Participant (i) who transferred from a non-exempt position to an exempt position prior to January 1, 1992, all periods of employment beginning with the date on which such Whitman Employee first became a regular, full-time employee of Whitman; (ii) who is in a non-exempt position, all periods of employment beginning on the later of (A) January 1, 1984, or (B) such Whitman Employee's Plan Entry Date for purposes of the Whitman Packaging Corporation Money Purchase Plan.
SECTION 1.5 VESTING
In determining the extent to which any Whitman Employee is vested in his Retirement Account pursuant to the provisions of Section 8 of the Plan, there shall be taken into account all periods of such person's employment with Whitman which are otherwise taken into account with respect to such employee pursuant to the provisions of Section 1.4 of this Appendix E.
APPENDIX F
SECTION 1.1 SCOPE
The provisions of this Appendix F shall apply with respect to each person who, prior to January 1, 1992, (a) became an employee of Whitman Packaging Corporation and (b) thereafter terminated such employment and immediately thereupon transferred to, and became an employee of an entity which was then an Employer under the Plan as then in effect (a "Transferred Whitman Employee"). The provisions of this Appendix F shall apply notwithstanding any contrary provisions of the Plan, of which this Appendix is a part.
Except to the extent expressly provided to the contrary herein, all defined terms shall have the same meanings as provided under the Plan. Each reference to the Plan shall (except with reference to the first sentence of the preceding paragraph) be to the Plan as in effect at the time such provision is applied to a Transferred Whitman Employee, as the context shall require.
The provisions of this Appendix F shall not apply with respect to (a) any person subject to the provisions of Appendix E or (b) any person who first becomes an employee of Whitman Packaging Corporation ("Whitman") on or after January 1, 1992.
SECTION 1.2 CREDITS TO RETIREMENT ACCOUNTS
In determining the amount to be credited to the Retirement Account of a
Transferred Whitman Employee for the Plan Year commencing January 1, 1992 and
for each subsequent Plan Year (but not for any prior Plan Year) pursuant to the
provisions of Section 5 of the Plan, but only in the case of such a person who
is otherwise entitled to have an amount so credited for such Plan Year, there
shall be taken into account all periods of such person's employment with Whitman
on or after January 1, 1984 which would otherwise have been taken into account
for such purpose had Whitman otherwise been an Employer throughout such person's
entire such period of employment; PROVIDED, HOWEVER, that there shall be taken
into account for this purpose with respect to any Transferred Whitman Employee
(i) who transferred from a non-exempt position to an exempt position with
Whitman prior to becoming a Transferred Whitman Employee, all periods of
employment beginning with the date on which such Transferred Whitman Employee
first became a regular, full-time employee of Whitman; (ii) who was in a
non-exempt position with Whitman prior to becoming a Transferred Whitman
Employee, all periods of employment beginning on the later of (iii) January 1,
1984, or (iv) such Transferred Whitman Employee's Plan Entry Date for purposes
of the Whitman Packaging Corporation Money Purchase Plan.
SECTION 1.3 VESTING
In determining the extent to which any Transferred Whitman Employee is, for the Plan Year commencing January 1, 1992 and each subsequent Plan Year, vested in his Retirement Account pursuant to the provisions of Section 8 of the Plan, there shall be taken into account all periods of such person's employment with Whitman which are otherwise taken into account with respect to such employee pursuant to the provisions of Section 1.2 of this Appendix F.
In determining the extent to which any Transferred Whitman Employee is, for any Plan Year beginning prior to January 1, 1992, vested in such aforementioned Account, such person's prior employment with Whitman shall be taken into account only to the extent required under the provisions of Section 411 of the Code.
APPENDIX G
SECTION 1.1 SCOPE
The provisions of this Appendix G shall apply with respect to each person who first became an employee of Northtec Inc. prior to January 1, 1992 at either its Trevose, Pa. or Bristol, Pa. locations; other than any such person who, prior to that date, terminated such employment and immediately thereupon transferred to, and became an employee of, an entity which was then an Employer under the Plan as then in effect (a "Northtec Employee"). The provisions of this Appendix G shall apply notwithstanding any contrary provisions of the Plan, of which this Appendix is a part.
Except to the extent expressly provided to the contrary herein, all defined terms shall have the same meanings as provided under the Plan. Each reference to the Plan shall (except with reference to the first sentence of the preceding paragraph) be to the Plan as in effect at the time such provision is applied to a Northtec Employee, as the context shall require.
The provisions of this Appendix G shall not apply with respect to (a) any person described in Appendix H or (b) any person who first becomes an employee of Northtec Inc. ("Northtec") on or after January 1, 1992.
SECTION 1.2 COMMENCEMENT OF STATUS AS A PARTICIPATING EMPLOYER
Northtec shall become an Employer under the Plan on January 1, 1992.
SECTION 1.3 COMMENCEMENT OF PLAN PARTICIPATION BY NORTHTEC EMPLOYEES
A. No Northtec Employee shall be permitted to become a Participant prior to January 1, 1992. The first date on or after January 1, 1992 on which any such person may become a Participant shall be governed by the otherwise applicable provisions of Section 2 of the 1992 Plan.
B. In applying the terms of the participation eligibility provision referred to in subsection (a) of this Section 1.3 in the case of any Northtec Employee employed at the Trevose, Pa. location prior to January 1, 1992, there shall be taken into account all of such employee's period of employment with Northtec on or after July 17, 1989, but only to the extent that any such period of employment would have been taken into account had Northtec otherwise been an Employer throughout such person's entire such period of employment.
C. In applying the terms of the participation eligibility provision referred to in Section 1.3 in the case of any Northtec Employee employed at the Bristol, Pa. location prior to January 1, 1992, there shall be taken into account all of such employee's period of employment with Northtec (including, for such purpose, all periods of employment on and after November 1, 1987, with Powder Masters, which formerly operated such location), but only to the extent that any such period of employment would have been taken into account had Northtec (or Powder Masters, as the case may be) otherwise been an Employer throughout such person's entire such period of employment.
SECTION 1.4 CREDITS TO RETIREMENT ACCOUNTS
A. In determining the amount to be credited to the Retirement Account of a Northtec Employee who becomes a Participant pursuant to the provisions of Section 5 of the Plan, on behalf of any Northtec Employee employed at the Trevose, Pa. location prior to January 1, 1992, who otherwise becomes a Participant, there shall be taken into account all periods of such person's employment with Northtec on or after July 17, 1989 which would otherwise have been taken into account for such purpose had Northtec otherwise been an Employer throughout such person's entire such period of employment.
B. In determining the amount to be credited to the Retirement Account of a Northtec Employee who becomes a Participant pursuant to the provisions of Section 5 of the Plan, on behalf of any Northtec Employee employed at the Bristol, Pa. location prior to January 1, 1992, who otherwise becomes a Participant, there shall be taken into account all periods of such person's employment with Northtec (including, for such purpose, all periods of employment on and after November 1, 1987, with Powder Masters) which would otherwise have been taken into account for such purpose had Northtec (or Powder Masters, as the case may be) otherwise been an Employer throughout such person's entire such period of employment.
C. In addition to the credits referred to in subsections (b) and (c) of this Section 1.4, each Northtec Employee who becomes a Participant on January 1, 1992 shall, as of such date, be credited with $400 for each full calendar year of employment prior to January 1, 1992, but with such calendar years being limited to the period otherwise taken into account under the foregoing provisions of this Section 1.4.
SECTION 1.5 VESTING
In determining the extent to which any Northtec Employee is vested in his Account pursuant to the provisions of Section 8 of the Plan, there shall be taken into account all periods of such person's employment with Northtec which are otherwise taken into account with respect to such employee pursuant to the provisions of Section 1.4 of this Appendix G.
SECTION 1.6 TRANSFER BETWEEN LOCATIONS
In the case of any Northtec Employee who, prior to January 1, 1992 had been employed at both the Trevose, Pa. location and the Bristol, Pa. location, the provisions of this Appendix G shall, notwithstanding any other provision of this Appendix G to the contrary, be applied as if such person had, throughout the entire period prior to January 1, 1992, remained employed at whichever of such two locations such Northtec Employee was first employed.
APPENDIX H
SECTION 1.1 SCOPE
The provisions of this Appendix H shall apply with respect to each person who, prior to January 1, 1992, (a) became an employee of Northtec Inc. at either its Trevose, Pa. or Bristol, Pa. locations and (b) thereafter terminated such employment and immediately thereupon transferred to, and became an employee of an entity which was then an Employer under the Plan as then in effect (a "Transferred Northtec Employee"). The provisions of this Appendix H shall apply notwithstanding any contrary provisions of the Plan, of which this Appendix is a part.
Except to the extent expressly provided to the contrary herein, all defined terms shall have the same meanings as provided under the Plan. Each reference to the Plan shall (except with reference to the first sentence of the preceding paragraph) be to the Plan as in effect at the time such provision is applied to a Transferred Northtec Employee, as the context shall require.
The provisions of this Appendix H shall not apply with respect to (a) any person subject to the provisions of Appendix G or (b) any person who first becomes an employee of Northtec Inc. ("Northtec") on or after January 1, 1992.
SECTION 1.2 CREDITS TO RETIREMENT ACCOUNTS
A. In determining the amount to be credited to the Retirement Account of a Transferred Northtec Employee, who was employed at the Trevose, Pa. location prior to becoming a Transferred Northtec Employee, for the Plan Year commencing January 1, 1992 and for each subsequent Plan Year (but not for any prior Plan Year) pursuant to the provisions of Section 5 of the Plan, but only in the case of such a person who is otherwise entitled to have an amount so credited for such Plan Year, there shall be taken into account all periods of such person's employment with Northtec on or after July 17, 1989 which would otherwise have been taken into account for such purpose had Northtec otherwise been an Employer throughout such person's entire such period of employment.
B. In determining the amount to be credited to the Retirement Account of a Transferred Northtec Employee, who was employed at the Bristol, Pa. location prior to becoming a Transferred Northtec Employee, for the Plan Year commencing January 1, 1992 and for each subsequent Plan Year (but not for any prior Plan Year) pursuant to the provisions of Section 5 of the Plan, but only in the case of such a person who is otherwise entitled to have an amount so credited for such Plan Year, there shall be taken into account all periods of such person's employment with Northtec (including, for such purpose, all periods of employment on and after November 1, 1987, with Powder Masters) which would otherwise have been taken into account
for such purpose had Northtec (or Powder Masters, as the case may be) otherwise been an Employer throughout such person's entire such period of employment.
C. In addition to the credits referred to in subsections (b) and (c) of this Section 1.2, each Transferred Northtec Employee who was otherwise a Participant in the Plan on January 1, 1992, shall, as of such date, be credited with the greater of (a) the balance otherwise determined under the Plan as of that date, without regard to this Appendix H or (b) an amount equal to the sum of $400 multiplied by the number of such person's full calendar years of employment prior to January 1, 1992. For this purpose, such calendar years of employment for any Transferred Northtec Employee shall be determined by taking into account all periods of employment otherwise taken into account with respect to such person under the foregoing provisions of this Section 1.2 as well as all periods otherwise recognized under the Plan without regard to this Appendix H.
SECTION 1.3 VESTING
In determining the extent to which any Transferred Northtec Employee is, for the Plan Year commencing January 1, 1992 and each subsequent Plan Year, vested in his Retirement Account pursuant to the provisions of Section 8 of the Plan, there shall be taken into account all periods of such person's employment with Northtec which are otherwise taken into account with respect to such employee pursuant to the provisions of Section 1.2 of this Appendix H.
In determining the extent to which any Transferred Northtec Employee is, for any Plan Year beginning prior to January 1, 1992, vested in such aforementioned Account, such person's prior employment with Northtec shall be taken into account only to the extent required under the provisions of Section 411 of the Code.
