<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 19, 1999
REGISTRATION NO. 333-77977
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
THE ESTEE LAUDER COMPANIES INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 2844 11-2408943
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION) CLASSIFICATION NUMBER)
</TABLE>
------------------------
767 FIFTH AVENUE
NEW YORK, NEW YORK 10153
(212) 572-4200
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
SAUL H. MAGRAM, ESQ.
SENIOR VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY
THE ESTEE LAUDER COMPANIES INC.
767 FIFTH AVENUE
NEW YORK, NEW YORK 10153
(NAME AND ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
Please send copies of communications to:
<TABLE>
<S> <C>
JEFFREY J. WEINBERG, ESQ. JEAN E. HANSON, ESQ.
WEIL, GOTSHAL & MANGES LLP FRIED, FRANK, HARRIS, SHRIVER & JACOBSON
767 FIFTH AVENUE ONE NEW YORK PLAZA
NEW YORK, NEW YORK 10153 NEW YORK, NEW YORK 10004
(212) 310-8000 (212) 859-8000
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as practicable after the effective date of this Registration
Statement.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act"), other than securities offered only in
connection with dividend or interest reinvestment plans, check the following
box. / /
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / / _______________
If this form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier registration
statement for the same offering. / / _______________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED
TITLE OF EACH CLASS MAXIMUM AGGREGATE AMOUNT OF
OF SECURITIES TO BE REGISTERED OFFERING PRICE REGISTRATION FEE(1)
Class A Common Stock, par value $.01 per
share................................... $362,250,000 $100,705.50
<S> <C> <C>
</TABLE>
(1) Previously paid.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
The information in this preliminary prospectus is not complete and may be
changed. These securities may not be sold until the registration statement filed
with the Securities and Exchange Commission is effective. This preliminary
prospectus is not an offer to sell nor does it seek an offer to buy these
securities in any jurisdiction where the offer or sale is not permitted.
SUBJECT TO COMPLETION. DATED MAY 19, 1999.
3,301,000 Shares
THE ESTEE LAUDER COMPANIES INC.
Class A Common Stock
------------------------
This prospectus relates to an offering of 3,301,000 shares of Class A
Common Stock. The selling stockholders identified in this prospectus are
offering all of the shares to be sold in the offering. The Estee Lauder
Companies Inc. will not receive any of the proceeds from the offering.
Our Class A Common Stock and Class B Common Stock vote as a single class on
all matters, except as otherwise required by law, with each share of Class A
Common Stock entitling its holder to one vote and each share of Class B Common
Stock entitling its holder to ten votes. After completion of the offering,
members of the Lauder family will own shares of Class A Common Stock and
Class B Common Stock having 93.5% of the outstanding voting power of the Common
Stock.
On April 26, 1999, the Board of Directors of The Estee Lauder Companies
Inc. approved a two-for-one stock split in the form of a 100% stock dividend on
all of the issued and outstanding Class A Common Stock and Class B Common Stock.
The stock dividend is payable on June 2, 1999 to all holders of record of shares
of our Common Stock at the close of business on May 10, 1999. Purchasers of
shares of Class A Common Stock being offered by this prospectus who hold such
shares on June 2, 1999 will receive the stock dividend payable with respect to
such shares. Unless otherwise indicated, the information included in this
prospectus, including share ownership data, does not reflect the stock split.
The Class A Common Stock is listed on the New York Stock Exchange under the
symbol "EL". The last reported sale price of the Class A Common Stock on May 18,
1999 was $93 per share.
------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY
BODY HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
------------------------
<TABLE>
<CAPTION>
Per Share Total
--------- --------
<S> <C> <C>
Initial price to public....................................................... $ $
Underwriting discount......................................................... $ $
Proceeds, before expenses, to the selling stockholders........................ $ $
</TABLE>
The underwriters may under certain circumstances purchase up to an
additional 495,150 shares from the selling stockholders at the initial price to
the public less the underwriting discount. In the event the delivery of these
shares to the underwriters takes place after June 2, 1999, the number of shares
to be purchased and the price to the underwriters will be adjusted to reflect
the stock split.
------------------------
The underwriters expect to deliver the shares against payment in New York,
New York on , 1999
GOLDMAN, SACHS & CO.
<PAGE>
MERRILL LYNCH & CO.
J.P. MORGAN & CO.
------------------------
Prospectus dated May , 1999.
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
We are subject to the informational requirements of the Securities Exchange
Act of 1934 (the "Exchange Act"), and, accordingly, file reports, proxy
statements and other information with the Securities and Exchange Commission.
You may read and copy the reports, proxy statements and other information we
file with the Commission at its public reference facilities at Room 1024, 450
Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549. You may also obtain
information about us from the following regional offices of the Commission: 500
West Madison Street, Suite 1400, Chicago, Illinois 60661 and 7 World Trade
Center, 13th Floor, New York, New York 10048. Copies of these materials can be
obtained at prescribed rates. Our filings with the Commission are also available
on the Commission's home page on the Internet at http://www.sec.gov. Our
Class A Common Stock is listed on the New York Stock Exchange, and reports,
proxy statements and other information can be inspected at the offices of the
NYSE at 20 Broad Street, New York, New York 10005.
We have filed with the Commission a Registration Statement on Form S-3.
This prospectus, which is a part of the Registration Statement, omits certain
information contained in the Registration Statement. Statements made in this
prospectus as to the contents of any contract, agreement or other document are
not necessarily complete. With respect to each such contract, agreement or other
document filed as an exhibit to the Registration Statement, we refer you to such
exhibit for a more complete description of the matter involved, and each such
statement is deemed qualified in its entirety to such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Commission allows us to "incorporate by reference" the information we
file with the Commission. This permits us to disclose important information to
you by referencing these filed documents. We incorporate by reference in this
prospectus the following documents which have been filed with the Commission:
(i) our Annual Report on Form 10-K for the fiscal year ended June 30,
1998;
(ii) our Quarterly Reports on Form 10-Q for the fiscal quarters ended
September 30, 1998, December 31, 1998 and March 31, 1999; and
(iii) the description of the Class A Common Stock contained in our
registration statement, dated November 8, 1995, on Form 8-A.
We incorporate by reference all documents filed pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act after the date of this prospectus and
prior to the termination of this offering.
We will promptly provide without charge to you, upon written or oral
request, a copy of any or all of the documents incorporated by reference in this
prospectus, other than exhibits to such documents, unless such exhibits are
specifically incorporated by reference in such documents. Requests should be
directed to Investor Relations Department, The Estee Lauder Companies Inc., 767
Fifth Avenue, New York, NY 10153, telephone number (212) 572-4184.
------------------------
Unless otherwise indicated, (i) references to "we," "us" and "our" refer to
The Estee Lauder Companies Inc., a Delaware corporation, and its subsidiaries
and (ii) references to a fiscal year refer to our fiscal year which ends on June
30 of each year (and so, for example, our "fiscal 1998" refers to the year ended
June 30, 1998). Our Class A Common Stock, par value $.01 per share, and Class B
Common Stock, par value $.01 per share, are sometimes collectively referred to
in this prospectus as the "Common Stock."
2
<PAGE>
THE COMPANY
The Estee Lauder Companies Inc., founded in 1946 by Estee and Joseph
Lauder, is one of the world's leading manufacturers and marketers of quality
skin care, makeup, fragrance and hair care products. Our products are sold in
over 100 countries and territories under the following well-recognized brand
names: Estee Lauder, Clinique, Aramis, Prescriptives, Origins, MoAoC, Bobbi
Brown essentials, jane and Aveda. We are also the global licensee for fragrances
and cosmetics for the Tommy Hilfiger, Donna Karan New York and DKNY brands. Each
brand is distinctly positioned within the cosmetics market.
We are a pioneer in the cosmetics industry and believe we are a leader in
the industry due to the global recognition of our brand names, our leadership in
product innovation, our strong market position in key geographic markets and the
consistently high quality of our products. We sell our products principally
through limited distribution channels to complement the images associated with
our brands. These channels, encompassing over 9,000 points of sale, consist
primarily of upscale department stores, specialty retailers, upscale perfumeries
and pharmacies and, to a lesser extent, free-standing company stores, stores on
cruise ships, in-flight and duty free shops in airports and cities. We believe
that our strategy of pursuing limited distribution strengthens our relationships
with retailers, enables our brands to be among the best selling product lines at
the stores and heightens the aspirational quality of our brands. With the
acquisitions of jane and Aveda in fiscal 1998, we broadened our distribution to
include new channels, namely self-select outlets and salons. In fiscal 1999, we
began selling Clinique products directly to consumers over the internet.
PRODUCTS
SKIN CARE--Our broad range of skin care products address various skin care
needs for women and men. These products include moisturizers, creams, lotions,
cleansers, sun screens and self tanning products, a number of which are
developed for use on particular areas of the body, such as the face, the hands
or areas around the eyes. Skin care products accounted for approximately 34% and
35% of our net sales in the nine months ended March 31, 1999 and our fiscal
1998, respectively.
MAKEUP--We manufacture, market and sell a full array of makeup products
including lipsticks, mascaras, foundations, eyeshadows, nail polishes and
powders. Many of these products are offered in an extensive array of shades and
colors. We also sell related items such as compacts, brushes and other makeup
tools. Makeup products accounted for approximately 36% of our net sales in each
of the nine months ended March 31, 1999 and our fiscal 1998.
FRAGRANCE--We offer a variety of fragrance products for women and men. The
fragrances are sold in various forms, including eau de parfum sprays and
colognes. Fragrance also includes lotions, powders, creams and soaps that are
based on a particular fragrance. They also include bath and aromatherapy
products. Fragrance products accounted for approximately 28% and 27% of our net
sales in the nine months ended March 31, 1999 and our fiscal 1998, respectively.
HAIR CARE--We increased the range and depth of our hair care product
offerings with the acquisition of the Aveda business in December 1997. Hair care
products include shampoo, conditioner, styling gel and hairspray. Hair care
products accounted for approximately 2% of our net sales in each of the nine
months ended March 31, 1999 and our fiscal 1998.
Given the generally personal nature of our products and the wide array of
consumer preferences and tastes, as well as the competition for the attention of
the end consumer, our strategy has been to market and promote our products
through distinctive brands seeking to address broad preferences and tastes. Each
brand has a single global image that is promoted with consistent logos,
packaging and advertising designed to enhance its image and differentiate it
from other brands.
ESTEE LAUDER--Estee Lauder brand products, which have been sold since 1946,
are positioned as luxurious, classic and aspirational. We believe that Estee
Lauder brand products are technologically advanced and innovative and have a
worldwide reputation for excellence. This broad
3
<PAGE>
product line principally consists of skin care, makeup and fragrance products
which are presented in high quality packaging.
CLINIQUE--First introduced in 1968, Clinique skin care and makeup products
are all allergy tested and 100% fragrance free and have been designed to address
individual skin types and needs. The products are based on the research and
related expertise of leading dermatologists. Clinique skin care products are
marketed as part of the Three-Step System: Cleanse, Exfoliate, Moisturize.
ARAMIS--We pioneered the marketing of prestige men's grooming and skin care
products and fragrances with the introduction of Aramis products in 1964. Aramis
continues to offer one of the broadest lines of prestige men's products and has
extended the line to include fragrances for women.
PRESCRIPTIVES--We developed and introduced Prescriptives in 1979.
Prescriptives is positioned as a color authority with an advanced collection of
highly individualized products primarily addressing the makeup and skin care
needs of contemporary women with active lifestyles. The products are
characterized by simple concepts, minimalist design and an innovative image, and
through a system of color application and extensive range of makeup shades,
accommodate a diverse group of consumers.
ORIGINS--Origins, our most recent internally-developed brand, was
introduced in 1990. It is positioned as a plant-based cosmetics line of skin
care, makeup and aromatherapy products that combine time-tested botanical
ingredients with modern science to promote total well-being. Origins sells its
products through stand-alone Origins stores, stores-within-stores (which are
designed to replicate the Origins store environment within a department store)
and traditional retail counters.
TOMMY HILFIGER--We have an exclusive global license arrangement to develop
and market a line of men's and women's fragrances and cosmetics under the Tommy
Hilfiger brand. In 1995, we launched a men's fragrance, tommy, with cologne and
aftershave products, and in the fall of 1996, launched a women's fragrance,
tommy girl. In March 1998, we introduced the Hilfiger Athletics men's fragrance.
MOAOC--MoAoC products comprise a broad line of color-oriented, professional
cosmetics and professional makeup tools targeting makeup artists and
fashion-conscious consumers. The products are sold through a limited number of
department and specialty stores and stand-alone MoAoC stores. We acquired
Make-Up Art Cosmetics Limited, the manufacturer of MoAoC products, in three
stages in December 1994, March 1997 and February 1998.
BOBBI BROWN ESSENTIALS--In October 1995, we acquired the Bobbi Brown
essentials line of color cosmetics, professional makeup brushes and skin care
products. Bobbi Brown products are manufactured to our specifications by third
parties and sold through a limited number of department and specialty stores. In
March 1998, the brand introduced its first fragrance, bobbi.
JANE--In October 1997, we acquired Sassaby, Inc., the owner of the jane
brand of color cosmetics targeted to the young consumer market. jane products
are currently distributed only in the United States through the self-select
distribution channel.
DONNA KARAN COSMETICS--In November 1997, we obtained the exclusive global
license to develop and market a line of fragrances and other cosmetics under the
Donna Karan New York and DKNY trademarks. We are continuing to market and sell
certain products that were originally sold by The Donna Karan Company and are
developing concepts for future introductions.
AVEDA--We acquired the Aveda business in December 1997. Aveda, a prestige
hair care leader, is a manufacturer and marketer of plant-based hair, skin,
makeup and body care products that use the science of flower and plant
aromatherapy. The products are principally sold by us through third-party
distributors and are available in salons and stand-alone Aveda Environmental
Lifestyle stores.
4
<PAGE>
In addition to the foregoing brands, we also manufacture and sell La Mer
skin care products, including Creme de la Mer, and fragrances under the Kiton
name. These products including Creme de la Mer, are marketed separately from our
other brands.
We have been controlled by the Lauder family since our founding. Members of
the Lauder family, some of whom are our directors, executive officers and/or
employees, beneficially own, directly or indirectly, as of May 18, 1999, shares
of Class A Common Stock and Class B Common Stock having approximately 94.0% of
the outstanding voting power of our Common Stock.
Our principal executive offices are located at 767 Fifth Avenue, New York,
New York 10153. The telephone number at that location is (212) 572-4200.
USE OF PROCEEDS
We will not receive any proceeds from the sales of the shares of Class A
Common Stock. All of the shares of Class A Common Stock being offered are
beneficially owned by the selling stockholders named in this prospectus.
PRICE RANGE OF COMMON STOCK AND DIVIDENDS
The Class A Common Stock is traded on the NYSE under the symbol "EL". The
following table sets forth for the fiscal quarters indicated the high and low
sales prices for the Class A Common Stock, as reported on the NYSE Composite
Tape, and the dividends per share declared in respect of such quarters. The last
reported sale price of the Class A Common Stock on May 18, 1999 was $93 per
share.
<TABLE>
<CAPTION>
MARKET PRICE OF
CLASS A
COMMON STOCK
----------------- CASH
HIGH LOW DIVIDENDS
------ ----- ---------
<S> <C> <C> <C>
FISCAL 1998
First Quarter................................................................ $ 50 15/16 $44 3/4 $.085
Second Quarter............................................................... 56 3/8 39 .085
Third Quarter................................................................ 69 48 1/2 .085
Fourth Quarter............................................................... 73 15/16 60 7/8 .085
FISCAL 1999
First Quarter................................................................ $ 70 1/4 $49 1/2 $.085
Second Quarter............................................................... 86 1/2 46 11/16 .085
Third Quarter................................................................ 95 1/2 76 3/4 .085
Fourth Quarter (through May 18, 1999)........................................ 103 83 3/4 .10(1)
</TABLE>
- ------------------
(1) The dividend on the Class A Common Stock for the fourth quarter of fiscal
1999, which was declared by our Board of Directors on April 26, 1999, is on
a pre-split basis and is payable July 2, 1999 to holders of record on
June 16, 1999.
As noted above, on April 26, 1999, our Board of Directors approved a
two-for-one stock split in the form of a 100% stock dividend on all of our
outstanding Common Stock. The stock dividend is payable on June 2, 1999 to all
holders of record of shares of our Common Stock at the close of business on
May 10, 1999. The market price and cash dividends shown above have not been
adjusted to reflect the stock split.
We expect to continue the payment of cash dividends in the future, but we
cannot assure you that these payments of cash dividends will continue.
As of May 18, 1999, there were 2,569 record holders of Class A Common Stock
and 15 record holders of Class B Common Stock.
5
<PAGE>
SELECTED CONSOLIDATED FINANCIAL INFORMATION
The following income statement and balance sheet information has been
derived from our consolidated financial statements as of and for each of the
years in the five-year period ended June 30, 1998 and as of and for the
nine-month periods ended March 31, 1999 and March 31, 1998. You should read this
information along with our consolidated financial statements and the related
notes incorporated in this prospectus by reference and "Management's Discussion
and Analysis of Financial Condition and Results of Operations." See
"Incorporation of Certain Documents by Reference." The results of interim
periods are not necessarily indicative of results that may be expected for the
full year.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 31, YEAR ENDED JUNE 30,
-------------------- ---------------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
-------- -------- -------- -------- -------- -------- --------
(UNAUDITED) (IN MILLIONS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF EARNINGS DATA:
Net sales...................... $3,052.8 $2,773.0 $3,618.0 $3,381.6 $3,194.5 $2,899.1 $2,576.4
Gross profit................... 2,357.3 2,144.2 2,798.5 2,616.5 2,463.5 2,224.3 1,956.1
Operating income............... 373.7 331.7 409.1 359.1 310.3 230.9 175.8
Earnings before income taxes
and minority interest........ 359.4 329.5 402.8 362.9 313.0 233.0 173.2
Net earnings................... 222.5 192.8 236.8 197.6 160.4 121.2 93.0
Preferred stock dividends...... 17.6 17.6 23.4 23.4 57.5 25.3 23.0
Net earnings attributable to
common stock................. 204.9 175.2 213.4 174.2 102.9 95.9 70.0
OTHER DATA:
Earnings before interest, taxes
depreciation and amortization
(EBITDA)(a).................. 462.4 402.3 506.6 435.1 369.1 272.9 215.9
PER SHARE DATA, PRE-SPLIT:
Net earnings per common
share(b):
Basic........................ 1.73 1.48 1.80 1.48 1.18(c) -- --
Diluted...................... 1.70 1.46 1.78 1.47 1.17(c) -- --
Weighted average common shares
outstanding(b):
Basic........................ 118.4 118.4 118.4 117.7 116.3(c) -- --
Diluted...................... 120.4 119.6 119.7 118.6 116.6(c) -- --
Cash dividends declared per
common share................. 0.255 0.255 0.34 0.34 0.17 -- --
PER SHARE DATA, POST-SPLIT:
Net earnings per common
share(b)(d):
Basic........................ 0.87 0.74 0.90 0.74 0.59(c) -- --
Diluted...................... 0.85 0.73 0.89 0.73 0.59(c) -- --
Weighted average common shares
outstanding(b)(d):
Basic........................ 236.8 236.8 236.8 235.4 232.6(c) -- --
Diluted...................... 240.7 239.1 239.5 237.1 233.2(c) -- --
Cash dividends declared per
common share(d):............. 0.1275 0.1275 0.17 0.17 0.085 -- --
</TABLE>
<TABLE>
<CAPTION>
AT
MARCH 31,
AT JUNE 30,
--------------------------------------------------------
1999
1998 1997 1996 1995 1994
----------- -------- -------- -------- -------- --------
(UNAUDITED) (IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital...................... $ 733.9 $ 617.2 $ 551.6 $ 467.5 $ 469.6 $ 422.7
Total assets......................... 2,717.0 2,512.8 1,873.1 1,779.4 1,701.4 1,453.2
Total debt........................... 431.5 436.5 31.1 127.5 194.0 170.4
Redeemable preferred stock........... 360.0 360.0 360.0 360.0 360.0 --
Stockholders' equity................. 889.2 696.4 547.7 394.2 335.1 577.7
</TABLE>
(Footnotes on next page)
6
<PAGE>
- ------------------
(a) Earnings before interest, taxes, depreciation and amortization ("EBITDA") is
an additional measure of operating performance used by management. EBITDA,
like operating income, does not include the effects of interest and taxes
and additionally excludes the "non-cash" effects of depreciation and
amortization on current earnings. While the components of EBITDA may vary
from company to company, we exclude our minority interest adjustment, all
depreciation charges related to property, plant and equipment and all
amortization charges including amortization of goodwill, purchased royalty
rights, leasehold improvements and other intangible assets. We consider this
measure useful in analyzing our results; however, it is not intended to
replace, or act as a substitute for, any presentation included in the
consolidated financial statements prepared in conformity with generally
accepted accounting principles.
(b) In December 1997, we adopted the provisions of SFAS No. 128, "Earnings Per
Share," which requires the presentation of both Basic and Diluted earnings
per common share. Consistent with the requirements of SFAS No. 128, net
earnings per common share and weighted average common shares outstanding
have been restated for purposes of comparability. See note (c) below.
(c) Due to the change in the capital structure effected by our recapitalization
in connection with our initial public offering in fiscal 1996, historical
share and per share data for periods prior to the fiscal year ended
June 30, 1996 are not presented. Net earnings per common share and weighted
average common shares outstanding for the year ended June 30, 1996 are
reflected on a pro forma basis as if the recapitalization was effected at
the beginning of fiscal 1996.
(d) On April 26, 1999, our Board of Directors approved a two-for-one stock split
in the form of a 100% stock dividend on all of our outstanding Common Stock.
The stock dividend is payable on June 2, 1999 to all holders of record of
shares of our Common Stock at the close of business on May 10, 1999.
Purchasers of shares of Class A Common Stock being offered by this
prospectus who hold such shares on June 2, 1999 will receive the stock
dividend payable with respect to such shares. The per share data shown as
"post-split" has been restated to reflect the stock split.
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
We manufacture skin care, makeup, fragrance and hair care products which
are distributed in over 100 countries and territories. The following is a
comparative summary of net sales by region and product category and operating
income by region for the nine month periods ended March 31, 1999 and 1998 and
the fiscal years ended June 30, 1998, 1997 and 1996.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 31, YEAR ENDED JUNE 30,
------------------- ------------------------------
1999 1998 1998 1997 1996
-------- -------- -------- -------- --------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
NET SALES
BY REGION:
The Americas................................ $1,883.2 $1,715.2 $2,204.7 $1,939.4 $1,799.4
Europe, the Middle East & Africa............ 815.5 716.8 960.8 909.3 855.9
Asia/Pacific................................ 354.1 341.0 452.5 532.9 539.2
-------- -------- -------- -------- --------
$3,052.8 $2,773.0 $3,618.0 $3,381.6 $3,194.5
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
BY PRODUCT CATEGORY:
Skin Care................................... $1,026.4 $ 931.9 $1,252.9 $1,293.6 $1,274.0
Makeup...................................... 1,107.4 1,009.8 1,320.2 1,253.4 1,131.6
Fragrance................................... 849.4 796.4 988.4 817.9 769.7
Hair Care................................... 69.6 34.9 56.5 16.7 19.2
-------- -------- -------- -------- --------
$3,052.8 $2,773.0 $3,618.0 $3,381.6 $3,194.5
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
OPERATING INCOME
The Americas................................ $ 232.3 $ 216.7 $ 248.0 $ 189.9 $ 133.0
Europe, the Middle East & Africa............ 108.6 98.7 131.3 122.7 115.5
Asia/Pacific................................ 32.8 16.3 29.8 46.5 61.8
-------- -------- -------- -------- --------
$ 373.7 $ 331.7 $ 409.1 $ 359.1 $ 310.3
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
</TABLE>
The following table sets forth certain consolidated earnings data as a
percentage of net sales:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
MARCH 31, YEAR ENDED JUNE 30,
-------------- -----------------------------
1999 1998 1998 1997 1996
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Net sales............................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales........................................... 22.8 22.7 22.7 22.6 22.9
----- ----- ----- ----- -----
Gross profit............................................ 77.2 77.3 77.3 77.4 77.1
----- ----- ----- ----- -----
Operating expenses before depreciation and amortization:
Selling, general and administrative................... 61.3 61.9 62.4 63.5 64.4
Related party royalties............................... 0.8 0.9 0.9 1.0 1.2
----- ----- ----- ----- -----
62.1 62.8 63.3 64.5 65.6
----- ----- ----- ----- -----
Earnings before interest, taxes, depreciation and
amortization (EBITDA)................................. 15.1 14.5 14.0 12.9 11.5
Depreciation and amortization........................... 2.9 2.5 2.7 2.3 1.8
----- ----- ----- ----- -----
Operating income........................................ 12.2 12.0 11.3 10.6 9.7
Interest (expense) income, net.......................... (0.4) (0.1) (0.2) 0.1 0.1
----- ----- ----- ----- -----
Earnings before income taxes and minority interest...... 11.8 11.9 11.1 10.7 9.8
Provision for income taxes.............................. 4.5 4.8 4.5 4.5 4.3
Minority interest....................................... -- (0.1) (0.1) (0.4) (0.5)
----- ----- ----- ----- -----
Net earnings............................................ 7.3% 7.0% 6.5% 5.8% 5.0%
----- ----- ----- ----- -----
----- ----- ----- ----- -----
</TABLE>
8
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NINE MONTHS ENDED MARCH 31, 1999 COMPARED WITH NINE MONTHS ENDED MARCH 31,
1998
NET SALES. Our net sales increased 10% or $279.8 million to $3,052.8
million for the nine months ended March 31, 1999 as compared with the same
prior-year period. Sales growth was primarily due to increased sales of skin
care products and the domestic strength of makeup product sales, which includes
Sassaby and Aveda. Further, double digit gains were achieved in each of the skin
care, makeup and fragrance categories in the European region. Foreign currency
translation did not significantly impact net sales.
