<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 1, 1998
SECURITIES ACT FILE NO. 333-50597
INVESTMENT COMPANY ACT FILE NO. 811-08761
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM N-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X/
PRE-EFFECTIVE AMENDMENT NO. 4 /X/
POST-EFFECTIVE AMENDMENT NO. / /
AND/OR
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 /X/
AMENDMENT NO. 4 /X/
------------------------
ESTEE LAUDER AUTOMATIC
COMMON EXCHANGE SECURITY TRUST
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
C/O GOLDMAN, SACHS & CO.
85 BROAD STREET
NEW YORK, NEW YORK 10004
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 902-1000
------------------------
KENNETH L. JOSSELYN, ESQ.
85 BROAD STREET
NEW YORK, NEW YORK 10004
(NAME AND ADDRESS OF AGENT FOR SERVICE)
------------------------
Copies to:
ROBERT E. BUCKHOLZ, JR., ESQ. JEAN E. HANSON, ESQ.
SULLIVAN & CROMWELL FRIED, FRANK, HARRIS, SHRIVER & JACOBSON
125 BROAD STREET ONE NEW YORK PLAZA
NEW YORK, NEW YORK 10004 NEW YORK, NEW YORK 10004
------------------------
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING: As soon as practicable after
the effective date of this Registration Statement.
If any securities being registered on this form will be offered on a
delayed or continuous basis in reliance on Rule 415 under the Securities Act of
1933, other than securities offered in connection with a dividend reinvestment
plan, check the following box. / /
/ / This form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act and the Securities Act
registration statement number of the earlier effective registration statement
for the same offering is 333- .
------------------------
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
<TABLE>
<CAPTION>
PROPOSED
MAXIMUM PROPOSED MAXIMUM AMOUNT OF
AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
TITLE OF SECURITIES BEING REGISTERED REGISTERED PER UNIT(1) OFFERING PRICE(2) FEE
------------------------------------ ---------- ----------- ----------------- ------------
<S> <C> <C> <C> <C>
Trust Automatic Common Exchange
Securities................................ 5,263,030 Securities $63.00 $331,570,890 $97,813(3)
</TABLE>
(1) Estimated pursuant to Rule 457(c) solely for the purpose of calculating the
registration fee on the basis of the average of the high and low prices of
the Class A Common Stock of The Estee Lauder Companies Inc. reported on the
New York Stock Exchange on May 15, 1998.
(2) Estimated solely for the purpose of calculating the registration fee.
(3) 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 COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
ESTEE LAUDER AUTOMATIC COMMON EXCHANGE SECURITY TRUST
CROSS-REFERENCE SHEET
(PURSUANT TO RULE 404(c) UNDER THE SECURITIES ACT OF 1933)
PART A & B OF PROSPECTUS*
<TABLE>
<CAPTION>
ITEM
NUMBER CAPTION LOCATION IN PROSPECTUS
- ------ -------------------------------------------------- --------------------------------------------------
<S> <C> <C>
1. Outside Front Cover............................... Front Cover Page
2. Inside Front and Outside Back Cover Page.......... Front Cover Page; Inside Front Cover Page; Outside
Back Cover Page
3. Fee Table and Synopsis............................ Prospectus Summary; Fee Table
4. Financial Highlights.............................. Not Applicable
5. Plan of Distribution.............................. Front Cover Page; Prospectus Summary; Underwriting
6. Selling Shareholders.............................. Not Applicable
7. Use of Proceeds................................... Use of Proceeds; Investment Objective and Policies
8. General Description of the Registrant............. Front Cover Page; Prospectus Summary;
The Trust; Investment Objective and Policies;
Risk Factors
9. Management........................................ Management and Administration of the Trust
10. Capital Stock, Long-Term Debt and Other
Securities...................................... Investment Objective and Policies; Description of
the Securities; Certain Federal Income Tax
Considerations
11. Defaults and Arrears on Senior Securities......... Not Applicable
12. Legal Proceedings................................. Not Applicable
13. Table of Contents of the Statement of Additional
Information..................................... Not Applicable
14. Cover Page........................................ Not Applicable
15. Table of Contents................................. Not Applicable
16. General Information and History................... The Trust
17. Investment Objective and Policies................. Investment Objective and Policies
18. Management........................................ Management and Administration of the Trust
19. Control Persons and Principal Holders of
Securities...................................... Management and Administration of the Trust
20. Investment Advisory and Other Services............ Management and Administration of the Trust
21. Brokerage Allocation and Other Practices.......... Investment Objective and Policies
22. Tax Status........................................ Certain Federal Income Tax Considerations
23. Financial Statements.............................. Statement of Assets and Liabilities
</TABLE>
- ------------------
* Pursuant to the General Instructions to Form N-2, all information required to
be set forth in Part B: Statement of Additional Information has been included
in Part A: The Prospectus. Information required to be included in Part C is
set forth under the appropriate item so numbered in Part C of this
Registration Statement.
i
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED JUNE 1, 1998
4,576,548 Shares
Estee Lauder
Automatic Common Exchange Security Trust
$ Trust Automatic Common Exchange Securities (TRACESTM/SM)
(Subject to exchange into Shares of Class A Common Stock of The Estee Lauder
Companies Inc.)