SECTION 1.4 TRANSFER BETWEEN LOCATIONS
In the case of any Transferred Northtec Employee who, prior to so becoming a Transferred Northtec Employee, had been employed at both the Trevose, Pa. location and the Bristol, Pa. location, the provisions of this Appendix H shall, notwithstanding any other provisions of this Appendix H to the contrary, be applied as if such person had, throughout the entire period prior to becoming a Transferred Northtec Employee, remained employed at whichever of such two locations such person was first employed.
APPENDIX I
SECTION 1.1 Eligibility for Additional Benefits
The following Participants shall receive the additional benefits provided pursuant to this Appendix I:
[INTENTIONALLY OMITTED]
SECTION 1.2 Additional Benefits
Each Participant described in the foregoing Section 1.1 of this Appendix I shall be entitled to the following:
A. The Additional Benefits shall be equal to the benefit determined, under Section 5.5 of the Plan, by increasing the Participant's age by Five (5) years and Years of Credited Service by Five (5) years. The Additional Benefits shall be added to the regular pension benefit determined under Section 5.5 of the Plan.
B. The reduction contained in Section 5.5 of the Plan, which applies to the early commencement of a Participant's benefits, shall be applied after increasing the Participant's age by Five (5) years as provided under paragraph A above.
C. The Additional Benefits provided under this Appendix I shall be payable in the form otherwise applicable to the Participant in accordance with the generally applicable provisions of the Plan.
APPENDIX J
1.1 Eligibility for Additional Benefits.
(1) Any Participant who is (i) employed by the Employer, (ii) on an Approved Absence (paid or unpaid) from the Employer, (iii) on sick leave or long-term disability under the Employer's Long-Term Disability Plan with disability payments continuing on and after January 1, 1997 or (iv) receiving severance payments from the Employer that are being paid on or after January 1, 1997 (such persons being hereinafter referred to as a "Covered Employee"), may elect to retire on the first day of any month commencing on January 1, 1997 and ending on July 1, 1998 as designated by the Employer and Covered Employee in the "General Release" (such designated date of retirement hereinafter referred to in this Appendix J as the "Retirement Date").
Such Covered Employee shall be eligible to receive the benefit described in Paragraph 1.2 of this Appendix J, provided that (i) on or before December 31, 1996, such Covered Employee shall have attained at least age 50 and completed at least ten Years of Service or Years of Credited Service under the Plan, (ii) on or before December 31, 1996, any such Covered Employee who was employed by Whitman Packaging Corporation has completed at least four Years of Eligibility Service under the Plan, (iii) the document entitled "Special Retirement Opportunity" is signed, witnessed and dated no earlier than November 8, 1996 in strict accordance with the instructions contained therein, and (iv) such Covered Employee shall have made an election to retire on such other forms as the Employer may require during the period commencing at least forty-five days after such Covered Employee receives the "General Release" from the Employer but ending no later than June 4, 1998. Participants who previously retired on or after January 1, 1996 and before January 1, 1997 and who were employed in the United States by the Employer shall also be eligible for the benefits described in Paragraph 1.2 of this Appendix J, provided the preceding requirements in clauses (i)-(iv) hereof are satisfied (such persons are hereinafter referred to as "Retired Covered Employees").
(2) Notwithstanding the provisions of paragraph 1 above, any individual who is classified by an Employer as a Corporate Department Head or President of a division shall not be eligible for the benefit described in Paragraph 1.2 of this Appendix J.
1.2 Additional Benefits.
(1) Each Covered Employee who elects to retire on the Retirement Date shall be entitled to his Accrued Benefit which will be calculated as if such Covered Employee was five years older than his actual age as of December 31, 1996, and by increasing his Years of Service and Years of Credited Service as of December 31, 1996 (the difference between the Covered Employee's benefit determined under this Appendix J and his benefit determined without regard to the enhancement provided under this Appendix J shall hereinafter be referred to as the "Additional Benefit").
(2) The reduction contained in Section 5.5 of the Plan, which applies to the early commencement of a Covered Employee's Accrued Benefit determined under the terms of the Prior Plan, shall be applied after increasing the Covered Employee's age by Five (5) years as provided under Paragraph 1.2(1) above.
(3) If the Covered Employee elects to retire pursuant to the
provisions of this Appendix J, such Covered Employee may elect at any time prior
to the date of commencement of his benefit to receive his benefit, calculated in
accordance with the provisions of the Plan and this Appendix J, in the forms of
payment applicable to the Covered Employee in accordance with the provisions of
Section 9 of the Plan.
(4) All Retired Covered Employees who (i) retired on or after January 1, 1996 and prior to January 1, 1997 and (ii) are receiving retirement benefits under the Plan prior to January 1, 1997 shall have the amount of their retirement benefits recomputed under this Appendix J (taking into the account the provisions of paragraphs (1) and (2) hereof) from the date of their previous retirement and paid in accordance with the form of benefit previously elected under Section 9 of the Plan. No changes to the form of benefit previously elected shall be permitted. In no event shall Additional Benefits be paid to Participants who retired before January 1, 1996.
(5) If a Covered Employee or Retired Covered Employee elects to receive the Additional Benefits provided under this Appendix J to the Plan, such Covered Employee's or Retired Covered Employee's retirement benefits shall be payable with respect to or commencing on the first month following the month in which the Retirement Date occurs.
1.3 Defined Terms.
Except to the extent set forth above, the provisions of this Appendix J are subject to the terms and conditions of the Plan and defined terms used in this Appendix J shall have the same meaning as used in the Plan.
APPENDIX K
SECTION 1.1 SCOPE
The provisions of this Appendix K shall apply notwithstanding any contrary provisions of the Plan, of which this Appendix is a part.
Except to the extent expressly provided to the contrary herein, all defined terms shall have the same meanings as provided under the Plan. Each reference to the Plan shall (except with reference to the first sentence of the preceding paragraph) be to the Plan as in effect at the time such provision is applied to a Bobbi Brown Employee (as defined below), as the context shall require.
SECTION 1.2 COMMENCEMENT OF STATUS AS A PARTICIPATING EMPLOYER
Bobbi Brown Professional Cosmetics, Inc. ("Bobbi Brown") shall become an Employer under the Plan on January 1, 1996.
SECTION 1.3 COMMENCEMENT OF PLAN PARTICIPATION BY BOBBI BROWN EMPLOYEES
No Bobbi Brown employee shall be permitted to become a Participant prior to January 1, 1996. Each person who (i) is employed by Bobbi Brown on January 1, 1996 and (ii) is otherwise an Employee on that date shall become a Participant on January 1, 1996. (Each person who so becomes a Participant on that date is hereafter referred to as a "Bobbi Brown Employee".)
SECTION 1.4 CREDITS TO RETIREMENT ACCOUNTS
In determining the amount to be credited to the Retirement Account of a
Bobbi Brown Employee who becomes a Participant, pursuant to the provisions of
Section 5 of the Plan, such person's Years of Service, for such purpose, shall
be determined based upon the date that such person would otherwise have, without
regard to this Appendix K, first become a Participant had Bobbi Brown been an
Employer throughout such person's entire period of employment with Bobbi Brown.
SECTION 1.5 VESTING
In determining the extent to which any Bobbi Brown Employee is vested in his Retirement Account pursuant to the provisions of Section 8 of the Plan, such person's Years of Service, for such purpose, shall be determined by taking into account all periods of such person's employment with Bobbi Brown which would otherwise have been taken into account for such purpose had Bobbi Brown otherwise been an Employer throughout such person's entire period of employment with Bobbi Brown.
APPENDIX L
SECTION 1.1 SCOPE
The provisions of this Appendix L shall apply with respect to each person who was an employee of The Donna Karan Company ("DK") immediately prior to November 10, 1997 and becomes an Employee prior to December 31, 1998 (a "DK Employee"). The provisions of this Appendix L shall apply notwithstanding any contrary provisions of the Plan, of which this Appendix is a part.
Except to the extent expressly provided to the contrary herein, all defined terms shall have the same meanings as provided under the Plan. Each reference to the Plan shall be to the Plan as in effect at the time such provision is applied to a DK Employee, as the context shall require.
SECTION 1.2 COMMENCEMENT OF PLAN PARTICIPATION BY DK EMPLOYEES
No DK Employee shall be permitted to become a Participant prior to November 10, 1997. The first date on or after November 10, 1997 on which any such person may become a Participant shall be governed by the otherwise applicable provisions of Section 3 of the Plan. In applying the terms of such participation eligibility provision, there shall be taken into account all of such DK Employee's period of employment with DK, but only to the extent that any such period of employment would have been taken into account had DK otherwise been an Employer throughout such person's entire period of employment with DK.
SECTION 1.3 CREDITS TO RETIREMENT ACCOUNTS
In determining the amount to be credited to the Retirement Account of a DK Employee who becomes a Participant pursuant to the provisions of Section 5 of the Plan, there shall be taken into account all periods of such person's employment with DK which would otherwise have been taken into account for such purpose had DK otherwise been an Employer throughout such person's entire such period of employment.
SECTION 1.4 VESTING
In determining the extent to which any DK Employee is vested in his Retirement Account pursuant to the provisions of Section 8 of the Plan, there shall be taken into account all periods of such person's employment with DK which are otherwise taken into account with respect to such employee pursuant to the provisions of Section 1.4 of this Appendix L.
APPENDIX M
SECTION 1.1 SCOPE
The provisions of this Appendix M shall apply with respect to each person (i) who was an employee of one of the companies listed below on or after the date specified below for such company, and (ii) whose employment is subsequently transferred from such company to an Employer (each a "Transferred Employee"):
-------------------------------------------------------------- COMPANY DATE -------------------------------------------------------------- Make-Up Art Cosmetics Inc. December 28, 1994 Make-UP Art Cosmetics (U.S.) Inc., FFJD, Inc. -------------------------------------------------------------- Sassaby Cosmetics, Inc. October 31, 1997 -------------------------------------------------------------- Aveda Corporation December 1,1997 Aveda Services Inc. -------------------------------------------------------------- |
The provisions of the Appendix M shall apply notwithstanding any contrary provisions of the Plan, of which this Appendix is a part.
Except to the extent expressly provided to the contrary herein, all defined terms shall have the same meanings as provided under the Plan. Each reference to the Plan shall be to the Plan as in effect at the time such provision is applied to a Transferred Employee, as the context shall require.
SECTION 1.2 COMMENCEMENT OF PLAN PARTICIPATION BY TRANSFERRED EMPLOYEES
The first date on which any Transferred Employee may become a Participant shall be governed by the otherwise applicable provisions of Section 3 of the Plan. In applying the terms of such participation eligibility provision, there shall be taken into account all of such Transferred Employee's period of employment with his prior employer listed in Section 1.1 of this Appendix M (including any corporate predecessor thereof), but only to the extent that any such period of employment would have been taken into account had such prior employer otherwise been an Employer throughout such person's entire period of employment.
SECTION 1.3 CREDITS TO RETIREMENT ACCOUNTS
In determining the amount to be credited to the Retirement Account of a
Transferred Employee who becomes a Participant pursuant to the provisions of
Section 5 of the Plan, there shall be taken into account all periods of such
person's employment with his prior employer listed in Section 1.1 of this
Appendix M (including any corporate predecessor thereof) which would otherwise
have been taken into account for such purpose had such prior employer otherwise
been an Employer throughout such person's entire such period of employment.
SECTION 1.4 VESTING
In determining the extent to which any Transferred Employee is vested in his Retirement Account pursuant to the provisions of Section 8 of the Plan, there shall be taken into account all periods of such person's employment with his prior employer listed in Section 1.1 of this Appendix M (including any corporate predecessor thereof) which would otherwise have been taken into account for such purpose had such prior employer otherwise been an Employer throughout such person's entire period of employment.