PRODUCT CATEGORIES
SKIN CARE. Our net sales of skin care products increased 10% or $94.5
million to $1,026.4 million. The increase reflects the retail launch of Stop
Signs and Resilience Lift in the most recent quarter, as well as the continued
success of All About Eyes and Diminish. These increases were partially offset by
lower sales of Fruition Extra.
MAKEUP. Our net sales of makeup products increased 10% or $97.6 million to
$1,107.4 million. Higher makeup product sales were primarily due to the recent
introductions of Quickliner For Eyes and Smudgesicles, as well as contributions
from relatively new products such as Two-In-One Eyeshadow and Double Matte. The
category's net sales also benefited from the inclusion of sales by Sassaby and
Aveda for the full year-to-date period. These increases were partially offset by
lower sales of Indelible Lipstick and Virtual Skin.
FRAGRANCE. Our net sales of fragrance products increased 7% or $53.0
million to $849.4 million. The increase is primarily attributable to the
worldwide success of Clinique Happy and the successful current year introduction
of Dazzling Gold and Dazzling Silver. Additionally, Hilfiger Athletics and tommy
girl, which are marketed under a licensing agreement, contributed significantly
to the net sales increases, offset in part by lower sales of tommy.
HAIR CARE. Our net sales of hair care products increased nearly 100% as
compared with the same prior-year period. The increase reflects the inclusion of
Aveda hair care products for the full nine month period.
GEOGRAPHIC. Our net sales in the Americas increased 10% or $168.0 million
to $1,883.2 million. This increase was driven by sales of new and existing
products across all categories and the inclusion of Aveda and Sassaby for the
full year-to-date period. In Europe, the Middle East & Africa, net sales
increased 14% or $98.7 million to $815.5 million. The increase was primarily the
result of higher net sales in the United Kingdom, Spain, and the distributor and
travel retail businesses. Excluding the impact of foreign currency translation,
sales in Europe, the Middle East & Africa increased 11%. Net sales in
Asia/Pacific increased 4% or $13.1 million to $354.1 million, primarily related
to higher net sales in Japan and Thailand. Excluding the impact of foreign
currency translation, Asia/Pacific sales grew 7% over the prior-year period.
COST OF SALES. Our cost of sales for the nine months ended March 31, 1999
were 22.8% of net sales compared with 22.7% of net sales in the prior-year
period. The increase principally reflects the integration of acquired companies,
particularly Sassaby and Aveda, which have cost structures higher than our other
brands. This increase has been substantially offset by a shift in core brand
product mix as well as continued production efficiencies.
OPERATING EXPENSES. Total operating expenses decreased to 65.0% of net
sales for the nine months ended March 31, 1999, compared with 65.4% of net sales
in the same prior-year period. This improvement primarily relates to operating
efficiencies and the favorable integration of the cost structures of acquired
companies. Operating expenses are subject to the timing of advertising and
promotional spending due to product launches and rollouts as well as incremental
advertising in select markets.
OPERATING INCOME. Operating income increased 13% or $42.0 million to
$373.7 million for the nine months ended March 31, 1999 as compared with the
same prior-year period. Operating margins were 12.2% of net sales in the current
period as compared to 12.0% in the same prior year period. The increase in
operating income and margins was due to higher net sales coupled with
9
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operational efficiencies and the timing of advertising and promotional spending.
Operating income in the Americas increased 7% or $15.6 million to
$232.3 million for the nine months ended March 31, 1999, primarily due to
increases in the skin care and makeup segments, as well as the inclusion of
operating results from recent acquisitions. In Europe, the Middle East & Africa,
operating income increased 10% or $9.9 million to $108.6 million primarily due
to improved operating results in Spain, Belgium, Italy and the distributor and
travel retail businesses. In Asia/Pacific, operating income increased
$16.5 million to $32.8 million due to higher results in Japan, as a result of
planned operating expense efficiencies, as well as improvements in Australia and
Taiwan.
EBITDA. EBITDA is an additional measure of operating performance used by
management. EBITDA, like operating income, does not include the effects of
interest and taxes and additionally excludes the "non-cash" effects of
depreciation and amortization on current earnings. While the components of
EBITDA may vary from company to company, we exclude our minority interest
adjustment, all depreciation charges related to property, plant and equipment
and all amortization charges including amortization of goodwill, purchased
royalty rights, leasehold improvements and other intangible assets. These
components of operating income do not necessarily result in a capital
requirement, and, in our opinion, many of the underlying assets, both tangible
and intangible, create value for us by supporting the global recognition of
brand names and product innovation and by consistently producing quality
products for our customers and consumers. We consider this measure useful in
analyzing our results; however, it is not intended to replace, or act as a
substitute for, any presentation included in the consolidated financial
statements prepared in conformity with generally accepted accounting principles.
EBITDA increased 15% to $462.4 million or 15.1% of net sales as compared to
$402.3 million or 14.5% of net sales in the same prior-year period. The
improvement in EBITDA is primarily attributable to sales growth and operating
expense efficiencies achieved.
INTEREST EXPENSE, NET. Net interest expense was $14.3 million and $2.2
million for the nine months ended March 31, 1999 and 1998, respectively.
Interest expense increased as borrowings related to the acquisition of new
businesses were outstanding for the full year-to-date period in fiscal 1999.
PROVISION FOR INCOME TAXES. The provision for income taxes represents
federal, foreign, state and local income taxes. The effective rate for income
taxes for the nine months ended March 31, 1999 was 38% compared with 40% in the
same prior-year period. These rates are higher than the statutory Federal tax
rate due to the effect of state and local taxes, higher tax rates in certain
foreign jurisdictions and certain nondeductible expenses. The decrease in the
effective income tax rate as compared to the same prior-year period was
principally attributable to tax planning initiatives and a relative change in
the mix of earnings from higher tax countries to lower tax countries.
FISCAL 1998 COMPARED WITH FISCAL 1997 AND FISCAL 1997 COMPARED WITH FISCAL
1996
NET SALES. Our net sales in fiscal 1998 increased 7% to $3,618.0 million
as compared to fiscal 1997 and 6% to $3,381.6 million for fiscal 1997 as
compared to fiscal 1996. Fiscal 1998 net sales increased as a result of new
product introductions, the continued success of our core products, and the
international rollout of recent product launches. Additionally, net sales in
fiscal 1998 benefitted from the inclusion of Aveda and Sassaby, from the date of
acquisition in December and October 1997, respectively, through the fiscal year
end. In fiscal 1997, our net sales increased as a result of new product
introductions across all categories, the global rollout of certain fragrance
introductions, and the continued solid performance of existing products. Fiscal
1997 included a full year of sales of Bobbi Brown essentials as compared to
eight months of sales in fiscal 1996. The strengthening of the U.S. dollar
negatively impacted net sales by approximately $135 million and $87 million for
fiscal 1998 and fiscal 1997, respectively. Excluding the impact of foreign
currency translation, our net sales increased 11% and 9% for fiscal 1998 and
fiscal 1997, respectively. The introduction of new products may have some
cannibalization effect on existing products in all categories, which is taken
into account by us in our business planning.
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<PAGE>
PRODUCT CATEGORIES
SKIN CARE. Our net sales of skin care products in fiscal 1998 decreased 3%
to $1,252.9 million as compared to fiscal 1997 and, in fiscal 1997, increased 2%
to $1,293.6 million as compared to fiscal 1996. The decrease is primarily due to
reduced sales in the Asia/Pacific region and the strengthening of the U.S.
dollar against foreign currencies. Accordingly, our net sales of skin care
products increased 2% on a constant exchange rate basis. Additionally, fiscal
1998 decreases were due in part to the successful fiscal 1997 launch of Fruition
Extra and lower year to year sales of Advanced Night Repair. Partially
offsetting these decreases were sales related to the introduction of Diminish,
Uncircle and All About Eyes, the international introduction of Nutritious and
the continued success of DayWear. In fiscal 1997, the increase was attributable
to the introduction of Fruition Extra, Advanced Suncare products, Moisture
On-Line, and Nutritious, along with the continued growth of existing products
such as LipZone, All About Lips and Dramatically Different Moisturizing Lotion.
Fiscal 1997 increases were partially offset by lower sales of Turnaround Cream
and ThighZone.
MAKEUP. Our net sales of makeup products increased 5% to $1,320.2 million
in fiscal 1998 and 11% to $1,253.4 million in fiscal 1997. Fiscal 1998 increases
are attributable to the introduction of new products such as Superbalanced
Makeup, Superlast Cream Lipstick, Two-In-One Eyeshadow and Blush All Day. In
addition to new product introductions, existing products such as Doublewear and
Futurist recorded a full year's sales and were introduced internationally, while
sales of True Lipstick improved for the third straight year. Our net sales of
makeup also reflect sales generated by Sassaby and Aveda subsequent to the dates
of acquisition and the continued success of Bobbi Brown essentials. The
foregoing increases were partially offset by the successful fiscal 1997
introduction and full year's sales of City Base, and the decline in net sales of
Long Last Lipstick. In fiscal 1997, the sales growth was primarily due to the
introduction of City Base, Long Last Soft Shine Lipstick, Virtual Skin,
Futurist, and Indelible Lipstick, as well as increased sales of existing MoAoC
and Bobbi Brown essentials products. These increases were partially offset by
lower sales of Long Last Lipstick and More Than Mascara.
FRAGRANCE. Our net sales of fragrance products increased 21% to $988.4
million in fiscal 1998 and 6% to $817.9 million in fiscal 1997. The fiscal 1998
increase is primarily attributable to the introduction of Clinique Happy and
Lauder Pleasures for Men, the domestic introduction of Hilfiger Athletics, and
the on-going success of tommy and tommy girl. Sales of Estee Lauder pleasures
and Beautiful, were relatively consistent with prior years, although they
continue to generate significant sales. Offsetting these improvements were
declines in existing products such as White Linen Breeze, Aramis Classic, and
Havana Pour Elle. In fiscal 1997, the sales growth was led by the successful
United States introduction of tommy girl, and the European/Asian launch of
tommy, along with the European introduction of Kiton. The fiscal 1997 domestic
success of tommy and Estee Lauder pleasures also contributed to the increased
net sales. New fragrance introductions cannibalized some existing fragrance
sales.
HAIR CARE. Our net sales of hair care products increased significantly in
fiscal 1998 as compared with the prior year due to the inclusion of sales from
the Aveda hair care product lines beginning in December 1997.
GEOGRAPHIC. Our net sales in the Americas rose 14% to $2,204.7 million in
fiscal 1998, as compared to an 8% increase to $1,939.4 million in fiscal 1997.
Increases in fiscal 1998 were recognized across all product categories, with the
most significant increases being attributable to fragrances as a result of new
product introductions and hair care as a result of the integration of Aveda.
Growth in all product categories is supported by the continued success of
existing products. In fiscal 1997, the increase was attributable to the sales of
new products across all categories, particularly those in the fragrance
category. Solid double digit increases were also achieved in MoAoC and Bobbi
Brown essentials. A generally lackluster retail environment for most of fiscal
1997 impacted core product sales.
In Europe, the Middle East & Africa, our net sales increased 6% to $960.8
million in fiscal 1998, as compared to a 6% increase to $909.3 million in fiscal
1997. Net sales increased 13% and 11%
11
<PAGE>
for fiscal 1998 and fiscal 1997, respectively, excluding the impact of foreign
currency translation. In fiscal 1998, higher net sales were recorded in the
United Kingdom and Spain. Significant sales improvements in the United Kingdom
were favorably impacted as the dollar weakened against the British pound.
Excluding the effect of a strengthening U.S. dollar against local currencies,
double digit increases were achieved in Spain, Italy and Germany. In fiscal
1997, higher net sales were achieved in the United Kingdom, the distributor and
travel retail businesses, Italy, and from the introduction of Kiton. These
increases were partially offset by lower sales in Germany and France resulting
from the impact of foreign currency translation and the difficult retail
environments.
In Asia/Pacific, our net sales decreased 15% to $452.5 million in fiscal
1998, as compared to a 1% decrease to $532.9 million in fiscal 1997. On a local
currency basis, Asia/Pacific sales decreased 3% for fiscal 1998 and increased 6%
in fiscal 1997. The volatile economic climate in Japan and the surrounding Asian
marketplace contributed to a difficult retail environment. Sales in Japan, Hong
Kong and Taiwan have decreased on both a local currency and a translated basis.
Although not significant enough to offset those decreases, net sales increased
in all other Asia/Pacific markets on a local currency basis, particularly
Thailand and Malaysia. In fiscal 1997, all markets reported local currency sales
increases with strong performances in Thailand, Korea, Taiwan, Singapore, New
Zealand, and Malaysia.
We strategically stagger our new product launches by geographic markets,
which may account for differences in regional sales growth.
COST OF SALES. Our cost of sales in fiscal 1998 was 22.7% of our net sales
compared with 22.6% of our net sales in fiscal 1997 and 22.9% of our net sales
in fiscal 1996. Increased cost of sales in fiscal 1998 related to the inclusion
of Aveda and Sassaby, both of which have product cost structures higher than our
other brands, as well as a shift in product mix. This increase was partially
offset by continued improvements in operating efficiency. The fiscal 1997
decrease primarily reflects the efficiencies achieved as a result of our global
sourcing and manufacturing activities, as well as shifts in product mix.
OPERATING EXPENSES. Our operating expenses decreased to 66.0% of our net
sales in fiscal 1998, compared with 66.8% and 67.4% of our net sales in fiscal
1997 and fiscal 1996, respectively. Fiscal 1998 decreases reflect operating
expenses growing at a slower rate than net sales primarily due to efficiencies
achieved in the selling area and lower advertising and promotional spending (as
a percent of sales) and the effect of integrating the Aveda and Sassaby cost
structures. The fiscal 1997 decrease reflected operating expenses growing slower
than net sales primarily as a result of efficiencies in the selling, general and
administrative areas.
OPERATING INCOME. Our operating income rose 14% to $409.1 million in
fiscal 1998 and 16% to $359.1 million in fiscal 1997. Operating margins were
11.3% in 1998, compared with 10.6% and 9.7% in fiscal 1997 and fiscal 1996,
respectively. These increases were due to higher net sales and total operating
expenses growing at a slower rate than net sales.
Our operating income in the Americas increased by 31% to $248.0 million in
fiscal 1998, as compared to a 43% increase to $189.9 million in fiscal 1997. In
fiscal 1998, the increase related to continued net sales improvements in the
United States due to strong performances from the core brands and the inclusion
of Aveda and Sassaby. In fiscal 1997, the increase was primarily due to net
sales increases in the United States, Canada, and the inclusion of twelve months
of operating results for Bobbi Brown, as compared to eight months in fiscal
1996.
In Europe, the Middle East and Africa, our operating income increased 7% to
$131.3 million in fiscal 1998, as compared to a 6% increase to $122.7 million in
fiscal 1997. In fiscal 1998, increased net sales in the United Kingdom resulted
in the most significant improvement in operating income for the region. On a
constant exchange rate basis, Spain, France and Italy would have made greater
operating income contributions. These increases were partially offset by lower
operating income in the travel retail business. In fiscal 1997, the increase was
primarily due to increased operating income in the United Kingdom, Italy, South
Africa, Eastern Europe, the distributor and travel retail
12
<PAGE>
businesses, and the inclusion of twelve months of operating results from Bobbi
Brown as compared to eight months in fiscal 1996, offset by lower results in
Belgium, Austria, Germany and France.
In Asia/Pacific, our operating income decreased 36% to $29.8 million in
fiscal 1998, as compared to a decrease of 25% to $46.5 million in fiscal 1997.
The fiscal 1998 decrease was principally due to operating income declines in
Japan due to lower net sales, compounded by the strengthening of the U.S. dollar
against the yen. A difficult retail market adversely affected Japan and the
surrounding areas. As a result, operating expenses grew at a faster rate than
net sales for most of the Asian markets, partially offset by strong results in
Korea. In fiscal 1997, the decrease was due to the continuing unfavorable
translation impact of the strength of the U.S. dollar versus the yen, lower
operating income in Japan reflecting the difficult retail environment, and
incremental promotional spending, partially offset by strong results in
Australia, Thailand, Korea, Singapore and Malaysia.
EBITDA. EBITDA increased to 14% of net sales in fiscal 1998 as compared to
12.9% and 11.5% in fiscal 1997 and 1996, respectively. The improvements in
EBITDA in fiscal 1998 are attributable primarily to operating expense
efficiencies. In fiscal 1997, the improvement was attributable to both cost of
goods and operating expense efficiencies.
INTEREST INCOME (EXPENSE), NET. Net interest expense was $6.3 million in
fiscal 1998 as compared to net interest income of $3.8 million in fiscal 1997
and $2.7 million in fiscal 1996. Net interest expense in fiscal 1998 was
primarily due to higher borrowings associated with our acquisitions. The
increase in net interest income from fiscal 1996 to fiscal 1997 was principally
due to higher average domestic and overseas net cash positions and lower
interest expense as a result of lower debt levels which were partially offset by
the elimination of interest income from stockholders.
PROVISION FOR INCOME TAXES. The provision for income taxes represents
federal, foreign, state and local taxes. The effective rate for income taxes in
fiscal 1998 was 40% as compared to 42% in fiscal 1997 and 44% in fiscal 1996.
These rates principally reflect the effect of state and local taxes, tax rates
in foreign jurisdictions and certain nondeductible expenses. The decrease in the
effective tax rate for fiscal 1998 was attributable to tax planning initiatives,
a relative change in the mix of earnings from higher tax countries such as Japan
to lower tax countries, the effect of a reduction in the statutory rate in the
United Kingdom and the effect of United States federal tax regulations. The
decrease in the effective income tax rate in fiscal 1997 and fiscal 1996 was
principally attributable to an increase in profits in lower taxed countries, the
lessened impact of a relatively higher Japanese rate and the reduced relative
negative impact of a stockholder's rights to receive certain U.S. royalty
payments by reason of our purchase of those rights in November 1995.
LIQUIDITY AND CAPITAL RESOURCES
Our principal sources of funds historically have been cash flows from
operations and borrowings under uncommitted and committed credit lines provided
by banks in the United States and abroad. In May 1999, we issued commercial
paper to refinance approximately one half of our seven-year term loan. At
March 31, 1999, we had cash and cash equivalents of $370.1 million compared with
$277.5 million at June 30, 1998.
Uncommitted lines of credit amounted to $249.7 million at March 31, 1999,
of which none were used. Unused committed lines of credit available at March 31,
1999 amounted to $400.0 million. Total debt as a percentage of total
capitalization (including short-term debt) was 26% at March 31, 1999 and 29% at
June 30, 1998.
Cash used for investing activities for the nine months ended March 31, 1999
was significantly lower than the comparable nine-month period in the prior year
as a result of the fiscal 1998 costs to acquire Aveda, Sassaby and the remaining
interest in MoAoC. In March 1999, we made a final payment to satisfy the
earn-out portion of the Bobbi Brown acquisition.
Cash used for financing activities relates to dividend payments of $47.7
million as compared to $37.7 million in the same prior-year period, and
repayments of short-term debt. The change in
13
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dividend payments relates to the timing of dividend declarations and
distributions. Cash from financing activities decreased on a comparable basis as
a result of the prior year inclusion of proceeds from long-term borrowings.
On April 26, 1999, the Board of Directors approved a two-for-one stock
split in the form of a 100% stock dividend on all of our outstanding Common
Stock. The stock dividend is payable on June 2, 1999 to all holders of record of
shares of Common Stock at the close of business on May 10, 1999. Additionally,
the Board approved a 17.6% increase in the next Class A and Class B quarterly
Common Stock dividend from $.085 to $.10 per share, on a pre-split basis.
On September 18, 1998, the Company's Board of Directors authorized a share
repurchase program. The Company has purchased and may continue to purchase, over
an undefined period of time, a total of up to four million shares of Class A
Common Stock in the open market or in privately negotiated transactions,
depending on market conditions and other factors.
We conduct business in many foreign currencies. As a result, we are subject
to foreign currency exchange rate risk which impacts the costs and cash flows of
our foreign subsidiaries.
We address our foreign currency and interest rate risks through a
controlled program of risk management, the principal objective of which is to
minimize the risks and/or costs associated with financial and global operating
activities. We use derivative financial instruments for the purpose of managing
our exposure to adverse fluctuations in foreign currency exchange rates and
interest rates. We do not utilize derivative financial instruments for trading
or other speculative purposes.
We enter into forward exchange contracts to hedge purchases, receivables
and payables denominated in foreign currencies for periods consistent with our
identified exposures. Gains and losses related to qualifying hedges of these
exposures are deferred and recognized in operating income when the underlying
hedged transaction occurs. We also enter into purchased foreign currency options
to hedge anticipated transactions where there is a high probability that
anticipated exposures will materialize. Any gains realized on such options that
qualify as hedges are deferred and recognized in operating income when the
underlying hedged transaction occurs. Premiums on foreign currency options are
amortized over the period being hedged. Foreign currency transactions which do
not qualify as hedges are marked-to-market on a current basis with gains and
losses recognized through income and reflected in operating expenses. In
addition, any previously deferred gains and losses on hedges which are
terminated prior to the transaction date are recognized in current income when
the hedge is terminated. The contracts have varying maturities with none
exceeding 24 months.
We enter into interest rate swaps to convert floating interest rate debt to
fixed rate debt. These swap agreements are contracts to exchange floating rate
for fixed rate interest payments periodically over the life of the agreements.
Amounts currently due to or from interest rate swap counterparties are recorded
in interest expense in the period in which they accrue.
As a matter of policy, we only enter into contracts with parties that have
at least an "A" (or equivalent) credit rating. The counterparties to these
contracts are major financial institutions and we do not have significant
exposure to any one counterparty. Our exposure to credit loss in the event of
nonperformance by any of the counterparties is limited to only the recognized,
but not realized, gains attributable to the contracts. Management believes risk
of loss is remote and in any event would be immaterial. Costs associated with
entering into such contracts have not been material to our financial results. At
March 31, 1999, we had contracts to exchange foreign currencies in the form of
forward exchange contracts and purchased currency options in the amount of
$281.1 million and $14.7 million, respectively. Foreign currencies exchanged
under these contracts are principally the Belgian franc, Japanese yen, German
mark, Swiss franc, U.K. pound, Spanish peseta and Italian lira. In addition, we
had interest rate swap agreements outstanding with a notional principal amount
of $405.0 million. There have been no significant changes in market risk since
June 30, 1998 that would have a material effect on our calculated value-at-risk
exposure, as disclosed in the annual report on Form 10-K for the year ended June
30, 1998.
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We believe that cash on hand, internally generated cash flows, available
credit lines and access to capital markets will be adequate to support currently
planned business operations, acquisitions and capital expenditures both on a
near-term and long-term basis.
YEAR 2000
We have developed a comprehensive plan to address Year 2000 issues. The
plan addresses three main areas: (a) information systems; (b) embedded chips;
and, (c) supply chain readiness. To oversee the process, we have established a
Steering Committee, comprised of senior executives from our various business
units around the world, which reports regularly to the Board of Directors and
the Audit Committee.
We have identified potential deficiencies related to Year 2000 in our
information systems and we are in the process of addressing them through
upgrades and other remediation. Completion of the remediation and testing is
expected in the summer of 1999. We have identified other equipment with date
sensitive operating controls and we are in the process of assessing whether they
are Year 2000 compliant. We have completed testing of critical embedded chips
and anticipate completing remediation by the summer of 1999. To mitigate the
risk of Year 2000 non-compliance by third parties, we have identified, contacted
and met with critical inventory suppliers. We are continuing our discussions
with our larger customers and critical non-inventory suppliers about their Year
2000 readiness. Further, we have identified and contacted other suppliers and
customers. These meetings and communications are ongoing and we are continuing
our assessment of the state of readiness of the various suppliers and customers.
We are currently validating Year 2000 processes and procedures as they are
completed.
We believe it is difficult to specifically identify the cause of the most
reasonable worst case Year 2000 scenario, and based upon our work to date, we
continue to believe it is likely to be the result of the failure of third
parties to be Year 2000 compliant. Accordingly, we have formulated contingency
plans to limit, to the extent possible, lost revenues and other adverse effects
arising from third party failures. These plans would necessarily be limited to
matters over which we can reasonably control and will include the acceleration
of certain shipments which will necessitate adjustments to the production and
procurement schedules. In order to support ongoing global operations on or about
January 1, 2000, we will be establishing, prior to that date, a Y2K
Communications Center which will expedite the implementation of contingency
plans, if necessary. We are in the process of implementing our overall
contingency plans and are determining the potential impact of the plans on our
quarterly results of operations and financial condition in fiscal 2000.
Incremental out-of-pocket costs incurred through March 31, 1999 have not
been significant and, based upon current estimates, the costs of our Year 2000
program are expected to be immaterial. Such costs do not include internal
employee costs and costs related to the deferral of other information technology
projects. While we do not have a system to track internal employee costs
specifically related to the Year 2000, those costs are not expected to be
material to our results of operations or financial condition.
Our Year 2000 efforts are ongoing and our overall plan, as well as the
implementation of contingency plans, will continue to evolve as new information
becomes available. While we anticipate continuity of our business activities,
that continuity will be dependent upon our ability, and the ability of third
parties whom we rely on directly, or indirectly, to be Year 2000 compliant.
