<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
<TABLE>
<S> <C>
/ / Preliminary Proxy Statement / / Confidential, for Use of the Commission
Only as permitted by Rule 14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
</TABLE>
THE ESTEE LAUDER COMPANIES INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ $125 per Exchange Act Rules 0-11(c)(1)(ii), or 14a-6(i)(1), or 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
- --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE> 2
LOGO
September 30, 1996
Dear Fellow Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders
which will be held on Wednesday, November 6, 1996, at 10:00 a.m., local time, in
New York.
The enclosed notice and proxy statement contain details concerning the
business to come before the meeting. You will note that the Board of Directors
of the Company recommends a vote "FOR" the election of two Directors to serve
until the 1997 Annual Meeting of Stockholders, "FOR" the election of two
Directors to serve until the 1998 Annual Meeting of Stockholders, "FOR" the
election of three Directors to serve until the 1999 Annual Meeting of
Stockholders and "FOR" the ratification of Arthur Andersen LLP as independent
auditors of the Company for the 1997 fiscal year. Please sign and return your
proxy card in the enclosed envelope at your earliest convenience to assure that
your shares will be represented and voted at the meeting even if you cannot
attend.
I look forward to seeing you at the Annual Meeting.
[Signature]
<PAGE> 3
THE ESTEE LAUDER COMPANIES INC.
767 FIFTH AVENUE
NEW YORK, NEW YORK 10153
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO THE OWNERS OF CLASS A COMMON STOCK AND CLASS B COMMON STOCK OF THE ESTEE
LAUDER COMPANIES INC.:
The Annual Meeting of Stockholders of The Estee Lauder Companies Inc., a
Delaware corporation (the "Company"), will be held at the St. Regis Hotel, 20th
Floor Penthouse, 2 East 55th Street, New York, New York, on Wednesday, November
6, 1996, at 10:00 a.m., local time, for the following purposes:
1. To elect two Directors to serve until the 1997 Annual Meeting of
Stockholders, to elect two Directors to serve until the 1998 Annual
Meeting of Stockholders and to elect three Directors to serve until
the 1999 Annual Meeting of Stockholders;
2. To ratify the appointment of Arthur Andersen LLP as independent
auditors of the Company to serve for the 1997 fiscal year; and
3. To transact such other business as may properly come before the
meeting and any adjournments or postponements thereof.
Stockholders of record at the close of business on September 13, 1996, are
entitled to notice of and to vote at the meeting and any adjournments or
postponements thereof. A list of stockholders of the Company as of the close of
business on September 13, 1996, will be available for inspection during normal
business hours from October 23, 1996 through November 5, 1996, at the office of
Jeffrey J. Weinberg, Weil, Gotshal & Manges LLP, 767 Fifth Avenue, New York, New
York.
Admission to the meeting will be by ticket only. If you are a stockholder
of record and plan to attend, please check the appropriate box on the proxy card
and an admission ticket will be mailed to you. If you are a stockholder whose
shares are held through an intermediary such as a bank or broker and you plan to
attend, please request a ticket by writing to the Investor Relations Department
at The Estee Lauder Companies Inc., 767 Fifth Avenue, New York, New York 10153.
Evidence of your ownership, which you can obtain from your bank, broker, etc.,
must accompany your letter.
By Order of the Board of Directors
SAUL H. MAGRAM
Secretary
New York, New York
September 30, 1996
EACH STOCKHOLDER IS URGED TO EXECUTE AND RETURN THE ENCLOSED PROXY
PROMPTLY. IN THE EVENT A STOCKHOLDER DECIDES TO ATTEND THE MEETING, HE OR SHE
MAY, IF SO DESIRED, REVOKE THE PROXY AND VOTE THE SHARES IN PERSON.
<PAGE> 4
THE ESTEE LAUDER COMPANIES INC.
767 FIFTH AVENUE
NEW YORK, NEW YORK 10153
September 30, 1996
PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD NOVEMBER 6, 1996
This Proxy Statement is furnished in connection with the solicitation of
proxies on behalf of the Board of Directors of The Estee Lauder Companies Inc.
(the "Company") to be voted at the Annual Meeting of Stockholders of the Company
to be held at the St. Regis Hotel, 20th Floor Penthouse, 2 East 55th Street, New
York, New York, on November 6, 1996, at 10:00 a.m., local time, and at any
adjournments or postponements thereof.
All proxies delivered pursuant to this solicitation are revocable at any
time at the option of the persons executing them by giving written notice to the
Secretary of the Company, by delivering a later dated proxy or by voting in
person at the Annual Meeting.
The mailing address of the principal executive offices of the Company is
767 Fifth Avenue, New York, New York 10153. The approximate date on which this
Proxy Statement and form of proxy are first being sent or given to stockholders
is September 30, 1996.
All properly executed proxies delivered pursuant to this solicitation and
not revoked will be voted at the Annual Meeting in accordance with the
directions given. Regarding the election of Directors to serve until the 1997,
1998 or 1999 Annual Meeting of Stockholders, in voting by proxy, stockholders
may vote in favor of all nominees or withhold their votes as to specific
nominees. With respect to other proposals to be voted upon, stockholders may
vote in favor of a proposal, against a proposal or may abstain from voting.
Stockholders should specify their choices on the enclosed form of proxy. If no
specific instructions are given with respect to the matters to be acted upon,
the shares represented by a signed proxy will be voted FOR the election of all
nominees and FOR the proposal to ratify the appointment of Arthur Andersen LLP
as independent auditors. Directors will be elected by a plurality of the votes
cast by the holders of the shares of Class A Common Stock and Class B Common
Stock voting in person or by proxy at the Annual Meeting. In accordance with the
Company's Amended and Restated Bylaws, the appointment of Arthur Andersen LLP as
independent auditors will be ratified by a majority of the votes cast "For" or
"Against" the proposal by holders of Class A Common Stock and Class B Common
Stock of the Company voting on the proposal in person or by proxy at the Annual
Meeting. In the case of ratification of the appointment of independent auditors,
abstentions and broker non-votes, while not included in calculating vote totals,
will have the practical effect of reducing the number of votes "For" needed to
approve the proposal.
Only owners of record of shares of Class A Common Stock and Class B Common
Stock of the Company at the close of business on September 13, 1996, are
entitled to vote at the meeting or adjournments or postponements thereof. Each
owner of record of Class A Common Stock on the record date is entitled to one
vote for each share of Class A Common Stock of the Company so held. Each owner
of record of Class B Common Stock is entitled to ten votes for each share of
Class B Common Stock of the Company so held. On September 13, 1996, there were
60,458,235 shares of Class A Common Stock and 56,839,667 shares of Class B
Common Stock of the Company issued and outstanding.
<PAGE> 5
ELECTION OF DIRECTORS
(ITEM 1)
BOARD OF DIRECTORS
The Board of Directors of the Company, pursuant to the Bylaws of the
Company, has fixed the number of Directors of the Company at seven. Beginning at
the Annual Meeting, the directors will be divided into three classes, the first
class to serve until the 1997 Annual Meeting, the second class to serve until
the 1998 Annual Meeting and the third class to serve until the 1999 Annual
Meeting. After expiration of such terms, each class will be elected for a
three-year term.
Fred H. Langhammer and Faye Wattleton have been nominated for election to
serve until the 1997 Annual Meeting (Class I) and until their successors are
elected and qualify; William P. Lauder and P. Roy Vagelos, M.D. have been
nominated for election to serve until the 1998 Annual Meeting (Class II) and
until their successors are elected and qualify; and Leonard A. Lauder, Ronald S.
Lauder and Marshall Rose have been nominated for election to serve until the
1999 Annual Meeting (Class III) and until their successors are elected and
qualify.
Should any one or more of these nominees become unable to serve for any
reason, or for good cause will not serve, which is not anticipated, the Board of
Directors may, unless the Board by resolution provides for a lesser number of
Directors, designate substitute nominees, in which event the persons named in
the enclosed proxy will vote proxies that would otherwise be voted for all named
nominees for the election of such substitute nominee or nominees.
RECOMMENDATION OF THE BOARD OF DIRECTORS CONCERNING THE ELECTION OF DIRECTORS
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS A VOTE FOR EACH NOMINEE AS
A DIRECTOR TO HOLD OFFICE UNTIL THE 1997 ANNUAL MEETING, THE 1998 ANNUAL MEETING
AND THE 1999 ANNUAL MEETING, AS THE CASE MAY BE, AND UNTIL HIS OR HER SUCCESSOR
IS ELECTED AND QUALIFIES. PROXIES RECEIVED BY THE BOARD OF DIRECTORS WILL BE SO
VOTED UNLESS STOCKHOLDERS SPECIFY IN THEIR PROXY A CONTRARY CHOICE.
2
<PAGE> 6
<TABLE>
<S> <C>
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NOMINEES FOR ELECTION TO TERM EXPIRING 1997 (CLASS I)
- ---------------------------------------------------------------------------------------------
PHOTO Fred H. Langhammer
Director since 1996
Age 52
Mr. Langhammer has been President of the Company since 1995 and Chief
Operating Officer of the Company since 1985. He was Executive Vice
President from 1985 until 1995. 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 the Cosmetics, Toiletries and Fragrance
Association, an industry group, and serves on the Board of the American
Institute for Contemporary German Studies at Johns Hopkins University.
- ---------------------------------------------------------------------------------------------
PHOTO Faye Wattleton
Director since 1996
Age 53
Ms. Wattleton is an author, lecturer and consultant to businesses,
health organizations and nonprofit entities. She was the President of
Planned Parenthood Federation of America, Inc. from 1979 to 1992. She is
a Director of Empire Blue Cross & Blue Shield, the Henry J. Kaiser
Family Foundation, Leslie Fay, Inc., Quidel Corporation and
Thirteen/WNET. She is also a Director of the Institute for International
Education and a member of the Advisory Council of Columbia University
School of Public Health.
Ms. Wattleton is Chairman of the Audit Committee.
- ---------------------------------------------------------------------------------------------
NOMINEES FOR ELECTION TO TERM EXPIRING 1998 (CLASS II)
- ---------------------------------------------------------------------------------------------
PHOTO William P. Lauder
Director since 1996
Age 36
Mr. Lauder is President of Origins Natural Resources Inc. and has been
the senior officer of the division since its inception in 1990. From
1983 until he joined the Company in 1986, Mr. Lauder was associated with
Macy's, a department store chain. He is a member of the Board of
Trustees of The Trinity School in New York City and the Board of
Directors of the Educational Foundation of Fashion Industries.
- ---------------------------------------------------------------------------------------------
PHOTO P. Roy Vagelos, M.D.
Director since 1996
Age 66
Dr. Vagelos is Chairman of the Board of Regeneron Pharmaceuticals. He
was the Chairman and Chief Executive Officer of Merck & Co., Inc. from
1985 to 1994. Dr. Vagelos is also a director of PepsiCo, Prudential
Insurance Co. of America and McDonnell Douglas Corporation. He is also
Chairman of the Board of Trustees of The University of Pennsylvania.
Dr. Vagelos is Chairman of the Compensation Committee and a member of
the Audit Committee.
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</TABLE>
3
<PAGE> 7
<TABLE>
<S> <C>
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NOMINEES FOR ELECTION TO TERM EXPIRING 1999 (CLASS III)
- ---------------------------------------------------------------------------------------------
PHOTO Leonard A. Lauder
Director since 1958
Age 63
Mr. Lauder became Chairman of the Board of Directors of the Company in
1995 and has served as Chief Executive Officer of the Company since 1982
and as President from 1972 until 1995. Mr. Lauder formally joined the
Company in 1958 after serving as an officer in the United States Navy.
Since joining the Company, he has served in 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.
- ---------------------------------------------------------------------------------------------
PHOTO Ronald S. Lauder
Director since 1988 and
from 1968 to 1986
Age 52
Mr. Lauder has served as Chairman of Clinique Laboratories, Inc. and
Chairman of Estee Lauder International, Inc. since returning from
government service in 1987. Mr. Lauder joined the Company in 1964 and
has served in various capacities, including those described above, since
then. From 1983 to 1986, Mr. Lauder served as Deputy Assistant Secretary
of Defense for European and NATO Affairs. From 1986 to 1987, he served
as U.S. Ambassador to Austria. Since 1990, he has been Chairman of the
Central European Development Corporation, an investment company. He
serves as Chairman of the Board of Directors of Central European Media
Enterprises Ltd., an owner and operator of commercial television
stations in Central and Eastern Europe and Germany, and as Chairman of
the Board of Trustees of the Museum of Modern Art and as Chairman of the
New York State Research Council on Privatization.
- ---------------------------------------------------------------------------------------------
PHOTO Marshall Rose
Director since 1996
Age 59
Mr. Rose is managing partner of The Georgetown Group, a privately held
real estate development and financial service group. He is a Trustee of
BRT Realty Trust and a Director of Golden Books Family Entertainment
Company Inc. and One Liberty Properties. Among his numerous civic
activities, he is Chairman of the Executive Committee and Chairman
Emeritus of The New York Public Library and a member of the Executive
Committee of the Board of Visitors of The Graduate School and University
Center of The City University of New York.
Mr. Rose is a member of the Audit Committee and the Compensation
Committee.