APPENDIX N
SECTION 1.1 SCOPE
The provisions of this Appendix N to the Estee Lauder Inc. Retirement Growth Account Plan shall apply with respect to each person employed by Make-Up Art Cosmetics Inc., Make-Up Art Cosmetics (U.S.), Inc., FFJD, Inc., or their respective predecessors (collectively, the "MAC Companies") on December 31, 1999 ("MAC Employee").
The provisions of this Appendix N shall apply notwithstanding any contrary provisions of the Plan, of which this Appendix is a part.
Except to the extent expressly provided to the contrary herein, all defined terms shall have the same meanings as provided under the Plan. Each reference to the Plan shall be to the Plan as in effect at the time such provision is applied to a MAC Employee, as the context shall require.
SECTION 1.2 COMMENCEMENT OF STATUS AS PARTICIPATING EMPLOYER
Make-Up Art Cosmetics Inc., Make-Up Art Cosmetics (U.S.), Inc., and FFJD, Inc. shall become Participating Employers under the Plan on January 1, 2000.
SECTION 1.3 COMMENCEMENT OF PLAN PARTICIPATION BY MAC EMPLOYEES
No MAC Employee shall be permitted to become a Participant prior to
January 1, 2000. Each MAC Employee who is regularly scheduled to work twenty
hours or more per week as of December 31, 1999, may become a Participant in the
Plan on January 1, 2000, notwithstanding any otherwise applicable provisions of
Section 3 of the Plan. Each other MAC Employee may become a Participant in the
Plan on the first applicable entry date on or after January 1, 2000, in
accordance with the provisions of Section 3 of the Plan; however, for purposes
of determining eligibility under the Plan, there shall be taken into account all
periods attributable to such person's employment with the MAC Companies, prior
to December 31, 1999, that would otherwise have been taken into account for such
purpose had such prior employer otherwise been an Employer throughout such
person's entire period of employment. Any other individual who becomes actively
employed by the MAC Companies on or after January 1, 2000, may become a
Participant of the Plan on the first applicable entry date on or after January
1, 2000, in accordance with the provisions of Section 3 of the Plan.
SECTION 1.4 CREDITS TO RETIREMENT ACCOUNTS
In determining the amount to be credited to the Retirement Account of a MAC Employee who becomes a Participant pursuant to the provisions of Section 5 of the Plan, there shall be taken into account all periods of such person's employment with the MAC Companies that would otherwise have been taken into account for such purpose had such prior employer otherwise been an Employer throughout such person's entire period of employment.
SECTION 1.5 VESTING
In determining the extent to which any MAC Employee is vested in his Retirement Account pursuant to the provisions of Section 8 of the Plan, there shall be taken into account all periods of such person's employment with the MAC Companies that would otherwise have been taken into account for such purpose had such prior employer otherwise been an Employer throughout such person's entire period of employment.
APPENDIX O
SECTION 1.1 ELIGIBILITY FOR ADDITIONAL BENEFITS
(1) Any Participant who is a non-exempt Employee in Manufacturing, Engineering, Distribution and Quality Assurance at the Melville Complex or the Oakland, New Jersey facility and is either (i) actively employed by the Employer, or (ii) on an Approved Absence (paid or unpaid) from the Employer, (each such person being hereinafter referred to as a "Covered Employee"), may elect to retire on May 1, 2000, as designated by the Employer and Covered Employee in the "General Release" (such designated date of retirement hereinafter referred to in this Appendix O as the "Retirement Date").
Such Covered Employee shall be eligible to receive the benefit described in Section 1.2 of this Appendix O, provided that (i) on or before April 30, 2000, such Covered Employee shall have attained at least age 55 and completed at least ten Years of Service or Years of Credited Service under the Plan, (ii) the document entitled "Special Retirement Opportunity" is signed, witnessed and dated no earlier than March 10, 2000, in strict accordance with the instructions contained therein and (iii) such Covered Employee shall have made an election to retire on such other forms as the Employer may require during the period commencing at least forty-five days after such Covered Employee receives the "General Release" from the Employer but ending no later than April 24, 2000. Individuals who would have been Covered Employees but for the fact that they previously retired on or after January 1, 2000, and before May 1, 2000, shall also be eligible for the benefits described in Section 1.2 of this Appendix O, provided the requirements in clauses (i) and (ii) of this paragraph are satisfied (such persons are hereinafter referred to as "Retired Covered Employees").
SECTION 1.2 ADDITIONAL BENEFITS
(1) Each Covered Employee who elects to retire on the Retirement Date shall be entitled to his Accrued Benefit which will be calculated as if such Covered Employee was five (5) years older than his actual age as of April 30, 2000, and by increasing by five (5) years his Years of Service and Years of Credited Service as of April 30, 2000, (the difference between the Covered Employee's benefit determined under this Appendix O and his benefit determined without regard to the enhancement provided under this Appendix O shall hereinafter be referred to as the "Additional Benefit").
(2) The reduction contained in Section 5.5 of the Plan, which applies to the early commencement of a Covered Employee's Accrued Benefit determined under the terms of the Prior Plan, shall be applied after increasing the Covered Employee's age by five (5) years as provided under Section 1.2(1) above.
(3) If the Covered Employee elects to retire pursuant to the provisions of this Appendix O, such Covered Employee may elect at any time prior to the date of commencement of his Additional Benefit to receive such benefit, calculated in accordance with the provisions of the
Plan and this Appendix O, in any of the forms of payment applicable to the Covered Employee in accordance with the provisions of Section 9 of the Plan. Notwithstanding the foregoing, in the case of a Covered Employee whose Additional Benefit is computed by reference to Section 5.6 of the Plan, such Covered Employee may elect to receive such Additional Benefit in the form of a lump sum distribution or any other form of payment allowed under Section 9 of the Plan.
(4) If a Covered Employee elects to retire and receive the Additional Benefit provided under this Appendix O to the Plan, such Covered Employee's retirement benefits shall be payable commencing on the first day of the first month coincident with or next following the date on which the Covered Employee retires.
(5) All Retired Covered Employees shall have the amount of their
retirement benefits computed under this Appendix O (taking into account the
provisions of paragraphs (1) and (2) of this Section 1.2) as of May 1, 2000, and
such amount shall be paid in accordance with the form of benefit previously
elected under Section 9 of the Plan. No changes to the form of benefit
previously elected shall be permitted except to the extent necessary to permit a
Retired Covered Employee whose Additional Benefit is calculated by reference to
Section 5.6 of the Plan to elect a lump sum distribution under paragraph (3) of
this Section 1.2. In no event shall Additional Benefits be paid to Participants
who retired prior to January 1, 2000.
SECTION 1.3 DEFINED TERMS
Except to the extent set forth above, the provisions of this Appendix O are subject to the terms and conditions of the Plan and capitalized terms not otherwise defined in this Appendix O shall have the same meaning as used in the Plan.
APPENDIX P
SECTION 1.1 SCOPE
The provisions of this Appendix P to the Estee Lauder Inc. Retirement Growth Account Plan shall apply with respect to each person employed by Stila Cosmetics, Inc. or its predecessor on December 31, 2000 ("Stila Employee").
The provisions of this Appendix P shall apply notwithstanding any contrary provisions of the Plan, of which this Appendix is a part.
Except to the extent expressly provided to the contrary herein, all defined terms shall have the same meanings as provided under the Plan. Each reference to the Plan shall be to the Plan as in effect at the time such provision is applied to a Stila Employee, as the context shall require.
SECTION 1.2 COMMENCEMENT OF STATUS AS PARTICIPATING EMPLOYER
Stila Cosmetics, Inc., shall become a Participating Employer under the Plan on January 1, 2001.
SECTION 1.3 COMMENCEMENT OF PLAN PARTICIPATION BY STILA EMPLOYEES
No Stila Employee shall be permitted to become a Participant prior to
January 1, 2001. Each Stila Employee who is regularly scheduled to work twenty
hours or more per week as of December 31, 2000, may become a Participant in the
Plan on January 1, 2001, notwithstanding any otherwise applicable provisions of
Section 3 of the Plan. Each other Stila Employee may become a Participant in the
Plan on the first applicable entry date on or after January 1, 2001, in
accordance with the provisions of Section 3 of the Plan; however, for purposes
of determining eligibility under the Plan, there shall be taken into account all
periods attributable to such person's employment with the Stila, prior to
December 31, 2000, that would otherwise have been taken into account for such
purpose had such prior employer otherwise been an Employer throughout such
person's entire period of employment. Any other individual who becomes actively
employed by Stila Cosmetics, Inc. on or after January 1, 2001, may become a
Participant of the Plan on the first applicable entry date on or after January
1, 2001, in accordance with the provisions of Section 3 of the Plan.
SECTION 1.4 CREDITS TO RETIREMENT ACCOUNTS
In determining the amount to be credited to the Retirement Account of a Stila Employee who becomes a Participant pursuant to the provisions of Section 5 of the Plan, there shall be taken into account all periods of such person's employment with Stila that would otherwise have been taken into account for such purpose had such prior employer otherwise been an Employer throughout such person's entire period of employment.
SECTION 1.5 VESTING
In determining the extent to which any Stila Employee is vested in his Retirement Account pursuant to the provisions of Section 8 of the Plan, there shall be taken into account all periods of such person's employment with Stila that would otherwise have been taken into account for such purpose had such prior employer otherwise been an Employer throughout such person's entire period of employment.
APPENDIX Q
SECTION 1.1 SCOPE
The provisions of this Appendix Q to the Estee Lauder Inc. Retirement Growth Account Plan shall apply with respect to each person employed by Aveda Corporation, Aveda Services Inc., Aveda Environmental Lifestyle Stores Inc. and Aveda Institute Inc. or their respective predecessors (collectively, the "Aveda Companies") on December 31, 2001 ("Aveda Employee").
The provisions of this Appendix Q shall apply notwithstanding any contrary provisions of the Plan, of which this Appendix is a part.
Except to the extent expressly provided to the contrary herein, all defined terms shall have the same meanings as provided under the Plan. Each reference to the Plan shall be to the Plan as in effect at the time such provision is applied to an Aveda Employee, as the context shall require.
SECTION 1.2 COMMENCEMENT OF STATUS AS PARTICIPATING EMPLOYER
Aveda Corporation, Aveda Services Inc., Aveda Environmental Lifestyle Stores Inc. and Aveda Institute Inc., shall become Participating Employers under the Plan on January 1, 2002.
SECTION 1.3 COMMENCEMENT OF PLAN PARTICIPATION BY AVEDA EMPLOYEES
No Aveda Employee shall be permitted to become a Participant prior to January 1, 2002. Each Aveda Employee may become a Participant in the Plan on the first applicable entry date on or after January 1, 2002, in accordance with the provisions of Section 3 of the Plan; however, for purposes of determining eligibility under the Plan, there shall be taken into account all periods attributable to such person's employment with the Aveda Companies, prior to December 31, 2001, that would otherwise have been taken into account for such purpose had such prior employer otherwise been an Employer throughout such person's entire period of employment. Any other individual who becomes actively employed by the Aveda Companies on or after January 1, 2002, may become a Participant of the Plan on the first applicable entry date on or after January 1, 2002, in accordance with the provisions of Section 3 of the Plan.
SECTION 1.4 CREDITS TO RETIREMENT ACCOUNTS
In determining the amount to be credited to the Retirement Account of
an Aveda Employee who becomes a Participant pursuant to the provisions of
Section 5 of the Plan, there shall be taken into account all periods of such
person's employment with the Aveda Companies that would otherwise have been
taken into account for such purpose had such prior employer otherwise been an
Employer throughout such person's entire period of employment.
SECTION 1.5 VESTING
In determining the extent to which any Aveda Employee is vested in his Retirement Account pursuant to the provisions of Section 8 of the Plan, there shall be taken into account all periods of such person's employment with the Aveda Companies that would otherwise have been taken into account for such purpose had such prior employer otherwise been an Employer throughout such person's entire period of employment.