EURO CONVERSION
As part of the European Economic and Monetary Union (EMU), a single
currency (the "Euro") will replace the national currencies of most of the
European countries in which we conduct business. The conversion rates between
the Euro and the participating nations' currencies were fixed irrevocably as of
January 1, 1999, and the participating national currencies will be removed from
circulation between January 1 and June 30, 2002 and replaced by Euro notes and
coinage. During the "transition period" from January 1, 1999 through December
31, 2001, public and private entities
15
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as well as individuals may pay for goods and services using either checks,
drafts, or wire transfers denominated in Euro or the participating country's
national currency.
Under the regulations governing the transition to a single currency, there
is a "no compulsion, no prohibition" rule which states that no one is obliged to
use the Euro until the notes and coinage have been introduced on January 1,
2002. In keeping with this rule, we are Euro "compliant" (able to receive and
remit Euro denominated payments and able to invoice in Euro as requested by
customers, vendors or suppliers) in the affected countries. Full conversion of
all affected country operations to Euro is expected to be completed by the time
national currencies are removed from circulation. Phased conversion to the Euro
is currently underway and the effects on our revenues, costs and various
business strategies are being assessed. The cost of our software and business
process Euro conversion is not expected to be material.
ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 133 "Accounting for Derivative Instruments and Hedging Activities." This
statement establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. SFAS No. 133 is effective for all fiscal
quarters of fiscal years beginning after June 15, 1999 and will not require
retroactive restatement of prior period financial statements. This statement
requires the recognition of all derivative instruments as either assets or
liabilities in the statement of financial position measured at fair value.
Generally, increases or decreases in the fair value of derivative instruments
will be recognized as gains or losses in earnings in the period of change. If
certain conditions are met where the derivative instrument has been designated
as a fair value hedge, the hedged item may also be marked to market through
earnings thus creating an offset. If the derivative is designated and qualifies
as a cash flow hedge, the changes in fair value of the derivative instrument may
be recorded in comprehensive income. We have not yet quantified the impact on
the consolidated financial statements of adopting SFAS No. 133; however, the
statement will likely result in a change in reported assets and liabilities and
may affect earnings and comprehensive income, as defined by SFAS No. 130
"Reporting Comprehensive Income."
FORWARD-LOOKING INFORMATION
We and our representatives from time to time make written or verbal forward
looking statements, including statements contained in this and other filings
with the Securities and Exchange Commission and in our reports to stockholders.
The words and phrases "will likely result," "expects," "believes," "will
continue," "is anticipated," "estimates," "projects" or similar expressions are
intended to identify "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. Such statements include,
without limitation, our expectations regarding sales, earnings or other future
financial performance and liquidity, product introductions, entry into new
geographic regions and general optimism about future operations or operating
results. Although we believe that our expectations are based on reasonable
assumptions within the bounds of our knowledge of our business and operations,
we cannot assure that actual results will not differ materially from our
expectations. Factors that could cause actual results to differ from
expectations include, without limitation:
(i) increased competitive activity from companies in the skin care,
makeup, fragrance and hair care businesses, some of which have greater
resources than us;
(ii) consolidations and restructurings in the retail industry causing
a decrease in the number of stores that sell our products, an increase in
the ownership concentration within the retail industry or ownership of
retailers by our competitors;
(iii) social, political and economic risks to our foreign
manufacturing, distribution and retail operations, including changes in
foreign investment and trade policies and regulations of the host countries
and of the United States;
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(iv) changes in the laws, regulations and policies, including changes
in accounting standards, that affect, or will affect, us in the United
States and abroad;
(v) foreign currency fluctuations affecting our results of operations
and value of our foreign assets, the relative prices at which we and our
foreign competitors sell our products in the same market and our operating
and manufacturing costs outside of the United States;
(vi) shipment delays, depletion of inventory and increased production
costs resulting from disruptions of operations at any of the facilities
which, due to consolidations in our manufacturing operations, now
manufacture nearly all of our supply of a particular type of product (i.e.,
focus factories);
(vii) changes in product mix to ones which are less profitable; and,
(viii) our ability and the ability of third parties, including
customers or suppliers, to adequately address Year 2000 issues.
We assume no responsibility to update forward-looking statements made
herein or otherwise.
17
<PAGE>
SELLING STOCKHOLDERS
The following table sets forth certain information for each selling
stockholder identified below (collectively, the "Selling Stockholders") with
respect to (i) such Selling Stockholder's beneficial ownership of Class A Common
Stock and Class B Common Stock prior to the offering and the percentage of total
voting power represented thereby and (ii) the number of shares of Class A Common
Stock and Class B Common Stock to be beneficially owned by such Selling
Stockholder after the offering and the percentage of total voting power
represented thereby (without taking into account the underwriters'
over-allotment option). 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 stockholders. Consequently, these shares are shown as beneficially owned
by more than one stockholder.
<TABLE>
<CAPTION>
BEFORE THE OFFERING AFTER THE OFFERING
-------------------------------------- --------------------------------------
SHARES OF
COMMON STOCK CLASS A COMMON STOCK
BENEFICIALLY COMMON STOCK TO BE BENEFICIALLY
OWNED PERCENTAGE TO BE SOLD OWNED PERCENTAGE
NAME OF SELLING ----------------------- OF TOTAL IN THE ----------------------- OF TOTAL
STOCKHOLDER(1) CLASS A CLASS B VOTING POWER OFFERING CLASS A CLASS B VOTING POWER
- ------------------------- ---------- ---------- ------------ ------------ ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Leonard A. Lauder(2)(6).. 14,388,067 29,370,773 48.9% 260,247 14,127,820 29,370,773 48.8%
Trust f/b/o William P.
Lauder(3).............. 578,852 571,727 1.0 50,000 528,852 571,727 1.0
Gary M. Lauder(4)........ 1,833,867 1,914,608 3.3 156,148 1,677,719 1,914,608 3.3
Trust f/b/o Gary M.
Lauder(5).............. 536,268 571,727 1.0 52,049 484,219 571,727 1.0
LAL Family Partners
L.P.(6)................ 4,251,883 21,352,770 34.6 237,556 4,014,327 21,352,770 34.5
The 4003 Corporation(7).. 545,000 0 0.1 545,000 0 0 0
The 4202 Corporation(8).. 2,681,179 1,418,821 2.7 2,000,000 681,179 1,418,821 2.4
</TABLE>
- ------------------
(1) Shares owned by the Selling Stockholders do not include shares that may be
attributed to them by reason of the Stockholders' Agreement. See
"Description of Capital Stock--Stockholders' Agreement." The
4003 Corporation and The 4202 Corporation are not subject to the
Stockholders' Agreement.
(2) Leonard A. Lauder beneficially owns or is deemed to beneficially own:
5,694,646 shares of Class A Common Stock directly and with respect to which
he has sole voting and investment power (including 1,697,493 shares of
Class A Common Stock which are pledged to Mr. Lauder by Ronald S. Lauder);
4,251,883 shares of Class A Common Stock and 21,352,770 shares of Class B
Common Stock indirectly 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; 3,994,115 shares of Class A Common Stock and 6,094,926 shares of
Class B Common Stock indirectly 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 indirectly 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; 239,731
shares of Class A Common Stock indirectly as a director of The Lauder
Foundation and with respect to which he shares voting and investment power;
and 200,000 shares of Class A Common Stock subject to exercisable employee
stock options held by Mr. Lauder. The shares of Class A Common Stock
beneficially owned by Mr. Lauder exclude 260,000 shares of Class A Common
Stock owned by his wife, 8,333 shares subject to
(Footnotes continued on next page)
18
<PAGE>
(Footnotes continued from previous page)
exercisable employee stock options held by his wife and an additional
1,900,000 shares of Class A Common Stock underlying stock options granted to
Mr. Lauder pursuant to his employment agreement. Leonard A. Lauder disclaims
beneficial ownership of the shares of Class A Common Stock owned by The
Lauder Foundation and his spouse.
(3) 50,000 shares of Class A Common Stock are being sold in the Offering by the
Separate Share Trust f/b/o William P. Lauder u/a/d December 15, 1976,
created by Leonard A. Lauder, as grantor (the "WPL Separate Share Trust").
Anthony E. Malkin and Patrick J. Landers, as co-trustees of the WPL Separate
Share Trust, share investment and voting power with respect to the shares
owned by the Trust and are deemed to beneficially own all such shares.
Mr. Malkin and Mr. Landers disclaim beneficial ownership of all such shares.
Neither Mr. Malkin nor Mr. Landers owns, either directly or indirectly, any
additional shares of Class A Common Stock or Class B Common Stock.
(4) Includes shares beneficially owned or deemed to be beneficially owned,
directly or indirectly, by Gary M. Lauder. Mr. Lauder shares voting and
dispositive power with William P. Lauder, and dispositive power with Joel S.
Ehrenkranz, in each case as co-trustees of a trust that owns 1,391,157
shares of Class A Common Stock and 1,914,608 shares of Class B Common Stock.
(5) 52,049 shares of Class A Common Stock are being sold in the Offering by the
Separate Share Trust f/b/o Gary M. Lauder u/a/d December 15, 1976, created
by Leonard A. Lauder, as grantor (the "GML Separate Share Trust"). Daniel J.
Aaron, as the sole trustee of the GML Separate Share Trust, has sole
investment and voting power with respect to the shares owned by the Trust
and is deemed to beneficially own all such shares. Mr. Aaron disclaims
beneficial ownership of all such shares. Mr. Aaron does not own, either
directly or indirectly, any additional shares of Class A Common Stock or
Class B Common Stock.
(6) Leonard A. Lauder, as the sole individual general partner of LAL Family
Partners and the majority stockholder of LAL Family Corporation, which is
the sole corporate general partner of LAL Family Partners, has sole voting
and investment power over the shares owned by LAL Family Partners and is
deemed to beneficially own all such shares.
(7) All of the issued and outstanding shares of common stock of The 4003
Corporation are owned by George W. Schiele in his capacity as the sole
trustee of The LAL 4003 Trust f/b/o Leonard A. Lauder u/a/d May 18, 1999,
created by Leonard A. Lauder, as grantor. George W. Schiele, as the sole
trustee of The LAL 4003 Trust and a director and officer of The 4003
Corporation, and Lloyd A. Martin, as a director and officer of The 4003
Corporation, share voting and investment power with respect to the shares
owned by The 4003 Corporation and are deemed to beneficially own all such
shares. Mr. Schiele and Ms. Martin disclaim beneficial ownership of all such
shares. Neither Mr. Schiele nor Ms. Martin owns, either directly or
indirectly, any additional shares of Class A Common Stock or Class B Common
Stock.
(8) All of the issued and outstanding shares of common stock of The 4202
Corporation are owned by Deborah F. Stiles in her capacity as the sole
trustee of The RSL 4202 Trust f/b/o Ronald S. Lauder u/a/d May 18, 1999,
created by Ronald S. Lauder, as grantor. Deborah F. Stiles, as the sole
trustee of The 4202 Trust and a director and officer of The 4202
Corporation, William H. Healy, as a director and officer of The 4202
Corporation, and Lloyd O. Martin, as a director and officer of The 4202
Corporation, share voting and investment power over the shares owned by The
4202 Corporation and are deemed to beneficially own all such shares.
Ms. Stiles, Mr. Healy and Ms. Martin disclaim beneficial ownership of all
such shares. Neither Ms. Stiles nor Ms. Martin owns, either directly or
indirectly, any additional shares of Class A Common Stock or Class B Common
Stock. Mr. Healy owns 1,113 shares of Class A Common Stock and no shares of
Class B Common Stock.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock consists of 300,000,000 shares of Class A
Common Stock, 120,000,000 shares of Class B Common Stock, and 23,600,000 shares
of Preferred Stock, par value $.01 per share, including 3,600,000 shares of
$6.50 Cumulative Redeemable Preferred Stock. As of May 18, 1999, there were
61,727,666 shares of Class A Common Stock and 56,839,667 shares of Class B
Common Stock outstanding. All of the shares of Class B Common Stock are
beneficially owned by members of the Lauder family. Of the authorized shares of
Preferred Stock, 3,600,000 shares of $6.50 Cumulative Redeemable Preferred Stock
are outstanding and, as of the date of this prospectus, are beneficially owned
by members of the Lauder family. The following description is a summary and is
subject to and qualified in its entirety by reference to the provisions of the
Restated Certificate of Incorporation filed as an exhibit to the Registration
Statement of which this prospectus forms a part.
On April 26, 1999, our Board of Directors approved a two-for-one stock
split in the form of a 100% stock dividend on all of our outstanding Common
Stock. The stock dividend is payable on June 2, 1999 to all holders of record of
shares of our Common Stock at the close of business on May 10, 1999. Purchasers
of shares of Class A Common Stock being offered by this prospectus who hold such
shares on June 2, 1999 will receive the stock dividend payable with respect to
such shares. Unless otherwise indicated, the information included in this
prospectus, including share ownership data, does not reflect the stock split.
COMMON STOCK
The shares of Class A Common Stock and Class B Common Stock are identical
in all respects, except for voting rights, certain conversion rights and
transfer restrictions in respect of the shares of the Class B Common Stock, as
described below.
VOTING RIGHTS. Each share of Class A Common Stock entitles the holder to
one vote on each matter submitted to a vote of our stockholders and each share
of Class B Common Stock entitles the holder to ten votes on each such matter,
including the election of directors. There is no cumulative voting. Except as
required by applicable law, holders of the Class A Common Stock and Class B
Common Stock vote together on all matters submitted to a vote of the
stockholders. With respect to certain corporate changes, such as liquidations,
reorganizations, recapitalizations, mergers, consolidations and sales of all or
substantially all of our assets, holders of the Class A Common Stock and
Class B Common Stock vote together as a single class and the approval of 75% of
the outstanding voting power is required to authorize or approve such
transactions.
Any action that can be taken at a meeting of the stockholders may be taken
by written consent in lieu of the meeting if we receive consents signed by
stockholders having the minimum number of votes that would be necessary to
approve the action at a meeting at which all shares entitled to vote on the
matter were present. This could permit the holders of Class B Common Stock to
take all actions required to be taken by the stockholders without providing the
other stockholders the opportunity to make nominations or raise other matters at
a meeting. The right to take action by less than unanimous written consent
expires at such time as there are no shares of Class B Common Stock outstanding.
DIVIDENDS. Holders of Class A Common Stock and Class B Common Stock are
entitled to receive dividends at the same rate if, as and when such dividends
are declared by our Board of Directors out of assets legally available therefor
after payment of dividends required to be paid on shares of preferred stock, if
any.
If a dividend or distribution payable in shares of Class A Common Stock is
made on the Class A Common Stock, we must also make a pro rata and simultaneous
dividend or distribution on the Class B Common Stock payable in shares of Class
B Common Stock. Conversely, if a dividend or distribution payable in shares of
Class B Common Stock is made on the Class B Common Stock,
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<PAGE>
we must also make a pro rata and simultaneous dividend or distribution on the
Class A Common Stock payable in shares of Class A Common Stock.
RESTRICTIONS ON TRANSFER. If a holder of Class B Common Stock transfers
such shares, whether by sale, assignment, gift, bequest, appointment or
otherwise, to a person other than a Lauder Family Member (as defined below),
such shares will be converted automatically into shares of Class A Common Stock.
In the case of a pledge of shares of Class B Common Stock to a financial
institution, such shares will not be deemed to be transferred unless and until a
foreclosure occurs.
As used in this prospectus, the term "Lauder Family Members" includes only
the following persons: (i) Mrs. Estee Lauder and her estate, guardian,
conservator or committee; (ii) each descendant of Mrs. Lauder (a "Lauder
Descendant") and their respective estates, guardians, conservators or
committees; (iii) each "Family Controlled Entity" (as defined below); and (iv)
the trustees, in their respective capacities as such, of each "Family Controlled
Trust" (as defined below). The term "Family Controlled Entity" means (i) any
not-for-profit corporation if at least 80% of its board of directors is composed
of Mrs. 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
is 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.
CONVERSION. Class A Common Stock has no conversion rights. Class B Common
Stock is convertible into Class A Common Stock, in whole or in part, at any time
and from time to time at the option of the holder, on the basis of one share of
Class A Common Stock for each share of Class B Common Stock converted. In the
event of a transfer of shares of Class B Common stock to any person other than a
Lauder Family Member, each share of Class B Common Stock so transferred
automatically will be converted into one share of Class A Common Stock. Each
share of Class B Common Stock will also automatically convert into one share of
Class A Common Stock if, on the record date for any meeting of the stockholders,
the number of shares of Class B Common Stock then outstanding is less than 10%
of the aggregate number of shares of Class A Common Stock and Class B Common
Stock then outstanding.
LIQUIDATION. In the event of liquidation, after payment of our debts and
other liabilities and after making provision for the holders of Preferred Stock,
if any, our remaining assets will be distributable ratably among the holders of
the Class A Common Stock and Class B Common Stock treated as a single class.
MERGERS AND OTHER BUSINESS COMBINATIONS. Upon a merger or consolidation,
holders of each class of Common Stock are entitled to receive equal per share
payments or distributions, except that in any transaction in which shares of
capital stock are distributed, such shares may differ as to voting rights to the
extent and only to the extent that the voting rights of the Class A Common Stock
and Class B Common Stock differ at that time. We may not dispose of all or any
substantial part of our assets to, or merge or consolidate with, any person,
entity or "group" (as defined in Rule 13d-5 of the Exchange Act), which
beneficially owns in the aggregate ten percent or more of our outstanding Common
Stock (a "Related Person") without the affirmative vote of the holders, other
than such Related Person, of not less than 75% of the voting power of
outstanding Class A Common Stock and Class B Common Stock voting as a single
class. For the sole purpose of determining the 75% vote, a Related Person will
also include the seller or sellers from whom the Related Person acquired, during
the preceding six months, at least five percent of the outstanding shares of
Class A Common Stock in a single transaction or series of related transactions
pursuant to one or more agreements or other arrangements (and not through a
brokers' transaction) but only if
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<PAGE>
such seller or sellers have beneficial ownership of shares of Common Stock
having a fair market value in excess of $10 million in the aggregate following
such disposition to such Related Person. This 75% voting requirement is not
applicable, however, if (i) the proposed transaction is approved by a vote of
not less than a majority of our board of directors who are neither affiliated
nor associated with the Related Person (or the seller of shares to the Related
Person as described above) or (ii) in the case of a transaction pursuant to
which the holders of Common Stock are entitled to receive cash, property,
securities or other consideration, the cash or fair market value of the
property, securities or other consideration to be received per share in such
transaction is not less than the higher of (A) the highest price per share paid
by the Related Person for any of its holdings of Common Stock within the
two-year period immediately prior to the announcement of the proposed
transaction or (B) the highest closing sale price during the 30-day period
immediately preceding such date or during the 30-day period immediately
preceding the date on which the Related Person became a Related Person,
whichever is higher.
OTHER PROVISIONS. The holders of the Class A Common Stock and Class B
Common Stock are not entitled to preemptive rights. Neither the Class A Common
Stock nor the Class B Common Stock may be subdivided or combined in any manner
unless the other class is subdivided or combined in the same proportion.
TRANSFER AGENT AND REGISTRAR. The Transfer Agent and Registrar for the
Class A Common Stock is ChaseMellon Shareholder Services.
PREFERRED STOCK
$6.50 CUMULATIVE REDEEMABLE PREFERRED STOCK. Holders of the $6.50
Cumulative Redeemable Preferred Stock are entitled to receive cumulative cash
dividends at a rate of $6.50 per annum per share payable in quarterly
installments. If such dividends are not paid in full, or declared in full and
sums set apart for full payment thereof, then no dividends may be paid or
declared upon the Common Stock or any other capital stock ranking junior to or
on parity with such $6.50 Cumulative Redeemable Preferred Stock. If, at the time
of an annual meeting of stockholders, the equivalent of six quarterly dividends
are in arrears, then the number of directors on our board of directors will be
increased by two and the holders of the outstanding $6.50 Cumulative Redeemable
Preferred Stock voting separately as a class will be entitled at the meeting to
vote for the election of two directors. The right to elect two directors and
such directors' terms on the board of directors will continue until such
arrearage in the payment of dividends ceases to exist. Shares of $6.50
Cumulative Redeemable Preferred Stock are subject to mandatory redemption on
June 30, 2005 at a redemption price of $100 per share. Following such date and
so long as such mandatory redemption obligations have not been discharged in
full, no dividends may be paid or declared upon the Common Stock, or on any
other capital stock ranking junior to or on a parity with such $6.50 Cumulative
Redeemable Preferred Stock and no shares of Common Stock or such junior or
parity stock may be redeemed or acquired by us for any consideration. We may
redeem the $6.50 Cumulative Redeemable Preferred Stock owned by the EL 1994
Trust and a trust for the primary benefit of Leonard A. Lauder ("LAL 1995
Trust"), in whole or in part, after the death of Mrs. Lauder or, if owned by
persons other than the EL 1994 Trust or the LAL 1995 Trust, after five years
following the disposition of such shares by the EL 1994 Trust or the LAL 1995
Trust, as the case may be. After the later of June 30, 2000 and Mrs. Lauder's
death, holders of the $6.50 Cumulative Redeemable Preferred Stock may put such
shares to us at a price of $100 per share (which amount represents the
liquidation preference per share).
OTHER PREFERRED STOCK. Our board of directors is authorized, subject to
any limitations prescribed by Delaware law or the rules of the NYSE or other
organizations on whose systems our stock may be quoted or listed, to provide for
the issuance of additional shares of Preferred Stock in one or more series, to
establish from time to time the number of shares to be included in each such
series, to fix the rights, powers, preferences and privileges of the shares of
each wholly unissued series and any qualifications, limitations or restrictions
thereon, and to increase or decrease the number of shares of such series,
without any further vote or action by the stockholders. The
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<PAGE>
approval of the holders of at least 75% of the outstanding shares of Class B
Common Stock, however, is required for the issuance of shares of Preferred Stock
that have the right to vote for the election of directors under ordinary
circumstances or to elect 50% or more of the directors under any circumstances.
Depending upon the terms of the Preferred Stock established by the board of
directors, any or all series of Preferred Stock could have preference over the
Common Stock with respect to dividends and other distributions and upon
liquidation or could have voting or conversion rights that could adversely
affect the holders of the outstanding Common Stock. In addition, the Preferred
Stock could delay, defer or prevent a change of control. We have no present
plans to issue any additional shares of Preferred Stock.
STOCKHOLDERS' AGREEMENT
All Lauder Family Members (other than The Lauder Foundation, a tax exempt,
private foundation, Aerin Lauder Zinterhofer, Jane Lauder, The 4003 Corporation
and The 4202 Corporation) who beneficially own shares of Common Stock have
agreed pursuant to a stockholders' agreement with us (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 our
company. As of May 18, 1999, these stockholders beneficially owned, in the
aggregate, shares of Common Stock having approximately 91.2% of our voting
power.
REGISTRATION RIGHTS AGREEMENT
We and certain members of the Lauder family, certain trusts and other
entities controlled by members of the Lauder family and Morgan Guaranty Trust
Company of New York ("Morgan Guaranty") 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. All the
parties to the Master Registration Rights Agreement (other than us) 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.
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UNDERWRITING
The Selling Stockholders and the underwriters for the offering (the
"Underwriters") named below have entered into an underwriting agreement with
respect to the shares being offered. Subject to certain conditions, each
Underwriter has severally agreed to purchase the number of shares indicated in
the following table.
<TABLE>
<CAPTION>
Number of
Shares of Class A
Underwriters Common Stock
-----------------
<S> <C>
Goldman, Sachs & Co.................................................................
Merrill Lynch, Pierce, Fenner & Smith
Incorporated...........................................................
J.P. Morgan Securities Inc..........................................................
---------
Total............................................................................. 3,301,000
---------
---------
</TABLE>
If the Underwriters sell more shares than the total number set forth in the
table above, the Underwriters have an option to buy up to an additional 495,150
shares from the Selling Stockholders to cover such sales. They may exercise that
option for 30 days. If any shares are purchased pursuant to this option, the
Underwriters will severally purchase shares in approximately the same proportion
as set forth in the table above. In the event the delivery of these additional
option shares to the Underwriters takes place after June 2, 1999, the number of
shares to be purchased and the price to the Underwriters will be adjusted to
reflect the stock split.
The following tables show the per share and total underwriting discounts
and commissions to be paid to the Underwriters by the Selling Stockholders. Such
amounts are shown assuming both no exercise and full exercise of the
Underwriters' option to purchase 495,150 additional shares.
<TABLE>
<CAPTION>
Paid by the Selling
Stockholders
----------------------------
No Exercise Full Exercise
----------- -------------
<S> <C> <C>
Per share................................................................. $ $
Total..................................................................... $ $
</TABLE>
Shares sold by the Underwriters to the public will initially be offered at
the initial price to public set forth on the cover of this prospectus. Any
shares sold by the Underwriters to securities dealers may be sold at a discount
of up to $ per share from the initial price to public. Any such securities
dealers may resell any shares purchased from the Underwriters to certain other
brokers or dealers at a discount of up to $ per share from the initial
price to public. If all the shares are not sold at the initial price to public,
the Underwriters may change the offering price and the other selling terms.
The Estee Lauder Companies Inc., the Selling Stockholders and Ronald S.
Lauder have agreed with the Underwriters not to dispose of any of their Class A
Common Stock or securities convertible into or exchangeable for shares of
Class A Common Stock during the period from the date of this prospectus
continuing through the date 90 days after the date of this prospectus, except
with the prior written consent of Goldman, Sachs & Co., or as otherwise provided
in the underwriting agreement, and except for transfers among Lauder Family
Members. This agreement does not apply to any existing employee benefit plans.