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</TABLE>
4
<PAGE> 8
OWNERSHIP OF SHARES
The following table sets forth certain information regarding the beneficial
ownership of the Company's Class A Common Stock and Class B Common Stock as of
September 13, 1996 by (i) each person known by the Company to own beneficially
more than 5% of either the outstanding shares of Class A Common Stock or Class B
Common Stock, (ii) each of the Company's directors, (iii) each of the executive
officers whose names appear in the summary compensation table and (iv) all
directors and executive officers as a group. Except as set forth in the notes to
the table, the business address of each 5% stockholder is 767 Fifth Avenue, New
York, New York 10153. AS DESCRIBED IN THE NOTES TO THE TABLE, VOTING AND/OR
INVESTMENT POWER WITH RESPECT TO CERTAIN SHARES OF COMMON STOCK IS SHARED BY THE
NAMED INDIVIDUALS. CONSEQUENTLY, SUCH SHARES ARE SHOWN AS BENEFICIALLY OWNED BY
MORE THAN ONE PERSON.
<TABLE>
<CAPTION>
CLASS A COMMON CLASS B COMMON VOTING
STOCK(1) STOCK POWER
DIRECTORS, EXECUTIVE OFFICERS ------------------- ------------------- -----
AND 5% STOCKHOLDERS NUMBER % NUMBER % %
- ----------------------------------------- ---------- ---- ---------- ---- -----
<S> <C> <C> <C> <C> <C>
The Estee Lauder 1994 Trust(2)(3)........ 8,371,653 13.8 6,094,926 10.7 11.0
Leonard A. Lauder(3)(4).................. 27,748,847 45.9 29,370,773 51.7 51.1
Ronald S. Lauder(3)(5)................... 26,353,382 43.6 25,851,455 45.5 45.3
Ira T. Wender, as trustee(3)(6).......... 8,381,345 13.9 8,018,003 14.1 14.1
William P. Lauder(3)(7).................. 3,706,367 6.1 1,914,608 3.4 3.6
Gary M. Lauder(3)(8)..................... 3,343,216 5.5 1,914,608 3.4 3.6
Joel S. Ehrenkranz, as trustee(3)(9)..... 2,860,647 4.7 4,981,139 8.8 8.4
Richard D. Parsons, as trustee(3)(10).... 6,643,532 11.0 8,500,457 15.0 14.6
Fred H. Langhammer(11)................... 25 * -- -- *
Marshall Rose(12)(13).................... 16,000 * -- -- *
P. Roy Vagelos, M.D.(13)................. 1,000 * -- -- *
Faye Wattleton(13)....................... 1,000 * -- -- *
Daniel J. Brestle(14).................... 9,772 * -- -- *
Robin R. Burns(14)....................... 4,760 * -- -- *
Saul H. Magram(14)....................... 4,782 * -- -- *
Jeanette S. Wagner(14)................... 11,775 * -- -- *
All directors and executive officers as a
group (17 persons)(15)................. 33,835,790 56.0 49,118,833 86.4 83.5
</TABLE>
- ---------------
* Less than 0.1 %
(1) Each share of Class B Common Stock is convertible at the option of the
holder into one share of Class A Common Stock and is automatically
converted into a share of Class A Common Stock upon transfer to a person
who is not a Lauder Family Member (as defined below). The number of shares
of Class A Common Stock and percentages contained under this heading do not
account for such conversion right.
(2) The Estee Lauder 1994 Trust borrowed an aggregate of 5,500,000 shares of
Class A Common Stock from Leonard A. Lauder which the Trust sold in the
Company's initial public offering. The Trust is obligated to repay the
borrowing by delivering to Mr. Lauder shares equal in number to the
borrowed shares. This obligation is secured by a pledge of an equal number
of shares owned by the Trust. Leonard A. Lauder, Ronald S. Lauder and Ira
T. Wender are trustees of the Trust.
(3) Leonard A. Lauder, Ronald S. Lauder, William P. Lauder, Gary M. Lauder, the
Trustees of The Estee Lauder 1994 Trust, Joel S. Ehrenkranz, as trustee,
and Richard D. Parsons, as trustee, are parties to a Stockholders'
Agreement, pursuant to which each has agreed to vote his shares for the
election of Leonard A. Lauder, Ronald S. Lauder and their respective
designees as directors of the Company. Shares owned by each such individual
are not attributed to the others by reason of such voting arrangement.
5
<PAGE> 9
(4) Includes shares beneficially owned or deemed to be owned beneficially by
Leonard A. Lauder as follows: 7,913,748 shares of Class A Common Stock
directly and with respect to which he has sole voting and investment power
(including 5,500,000 and 1,697,493 shares of Class A Common Stock which are
pledged to Mr. Lauder by The Estee Lauder 1994 Trust and Ronald S. Lauder,
respectively); 8,548,423 shares of Class A Common Stock and 21,352,770
shares of Class B Common Stock as the sole individual general partner and
the majority stockholder of the sole corporate general partner of a limited
partnership and with respect to which he has sole voting and investment
power; 8,371,653 shares of Class A Common Stock and 6,094,926 shares of
Class B Common Stock as co-trustee of The Estee Lauder 1994 Trust with
respect to which he shares voting power with Ronald S. Lauder, as a
co-trustee, and investment power with Ronald S. Lauder and Ira T. Wender,
as co-trustees; 7,692 shares of Class A Common Stock and 1,923,077 shares
of Class B Common Stock as an individual general partner of a limited
partnership and as co-trustee of a trust (the "LAL Trust"), which is a
general partner of the same limited partnership, and with respect to which
he shares voting power with Ronald S. Lauder, who also is an individual
general partner of the limited partnership and co-trustee of another trust
(the "RSL Trust"), which is a general partner of the limited partnership,
and investment power with Ronald S. Lauder, as an individual general
partner of the limited partnership and as co-trustee of the RSL Trust,
Richard D. Parsons and Ira T. Wender, as co-trustees of the RSL Trust, and
Joel S. Ehrenkranz and Ira T. Wender, as co-trustees of the LAL Trust;
247,331 shares of Class A Common Stock as a director of The Lauder
Foundation and with respect to which he shares voting and investment power;
and 160,000 shares of Class A Common Stock owned by Evelyn H. Lauder.
Leonard A. Lauder disclaims beneficial ownership of the shares of Class A
Common Stock owned by The Lauder Foundation and Evelyn H. Lauder. The
shares of Class A Common Stock include 2,750,000 shares of Class A Common
Stock subject to a proxy granted to Mr. Lauder by Ronald S. Lauder in
connection with Mr. Lauder's loan to The Estee Lauder 1994 Trust. Excludes
shares of Class A Common Stock underlying stock options granted to Mr.
Lauder pursuant to his employment agreement.
(5) Includes shares beneficially owned or deemed to be owned beneficially by
Ronald S. Lauder as follows: 17,513,615 shares of Class A Common Stock and
17,831,861 shares of Class B Common Stock directly and with respect to
which he has sole voting and investment power; 1,591 shares of Class A
Common Stock and 1,591 shares of Class B Common Stock as sole trustee of a
trust for the benefit of his children and with respect to which he has sole
voting and investment power; 8,371,653 shares of Class A Common Stock and
6,094,926 shares of Class B Common Stock as co-trustee of The Estee Lauder
1994 Trust with respect to which he shares voting power with Leonard A.
Lauder, as a co-trustee, and investment power with Leonard A. Lauder and
Mr. Wender, as co-trustees; 7,692 shares of Class A Common Stock and
1,923,077 shares of Class B Common Stock as an individual general partner
of a limited partnership and as co-trustee of the RSL Trust, which is a
general partner of the same limited partnership, and with respect to which
he shares voting power with Leonard A. Lauder, who also is an individual
general partner of the limited partnership and co-trustee of the LAL Trust,
which is a general partner of the limited partnership, and investment power
with Leonard A. Lauder, as an individual general partner of the limited
partnership and as co-trustee of the LAL Trust, Richard D. Parsons and Ira
T. Wender, as co-trustees of the RSL Trust, and Joel S. Ehrenkranz and Ira
T. Wender, as co-trustees of the LAL Trust; 247,331 shares of Class A
Common Stock as a director of The Lauder Foundation and with respect to
which he shares voting and investment power; and 211,500 shares of Class A
Common Stock as a Director of the Ronald S. Lauder Foundation with respect
to which he shares voting and investment power. Ronald S. Lauder disclaims
beneficial ownership of the shares of Class A Common Stock and Class B
Common Stock owned by trusts for the benefit of one or more of his
children, The Lauder Foundation and the Ronald S. Lauder Foundation. Mr.
Lauder borrowed an aggregate of 8,333,333 shares of Class A Common Stock
from certain Family Controlled Trusts and Leonard A. Lauder which he sold
in the Company's initial public offering. Mr. Lauder is obligated to repay
the loans by delivering to the lending Family Controlled Trusts and Leonard
A. Lauder shares equal in number to the borrowed shares. This obligation is
secured by a pledge of an equal number of shares owned by Mr. Lauder as
6
<PAGE> 10
to which he has sole voting power and shares investment power with the
respective pledgees. In addition, in connection with the loan to The Estee
Lauder 1994 Trust by Leonard A. Lauder, Ronald S. Lauder granted a proxy to
Leonard A. Lauder for 2,750,000 shares of Class A Common Stock as to which
shares Ronald S. Lauder retains sole investment power. Excludes shares of
Class A Common Stock underlying stock options granted to Mr. Lauder
pursuant to his employment agreement.
(6) Includes shares beneficially owned or deemed to be owned beneficially by
Ira T. Wender as follows: 2,000 shares of Class A Common Stock owned by his
wife; 8,371,653 shares of Class A Common Stock and 6,094,926 shares of
Class B Common Stock as co-trustee of The Estee Lauder 1994 Trust and with
respect to which he shares investment power with Leonard A. Lauder and
Ronald S. Lauder; and 7,692 shares of Class A Common Stock and 1,923,077
shares of Class B Common Stock as co-trustee of the LAL Trust and as
co-trustee of the RSL Trust, each of which trusts are general partners of a
limited partnership, which owns the shares and with respect to which he
shares investment power with Leonard A. Lauder, as co-trustee of the LAL
Trust and who also is an individual general partner of the limited
partnership, Ronald S. Lauder, as co-trustee of the RSL Trust and who also
is an individual general partner of the limited partnership, Joseph S.
Ehrenkranz, as co-trustee of the LAL Trust, and Richard D. Parsons, as
co-trustee of the RSL Trust. Mr. Wender disclaims beneficial ownership of
such shares. The shares of Class A Common Stock held by The Estee Lauder
1994 Trust include 5,500,000 shares pledged to Leonard A. Lauder to secure
a loan from Mr. Lauder to the Trust. Mr. Wender's business address is 1133
Avenue of the Americas, New York, New York 10036.
(7) Includes shares beneficially owned or deemed to be owned beneficially by
William P. Lauder as follows: 1,773,785 shares of Class A Common Stock
directly and with respect to which he has sole voting and investment power;
1,685,251 shares of Class A Common Stock and 1,914,608 shares of Class B
Common Stock as co-trustee of a trust and with respect to which he shares
voting power with Gary M. Lauder, as co-trustee, and investment power with
Gary M. Lauder and Joel Ehrenkranz, as co-trustees; and 247,331 shares of
Class A Common Stock as a director of The Lauder Foundation with respect to
which he shares voting and investment power. William P. Lauder disclaims
beneficial ownership with respect to shares of Class A Common Stock owned
by The Lauder Foundation. Excludes stock options in respect of 40,000 share
of Class A Common Stock granted to Mr. Lauder pursuant to the Share
Incentive Plan (as defined below).
(8) Includes shares beneficially owned or deemed to be owned beneficially by
Gary M. Lauder as follows: 1,657,965 shares of Class A Common Stock
directly and with respect to which he has sole voting and investment power
and 1,685,251 shares of Class A Common Stock and 1,914,608 shares of Class
B Common Stock as co-trustee of a trust and with respect to which he shares
voting power with William P. Lauder, as co-trustee, and investment power
with William P. Lauder and Mr. Ehrenkranz, as co-trustees. Mr. Lauder's
business address is ICTV Inc., 14600 Winchester Boulevard, Los Gatos,
California 95030.
(9) Includes shares beneficially owned or deemed to be owned beneficially by
Joel S. Ehrenkranz as follows: 10,000 shares of Class A Common Stock
directly and with respect to which he has sole voting and investment power;
1,157,704 shares of Class A Common Stock and 1,143,454 shares of Class B
Common Stock as trustee of a trust for the benefit of William P. Lauder and
Gary M. Lauder and with respect to which he shares voting and investment
power with Carol S. Boulanger, as co-trustee; 1,685,251 shares of Class A
Common Stock and 1,914,608 shares of Class B Common Stock as co-trustee of
a trust and with respect to which he shares investment power with William
P. Lauder and Gary M. Lauder, as co-trustee; and 7,692 shares of Class A
Common Stock and 1,923,077 shares of Class B Common Stock as co-trustee of
the LAL Trust, which is a general partner of a limited partnership, which
owns the shares and with respect to which he shares investment power with
Leonard A. Lauder, who is an individual general partner of the limited
partnership and also a co-trustee of the LAL Trust, Ronald S. Lauder, who
is an individual general partner of the limited partnership and also a
co-trustee of the RSL Trust, Richard D. Parsons and Ira
7
<PAGE> 11
T Wender, as co-trustees of the RSL Trust, and Ira T. Wender, as co-trustee
of the LAL Trust. Mr. Ehrenkranz disclaims beneficial ownership of all such
shares other than those he owns directly. Mr. Ehrenkranz's business address
is 375 Park Avenue, New York, New York 10152.