THE ESTEE LAUDER COMPANIES RETIREMENT GROWTH ACCOUNT PLAN
TABLE OF CONTENTS
SECTION 1 NAME AND CONSTRUCTION................................................2
SECTION 2 DEFINITIONS..........................................................4
SECTION 3 PARTICIPATION.......................................................13
SECTION 4 RETIREMENT DATES....................................................14
SECTION 5 PARTICIPANTS' RETIREMENT ACCOUNTS...................................15
SECTION 6 CONTRIBUTIONS.......................................................22
SECTION 7 DEATH BENEFIT.......................................................23
SECTION 8 TERMINATION OF EMPLOYMENT...........................................25
SECTION 9 OPTIONAL FORMS OF BENEFIT...........................................28
SECTION 10 PAYMENT OF RETIREMENT INCOME.......................................32
SECTION 11 ADMINISTRATION OF THE PLAN.........................................34
SECTION 12 INVESTMENT OF PLAN ASSETS; DUTIES OF FUDICIARY
COMMITTEE..........................................................37
SECTION 13 OBLIGATIONS OF THE EMPLOYER........................................39
SECTION 14 MISCELLANEOUS PROVISIONS...........................................40
SECTION 15 ADOPTION OF PLAN BY MEMBERS OF THE GROUP...........................42
SECTION 16 AMENDMENT AND TERMINATION..........................................44
SECTION 17 LIMITATION ACCORDING TO TREASURY DEPARTMENT
REQUIREMENTS.......................................................46
SECTION 18 TOP-HEAVY PLAN PROVISIONS..........................................47
|
TABLE OF CONTENTS
APPENDIX A ..............................................................A-1
APPENDIX B ..............................................................B-1
APPENDIX C ADDITIONAL EARLY RETIREMENT BENEFITS..........................C-1
APPENDIX D ADDITIONAL EARLY RETIREMENT BENEFITS..........................D-1
APPENDIX E SPECIAL PROVISIONS............................................E-1
GOVERNING EMPLOYEES OF WHITMAN PACKAGING
CORPORATION WHO DID NOT OTHERWISE BECOME ELIGIBLE
EMPLOYEES PRIOR TO JANUARY 1, 1992
APPENDIX F SPECIAL PROVISIONS............................................F-1
GOVERNING EMPLOYEES OF WHITMAN PACKAGING CORPORATION
WHO OTHERWISE BECOME ELIGIBLE EMPLOYEES PRIOR TO
JANUARY 1, 1992
APPENDIX G SPECIAL PROVISIONS............................................G-1
GOVERNING EMPLOYEES OF NORTHTEC INC. WHO DID NOT
OTHERWISE BECOME ELIGIBLE EMPLOYEES PRIOR TO
JANUARY 1, 1992
APPENDIX H SPECIAL PROVISIONS............................................H-1
GOVERNING EMPLOYEES OF NORTHTEC INC. WHO OTHERWISE
BECOME ELIGIBLE EMPLOYEES PRIOR TO JANUARY 1, 1992
APPENDIX I ADDITIONAL EARLY RETIREMENT BENEFITS..........................I-1
APPENDIX J ADDITIONAL EARLY RETIREMENT BENEFITS - II.....................J-1
APPENDIX K SPECIAL PROVISIONS............................................K-1
GOVERNING EMPLOYEES OF BOBBI BROWN PROFESSIONAL
COSMETICS WHO DID NOT OTHERWISE BECOME ELIGIBLE
EMPLOYEES
|
APPENDIX L SPECIAL PROVISIONS............................................L-1
GOVERNING ESTEE LAUDER EMPLOYEES WHO WERE PREVIOUSLY
EMPLOYED BY THE DONNA KARAN COMPANY WHO DID NOT
OTHERWISE BECOME ELIGIBLE EMPLOYEES
APPENDIX M SPECIAL PROVISIONS............................................M-1
GOVERNING CERTAIN TRANSFERRED EMPLOYEES
APPENDIX N PROVISIONS....................................................N-1
GOVERNING CERTAIN EMPLOYEES OF MAKE-UP ART
COSMETICS INC. AND ITS AFFILIATES AND PREDECESSORS
APPENDIX O ADDITIONAL EARLY RETIREMENT BENEFITS - III....................O-1
APPENDIX P PROVISIONS....................................................P-1
GOVERNING CERTAIN EMPLOYEES OF STILA COSMETICS, INC.
AND ITS AFFILIATES AND PREDECESSORS
APPENDIX Q PROVISIONS....................................................Q-1
GOVERNING CERTAIN EMPLOYEES OF AVEDA CORPORATION
AND ITS AFFILIATES AND PREDECESSORS
|
Exhibit 10.8b
EXHIBIT B
To Agreement between
The Estee Lauder Companies Inc.
and
Leonard A. Lauder
and dated as of July 1, 1995
OPTION AGREEMENT (this "Agreement") dated this 16th day of November, 1995 providing for the granting of options by The Estee Lauder Companies Inc., a Delaware corporation (the "Company"), to Leonard A. Lauder, an Executive employee of the Company (the "Executive").
By agreement dated as of July 1, 1995, the Company has employed the Executive in the position of Chief Executive Officer of the Company (the "Employment Agreement"). As contemplated by the Employment Agreement, and as set out at Section 3(c) therein, the Board of Directors of the Company has determined that the Executive is to be granted options to purchase shares of the Company's Class A Common Stock, par value $.01 per share (the "Shares"), on the terms and subject to the conditions hereinafter provided.
The stock options to be granted pursuant hereto shall not be Incentive Stock Options as defined in Section 422A of the Internal Revenue Code of 1986, as amended, (the "Code").
1. NUMBER OF SHARES. Provided that Shares shall have been offered for sale to the public in compliance with the Securities Act of 1933, as amended (the "Securities Act"), on or prior to December 31, 1995, the Company hereby awards to the Executive options to purchase 2,600,000 Shares (the "Stock Options") as follows:
(a) 600,000 Stock Options shall be awarded as of the date that Shares are first offered for sale to the public (the "Initial Award");
(b) 500,000 Stock Options shall be awarded as of July 1, 1996 (the "1996 Award");
(c) 500,000 Stock Options shall be awarded as of July 1, 1997 (the "1997 Award");
(d) 500,000 Stock Options shall be awarded as of July 1, 1998 (the "1998 Award"), and
(e) 500,000 Stock Options shall be awarded as of July 1, 1999 (the "1999 Award").
Notwithstanding the foregoing, no award shall be made if the Employment Agreement shall have been terminated for any reason on or prior to the date scheduled for such award.
2. EXERCISE PRICE. For each Stock Option granted hereunder, the per-share exercise price shall be equal to 100% of the closing price of the Class A Common Stock on the New York Stock Exchange or any other national securities exchange or other market system as reported by The Wall Street Journal on the date of grant or, if there shall be no trading on such date, the date next preceding on which trading occurred (the "Market Value").
3. PAYMENT OF EXERCISE PRICE. The Stock Option exercise price may be paid in cash, by the delivery of shares of Class A Common Stock of the Company then owned by the Executive or by a combination of these methods. Payment may also 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 Company may prescribe any other method of paying the exercise price that it determines to be consistent with applicable law, 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 the Executive, providing the Company with a notarized statement attesting to the number of shares owned, where upon verification by the Company, the Company may issue to the Executive only the number of incremental shares to which the Executive is entitled upon exercise of the Stock Option.
4. EXERCISE PERIOD. Stock Options granted hereunder shall be exercisable as set forth below.
(a) With respect to Stock Options granted in the Initial Award:
(i) 200,000 of such Stock Options may be exercised from and after January 1, 1999;
(ii) 200,000 of such Stock Options may be exercised from and after January 1, 2000; and
(iii) 200,000 of such Stock Options may be exercised from and after January 1, 2001.
(b) With Respect to Stock Options granted in the 1996 Award:
(i) 166,667 of such Stock Options may be exercised from and after January 1, 2000;
(ii) 166,667 of such Stock Options may be exercised from and after January 1, 2001; and
(iii) 166,666 of such Stock Options may be exercised from and after January 1, 2002.
(c) With respect to Stock Options granted in the 1997 Award:
(i) 166,667 of such Stock Options may be exercised from and after January 1, 2001;
(ii) 166,667 of such Stock Options may be exercised from and after January 1, 2002; and
(iii) 166,666 of such Stock Options may be exercised from and after January 1, 2003.
(d) With respect to Stock Options granted in the 1998 Award:
(i) 166,667 of such Stock Options may be exercised from and after January 1, 2002;
(ii) 166,667 of such Stock Options may be exercised from and after January 1, 2003; and
(iii) 166,666 of such Stock Options may be exercised from and after January 1, 2004.
(e) With respect to Stock Options granted in the 1999 Award:
(i) 166,667 of such Stock Options may be exercised from and after January 1, 2003;
(ii) 166,667 of such Stock Options may be exercised from and after January 1, 2004; and
(iii) 166,666 of such Stock Options may be exercised from and after January 1, 2005.
No Stock Option awarded hereunder shall be exercisable later than ten years after the date it is awarded except in the event of the Executive's death, in which case, the exercise period of Stock Options awarded but unexercised as of the date of death may be extended beyond such period but no later than one year after the date of death. Stock Options awarded hereunder shall not be transferrable otherwise then by will or the laws of descent and distribution, and shall be exercisable during the Executive's lifetime only by the Executive. Any attempted transfer contrary to the foregoing shall be null and void and without effect.
5. POST-EMPLOYMENT EXERCISES. The exercise of any Stock Option after termination of the Executive's employment with the Company shall be subject to satisfaction of the conditions precedent that the Executive 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 in a manner adversely affecting the Company.
6. 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 all holders of Class A Common Stock of the Company, an adjustment shall be made to each outstanding Stock Option such that each such Stock Option 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 had it 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 the Executive's rights hereunder, the Company will have authority to adjust, in an equitable manner, the number and kind of shares that may be issued with respect to any Stock Option hereunder, the number and kind of shares subject to outstanding Stock Options, the exercise price applicable to outstanding Stock Options, and the Market Value of the Class A Common Stock and other value determinations applicable to outstanding Stock Options. Appropriate adjustments may also be made by the Company in the terms of any Stock Options to reflect such changes or distributions and to modify any other terms of outstanding Stock Options on an equitable basis. In addition, the Company is authorized to make adjustments to the terms and conditions of Stock Options, 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.
(b) Notwithstanding any other provision hereunder, if there is a "Change in Control" (as hereinafter defined) of the Company, all then outstanding Stock Options shall immediately become exercisable. For purposes of this Section 6(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 Securities Exchange Act of 1934, as amended (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 6(b)(ii) or (b)(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 themselves, constitute a Change in Control of the Company, (B) any spin-off of a division or subsidiary of the Company to its stockholders and (C) any event listed in clauses (i) through (v) above that the Board of Directors determines not to be a Change in Control of the Company, shall not constitute a Change in Control of the Company.
For purposes of this Section 6(b), "Continuing Directors"
shall mean (x) the directors of the Company in office on the date that shares of
the Company's Class A Common Stock are first offered for sale to the public and
(y) any successor to any such director and any additional director who after
such date was nominated or selected by a majority of the Continuing Directors in
office at the time of his or her nomination or selection.
The Company, in its discretion, may determine that, upon the occurrence of a Change in Control of the Company, each Stock Option outstanding hereunder shall terminate within a specified number of days after notice to the Executive, and the Executive shall receive, with respect to each share of Class A Common Stock subject to such Stock Option, an amount equal to the excess of the Market Value of such shares of Common Stock immediately prior to the occurrence of such Change in Control over the
exercise price per share of such Stock Option; such amount to be payable in cash, in one or more kinds of property (including the property, if any, payable in the transaction) or in a combination thereof, as the Company, in its discretion, shall determine. The provisions contained in the preceding sentence shall be inapplicable to any Stock Option awarded hereunder within six (6) months before the occurrence of a Change in Control if the Executive is subject to the reporting requirements of Section 16(c) of the Exchange Act and no exception from liability under Section 16(b) of the Exchange Act is otherwise available to the Executive.