In connection with the offering, the Underwriters may purchase and sell
shares of Class A Common Stock in the open market. These transactions may
include short sales, stabilizing transactions and purchases to cover positions
created by short sales. Short sales involve the sale by the Underwriters of a
greater number of shares than they are required to purchase in the offering.
Stabilizing transactions consist of certain bids or purchases made for the
purpose of preventing or retarding a decline in the market price of the Class A
Common Stock while the offering is in progress.
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<PAGE>
The Underwriters may also impose a penalty bid. This occurs when a
particular underwriter repays to the other underwriters a portion of the
underwriting discount received by it because the Underwriters have repurchased
shares sold by or for the account of such underwriter in stabilizing or short
covering transactions.
These activities by the Underwriters may stabilize, maintain or otherwise
affect the market price of the Class A Common Stock. As a result, the price of
the Class A Common Stock may be higher than the price that otherwise might exist
in the open market. If these activities are commenced, they may be discontinued
by the Underwriters at any time. These transactions may be effected on the NYSE,
in the over-the-counter market or otherwise.
The Selling Stockholders, who are paying all of the expenses of this
offering, estimate that their total expenses in the offering, excluding
underwriting discounts and commissions, will be approximately $621,000.00. The
Estee Lauder Companies Inc. will not pay any expenses in the offering.
The Estee Lauder Companies Inc. has agreed with the Selling Stockholders to
indemnify the several Underwriters against certain liabilities, including
liabilities under the Securities Act of 1933.
Certain of the Underwriters and their affiliates have provided, are
currently providing, and expect to provide in the future, commercial and
investment banking services to The Estee Lauder Companies Inc. and certain
Lauder Family Members for which such Underwriters and their affiliates have
received and will receive fees and commissions. Morgan Guaranty, an affiliate of
J.P. Morgan Securities Inc. and J.P. Morgan Securities Ltd., is a lender to The
Estee Lauder Companies Inc. and certain Lauder Family Members. More than ten
percent of the net proceeds of the offering may be used to repay borrowings to
Morgan Guaranty. Accordingly, this offering will be conducted in accordance with
NASD Conduct Rule 2710(c)(8).
LEGAL MATTERS
The validity of the shares of Class A Common Stock being offered hereby
will be passed upon for us by Weil, Gotshal & Manges LLP, New York, New York
(members of which own approximately 30,000 shares of Class A Common Stock) and
certain legal matters will be passed upon for the Underwriters by Fried, Frank,
Harris, Shriver & Jacobson (a partnership including professional corporations),
New York, New York.
EXPERTS
The financial statements and schedule incorporated by reference in this
prospectus that are contained in our Annual Report on Form 10-K for the fiscal
year ended June 30, 1998 have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their reports with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in
accounting and auditing in giving said reports.
25
<PAGE>
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------------------------------------------------------------
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No dealer, salesperson or other person is authorized to give any
information or to represent anything not contained in this prospectus. You must
not rely on any unauthorized information or representations. This prospectus is
an offer to sell only the securities offered hereby, but only under
circumstances and in jurisdictions where it is lawful to do so. The information
contained in this prospectus is current only as of its date.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Where You Can Find More Information................. 2
Incorporation of Certain Documents by Reference..... 2
The Company......................................... 3
Use of Proceeds..................................... 5
Price Range of Common Stock and Dividends . 5
Selected Consolidated Financial Information......... 6
Management's Discussion and Analysis of Financial
Condition and Results of Operations............... 8
Selling Stockholders................................ 18
Description of Capital Stock........................ 20
Underwriting........................................ 24
Legal Matters....................................... 25
Experts............................................. 25
</TABLE>
3,301,000 Shares
THE ESTEE LAUDER
COMPANIES INC.
Class A Common Stock
----------------------
----------------------
GOLDMAN, SACHS & CO.
MERRILL LYNCH & CO.
J.P. MORGAN & CO.
------------------------------------------------------------
------------------------------------------------------------
------------------------------------------------------------
------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the expenses expected to be incurred in
connection with the issuance and distribution of the securities described in
this Registration Statement, other than the underwriting discount. All amounts,
except the SEC registration fees and the National Association of Securities
Dealers, Inc. ("NASD") filing fee, are estimated and will be paid by the selling
stockholders identified in the Prospectus, and not by the Registrant.
<TABLE>
<S> <C>
SEC registration fee...................................... $100,705.50
NASD filing fee........................................... 30,500.00
Printing, engraving and postage fees...................... 170,000.00
Legal fees and expenses................................... 250,000.00
Accounting fees and expenses.............................. 50,000.00
Miscellaneous............................................. 20,000.00
-----------
Total................................................... $621,205.50
-----------
-----------
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Generally, Section 145 of the General Corporation Law of the State of
Delaware (the "GCL") permits a corporation to indemnify certain persons made a
party to an action, by reason of the fact that such person is or was a director,
officer, employee or agent of the corporation or is or was serving at the
request of the corporation as a director, officer, employee or agent of another
corporation or enterprise. To the extent that person has been successful in any
such matter, that person shall be indemnified against expenses actually and
reasonably incurred by him. In the case of an action by or in the right of the
corporation, no indemnification may be made in respect of any matter as to which
that person was adjudged liable unless and only to the extent that the Delaware
Court of Chancery or the court in which the action was brought determines that
despite the adjudication of liability that person is fairly and reasonably
entitled to indemnity for proper expenses.
Our By-laws provide for indemnification of our directors and officers to
the fullest extent permitted by law.
Section 102(b)(7) of the GCL enables a Delaware corporation to include a
provision in its certificate of incorporation limiting a director's liability to
the corporation or its stockholders for monetary damages for breaches of
fiduciary duty as a director. We have adopted a provision in our Certificate of
Incorporation that provides for such limitation to the full extent permitted
under Delaware law.
Our directors and officers are covered by insurance policies indemnifying
against certain liabilities, including certain liabilities arising under the
Securities Act which might be incurred by them in such capacities and against
which we may not indemnify them.
II-1
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL SCHEDULES
(a) Exhibits:
Exhibits identified in parentheses below are on file with the SEC and are
incorporated herein by reference to such previous filings. All other exhibits
are provided as part of this electronic transmission.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------ -------------------------------------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement.
3.1 Restated Certificate of Incorporation (filed as Exhibit 3.1 to Amendment No. 3 to the Company's
Registration Statement on Form S-1 (No. 33-97180) on November 13, 1995 (the "S-1")).
3.2 Form of Amended and Restated By-Laws (filed as Exhibit 3.2 to the S-1).
5.1 Opinion of Weil, Gotshal & Manges LLP with respect to the legality of the Class A Common Stock.
10.1 Employment Agreement with William P. Lauder.
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of Weil, Gotshal & Manges LLP (included in the opinion filed as Exhibit 5.1).
24.1 Power of Attorney.*
</TABLE>
- ------------------
* Previously filed.
ITEM 17. UNDERTAKINGS
The Registrant hereby undertakes that, for purposes of determining any
liability under the Securities Act, each filing of the Registrant's Annual
Report pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of
1934, as amended (the "Exchange Act") (and where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the Exchange
Act) that is incorporated by reference in the Registration Statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be final adjudication of such
issue.
The undersigned Registrant hereby undertakes that:
(1) That for purposes of determining any liability under the
Securities Act, the information omitted from the form of prospectus filed
as part of this Registration Statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the Registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be
part of this Registration Statement as of the time it was declared
effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-2
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE
REQUIREMENTS FOR FILING ON FORM S-3 AND HAS DULY CAUSED THE REGISTRATION
STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY
AUTHORIZED, IN NEW YORK, NEW YORK, ON THIS 19TH DAY OF MAY 1999.
THE ESTEE LAUDER COMPANIES INC.
By: _______/s/ ROBERT J. BIGLER_______
Name: Robert J. Bigler
Title: Senior Vice President and
Chief
Financial Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ------------------------------------------------ -------------
<S> <C> <C>
* Chairman of the Board and Chief Executive May 19, 1999
- ------------------------------------------ Officer (Principal Executive Officer)
Leonard A. Lauder
* Director May 19, 1999
- ------------------------------------------
Ronald S. Lauder
* Director May 19, 1999
- ------------------------------------------
William P. Lauder
* Director May 19, 1999
- ------------------------------------------
Fred H. Langhammer
* Director May 19, 1999
- ------------------------------------------
Richard D. Parsons
* Director May 19, 1999
- ------------------------------------------
Marshall Rose
* Director May 19, 1999
- ------------------------------------------
P. Roy Vagelos, M.D.
* Director May 19, 1999
- ------------------------------------------
Faye Wattleton
/s/ ROBERT J. BIGLER Senior Vice President and Chief Financial May 19, 1999
- ------------------------------------------ Officer (Principal Financial and Accounting
Robert J. Bigler Officer)
*By: /s/ ROBERT J. BIGLER
-------------------------------------
Robert J. Bigler
Attorney-in-fact
</TABLE>
II-3
<PAGE>
EXHIBITS
The following is a complete list of Exhibits filed as part of this
Registration Statement, which are incorporated herein.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------ -------------------------------------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement.
3.1 Restated Certificate of Incorporation (filed as Exhibit 3.1 to Amendment No. 3 to the Company's
Registration Statement on Form S-1 (No. 33-97180) on November 13, 1995 (the "S-1")).
3.2 Form of Amended and Restated By-Laws (filed as Exhibit 3.2 to the S-1).
5.1 Opinion of Weil, Gotshal & Manges LLP with respect to the legality of the Class A Common Stock.
10.1 Employment Agreement with William P. Lauder.
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of Weil, Gotshal & Manges LLP (included in the opinion filed as Exhibit 5.1).
24.1 Power of Attorney.*
</TABLE>
- ------------------
* Previously filed.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
by reference in this Registration Statement of our reports dated August 11, 1998
included in the Form 10-K of The Estee Lauder Companies Inc. for the year ended
June 30, 1998 and to all references to our Firm included in this Registration
Statement.
_______/S/__ARTHUR ANDERSEN LLP_______
Arthur Andersen LLP
New York, N.Y.
May 19, 1999
<PAGE>
DRAFT 5/18/99
THE ESTEE LAUDER COMPANIES INC.
Class A Common Stock
(par value $.01 per share)
----------------------
Underwriting Agreement
----------------------
May , 1999
Goldman, Sachs & Co.,
Merrill Lynch, Pierce, Fenner & Smith
Incorporated,
J.P. Morgan Securities Inc.,
As representatives of the several Underwriters
named in Schedule I hereto
c/o Goldman, Sachs & Co.,
85 Broad Street,
New York, New York 10004
Ladies and Gentlemen:
Certain stockholders of The Estee Lauder Companies Inc., a Delaware
corporation (the "Company"), named in Schedule II hereto (the "Selling
Stockholders") propose, subject to the terms and conditions stated herein, to
sell to the Underwriters named in Schedule I hereto (the "Underwriters") an
aggregate of 3,301,000 shares (the "Firm Shares"), and at the election of the
Underwriters, up to 495,150 additional shares (the "Optional Shares") of Class A
Common Stock, par value $.01 per share ("Stock"), of the Company. The Firm
Shares and the Optional Shares that the Underwriters elect to purchase pursuant
to Section 2 hereof are herein collectively called the "Shares".
It is understood that, on April 26, 1999, the board of directors of the
Company approved a two-for-one stock split (the "Stock Split") in the form of a
100% stock dividend (the "Stock Split Dividend") on all of the Company's Class A
Common Stock and Class B Common Stock (collectively, the "Common Stock"), such
Stock Split Dividend payable on June 2, 1999 to all holders of record of shares
of the Common Stock at the close of business on May 10, 1999. It is understood
and agreed that, unless otherwise expressly indicated herein, the number of
Shares and the price at which they will be sold have not been adjusted for the
Stock Split but the terms "Firm Shares", "Optional Shares" and "Shares" include
the shares of Stock outstanding on the date hereof to be sold hereunder and the
shares of Stock to be received by the Selling Stockholders in connection with
the Stock Split Dividend (the "Stock Split Shares") on the shares of Stock to be
sold hereunder.
<PAGE>
1. (a) The Company represents and warrants to, and agrees with, each of the
Underwriters that:
(i) A registration statement on Form S-3 (File No. 333-77977) (the
"Initial Registration Statement") in respect of the Shares has been filed
with the Securities and Exchange Commission (the "Commission"); the Initial
Registration Statement and any post-effective amendment thereto, each in
the form heretofore delivered to you, and, excluding exhibits thereto, but
including all documents incorporated by reference in the prospectus
contained therein, to you for each of the other Underwriters, have been
declared effective by the Commission in such form; other than a
registration statement, if any, increasing the size of the offering (a
"Rule 462(b) Registration Statement"), filed pursuant to Rule 462(b) under
the Securities Act of 1933, as amended (the "Act"), which became effective
upon filing, no other document with respect to the Initial Registration
Statement or document incorporated by reference therein has heretofore been
filed with the Commission; and no stop order suspending the effectiveness
of the Initial Registration Statement, any post-effective amendment thereto
or the Rule 462(b) Registration Statement, if any, has been issued and no
proceeding for that purpose has been initiated or threatened by the
Commission (any preliminary prospectus included in the Initial Registration
Statement or filed with the Commission pursuant to Rule 424(a) of the rules
and regulations of the Commission under the Act, is hereinafter called a
"Preliminary Prospectus"; the various parts of the Initial Registration
Statement and the Rule 462(b) Registration Statement, if any, including all
exhibits thereto and including (i) the information contained in the form of
final prospectus filed with the Commission pursuant to Rule 424(b) under
the Act in accordance with Section 5(a) hereof and deemed by virtue of Rule
430A under the Act to be part of the Initial Registration Statement at the
time it was declared effective or such part of the Rule 462(b) Registration
Statement, if any, became or hereafter becomes effective and (ii) the
documents incorporated by reference in the prospectus contained in the
registration statement at the time such part of the registration statement
became effective, each as amended at the time such part of the registration
statement became effective, are hereinafter collectively called the
"Registration Statement"; and such final prospectus, in the form first
filed pursuant to Rule 424(b) under the Act, is hereinafter called the
"Prospectus"); any reference herein to any Preliminary Prospectus or the
Prospectus shall be deemed to refer to and include the documents
incorporated by reference therein pursuant to Item 12 of Form S-3 under the
Act, as of the date of such Preliminary Prospectus or Prospectus, as the
case may be; any reference to any amendment or supplement to any
Preliminary Prospectus or the Prospectus shall be deemed to refer to and
include any documents filed after the date of such Preliminary Prospectus
or Prospectus, as the case may be, under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and incorporated by reference in
such Preliminary Prospectus or Prospectus, as the case may be; and any
reference to any amendment to the Registration Statement shall be deemed to
refer to and include any annual report of the Company filed pursuant to
Section 13(a) or 15(d) of the Exchange Act after the effective date of the
Initial Registration Statement that is incorporated by reference in the
Registration Statement.
(ii) No order preventing or suspending the use of any Preliminary
Prospectus has been issued by the Commission, and each Preliminary
Prospectus, at the time of filing thereof, conformed in all material
respects to the requirements of the Act and the rules and regulations of
the Commission thereunder, and did not contain an untrue
2
<PAGE>
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading; provided,
however, that this representation and warranty shall not apply to any
statements or omissions made in reliance upon and in conformity with
information furnished in writing to the Company by an Underwriter through
Goldman, Sachs & Co. expressly for use therein;
(iii) The documents incorporated by reference in the Prospectus, when
they became effective or were filed with the Commission, as the case may
be, conformed in all material respects to the requirements of the Act or
the Exchange Act, as applicable, and the rules and regulations of the
Commission thereunder, and none of such documents contained an untrue
statement of a material fact or omitted to state a material fact required
to be stated therein or necessary to make the statements therein not
misleading; and any further documents so filed and incorporated by
reference in the Prospectus or any further amendment or supplement thereto,
when such documents become effective or are filed with the Commission, as
the case may be, will conform in all material respects to the requirements
of the Act or the Exchange Act, as applicable, and the rules and
regulations of the Commission thereunder and will not contain an untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not
misleading; provided, however, that this representation and warranty shall
not apply to any statements or omissions made in reliance upon and in
conformity with information furnished in writing to the Company by an
Underwriter through Goldman, Sachs & Co. expressly for use therein;
(iv) The Registration Statement conforms, and the Prospectus and any
further amendments or supplements to the Registration Statement or the
Prospectus will conform, in all material respects to the requirements of
the Act and the rules and regulations of the Commission thereunder and the
Registration Statement and any amendment thereto do not and will not, as of
the applicable effective date, contain an untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading and the Prospectus
does not, and as amended or supplemented will not, as of the applicable
filing date, contain an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading; provided, however, that this representation and
warranty shall not apply to any statements or omissions made in reliance
upon and in conformity with information furnished in writing to the Company
by an Underwriter through Goldman, Sachs & Co. expressly for use therein;
(v) Neither the Company nor any of its subsidiaries has sustained since
the date of the latest audited financial statements included or
incorporated by reference in the Prospectus any material loss or
interference with its business from fire, explosion, flood or other
calamity, whether or not covered by insurance, or from any labor dispute or
court or governmental action, order or decree, otherwise than as set forth
or contemplated in the Prospectus; and, since the respective dates as of
which information is given in the Registration Statement and the
Prospectus, there has not been any change in the capital stock (other than
pursuant to employee stock option plans and employment agreements in each
case existing on the date of this Agreement) or long-term debt of the
Company or any of its subsidiaries or any material adverse change, or any
development involving a prospective material adverse change, in or
affecting the general affairs, management, financial position,
stockholders' equity or results of
3
<PAGE>
operations of the Company and its subsidiaries taken as a whole, in each
case, otherwise than as set forth or contemplated in the Prospectus;
(vi) The Company and its subsidiaries have good and marketable title in
fee simple to all real property and good and marketable title to all
personal property owned by them, in each case free and clear of all liens,
encumbrances and defects except such as are described in the Prospectus or
such as do not materially affect the value of such property and do not
interfere with the use made and proposed to be made of such property by the
Company and its subsidiaries or such as do not and would not, individually
or in the aggregate, have a material adverse effect on the business,
prospects, operations, financial condition or results of operations of the
Company and its subsidiaries taken as a whole (a "Material Adverse
Effect"); and any real property and buildings held under lease by the
Company and its subsidiaries are held by them under valid, subsisting and
enforceable leases with such exceptions as are not material and do not
interfere with the use made and proposed to be made of such property and
buildings by the Company and its subsidiaries or such as do not and would
not, individually or in the aggregate, have a Material Adverse Effect;
(vii) The Company has been duly incorporated and is validly existing as
a corporation in good standing under the laws of the State of Delaware,
with power and authority (corporate and other) to own its properties and
conduct its business as described in the Prospectus, and has been duly
qualified as a foreign corporation for the transaction of business and is
in good standing under the laws of each other jurisdiction in which it owns
or leases properties or conducts any business so as to require such
qualification, except where failure to be so qualified would not have a
Material Adverse Effect; and each subsidiary of the Company has been duly
incorporated and is validly existing as a corporation in good standing
under the laws of its jurisdiction of incorporation, except where failure
to be in such good standing would not have a Material Adverse Effect;
(viii) The Company has an authorized capitalization as set forth in the
Prospectus, and all of the issued shares of capital stock of the Company
have been duly and validly authorized and issued and are fully paid and
non-assessable and conform to the description of the Stock contained in the
Prospectus; and all of the issued shares of capital stock of each
subsidiary of the Company have been duly and validly authorized and issued,
are fully paid and non-assessable and (except for directors' qualifying
shares and as disclosed in the Prospectus) are owned directly or indirectly
by the Company (except for minority interests in certain subsidiaries of
the Company, as set forth on Schedule III attached hereto), free and clear
of all liens, encumbrances, equities or claims;
(ix) The compliance by the Company with all of the provisions of this
Agreement and the consummation of the transactions herein contemplated will
not conflict with or result in a breach or violation of any of the terms or
provisions of, or constitute a default under, any indenture, mortgage, deed
of trust, loan agreement or other agreement or instrument to which the
Company or any of its subsidiaries is a party or by which the Company or
any of its subsidiaries is bound or to which any of the property or assets
of the Company or any of its
4
<PAGE>
subsidiaries is subject, nor will such action result in any violation of
the provisions of the Certificate of Incorporation or By-laws of the
Company or any statute or any order, rule or regulation of any court or
governmental agency or body having jurisdiction over the Company or any of
its subsidiaries or any of their properties, except for foreign and state
securities and Blue Sky laws, and except for breaches, violations or
defaults (other than any relating to the Certificate of Incorporation or
By-laws of the Company) that would not, individually or in the aggregate,
have a Material Adverse Effect or in the aggregate impair the Company's
ability to consummate the transactions herein contemplated; and no consent,
approval, authorization, order, registration or qualification of or with
any such court or governmental agency or body is required for the
consummation by the Company of the transactions contemplated by this
Agreement except the registration under the Act of the Shares, the
registration under the Exchange Act of the Stock and such consents,
approvals, authorizations, registrations or qualifications as may be
required under state or foreign securities or Blue Sky laws in connection
with the purchase and distribution of the Shares by the Underwriters;
(x) Neither the Company nor any of Estee Lauder Inc., Aramis Inc.,
Clinique Laboratories, Inc., Estee Lauder International, Inc., Estee Lauder
Cosmetics Ltd., Clinique Laboratories K.K., Estee Lauder K.K., Estee Lauder
N.V. and Estee Lauder A.G. Lachen (each, a "Principal Subsidiary" and
collectively, the "Principal Subsidiaries") is in violation of its
Certificate of Incorporation or By-laws and neither the Company nor any of
its subsidiaries is in default in the performance or observance of any
material obligation, agreement, covenant or condition contained in any
indenture, mortgage, deed of trust, loan agreement, lease or other
agreement or instrument to which it is a party or by which it or any of its
properties may be bound, which default would have a Material Adverse
Effect;
(xi) The statements set forth in the Prospectus under the caption
"Description of Capital Stock", insofar as they purport to constitute a
summary of the terms of the Stock, and under the caption "Certain
Relationships and Related Transactions" set forth in the Company's proxy
statement dated September 30, 1998 and incorporated by reference into the
Company's Annual Report on Form 10-K for the year ended June 30, 1998,
insofar as they purport to summarize the provisions of the laws, documents
and transactions referred to therein for purposes of complying with the
requirements of Form S-3, are accurate and correct in all material
respects;
(xii) Other than as set forth in the Prospectus, there are no legal or
governmental proceedings pending to which the Company or any of its
subsidiaries is a party or of which any property of the Company or any of
its subsidiaries is the subject which, if determined adversely to the
Company or any of its subsidiaries, would individually or in the aggregate
have a Material Adverse Effect; and, to the Company's knowledge, no such
proceedings are threatened or contemplated by governmental authorities or
threatened by others;
(xiii) There are no contracts or documents of a character required to be
described in the Registration Statement or the Prospectus or to be filed as
exhibits to the Registration Statement that are not so described or filed;
(xiv) Each of the Company and its subsidiaries owns or has rights to
adequate foreign and domestic patents, patent licenses, trademarks, service
marks, trade names, inventions, copyrights and know-how (including trade
secrets and other unpatented and/or unpatentable proprietary or
confidential information, systems or procedures) (collectively, the
"Intellectual Property") necessary to carry on their respective businesses
as of the date hereof, and neither the Company nor any of its subsidiaries
is aware that it would interfere with, infringe upon or otherwise come into
conflict with any
5
<PAGE>
Intellectual Property rights of third parties as a result of the operation
of the business of the Company or any subsidiary as of the date hereof
that, individually or in the aggregate, if subject to an unfavorable
decision, ruling or finding would have a Material Adverse Effect;
(xv) Except as disclosed in the Prospectus, there are no holders of
securities (debt or equity) of the Company or any of its subsidiaries, or
holders of rights (including, without limitation, preemptive rights),
warrants or options to obtain securities of the Company or any of its
subsidiaries, who have the right to request the Company or any of its
subsidiaries to register securities held by them under the Act;
(xvi) The Company is not and, after giving effect to the offering and
sale of the Shares, will not be an "investment company" or an entity
"controlled" by an "investment company", as such terms are defined in the
Investment Company Act of 1940, as amended (the "Investment Company Act");
(xvii) The Stock is listed on the New York Stock Exchange; and
(xviii) Arthur Andersen LLP, who have certified certain financial
statements of the Company and its subsidiaries, are independent public
accountants as required by the Act and the rules and regulations of the
Commission thereunder.
(b) Each of the Selling Stockholders severally and not jointly, solely with
respect to himself, herself or itself, represents and warrants to, and agrees
with, each of the Underwriters and the Company that:
(i) With respect to each of the Gary M. Lauder Trust and the William P.