(10) Includes shares beneficially owned or deemed to be owned beneficially by
Richard D. Parsons as follows: 6,635,840 shares of Class A Common Stock and
6,577,380 shares of Class B Common Stock as trustee of trusts for the
benefit of Aerin Lauder Zinterhofer and Jane Lauder and with respect to
which Mr. Parsons has sole voting and investment power; and 7,692 shares of
Class A Common Stock and 1,923,077 shares of Class B Common Stock as
co-trustee of the RSL Trust, which is a general partner of a limited
partnership, which owns the shares and with respect to which he shares
investment power with Ronald S. Lauder, who is an individual general
partner of the limited partnership and also a co-trustee of the LAL Trust,
Leonard A. Lauder, who is an individual general partner of the limited
partnership and also a co-trustee of the LAL Trust, Ira T. Wender, as
co-trustee of the RSL Trust, and Joel S. Ehrenkranz and Ira T. Wender, as
co-trustees of the LAL Trust. Mr. Parsons disclaims beneficial ownership of
all such shares. All of the shares of Class A Common Stock owned by trusts
for the benefit of Aerin Lauder Zinterhofer and Jane Lauder represent
shares pledged to the trusts by Ronald S. Lauder to secure repayment of
stock loans made to him at the time of the Company's initial public
offering. Mr. Parson's business address is 75 Rockefeller Plaza, New York,
New York 10019.
(11) Excludes stock options in respect of 700,000 shares of Class A Common
Stock, restricted stock units payable in shares in respect of 95,873 shares
of Class A Common Stock granted to Mr. Langhammer under his employment
agreement and restricted stock units payable in cash in respect of 77,271
shares of Class A Common Stock which are part of his deferred compensation
balance.
(12) Includes shares of Class A Common Stock beneficially owned by Mr. Rose as
follows: 10,000 shares directly and 5,000 shares as trustee of one of his
children's trusts, in each case with respect to which he has sole voting
and investment power. Mr. Rose disclaims beneficial ownership of shares
owned by his child's trust.
(13) Includes 1,000 shares of Class A Common Stock to be granted to each
non-employee Director on November 6, 1996. Excludes that number of shares
to be granted to each non-employee Director on November 6, 1996 as the
stock portion of his or her annual retainer. See "Compensation of
Directors" below.
(14) Excludes stock options in respect of shares of Class A Common Stock granted
to the executive under his or her employment agreement or the Share
Incentive Plan as follows: Mr. Brestle (150,000); Ms. Burns (150,000); Mr.
Magram (25,000); and Mrs. Wagner (187,500).
(15) See notes (2) through (5), note (7) and notes (11) through (14). Also
excludes stock options in respect of an aggregate of 325,000 shares of
Class A Common Stock granted to the executive officers whose names do not
appear in this table.
ADDITIONAL INFORMATION REGARDING THE BOARD OF DIRECTORS
Stockholders' Agreement. Lauder Family Members (other than The Lauder
Foundation) who own shares of Common Stock have agreed pursuant to the
Stockholders' Agreement to vote all shares beneficially owned by them for
Leonard A. Lauder, Ronald S. Lauder and one person (if any) designated by each
as directors of the Company. Leonard A. Lauder's nominee is William P. Lauder.
Such stockholders beneficially owned, in the aggregate, on September 13, 1996,
shares of Common Stock having approximately 97% of the voting power of the
Company. The rights of each of Leonard A. Lauder and Ronald S. Lauder to
designate a nominee exists only when such stockholder (including his
descendants) beneficially owns (other than by reason of the Stockholders'
Agreement) shares of Common Stock with at least 10% of the total voting power of
the Company. The right of the individual stockholder to be nominated will exist
so long as he (including his descendants) beneficially owns shares
8
<PAGE> 12
of Common Stock with at least 5% of the total voting power of the Company. In
the event that Leonard A. Lauder ceases to be a member of the Board of Directors
by reason of his death or disability, then his sons, William P Lauder and Gary
M. Lauder, will succeed to his rights to be nominated as a director. If either
son is unable to serve by reason of his death or disability, the other son will
have the right to designate a nominee. Similarly, Aerin Lauder Zinterhofer and
Jane Lauder, Ronald S. Lauder's daughters, will succeed to their father's rights
if he should cease to be a director by reason of his death or disability. If
either daughter is unable to serve by reason of her death or disability, the
other daughter will have the right to designate a nominee. In the event none of
Leonard A. Lauder and his sons and Ronald S. Lauder and his daughters are able
to serve as directors by reason of death or disability, then the rights under
the Stockholders' Agreement to be a nominee and to designate a nominee will
cease.
Board Committees. In February 1996, the Board of Directors established two
committees -- the Audit Committee and the Compensation Committee.
The Audit Committee members are Marshall Rose, P. Roy Vagelos, M.D. and
Faye Wattleton. Ms Wattleton is the Chairman of the Committee. The Committee,
among other things, makes recommendations to the Board of Directors regarding
the independent auditors to be nominated for ratification by the stockholders,
reviews the independence of such auditors, approves the scope of the annual
audit activities of the independent auditors and reviews audit results.
The Compensation Committee members are Marshall Rose and P. Roy Vagelos,
M.D. Dr. Vagelos is the Chairman of the Committee. The Committee, among other
things, has the authority to approve compensation plans and arrangements with
respect to the Company's executive officers and administers certain employee
benefit plans, including the Share Incentive Plan.
Board and Board Committee Meetings. In fiscal 1996, there were six meetings
(including four meetings by written consent) held by the Board of Directors
(three of which took place after the initial public offering). The Compensation
Committee and the Audit Committee each met once in fiscal 1996. The total
combined attendance for all Board and Committee meetings was 100%.
Compensation of Directors. Each non-employee director receives an annual
retainer of $40,000. During each of the first five years of service, $10,000 of
the annual retainer is payable in shares (or stock units) of Class A Common
Stock. The number of shares or shares underlying units to be awarded is
determined by dividing the dollar amount by the average closing price for the
Class A Common Stock on the twenty trading days next preceding the date of
grant. In addition, on the date of the first annual meeting of stockholders
which is more than six months after a non-employee director's initial election
to the Board, he or she will be granted 1,000 shares of Class A Common Stock
(plus a related cash amount for reimbursement of taxes). Any shares of Class A
Common Stock granted to non-employee directors as compensation, while not
restricted, are expected to be held by such persons until they are no longer
serving as a director. Non-employee directors also receive $1,000 for each board
or committee meeting attended plus reimbursement of travel expenses to such
meetings. Each of the Chairman of the Audit Committee and the Chairman of the
Compensation Committee receives an additional $3,000 per year. Directors who are
also employees of the Company receive no additional compensation for service as
a director.
Compensation Committee Interlocks and Insider Participation. Prior to the
establishment of the Compensation Committee in February 1996, Leonard A. Lauder
and Ronald S. Lauder were directors of the Company and each participated in
deliberations concerning executive compensation.
9
<PAGE> 13
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Family Relationships. The Company was founded by Estee Lauder ("Mrs.
Lauder") and her late husband, Joseph Lauder. Until September 1995, Mrs. Lauder
was Chairman of the Board of Directors of the Company. She is currently Founding
Chairman, an honorary position. Her son, Leonard A. Lauder, is the Chief
Executive Officer and Chairman of the Board of Directors of the Company. Her
other son, Ronald S. Lauder, is a Director of the Company and Chairman of Estee
Lauder International, Inc. and Clinique Laboratories, Inc. Leonard A. Lauder's
wife, Evelyn H. Lauder, is a Senior Corporate Vice President of the Company.
Leonard A. Lauder and his wife have two sons, William P. Lauder and Gary M.
Lauder. William P. Lauder is President of Origins Natural Resources Inc. and a
Director of the Company. Ronald S. Lauder and his wife, Jo-Carole Lauder, have
two daughters, Aerin Lauder Zinterhofer and Jane Lauder. Aerin Lauder
Zinterhofer is a Director of Creative Product Development for the Estee Lauder
brand. Jane Lauder is an Account Executive in the Clinique U.S.A. field sales
force. Although not currently employed by the Company, Gary M. Lauder was
employed by the Company in the past.
As used in this Proxy Statement, the term "Lauder Family Members" includes
only the following persons: (i) Mrs. Lauder and her estate, guardian,
conservator or committee; (ii) each descendant of Mrs. Lauder (a "Lauder
Descendant") and their respective estates, guardians, conservators or
committees; (iii) each "Family Controlled Entity" (as defined below); and (iv)
the trustees, in their respective capacities as such, of each "Family Controlled
Trust" (as defined below). The term "Family Controlled Entity" means (i) any
not-for-profit corporation if at least 80% of its board of directors is composed
of Mrs. Lauder and/ or Lauder Descendants; (ii) any other corporation if at
least 80% of the value of its outstanding equity is owned by Lauder Family
Members; (iii) any partnership if at least 80% of the value of its partnership
interests are owned by Lauder Family Members; and (iv) any limited liability or
similar company if at least 80% of the value of the company is owned by Lauder
Family Members. The term "Family Controlled Trust" includes certain trusts
existing on November 16, 1995 and trusts the primary beneficiaries of which are
Mrs. Lauder, Lauder Descendants, spouses of Lauder Descendants and/or charitable
organizations provided that if the trust is a wholly charitable trust, at least
80% of the trustees of such trust consist of Mrs. Lauder and/or Lauder
Descendants.
Estee Lauder AG Lachen. Estee Lauder AG Lachen ("Lachen") and its
subsidiaries manufacture cosmetics and fragrances and sell them to the Company's
other subsidiaries and third-party distributors. Lachen was previously owned in
part by the Company and in part by Lauder Family Members. In the
recapitalization that occurred prior to the Company's initial public offering
(the "Recapitalization"), all the shares of Lachen held by Lauder Family Members
were exchanged for shares of Class A Common Stock and Class B Common Stock
having an aggregate value equal to the aggregate value of the Lachen shares
exchanged. The value of such Lachen shares was $85 million and the holders of
such shares received in the aggregate 1,634,615 shares of Class A Common Stock
and 1,634,615 shares of Class B Common Stock. As a result of the
Recapitalization, Lachen and its subsidiaries are now wholly-owned subsidiaries
of the Company. See "Certain Dividend Payments" below.
Lauder Family Partners, L.P. In December 1994, Lauder Family Partners,
L.P., a New York limited partnership formed by Lauder Family Members in November
1994 ("Lauder Family Partners"), acquired a majority interest in Make-Up Art
Cosmetics Limited ("M.A.C."). At the time of the acquisition, the Company was
appointed as the exclusive distributor of M.A.C. products outside the United
States and Canada. The general day-to-day activities of M.A.C., as well as the
marketing, product development, manufacturing and U.S. and Canadian distribution
of M.A.C. products, continue to be directed by the founders of M.A.C. (the
"Sellers"). The Sellers, who are not affiliates of the Lauder family, continue
to hold the remaining equity interests in M.A.C.
Lauder Family Partners acquired its interest from the Sellers for cash and
a three-year amortizing note (the "Purchaser Note"). Part of the cash portion of
the purchase price was funded with the proceeds of a five-year $19 million note
issued by Lauder Family Partners to a subsidiary of the Company. Principal and
interest on the Purchaser Note are payable quarterly and, prior to the
Recapitalization, payments were made by Lauder Family Partners using proceeds of
additional borrowings from the subsidiary. Interest on
10
<PAGE> 14
all amounts borrowed from the subsidiary accrued at the higher of the Base Rate
(as defined in the Company's principal credit agreement, currently 8.75%) plus
50 basis points and the applicable federal rate (as determined for federal
income tax purposes) and was payable semi-annually, unless Lauder Family
Partners elected to convert the amount of interest due on any payment date into
additional principal. The highest outstanding principal amount of Lauder Family
Partners' indebtedness to the subsidiary in Fiscal 1996 was $26.5 million. As
part of the Recapitalization, such indebtedness became an intercompany
obligation.
In the Recapitalization, all the partnership interests in Lauder Family
Partners were exchanged for shares of Class A Common Stock and Class B Common
Stock having an aggregate value equal to the aggregate value of the partnership
interests exchanged. The value of such partnership interests exchanged was $78
million and the holders of such partnership interests received in the aggregate
1,500,000 shares of Class A Common Stock and 1,500,000 shares of Class B Common
Stock. As a result of the Recapitalization, the Company became the beneficial
owner of the majority equity interest in M.A.C. and succeeded to the obligations
under the Purchaser Note.
Certain Dividend Payments. Immediately prior to the Recapitalization,
Lachen declared a special cash dividend in the aggregate amount of $20 million
payable to holders of its SFr 1,000 par value shares, all of whom were Lauder
Family Members. The Company also declared a special dividend, payable to the
then holders of its common stock, consisting of interests in corporations and
partnerships holding certain assets of the Company, such as art, furniture and
investments, which are unrelated to the Company's core business, and an
aggregate of $29.6 million in cash. The aggregate fair value of the non-cash
assets was $19.6 million.
The Company paid regular cash dividends aggregating $21.4 million in fiscal
1996 on the common and preferred stock that was converted into Class A Common
Stock and Class B Common Stock in the Recapitalization.
Royalty Arrangements. In 1969, the Company acquired from Mrs. Lauder
ownership of the trademark Estee Lauder in the United States and internationally
in exchange for royalty payments on sales of Estee Lauder brand products during
Mrs. Lauder's lifetime. The royalty payments also relate to sales of
Prescriptives products, which were initially sold under the Estee Lauder brand.