7. WITHHOLDING. All payments or distributions of Stock Options made hereunder shall be net of any amounts required to be withheld pursuant to applicable Federal, state and local tax withholding requirements. The Company may require the Executive to remit to it an amount sufficient to satisfy such tax withholding requirements prior to the delivery of any certificates for such Class A Common Stock. The Company may, in its discretion and subject to such rules as it may adopt (including any as may be required to satisfy applicable tax and/or non-tax regulatory requirements), permit the Executive to pay all or a portion of the federal, state and local withholding taxes arising in connection with any Stock Option by electing to have the Company withhold shares of Class A Common Stock having a Market Value equal to the amount of tax to be withheld, such tax calculated at rates required by statute or regulation.
8. TENURE. The Executive's right to continue to serve the Company or any of its subsidiaries as an officer, employee, or otherwise, shall not be enlarged or otherwise affected by his award hereunder.
9. INVESTMENT REPRESENTATION AND RELATED MATTERS. The Executive hereby represents that Stock Options awarded hereunder are being acquired for investment purposes and not for sale or with a view to distribution thereof. The Executive hereby acknowledges that as of the date hereof there does not exist a Registration Statement on an appropriate form under the Securities Act and applicable state securities laws that has become effective and includes a prospectus which is current with respect to shares of Class A Common Stock subject to Stock Options awarded hereunder. Accordingly, the Executive acknowledges and agrees that any subsequent offer for sale or sale of any such shares of Class A Common Stock shall be made either pursuant to (i) a Registration Statement on appropriate form under the Securities Act and, where applicable, state securities laws, which Registration Statement shall have become
effective and shall be current with respect to the shares of Class A Common Stock being offered and sold, or (ii) a specific exemption from the registration requirements of the Securities Act and any applicable securities laws, but in claiming such exemption, the Executive shall, prior to any offer for sale or sale of such shares, obtain a favorable written opinion of counsel, in form and substance satisfactory to counsel for the Company, as to the applicability of such exemption.
The Executive agrees that the Company shall have the authority to endorse upon the certificate or certificates representing the Shares acquired hereunder such legends referring to the foregoing restrictions and any other applicable restrictions, as it may deem appropriate.
10. NOTICES. Any notice required or permitted under this Option Agreement shall be deemed to have been duly given if delivered, telecopied or mailed, certified or registered mail, return receipt requested to the Executive,in any case, in accordance with Section 16 of the Employment Agreement.
11. FAILURE TO ENFORCE NOT A WAIVER. The failure of the Company to enforce at any time any provision of the this Option Agreement shall in no manner be construed to be a waiver of such provision or of any other provision hereof.
12. GOVERNING LAW. This Option Agreement shall be governed by and construed according to the laws of the State of New York, applicable to agreements made and performed in that state.
13. PARTIAL INVALIDITY. The invalidity or illegality of any provision herein shall not be deemed to affect the validity of any other provision.
14. COUNTERPARTS. This Option Agreement may be executed in counterparts each of which taken together shall constitute one and the same instrument.
15. AMENDMENT. This Option Agreement may not be amended except by an instrument in writing making specific reference hereto signed by each of the parties hereto; PROVIDED, HOWEVER, the provisions of Section 1 hereof may not be amended more than once every six (6) months, other than to comport with changes in the Code, the Employee Retirement Income Security Act of 1974 or the rules thereunder.
IN WITNESS WHEREOF, the Company has executed this Option Agreement in duplicate on the date and year first above written.
THE ESTEE LAUDER COMPANIES INC.
By: /s/ ANDREW J. CAVANAUGH
-----------------------
Name: Andrew J. Cavanaugh
Title: Senior Vice President - Corporate Human
Resources
|
The undersigned hereby accepts, and agrees to, all terms and provisions of the foregoing Option Agreement.
/s/ LEONARD A. LAUDER
---------------------
Leonard A. Lauder
|
[Signature page to Option Agreement, dated November 16, 1995, between The Estee Lauder Companies Inc. and Leonard A. Lauder.]
EXHIBIT 10.9B
EXHIBIT B
To Agreement between
The Estee Lauder Companies Inc.
and
Ronald S. Lauder
and dated as of November 16, 1995
OPTION AGREEMENT (this "Agreement") dated this 16th day of November, 1995 providing for the granting of options by The Estee Lauder Companies Inc., a Delaware corporation (the "Company"), to Ronald S. Lauder, an Executive employee of the Company (the "Executive").
By agreement dated as of November , 1995, the Company has employed the Executive in the position of Chairman of the Board of Directors of each of Clinique Laboratories, Inc. and Estee Lauder International, Inc. (the "Employment Agreement"). As contemplated by the Employment Agreement, and as set out at Section 3(b) therein, the Board of Directors of the Company has determined that the Executive is to be granted options to purchase shares of the Company's Class A Common Stock, par value $.01 per share (the "Shares"), on the terms and subject to the conditions hereinafter provided.
The stock options to be granted pursuant hereto shall not be Incentive Stock Options as defined in Section 422A of the Internal Revenue Code of 1986, as amended, (the "Code").
1. NUMBER OF SHARES. Provided that Shares shall have been offered for sale to the public in compliance with the Securities Act of 1933, as amended (the "Securities Act"), on or prior to December 31, 1995, the Company hereby awards to the Executive options to purchase 650,000 Shares (the "Stock Options") as follows:
(a) 150,000 Stock Options shall be awarded as of the date that Shares are first offered for sale to the public (the "Initial Award");
(b) 125,000 Stock Options shall be awarded as of July 1, 1996 (the "1996 Award");
(c) 125,000 Stock Options shall be awarded as of July 1, 1997 (the "1997 Award");
(d) 125,000 Stock Options shall be awarded as of July 1, 1998 (the "1998 Award"), and
(e) 125,000 Stock Options shall be awarded as of July 1, 1999 (the "1999 Award").
Notwithstanding the foregoing, no award shall be made if the Employment Agreement shall have been terminated for any reason on or prior to the date scheduled for such award.
2. EXERCISE PRICE. For each Stock Option granted hereunder, the per-share exercise price shall be equal to 100% of the closing price of the Class A Common Stock on the New York Stock Exchange or any other national securities exchange or other market system as reported by The Wall Street Journal on the date of grant or, if there shall be no trading on such date, the date next preceding on which trading occurred (the "Market Value").
3. PAYMENT OF EXERCISE PRICE. The Stock Option exercise price may be paid in cash, by the delivery of shares of Class A Common Stock of the Company then owned by the Executive, or by a combination of these methods. Payment may also 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 Company may prescribe any other method of paying the exercise price that it determines to be consistent with applicable law, 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 the Executive, providing the Company with a notarized statement attesting to the number of shares owned, where upon verification by the Company, the Company may issue to the Executive only the number of incremental shares to which the Executive is entitled upon exercise of the Stock Option.
4. EXERCISE PERIOD. Stock Options granted hereunder shall be exercisable as set forth below.
(a) With respect to Stock Options granted in the Initial Award:
(i) 50,000 of such Stock Options may be exercised from and after January 1, 1999;
(ii) 50,000 of such Stock Options may be exercised from and after January 1, 2000; and
(iii) 50,000 of such Stock Options may be exercised from and after January 1, 2001.
(b) With Respect to Stock Options granted in the 1996 Award:
(i) 41,667 of such Stock Options may be exercised from and after January 1, 2000;
(ii) 41,667 of such Stock Options may be exercised from and after January 1, 2001; and
(iii) 41,666 of such Stock Options may be exercised from and after January 1, 2002.
(c) With respect to Stock Options granted in the 1997 Award:
(i) 41,667 of such Stock Options may be exercised from and after January 1, 2001;
(ii) 41,667 of such Stock Options may be exercised from and after January 1, 2002; and
(iii) 41,6664 of such Stock Options may be exercised from and after January 1, 2003.
(d) With respect to Stock Options granted in the 1998 Award:
(i) 41,667 of such Stock Options may be exercised from and after January 1, 2002;
(ii) 41,667 of such Stock Options may be exercised from and after January 1, 2003; and
(iii) 41,666 of such Stock Options may be exercised from and after January 1, 2004.
(e) With respect to Stock Options granted in the 1999 Award:
(i) 41,667 of such Stock Options may be exercised from and after January 1, 2003;
(ii) 41,667 of such Stock Options may be exercised from and after January 1, 2004; and
(iii) 41,666 of such Stock Options may be exercised from and after January 1, 2005.
No Stock Option awarded hereunder shall be exercisable later than ten years after the date it is awarded except in the event of the Executive's death, in which case, the exercise period of Stock Options awarded but unexercised as of the date of death may be extended beyond such period but no later than one year after the date of death. Stock Options awarded hereunder shall not be transferrable otherwise then by will or the laws of descent and distribution, and shall be exercisable during the Executive's lifetime only by the Executive. Any attempted transfer contrary to the foregoing shall be null and void and without effect.
5. POST-EMPLOYMENT EXERCISES. The exercise of any Stock
Option after termination of the Executive's employment with the Company shall be
subject to satisfaction of the conditions precedent that the Executive 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 in a manner adversely
affecting the Company.
6. 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 all holders of Class A Common Stock of the Company, an adjustment shall be made to each outstanding Stock Option such that each such Stock Option 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 had it 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 the Executive's rights hereunder, the Company will have authority to adjust, in an equitable manner, the number and kind of shares that may be issued with respect to any Stock Option hereunder, the number and kind of shares subject to outstanding Stock Options, the exercise price applicable to outstanding Stock Options, and the Market Value of the Class A Common Stock and other value determinations applicable to outstanding Stock Options. Appropriate adjustments may also be made by the Company in the terms of any Stock Options to reflect such changes or distributions and to modify any other terms of outstanding Stock Options on an equitable basis. In addition, the Company is authorized to make adjustments to the terms and conditions of Stock Options, 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.
(b) Notwithstanding any other provision hereunder, if there is a "Change
in Control" (as hereinafter defined) of the Company, all then outstanding Stock Options shall immediately become exercisable. For purposes of this Section 6(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 Securities Exchange Act of 1934, as amended (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 6(b)(ii) or (b)(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 themselves, constitute a Change in Control of the Company, (B) any spin-off of a division or subsidiary of the Company to its stockholders and (C) any event listed in clauses (i) through (v) above that the Board of Directors determines not to be a Change in Control of the Company, shall not constitute a Change in Control of the Company.
For purposes of this Section 6(b), "Continuing Directors"
shall mean (x) the directors of the Company in office on the date that shares of
the Company's Class A Common Stock are first offered for sale to the public and
(y) any successor to any such director and any additional director who after
such date was nominated or selected by a majority of the Continuing Directors in
office at the time of his or her nomination or selection.
The Company, in its discretion, may determine that, upon the occurrence of a Change in Control of the Company, each Stock Option outstanding hereunder shall terminate within a
specified number of days after notice to the Executive, and the Executive shall
receive, with respect to each share of Class A Common Stock subject to such
Stock Option, an amount equal to the excess of the Market Value of such shares
of Common Stock immediately prior to the occurrence of such Change in Control
over the exercise price per share of such Stock Option; such amount to be
payable in cash, in one or more kinds of property (including the property, if
any, payable in the transaction) or in a combination thereof, as the Company, in
its discretion, shall determine. The provisions contained in the preceding
sentence shall be inapplicable to any Stock Option awarded hereunder within six
(6) months before the occurrence of a Change in Control if the Executive is
subject to the reporting requirements of Section 16(c) of the Exchange Act and
no exception from liability under Section 16(b) of the Exchange Act is otherwise
available to the Executive.