Lauder Trust (each as defined below) only, such Selling Stockholder has
been duly created, is validly existing as a trust under the laws of the
jurisdiction of its organization and has the power and authority to own and
sell its property and to conduct its business;
(ii) With respect to LAL Family Partners L.P. only, such Selling
Stockholder has been duly formed, is validly existing as a limited
partnership under the laws of the State of California and has the power and
authority to own and sell its property and to conduct its business;
(iii) With respect to each of The 4003 Corporation and The 4202
Corporation only, such Selling Stockholder has been duly incorporated and
is validly existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation and has the power and authority to own
and sell its property and to conduct its business;
(iv) No consent, approval, authorization or order of any court or
governmental agency or body is required to be obtained by such Selling
Stockholder for the execution and delivery by such Selling Stockholder of
this Agreement, the Custody Agreement (and, if such Selling Stockholder's
name on Schedule II hereto is followed by an asterisk, the Power of
Attorney hereinafter referred to) and for the sale and delivery by such
Selling Stockholder of the Shares to be sold by such Selling Stockholder
hereunder, except such as have been obtained, the registration of the sale
of such Shares under the Act, the registration under the Exchange Act of
the Stock, and such as may be required under foreign and state securities
and Blue Sky Laws; and such Selling Stockholder has full right, power and
authority to enter into this Agreement, the Custody Agreement (and, if such
Selling Stockholder's name on Schedule II hereto is followed by an
asterisk, the Power of Attorney) and to sell, assign, transfer and deliver
the Shares to be sold by such Selling Stockholder hereunder (subject to the
Custody Agreement, the
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Power of Attorney, if applicable, and the Stockholders' Agreement, dated
November 22, 1995, as amended, among certain Lauder Family Members (as
defined in the Registration Statement));
(v) The sale of the Shares to be sold by such Selling Stockholder
hereunder and the compliance by such Selling Stockholder with all of the
obligations of such Selling Stockholder under this Agreement, the Custody
Agreement (and, if such Selling Stockholder's name on Schedule II hereto is
followed by an asterisk, the Power of Attorney) and the consummation by
such Selling Stockholder of the transactions herein and therein
contemplated will not conflict with or result in a breach or violation of
any of the terms or provisions of, or constitute a default (A) in the case
of each of LAL Family Partners L.P., the Gary M. Lauder Trust and the
William P. Lauder Trust only, the constitutive documents of such Selling
Stockholder, or (B) under any indenture, mortgage, deed of trust, loan
agreement or other agreement or instrument to which such Selling
Stockholder is a party or by which such Selling Stockholder is bound, or to
which any of the property or assets of such Selling Stockholder is subject,
nor, in the case of each of The 4003 Corporation and The 4202 Corporation,
will such action result in any violation of the provisions of its
certificate of incorporation or by-laws, nor will such action result in any
violation of the provisions of any statute or any order, rule or regulation
of any court or governmental agency or body having jurisdiction over such
Selling Stockholder or the property of such Selling Stockholder, except
that such Selling Stockholder makes no representation under this paragraph
as to the registration or filing requirements or disclosure provisions of
the securities laws of the United States or the securities or Blue Sky laws
of any other jurisdiction;
(vi) Such Selling Stockholder has, and immediately prior to First Time
of Delivery (as defined in Section 4 hereof) of such Shares by such Selling
Stockholder, such Selling Stockholder will have, good and valid title to
the Shares to be sold by such Selling Stockholder hereunder, free and clear
of all liens, encumbrances, equities or claims; and, upon delivery of the
Shares to be sold by such Selling Stockholder hereunder and payment
therefor pursuant hereto, good and valid title to such Shares, free and
clear of all liens, encumbrances, equities or claims, will be transferred
by such Selling Stockholder to the several Underwriters;
(vii) During the period beginning from the date hereof and continuing to
and including the date 90 days after the date of the Prospectus, such
Selling Stockholder will not offer, sell, contract to sell or otherwise
dispose of, except as provided hereunder, any Stock or securities of the
Company that are substantially similar to the Shares, including but not
limited to any securities that are convertible into or exchangeable for, or
that represent the right to receive, Stock or any such substantially
similar securities (other than dispositions among Lauder Family Members or
pursuant to employee stock option plans and employment agreements in each
case existing on, or upon the conversion or exchange of convertible or
exchangeable securities outstanding as of, the date of this Agreement,
provided that this provision shall continue to apply with respect to the
securities received upon such conversion or exchange) without your prior
written consent;
(viii) Such Selling Stockholder has not taken and will not take,
directly or indirectly, any action which is designed to or which has
constituted or which might reasonably be expected to cause or result in
stabilization or manipulation of the price of any security of the Company
to facilitate the sale or resale of the Shares;
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(ix) To the extent that any statements or omissions made in the
Registration Statement, any Preliminary Prospectus, the Prospectus or any
amendment or supplement thereto are made in reliance upon and in conformity
with written information furnished to the Company by such Selling
Stockholder expressly for use therein, such Preliminary Prospectus and the
Registration Statement did, and the Prospectus and any further amendments
or supplements to the Registration Statement and the Prospectus, when they
become effective or are filed with the Commission, as the case may be, will
conform in all material respects to the requirements of the Act and the
rules and regulations of the Commission thereunder and will not contain any
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein
not misleading;
(x) In order to document the Underwriters' compliance with the reporting
and withholding provisions of the Tax Equity and Fiscal Responsibility Act
of 1982 with respect to the transactions herein contemplated, such Selling
Stockholder will deliver to you prior to or at the First Time of Delivery
of Shares by such Selling Stockholder a properly completed and executed
United States Treasury Department Form W-9 (or other applicable form or
statement specified by Treasury Department regulations in lieu thereof);
(xi) Such Selling Stockholder has duly executed and delivered a custody
agreement appointing ChaseMellon Shareholder Services, L.L.C. as custodian
(the "Custodian"), for the Shares being sold by such Selling Stockholder
(the "Custody Agreement"), and certificates in negotiable form representing
all of the Shares to be sold by such Selling Stockholder hereunder (except
for certificates representing certain Stock Split Shares, which
certificates will be deposited with the Custodian pursuant to the Custody
Agreement immediately upon distribution by the transfer agent of the Stock
(the "Transfer Agent") thereof) have been deposited with and are being held
by the Custodian. If such Selling Stockholder's name on Schedule II hereto
is followed by an asterisk, such Selling Stockholder has duly executed and
delivered a Power of Attorney in the form heretofore furnished to you (the
"Power of Attorney"), appointing the person(s) indicated in Schedule II
hereto as such Selling Stockholder's attorney(s)-in-fact (the
"Attorney-in-Fact") with authority to authorize the delivery of the Shares
to be sold by such Selling Stockholder hereunder and otherwise to act on
behalf of such Selling Stockholder in connection with the transactions
contemplated by this Agreement to the extent set forth in the Power of
Attorney; and
(xii) Such Selling Stockholder has duly executed and delivered
irrevocable instructions (the "Transfer Instructions") to the Transfer
Agent with respect to the delivery of Stock Split Shares.
(xiii) The Shares represented by the certificates held, or to be held,
in custody for such Selling Stockholder under the Custody Agreement and
the Stock Split Shares subject to the Transfer Instructions are
subject to the interests of the Underwriters hereunder; the arrangements
made by such Selling Stockholder for such custody, the instructions given
pursuant to the Transfer Instructions and the appointment by such Selling
Stockholder of the Attorneys-in-Fact by the Power of Attorney, are to that
extent irrevocable; the obligations of the Selling Stockholder hereunder
shall not be terminated by operation of law, whether by the death or
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incapacity of such Selling Stockholder if an individual or, in the case of
an estate or trust, by the death or incapacity of any executor or trustee
or the termination of such estate or trust, or in the case of a partnership
or corporation, by the dissolution of such partnership or corporation, or
by the occurrence of any other event; if any individual Selling Stockholder
or any such executor or trustee should die or become incapacitated, or if
any such estate or trust should be terminated, or if any such partnership
or corporation should be dissolved, or if any other such event should
occur, before the delivery of the Shares (including the Stock Split Shares)
hereunder, certificates representing the Shares shall be delivered by or on
behalf of such Selling Stockholder in accordance with the terms and
conditions of this Agreement, the Custody Agreement and the Transfer
Instructions; and actions taken by the Attorneys-in-Fact pursuant to the
Power of Attorney shall be as valid as if such death, incapacity,
termination, dissolution or other event had not occurred, regardless of
whether or not the Custodian, the Attorneys-in-Fact, or any of them, shall
have received notice of such death, incapacity, termination, dissolution or
other event.
2. Subject to the terms and conditions herein set forth, (a) each of the
Selling Stockholders agrees, severally and not jointly, to sell to each of the
Underwriters, and each of the Underwriters agrees, severally and not jointly, to
purchase from each of the Selling Stockholders, at a purchase price per share of
$[ ], the number of Firm Shares (to be adjusted by you so as to eliminate
fractional shares) determined by multiplying the aggregate number of Firm Shares
to be sold by each of the Selling Stockholders as set forth opposite their
respective names in Schedule II hereto by a fraction, the numerator of which is
the aggregate number of Firm Shares to be purchased by such Underwriter as set
forth opposite the name of such Underwriter in Schedule I hereto and the
denominator of which is the aggregate number of Firm Shares to be purchased by
all of the Underwriters from all of the Selling Stockholders hereunder and (b)
in the event and to the extent that the Underwriters shall exercise the election
to purchase Optional Shares as provided below, each of the Selling Stockholders
agrees, severally and not jointly, to sell to each of the Underwriters, and each
of the Underwriters agrees, severally and not jointly, to purchase from the
Selling Stockholders, at the purchase price per share set forth in clause (a) of
this Section 2, that portion of the number of Optional Shares as to which such
election shall have been exercised (to be adjusted by you so as to eliminate
fractional shares) determined by multiplying such number of Optional Shares by a
fraction the numerator of which is the maximum number of Optional Shares which
such Underwriter is entitled to purchase as set forth opposite the name of such
Underwriter in Schedule I hereto and the denominator of which is the maximum
number of Optional Shares that all of the Underwriters are entitled to purchase
hereunder.
The Selling Stockholders, as and to the extent indicated in Schedule II
hereto, hereby grant, severally and not jointly, to the Underwriters the right
to purchase at their election up to 495,150 Optional Shares, at the purchase
price per share set forth in the paragraph above, for the sole purpose of
covering overallotments in the sale of the Firm Shares. Any such election to
purchase Optional Shares shall be made in proportion to the maximum number of
Optional Shares to be sold by each Selling Stockholder as set forth in Schedule
II hereto. Any such election to purchase Optional Shares may be exercised only
by written notice from you to the Attorneys-in-Fact, given within a period of 30
calendar days after the date of this Agreement and setting forth the aggregate
number of Optional Shares to be purchased and the date on which such Optional
Shares are to be delivered, as determined by you but in no event earlier than
the First Time of Delivery (as defined in Section 4 hereof) or, unless you and
the
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Attorneys-in-Fact otherwise agree in writing, earlier than two or later than
ten business days after the date of such notice.
If the Time of Delivery (as defined in Section 4(a) hereof) of the Firm
Shares or the Optional Shares is after June 2, 1999, then the purchase price per
share set forth in clause (a) of this Section 2 and the number of Firm Shares or
Optional Shares, as the case may be, to be purchased by the Underwriters
pursuant to this Section 2 will be adjusted to reflect the Stock Split. The
Selling Stockholders agree that they will immediately deposit with the
Custodian, upon receipt thereof, any certificates representing the Stock Split
Shares relating to the Shares held by the Custodian.
3. Upon the authorization by you of the release of the Firm Shares, the
several Underwriters propose to offer the Firm Shares for sale upon the terms
and conditions set forth in the Prospectus.
4. (a) The Shares to be purchased by each Underwriter hereunder in
definitive form, and in such authorized denominations and registered in such
names as Goldman, Sachs & Co. may request upon at least forty-eight hours' prior
notice to the Selling Stockholders, shall be delivered by or on behalf of the
Selling Stockholders to Goldman, Sachs & Co., for the account of such
Underwriter, against payment by or on behalf of such Underwriter of the purchase
price therefor by wire transfer, payable to the order of each of the Selling
Stockholders, in Federal (same day) funds. The Company will cause the
certificates representing the Shares to be made available for checking and
packaging at least twenty-four hours prior to each Time of Delivery with respect
thereto at the office of Goldman, Sachs & Co. or The Depository Trust Company or
its designated custodian, as the case may be (the "Designated Office"). The time
and date of such delivery and payment shall be (i) with respect to the Firm
Shares, 9:30 a.m., New York City time, on May , 1999 or such other time and date
as Goldman, Sachs & Co. and the Selling Stockholders may agree upon in writing,
and (ii) with respect to the Optional Shares, 9:30 a.m., New York City time, on
the date specified by Goldman, Sachs & Co. in the written notice given by
Goldman, Sachs & Co. of the Underwriters' election to purchase such Optional
Shares, or such other time and date as Goldman, Sachs & Co. and the Selling
Stockholders may agree upon in writing. Such time and date for delivery of the
Firm Shares is herein called the "First Time of Delivery", such time and date
for delivery of the Optional Shares, if not the First Time of Delivery, is
herein called the "Second Time of Delivery", and each such time and date for
delivery is herein called a "Time of Delivery".
(b) The documents to be delivered at each Time of Delivery by or on behalf
of the parties hereto pursuant to Section 7 hereof, including the cross-receipt
for the Shares and any additional documents requested by the Underwriters
pursuant to Section 7(k) hereof, will be delivered at the offices of Weil,
Gotshal & Manges LLP, 767 Fifth Avenue, New York, New York 10153 (the "Closing
Location"), and the Shares will be delivered at the Designated Office, all at
each Time of Delivery. A meeting will be held at the Closing Location at 2:00
p.m., New York City time, on the New York Business Day next preceding each Time
of Delivery, at which meeting the final drafts of the documents to be delivered
pursuant to the preceding sentence will be available for review by the parties
hereto. For the purposes of this Section 4, "New York Business Day" shall mean
each Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on which
banking institutions in New York are generally authorized or obligated by law or
executive order to close.
5. The Company agrees with each of the Underwriters:
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(a) To prepare the Prospectus in a form approved by you and to file such
Prospectus pursuant to Rule 424(b) under the Act not later than the Commission's
close of business on the second business day following the execution and
delivery of this Agreement, or, if applicable, such earlier time as may be
required by Rule 430A(a)(3) under the Act; to make no further amendment or any
supplement to the Registration Statement or Prospectus prior to the last Time of
Delivery which shall be disapproved by you promptly after reasonable notice
thereof; to advise you, promptly after it receives notice thereof, of the time
when any amendment to the Registration Statement has been filed or becomes
effective or any supplement to the Prospectus or any amended Prospectus has been
filed and to furnish you with copies thereof; to file promptly all reports and
any definitive proxy or information statements required to be filed by the
Company with the Commission pursuant to Section 13(a), 13(c), 14 or 15(d) of the
Exchange Act subsequent to the date of the Prospectus and for so long as the
delivery of a prospectus is required in connection with the offering or sale of
the Shares; to advise you, promptly after it receives notice thereof, of the
issuance by the Commission of any stop order or of any order preventing or
suspending the use of any Preliminary Prospectus or Prospectus, of the
suspension of the qualification of the Shares for offering or sale in any
jurisdiction, of the initiation or threatening of any proceeding for any such
purpose, or of any request by the Commission for the amending or supplementing
of the Registration Statement or Prospectus or for additional information; and,
in the event of the issuance of any stop order or of any order preventing or
suspending the use of any Preliminary Prospectus or Prospectus or suspending any
such qualification, promptly to use its best efforts to obtain the withdrawal of
such order;
(b) If the Company elects to rely upon Rule 462(b), the Company shall file
a Rule 462(b) Registration Statement with the Commission in compliance with Rule
462(b) by 10:00 p.m., Washington, D.C. time, on the date of this Agreement, and
the Company shall at the time of filing either pay to the Commission the filing
fee for the Rule 462(b) Registration Statement or give irrevocable instructions
for the payment of such fee pursuant to Rule 111(b) under the Act.
(c) Promptly from time to time to take such action as you may reasonably
request to qualify the Shares for offering and sale under the securities laws of
such jurisdictions as you may request and to comply with such laws so as to
permit the continuance of sales and dealings therein in such jurisdictions for
as long as may be necessary to complete the distribution of the Shares, provided
that in connection therewith the Company shall not be required to qualify as a
foreign corporation or to file a general consent to service of process, or take
any action that would subject the Company to any tax, in any jurisdiction;
(d) Prior to 12:00 noon, New York City time, on the New York Business Day
next succeeding the date of this Agreement and from time to time, to use its
best efforts to furnish the Underwriters with copies of the Prospectus in New
York City in such quantities as you may reasonably request, and, if the delivery
of a prospectus is required at any time prior to the expiration of nine months
after the time of issue of the Prospectus in connection with the offering or
sale of the Shares and if at such time any events shall have occurred as a
result of which the Prospectus as then amended or supplemented would include an
untrue statement of a material fact or omit to state any material fact necessary
in order to make the statements therein, in the light of the circumstances under
which they were made when such Prospectus is delivered, not misleading, or, if
for any other reason it shall be necessary during such period to amend or
supplement the Prospectus or to file under the Exchange Act any document
incorporated by reference in the Prospectus in order to comply with the Act or
the Exchange Act, to notify you and upon your request to file such document and
to prepare and furnish without charge to each Underwriter and to any dealer in
securities as many copies as you may from time to time reasonably request of an
amended Prospectus or a supplement to the
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Prospectus which will correct such statement or omission or effect such
compliance, and in case any Underwriter is required to deliver a prospectus in
connection with sales of any of the Shares at any time nine months or more after
the time of issue of the Prospectus, upon your request but at the expense of
such Underwriter, to prepare and deliver to such Underwriter as many copies as
you may request of an amended or supplemented Prospectus complying with Section
10(a)(3) of the Act;
(e) To make generally available to its securityholders as soon as
practicable, but in any event not later than eighteen months after the effective
date of the Registration Statement (as defined in Rule 158(c) under the Act), an
earnings statement of the Company and its subsidiaries (which need not be
audited) complying with Section 11(a) of the Act and the rules and regulations
of the Commission thereunder (including, at the option of the Company, Rule
158);
(f) During the period beginning from the date hereof and continuing to and
including the date 90 days after the date of the Prospectus, not to offer, sell,
contract to sell or otherwise dispose of, except as provided hereunder, any
Stock or securities of the Company that are substantially similar to the Shares,
including but not limited to any securities that are convertible into or
exchangeable for, or that represent the right to receive, Stock or any such
substantially similar securities (other than pursuant to employee stock option
plans and employment agreements, in each case, existing on, or upon the
conversion or exchange of convertible or exchangeable securities outstanding as
of, the date of this Agreement), or to file any registration statement with the
Commission under the Act relating to any such securities without your prior
written consent;
(g) To make available to its stockholders as soon as practicable after the
end of each fiscal year an annual report (including a balance sheet and
statements of income, stockholders' equity and cash flows of the Company and its
consolidated subsidiaries certified by independent public accountants) and, to
make available to its stockholders as soon as practicable after the end of each
of the first three quarters of each fiscal year (beginning with the fiscal
quarter ending after the effective date of the Registration Statement),
consolidated summary financial information of the Company and its subsidiaries
for such quarter in reasonable detail; and
(h) During a period of five years from the effective date of the
Registration Statement, to furnish to you copies of all reports or other
communications (financial or other) furnished to stockholders, and to deliver to
you (i) as soon as they are available, copies of any reports and financial
statements furnished to or filed with the Commission or any national securities
exchange on which any class of securities of the Company is listed; and (ii)
such additional information concerning the business and financial condition of
the Company as you may from time to time reasonably request (such financial
statements to be on a consolidated basis to the extent the accounts of the
Company and its subsidiaries are consolidated in reports furnished to its
stockholders generally or to the Commission).
6. The Company and each of the Selling Stockholders covenant and agree with
one another and with the several Underwriters that (a) each Selling Stockholder
will pay or cause to be paid a pro rata share (based on the number of Shares to
be sold by such Selling Stockholder hereunder) of the following: (i) the filing
fees and fees, disbursements and expenses of the Company's counsel and
accountants in connection with the registration of the Shares under the Act and
all other expenses in connection with the preparation, printing and filing of
the Registration Statement, any Preliminary Prospectus and the Prospectus and
amendments and supplements thereto and the mailing and delivering of copies
thereof to the
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Underwriters and dealers; (ii) the cost of printing or producing any
Agreement among Underwriters, this Agreement, the Blue Sky Memorandum, closing
documents (including any compilations thereof) and any other documents in
connection with the offering, purchase, sale and delivery of the Shares; (iii)
all expenses in connection with the qualification of the Shares for offering and
sale under state securities laws as provided in Section 5(c) hereof, including
the fees and disbursements of counsel for the Underwriters in connection with
such qualification and in connection with the Blue Sky survey; and (iv) the
filing fees incident to, and the fees and disbursements of counsel for the
Underwriters in connection with, securing any required review by the National
Association of Securities Dealers, Inc. of the terms of the sale of the Shares;
and (b) the Company will pay or cause to be paid: (i) the cost of preparing
stock certificates; (ii) the cost and charges of any transfer agent or
registrar; and (iii) all other costs and expenses incident to the performance of
its obligations hereunder which are not otherwise specifically provided for in
this Section 6; and (c) such Selling Stockholder will pay or cause to be paid
all costs and expenses incident to the performance of such Selling Stockholder's
obligations hereunder which are not otherwise specifically provided for in this
Section 6, including (i) any fees and expenses of counsel for such Selling
Stockholder, (ii) such Selling Stockholder's pro rata share of the fees and
expenses of the Attorney-in-Fact and (iii) all expenses and taxes incident to
the sale and delivery of the Shares to be sold by such Selling Stockholder to
the Underwriters hereunder. In connection with clause (iii) of the preceding
sentence, Goldman, Sachs & Co. agrees to pay New York State stock transfer tax,
and each of the Selling Stockholders agrees to reimburse Goldman, Sachs & Co.
for associated carrying costs if such tax payment is not rebated on the day of
payment and for any portion of such tax payment not rebated. It is understood,
however, that, except as provided in this Section 6, and Sections 8 and 11
hereof, the Underwriters will pay all of their own costs and expenses, including
the fees of their counsel, stock transfer taxes on resale of any of the Shares
by them, and any advertising expenses connected with any offers they may make.
7. The obligations of the Underwriters hereunder, as to the Shares to be
delivered at each Time of Delivery, shall be subject, in their discretion, to
the condition that all representations and warranties and other statements of
the Company and the Selling Stockholders herein are, at and as of such Time of
Delivery, true and correct, the condition that the Company and the Selling
Stockholders shall have performed all of its and their obligations hereunder
theretofore to be performed, and the following additional conditions:
(a) The Prospectus shall have been filed with the Commission pursuant to
Rule 424(b) within the applicable time period prescribed for such filing by the
rules and regulations under the Act and in accordance with Section 5(a) hereof;
if the Company has elected to rely upon Rule 462(b), the Rule 462(b)
Registration Statement shall have become effective by 10:00 p.m., Washington,
D.C. time, on the date of this Agreement; no stop order suspending the
effectiveness of the Registration Statement or any part thereof shall have been
issued and no proceeding for that purpose shall have been initiated or
threatened by the Commission; and all requests for additional information on the
part of the Commission shall have been complied with to your reasonable
satisfaction;
(b) Fried, Frank, Harris, Shriver & Jacobson, counsel for the Underwriters,
shall have furnished to you such opinion or opinions (a draft of each such
opinion is attached as Annex II(a) hereto), dated such Time of Delivery, with
respect to the matters covered in paragraphs (i), (vii), (x) (including with
respect to the caption "Underwriting") and (xiii) of subsection (c) below as
well as such other related matters as you may reasonably request, and such
counsel shall have received such papers and information as they may reasonably
request to enable them to pass upon such matters;
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(c) Weil, Gotshal & Manges, LLP counsel for the Company, shall have
furnished to you their written opinion (a draft of such opinion is attached as
Annex II(b) hereto), dated such Time of Delivery, in form and substance
reasonably satisfactory to you, to the effect that:
(i) The Company has been duly incorporated and is validly existing
as a corporation in good standing under the laws of the State of
Delaware, with corporate power and authority to own its properties and
conduct its business as described in the Prospectus;
(ii) The Company has an authorized capitalization as set forth in
the Prospectus, and all of the issued shares of capital stock of the
Company (including the Shares being delivered at such Time of Delivery)
have been duly and validly authorized and issued and are fully paid and
non-assessable; and the Shares conform to the description of the Stock
contained in the Prospectus;
(iii) The Stock Split has been duly authorized by all necessary
corporate action and the Stock Split Shares have been duly and validly
authorized and, when issued in the Stock Split, will be duly and
validly issued and fully paid and non-assessable.