------------------------
Each of the $ Trust Automatic Common Exchange Securities (the
'Securities') of Estee Lauder Automatic Common Exchange Security Trust (the
'Trust') represents the right to receive an annual distribution of
$ , and will be exchanged for between 0. shares and one share of
Class A Common Stock, par value $.01 per share (the 'Class A Common Stock'), of
The Estee Lauder Companies Inc. (the 'Company') on the Exchange Date described
below.
The Trust is a newly organized, finite-term Trust established to acquire
and hold a fixed portfolio of stripped U.S. Treasury securities maturing on a
quarterly basis through June , 2001, and forward purchase contracts (the
'Contracts') with certain existing stockholders of the Company (the 'Sellers')
relating to the Class A Common Stock. The Trust's investment objective is to
provide each registered holder of Securities (each, a 'Holder') with a quarterly
distribution of $ per Security and, on the Exchange Date, a number of
shares of Class A Common Stock per Security equal to the Exchange Rate.
The Exchange Rate will vary in accordance with a formula, depending on the
Average Market Price (as defined herein) of the Class A Common Stock on the
Exchange Date:
-- if the Average Market Price is less than the Appreciation Threshold
Price but equal to or greater than the Initial Price, the Exchange
Rate will be the number of shares of Class A Common Stock having a
value (determined at the Average Market Price) equal to the Initial
Price;
-- if the Average Market Price is equal to or greater than the
Appreciation Threshold Price, the Exchange Rate will be 0. shares
of Class A Common Stock; and
-- if the Average Market Price is less than the Initial Price, the
Exchange Rate will be one share of Class A Common Stock.
For purposes of this formula, the Appreciation Threshold Price is $
and the Initial Price is $ . The formula will be subject to
adjustment in certain events. All Holders otherwise entitled to receive
fractional shares in respect of their aggregate holdings of Securities will
receive cash in lieu thereof.
In lieu of delivering Class A Common Stock, one of the Contracts (the
'Extendible Contract'), covering approximately 41.4% of the shares of Class A
Common Stock subject to all Contracts, entitles the Seller thereunder to elect
to pay cash upon settlement of such Contract in an amount equal to the then
Average Market Price of the number of shares of Class A Common Stock determined
pursuant to the above formula (the 'Cash Settlement Alternative'). Holders of
Securities will receive cash instead of a portion of the Class A Common Stock
otherwise deliverable upon settlement of the Contracts if such Seller elects the
Cash Settlement Alternative.
(Continued on next page)
See 'Risk Factors' beginning on Page 21 of this Prospectus for a discussion
of certain factors relevant to an investment in the Securities.
----------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
----------------------
Proceeds to
Price to Public Sales Load(1) the Trust(2)
--------------- ------------- ------------
Per Security............ $ $ (4) $
Total(3)................ $ $ (4) $
- ------------------
(1) The Company and the Sellers have agreed to indemnify the Underwriters
against certain liabilities, including liabilities under the Securities Act
of 1933. See 'Underwriting'.
(2) Expenses of the offering, which are payable by the Sellers, are estimated
to be $ .
(3) The Trust has granted to the Underwriters an option for 30 days to purchase
up to an additional 686,482 Securities at the price to public per Security,
solely to cover over-allotments. If the option is exercised in full, the
total Price to Public, Sales Load and Proceeds to the Trust will be
$ , $ and $ , respectively. See 'Underwriting'.
(4) In light of the fact that the proceeds of the sale of the Securities will be
used in part by the Trust to purchase the Contracts from the Sellers, the
Underwriting Agreement provides that the Sellers will pay to the
Underwriters as compensation ('Underwriters' Compensation') $ per
Security. See 'Underwriting'.
----------------------
The Securities are offered severally by the Underwriters, as specified
herein, subject to receipt and acceptance by them and subject to their right to
reject any order in whole or in part. It is expected that the Securities will be
ready for delivery in book entry form only through the facilities of The
Depository Trust Company, on or about June , 1998, against payment therefor in
immediately available funds.
Goldman, Sachs & Co.
Merrill Lynch & Co.
J.P. Morgan & Co.
----------------------
The date of this Prospectus is June , 1998.