7. WITHHOLDING. All payments or distributions of Stock Options made hereunder shall be net of any amounts required to be withheld pursuant to applicable Federal, state and local tax withholding requirements. The Company may require the Executive to remit to it an amount sufficient to satisfy such tax withholding requirements prior to the delivery of any certificates for such Class A Common Stock. The Company may, in its discretion and subject to such rules as it may adopt (including any as may be required to satisfy applicable tax and/or non-tax regulatory requirements), permit the Executive to pay all or a portion of the federal, state and local withholding taxes arising in connection with any Stock Option by electing to have the Company withhold shares of Class A Common Stock having a Market Value equal to the amount of tax to be withheld, such tax calculated at rates required by statute or regulation.
8. TENURE. The Executive's right to continue to serve the Company or any of its subsidiaries as an officer, employee, or otherwise, shall not be enlarged or otherwise affected by his award hereunder.
9. INVESTMENT REPRESENTATION AND RELATED MATTERS. The Executive hereby represents that Stock Options awarded hereunder are being acquired for investment purposes and not for sale or with a view to distribution thereof. The Executive hereby acknowledges that as of the date hereof there does not exist a Registration Statement on an appropriate form under the Securities Act and applicable state securities laws that has become effective and includes a prospectus which is current with respect to shares of Class A Common Stock subject to Stock Options awarded hereunder. Accordingly, the Executive acknowledges and agrees that any subsequent offer for sale or sale of any such shares of Class A Common Stock shall be made either pursuant to (i) a Registration Statement on appropriate form under the Securities Act and, where applicable, state securities laws, which Registration Statement shall have become effective and shall be current with respect to the shares of Class A Common Stock being offered and sold, or (ii) a specific exemption from the registration requirements of the Securities Act and any applicable securities laws, but in claiming such exemption, the Executive shall, prior to any offer for sale or sale of such shares, obtain a favorable written opinion of counsel, in form and substance satisfactory to counsel for the Company, as to the applicability of such exemption.
The Executive agrees that the Company shall have the authority to endorse upon the certificate or certificates representing the Shares acquired hereunder such legends referring to the foregoing restrictions and any other applicable restrictions, as it may deem appropriate.
10. NOTICES. Any notice required or permitted under this Option Agreement shall be deemed to have been duly given if delivered, telecopied or mailed, certified or registered mail, return receipt requested to the Executive, in any case, in accordance with Section 16 of the Employment Agreement.
11. FAILURE TO ENFORCE NOT A WAIVER. The failure of the Company to enforce at any time any provision of the this Option Agreement shall in no manner be construed to be a waiver of such provision or of any other provision hereof.
12. GOVERNING LAW. This Option Agreement shall be governed by and construed according to the laws of the State of New York, applicable to agreements made and performed in that state.
13. PARTIAL INVALIDITY. The invalidity or illegality of any provision herein shall not be deemed to affect the validity of any other provision.
14. COUNTERPARTS. This Option Agreement may be executed in counterparts each of which taken together shall constitute one and the same instrument.
15. AMENDMENT. This Option Agreement may not be amended except by an instrument in writing making specific reference hereto signed by each of the parties hereto; PROVIDED, HOWEVER, the provisions of Section 1 hereof may not be amended more than once every six (6) months, other than to comport with changes in the Code, the Employee Retirement Income Security Act of 1974 or the rules thereunder.
IN WITNESS WHEREOF, the Company has executed this Option Agreement in duplicate on the date and year first above written.
THE ESTEE LAUDER COMPANIES INC.
By: /s/ ANDREW J. CAVANAUGH
-----------------------------------------------
Name: Andrew J. Cavanaugh
Title: Senior Vice President - Corporate Human
Resources
|
The undersigned hereby accepts, and agrees to, all terms and provisions of the foregoing Option Agreement.
/s/ RONALD S. LAUDER --------------------------------------------------- Ronald S. Lauder |
[Signature page to Option Agreement, dated as of November , 1995, between The Estee Lauder Companies Inc. and Ronald Lauder.]
Exhibit 10.10c
EXHIBIT A
To Agreement between
The Estee Lauder Companies Inc.
and
Fred H. Langhammer
and dated as of July 1, 1995
SHARE UNIT AND OPTION GRANT AGREEMENT (this "Agreement") dated this 16th day of November, 1995 providing for the granting of options by The Estee Lauder Companies Inc., a Delaware corporation (the "Company"), to Fred H. Langhammer, an Executive employee of the Company (the "Executive").
By agreement dated as of July 1, 1995, the Company has employed the Executive in the position of President and Chief Operating Officer of the Company (the "Employment Agreement"). As contemplated by the Employment Agreement, and as set out at Section 4(c) therein, the Board of Directors of the Company has determined that the Executive is to be granted options to purchase shares of the Company's Class A Common Stock, par value $.01 per share (the "Shares"), on the terms and subject to the conditions hereinafter provided. Additionally, the Board of Directors of the Company has determined as set out at Section 4(b) of the Employment Agreement that the Executive is to be granted a number of share units to be maintained in a notional account, each such unit representing one Share (the "Share Units") and dividend equivalent rights thereon.
The stock options to be granted pursuant hereto shall not be Incentive Stock Options as defined in Section 422A of the Internal Revenue Code of 1986, as amended, (the "Code").
1. NUMBER OF SHARES COVERED BY OPTIONS. Provided that Shares shall have been offered for sale to the public in compliance with the Securities Act of 1933, as amended (the "Securities Act"), on or prior to December 31, 1995, the Company hereby awards to the Executive options to purchase 1,300,000 Shares (the "Stock Options") as follows:
(a) 500,000 Stock Options shall be awarded as of the date that Shares are first offered for sale to the public (the "Initial Award");
(b) 200,000 Stock Options shall be awarded as of July 1, 1996 (the
"1996 Award");
(c) 200,000 Stock Options shall be awarded as of July 1, 1997 (the "1997 Award");
(d) 200,000 Stock Options shall be awarded as of July 1, 1998 (the "1998 Award"); and
(e) 200,000 Stock Options shall be awarded as of July 1, 1999 (the "1999 Award").
Notwithstanding the foregoing, no award shall be made if the Employment Agreement shall have been terminated for any reason on or prior to the date scheduled for such award.
2. EXERCISE PRICE. For each Stock Option granted hereunder, the per-share exercise price shall be equal to 100% of the closing price of the Class A Common Stock on the New York Stock Exchange or any other national securities exchange or other market system as reported by the Wall Street Journal on the date of grant or, if there shall be no trading on such date, the date next preceding on which trading occurred (the "Market Value").
3. PAYMENT OF EXERCISE PRICE. The Stock Option exercise price may be paid in cash, by the delivery of shares of Class A Common Stock of the Company then owned by the Executive or by a combination of these methods. Payment may also 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 Company may prescribe any other method of paying the exercise price that it determines to be consistent with applicable law, 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 the Executive, providing the Company with a notarized statement attesting to the number of shares owned, where upon verification by the Company, the Company may issue to the Executive only the number of incremental shares to which the Executive is entitled upon exercise of the Stock Option.
4. EXERCISE PERIOD. Stock Options granted hereunder shall be exercisable as set forth below.
(a) With respect to Stock Options granted in the Initial Award:
(i) 166,667 of such Stock Options may be exercised from and after January 1, 1999;
(ii) 166,667 of such Stock Options may be exercised from and after January 1, 2000; and
(iii) 166,666 of such Stock Options may be exercised from and after January 1, 2001.
(b) With Respect to Stock Options granted in the 1996 Award:
(i) 66,667 of such Stock Options may be exercised from and after January 1, 2000;
(ii) 66,667 of such Stock Options may be exercised from and after January 1, 2001; and
(iii) 66,666 of such Stock Options may be exercised from and after January 1, 2002.
(c) With respect to Stock Options granted in the 1997 Award:
(i) 66,667 of such Stock Options may be exercised from and after January 1, 2001;
(ii) 66,667 of such Stock Options may be exercised from and after January 1, 2002; and
(iii) 66,666 of such Stock Options may be exercised from and after January 1, 2003.
(d) With respect to Stock Options granted in the 1998 Award:
(i) 66,667 of such Stock Options may be exercised from and after January 1, 2002;
(ii) 66,667 of such Stock Options may be exercised from and after January 1, 2003; and
(iii) 66,666 of such Stock Options may be exercised from and after January 1, 2004.
(e) With respect to Stock Options granted in the 1999 Award:
(i) 66,667 of such Stock Options may be exercised from and after January 1, 2003;
(ii) 66,667 of such Stock Options may be exercised from and after January 1, 2004; and
(iii) 66,666 of such Stock Options may be exercised from and after January 1, 2005.
No Stock Option awarded hereunder shall be exercisable later than ten years after the date it is awarded except in the event of the Executive's death, in which case, the exercise period of Stock Options awarded but unexercised as of the date of death may be extended beyond such period but no later than one year after the date of death. Stock Options awarded hereunder shall not be transferrable otherwise then by will or the laws of descent and distribution, and shall be exercisable during the Executive's lifetime only by the Executive. Any attempted transfer contrary to the foregoing shall be null and void and without effect.
5. POST-EMPLOYMENT EXERCISES. The exercise of any Stock Option
after termination of the Executive's employment with the Company shall be
subject to satisfaction of the conditions precedent that the Executive 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 in a manner adversely
affecting the Company.
6. SHARE UNITS. Provided that Shares have been offered for sale to the public in compliance with the Securities Act on or prior to December 31, 1995, the Company shall establish a Share Unit Account for the Executive, and shall credit thereto a number of share units equal to $1,500,000 divided by the initial offering price of one share of Class A Common Stock as established at the Offering Date, rounded to the next lower whole unit. Thereafter, as of each July 1 during the Term of Employment, the Company shall credit to such Share Unit Account a number of share units equal to (x) $1,500,000 divided by (y) the average closing price of the Class A Common Stock on the New York Stock Exchange or any other national securities exchange or other market system as reported by the Wall Street Journal for the twenty (20) trading days next
preceding such July 1 (the "Average Share Price"), rounded to the next lower whole unit. The number of share units credited as of any July 1 shall not exceed 100,000. In the event that, as of any July 1, the Average Share Price times 100,000 shall be less than $1,500,000, the amount of such deficiency shall be credited as a cash addition to a bookkeeping account in the name of the Executive, and shall be credited with interest and paid to the Executive in accordance with Section 3(c) of the Employment Agreement.
Additionally, as of each date during the Term of Employment (and continuing thereafter until full payment of share units shall be made) that the Company shall declare a dividend to holders of record of the Class A Common Stock (a "Record Date"), the Company shall credit to such Share Unit Account a number of share units equal to (x) the aggregate dividend payable on a number of shares equal to the number of share units credited to the Share Unit Account as of such Record Date, divided by (y) the average closing price of the Class A Common Stock on the New York Stock Exchange or any other national securities exchange or other market system as reported by The Wall Street Journal for the twenty (20) trading days next preceding such Record Date, rounded to the next lower whole unit.
Share units credited to the Share Unit Account during any Contract Year hereunder shall be non-forfeitable as long as the Executive shall remain in the employ of the Company during the entirety of such Contract Year. In the event that the employment of Executive shall terminate during any Contract Year hereunder (other than a termination due to disability or death, or a termination in accordance with Section 6(c) or 6(f) of the Employment Agreement), share units credited or creditable to the Share Unit Account during such Contract Year shall be forfeited and shall be neither due nor payable to the Executive.
The Company shall make full payment to the Executive of the Share Unit Account on a date to be chosen by it, but in no event later than the first anniversary of the Executive's termination from employment with the Company. Such payment shall be made by transfer to the Executive of a number of shares of Class A Common Stock of the Company equal to the number of share units credited to the Share Unit Account as of the date of such payment, reduced by the number of shares having a value, as of the date of such payment, equal to the federal, state and local withholding tax due and owing in connection with such transfer. In the event of the death of the Executive prior to the date that full payment of the Share Unit Account shall have been made, payment thereof shall be made to the Executive's executor or administrator.