(iv) The Company is duly qualified to transact business and in
good standing under the laws of each other jurisdiction where it owns
or leases properties or conducts any business so as to require such
qualification, except where the failure to be in good standing would
not have a Material Adverse Effect (such counsel being entitled to rely
in respect of the opinion in this clause upon opinions of local counsel
and in respect of matters of fact upon certificates of officers of the
Company, provided that such counsel shall state that they believe that
both you and they are justified in relying upon such opinions and
certificates);
(v) Each of the Principal Subsidiaries which is incorporated in
the United States ("U.S. Principal Subsidiaries") has been duly
incorporated and is validly existing as a corporation in good standing
under the laws of its jurisdiction of incorporation; and, to the best
of such counsel's knowledge, all of the issued shares of capital stock
of each U.S. Principal Subsidiary have been duly and validly authorized
and issued, are fully paid and non-assessable, and are owned directly
or indirectly by the Company, free and clear of all liens, encumbrances
or claims;
(vi) To such counsel's knowledge and other than as set forth in
the Prospectus, there are no legal or governmental proceedings pending
or overtly threatened against the Company or any of its subsidiaries or
involving the Company or any of its subsidiaries or any property of the
Company or any of its subsidiaries which would be required to be
disclosed in the Prospectus;
(vii) This Agreement has been duly authorized, executed and
delivered by the Company;
(viii)The compliance by the Company with all of the provisions of
this Agreement and the consummation of the transactions herein
contemplated will not conflict with or result in a breach or violation
of any of the terms or provisions of, or constitute a default under,
any indenture, mortgage, deed of trust, loan agreement or other
agreement or instrument known to such counsel to which the Company or
any of its subsidiaries is a party or by which the Company or any of
its subsidiaries
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is bound or to which any of the property or assets of the Company or
any of its subsidiaries is subject, and that is material to the Company
and its subsidiaries taken as a whole, nor will such action result in
any violation of the provisions of the Certificate of Incorporation or
By-laws of the Company or any New York, Delaware corporate or Federal
law, rule or regulation (other than foreign and state securities or
Blue Sky laws, as to which such counsel expresses no opinion, and other
than Federal securities laws, as to which such counsel expresses no
opinion except as otherwise set forth herein), or any judgment, writ,
injunction, decree, order or ruling of any court or governmental
authority binding on the Company of which such counsel is aware;
(ix) No consent, approval, authorization, order, registration or
qualification of or with any New York, Delaware corporate or Federal
governmental authority is required for the consummation by the Company
of the transactions contemplated by this Agreement, except the
registration under the Act of the Shares and such consents, approvals,
authorizations, registrations or qualifications as may be required
under state or foreign securities or Blue Sky laws as to which such
counsel need express no opinion (it being understood that the opinion
may be limited to those consents, approvals, authorizations, orders,
registrations or qualifications that, in such counsel's experience, are
normally applicable to the transactions of the type contemplated by
this Agreement);
(x) The statements set forth in the Prospectus under the caption
"Description of Capital Stock", insofar as they purport to constitute a
summary of the terms of the Stock, are accurate and correct in all
material respects;
(xi) The Company is not an "investment company" or an entity
"controlled" by an "investment company", as such terms are defined in
the Investment Company Act;
(xii) The documents incorporated by reference in the Prospectus
(other than the financial statements and related notes, the financial
statement schedules and other financial and accounting data therein, as
to which such counsel need express no opinion), when they became
effective or were filed with the Commission, as the case may be,
complied as to form in all material respects with the requirements of
the Act or the Exchange Act, as applicable and the rules and
regulations of the Commission thereunder; and
(xiii)The Registration Statement and the Prospectus and any
further amendments and supplements thereto made by the Company prior to
such Time of Delivery (other than the financial statements and related
notes, the financial statement schedules and other financial and
accounting data included in the Registration Statement or Prospectus,
as to which such counsel need express no opinion) comply as to form in
all material respects with the requirements of the Act and the rules
and regulations thereunder.
In addition, such counsel shall state that it has participated in
conferences with directors, officers and other representatives of the Company,
various of the Selling Stockholders, representatives of the independent public
accountants for the Company, representatives of the Underwriters and
representatives of counsel for the Underwriters, at which conferences the
contents of the Registration Statement and the Prospectus and related matters
were discussed, and, although such counsel has not independently verified and is
not passing upon and
15
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assumes no responsibility for the accuracy, completeness or fairness of the
statements contained in the Registration Statement and Prospectus, except to the
extent specified in subsection (ix) of this Section 7(c), no facts have come to
such counsel's attention which leads such counsel to believe that the
Registration Statement (including any documents incorporated by reference
therein), on the effective date thereof (or, in the case of documents
incorporated by reference, when such documents became effective or were filed),
contained an untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements contained
therein not misleading or that the Prospectus, on the date thereof or on the
date hereof, contained or contains an untrue statement of a material fact or
omitted or omits to state a material fact required to be stated therein or
necessary to make the statements contained therein, in light of the
circumstances under which they were made, not misleading (it being understood
that such counsel expresses no view with respect to the financial statements and
related notes, the financial statement schedules and the other financial and
accounting data included in the Registration Statement or Prospectus); and they
do not know of any contracts or other documents of a character required to be
filed as an exhibit to the Registration Statement or required to be incorporated
by reference into the Prospectus or required to be described in the Registration
Statement or the Prospectus which are not filed or described as required.
In rendering such opinion, such counsel may state that they express no
opinion as to the laws of any jurisdiction other than the laws of the State of
New York, the corporate laws of the State of Delaware and the federal laws of
the United States;
(d) Weil, Gotshal & Manges LLP, counsel to LAL Family Partners L.P., shall
have furnished to you their written opinion (a draft of such opinion is attached
as Annex II(c) hereto) with respect to such Selling Stockholder, dated such Time
of Delivery, in form and substance reasonably satisfactory to you, to the effect
that:
(i) Such Selling Stockholder validly exists as a limited
partnership under, and is governed by, the laws of the State of
California; and has the requisite power and authority to enter into
this Agreement and the Custody Agreement (and, if such Selling
Stockholder's name on Schedule II hereto is followed by an asterisk,
the Power of Attorney), and to consummate the transactions contemplated
hereby and thereby in connection with the Shares to be sold by such
Selling Stockholder under this Agreement;
(ii) The Custody Agreement (and, if such Selling Stockholder's
name on Schedule II hereto is followed by an asterisk, the Power of
Attorney) and the Transfer Instructions have been duly executed and
delivered by such Selling Stockholder and constitute valid and binding
agreements of such Selling Stockholder enforceable in accordance with
their terms;
(iii) This Agreement has been duly executed and delivered by or on
behalf of such Selling Stockholder; and the sale of the Shares to be
sold by such Selling Stockholder hereunder and the compliance by such
Selling Stockholder with all of the obligations of such Selling
Stockholder under this Agreement and the Custody Agreement (and, if
such Selling Stockholder's name on Schedule II hereto is followed by an
asterisk, the Power of Attorney) and the Transfer Instructions and the
consummation by such Selling Stockholder of the transactions herein and
therein contemplated will not conflict with or result in a breach or
violation of any terms or provisions of, or constitute a default under,
any indenture, mortgage, deed of trust, loan agreement or other
agreement or instrument known to such
16
<PAGE>
counsel to which such Selling Stockholder is a party or by which such
Selling Stockholder is bound or to which any of the property or assets
of such Selling Stockholder is subject, nor will such action result in
any violation of the provisions of any New York, Delaware corporate or
Federal law, rule or regulation known to such counsel (other than
foreign and state securities or Blue Sky laws, as to which such counsel
expresses no opinion, and other than Federal securities laws, as to
which such counsel expresses no opinion except as otherwise set forth
herein), or any judgment, writ, injunction, decree, order or ruling of
any court or governmental authority binding on such Selling Stockholder
of which such counsel is aware;
(iv) No consent, approval, authorization or order of any New York,
Delaware corporate or Federal governmental agency or body is required
to be obtained by such Selling Stockholder for the consummation by such
Selling Stockholder of the transactions contemplated by this Agreement,
the Custody Agreement (and if such Selling Stockholder's name on
Schedule II hereto is followed by an asterisk, the Power of Attorney)
and the Transfer Instructions or, in connection with the Shares to be
sold by such Selling Stockholder hereunder, except such as have been
duly obtained and are in full force and effect, the registration of the
Shares under the Act and such as may be required under state or foreign
securities or Blue Sky laws in connection with the purchase and
distribution of such Shares by the Underwriters (as to which such
counsel need express no opinion) (it being understood that the opinion
may be limited to those consents, approvals, authorizations, orders,
registrations or qualifications that, in such counsel's experience, are
normally applicable to the transactions of the type contemplated by
this Agreement);
(v) Such Selling Stockholder has full right, power and authority
to sell, assign, transfer and deliver the Shares to be sold by such
Selling Stockholder under this Agreement; and
(vi) Assuming that the Underwriters purchase the Shares to be
delivered at such Time of Delivery for value and without notice of any
adverse claim as such terms are used in Section 8-105 of the Uniform
Commercial Code as currently in effect in the State of New York (the
"New York UCC"), the delivery of certificates representing such Shares
either registered in the name of the Underwriters or effectively
endorsed to the Underwriters or in blank will pass to the Underwriters
all rights that such Selling Stockholder has in such Shares, free of
all adverse claims as such term is used in Section 8-105 of the New
York UCC.
In rendering such opinion, such counsel may state that they express no
opinion as to the laws of any jurisdiction other than the laws of the State of
New York, the corporate laws of the State of Delaware and the federal laws of
the United States, and in rendering the opinion in subparagraph (vi) such
counsel may rely upon a certificate of such Selling Stockholder in respect of
matters of fact as to ownership of, and liens, encumbrances, equities or claims
on the Shares sold by such Selling Stockholder, provided that such counsel shall
state that they believe that both you and they are justified in relying upon
such certificate;
(e) Weil, Gotshal & Manges LLP, counsel to Leonard A. Lauder and Gary M.
Lauder, each in his capacity as a Selling Stockholder, shall have furnished to
you their written opinion (a draft of such opinion is attached as Annex II(d)
hereto), with respect to each of the Selling Stockholders for whom they are
acting as counsel, dated such Time of Delivery, in form and substance
satisfactory to you, to the effect that:
17
<PAGE>
(i) The Custody Agreement (and, if such Selling Stockholder's name
on Schedule II hereto is followed by an asterisk, the Power of
Attorney) and the Transfer Instructions have been duly executed and
delivered by such Selling Stockholder and constitute valid and binding
agreements of such Selling Stockholder enforceable in accordance with
their terms;
(ii) This Agreement has been duly executed and delivered by or on
behalf of such Selling Stockholder; and the sale of the Shares to be
sold by such Selling Stockholder hereunder and the compliance by such
Selling Stockholder with all of the obligations of such Selling
Stockholder under this Agreement and the Custody Agreement (and, if
such Selling Stockholder's name on Schedule II hereto is followed by an
asterisk, the Power of Attorney) and the Transfer Instructions and the
consummation by such Selling Stockholder of the transactions herein and
therein contemplated will not conflict with or result in a breach or
violation of any terms or provisions of, or constitute a default under,
any indenture, mortgage, deed of trust, loan agreement or other
agreement or instrument known to such counsel to which such Selling
Stockholder is a party or by which such Selling Stockholder is bound or
to which any of the property or assets of such Selling Stockholder is
subject, nor will such action result in any violation of the provisions
of any New York, Delaware corporate or Federal law, rule or regulation
known to such counsel (other than foreign and state securities or Blue
Sky laws, as to which such counsel expresses no opinion, and other than
Federal securities laws, as to which such counsel expresses no opinion
except as otherwise set forth herein), or any judgment, writ,
injunction, decree, order or ruling of any court or governmental
authority binding on such Selling Stockholder of which such counsel is
aware;
(iii) No consent, approval, authorization or order of any New
York, Delaware corporate` or Federal governmental agency or body is
required to be obtained by such Selling Stockholder for the
consummation by such Selling Stockholder of the transactions
contemplated by this Agreement, the Custody Agreement (and, if such
Selling Stockholder's name on Schedule II hereto is followed by an
asterisk, the Power of Attorney) and the Transfer Instructions or, in
connection with the Shares to be sold by such Selling Stockholder
hereunder, except such as have been duly obtained and are in full force
and effect, the registration of the Shares under the Act, the
registration of the Stock under the Exchange Act, and such as may be
required under state or foreign securities or Blue Sky laws in
connection with the purchase and distribution of such Shares by the
Underwriters (as to which such counsel need express no opinion) (it
being understood that the opinion may be limited to those consents,
approvals, authorizations, orders, registrations or qualifications
that, in such counsel's experience, are normally applicable to the
transactions of the type contemplated by this Agreement);
(iv) Such Selling Stockholder has full right, power and authority
to sell, assign, transfer and deliver the Shares to be sold by such
Selling Stockholder under this Agreement; and
(v) Assuming that the Underwriters purchase the Shares to be
delivered at such Time of Delivery for value and without notice of any
adverse claim as such terms are used in Section 8-105 of the Uniform
Commercial Code as currently in effect in the State of New York (the
"New York UCC"), the delivery of certificates
18
<PAGE>
representing such Shares either registered in the name of the
Underwriters or effectively endorsed to the Underwriters or in blank
will pass to the Underwriters all rights that such Selling Stockholder
has in such Shares, free of all adverse claims as such term is used in
Section 8-105 of the New York UCC.
In rendering such opinion, such counsel may state that they express no
opinion as to the laws of any jurisdiction other than the laws of the State of
New York, the corporate laws of the State of Delaware and the federal laws of
the United States, and in rendering the opinion in subparagraph (v) such counsel
may rely upon a certificate of such Selling Stockholder in respect of matters of
fact as to ownership of, and liens, encumbrances, equities or claims on the
Shares sold by such Selling Stockholder, provided that such counsel shall state
that they believe that both you and they are justified in relying upon such
certificate;
(f) Weil, Gotshal & Manges LLP, counsel to (i) Daniel J. Aaron as
trustee of the separate share trust f/b/o Gary M. Lauder, u/a/d December 15,
1976, created by Leonard A. Lauder, as grantor, (the "Gary M. Lauder Trust") and
(ii) Anthony E. Malkin and Patrick J. Landers as trustees of the separate share
trust f/b/o William P. Lauder, u/a/d December 15, 1976, created by Leonard A.
Lauder, as grantor, (the "William P. Lauder Trust"), shall have furnished to you
their written opinion (a draft of each such opinion is attached as Annex II(e)
hereto) with respect to each of the Selling Stockholders for whom they are
acting as counsel, dated such Time of Delivery, in form and substance
satisfactory to you, to the effect that:
(i) Such Selling Stockholder validly exists as a trust under, and
is governed by, the laws of the State of [New York]; and the trustee of
such Selling Stockholder has the requisite power and authority, on
behalf of such Selling Stockholder, to enter into this Agreement and
the Custody Agreement (and, if such Selling Stockholder's name on
Schedule II hereto is followed by an asterisk, the Power of Attorney),
and to consummate the transactions contemplated hereby and thereby in
connection with the Shares to be sold by such Selling Stockholder under
this Agreement;
(ii) The Custody Agreement (and, if such Selling Stockholder's
name on Schedule II hereto is followed by an asterisk, the Power of
Attorney) and the Transfer Instructions have been duly executed and
delivered by such Selling Stockholder and constitute valid and binding
agreements of such Selling Stockholder in accordance with their terms;
(iii) This Agreement has been duly executed and delivered by such
Selling Stockholder; and the sale by such Selling Stockholder of the
Shares to be sold by such Selling Stockholder hereunder and the
compliance by such Selling Stockholder with all of the obligations of
such Selling Stockholder under this Agreement and the Custody Agreement
(and if such Selling Stockholder's name on Schedule II hereto is
followed by an asterisk, the Power of Attorney) and the Transfer
Instructions and the consummation by such Selling Stockholder of the
transactions herein and therein contemplated will not conflict with or
result in a breach or violation of any terms or provisions of, or
constitute a default under, any indenture, mortgage, deed of trust,
loan agreement or other agreement or instrument known to such counsel
to which such Selling Stockholder is a party or by which such Selling
Stockholder is bound, or to which any of the property or assets of such
Selling Stockholder is subject, nor will such action result in any
violation of the provisions of any statute or order, rule or regulation
known to such counsel of any court or governmental agency or body
having jurisdiction over such
19
<PAGE>
Selling Stockholder or the property of such Selling Stockholder, except
that such counsel need not express any opinion as to compliance with
the registration or filing requirements or disclosure provisions of the
securities laws of the United States or the securities or Blue Sky laws
of any other jurisdiction;
(iv) No consent, approval, authorization or order of any New York,
Delaware corporate or Federal governmental agency or body is required
to be obtained by such Selling Stockholder for the consummation by such
Selling Stockholder of the transactions contemplated by this Agreement,
the Custody Agreement (and if such Selling Stockholder's name on
Schedule II hereto is followed by an asterisk, the Power of Attorney)
and the Transfer Instructions in connection with the Shares to be sold
by such Selling Stockholder hereunder, except such as have been duly
obtained and are in full force and effect, the registration of the
Shares under the Act, the registration of the Stock under the Exchange
Act and such as may be required under state or foreign securities or
Blue Sky laws in connection with the purchase and distribution of such
Shares by the Underwriters (as to which such counsel need express no
opinion) (it being understood that the opinion may be limited to those
consents, approvals, authorizations, orders, registrations or
qualifications that, in such counsel's experience, are normally
applicable to the transactions of the type contemplated by this
Agreement);
(v) Such Selling Stockholder has full right, power and authority
to sell, assign, transfer and deliver the Shares to be sold by such
Selling Stockholder under this Agreement; and
(vi) Assuming that the Underwriters purchase the Shares to be
delivered at such Time of Delivery for value and without notice of any
adverse claim as such terms are used in Section 8-105 of the Uniform
Commercial Code as currently in effect in the State of New York (the
"New York UCC"), the delivery of certificates representing such Shares
either registered in the name of the Underwriters or effectively
endorsed to the Underwriters or in blank will pass to the Underwriters
all rights that such Selling Stockholder has in such Shares, free of
all adverse claims as such term is used in Section 8-105 of the New
York UCC.
In rendering such opinion, such counsel may state that they express no
opinion as to the laws of any jurisdiction other than the laws of the State of
New York and the Federal laws of the United States and in rendering its opinion
in subparagraph (vi) such counsel may rely upon a certificate of such Selling
Stockholder in respect of matters of fact as to ownership of, and liens,
encumbrances, equities or claims on the Shares sold by such Selling Stockholder,
provided that such counsel shall state that they believe that both you and they
are justified in relying upon such certificate;
(g) Weil, Gotshal & Manges LLP, counsel to The 4003 Corporation, shall have
furnished to you their written opinion (a draft of such opinion is attached as
Annex II(f) hereto) with respect to such Selling Stockholders, dated such Time
of Delivery, in form and substance satisfactory to you, to the effect that:
(i) The 4003 Corporation has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State
of Delaware and has the power and authority to own and sell this
property and to conduct its business;
20
<PAGE>
(ii) The Custody Agreement (and, if such Selling Stockholder's
name on Schedule II hereto is followed by an asterisk, the Power of
Attorney) and the Transfer Instructions have been duly executed and
delivered by such Selling Stockholder and constitute valid and binding
agreements of such Selling Stockholder in accordance with their terms;
(iii) This Agreement has been duly executed and delivered by such
Selling Stockholder; and the sale by such Selling Stockholder of the
Shares to be sold by such Selling Stockholder hereunder and the
compliance by such Selling Stockholder with all of the obligations of
such Selling Stockholder under this Agreement and the Custody Agreement
(and if such Selling Stockholder's name on Schedule II hereto is
followed by an asterisk, the Power of Attorney) and the Transfer
Instructions and the consummation by such Selling Stockholder of the
transactions herein and therein contemplated will not conflict with or
result in a breach or violation of any terms or provisions of, or
constitute a default under, any indenture, mortgage, deed of trust,
loan agreement or other agreement or instrument known to such counsel
to which such Selling Stockholder is a party or by which such Selling
Stockholder is bound, or to which any of the property or assets of such
Selling Stockholder is subject, nor will such action result in any
violation of the provisions of its certificate of incorporation or
by-laws or any statute or order, rule or regulation known to such
counsel of any court or governmental agency or body having jurisdiction
over such Selling Stockholder or the property of such Selling
Stockholder, except that such counsel need not express any opinion as
to compliance with the registration or filing requirements or
disclosure provisions of the securities laws of the United States or
the securities or Blue Sky laws of any other jurisdiction;
(iv) No consent, approval, authorization or order of any New York,
Delaware corporate or Federal governmental agency or body is required
to be obtained by such Selling Stockholder for the consummation by such
Selling Stockholder of the transactions contemplated by this Agreement,
the Custody Agreement (and if such Selling Stockholder's name on
Schedule II hereto is followed by an asterisk, the Power of Attorney)
and the Transfer Instructions in connection with the Shares to be sold
by such Selling Stockholder hereunder, except such as have been duly
obtained and are in full force and effect, the registration of the
Shares under the Act, the registration of the Stock under the Exchange
Act and such as may be required under state or foreign securities or
Blue Sky laws in connection with the purchase and distribution of such
Shares by the Underwriters; (as to which such counsel need express no
opinion) (it being understood that the opinion may be limited to those
consents, approvals, authorizations, orders, registrations or
qualifications that, in such counsel's experience, are normally
applicable to the transactions of the type contemplated by this
Agreement);
(v) Such Selling Stockholder has full right, power and authority
to sell, assign, transfer and deliver the Shares to be sold by such
Selling Stockholder under this Agreement; and
(vi) Assuming that the Underwriters purchase the Shares to be
delivered at such Time of Delivery for value and without notice of any
adverse claim as such terms are used in Section 8-105 of the Uniform
Commercial Code as currently in
21
<PAGE>
effect in the State of New York (the "New York UCC"), the delivery of
certificates representing such Shares either registered in the name of
the Underwriters or effectively endorsed to the Underwriters or in
blank will pass to the Underwriters all rights that such Selling
Stockholder has in such Shares, free of all adverse claims as such term
is used in Section 8-105 of the New York UCC.
In rendering such opinion, such counsel may state that they express no
opinion as to the laws of any jurisdiction other than the laws of the State of
New York and the Federal laws of the United States and in rendering its opinion
in subparagraph (vi) such counsel may rely upon a certificate of such Selling
Stockholder in respect of matters of fact as to ownership of, and liens,
encumbrances, equities or claims on the Shares sold by such Selling Stockholder,
provided that such counsel shall state that they believe that both you and they
are justified in relying upon such certificate;
(h) Debevoise & Plimpton, counsel to The 4202 Corporation, shall have
furnished to you their written opinion (a draft of such opinion is attached as
Annex II(g) hereto) with respect to such Selling Stockholders, dated such Time
of Delivery, in form and substance satisfactory to you, to the effect that:
(i) The 4202 Corporation has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State
of [Delaware] and has the power and authority to own and sell its
property and to conduct its business;
(ii) The Custody Agreement (and, if such Selling Stockholder's
name on Schedule II hereto is followed by an asterisk, the Power of
Attorney) and the Transfer Instructions have been duly executed and
delivered by such Selling Stockholder and constitute valid and binding
agreements of such Selling Stockholder in accordance with their terms;
(iii) This Agreement has been duly executed and delivered by such
Selling Stockholder; and the sale by such Selling Stockholder of the
Shares to be sold by such Selling Stockholder hereunder and the
compliance by such Selling Stockholder with all of the obligations of
such Selling Stockholder under this Agreement and the Custody Agreement
(and if such Selling Stockholder's name on Schedule II hereto is
followed by an asterisk, the Power of Attorney) and the Transfer
Instructions and the consummation by such Selling Stockholder of the
transactions herein and therein contemplated will not conflict with or
result in a breach or violation of any terms or provisions of, or
constitute a default under, any indenture, mortgage, deed of trust,
loan agreement or other agreement or instrument known to such counsel
to which such Selling Stockholder is a party or by which such Selling
Stockholder is bound, or to which any of the property or assets of such
Selling Stockholder is subject, nor will such action result in any
violation of the provisions of its certificate of incorporation or
by-laws or any statute or order, rule or regulation known to such
counsel of any court or governmental agency or body having jurisdiction
over such Selling Stockholder or the property of such Selling
Stockholder, except that such counsel need not express any opinion as
to compliance with the registration or filing requirements or
disclosure provisions of the securities laws of the United States or
the securities or Blue Sky laws of any other jurisdiction;
22
<PAGE>
(iv) No consent, approval, authorization or order of any New York,
Delaware corporate or Federal governmental agency or body is required
to be obtained by such Selling Stockholder for the consummation by such
Selling Stockholder of the transactions contemplated by this Agreement,
the Custody Agreement (and if such Selling Stockholder's name on
Schedule II hereto is followed by an asterisk, the Power of Attorney)
and the Transfer Instructions in connection with the Shares to be sold
by such Selling Stockholder hereunder, except such as have been duly
obtained and are in full force and effect, the registration of the
Shares under the Act, the registration of the Stock under the Exchange
Act and such as may be required under state or foreign securities or
Blue Sky laws in connection with the purchase and distribution of such
Shares by the Underwriters; (as to which such counsel need express no
opinion) (it being understood that the opinion may be limited to those
consents, approvals, authorizations, orders, registrations or
qualifications that, in such counsel's experience, are normally
applicable to the transactions of the type contemplated by this
Agreement);
(v) Such Selling Stockholder has full right, power and authority
to sell, assign, transfer and deliver the Shares to be sold by such
Selling Stockholder under this Agreement; and
(vi) Assuming that the Underwriters purchase the Shares to be
delivered at such Time of Delivery for value and without notice of any
adverse claim as such terms are used in Section 8-105 of the Uniform
Commercial Code as currently in effect in the State of New York (the
"New York UCC"), the delivery of certificates representing such Shares
either registered in the name of the Underwriters or effectively
endorsed to the Underwriters or in blank will pass to the Underwriters
all rights that such Selling Stockholder has in such Shares, free of
all adverse claims as such term is used in Section 8-105 of the New
York UCC.