In November 1995, the Company purchased the right to receive royalty payments
with respect to the United States (the "Domestic Royalty") from The Estee Lauder
1994 Trust (which acquired Mrs. Lauder's rights to such payments in 1994) for
$88.5 million. The amount was based on an estimate of the pre-tax cost to the
Company of the Domestic Royalty provided by Morgan Guaranty Trust Company of New
York ("Morgan Guaranty"). Morgan Guaranty used valuation methodologies it deemed
necessary or appropriate in arriving at such pre-tax cost based on (i) Morgan
Guaranty's consideration of the information supplied by the Company and (ii)
application of investment banking analysis premised on analyzing the long-term
value of the Company. The Domestic Royalty paid to The Estee Lauder 1994 Trust
in fiscal 1996, prior to purchase, amounted to $11.2 million.
The royalty with respect to international sales (the "International
Royalty") continues to be an obligation of the Company until Mrs. Lauder's
death. The International Royalty paid to Mrs. Lauder for fiscal 1996 amounted to
$14.9 million.
1992 Arrangements. Prior to the initial public offering, the Company
guaranteed certain obligations of a trust created by Ronald S. Lauder (the "RSL
1992 Trust"), of which Ronald S. Lauder and Leonard A. Lauder and Morgan
Guaranty were trustees (the "1992 Trustees"). The Company guaranteed the
obligations of the RSL 1992 Trust under two bank credit agreements providing for
borrowings of up to $100 million and $25 million, respectively. Ronald S. Lauder
agreed to reimburse the Company for any payments made by the Company in
connection therewith. The Company was never required to make any payments
pursuant to such guaranties.
In addition, the Company agreed to purchase from the RSL 1992 Trust certain
senior subordinated notes of the RSL 1992 Trust, the proceeds of which were used
by the RSL 1992 Trust to fund interest
11
<PAGE> 15
payments on the guaranteed borrowings. Pursuant to the agreement, the Company
purchased a $4.1 million note from the RSL 1992 Trust in October 1995. The note
was repaid in full (with interest) and terminated upon consummation of the
initial public offering.
Master Registration Rights Agreement. Leonard A. Lauder, Ronald S. Lauder,
The Estee Lauder 1994 Trust, William P. Lauder, Gary M. Lauder, Aerin Lauder
Zinterhofer, Jane Lauder, certain Family Controlled Entities and other Family
Controlled Trusts, Morgan Guaranty and the Company are parties to a Registration
Rights Agreement (the "Master Registration Rights Agreement"), pursuant to which
each of Leonard A. Lauder, Ronald S. Lauder and Morgan Guaranty have three
demand registration rights and The Estee Lauder 1994 Trust has six demand
registration rights in respect of shares of Class A Common Stock (including
Class A Common Stock issued upon conversion of Class B Common Stock) held by
them. Three of the demand rights granted to The Estee Lauder 1994 Trust may be
used only by a pledgee of The Estee Lauder 1994 Trust's shares of Common Stock.
All the parties to the Master Registration Rights Agreement (other than the
Company) also have an unlimited number of piggyback registration rights in
respect of their shares. The rights of Morgan Guaranty and any pledgee of The
Estee Lauder 1994 Trust under the Master Registration Rights Agreement will be
exercisable only in the event of a default under certain loan arrangements.
Leonard A. Lauder and Ronald S. Lauder may assign their demand registration
rights to Lauder Family Members. The Company is not required to effect more than
one registration for Class A Common Stock in any twelve calendar month period.
The piggyback registration rights allow the holders to include their shares of
Class A Common Stock in any registration statement filed by the Company, subject
to certain limitations.
The Estee Lauder 1994 Trust will be entitled to six demand registration
rights, three of which may be used only by a pledgee of The Estee Lauder 1994
Trust's shares of $6.50 Cumulative Redeemable Preferred Stock, and an unlimited
number of piggyback registration rights with respect to the shares of the $6.50
Cumulative Redeemable Preferred Stock. The LAL 1995 Trust has one demand
registration right and an unlimited number of piggyback registration rights with
respect to shares of the $6.50 Cumulative Redeemable Preferred Stock under the
Master Registration Rights Agreement. These rights are exercisable by the Estee
Lauder 1994 Trust and the LAL 1995 Trust until the later of June 30, 2000 and
Mrs. Lauder's death.
The Company is required to pay all expenses (other than underwriting
discounts and commissions of the selling stockholders, taxes payable by the
selling stockholders and the fees and expenses of the selling stockholders'
counsel) in connection with any demand registrations, as well as any
registration pursuant to the exercise of piggyback rights. The Company has
agreed to indemnify such persons against certain liabilities, including
liabilities arising under the Securities Act of 1933.
Stockholders' Agreement. All Lauder Family Members (other than The Lauder
Foundation) that beneficially own shares of Common Stock are parties to a
stockholders' agreement with the Company (the "Stockholders' Agreement"). The
stockholders who are parties to the Stockholders' Agreement (who beneficially
owned, in the aggregate, shares of Common Stock having approximately 97% of the
voting power of the Company on September 13, 1996) have agreed to vote in favor
of the election of Leonard A. Lauder and Ronald S. Lauder and one designee of
each as directors. See "Additional Information Regarding the Board of
Directors -- Stockholders' Agreement." The Stockholders' Agreement also contains
certain limitations on the transfer of shares of Class A Common Stock and Class
B Common Stock. In addition, each stockholder who is a party to the
Stockholders' Agreement (the "Offering Stockholder") has granted the other
parties (the "Offerees") a right of first offer to purchase shares of Class A
Common Stock the Offering Stockholder intends to sell to a person (or group of
persons) who is not a Lauder Family Member, except in certain circumstances,
such as sales in a widely distributed underwritten public offering or sales made
in compliance with Rule 144. Each Offeree has the opportunity to purchase the
Offeree's pro rata portion of the shares to be offered by the Offering
Stockholder, as well as additional shares not purchased by other Offerees. Any
shares not purchased pursuant to the right of first offer may be sold at or
above 95% of the price offered to the Offerees. The Stockholders' Agreement will
terminate upon the occurrence of certain specified events, including the
transfer of shares of Common Stock by a party to the Stockholders' Agreement
that causes all parties
12
<PAGE> 16
thereto immediately after such transaction to own beneficially in the aggregate
shares having less than 10% of the total voting power of the Company.
Other Indebtedness to the Company. From time to time, prior to the initial
public offering, the Company made loans to Mrs. Lauder (including The Estee
Lauder 1994 Trust), Leonard A. Lauder and Ronald S. Lauder. All such loans were
repaid concurrently with the offering. During fiscal 1996, the largest aggregate
amount of indebtedness outstanding was as follows: to Mrs. Lauder (including The
Estee Lauder 1994 Trust), $23.2 million; to Leonard A. Lauder, $0.2 million; and
to Ronald S. Lauder, $90.7 million. Interest accrued on the loans at a rate
equal to the applicable federal rate (as determined for federal income tax
purposes), which ranged from 5.65% to 5.88% during fiscal 1996.
In fiscal 1996, Joseph Gubernick, Senior Vice President -- Research and
Development, borrowed $300,000 from the Company which loan is payable in
installments over three years. Interest accrues on the loan at a rate equal to
6.36% per annum, which was the applicable federal rate at the time the loan was
made.
Other Arrangements with Ronald S. Lauder. The Company has paid salaries and
other expenses of certain personnel for services provided to Ronald S. Lauder in
connection with activities unrelated to the Company. Mr. Lauder has reimbursed
the Company for its incremental costs, which aggregated approximately $500,000
in fiscal 1996.
The Company has subleased certain of its office space in New York to an
affiliate of Ronald S. Lauder. In fiscal 1996, the rent paid was approximately
$550,000, which equals the Company's lease payments for that space. In
connection with the sublease, and subject to certain conditions, the Company has
agreed to make certain improvements, the cost of which will be amortized over
the term of the sublease and be payable by the sublessee. The Company also has
agreed to provide such affiliate with certain services, such as phone systems,
payroll service and office and administrative services, which are reimbursed at
a rate approximating the Company's incremental cost thereof. For fiscal 1996,
the affiliate paid the Company approximately $2.7 million pursuant to such
agreement.
The Lauder Foundation. The Lauder Foundation is a tax-exempt private
foundation established by members of the Lauder Family in 1962. The directors of
The Lauder Foundation are Estee Lauder, Leonard A. Lauder, Ronald S. Lauder,
William P. Lauder and Aerin Lauder Zinterhofer. During fiscal 1996, the Company
contributed $250,000 to The Lauder Foundation. In the Recapitalization, all
shares of the Company's then existing preferred stock owned by The Lauder
Foundation were converted into shares of Class A Common Stock.
13
<PAGE> 17
EXECUTIVE COMPENSATION
The following table sets forth a summary of all compensation awarded or
paid to or earned by the chief executive officer and the five other most highly
compensated executive officers of the Company in the last fiscal year for
services rendered in all capacities to the Company (including its subsidiaries)
for the fiscal years ended June 30, 1995 and 1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
----------------------------------------
AWARDS
--------------------------- PAYOUTS
SECURITIES ---------
ANNUAL COMPENSATION RESTRICTED UNDERLYING LTIP ALL OTHER
NAME AND PRINCIPAL ------------------------- STOCK AWARDS OPTIONS PAYOUTS COMPEN-
POSITION YEAR SALARY($) BONUS($) ($) (#) ($) SATION($)
- ------------------------ ---- --------- --------- ------------ ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
LEONARD A. LAUDER....... 1996 1,600,000 1,700,700 -- 600,000 -- 993,835(a)
Chairman of the Board 1995 1,522,477 787,500 -- -- -- 1,080,488
and Chief Executive
Officer
FRED H. LANGHAMMER...... 1996 1,500,000 1,500,000 1,500,000(b) 500,000 -- 15,418(c)
President and Chief 1995 900,000 3,550,000(e) -- -- -- 15,040
Operating Officer
DANIEL J. BRESTLE....... 1996 750,000 727,500 -- 100,000 -- 21,537(c)
President of Clinique 1995 600,000 380,000 -- -- -- 21,229
Laboratories, Inc.
ROBIN R. BURNS.......... 1996 923,700(d) 884,000(e) -- 100,000 -- 4,510(c)
President of Estee 1995 898,700(d) 819,958 -- -- 1,362,776(f) 3,881
Lauder (U.S.A. and
Canada)
SAUL H. MAGRAM.......... 1996 1,146,214(d)(e) 500,000 -- 25,000 -- 12,195(c)
Senior Vice President, 1995 1,091,250(d)(e) 472,500 -- -- -- 11,981
General Counsel and
Secretary
JEANETTE S. WAGNER...... 1996 863,200(d) 850,000 -- 125,000 -- 13,025(c)
President of Estee 1995 1,043,200(d)(e) 850,000 -- -- -- 13,110
Lauder International,
Inc.
</TABLE>
- ---------------
(a) Amounts reported under "All Other Compensation" in fiscal 1996 for Mr.
Lauder include the estimated dollar value of the benefit to him of
Company-paid premiums on split dollar life insurance in the amount of
$989,335. A trust established by Mr. Lauder pays the term-life portion of
the policy. The Company will recover all premiums paid by it at the time
death benefits are paid thereon, and may recover such amounts earlier under
certain circumstances. The maximum potential value is calculated as if the
fiscal year premiums were advanced to Mr. Lauder without interest until the
time the Company expects to recover the premium (i.e., upon his death). The
amount reported for Mr. Lauder in fiscal 1996 also includes $4,500 of
matching contributions made pursuant to the Company's qualified defined
contribution plan.
(b) Reflects the dollar value (without consideration of the restrictions) of
restricted stock units granted to Mr. Langhammer pursuant to his employment
agreement in fiscal 1996. The stock units are accompanied by dividend
equivalent rights which are payable in additional units. At the end of
fiscal 1996, Mr. Langhammer held 57,953 restricted stock units. Based on the
closing price at the end of fiscal 1996, the value of such units (without
consideration of the restrictions) was $2,448,514. The stock units are
payable in shares of Class A Common Stock within 90 days after Mr.
Langhammer's termination of employment. Pursuant to his employment
agreement, he received an additional grant of 37,920 restricted stock units
on July 1, 1996.
(c) Amounts reported in fiscal 1996 include: (i) the estimated dollar value of
the benefit to the named executive officer of Company-paid premiums for
split dollar life insurance (calculated on the same basis as disclosed in
note (a)) as follows: Mr. Langhammer, $10,268; Mr. Brestle, $16,465; Mr.
Magram, $6,863; and Mrs. Wagner, $7,875; (ii) matching contributions made on
behalf of the named executive officer pursuant to the Company's qualified
defined contribution plan as follows:
14
<PAGE> 18
Mr. Langhammer, $4,500; Mr. Brestle, $4,500; Ms. Burns, $4,250; Mr. Magram,
$4,500; and Mrs. Wagner, $4,500 and (iii) the dollar value of the share
grants made as part of the Company-wide program to the named executive
officer as follows: Mr. Langhammer, $650; Mr. Brestle, $572; Ms. Burns,
$260; Mr. Magram, $832; and Mrs. Wagner, $650.
(d) Includes cash received in lieu of executive perquisites.
(e) Includes amounts deferred by (i) Mr. Langhammer equal to $1,500,000 in
fiscal 1995, (ii) Ms. Burns equal to $200,000 in fiscal 1996, (iii) Mr.
Magram equal to $182,000 in fiscal 1996 and $174,000 in fiscal 1995, and
(iv) Mrs. Wagner equal to $350,000 in fiscal 1995.
(f) Includes amounts paid or to be paid out to Ms. Burns pursuant to an
individual deferred bonus arrangement covering the period from fiscal 1992
through fiscal 1995.