7. 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 all holders of Class A Common Stock of the Company, an adjustment shall be made to each outstanding Stock Option and Share Unit such that each such Stock Option shall thereafter be exercisable for and such Share Unit shall be equivalent to 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 had it been exercised or such Share Unit had it been paid 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 the Executive's rights hereunder, the Company will have authority to adjust, in an equitable manner, the number and kind of shares that may be issued with respect to any Stock Option or Share Unit hereunder, the number and kind of shares subject to outstanding Stock Options or related to outstanding Share Units, the exercise price applicable to outstanding Stock Options, and the Market Value of the Class A Common Stock and other value determinations applicable to Stock Options and Share Units. Appropriate adjustments may also be made by the Company in the terms of any Stock Options or Share Units to reflect such changes or distributions and to modify any other terms of outstanding Stock Options and Share Units on an equitable basis. In addition, the Company is authorized to make adjustments to the terms and conditions of Stock Options and Share Units, 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.
(b) Notwithstanding any other provision hereunder, if
there is a "Change in Control" (as hereinafter defined) of the Company, all then
outstanding Stock Options shall immediately become exercisable and all
outstanding Share Units shall become immediately payable. For purposes of this
Section 7(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 Securities Exchange Act of 1934, as amended (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 7(b)(ii) or (b)(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 themselves, constitute a Change in Control of the Company, (B) any spin-off of a division or subsidiary of the Company to its stockholders and (C) any event listed in clauses (i) through (v) above that the Board of Directors determines not to be a Change in Control of the Company, shall not constitute a Change in Control of the Company.
For purposes of this Section 7(b), "Continuing Directors" shall mean (x) the directors of the Company in office on the date that shares of the Company's Class A Common Stock are first offered for sale to the public and (y) any successor to any such director and any additional director who after such date was nominated or selected by a majority of the Continuing Directors in office at the time of his or her nomination or selection.
The Company, in its discretion, may determine that, upon the occurrence of a Change in Control of the Company, each Stock Option outstanding hereunder shall terminate within a specified number of days after notice to the Executive, and the Executive shall receive, with respect to each share of Class A Common Stock subject to
such Stock Option, an amount equal to the excess of the Market Value of such
shares of Common Stock immediately prior to the occurrence of such Change in
Control over the exercise price per share of such Stock Option; such amount to
be payable in cash, in one or more kinds of property (including the property, if
any, payable in the transaction) or in a combination thereof, as the Company, in
its discretion, shall determine. The provisions contained in the preceding
sentence shall be inapplicable to any Stock Option awarded hereunder within six
(6) months before the occurrence of a Change in Control if the Executive is
subject to the reporting requirements of Section 16(c) of the Exchange Act and
no exception from liability under Section 16(b) of the Exchange Act is otherwise
available to the Executive.
8. WITHHOLDING. All payments or distributions of Stock Options and Share Units made hereunder shall be net of any amounts required to be withheld pursuant to applicable Federal, state and local tax withholding requirements. The Company may require the Executive to remit to it an amount sufficient to satisfy such tax withholding requirements prior to the delivery of any certificates for such Class A Common Stock. The Company may, in its discretion and subject to such rules as it may adopt (including any as may be required to satisfy applicable tax and/or non-tax regulatory requirements), permit the Executive to pay all or a portion of the federal, state and local withholding taxes arising in connection with any Stock Option or Share Unit by electing to have the Company withhold shares of Class A Common Stock having a Market Value equal to the amount of tax to be withheld, such tax calculated at rates required by statute or regulation.
9. TENURE. The Executive's right to continue to serve the Company or any of its subsidiaries as an officer, employee, or otherwise, shall not be enlarged or otherwise affected by his award hereunder.
10. INVESTMENT REPRESENTATION AND RELATED MATTERS. The Executive hereby represents that Stock Options and Share Units awarded hereunder are being acquired for investment purposes and not for sale or with a view to distribution thereof. The Executive hereby acknowledges that as of the date hereof there does not exist a Registration Statement on an appropriate form under the Securities Act and applicable state securities laws that has become effective and includes a prospectus which is current with respect to shares of Class A Common Stock subject to Stock Options and Share Units awarded hereunder. Accordingly, the Executive acknowledges and agrees that any subsequent offer for sale or sale of any such shares of Class A Common Stock shall be made either pursuant to (i) a Registration Statement on appropriate form under the Securities Act and, where applicable, state securities laws, which Registration Statement shall have become effective and shall be current with respect to the shares of Class A Common Stock being offered and sold, or (ii) a specific exemption from the registration
requirements of the Securities Act and any applicable securities laws, but in claiming such exemption, the Executive shall, prior to any offer for sale or sale of such shares, obtain a favorable written opinion of counsel, in form and substance satisfactory to counsel for the Company, as to the applicability of such exemption.
The Executive agrees that the Company shall have the authority to endorse upon the certificate or certificates representing the Shares acquired hereunder such legends referring to the foregoing restrictions and any other applicable restrictions, as it may deem appropriate.
11. NOTICES. Any notice required or permitted under this Agreement shall be deemed to have been duly given if delivered, telecopied or mailed, certified or registered mail, return receipt requested to the Executive,in any case, in accordance with Section 16 of the Employment Agreement.
12. FAILURE TO ENFORCE NOT A WAIVER. The failure of the Company to enforce at any time any provision of the this Agreement shall in no manner be construed to be a waiver of such provision or of any other provision hereof.
13. GOVERNING LAW. This Agreement shall be governed by and construed according to the laws of the State of New York, applicable to agreements made and performed in that state.
14. PARTIAL INVALIDITY. The invalidity or illegality of any provision herein shall not be deemed to affect the validity of any other provision.
15. COUNTERPARTS. This Agreement may be executed in counterparts each of which taken together shall constitute one and the same instrument.
16. AMENDMENT. This Agreement may not be amended except by an instrument in writing making specific reference hereto signed by each of the parties hereto; PROVIDED, however, the provisions of Section 1 hereof may not be amended more than once every six (6) months, other than to comport with changes in the Code, the Employee Retirement Income Security Act of 1974 or the rules thereunder.
IN WITNESS WHEREOF, the Company has executed this Agreement in duplicate on the date and year first above written.
THE ESTEE LAUDER COMPANIES INC.
By: /s/ ANDREW J. CAVANAUGH
-----------------------------------------
Name: Andrew J. Cavanaugh
Title: Senior Vice President - Corporate Human
Resources
|
The undersigned hereby accepts, and agrees to, all terms and provisions of the foregoing Option Agreement.
/s/ FRED H. LANGHAMMER -------------------------------------------- Fred H. Langhammer |
EXHIBIT 10.11B
SCHEDULE A
To Agreement between
The Estee Lauder Companies Inc.
and
Daniel J. Brestle
and dated as of July 1, 1995
OPTION AGREEMENT dated the 16th day of November, 1995 providing for the granting of options by The Estee Lauder Companies Inc., a Delaware corporation (the "Company"), to Daniel J. Brestle, an Executive employee of the Company (the "Executive").
By agreement dated as of July 1, 1995, the Company has employed the Executive in the position of President of Clinique Laboratories, Inc. and Canada) (the "Employment Agreement"). As contemplated by the Employment Agreement, and as set out at Section 3(d) therein, the Board of Directors of the Company has determined that the Executive is to be granted options to purchase shares of the Company's Class A common stock, no par value (the "Shares"), on the terms and subject to the conditions hereinafter provided.
The stock options to be granted pursuant hereto shall not be Incentive Stock Options (as defined in Section 422A of the Internal Revenue Code of 1986, as amended).
1. Number of Shares. The Company hereby awards to the Executive options to purchase 200,000 Shares (the "Stock Options") as follows:
100,000 Stock Options shall be awarded as of the date that
Shares are first offered for sale to the public (the
"Initial Award").
50,000 Stock Options shall be awarded as of July 1, 1996;
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(the "1996 Award").
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50,000 Stock Options shall be awarded as of July 1, 1997 (the "1997 Award"),
provided, however, that no award shall be made if the Employment Agreement shall have been terminated on or prior to the date scheduled for such award.
2. Exercise Price. For each Stock Option granted hereunder, the per-share exercise price shall be equal to 100% of the closing price of the Class A Common Stock on the New York Stock Exchange or any other national securities exchange or other market system as reported by the Wall Street Journal or if there shall be no trading on such date, the date next preceding on which trading occurred (the "Market Value") as of the date of such award.
3. Payment of Exercise Price. The option exercise price may be paid in cash, by the delivery of shares of Class A Common Stock of the Company then owned by the Executive, or by a combination of these methods. Payment may also 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 Company may prescribe any other method of paying the exercise price that it determines to be consistent with applicable law, 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 the Executive, providing the Company with a notarized statement attesting to the number of shares owned, where upon verification by the Company, the Company may issue to the Executive only the number of incremental shares to which the Executive is entitled upon Exercise of the Stock Option. In determining which methods the Executive may utilize to pay the
exercise price, the Company may consider such factors as it determines are appropriate.
4. Exercise Period. Stock Options granted hereunder shall be exercisable as follows:
33,333 Stock Options may be exercised from and after January 1, 1999.
33,333 Stock Options may be exercised from and after January 1, 2000.
33,334 Stock Options may be exercised from and after January 1, 2001.
16,667 Stock Options may be exercised from and after January 1, 2000
16,667 Stock Options may be exercised from and after January 1, 2001
16,666 Stock Options may be exercised from and after January 1, 2002
16,667 Stock Options may be exercised from and after January 1, 2001
16,667 Stock Options may be exercised from and after January 1, 2002
16,666 Stock Options may be exercised from and after January 1, 2003
No Stock Option awarded hereunder shall be exercisable later than ten years after the date it is awarded, except in the event of the Executive's death, in which case the exercise period for Stock Options awarded but unexercised as of the date of death shall be extended for one year thereafter. Stock Options awarded hereunder shall not be transferrable then by will or the laws of descent and
distribution, and shall be exercisable during the Executive's lifetime only by the Executive.
5. Post-Employment Exercises. The exercise of any Stock Option after termination of the Executive's employment with the Company shall be subject to satisfaction of the Conditions precedent that the Executive 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 in a manner adversely affecting the Company.
6. 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, spin-off, 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 such that each such Stock Option 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 had it 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 the Executive's rights hereunder, the Company will have authority to adjust, in an equitable manner, the number and kind of shares that may be issued with respect to any Stock Option hereunder, the number and kind of shares subject to outstanding Stock Options, the exercise price applicable to outstanding Stock Options, and the Market Value of the Class A Common Stock and other value determinations applicable to outstanding Stock Options. Appropriate adjustments may also be made by the Company in the terms of any Stock Options to reflect such changes or distributions and to modify any other terms of
outstanding Stock Options on an equitable basis. In addition, the Company is authorized to make adjustments to the terms and conditions of Stock Options, 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.
b. Notwithstanding any other provision hereunder, if there is a Change in Control of the Company, all then outstanding Stock Options shall immediately become exercisable. For purposes of this Section 6(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 6(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 themselves, Constitute a Change in Control of the Company, (B) any spin-off of a division or subsidiary of the Company to its stockholders and (C) any event listed in (I) through (v) above that the Board of Directors determines not to be a Change in Control of the Company, shall not constitute a Change in Control of the Company.
For purposes of this Section 6(b), "Continuing Directors" shall mean
(x) the directors of the Company in office on the date that shares are first
offered for sale to the public and (y) any successor to any such director and
any additional director who after such date was nominated or selected by a
majority of the Continuing Directors in office at the time of his or her
nomination or selection.