In rendering such opinion, such counsel may state that they express no
opinion as to the laws of any jurisdiction other than the laws of the State of
New York and the Federal laws of the United States and in rendering its opinion
in subparagraph (vi) such counsel may rely upon a certificate of such Selling
Stockholder in respect of matters of fact as to ownership of, and liens,
encumbrances, equities or claims on the Shares sold by such Selling Stockholder,
provided that such counsel shall state that they believe that both you and they
are justified in relying upon such certificate;
(i) On the date of the Prospectus at a time prior to the execution of this
Agreement, at 9:30 a.m., New York City time, on the effective date of any
post-effective amendment to the Registration Statement filed subsequent to the
date of this Agreement and also at each Time of Delivery, Arthur Andersen LLP
shall have furnished to you a letter or letters, dated the respective dates of
delivery thereof, in form and substance satisfactory to you, to the effect set
forth in Annex I hereto (the executed copy of the letter delivered prior to the
execution of this Agreement is attached as Annex I(a) hereto and a draft of the
form of letter to be delivered on the effective date of any post-effective
amendment to the Registration Statement and as of each Time of Delivery is
attached as Annex I(b) hereto);
(j) (i) Neither the Company nor any of its subsidiaries shall have
sustained since the date of the latest audited financial statements included or
incorporated by reference in the Prospectus any loss or interference with its
business from fire, explosion, flood or other
23
<PAGE>
calamity, whether or not covered by insurance, or from any labor dispute or
court or governmental action, order or decree, otherwise than as set forth or
contemplated in the Prospectus, and (ii) since the respective dates as of which
information is given in the Prospectus there shall not have been any change in
the capital stock or long-term debt of the Company or any of its subsidiaries or
any change, or any development involving a prospective change, in or affecting
the general affairs, management, financial position, stockholders' equity,
results of operations or Intellectual Property of the Company and its
subsidiaries, otherwise than as set forth or contemplated in the Prospectus, the
effect of which, in any such case described in Clause (i) or (ii), is in the
judgment of the Representatives so material and adverse as to make it
impracticable or inadvisable to proceed with the public offering or the delivery
of the Shares being delivered at such Time of Delivery on the terms and in the
manner contemplated in the Prospectus;
(k) On or after the date hereof there shall not have occurred any of the
following: (i) a suspension or material limitation in trading in securities
generally on the New York Stock Exchange (the "Exchange"); (ii) a suspension or
material limitation in trading in the Company's securities on the Exchange;
(iii) a general moratorium on commercial banking activities declared by either
Federal or New York State authorities; or (iv) the outbreak or escalation of
hostilities involving the United States or the declaration by the United States
of a national emergency or war, if the effect of any such event specified in
this clause (iv) in the judgment of the Representatives makes it impracticable
or inadvisable to proceed with the public offering or the delivery of the Shares
being delivered at such Time of Delivery on the terms and in the manner
contemplated in the Prospectus;
(l) The Company shall have obtained and delivered to the Underwriters
executed copies of an agreement from all of the Selling Stockholders and Ronald
S. Lauder to the effect set forth in Subsection 1(b)(vii) hereof in form and
substance satisfactory to you;
(m) The Company and the Selling Stockholders shall have furnished or caused
to be furnished to you at such Time of Delivery certificates of officers of the
Company and of the Selling Stockholders, respectively, satisfactory to you as to
the accuracy of the representations and warranties of the Company and the
Selling Stockholders, respectively, herein at and as of such Time of Delivery,
as to the performance by the Company and the Selling Stockholders of all of
their respective obligations hereunder to be performed at or prior to such Time
of Delivery, and as to such other matters as you may reasonably request, and the
Company shall have furnished or caused to be furnished certificates as to the
matters set forth in subsections (a) and (j) of this Section 7, and as to such
other matters as you may reasonably request;
(n) The Company shall have complied with the provisions of Section 5(d)
hereof with respect to the furnishing of prospectuses on the New York Business
Day next succeeding the date of this Agreement;
(o) Each of the Selling Stockholders shall have delivered to the
Underwriters certificates required by Treasury Regulation section 1.1445-2(b)(2)
in order to avoid withholding of tax under Section 1445 of the Internal Revenue
Code of 1986, as amended; and
(p) The Transfer Instructions shall be in full force and effect as of the
Time of Delivery.
8. (a) The Company and each of the Selling Stockholders, jointly and
severally, will indemnify and hold harmless each Underwriter against any losses,
claims, damages or liabilities, joint or several, to which such Underwriter may
become subject, under the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon an untrue statement or alleged untrue statement of a material
24
<PAGE>
fact contained in any Preliminary Prospectus, the Registration Statement or the
Prospectus, or any amendment or supplement thereto, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
and will reimburse each Underwriter for any legal or other expenses reasonably
incurred by such Underwriter in connection with investigating or defending any
such action or claim as such expenses are incurred; provided, however, that the
Company and the Selling Stockholders shall not be liable in any such case to the
extent that any such loss, claim, damage or liability arises out of or is based
upon an untrue statement or alleged untrue statement or omission or alleged
omission made in any Preliminary Prospectus, the Registration Statement or the
Prospectus or any such amendment or supplement in reliance upon and in
conformity with written information furnished to the Company by any Underwriter
through Goldman, Sachs & Co. expressly for use therein. Notwithstanding the
provisions of this subsection (a), no Selling Stockholder shall be required to
pay an amount in excess of the gross proceeds received by such Selling
Stockholder from the Shares sold by it hereunder.
(b) Each Underwriter will indemnify and hold harmless the Company and each
Selling Stockholder against any losses, claims, damages or liabilities to which
the Company or such Selling Stockholder may become subject, under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon an untrue statement or alleged
untrue statement of a material fact contained in any Preliminary Prospectus, the
Registration Statement or the Prospectus, or any amendment or supplement
thereto, or arise out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, in each case to the extent, but only to
the extent, that such untrue statement or alleged untrue statement or omission
or alleged omission was made in any Preliminary Prospectus, the Registration
Statement or the Prospectus or any such amendment or supplement in reliance upon
and in conformity with written information furnished to the Company by such
Underwriter through Goldman, Sachs & Co. expressly for use therein; and will
reimburse the Company and each Selling Stockholder for any legal or other
expenses reasonably incurred by the Company or such Selling Stockholder in
connection with investigating or defending any such action or claim as such
expenses are incurred.
(c) Promptly after receipt by an indemnified party under subsection (a) or
(b) above of notice of the commencement of any action, such indemnified party
shall, if a claim in respect thereof is to be made against an indemnifying party
under such subsection, notify the indemnifying party in writing of the
commencement thereof; but the omission so to notify the indemnifying party shall
not relieve it from any liability which it may have to any indemnified party
otherwise than under such subsection. In case any such action shall be brought
against any indemnified party and it shall notify the indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to participate
therein and, to the extent that it shall wish, jointly with any other
indemnifying party similarly notified, to assume the defense thereof, with
counsel satisfactory to such indemnified party (which shall not, except with the
consent of the indemnified party, be counsel to the indemnifying party), and,
after notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof, the indemnifying party shall not be
liable to such indemnified party under such subsection for any legal expenses of
other counsel or any other expenses, in each case subsequently incurred by such
indemnified party, in connection with the defense thereof other than reasonable
costs of investigation. No indemnifying party shall, without the written consent
of the indemnified party, effect the settlement or compromise of, or consent to
the entry of any judgment with respect to,
25
<PAGE>
any pending or threatened action or claim in respect of which indemnification or
contribution may be sought hereunder (whether or not the indemnified party is an
actual or potential party to such action or claim) unless such settlement,
compromise or judgment (i) includes an unconditional release of the indemnified
party from all liability arising out of such action or claim and (ii) does not
include a statement as to or an admission of fault, culpability or a failure to
act, by or on behalf of any indemnified party.
(d) If the indemnification provided for in this Section 8 is unavailable to
or insufficient to hold harmless an indemnified party under subsection (a) or
(b) above in respect of any losses, claims, damages or liabilities (or actions
in respect thereof) referred to therein, then each indemnifying party shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages or liabilities (or actions in respect thereof)
in such proportion as is appropriate to reflect the relative benefits received
by the Company and the Selling Stockholders on the one hand and the Underwriters
on the other from the offering of the Shares. If, however, the allocation
provided by the immediately preceding sentence is not permitted by applicable
law or if the indemnified party failed to give the notice required under
subsection (c) above, then each indemnifying party shall contribute to such
amount paid or payable by such indemnified party in such proportion as is
appropriate to reflect not only such relative benefits but also the relative
fault of the Company and the Selling Stockholders on the one hand and the
Underwriters on the other in connection with the statements or omissions which
resulted in such losses, claims, damages or liabilities (or actions in respect
thereof), as well as any other relevant equitable considerations. The relative
benefits received by the Company and the Selling Stockholders on the one hand
and the Underwriters on the other shall be deemed to be in the same proportion
as the total net proceeds from the offering of the Shares purchased under this
Agreement (before deducting expenses) received by the Company and the Selling
Stockholders bear to the total underwriting discounts and commissions received
by the Underwriters with respect to the Shares purchased under this Agreement,
in each case as set forth in the table on the cover page of the Prospectus. The
relative fault shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by the
Company or the Selling Stockholders on the one hand or the Underwriters on the
other and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The Company, each
of the Selling Stockholders and each of the Underwriters agree that it would not
be just and equitable if contributions pursuant to this subsection (d) were
determined by pro rata allocation (even if the Underwriters were treated as one
entity for such purpose) or by any other method of allocation which does not
take account of the equitable considerations referred to above in this
subsection (d). The amount paid or payable by an indemnified party as a result
of the losses, claims, damages or liabilities (or actions in respect thereof)
referred to above in this subsection (d) shall be deemed to include any legal or
other expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this subsection (d), no Underwriter shall be required to
contribute any amount in excess of the amount by which the total price at which
the Shares underwritten by it and distributed to the public were offered to the
public exceeds the amount of any damages which such Underwriter has otherwise
been required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations in this subsection (d) to
contribute are several in proportion to their respective underwriting
obligations and not joint.
26
<PAGE>
(e) The obligations of the Company and the Selling Stockholders under this
Section 8 shall be in addition to any liability which the Company and the
respective Selling Stockholders may otherwise have and shall extend, upon the
same terms and conditions, to each person, if any, who controls any Underwriter
within the meaning of the Act; and the obligations of the Underwriters under
this Section 8 shall be in addition to any liability which the respective
Underwriters may otherwise have and shall extend, upon the same terms and
conditions, to each officer and director of the Company and to each person, if
any, who controls the Company or any Selling Stockholder within the meaning of
the Act.
9. (a) If any Underwriter shall default in its obligation to purchase the
Shares which it has agreed to purchase hereunder at a Time of Delivery, you may
in your discretion arrange for you or another party or other parties to purchase
such Shares on the terms contained herein. If within thirty-six hours after such
default by any Underwriter you do not arrange for the purchase of such Shares,
then the Selling Stockholders shall be entitled to a further period of
thirty-six hours within which to procure another party or other parties
satisfactory to you to purchase such Shares on such terms. In the event that,
within the respective prescribed periods, you notify the Selling Stockholders
that you have so arranged for the purchase of such Shares, or the Selling
Stockholders notify you that they have so arranged for the purchase of such
Shares, you or the Selling Stockholders shall have the right to postpone such
Time of Delivery for a period of not more than seven days, in order to effect
whatever changes may thereby be made necessary in the Registration Statement or
the Prospectus, or in any other documents or arrangements, and the Company
agrees to file promptly any amendments to the Registration Statement or the
Prospectus which in your opinion may thereby be made necessary. The term
"Underwriter" as used in this Agreement shall include any person substituted
under this Section with like effect as if such person had originally been a
party to this Agreement with respect to such Shares.
(b) If, after giving effect to any arrangements for the purchase of the
Shares of a defaulting Underwriter or Underwriters by you and the Selling
Stockholders as provided in subsection (a) above, the aggregate number of such
Shares which remains unpurchased does not exceed one-eleventh of the aggregate
number of all of the Shares to be purchased at such Time of Delivery, then the
Selling Stockholders shall have the right to require each non-defaulting
Underwriter to purchase the number of Shares which such Underwriter agreed to
purchase hereunder at such Time of Delivery and, in addition, to require each
non-defaulting Underwriter to purchase its pro rata share (based on the number
of Shares which such Underwriter agreed to purchase hereunder) of the Shares of
such defaulting Underwriter or Underwriters for which such arrangements have not
been made; but nothing herein shall relieve a defaulting Underwriter from
liability for its default.
(c) If, after giving effect to any arrangements for the purchase of the
Shares of a defaulting Underwriter or Underwriters by you and the Selling
Stockholders as provided in subsection (a) above, the aggregate number of such
Shares which remains unpurchased exceeds one-eleventh of the aggregate number of
all of the Shares to be purchased at such Time of Delivery, or if the Selling
Stockholders shall not exercise the right described in subsection (b) above to
require non-defaulting Underwriters to purchase Shares of a defaulting
Underwriter or Underwriters, then the obligations of the Underwriters to
purchase and of the Selling Stockholders to sell the Shares to be sold at such
Time of Delivery shall thereupon terminate, without liability on the part of any
non-defaulting Underwriter or the Company or the Selling Stockholders, except
for the expenses to be borne by the Company and the Selling Stockholders and the
Underwriters as provided in Section 6 hereof and the indemnity and
27
<PAGE>
contribution agreements in Section 8 hereof; but nothing herein shall relieve a
defaulting Underwriter from liability for its default.
10. The respective indemnities, agreements, representations, warranties and
other statements of the Company, the Selling Stockholders and the several
Underwriters, as set forth in this Agreement or made by or on behalf of them,
respectively, pursuant to this Agreement, shall remain in full force and effect,
regardless of any investigation (or any statement as to the results thereof)
made by or on behalf of any Underwriter or any controlling person of any
Underwriter, or the Company, or any of the Selling Stockholders, or any officer
or director or controlling person of the Company, or any controlling person of
any Selling Stockholder, and shall survive delivery of and payment for the
Shares.
11. If this Agreement shall be terminated pursuant to Section 9 hereof,
neither the Company nor the Selling Stockholders shall then be under any
liability to any Underwriter except as provided in Sections 6 and 8 hereof; but,
if for any other reason any Shares are not delivered by or on behalf of the
Selling Stockholders as provided herein, each of the Selling Stockholders pro
rata (based on the number of Shares to be sold by such Selling Stockholder
hereunder), will reimburse the Underwriters through you for all out-of-pocket
expenses approved in writing by you, including fees and disbursements of
counsel, reasonably incurred by the Underwriters in making preparations for the
purchase, sale and delivery of the Shares not so delivered, but the Company and
the Selling Stockholders shall then be under no further liability to any
Underwriter in respect of the Shares not so delivered except as provided in
Sections 6 and 8 hereof.
12. In all dealings hereunder, you shall act on behalf of each of the
Underwriters, and the parties hereto shall be entitled to act and rely upon any
statement, request, notice or agreement on behalf of any Underwriter made or
given by you jointly or by Goldman, Sachs & Co. on behalf of you as the
Representatives; and in all dealings with any Selling Stockholder hereunder, you
and the Company shall be entitled to act and rely upon any statement, request,
notice or agreement on behalf of such Selling Stockholder made or given by any
or all of the Attorneys-in-Fact for such Selling Stockholder.
All statements, requests, notices and agreements hereunder shall be in
writing, and if to the Underwriters shall be delivered or sent by mail, telex or
facsimile transmission to you as the Representatives in care of Goldman, Sachs &
Co., 85 Broad Street, New York, New York 10004, Attention: Registration
Department; if to any Selling Stockholder shall be delivered or sent by mail,
telex or facsimile transmission to counsel for such Selling Stockholder at its
address set forth in Schedule II hereto; and if to the Company shall be
delivered or sent by mail, telex or facsimile transmission to the address of the
Company set forth in the Registration Statement, Attention: General Counsel;
provided, however, that any notice to an Underwriter pursuant to Section 8(c)
hereof shall be delivered or sent by mail, telex or facsimile transmission to
such Underwriter at its address set forth in its Underwriters' Questionnaire or
telex constituting such Questionnaire, which address will be supplied to the
Company or the Selling Stockholders by you upon request. Any such statements,
requests, notices or agreements shall take effect upon receipt thereof.
13. At any time and from time to time after the Time of Delivery, the
Selling Stockholders agree to cooperate with the Underwriters, and at the
request of the Underwriters, to execute and deliver any further instruments or
documents and to take all such further action as the Underwriters may reasonably
request in order to evidence or effectuate the delivery to the Underwriters of
the Stock Split Shares as contemplated hereby and to otherwise carry out
28
<PAGE>
the intent of the parties hereunder with respect to the sale and delivery of the
Shares to the Underwriters.
14. This Agreement shall be binding upon, and inure solely to the benefit
of, the Underwriters, the Company and the Selling Stockholders and, to the
extent provided in Sections 8 and 10 hereof, the officers and directors of the
Company and each person who controls the Company, any Selling Stockholder or any
Underwriter, and their respective heirs, executors, administrators, successors
and assigns, and no other person shall acquire or have any right under or by
virtue of this Agreement. No purchaser of any of the Shares from any Underwriter
shall be deemed a successor or assign by reason merely of such purchase.
15. Time shall be of the essence of this Agreement. As used herein, the
term "business day" shall mean any day when the Commission's office in
Washington, D.C. is open for business.
16. This agreement shall be governed by and construed in accordance with
the laws of the State of New York.
17. This Agreement may be executed by any one or more of the parties hereto
in any number of counterparts, each of which shall be deemed to be an original,
but all such counterparts shall together constitute one and the same instrument.
If the foregoing is in accordance with your understanding, please sign and
return to us ten counterparts hereof, and upon the acceptance hereof by you, on
behalf of each of the Underwriters, this letter and such acceptance hereof shall
constitute a binding agreement among each of the Underwriters, the Company and
each of the Selling Stockholders. It is understood that your acceptance of this
letter on behalf of each of the Underwriters is pursuant to the authority set
forth in a form of Agreement among Underwriters, the form of which shall be
submitted to the Company and the Selling Stockholders for examination upon
request, but without warranty on your part as to the authority of the signers
thereof.
29
<PAGE>
Any person executing and delivering this Agreement as Attorney-in-Fact for
a Selling Stockholder represents by so doing that he has been duly appointed as
Attorney-in-Fact by such Selling Stockholder pursuant to a validly existing and
binding Power of Attorney which authorizes such Attorney-in-Fact to take such
action.
Very truly yours,
THE ESTEE LAUDER COMPANIES INC.
By:
--------------------------------
Leonard A. Lauder
Chief Executive Officer
--------------------------------
Leonard A. Lauder
------------------------------------
Gary M. Lauder
LAL FAMILY PARTNERS L.P.
By:
------------------------------
Leonard A. Lauder, Managing Partner
30
<PAGE>
DANIEL J. AARON AS TRUSTEE OF THE
SEPARATE SHARE TRUST F/B/O GARY M.
LAUDER, U/A/D DECEMBER 15, 1976, CREATED
BY LEONARD A. LAUDER, AS GRANTOR
----------------------------------------
Daniel J. Aaron, Trustee
ANTHONY E. MALKIN AND PATRICK J. LANDERS
AS TRUSTEES OF THE SEPARATE SHARE TRUST
F/B/O WILLIAM P. LAUDER, U/A/D DECEMBER
15, 1976, CREATED BY LEONARD A. LAUDER,
AS GRANTOR
----------------------------------------
Anthony E. Malkin, Trustee
----------------------------------------
Patrick J. Landers, Trustee
31
<PAGE>
THE 4202 CORPORATION
By:
-----------------------------------
Name:
Title:
THE 4003 CORPORATION
By:
-----------------------------------
Name:
Title:
32
<PAGE>
Accepted as of the date hereof:
Goldman, Sachs & Co.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
J.P. Morgan Securities Inc.
By: -------------------------------------------------
(Goldman, Sachs & Co.)
On behalf of each of the Underwriters
33
<PAGE>
SCHEDULE I
<TABLE>
<CAPTION>
Number of Optional
Shares to be
Total Number of Purchased if
Firm Shares Maximum Option
Underwriter to be Purchased (a) Exercised (a)
----------------- -----------------
<S> <C> <C>
Goldman, Sachs & Co.........................
Merrill Lynch, Pierce, Fenner & Smith
Incorporated..................
J.P. Morgan Securities Inc..................
----------------- -----------------
Total............................ 3,301,000 495,100
- -------------------------------------------- ================= =================
</TABLE>
(a) The number of Shares indicated are on a pre-Stock Split basis. In the
event the Time of Delivery of such Shares is after June 2, 1999, then
the number of Shares indicated will be adjusted to reflect the Stock
Split.
34
<PAGE>
SCHEDULE II
<TABLE>
<CAPTION>
Number of Optional
Shares to be
Total Number of Sold if
Firm Shares Maximum Option
to be Sold (c) Exercised (c)
----------------- -----------------
<S> <C> <C>
The Selling Stockholders*:
Leonard A. Lauder(a)...............
Gary M. Lauder(a)..................
LAL Family Partners L.P.(a)........
Gary M. Lauder Trust(a)............
William P. Lauder Trust(a).........
The 4003 Corporation(a)............
The 4202 Corporation(b)............
----------------- -----------------
Total.............................. 3,301,000 495,150
================= =================
</TABLE>
(a) Leonard A. Lauder, Gary M. Lauder, LAL Family Partners L.P., the Gary
M. Lauder Trust, the William P. Lauder Trust and The 4003 Corporation
are represented by Weil, Gotshal & Manges LLP, 767 Fifth Avenue, New
York, New York 10153.
(b) The 4202 Corporation is represented by Debevoise & Plimpton, 875 Third
Ave., New York, New York 10004.
(c) The number of Shares indicated are on a pre-Stock Split basis. In the
event the Time of Delivery of such Shares is after June 2, 1999, then
the number of Shares indicated will be adjusted to reflect the Stock
Split.
* Attorneys-in-Fact for each Selling Stockholder: Robert J. Bigler and
Spencer G. Smul
35
<PAGE>
SCHEDULE III
Minority Interests of Certain Subsidiaries
Not Held Directly or Indirectly by the Company
Subsidiary Interest Held by Company
- ---------- ------------------------
Santo Spirito S.r.l. 80% (joint venture with Aveda
distributor in Italy that operates one
Aveda store in Milan)
I.M. Cosmetics S.A. 55% (joint venture with distributor in
Greece; the subsidiary also is
responsible for the Company's business
in Romania)
36
<PAGE>
[LETTERHEAD OF WEIL, GOTSHAL AND MANGES LLP]
May 19, 1999
The Estee Lauder Companies Inc.
767 Fifth Avenue
New York, NY 10153
Ladies and Gentlemen:
We have acted as counsel to The Estee Lauder Companies Inc., a
Delaware corporation (the "Company"), in connection with the preparation and
filing of the Registration Statement (File No. 333-77977) of the Company on Form
S-3 (as amended, the "Registration Statement") under the Securities Act of 1933,
as amended (the "Securities Act"), relating to the public offering (the
"Offering") by the Selling Stockholders identified as such in the Registration
Statement of an aggregate of 3,301,000 shares (3,796,150 shares if the
underwriters' over-allotment option is exercised in full) of Class A Common
Stock, par value $.01 per share (the "Class A Common Stock") of the Company
(together with any shares of Class A Common Stock which may be registered in any
related registration statement pursuant to Section 462(b) of the Securities Act,
the "Shares").
In so acting, we have reviewed the Registration Statement,
including the prospectus contained therein (the "Prospectus"), the Amended and
Restated Certificate of Incorporation of the Company and the Bylaws of the
Company. In addition, we have examined originals or copies, certified or
otherwise identified to our satisfaction, of such corporate records, agreements,
documents and other instruments, and such certificates or comparable documents
of public officials and of officers and representatives of the Company, and have
made such inquiries of such officers and representatives, as we have deemed
relevant and necessary as a basis for the opinions hereinafter set forth.
In such examination, we have assumed the genuineness of all
signatures, the legal capacity of natural persons, the authenticity of all
documents submitted to us as originals, the conformity to original documents of
all documents submitted to us as certified, conformed or photostatic copies and
the authenticity of the originals of such latter documents. As to all questions
of fact material to this opinion that have not been independently established,
we have relied upon certificates or comparable documents of officers and
representatives of the Company.
Based on the foregoing, and subject to the qualifications stated
herein, we are of the opinion that the Shares registered for sale by the Selling
Stockholders under the
<PAGE>
Registration Statement and any related registration statement filed pursuant to
Rule 462(b) of the Securities Act, have been duly authorized, and are validly
issued, fully paid and nonassessable.
The opinion expressed herein is limited to the corporate laws of
the State of Delaware, and we express no opinion as to the effect on the matters
covered by this letter of the laws of any other jurisdiction.
We hereby consent to the filing of this opinion as an exhibit to
the Registration Statement and to the references to this firm under the heading
"Legal Matters" in the Prospectus, without admitting that we are "experts" under
the Securities Act or the rules and regulations promulgated thereunder with
respect to any part of the Registration Statement.
We also consent to the incorporation by reference of this opinion
in any related registration statement filed by the Company pursuant to Rule
462(b) of the Securities Act.
Very truly yours,
/s/ Weil, Gotshal & Manges LLP
2
<PAGE>
Exhibit 10.1
EMPLOYMENT AGREEMENT
THIS AGREEMENT ("Agreement"), dated as of July 1, 1998, between THE
ESTEE LAUDER COMPANIES INC., a Delaware corporation (the "Company"), and WILLIAM
P. LAUDER, a resident of New York, New York (the "Executive").
W I T N E S S E T H:
WHEREAS, the Company and its divisions, subsidiaries and affiliates are
principally engaged in the business of manufacturing and marketing skin care,
makeup and fragrance products (the "Business"); and
WHEREAS, the Company desires to continue to retain the services of the
Executive, and to appoint him to the capacity of President, Clinique
Laboratories, Inc., a division of the Company, and the Executive desires to
provide services in such capacity to the Company, upon the terms and subject to
the conditions hereinafter set forth; and
WHEREAS, the Compensation Committee of the Board of Directors of the
Company (the "Compensation Committee") has approved the terms of this Agreement;
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants and obligations hereinafter set forth, the parties hereto, intending
to be legally bound, hereby agree as follows:
1. Employment Term.
The Company hereby agrees to employ the Executive, and the Executive
hereby agrees to enter into employment, as President, Clinique Laboratories,
Inc. for the period commencing on July 1, 1998 and ending on June 30, 2001
unless terminated sooner pursuant to Section 5 hereof (the "Term of
Employment"). The twelve-month period commencing on July 1, 1998 shall be the
"First Contract Year" hereunder, and subsequent twelve-month periods shall be
subsequent Contract Years.
2. Duties and Extent of Services.
(a) During the Term of Employment, the Executive shall serve as
President, Clinique Laboraatories, Inc. and, in such capacity, shall render such
executive, managerial, administrative and other services as customarily are
associated with and incident to such position and as the Company may, from time
to time, reasonably require of him consistent with such position.