OPTION GRANTS IN FISCAL 1996
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-----------------------------------------------------------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS
UNDERLYING GRANTED TO EXERCISE GRANT DATE
OPTIONS EMPLOYEES IN PRICE EXPIRATION PRESENT
GRANTED (#)(1) FISCAL YEAR ($/SH) DATE VALUES ($)(2)
-------------- ------------ --------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Leonard A. Lauder............... 600,000 19.1 $ 26.00 11/16/05 $ 3,995,858
Fred Langhammer................. 500,000 15.9 26.00 11/16/05 3,329,882
Daniel J. Brestle............... 100,000 3.2 26.00 11/16/05 665,976
Robin R. Burns.................. 100,000 3.2 26.00 11/16/05 665,976
Saul H. Magram.................. 25,000 0.8 26.00 11/16/05 166,494
Jeanette S. Wagner.............. 125,000 4.0 26.00 11/16/05 832,471
</TABLE>
- ---------------
(1) The options granted in fiscal 1996 to the named executive officers have a
term of 10 years and were granted pursuant to the executive officers'
respective employment agreements or the Share Incentive Plan.
(2) In accordance with Securities and Exchange Commission rules, the
Black-Scholes option pricing model was chosen to estimate the Grant Date
Present Value of the options set forth in this table. The Company's use of
this model should not be construed as an endorsement of its accuracy at
valuing options. All stock option models require a prediction about the
future movement of the stock price. The following assumptions were made for
purposes of calculating Grant Date Present Values: expected time of exercise
of six years, volatility of 15%, dividend yield of 1.3% and interest rate of
5.74% (six year Treasury note rate at grant date). The real value of the
options in this table depends upon the actual performance of the Company's
stock during the applicable period and upon when they are exercised.
AGGREGATED OPTION EXERCISES IN FISCAL 1996 AND FISCAL 1996 YEAR-END OPTION
VALUES (1)
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUES OF UNEXERCISED IN-THE-
UNDERLYING UNEXERCISED
OPTIONS AT FY-END(#) MONEY OPTIONS AT FY- END($)(2)
----------------------------- -----------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Leonard A. Lauder....................... 0 600,000 0 9,750,000
Fred Langhammer......................... 0 500,000 0 8,125,000
Daniel J. Brestle....................... 0 100,000 0 1,625,000
Robin R. Burns.......................... 0 100,000 0 1,625,000
Saul H. Magram.......................... 0 25,000 0 406,250
Jeanette S. Wagner...................... 0 125,000 0 2,031,250
</TABLE>
- ---------------
(1) No options were exercised in fiscal 1996.
(2) The closing price on June 28, 1996, the last trading day in fiscal 1996, was
$42.25.
15
<PAGE> 19
Annual Incentive Plan. The Company's annual incentive compensation plan
(the "Annual Incentive Plan") is designed to motivate employee participants to
achieve the Company's annual performance goals in support of its strategic
objectives. Approximately 500 employees are currently eligible to participate in
the Annual Incentive Plan.
Under the Annual Incentive Plan, each participating employee is assigned a
target bonus award, representing up to 100% of his or her annual base salary (or
in the case of Leonard A. Lauder, an amount which will be determined in
accordance with a formula based primarily on net earnings) that will be paid if
the Company's annual performance objectives and the participant's individual
performance objectives are achieved. Company performance objectives are
established by senior management members and individual performance objectives
are established by the manager of the applicable unit or division of the
Company. Starting with fiscal 1997, performance objectives and awards for
executive officers under the Annual Incentive Plan are approved by the
Compensation Committee and submitted for ratification by the full Board of
Directors. Payouts are determined annually following determination of the
Company's fiscal year-end results, and the Company intends to make the payments
in or about September to participants who remain employed at that time or, in
the Company's discretion, to participants who have ceased to be employed by the
Company. No individual may receive under the Annual Incentive Plan more than $5
million on account of any fiscal year. The Annual Incentive Plan is subject to
amendment or termination at any time, but no such action may adversely affect
any rights or obligations with respect to any awards theretofore made under the
Annual Incentive Plan.
For fiscal 1996, the bonuses under the Annual Incentive Plan for Leonard A.
Lauder, Fred H. Langhammer, Daniel J. Brestle, Robin R. Burns, Saul H. Magram
and Jeanette S. Wagner are set forth in the Summary Compensation Table.
Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code"), generally disallows a publicly-held corporation a deduction for
compensation in excess of $1 million per year paid to the chief executive
officer (the "CEO") or any of the four most highly compensated executive
officers of the Company (other than the CEO) (the "Covered Officers") unless
such compensation is paid pursuant to the performance-based exception set out in
such section. Based upon a special transition rule contained in the Treasury
regulations for private corporations that complete an initial public offering,
and assuming no material modifications to the Annual Incentive Plan, the Company
intends to treat all payments made to Covered Officers under the Annual
Incentive Plan until the annual meeting of stockholders in fiscal 2000 as not
subject to the deduction limitations of Section 162(m) of the Code.
Share Incentive Plan. The Company's Fiscal 1996 Share Incentive Plan (the
"Share Incentive Plan") is intended generally to attract, retain and motivate
officers, key employees and non-employee directors and to align their interests
with those of the stockholders. A total of 4,225,000 shares of Class A Common
Stock may be issued under the Share Incentive Plan, upon exercise of stock
options and stock appreciation rights ("SARs") and vesting of performance share
awards, stock awards or stock units. The shares available under the Share
Incentive Plan do not include grants of stock options and stock units in respect
of approximately 5,700,000 shares of Class A Common Stock that are expected to
be made pursuant to certain employment agreements. See "Employment Agreements"
below. In fiscal 1996, the Company granted stock options in respect of 1,565,000
shares of Class A Common Stock under the Share Incentive Plan (of which, stock
options in respect of 8,500 shares have been canceled and the underlying shares
returned for re-issuance) and stock options in respect of 1,575,000 shares of
Class A Common Stock and stock units in respect of 57,953 shares of Class A
Common Stock pursuant to employment agreements contemporaneously with the
Company's initial public offering and from dividend equivalents on the stock
units. The Share Incentive Plan is currently administered by the Compensation
Committee of the Board of Directors. The Compensation Committee has the
authority, subject to the terms of the Share Incentive Plan (including the
formula grant provisions contained therein), to determine when and to whom to
make grants or awards under the plan, the number of shares to be covered by the
grants or awards, the types and terms of performance shares, stock options,
SARS, stock grants and stock units, the exercise price of stock options and
SARS, and to prescribe, amend and rescind rules and regulations relating to the
Share Incentive Plan. The Compensation Committee's determinations under the
Share
16
<PAGE> 20
Incentive Plan need not be uniform and may be made by it selectively among
persons who receive, or are eligible to receive, grants and awards under the
Share Incentive Plan. The number of shares of Class A Common Stock with respect
to which benefits may be granted or awarded to an individual participant
pursuant to the Share Incentive Plan is limited to 1,000,000. Such limitation
does not apply to stock or stock-based awards made outside the Share Incentive
Plan. Approximately 300 officers and key employees currently are eligible to
participate in the Share Incentive Plan. Stock awards to non-employee directors
will be made under the Share Incentive Plan. See "Compensation of Directors"
above.
The Company's Board of Directors may amend, suspend or terminate the Share
Incentive Plan at any time except that, unless approved by stockholders of the
Company, no such amendment may (i) materially increase the maximum number of
shares as to which awards may be granted under the Share Incentive Plan, except
for adjustments to reflect stock dividends or other recapitalizations affecting
the number or kind of outstanding shares, (ii) materially increase the benefits
accruing to Share Incentive Plan participants or (iii) materially change the
requirements as to eligibility for participation in the Share Incentive Plan. In
addition, no amendment to the Plan may be made without approval of the
stockholders if the amendment would disqualify any "incentive stock options"
granted under the Share Incentive Plan. By mutual agreement between the Company
and a participant, awards may be made under the Share Incentive Plan in
substitution and cancellation of benefits previously granted to the participant
under the Share Incentive Plan. Benefits granted under the Share Incentive Plan
are subject to adjustment in the event of certain changes affecting the Class A
Common Stock.
The Compensation Committee may grant "incentive stock options" within the
meaning of Section 422 of the Code, "non-qualified stock options" or SARs in
respect of shares of Class A Common Stock to participating employees alone or in
tandem with other awards under the Share Incentive Plan. The exercise price of a
stock option or base price of an SAR may not be less than the fair market value
of the underlying shares of the Class A Common Stock on the date of grant. The
exercise period for stock options and SARs will be determined by the
Compensation Committee and may not exceed 10 years from the date of grant
(except upon death of an optionee or grantee in the last year of the term, in
which case, the expiration date of non-qualified stock options and SARs will be
one year after death). Stock options and SARs will be exercisable at such times,
in such amount, in accordance with such terms and conditions, and subject to
such restrictions, as are set forth in the agreement evidencing the grant of
such options or SARS. The Committee may grant stock options that provide for the
grant of a restoration stock option to the extent such stock options are
exercised through the tender of previously owned shares of Class A Common Stock.
The number of shares of Class A Common Stock covered by any restoration stock
option cannot exceed the number of shares tendered, the exercise price thereof
must equal the then current fair market value of the Class A Common Stock and
the exercise period thereof may not extend beyond the remaining term of the
original option. In the event of a change of control (as defined in the Share
Incentive Plan) of the Company (other than by reason of a change in the relative
beneficial ownership by members of the Lauder family and family-controlled
entities), outstanding stock options and SARs may become exercisable immediately
and, in the discretion of the Compensation Committee, the excess of the fair
market value of the Class A Common Stock subject to such stock options or SARs
over the exercise price or base price thereof will be paid out in cash. The
exercise of any option or SAR after termination of employment will be subject to
satisfaction of the conditions precedent that the holder thereof neither (a)
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 (b) conducts himself or herself in a manner adversely affecting
the Company.
Stock options and SARs may be transferred by an optionee only by will or by
the laws of descent and distribution, and may be exercised only by the optionee
or grantee during his lifetime. If a participant dies and the applicable award
agreement so provides, all outstanding options and SARs will become immediately
vested and may be exercised by the person or persons to whom the optionee's or
grantee's rights pass within one year after the optionee's or grantee's death.
In no case (other than in the event of the participant's death) may options or
SARs be exercised later than the expiration date of the stock options or SARs
specified in the grant.
17
<PAGE> 21
Upon exercise of a SAR, a holder generally is entitled, without payment to
the Company, to receive cash, shares of Class A Common Stock or any combination
thereof, as determined by the Compensation Committee, in an amount equal to the
excess of the fair market value of one share of Class A Common Stock on the
exercise date over the base price, multiplied by the number of shares in respect
of which the SAR is exercised.
The Compensation Committee may grant performance share awards, in the form
of shares or units, to participating employees alone or in tandem with other
awards under the Share Incentive Plan. In the event that the Compensation
Committee grants such awards, it will establish performance goals which,
depending on the extent to which they are met, will determine the number and/or
value of performance share awards that will be paid out. Payouts may be in
shares of Class A Common Stock (with or without restrictions) and/or cash.
Performance goals may be based upon Company-wide, divisional and/or individual
performance.
The Compensation Committee may grant stock awards, in such amounts and
subject to such terms and conditions as the Compensation Committee will
determine. The vesting of a stock award granted under the Share Incentive Plan
may be conditioned upon the completion of a specified period of service, upon
the attainment of specified performance goals and/or upon such other criteria,
if any, as the Compensation Committee may determine. In addition, the right to
vote and receive dividends on the shares of Class A Common Stock subject to the
stock award will be determined by the Compensation Committee.
The Compensation Committee also may grant stock units, each of which is a
notional account representing one share of Class A Common Stock. Stock units
granted under the Share Incentive Plan are payable in shares of Class A Common
Stock at such time as is set forth in an award agreement and are accompanied by
such restrictions on vesting, if any, as may be determined by the Compensation
Committee. While stock units do not confer voting rights on the participant, the
Compensation Committee may provide that a stock unit be accompanied by dividend
equivalent rights payable in cash or in the form of additional stock units.
Although eligible, none of the named executive officers received any grants
under the Share Incentive Plan in fiscal 1996. Their grants were made pursuant
to their employment agreements. See "Employment Agreements" below.
As in the case of the Annual Incentive Plan, and assuming no material
modifications of the Share Incentive Plan, the Company intends to rely on the
special transition rule contained in the Treasury regulations for private
corporations that complete an initial public offering to deduct all compensation
expenses related to awards or grants made under the Share Incentive Plan to the
Covered Officers before the annual meeting of stockholders in fiscal 2000.
Thereafter, the deductibility of compensation expenses related to awards or
grants made under the Share Incentive Plan which result in total covered
compensation in excess of $1 million for the Covered Officers will depend on
whether the Company and the plan comply with the performance-based exception to
Section 162(m).
Pension Plans. The Company provides retirement benefits to its employees in
the United States through a defined benefit plan, which is intended to be
qualified under Section 401 of the Code, and a related non-qualified restoration
plan. In general, for employees who were at least 50 years old and had five
years of Company qualifying employment on January 1, 1993 or who had ten years
of Company qualifying employment as of that date (which include all the named
executive officers except Ms. Burns), retirement benefits pursuant to the plans
are calculated as a multiple of years of qualifying Company employment, times
final qualifying average compensation, times a percentage (currently 1.5%),
offset by certain amounts calculated with reference to Social Security
entitlements. For other employees, retirement benefits under the plans are the
aggregate amount of annual credits (calculated with reference to total annual
compensation, with certain items excluded) plus interest credits thereon. The
benefits payable to Leonard A. Lauder, Fred H. Langhammer, Saul H. Magram and
Jeanette S. Wagner are calculated with reference to supplemental undertakings.