The Company may determine that, upon the occurrence of a Change in Control of the Company, each Stock Option outstanding hereunder shall terminate within a specified number of days after notice to the Executive, and the Executive shall receive, with respect to each share of Class A Common Stock subject to such Stock Option, an amount equal to the excess of the Market Value of such shares of Common Stock immediately prior to the occurrence of such Change in Control over the exercise price per share of such Stock Option; such amount to be payable in cash, in one or more kinds of property (including the property, if any, payable in the transaction) or in a combination thereof, as the Company, in its discretion, shall determine.
7. Withholding. All payments or distributions of Stock Options made hereunder shall be net of any amounts required to be withheld pursuant to applicable federal, state and local tax withholding requirements. The Company
may require the Executive to remit to it an amount sufficient to satisfy such tax withholding requirements prior to the delivery of any certificates for such Common Stock. The Company may, in its discretion and subject to such rules as it may adopt (including any as may be required to satisfy applicable tax and/or non-tax regulatory requirements), permit the Executive to pay all or a portion of the federal, state and local withholding taxes arising in connection with any Stock Option by electing to have the Company withhold shares of Class A Common Stock having a Market Value equal to the amount to be withheld, provided that such withholding shall only be at rates required by applicable statutes or regulations.
8. Tenure. The Executive's right to continue to serve the Company or any of its subsidiaries as an officer, employee, or otherwise, shall not be enlarged or otherwise affected by her award hereunder.
9. Specific Restrictions Upon Option Shares. The Executive hereby agrees with the Company as follows:
(a) The Executive shall acquire Shares hereunder for investment purposes only and not with a view to resale or other distribution thereof to the public in violation of the Securities Act of 1933, as amended (the "1933 Act"), and shall not dispose of any such Shares in transactions which, in the opinion of counsel to the Company, violate the 1933 Act, or the rules and regulations thereunder, or any applicable state securities or "blue sky" laws; and further
(b) If any Shares shall be registered under the 1933 Act, no public offering (otherwise than on a national securities exchange, as defined in the Securities Exchange Act of 1934, as amended) of any Shares acquired hereunder shall be by the Executive (or any other person) under such circumstances that he or she (or such person) may be deemed an underwriter, as defined in the 1933 Act; and further
(c) The Executive agrees that the Company shall have the authority to endorse upon the certificate or certificates representing the Shares acquired
hereunder such legends referring to the foregoing restrictions and any other applicable restrictions, as it may deem appropriate.
10. Notices. Any notice required or permitted under this Option Agreement shall be deemed to have been duly given if delivered, telecopied or mailed, certified or registered mail, return receipt requested to the Executive at such address as she may designate in writing to the Company.
11. Failure to Enforce Not a Waiver. The failure of the Company to enforce at any time any provision of this agreement shall in no manner be construed to be a waiver of such provision or of any other provision hereof.
12. Governing Law. The Option Agreement shall be governed by and construed according to the laws of the State of New York, applicable to agreements made and performed in that state.
13. Partial Invalidity. The invalidity or illegality of any provision herein shall not be deemed to affect the validity of any other provision.
IN WITNESS WHEREOF, the Company has executed this Option in duplicate on the date and year first above written.
THE ESTEE LAUDER COMPANIES INC.
By: /s/ ANDREW J. CAVANAUGH
-----------------------
Name: Andrew J. Cavanaugh
Title: Senior Vice President - Corporate
Human Resources
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The undersigned hereby accepts, and agrees to, all terms and provisions of the foregoing Option Agreement.
/s/ DANIEL J. BRESTLE ----------------------- Daniel J. Brestle |
EXHIBIT 21.1
EXHIBIT 21.1
THE ESTEE LAUDER COMPANIES INC.
SIGNIFICANT SUBSIDIARIES
All significant subsidiaries are wholly-owned by The Estee Lauder Companies Inc. and/or one or more of its wholly-owned subsidiaries.
Jurisdiction
Name in which Organized
-------------------------------- ------------------
Aveda Corporation Delaware
Aveda Services Inc. Delaware
Clinique Laboratories, Inc. Delaware
ELCA Cosmeticos LDA Portugal
Estee Lauder International, Inc. Delaware
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EXHIBIT 23.1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
The Estee Lauder Companies Inc.:
We consent to the incorporation by reference in the registration statements on Form S-3 (numbers 333-57520 and 333-104133) and in the registration statements on Form S-8 (numbers 33-99554, 333-39237, 333-49606, 333-66851 and 333-72684) of The Estee Lauder Companies Inc. of our report dated August 8, 2003, relating to the consolidated balance sheets of The Estee Lauder Companies Inc. and subsidiaries as of June 30, 2003 and 2002, and the related consolidated statements of earnings, stockholders' equity and comprehensive income and cash flows for the years then ended and our related report of the same date on the related financial statement schedule.
/s/ KPMG LLP New York, New York September 15, 2003 |
EXHIBIT 23.2
EXHIBIT 23.2
NOTICE REGARDING CONSENT OF ARTHUR ANDERSEN LLP
Section 11(a) of the Securities Act of 1933, as amended (the "Securities Act"), provides that if part of a registration statement at the time it becomes effective contains an untrue statement of a material fact, or omits a material fact required to be stated therein or necessary to make the statements therein not misleading, any person acquiring a security pursuant to such registration statement (unless it is proved that at the time of such acquisition such person knew of such untruth or omission) may assert a claim against, among others, an accountant who has consented to be named as having certified any part of the registration statement or as having prepared any report for use in connection with the registration statement.
On April 12, 2002, the Board of Directors of The Estee Lauder Companies Inc. (the "Company"), upon recommendation of its Audit Committee, decided to end the engagement of Arthur Andersen LLP ("Arthur Andersen") as the Company's independent public accountants, effective after Arthur Andersen's review of the Company's financial results for the quarter ended March 31, 2002 and the filing of the Company's Form 10-Q for such quarter, and authorized the engagement of KPMG LLP to serve as the Company's independent public accountants for the fiscal year ending June 30, 2002. For additional information, see the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission ("SEC") on April 17, 2002.
After reasonable efforts, the Company has been unable to obtain Arthur Andersen's written consent to the incorporation by reference into the Company's registration statements (Form S-8 Nos. 33-99554, 333-39237, 333-49606, 333-66851 and 333-72684 and Form S-3 Nos. 333-57520 and 333-85947) and the related prospectuses (the "Registration Statements") of Arthur Andersen's audit report with respect to the Company's consolidated financial statements as of June 30, 2001 and for the two years in the period then ended. Under these circumstances, Rule 437a under the Securities Act permits the Company to file this Annual Report on Form 10-K, which is incorporated by reference into the Registration Statements, without a written consent from Arthur Andersen. As a result, with respect to transactions in the Company's securities pursuant to the Registration Statements that occur subsequent to the date this Annual Report on Form 10-K is filed with the Securities and Exchange Commission, Arthur Andersen will not have any liability under Section 11(a) of the Securities Act for any untrue statements of a material fact contained in the financial statements audited by Arthur Andersen or any omissions of a material fact required to be stated therein. Accordingly, you would be unable to assert a claim against Arthur Andersen under Section 11(a) of the Securities Act.
EXHIBIT 24.1
EXHIBIT 24.1
POWER-OF-ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Leonard A. Lauder, Fred H. Langhammer, William P. Lauder and Richard W. Kunes, and each of them, such person's true and lawful attorneys-in-fact and agents, with full power of substitution and revocation, for such person and in such person's name, place and stead, in any and all capacities to sign the Annual Report on Form 10-K for the fiscal year ended June 30, 2003 of The Estee Lauder Companies Inc. and any and all amendments thereto, and to file the same with all exhibits thereto, and the other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as such person might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Fred H. Langhammer Chief Executive Officer September 15, 2003
------------------------------------- and Director
Fred H. Langhammer (Principal Executive Officer)
/s/ Leonard A. Lauder Chairman of the Board September 15, 2003
-------------------------------------
Leonard A. Lauder
/s/ Ronald S. Lauder Director September 15, 2003
-------------------------------------
Ronald S. Lauder
/s/ William P. Lauder Director September 15, 2003
-------------------------------------
William P. Lauder
/s/ Charlene Barshefsky Director September 15, 2003
-------------------------------------
Charlene Barshefsky
/s/ Rose Marie Bravo Director September 15, 2003
-------------------------------------
Rose Marie Bravo
/s/ Irvine O. Hockaday, Jr. Director September 15, 2003
-------------------------------------
Irvine O. Hockaday, Jr.
/s/ Richard D. Parsons Director September 15, 2003
-------------------------------------
Richard D. Parsons
/s/ Marshall Rose Director September 15, 2003
-------------------------------------
Marshall Rose
/s/ Lynn Forester de Rothschild Director September 15, 2003
-------------------------------------
Lynn Forester de Rothschild
/s/ Richard W. Kunes Senior Vice President September 15, 2003
------------------------------------- and Chief Financial
Richard W. Kunes Officer (Principal Financial
and Accounting Officer)
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EXHIBIT 31.1
EXHIBIT 31.1
CERTIFICATION
I, Fred H. Langhammer certify that:
1. I have reviewed this annual report on Form 10-K of The Estee Lauder Companies Inc.;
2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
b) [Paragraph omitted pursuant to S.E.C. Release Nos. 33-8238 and 34-47986];
c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: September 15, 2003
/s/ Fred H. Langhammer
-----------------------------
Fred H. Langhammer
President and Chief Executive
Officer
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EXHIBIT 31.2
EXHIBIT 31.2
CERTIFICATION
I, Richard W. Kunes certify that:
1. I have reviewed this annual report on Form 10-K of The Estee Lauder Companies Inc.;
2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
b) [Paragraph omitted pursuant to S.E.C. Release Nos. 33-8238 and 34-47986];
c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: September 15, 2003
/s/ Richard W. Kunes
-----------------------------------------
Richard W. Kunes
Senior Vice President and Chief Financial
Officer
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EXHIBIT 32.1
EXHIBIT 32.1
CERTIFICATION
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
(SUBSECTIONS (a) AND (b) OF SECTION 1350, CHAPTER 63 OF TITLE 18, UNITED STATES
CODE)
Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections
(a) and (b) of section 1350, chapter 63 of title 18, United States Code), the
undersigned officer of The Estee Lauder Companies Inc., a Delaware corporation
(the "Company"), does hereby certify, to such officer's knowledge, that:
The Annual Report on Form 10-K for the year ended June 30, 2003 (the "Form 10-K") of the Company fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)) and the information contained in the Form 10-K fairly presents, in all material respects, the financial condition and results of operations of the Company.
A signed original of this written statement required by Section 906 has been provided to The Estee Lauder Companies Inc. and will be retained by The Estee Lauder Companies Inc. and furnished to the Securities and Exchange Commission or its staff upon request.
Dated: September 15, 2003 /s/ Fred H. Langhammer
-------------------------------------
Fred H. Langhammer
President and Chief Executive Officer
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The foregoing certification is being furnished solely pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18, United States Code) and for no other purpose.
EXHIBIT 32.2
EXHIBIT 32.2
CERTIFICATION
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
(SUBSECTIONS (a) AND (b) OF SECTION 1350, CHAPTER 63 OF TITLE 18, UNITED STATES
CODE)
Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections
(a) and (b) of section 1350, chapter 63 of title 18, United States Code), the
undersigned officer of The Estee Lauder Companies Inc., a Delaware corporation
(the "Company"), does hereby certify, to such officer's knowledge, that:
The Annual Report on Form 10-K for the year ended June 30, 2003 (the "Form 10-K") of the Company fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)) and the information contained in the Form 10-K fairly presents, in all material respects, the financial condition and results of operations of the Company.
A signed original of this written statement required by Section 906 has been provided to The Estee Lauder Companies Inc. and will be retained by The Estee Lauder Companies Inc. and furnished to the Securities and Exchange Commission or its staff upon request.
Dated: September 15, 2003 /s/ Richard W. Kunes
-------------------------------
Richard W. Kunes
Senior Vice President and Chief
Financial Officer
|
The foregoing certification is being furnished solely pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18, United States Code) and for no other purpose.