(b) The Executive shall also hold such other positions and executive
offices of the Company and/or of any of the Company's divisions, subsidiaries or
affiliates as may from time to time be authorized by the Board of Directors of
the Company, provided that each such position shall be commensurate with the
Executive's standing in the business community as President, Clinique
Laboratories, Inc. The Executive shall not be entitled to any compensation other
than the compensation provided for herein for serving during the Term of
Employment in any other office or position of the Company or any of its
divisions, subsidiaries or affiliates, unless the Board of Directors of the
Company shall have specifically approved such additional compensation.
<PAGE>
(c) The Executive shall be a full time employee of the Company and
shall exclusively devote all his business time and efforts to faithfully,
competently and diligently perform to the best of his ability all of the duties
required of him as President, Clinique Laboratories, Inc. and in the other
positions or offices of the Company or its divisions, subsidiaries or affiliates
required of him hereunder. Notwithstanding the foregoing provisions of this
Section 2(c), the Executive may serve as a non-management director of such
business corporations (or in a like capacity in other for-profit or
not-for-profit organizations) as the Board of Directors or Chief Executive
Officer of the Company may approve.
3. (a) Base Salary. As compensation for all services to be rendered
pursuant to this Agreement and as payment for the rights and interests granted
by Executive hereunder, the Company shall pay or cause any of its subsidiaries
to pay the Executive a base salary (the "Base Salary") during the Term of
Employment as follows:
For the First Contract Year: $79,166.67 ($950,000, if annualized)
For the Second Contract Year: $79,166.67 ($950,000, if annualized)
For the Third Contract Year: $79,166.67 ($950,000, if annualized)
All amounts of Base Salary provided for hereunder shall be payable in accordance
with the regular payroll policies of the Company in effect from time to time.
(b) Incentive Compensation. In addition to the Base Salary set out at
Section 3(a) hereof, the Executive shall participate in the Company's Executive
Annual Incentive Compensation Plan ("Incentive Plan"). The bonus opportunity for
the Executive for each Contract Year during the Term of Employment shall be as
follows:
For the First Contract Year: $750,000
For the Second Contract Year: $850,000
For the Third Contract Year: $950,000
Pursuant to the terms of the Incentive Plan, the actual bonus award, if any,
made to the Executive in respect of any Contract year shall be calculated with
reference to the accomplishment by the Company and the Executive of performance
goals established by the senior corporate management of the Company and the
Executive and approved by the Compensation Committee of the Board of Directors
of the Company.
(c) Deferral. The Executive may elect to defer payment of all or any
part of his bonus incentive compensation payable in accordance with Section 3(b)
hereof in respect of any Contract Year, by giving to the Company written notice
thereof, on or before March 31 of such Contract Year. Additionally, in the event
that in respect of any fiscal year of the Company any amount of Base Salary, any
amount payable under the Incentive Plan or any other amount payable to the
Executive hereunder or otherwise shall, either alone or in combination with
other amounts payable hereunder or otherwise, result in the payment by the
Company of any amount that shall not be currently deductible by it pursuant to
the provisions of Section 162(m) of the Internal Revenue Code of 1986, as
amended (the "Code"), or like or successor provisions (a "Non-Deductible
Amount"), the Company may elect to defer the payment of the Non-Deductible
Amount. Any amounts, so deferred, either by election of the Executive or by
election of the Company shall be credited to a bookkeeping account in the name
of the Executive as of the date scheduled for payment hereunder. Such amounts
shall be credited with interest as of each June 30 during the term of deferral,
compounded annually, at a rate per annum equal to the annual rate of interest
announced by Citibank, N.A. in New York, New York as its base rate in effect on
such June 30, but in no event shall such rate exceed 9%. The entire amount
credited to such bookkeeping account shall be paid to the Executive on a date to
be chosen by the Company, but in no event later than 90 days after the
termination of the Executive from employment with the Company.
<PAGE>
(d). Share Incentive Plan. As of the effective date hereof, the
Compensation Committee has awarded to the Executive 50,000 options to purchase
shares of Class A Common Stock of the Company ("Common Stock") under the terms
of the Company's Fiscal 1996 Share Incentive Plan ("Share Incentive Plan").
Additionally, senior management shall recommend to the Compensation Committee
that the Executive be awarded not fewer than 50,000 options to purchase shares
of Common Stock as of each July 1 during the Term of Employment under the terms
of the Share Incentive Plan or such successor plan of similar import as shall
then exist.
4. Benefits
(a) Standard Benefits. During the Term of Employment, the Executive
shall be entitled to (i) participate in any and all benefit programs and
arrangements now in effect and hereinafter adopted and made generally available
by the Company to its senior officers, including but not limited to the Estee
Lauder Inc. Retirement Growth Account Plan (the "Qualified Plan"), the related
Estee Lauder Inc. Benefit Restoration Plan (the "Non-Qualified" Plan), and
disability, medical, dental, prescription drug and life insurance plans for
which the Executive shall be eligible, or may become eligible during the Term of
Employment; (ii) participate in the Company's executive automobile program now
in effect and hereinafter adopted and generally made available by the Company to
its senior-most officers; and (iii) paid vacations during each year of the Term
of Employment in accordance with the policies and procedures of the Company as
in effect from time to time for its senior-most officers.
(b). Perquisite Reimbursement . The Company shall reimburse to the
executive the actual expense incurred by him in connection with his professional
standing, in accordance with the guidelines set out in the Company's executive
perquisite program. In no event shall the gross amount of such reimbursements be
greater than $15,000 in respect of any calendar year during the Term of
Employment.
(c). Expenses. The Company agrees to reimburse the Executive for all
reasonable and necessary travel (including first class air fare), business
entertainment and other business out-of-pocket expenses incurred or expended by
him in connection with the performance of his duties hereunder upon presentation
of proper expense statements or vouchers or such other supporting information as
the Company may reasonably require of the Executive.
5. Termination.
(a) Permanent Disability. In the event of the "permanent disability"
(as hereinafter defined) of the Executive during the Term of Employment, the
Company shall have the right, upon written notice to the Executive, to terminate
the Executive's employment hereunder, effective upon the giving of such notice
(or such later date as shall be specified in such notice). In the event of such
termination, the Company shall have no further obligations hereunder, except
that the Executive shall be entitled (i) to receive any amounts or benefits to
which the Executive may otherwise have been entitled prior to the effective date
of termination; (ii) to be paid his Base Salary under Section 3(a) hereof for a
period of one (1) year from the effective date of termination; provided,
however, that the Company shall only be required to pay that amount of the
Executive's Base Salary which shall not be covered by Company provided long-term
disability payments, if any, to the Executive; and (iii) to receive any unpaid
bonus compensation earned under Section 3(b) hereof that relates to any Contract
Year ending prior to the date of permanent disability. In addition, upon
termination for permanent disability, the Executive shall continue to
participate in any and all pension, insurance and other benefit plans and
programs of the Company during the period the Executive is continuing to receive
his Base Salary in accordance with this Section 5(a). Thereafter, the
Executive's rights to participate in such programs and plans, or to receive
similar coverage, if any, shall be as determined under such programs; provided,
however, that, except as otherwise provided in this Section 5(a), the Company
will have no further obligations under Sections 3(b) and (d) hereof. For
purposes of this paragraph, "permanent disability" means any physical or mental
disability or incapacity that renders the Executive incapable of performing the
services required of him in accordance with his obligations under Section 2
hereof for a period of six (6) consecutive months or for shorter periods
aggregating six (6) months during any twelve-month period.
(b) Death. In the event of the death of the Executive during the Term
of
<PAGE>
Employment, this Agreement shall automatically terminate. In the event of such
termination the Company shall have no further obligations hereunder, except to
pay, for a period of one (1) year from the date of his death, the Executive's
beneficiary or legal representative (i) the Executive's Base Salary as
established under Section 3(a) hereof as of the date of his death; (ii) bonus
compensation earned under Section 3(b) hereof that relates to any Contract Year
ending prior to the date of his death; and (iii) any other amounts to which the
Executive otherwise would have been entitled to hereunder prior to the date of
his death; provided, however, that, except as otherwise provided in this Section
5(b), the Company will have no further obligations under Sections 3(b) and (d)
hereof.
(c) Termination Without Cause. The Company shall have the right, upon
sixty (60) days' written notice given to the Executive, to terminate this
Agreement for any reason whatsoever. In the event of such termination, for a
period of one (1) year from the effective date of termination, the Executive
shall be entitled as damages to (i) receive his Base Salary as established under
Section 3(a) hereof as of the effective date of such termination; (ii) receive
bonus compensation equal to fifty percent (50%) of the average of incentive
compensation bonuses previously paid or payable to the Executive under Section
3(b) hereof during the term of employment (or, if no such bonuses have been paid
or are payable as of the date of such termination, fifty percent (50%) of the
target bonus established under Section 3(b) hereof in respect of the Contract
Year in which occurs the date of such termination; and (iii) participate in all
pension, insurance and other benefit plans, programs or arrangements, on terms
identical to those applicable to full term senior officers of the Company;
provided, however, that, except as otherwise provided in this Section 5(c), the
Company will have no further obligations under Sections 3(b) and (d) hereof. In
the event of termination pursuant to this Section 5(c), the Executive shall not
be required to mitigate his damages hereunder.
(d) Cause. The Company shall have the right, upon written notice to the
Executive, to terminate the Executive's employment under this Agreement for
"Cause" (as hereinafter defined), effective upon the giving of such notice (or
such later date as shall be specified in such notice), and the Company shall
have no further obligations hereunder, except to pay the Executive any amounts
otherwise payable pursuant to Section 3(a) hereof and provide the Executive any
benefits to which the Executive may have been otherwise entitled prorated to the
effective date of termination. The Executive's right to participate in any of
the Company's retirement, insurance and other benefit plans and programs shall
be as determined under such plans and programs; provided, however, that, except
as otherwise provided in this Section 5(d), the Company will have no further
obligations under Sections 3(b) and (d) hereof.
For purposes of this Agreement, "Cause" means:
(i) fraud, embezzlement or gross insubordination on the part of
the Executive or material breach by the Executive of his obligations under
Section 6 or 7 hereof;
(ii) conviction of or the entry of a plea of nolo contendere by
the Executive for any felony;
(iii) a material breach of, or the willful failure or refusal by
the Executive to perform and discharge, his duties, responsibilities or
obligations under this Agreement (other than under Sections 6 and 7 hereof,
which shall be governed by clause (i) above, and other than by reason of
disability or death) that is not corrected within thirty (30) days following
written notice thereof to the Executive by the Company, such notice to state
with specificity the nature of the breach, failure or refusal; provided that if
such breach, failure or refusal cannot reasonably be corrected within thirty
(30) days of written notice thereof, correction shall be commenced by the
Executive within such period and may be corrected within a reasonable period
thereafter; or
(iv) any act of moral turpitude or willful misconduct by the
Executive which (A) is intended to result in substantial personal enrichment of
the Executive at the expense of the Company or any of its subsidiaries or
affiliates or (B) has a material adverse impact on the business or reputation of
the Company or any of its subsidiaries or affiliates (such determination to be
made by the Company's Board of Directors in its reasonable judgment).
(e) Termination by Executive. The Executive shall have the right,
exercisable at
<PAGE>
any time during the Term of Employment, to terminate this agreement for any
reason whatsoever, upon six (6) months written notice to the Company. In such
event, the Company shall have no further obligations hereunder, except that, for
a period of six (6) months after the effective date of such termination, the
Company shall pay to the Executive (i) his Base Salary as established under
Section 3(a) hereof; and (ii) bonus compensation equal to twenty-five percent
(25%) of the Base Salary paid pursuant to clause (i) above, such bonus
compensation to be paid simultaneously with the last Base Salary payment for the
applicable fiscal year; provided, however, that, except as otherwise provided in
this Section 5(e), the Company will have no further obligations under Sections
3(b) and (d) hereof.
(f) Termination by Executive for Material Breach. The Executive shall
have the right, exercisable by notice to the Company, to terminate his
employment effective thirty (30) days after the giving of such notice, if, at
any time during the Term of Employment, the Company shall be in material breach
of its obligations hereunder; provided, however, that such notice must be
provided to the Company within thirty (30) days of the occurrence of such
material breach; and provided further, that such termination will not become
effective if within such thirty (30) day period the Company shall have cured all
such material breaches of its obligations hereunder. For purposes of this
Section 5(f), a material breach shall include, but not be limited to, a material
reduction in the Executive's authority, functions, duties or responsibilities
provided in Section 2 hereof or the Company's failure to cause the Executive to
serve in the position set forth in Section 1 hereof for any time period in which
he is entitled to so serve. Such termination shall be deemed to be a termination
without cause and shall be controlled by the provisions of Section 5(c) hereof.
(g) Certain Limitations. Notwithstanding anything to the contrary
contained herein, in the event that any payment received or to be received by
the Executive pursuant to Section 5 hereof or otherwise (a "Severance Payment")
would be subject to the excise tax (the "Excise Tax") imposed by Section 4999 of
the Code (in whole or part), the Severance Payment shall be reduced so that the
total of all amounts treated as "parachute payments" under Section 280G of the
Code shall not exceed 2.99 times the Executive's "base amount" (as defined under
Section 280G of the Code).
(h) Effect of Termination. Upon the termination of the Executive's
employment hereunder for any reason, the Company shall have no further
obligations hereunder, except as otherwise provided herein. The Executive,
however, shall continue to have the obligations provided for in Sections 6 and 7
hereof. Furthermore, upon such termination, the Executive shall be deemed to
have resigned immediately from all offices and directorships held by [him/her]
in the Company or any of its subsidiaries.
6. Confidentiality; Ownership.
(a) The Executive agrees that he shall forever keep secret and retain
in strictest confidence and not divulge, disclose, discuss, copy or otherwise
use or suffer to be used in any manner, except in connection with the Business
of the Company and the businesses of any of its subsidiaries or affiliates, any
"Protected Information" in any "Unauthorized" manner or for any Unauthorized
purpose (as such terms are hereinafter defined).
(i) "Protected Information" means trade secrets, confidential or
proprietary information and all other knowledge, know-how, information,
documents or materials owned, developed or possessed by the Company or any of
its subsidiaries or affiliates, whether in tangible or intangible form,
pertaining to the Business of the Company or the businesses of any of its
subsidiaries or affiliates, including, but not limited to, research and
development operations, systems, data bases, computer programs and software,
designs, models, operating procedures, knowledge of the organization, products
(including prices, costs, sales or content), processes, formulas, techniques,
machinery, contracts, financial information or measures, business methods,
business plans, details of consultant contracts, new personnel acquisition
plans, business acquisition plans, customer lists, business relationships and
other information owned, developed or possessed by the Company or its
subsidiaries or affiliates, except as required in the course of performing
duties hereunder; provided that Protected Information shall not include
information that becomes generally known to the public or the trade without
violation of this Section 6.
(ii) "Unauthorized" means: (A) in contravention of the policies
orprocedures of the Company or any of its subsidiaries or affiliates; (B)
otherwise inconsistent with
<PAGE>
the measures taken by the Company or any of its subsidiaries or affiliates to
protect their interests in any Protected Information; (C) in contravention of
any lawful instruction or directive, either written or oral, of an employee of
the Company or any of its subsidiaries or affiliates empowered to issue such
instruction or directive; or (D) in contravention of any duty existing under law
or contract. Notwithstanding anything to the contrary contained in this Section
6, the Executive may disclose any Protected Information to the extent required
by court order or decree or by the rules and regulations of a governmental
agency or as otherwise required by law; provided that the Executive shall
provide the Company with prompt notice of such required disclosure in advance
thereof so that the Company may seek an appropriate protective order in respect
of such required disclosure.
(b) The Executive acknowledges that all developments, including,
without limitation, inventions (patentable or otherwise), discoveries, formulas,
improvements, patents, trade secrets, designs, reports, computer software, flow
charts and diagrams, procedures, data, documentation, ideas and writings and
applications thereof relating to the Business or planned business of the Company
or any of its subsidiaries or affiliates that, alone or jointly with others, the
Executive may conceive, create, make, develop, reduce to practice or acquire
during the Term of Employment (collectively, the "Developments") are works made
for hire and shall remain the sole and exclusive property of the Company and the
Executive hereby assigns to the Company, in consideration of the payments set
forth in Section 3(a) hereof, all of his right, title and interest in and to all
such Developments. The Executive shall promptly and fully disclose all future
material Developments to the Board of Directors of the Company and, at any time
upon request and at the expense of the Company, shall execute, acknowledge and
deliver to the Company all instruments that the Company shall prepare, give
evidence and take all other actions that are necessary or desirable in the
reasonable opinion of the Company to enable the Company to file and prosecute
applications for and to acquire, maintain and enforce all letters, patent and
trademark registrations or copyrights covering the Developments in all countries
in which the same are deemed necessary by the Company. All memoranda, notes,
lists, drawings, records, files, computer tapes, programs, software, source and
programming narratives and other documentation (and all copies thereof) made or
compiled by the Executive or made available to the Executive concerning the
Developments or otherwise concerning the Business or planned business of the
Company or any of its subsidiaries or affiliates shall be the property of the
Company or such subsidiaries or affiliates and shall be delivered to the Company
or such subsidiaries or affiliates promptly upon the expiration or termination
of the Term of Employment.
(c) The provisions of this Section 6 shall, without any limitation as
to time, survive the expiration or termination of the Executive's employment
hereunder, irrespective of the reason for any termination.
7. Covenant Not to Compete. Subject to the last sentence of this
Section 7, the Executive agrees that during the Term of Employment and for a
period of one (1) year commencing upon the expiration or termination of the
Executive's employment hereunder (the "Non-Compete Period"), the Executive shall
not, directly or indirectly, without the prior written consent of the Company:
(a) solicit, entice, persuade or induce any employee, consultant, agent
or independent contractor of the Company or of any of its subsidiaries or
affiliates to terminate his or her employment with the Company or such division,
subsidiary or affiliate, to become employed by any person, firm or corporation
other than the Company or such subsidiary or affiliate or approach any such
employee, consultant, agent or independent contractor for any of the foregoing
purposes, or authorize or assist in the taking of any such actions by any third
party (for purposes of this Section 7(a), the terms "employee," "consultant,"
"agent" and "independent contractor" shall include any persons with such status
at any time during the six (6) months preceding any solicitation in question);
or
<PAGE>
(b) directly or indirectly engage, participate, or make any financial
investment in, or become employed by or render consulting, advisory or other
services to or for any person, firm, corporation or other business enterprise,
wherever located, which is engaged, directly or indirectly, in competition with
the Company's Business or the businesses of its subsidiaries or affiliates as
conducted or any business proposed to be conducted at the time of the expiration
or termination of the Executive's employment hereunder; provided, however, that
nothing in this Section 7(b) shall be construed to preclude the Executive from
making any investments in the securities of any business enterprise whether or
not engaged in competition with the Company or any of its subsidiaries or
affiliates, to the extent that such securities are actively traded on a national
securities exchange or in the over-the-counter market in the United States or on
any foreign securities exchange and represent, at the time of acquisition, not
more than 1% of the aggregate voting power of such business enterprise.
Notwithstanding the foregoing, the Executive shall not be subject to
the terms and provisions of paragraph (b) of this Section 7 if the Term of
Employment is terminated pursuant to Section 5(c) or 5(f) hereof.
8. Specific Performance. The Executive acknowledges that the services
to be rendered by the Executive are of a special, unique and extraordinary
character and, in connection with such services, the Executive will have access
to confidential information vital to the Company's Business and the businesses
of its subsidiaries and affiliates. By reason of this, the Executive consents
and agrees that if the Executive violates any of the provisions of Sections 6 or
7 hereof, the Company and its subsidiaries and affiliates would sustain
irreparable injury and that monetary damages would not provide adequate remedy
to the Company and that the Company shall be entitled to have Section 6 or 7
hereof specifically enforced by any court having equity jurisdiction. Nothing
contained herein shall be construed as prohibiting the Company or any of its
subsidiaries or affiliates from pursuing any other remedies available to it for
such breach or threatened breach, including the recovery of damages from the
Executive.
9. Deductions and Withholding. The Executive agrees that the Company or
its divisions, subsidiaries or affiliates, as applicable, shall withhold from
any and all compensation paid to and required to be paid to the Executive
pursuant to this Agreement, all Federal, state, local and/or other taxes which
the Company determines are required to be withheld in accordance with applicable
statutes or regulations from time to time in effect and all amounts required to
be deducted in respect of the Executive's coverage under applicable employee
benefit plans. For purposes of this Agreement and calculations hereunder, all
such deductions and withholdings shall be deemed to have been paid to and
received by the Executive.
10. Entire Agreement. This Agreement embodies the entire agreement of
the parties with respect to the Executive's employment, compensation,
perquisites and related items and supersedes any other prior oral or written
agreements, arrangements or understandings between the Executive and the Company
or any of its divisions, subsidiaries or affiliates, and any such prior
agreements, arrangements or understandings are hereby terminated and of no
further effect. This Agreement may not be changed or terminated orally but only
by an agreement in writing signed by the parties hereto.
11. Waiver. The waiver by the Company of a breach of any provision of
this Agreement by the Executive shall not operate or be construed as a waiver of
any subsequent breach by him. The waiver by the Executive of a breach of any
provision of this Agreement by the Company shall not operate or be construed as
a waiver of any subsequent breach by the Company.
12. Governing Law; Jurisdiction.
(a) This Agreement shall be subject to, and governed by, the laws of
the State of New York applicable to contracts made and to be performed therein.
<PAGE>
(b) Any action to enforce any of the provisions of this Agreement shall
be brought in a court of the State of New York located in the Borough of
Manhattan of the City of New York or in a Federal court located within the
Southern District of New York. The parties consent to the jurisdiction of such
courts and to the service of process in any manner provided by New York law.
Each party irrevocably waives any objection which it may now or hereafter have
to the laying of the venue of any such suit, action or proceeding brought in
such court and any claim that such suit, action or proceeding brought in such
court has been brought in an inconvenient forum and agrees that service of
process in accordance with the foregoing sentences shall be deemed in every
respect effective and valid personal service of process upon such party.
13. Assignability. The obligations of the Executive may not be
delegated and, except with respect to the designation of beneficiaries in
connection with any of the benefits payable to the Executive hereunder, the
Executive may not, without the Company's written consent thereto, assign,
transfer, convey, pledge, encumber, hypothecate or otherwise dispose of this
Agreement or any interest herein. Any such attempted delegation or disposition
shall be null and void and without effect. The Company and the Executive agree
that this Agreement and all of the Company's rights and obligations hereunder
may be assigned or transferred by the Company to and shall be assumed by and be
binding upon any successor to the Company. The term "successor" means, with
respect to the Company or any of its subsidiaries, any corporation or other
business entity which, by merger, consolidation, purchase of the assets or
otherwise acquires all or a material part of the assets of the Company.
14. Severability. If any provision of this Agreement or any part
thereof, including, without limitation, Sections 6 and 7 hereof, as applied to
either party or to any circumstances shall be adjudged by a court of competent
jurisdiction to be void or unenforceable, the same shall in no way affect any
other provision of this Agreement or remaining part thereof, which shall be
given full effect without regard to the invalid or unenforceable part thereof,
or the validity or enforceability of this Agreement.
If any court construes any of the provisions of Section 6 or 7 hereof,
or any part thereof, to be unreasonable because of the duration of such
provision or the geographic scope thereof, such court may reduce the duration or
restrict or redefine the geographic scope of such provision and enforce such
provision as so reduced, restricted or redefined.
15. Notices. All notices to the Company or the Executive permitted or
required hereunder shall be in writing and shall be delivered personally, by
telecopier or by courier service providing for next-day delivery or sent by
registered or certified mail, return receipt requested, to the following
addresses:
The Company:
The Estee Lauder Companies Inc.
767 Fifth Avenue
New York, New York 10153
Attn: Chief Executive Officer
Tel: (212) 572-4200
Fax: (212) 572-6745
The Executive:
with a copy to:
Carol Seabrook Boulanger, Esq.
Winthrop, Stimsom, Putnam & Roberts
One Battery Park Plaza
New York, NY 10004
<PAGE>
Either party may change the address to which notices shall be sent by sending
written notice of such change of address to the other party. Any such notice
shall be deemed given, if delivered personally, upon receipt; if telecopied,
when telecopied; if sent by courier service providing for next-day delivery, the
next business day following deposit with such courier service; and if sent by
certified or registered mail, three days after deposit (postage prepaid) with
the U.S. mail service.
16. No Conflicts. The Executive hereby represents and warrants to the
Company that his execution, delivery and performance of this Agreement and any
other agreement to be delivered pursuant to this Agreement will not (i) require
the consent, approval or action of any other person or (ii) violate, conflict
with or result in the breach of any of the terms of, or constitute (or with
notice or lapse of time or both, constitute) a default under, any agreement,
arrangement or understanding with respect to the Executive's employment to which
the Executive is a party or by which the Executive is bound or subject. The
Executive hereby agrees to indemnify and hold harmless the Company and its
directors, officers, employees, agents, representatives and affiliates (and such
affiliates' directors, officers, employees, agents and representatives) from and
against any and all losses, liabilities or claims (including, interest,
penalties and reasonable attorneys' fees, disbursements and related charges)
based upon or arising out of the Executive's breach of any of the foregoing
representations and warranties.
17. Effective Date. This Agreement shall be effective as of July 1,
1998.
18. Paragraph Headings. The paragraph headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
19. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which
taken together shall constitute one and the same instrument.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first written above.
THE ESTEE LAUDER COMPANIES INC.
By: /s/ Andrew J. Cavanaugh
--------------------------------------
Andrew J. Cavanaugh
Senior Vice President
/s/ William P. Lauder
- ---------------------------
William P. Lauder
Date: 5/6/99
----------------------