18
<PAGE> 22
Leonard A. Lauder currently has 38 years of qualifying Company employment.
Assuming Mr. Lauder retires at the end of his current contract term (i.e., at
age 67) with 42 years of qualifying Company employment, his projected annual
retirement benefits would be approximately $798,000. Pursuant to his employment
agreement, Mr. Lauder (or his wife, estate or designee) also will be paid
approximately $1.8 million per year, assuming he retires at the end of his
contract term. Payments under such arrangement will commence upon the earliest
to occur of his retirement, his death or his 70th birthday and will continue for
ten years thereafter.
Mr. Langhammer currently has 21 years of qualifying Company employment.
Assuming that he retires at normal retirement age with 34 years of qualifying
Company employment, his projected annual retirement benefit would be
approximately $1.4 million payable during his lifetime.
Mr. Brestle currently has 18 years of qualifying Company employment.
Assuming that he retires at normal retirement age with 32 years of qualifying
Company employment, his projected annual retirement benefit would be
approximately $401,000 payable during his lifetime.
Ms. Burns currently has 6 years of qualifying Company employment. Assuming
that she retires at normal retirement age with 27 years of qualifying Company
employment, her projected retirement benefit would be a single sum amount of
approximately $3,756,000.
Mr. Magram currently has 27 years of qualifying Company employment.
Assuming that he retires at the end of his current contract term at age 67 with
28 years of qualifying Company employment, his projected initial annual
retirement benefit would be approximately $794,000 payable during his lifetime.
Mrs. Wagner currently has 21 years of qualifying Company employment.
Assuming that she retires at the end of her contractual period at age 68 she
will have 23 years of qualifying Company employment and her projected annual
retirement income would be approximately $532,000 payable during her lifetime.
Employment Agreements. Set forth below are descriptions of the Company's
employment agreements with Leonard A. Lauder, Ronald S. Lauder, Fred H.
Langhammer, Robin R. Burns, Daniel J. Brestle, Saul H. Magram, and Jeanette S.
Wagner.
Leonard A. Lauder. Mr. Lauder's employment agreement provides for his
employment as Chief Executive Officer and Chairman of the Board of the Company
through June 30, 2000, unless earlier terminated. The agreement provides for a
base salary of $1.6 million for fiscal 1996, which will be increased by $80,000
each successive fiscal year during the term of the agreement. Mr. Lauder is
entitled to participate in standard benefit plans, such as the Company's pension
and medical plans, and has a supplemental pension arrangement discussed above.
Mr. Lauder's annual bonus under the Annual Incentive Plan is determined
according to a formula, which provides Mr. Lauder a bonus equal to a percentage
of the amount by which the Company's net earnings exceed 3.5% of net sales (or
4.0% of net sales in fiscal 1999 and 2000). Mr. Lauder received an initial grant
of stock options in respect of 600,000 shares of Class A Common Stock, each with
an exercise price equal to $26.00 per share (i.e., the initial public offering
price per share). The initial stock options are exercisable in three equal
annual installments beginning on January 1, 1999. In addition, he received a
grant of stock options in respect of 500,000 shares of Class A Common Stock on
July 1, 1996 (with an exercise price of $42.75 per share) and will receive
additional grants of stock options in respect of 500,000 shares of Class A
Common Stock on July 1 of each year from 1997 to and including 1999. All such
options are subject to similar terms and conditions as those applicable to stock
options granted under the Share Incentive Plan. Mr. Lauder may elect to defer
certain of his cash compensation. The Company may terminate Mr. Lauder's
employment at any time if he becomes "permanently disabled", in which event Mr.
Lauder will be entitled to (i) receive his base salary for a period of two years
after termination, (ii) receive bonus compensation at an annual rate equal to
the average of the actual bonuses paid to him prior to such termination or, if
no bonuses have been paid, his base salary (the "Leonard Lauder Bonus
Compensation") and (iii) participate in the Company's benefit plans for two
years. In the event of Mr. Lauder's death during the term of his employment, for
a period of one-year from the date of Mr. Lauder's death, his beneficiary or
legal
19
<PAGE> 23
representative will be entitled to receive his base salary and the Leonard
Lauder Bonus Compensation. Mr. Lauder may terminate his employment at any time
upon six months' written notice to the Company, in which event Mr. Lauder will
be entitled to receive his base salary and the Leonard Lauder Bonus Compensation
for the six-month period following termination. In addition, the Company may
terminate Mr. Lauder's employment for any reason upon 60 days written notice. In
the event of termination by the Company (other than for "cause"), (a) Mr.
Lauder, for a period of three years from the date of termination, will be
entitled to (i) receive his base salary in effect at the time of termination,
(ii) receive the Leonard Lauder Bonus Compensation and (iii) participate in the
Company's benefit plans and (b) Mr. Lauder will not be subject to a covenant not
to compete set forth in the employment agreement.
Ronald S. Lauder. Mr. Lauder's employment agreement provides for his
employment as Chairman of the Board of Clinique Laboratories, Inc. and Estee
Lauder International, Inc. through June 30, 2000, unless earlier terminated. The
agreement provides for an annual base salary of $400,000. Mr. Lauder is entitled
to participate in standard benefit plans, such as the Company's pension and
medical plans. At the time of the initial public offering, Mr. Lauder received
approximately $4.8 million in settlement of a supplemental pension account. Mr.
Lauder received an initial grant of stock options in respect of 150,000 shares
of Class A Common Stock, each with an exercise price equal to $26.00 per share.
These stock options are exercisable in three equal annual installments beginning
on January 1, 1999. In addition, he received a grant of stock options in respect
of 125,000 shares of Class A Common Stock on July 1, 1996 (with an exercise
price of $42.75 per share) and will receive additional grants of stock options
in respect of 125,000 share of Class A Common Stock on July 1 of each year from
1997 to and including 1999. All such options are subject to similar terms and
conditions as those applicable to stock options granted under the Share
Incentive Plan. The Company may terminate Mr. Lauder's employment at any time if
he becomes "permanently disabled", in which event Mr. Lauder, for a period of
two years after termination, will be entitled to (i) receive his base salary and
(ii) participate in the Company's benefit plans. In the event of Mr. Lauder's
death, his beneficiary or legal representative is entitled to receive his base
salary for a period of one year. Mr. Lauder may terminate his employment at any
time upon six months written notice to the Company, in which event Mr. Lauder
will be entitled to receive his base salary for the six-month period following
termination. In addition, the Company may terminate Mr. Lauder's employment for
any reason upon 60 days written notice. In the event of termination by the
Company (other than for "cause"), (a) Mr. Lauder, for a period of three years
from the date of termination, will be entitled to (i) receive his base salary
and (ii) participate in the Company's benefit plans and (b) Mr. Lauder will not
be subject to a covenant not to compete set forth in the employment agreement.
Fred H. Langhammer. Mr. Langhammer's employment agreement provides for his
employment as President and Chief Operating Officer of the Company through June
30, 2000, unless earlier terminated. The agreement provides for a base salary of
$1.5 million for fiscal 1996, which will be increased by $75,000 each successive
fiscal year during the term of the agreement. Mr. Langhammer is entitled to
participate in standard benefit plans, such as the Company's pension and medical
plans. Mr. Langhammer is entitled to additional pension payments under a
supplemental understanding with the Company. See "Pension Plans" above. Mr.
Langhammer's annual bonus under the Annual Incentive Plan will be limited to
100% of his base salary in any fiscal year. Mr. Langhammer may elect to defer
certain of his cash compensation. At the time of the initial public offering,
Mr. Langhammer converted a portion of his deferred compensation balance to stock
units payable in cash. These units are accompanied by dividend equivalents
payable in additional stock units. All such units will be paid to Mr. Langhammer
in cash at a time to be determined by the Company, but no later than ninety days
after termination of his employment. Mr. Langhammer received an initial grant of
stock options in respect of 500,000 shares of Class A Common Stock, each with an
exercise price equal to $26.00 per share. These stock options are exercisable in
three equal annual installments beginning on January 1, 1999. In addition, he
received a grant of stock options in respect of 200,000 shares of Class A Common
Stock on July 1, 1996 (with an exercise price of $42.75 per share) and will
receive additional grants of stock options in respect of 200,000 shares of Class
A Common Stock on July 1 of each year from 1997 to and including 1999. All such
options are subject to similar terms and conditions as those applicable to stock
options granted under the Share Incentive Plan. In November 1995, Mr. Langhammer
also received 57,692 stock units,
20
<PAGE> 24
which amount is equal to $1.5 million divided by the initial public offering
price per share. In addition, on July 1, 1996, Mr. Langhammer received
additional stock units in respect of 37,920 shares and on July 1 of each year
from 1997 to and including 1999, Mr. Langhammer will receive additional stock
units in respect of that number of shares, not to exceed 100,000, equal to $1.5
million divided by the average closing price of the Class A Common Stock for the
twenty trading days prior to the award date. An amount equal to the excess, if
any, of $1.5 million over the value of 100,000 shares of Class A Common Stock
will be mandatorily deferred and paid to Mr. Langhammer on a date chosen by the
Company, but no later than ninety days after the termination of his employment.
The stock units awarded to Mr. Langhammer are accompanied by dividend
equivalents which are payable in additional stock units. Stock units awarded in
any fiscal year may be forfeited under certain circumstances if Mr. Langhammer
is terminated during such year. Stock units will be paid out in shares of Class
A Common Stock at a time to be determined by the Company, but in no event later
than ninety days after the termination of Mr. Langhammer's employment. The
Company may terminate Mr. Langhammer's employment at any time if he becomes
"permanently disabled", in which event Mr. Langhammer, for a period of one year
from the date of termination, will be entitled to (i) receive his base salary in
effect at the time of termination (the "Langhammer Base Salary"), (ii) receive
bonus compensation equal to the average of the actual bonuses paid to him prior
to such termination (the "Langhammer Bonus Compensation") and (iii) participate
in the Company's benefit plans. In the event of Mr. Langhammer's death during
the term of his employment, his beneficiary or legal representative will be
entitled to receive for a period of one year from the date of death the
Langhammer Base Salary and the Langhammer Bonus Compensation. Mr. Langhammer may
terminate his employment agreement at any time upon six months written notice to
the Company, in which event Mr. Langhammer will be entitled to receive the
Langhammer Base Salary and the Langhammer Bonus Compensation for a period of six
months from the date of termination. In addition, the Company may terminate the
employment agreement for any reason upon 60 days' written notice. In the event
of the Company's termination of the agreement (other than for "cause") or if Mr.
Langhammer terminates the agreement as a result of the Company's material breach
thereof, which would include a material reduction in Mr. Langhammer's duties or
responsibilities, (a) Mr. Langhammer, for a period of two years from the date of
termination, will be entitled to (i) receive the Langhammer Base Salary, (ii)
receive the Langhammer Bonus Compensation and (iii) participate in the Company's
benefit plans and (b) Mr. Langhammer will not be subject to a covenant not to
compete provided for in such agreement. In the event the Company does not offer
to extend the term of Mr. Langhammer's employment, Mr. Langhammer will be
entitled for a period of one year from expiration of his employment agreement to
(i) receive the Langhammer Base Salary, (ii) receive the Langhammer Bonus
Compensation and (iii) participate in the Company's benefit plans.
Daniel J. Brestle. Mr. Brestle's employment agreement provides for his
employment as President of Clinique Laboratories, Inc. through June 30, 1998,
unless earlier terminated. The agreement provides for a base salary of $750,000
for fiscal 1996, which will be increased by $50,000 each successive fiscal year
during the term of the agreement. Mr. Brestle is entitled to participate in
standard benefit plans, such as the Company's pension and medical plans. Mr.
Brestle's annual bonus under the Annual Incentive Plan will be limited to 100%
of his base salary in any fiscal year. However, Mr. Brestle's base salary and
bonus compensation will in no event be less than $1 million for fiscal 1996,
$1.1 million for fiscal 1997 and $1.2 million for fiscal 1998. Mr. Brestle may
elect to defer certain of his cash compensation. Mr. Brestle received an initial
grant of stock options in respect of 100,000 shares of Class A Common Stock,
each with an exercise price equal to $26.00 per share. These stock options are
exercisable in three equal annual installments beginning on January 1, 1999. In
addition, he received a grant of stock options in respect of 50,000 shares of
Class A Common Stock on July 1, 1996 (with an exercise price of $42.75 per
share) and will receive an additional grant of stock options in respect of
50,000 shares of Class A Common Stock on July 1, 1997. All such options are
subject to similar terms and conditions as those applicable to stock options
granted under the Share Incentive Plan. The Company may terminate Mr. Brestle's
employment at any time if he becomes "permanently disabled", in which event Mr.
Brestle will be entitled to (i) receive for a period of one year from the date
of termination his base salary in effect at the time of termination, (ii)
receive bonus compensation prorated to the date of termination
21
<PAGE> 25
and (iii) participate in the Company's benefit plans for such one year period.
In the event of Mr. Brestle's death during the term of his employment, his
beneficiary or legal representative will be entitled to (i) receive his base
salary in effect at the time of death to the last day of the month in which his
death occurs and (ii) receive bonus compensation prorated to the date of death.
Mr. Brestle may terminate his employment agreement at any time upon six months
written notice to the Company, in which event Mr. Brestle, for a period of six
months from the date of termination, will be entitled to receive, (i) his base
salary in effect at the time of termination and (ii) bonus compensation equal to
25% of the average of incentive compensation bonuses previously paid or payable
to him during the contract term or, if no such bonuses have been paid or are
payable as of the date of termination, 25% of the base salary paid during such
six month period. In addition, the Company may terminate his employment
agreement for any reason upon 60 days' written notice. In the event of the
Company's termination of the agreement (other than for "cause"), Mr. Brestle,
for a period of one year from the date of termination, will be entitled to (i)
receive his base salary in effect at the time of termination, (ii) receive bonus
compensation equal to 50% of the average of incentive compensation bonuses
previously paid or payable to him during the contract term or, if no such
bonuses have been paid or are payable as of the date of termination, 50% of the
base salary paid during such one year period and (iii) participate in the
Company's benefit plans. If Mr. Brestle terminates the agreement as a result of
the Company's material breach thereof, which would include a material reduction
in his duties or responsibilities, he will receive the same benefits as if he
had terminated his employment agreement and will not be subject to a covenant
not to compete provided for in such agreement.
Robin R. Burns. Ms. Burns' employment agreement provides for her employment
as President and Chief Executive Officer of Estee Lauder (USA and Canada)
through June 30, 1998, unless earlier terminated. The agreement provides for a
base salary of $850,000 for fiscal 1996, which will be increased by $50,000 each
successive fiscal year during the term of the agreement. Ms. Burns is entitled
to participate in standard benefit plans, such as the Company's pension and
medical plans and receives executive perquisites of $73,700 annually. Ms. Burns'
annual bonus under the Annual Incentive Plan will be limited to 100% of her base
salary in any fiscal year. However, Ms. Burns' base salary and bonus
compensation will in no event be less than $1.2 million for fiscal 1996, $1.3
million for fiscal 1997 and $1.4 million for fiscal 1998 (the "Burns Annual
Compensation"). Ms. Burns may elect to defer certain of her cash compensation.
Ms. Burns received an initial grant of stock options in respect of 100,000
shares of Class A Common Stock, each with an exercise price equal to $26.00 per
share. These stock options are exercisable in three equal annual installments
beginning on January 1, 1999. In addition, she received a grant of stock options
in respect of 50,000 shares of Class A Common Stock on July 1, 1996 (with an
exercise price of $42.75 per share) and will receive an additional grant of
stock options in respect of 50,000 shares of Class A Common Stock on July 1,
1997. All such options are subject to similar terms and conditions as those
applicable to stock options granted under the Share Incentive Plan. The Company
may terminate Ms. Burns' employment at any time if she becomes "permanently
disabled", in which event Ms. Burns, for a period of one year from the date of
termination, will be entitled (i) to receive the Burns Annual Compensation and
(ii) to participate in the Company's benefit plans. In the event of Ms. Burns'
death during the term of employment, her beneficiary or legal representative
will be entitled to receive the Burns Annual Compensation to the last day of the
month in which her death occurs. Ms. Burns may terminate her employment
agreement at any time upon six months' written notice to the Company, in which
event Ms. Burns, for a period of six months from the date of termination, will
be entitled to receive (i) her base salary at the rate in effect at the time of
such termination and (ii) bonus compensation equal to 25% of the base salary
paid for such six month period. In addition, the Company may terminate the
employment agreement for any reason upon 60 days written notice. In the event of
the Company's termination of the agreement (other than for "cause") or if Ms.
Burns terminates the agreement as a result of the Company's material breach
thereof, which would include a material reduction in Ms. Burns' duties or
responsibilities or the appointment of any person other than Leonard A. Lauder
or Fred H. Langhammer as the Chief Executive Officer of the Company, (a) Ms.
Burns, for a period of one year from the date of termination, will be entitled
to (i) receive her base salary in effect at the time of termination, (ii)
receive bonus compensation equal to 50% of the base salary paid during such one
year period,
22
<PAGE> 26
(iii) receive bonus compensation in respect of the contract year in which such
termination occurs equal to her base salary paid for such contract year and (iv)
participate in the Company's benefit plans and (b) Ms. Burns will not be subject
to a covenant not to compete provided for in such agreement.
Saul H. Magram. Mr. Magram's employment agreement provides for his
employment as Senior Vice President, General Counsel and Secretary of the
Company through December 31, 1998, unless earlier terminated. The agreement
provides for a base salary of $926,100 and mandatory deferred salary of $173,645
for the 1995 calendar year, and an annual bonus of $472,500 (which represented
the target bonus opportunity) for the 1995 fiscal year. Mr. Magram's base salary
and mandatory deferred salary is increased by approximately 5% each successive
calendar year during the term of the agreement. Mr. Magram's target bonus
opportunity during the term of his employment agreement increases by
approximately 5% each successive fiscal year. Mr. Magram's mandatory deferred
salary is credited with interest at an annual rate not to exceed 9% and is
payable on an annuity basis from the first January 1 after termination of Mr.
Magram's employment through the remainder of his life. Mr. Magram is entitled to
participate in standard benefit plans, such as the Company's pension and medical
plans. Mr. Magram is also entitled to receive a supplemental pension benefit,
which is described above. Mr. Magram may elect to defer certain of his annual
bonus. The Company may terminate Mr. Magram's employment at any time if he
becomes "disabled" or engages in conduct that constitutes "cause". Mr. Magram
may terminate the employment agreement upon six months' written notice to the
Company. If the Company terminates the employment agreement without "cause"
then, for the remaining term of the employment agreement, Mr. Magram will be
entitled to (i) his base salary, (ii) his mandatory deferred compensation and
(iii) bonus compensation at an annual rate equal to the average of actual bonus
paid to him in the three fiscal years immediately prior to such termination. In
addition, upon such termination, Mr. Magram shall be entitled to receive for a
period of approximately two years from the date of such termination his base
salary (including the mandatory deferred amount) provided that he complies with
certain confidentiality and non-competition covenants during such period.
Jeanette S. Wagner. Mrs. Wagner's employment agreement provides for her
employment as President of Estee Lauder International, Inc. through June 30,
1998, unless earlier terminated. The agreement provides for a base salary of
$850,000 for fiscal 1996, which will be increased by $50,000 each successive
fiscal year during the term of the agreement. Mrs. Wagner is entitled to
participate in standard benefit plans, such as the Company's pension and medical
plans. Mrs. Wagner's annual bonus under the Annual Incentive Plan will be
limited to 100% of her base salary in any fiscal year. However, Mrs. Wagner's
base salary and bonus compensation will in no event be less than $1.2 million
for fiscal 1996, $1.3 million for fiscal 1997 and $1.4 million for fiscal 1998.
Mrs. Wagner may elect to defer certain of her cash compensation. Mrs. Wagner
received an initial grant of stock options in respect of 125,000 shares of Class
A Common Stock, each with an exercise price equal to $26.00 per share. The
initial stock options are exercisable in three equal annual installments
beginning on January 1, 1999. In addition, she received a grant of stock options
in respect of 62,500 shares of Class A Common Stock on July 1, 1996, (with an
exercise price of $42.75 per share) and will receive an additional grant of
stock options in respect of 62,500 shares of Class A Common Stock on July 1,
1997. All such options are subject to similar terms and conditions as those
applicable to stock options granted under the Share Incentive Plan. The Company
may terminate Mrs. Wagner's employment at any time if she becomes "permanently
disabled", in which event Mrs. Wagner will be entitled to (i) receive for a
period of one year from the date of termination her base salary in effect at the
time of termination (ii) receive bonus compensation prorated to the date of
termination and (iii) participate in the Company's benefit plans for such one
year period. In the event of Mrs. Wagner's death during the term of her
employment, her beneficiary or legal representative will be entitled to (i)
receive her base salary in effect at the time of death to the last day of the
month in which her death occurs and (ii) receive bonus compensation prorated to
the date of death. Mrs. Wagner may terminate the employment agreement at any
time upon six months written notice to the Company, in which event Mrs. Wagner,
for a period of six months from the date of termination, will be entitled to
receive (i) her base salary in effect at the time of termination and (ii) bonus
compensation equal to 25% of the average of incentive compensation bonuses
previously paid or payable to her during the contract term or, if no such
bonuses have been paid or are payable as of the
23
<PAGE> 27
date of termination, 25% of the base salary paid during such six month period.
In addition, the Company may terminate her employment agreement for any reason
upon 60 days' written notice. In the event of the Company's termination of the
agreement (other than for "cause"), Mrs. Wagner, for a period of one year from
the date of termination, will be entitled to (i) receive her base salary in
effect at the time of termination, (ii) receive bonus compensation equal to 50%
of the average of incentive compensation bonuses previously paid or payable to
her during the contract term or, if no such bonuses have been paid or are
payable as of the date of termination, 50% of the base salary paid during such
one year period and (iii) participate in the Company's benefit plans. If Mrs.
Wagner terminates the agreement as a result of the Company's material breach
thereof, which would include a material reduction in her duties or
responsibilities, she will receive the same benefits as if she had terminated
her employment agreement and will not be subject to a covenant not to compete
provided for in such agreement.
Each employment agreement described above (other than the one with Ronald
S. Lauder) also provides that the Company may require the executive to defer
certain amounts to be received by him or her to the extent such amounts may not
be deductible by reason of Section 162(m) of the Code. Each agreement provides
that the Company may reduce severance payments to be received by the executive
to an amount that would avoid imposition of the excise tax imposed by Section
4999 of the Code on certain types of severance payments. Each agreement also
contains certain confidentiality and non-competition provisions.
COMPENSATION COMMITTEE REPORT
In connection with the public offering, the directors and stockholders of
the Company at the time, all of whom were members of the Lauder family,
determined that it was appropriate to establish a Compensation Committee of the
Board consisting entirely of non-employee directors. Nevertheless, due to the
mid-November date of the initial public offering, the desire to present
prospective stockholders with information regarding executive compensation and
the election of non-employee directors approximately two months after the
offering, the compensation, including salary, bonus goals and option grants were
set by the Board of Directors prior to the offering.
In setting compensation levels for the most senior executive officers, the
Board authorized, and the stockholders (at the time) approved, employment
agreements with such executives. The agreements are summarized in this Proxy
Statement. They provide, among other things, base salary levels and annual stock
option grants. They also include bonus provisions and in the case of Leonard A.
Lauder, the Chief Executive Officer, the formula for determining his bonus. The
Board also authorized (a) the Share Incentive Plan (which was also approved by
the stockholders at the time) and stock option grants to approximately 250
employees, including the executive officers not provided for by contract, and
(b) the Annual Incentive Plan, which codified the bonus policy the Company had
been using for years. As a result, this report of the Compensation Committee
reflects the decisions made by the Board of Directors that relate to
compensation reported for the last fiscal year.
As a private company, the Lauder family was able to devise a compensation
program that could attract high-quality executives, retain them, motivate them
to achieve Company, divisional and individual goals and reward them for success.
Given the family's long-term outlook and the Company's record, and after review
by two compensation consultants, this program was left essentially in place,
other than the initial introduction of stock-based elements.
Salary and Bonuses
Salary levels for executives reflect historical levels (including normal
increases thereto) and for many executives reflect their long tenures with the
Company. Bonuses are provided for by the Annual Incentive Plan, which is
described in more detail above. For fiscal 1996, bonuses paid to executives
reflect the record level of net earnings achieved by the Company and the
attainment of individual performance goals by the executive officers. For
officers in charge of sales divisions, bonuses are based primarily on
24
<PAGE> 28
performance at the division level. For other officers, bonuses are based
primarily on the Company's overall results.
In setting goals for executive officers in fiscal 1997, the Compensation
Committee has determined to base a significant portion of the bonus for
executive officers in charge of corporate departments on the net earnings of the
Company. For executive officers in charge of Sales Divisions, such as Mr.
Brestle, Ms. Burns and Mrs. Wagner, bonuses will be based primarily on
divisional results.
In the case of Mr. Langhammer, a significant portion of the compensation he
formerly received annually was converted into restricted stock units. These
units are equivalent to shares of Class A Common Stock and reflect a significant
alignment of Mr. Langhammer's interests with those of the stockholders.
Stock Options
Individual stock option awards, whether made pursuant to employment
agreements or under the Share Incentive Plan, were based on the executive's
position in the Company and his or her individual contributions as determined by
the Board of Directors. The Compensation Committee anticipates that the size of
future individual awards will continue to reflect each executive's position and
expected contribution. The size of the initial awards reflected, in part, the
first opportunity by certain executives to participate directly in the equity of
the Company.
Compensation of the Chief Executive Officer
Mr. Lauder's compensation reflects the performance of the Company in fiscal
1996. It also reflects his standing in the industry, his long-term commitment to
the success of the Company and his involvement in the initial public offering.
Mr. Lauder's bonus reflects the operation of his bonus formula, consisting
solely of objective elements, principally net earnings. His option grant
reflects the same principles as those described for executive officers
generally.
The Company is aware of the limitations on deductibility of certain
compensation paid to the Covered Officers contained in Section 162(m) of the
Internal Revenue Code. The Company's compensation program as it applies to its
most highly paid executives was designed to take advantage of regulations
applicable to newly public companies. Furthermore, each employment agreement
with the named executive officers provides that amounts payable pursuant thereto
may be deferred to the extent such amounts would not be deductible.
Nevertheless, the Compensation Committee will maintain discretion to authorize
payments that do not qualify for an exception to the deduction limitation.
Members of the Compensation Committee
P. Roy Vagelos, M.D. (Chairman)
Marshall Rose
25
<PAGE> 29
PERFORMANCE GRAPH
The following graph compares the cumulative total stockholder return (stock
price appreciation plus dividends) on the Company's Class A Common Stock with
the cumulative total return of the S&P 500 Index and a market weighted index of
publicly traded peers for the period from November 16, 1995 (the date the Class
A Common Stock was priced in connection with the Company's initial public
offering) through June 30, 1996. The returns are calculated by assuming an
investment in the Class A Common Stock and each index of $100 on November 16,
1995. The publicly traded companies in the peer group are: Avon Products, Inc.,
Clarins, L'Oreal S.A., LVMH Moet Hennessy Louis Vuitton, The Procter & Gamble
Company, Elf Sanofi S.A., Shiseido Company, Ltd. and Unilever N.V. Shares of
Clarins, L'Oreal S.A. and Elf Sanofi S.A. are not traded in U.S. dollars. For
purposes hereof, the stock prices of such companies were converted into dollars
on the measurement dates.
<TABLE>
<CAPTION>
Measurement Period S&P 500 In- Peer Group
(Fiscal Year Covered) Company dex Index
<S> <C> <C> <C>
11/16/95 100 100 100
12/31/95 134.13 103.30 101.16
3/31/96 137.83 108.84 108.27
6/30/96 163.21 113.73 114.33
</TABLE>
<TABLE>
<CAPTION>
VALUE ON
JUNE 30, 1996
-------------
<S> <C>
The Estee Lauder Companies Inc................................. $163.21
S&P 500 Index.................................................. $113.73
Peer Group Index............................................... $114.33
</TABLE>
26
<PAGE> 30
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
(ITEM 2)
The Board of Directors of the Company, upon recommendation of the Audit
Committee, has appointed the firm of Arthur Andersen LLP to serve as independent
auditors of the Company for the fiscal year ending June 30, 1997, subject to
ratification of this appointment by the stockholders of the Company. Arthur
Andersen LLP has served as independent auditors of the Company for many years
and is considered by management of the Company to be well qualified. The Company
has been advised by that firm that neither it nor any member thereof have any
financial interest, direct or indirect, in the Company.
One or more representatives of Arthur Andersen LLP (a) will be present at
the 1996 Annual Meeting of Stockholders, (b) have an opportunity to make a
statement if he desires to do so and (c) be available to respond to appropriate
questions.
Ratification of the appointment of the independent auditors requires the
affirmative vote of a majority of the votes cast by the holders of the shares of
Class A Common Stock and Class B Common Stock of the Company voting in person or
by proxy at the 1996 Annual Meeting of Stockholders. If the stockholders do not
ratify the appointment of Arthur Andersen LLP, the Board of Directors will
reconsider the appointment.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS A VOTE FOR THE PROPOSAL TO
RATIFY THE APPOINTMENT OF ARTHUR ANDERSEN LLP AS INDEPENDENT AUDITORS OF THE
COMPANY FOR THE FISCAL YEAR ENDING JUNE 30, 1997. PROXIES RECEIVED BY THE BOARD
OF DIRECTORS WILL BE SO VOTED UNLESS STOCKHOLDERS SPECIFY IN THEIR PROXIES A
CONTRARY CHOICE.
PROXY PROCEDURE AND EXPENSES OF SOLICITATION
The Company will hold the votes of all stockholders in confidence from the
Company, its Directors, officers and employees except: (i) as necessary to meet
applicable legal requirements and to assert or defend claims for or against the
Company; (ii) in case of a contested proxy solicitation; (iii) in the event that
a stockholder makes a written comment on the proxy card or otherwise
communicates his/her vote to management; or (iv) to allow the independent
inspectors of election to certify the results of the vote. The Company will also
retain an independent tabulator to receive and tabulate the proxies and
independent inspectors of election to certify the results.
All expenses incurred in connection with the solicitation of proxies will
be borne by the Company. The Company will reimburse brokers, fiduciaries and
custodians for their costs in forwarding proxy materials to beneficial owners of
Common Stock held in their names.
Solicitation may be undertaken by mail, telephone and personal contact by
Directors, officers and employees of the Company without additional
compensation.
STOCKHOLDER PROPOSALS
Proposals of stockholders intended to be presented at the 1997 Annual
Meeting of Stockholders must be received by the Company on or before June 1,
1997, to be eligible for inclusion in the Company's Proxy Statement and proxy
relating to that meeting.
According to the Amended and Restated Bylaws of the Company, a proposal for
action to be presented by any stockholder at an annual or special meeting of
stockholders shall be out of order unless specifically described in the
Company's notice to all stockholders of the meeting and the matters to be acted
upon thereat or unless the proposal shall have been submitted in writing (in the
form specified in the Bylaws) to the Chairman of the Board of Directors and
received at the principal executive offices of the Company at least 60 days (and
no more than 90 days) prior to the first anniversary of the date of the last
annual meeting of stockholders, and such proposal is, under law, an appropriate
subject for action by
27
<PAGE> 31
stockholders. In addition to the notice requirement, the stockholder is required
to appear in person, or through a qualified representative, at the meeting to
present his or her proposal.
OTHER INFORMATION
Management of the Company does not know of any matters other than those
referred to in the accompanying Notice of Annual Meeting of Stockholders which
may properly come before the meeting or other matters incident to the conduct of
the meeting. As to any other matter or proposal that may properly come before
the meeting, including voting for the election of any person as a Director in
place of a nominee named herein who becomes unable to serve or for good cause
will not serve and voting on a proposal omitted from this Proxy Statement
pursuant to the rules of the Securities and Exchange Commission, it is intended
that proxies received will be voted in accordance with the discretion of the
proxy holders.
The form of proxy and the Proxy Statement have been approved by the Board
of Directors and are being mailed and delivered to stockholders by its
authority.
Saul H. Magram
Secretary
New York, New York
September 30, 1996
---------------------------------------
THE ANNUAL REPORT TO STOCKHOLDERS OF THE COMPANY FOR THE FISCAL YEAR ENDED
JUNE 30, 1996, WHICH INCLUDES FINANCIAL STATEMENTS, HAS BEEN MAILED TO
STOCKHOLDERS OF THE COMPANY. THE ANNUAL REPORT DOES NOT FORM ANY PART OF THE
MATERIAL FOR THE SOLICITATIONS OF PROXIES.
---------------------------------------
28
<PAGE> 32
LOGO
LOGO
<PAGE> 33
THE ESTEE LAUDER COMPANIES INC.
CLASS A COMMON STOCK
PROXY
ANNUAL MEETING OF STOCKHOLDERS
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
The undersigned, revoking all previous proxies, hereby constitutes and
appoints Fred H. Langhammer, Robert J. Bigler and Saul H. Magram, and each of
them, proxies with full power of substitution to vote for the undersigned all
shares of Class A Common Stock of The Estee Lauder Companies Inc. which the
undersigned would be entitled to vote if personally present at the Annual
Meeting of the Stockholders to be held on November 6, 1996, at The St. Regis
Hotel, 20th Floor Penthouse, 2 E. 55th Street, New York, New York, at 10:00 a.m.
(local time), and at any adjournment thereof, upon the matters described in the
accompanying Proxy Statement and upon any other business that may properly come
before the meeting or any adjournment thereof. Said proxies are directed to vote
or refrain from voting as checked on the reverse side upon the matters listed on
the reverse side, and otherwise in their discretion.
THIS PROXY IS CONTINUED ON THE REVERSE SIDE.
PLEASE SIGN ON THE REVERSE SIDE AND RETURN PROMPTLY.
FOLD AND DETACH HERE
<PAGE> 34
Please mark [X]
your votes as
indicated in
this example.
Item 1-Election of two (2) Class I Directors, two (2) Class II Directors and
three (3) Class III Directors
FOR ALL WITHHOLD Nominees for Class I:
NOMINEES AUTHORITY Fred H. Langhammer and Faye Wattleton
with exceptions FOR ALL Nominees for Class II:
noted NOMINEES William P. Lauder and P. Roy Vagelos, M.D.
Nominees for Class III:
[ ] [ ] Leonard A. Lauder, Ronald S. Lauder and
Marshall Rose
Withheld for the following only:
(Write the name(s) of the Nominee(s)
in the space below)
_________________________________________
Item 2-Ratification of THIS PROXY WHEN PROPERLY EXECUTED, WILL BE
appointment of Arthur VOTED AS DIRECTED HEREIN. IF NO DIRECTION
Andersen LLP as IS GIVEN, THIS PROXY WILL BE VOTED FOR
independent auditors MANAGEMENT'S NOMINEES FOR DIRECTOR
for the 1997 fiscal year. ABOVE IN ACCORDANCE WITH RECOMMENDATIONS
OF THE COMPANY'S BOARD OF DIRECTORS
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
- -------------------------------------------------------------------------------
Please mark, date and sign exactly as your name appears hereon and return in
the enclosed envelope. If acting as executor, administrator, trustee, guardian,
etc., you should so indicate when signing. If the signer is a corporation,
please sign the full corporate name, by duly authorized officer. If shares are
held jointly, each stockholder named should sign.
DATED:__________________________________________, 1996
______________________________________________________
SIGNATURE(S) OF STOCKHOLDER(S)
______________________________________________________
SIGNATURE(S) OF JOINT STOCKHOLDER(S)
______________________________________________________
TITLE
I plan to attend the Annual Meeting. [ ]
________________________________________________________________________________
FOLD AND DETACH HERE
NOTICE: IF YOU PLAN ON ATTENDING THE 1996 ANNUAL MEETING,
PLEASE CHECK THE BOX ON THE PROXY CARD ABOVE.
AN ADMISSION TICKET WILL BE MAILED TO YOU.
NO ADMISSION WILL BE GRANTED WITHOUT AN ADMISSION TICKET.
[ESTEE LAUDER COMPANIES LOGO]
The Estee Lauder Companies Inc.
Annual Meeting Of Stockholders
November 6, 1996, 10:00 a.m. (local time)
The St. Regis Hotel
20th Floor Penthouse
2 E. 55th Street
New York, New York
<PAGE> 35
THE ESTEE LAUDER COMPANIES INC.
CLASS B COMMON STOCK
PROXY
ANNUAL MEETING OF STOCKHOLDERS
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
The undersigned, revoking all previous proxies, hereby constitutes and
appoints Fred H. Langhammer, Robert J. Bigler and Saul H. Magram, and each of
them, proxies with full power of substitution to vote for the undersigned all
shares of Class B Common Stock of The Estee Lauder Companies Inc. which the
undersigned would be entitled to vote if personally present at the Annual
Meeting of the Stockholders to be held on November 6, 1996, at The St. Regis
Hotel, 20th Floor Penthouse, 2 E. 55th Street, New York, New York, at 10:00 a.m.
(local time), and at any adjournment thereof, upon the matters described in the
accompanying Proxy Statement and upon any other business that may properly come
before the meeting or any adjournment thereof. Said proxies are directed to vote
or refrain from voting as checked on the reverse side upon the matters listed on
the reverse side, and otherwise in their discretion.
THIS PROXY IS CONTINUED ON THE REVERSE SIDE.
PLEASE SIGN ON THE REVERSE SIDE AND RETURN PROMPTLY.
FOLD AND DETACH HERE
<PAGE> 36
Please mark [X]
your votes as
indicated in
this example.
Item 1-Election of two (2) Class I Directors, two (2) Class II Directors and
three (3) Class III Directors
FOR ALL WITHHOLD Nominees for Class I:
NOMINEES AUTHORITY Fred H. Langhammer and Faye Wattleton
with exceptions FOR ALL Nominees for Class II:
noted NOMINEES William P. Lauder and P. Roy Vagelos, M.D.
Nominees for Class III:
[ ] [ ] Leonard A. Lauder, Ronald S. Lauder and
Marshall Rose
Withheld for the following only:
(Write the name(s) of the Nominee(s)
in the space below)
_________________________________________
Item 2-Ratification of THIS PROXY WHEN PROPERLY EXECUTED, WILL BE
appointment of Arthur VOTED AS DIRECTED HEREIN. IF NO DIRECTION
Andersen LLP as IS GIVEN, THIS PROXY WILL BE VOTED FOR
independent auditors MANAGEMENT'S NOMINEES FOR DIRECTOR
for the 1997 fiscal year. ABOVE IN ACCORDANCE WITH RECOMMENDATIONS
OF THE COMPANY'S BOARD OF DIRECTORS
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
- -------------------------------------------------------------------------------
Please mark, date and sign exactly as your name appears hereon and return in
the enclosed envelope. If acting as executor, administrator, trustee, guardian,
etc., you should so indicate when signing. If the signer is a corporation,
please sign the full corporate name, by duly authorized officer. If shares are
held jointly, each stockholder named should sign.
DATED:__________________________________________, 1996
______________________________________________________
SIGNATURE(S) OF STOCKHOLDER(S)
______________________________________________________
SIGNATURE(S) OF JOINT STOCKHOLDER(S)
______________________________________________________
TITLE
I plan to attend the Annual Meeting. [ ]
________________________________________________________________________________
FOLD AND DETACH HERE
NOTICE: IF YOU PLAN ON ATTENDING THE 1996 ANNUAL MEETING,
PLEASE CHECK THE BOX ON THE PROXY CARD ABOVE.
AN ADMISSION TICKET WILL BE MAILED TO YOU.
NO ADMISSION WILL BE GRANTED WITHOUT AN ADMISSION TICKET.
[ESTEE LAUDER COMPANIES LOGO]
The Estee Lauder Companies Inc.
Annual Meeting Of Stockholders
November 6, 1996, 10:00 a.m. (local time)
The St. Regis Hotel
20th Floor Penthouse
2 E. 55th Street
New York, New York