<PAGE>
The Exchange Date under each Contract will be June , 2001, except that
the Extendible Contract permits the Seller thereunder to elect (i) to extend the
Exchange Date under such Contract to September , 2001, provided such Seller
delivers to the Trust additional U.S. Treasury securities sufficient to fund the
Trust's pro rated quarterly distribution on such date, and (ii) following such
an extension, to accelerate the Exchange Date under such Contract, to a date not
earlier than June , 2001, in connection with the consummation of a Rollover
Offering (as defined herein). If such Seller were to exercise its right to
extend the Exchange Date under the Extendible Contract, the Trustee will
distribute on June , 2001 those assets that are delivered to it under the
Contracts on that date, and it will distribute the assets that are delivered to
it on the extended Exchange Date promptly after it receives those assets.
Following the distribution on June , 2001, the value of the Securities will be
reduced, and there may be a reduction in the liquidity of the Securities during
the period from June , 2001 until the final Exchange Date, which will occur
not later than September , 2001. The Holders of record on the regular
quarterly record date will receive the full scheduled quarterly distribution on
June , 2001. If the Exchange Date under the Extendible Contract occurs after
June , 2001, the Holders of record on such later Exchange Date will receive a
distribution, in an amount equal to a portion of the regular quarterly
distribution on the Securities proportionate to the number of shares covered by
the Extendible Contract, accruing to such Exchange Date but not thereafter.
Holders of Securities will receive distributions at a higher annual rate
than the current annual dividends paid on the Class A Common Stock. There is no
assurance, however, that this relative relationship will prevail over the term
of the Trust. In addition, the opportunity for equity appreciation afforded by
an investment in the Securities is less than that afforded by an investment in
the Class A Common Stock because Holders of Securities will realize no equity
appreciation if, on the Exchange Date, the Average Market Price of the Class A
Common Stock is at or below the Appreciation Threshold Price, and less than all
of the appreciation if at that time the Average Market Price is above the
Appreciation Threshold Price. Holders of Securities will realize the entire
decline in equity value if the Average Market Price is less than the price to
public per Security shown below.
The Company is not affiliated with the Trust.
Application has been made to list the Securities on the New York Stock
Exchange under the symbol 'ECT'. Prior to this offering there has been no public
market for the Securities. The last reported sale price of the Class A Common
Stock on the New York Stock Exchange on May 19, 1998, was $63 1/4 per share.
The Trust has adopted a policy that the Contracts may not be disposed of
during the term of the Trust. The Trust will continue to hold the Contracts
despite any significant decline in the market price of the Class A Common Stock
or adverse changes in the financial condition of the Company.
This Prospectus sets forth concisely information about the Trust that a
prospective investor ought to know before investing. Potential investors are
advised to read this Prospectus and to retain it for future reference.
The Securities may be a suitable investment for those investors who are
able to understand the unique nature of the Trust and the economic
characteristics of the Contracts and the U.S. Treasury securities held by the
Trust.
The Trust will be a grantor trust for federal income tax purposes and each
holder of Securities will be treated as the owner of its pro rata portions of
the U.S. Treasury securities and the Contracts acquired by the Trust with the
proceeds of the Securities. For a discussion of the principal United States
federal income tax consequences of ownership of Securities, see 'Certain Federal
Income Tax Considerations'.
THE TRUST IS A NEWLY ORGANIZED CLOSED-END INVESTMENT COMPANY WITH NO
PREVIOUS HISTORY OF PUBLIC TRADING. TYPICAL CLOSED-END FUND SHARES FREQUENTLY
TRADE AT A DISCOUNT FROM NET ASSET VALUE. THIS CHARACTERISTIC OF INVESTMENTS IN
A CLOSED-END INVESTMENT COMPANY IS A RISK SEPARATE AND DISTINCT FROM THE RISK
THAT THE TRUST'S NET ASSET VALUE WILL DECREASE. THE TRUST CANNOT PREDICT WHETHER
ITS SHARES WILL TRADE AT, BELOW OR ABOVE NET ASSET VALUE. THE RISK OF PURCHASING
INVESTMENTS IN A CLOSED-END COMPANY THAT MIGHT TRADE AT A DISCOUNT MAY BE
GREATER FOR INVESTORS WHO WISH TO SELL THEIR INVESTMENTS SOON AFTER COMPLETION
OF AN INITIAL PUBLIC OFFERING.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE SECURITIES,
INCLUDING OVER-ALLOTMENT, STABILIZING AND SHORT-COVERING TRANSACTIONS IN SUCH
SECURITIES, AND THE IMPOSITION OF A PENALTY BID, DURING AND AFTER THE OFFERING.
FOR A DESCRIPTION OF THESE ACTIVITIES, SEE 'UNDERWRITING'. SUCH ACTIVITIES MAY
MAINTAIN THE MARKET PRICE OF THE SECURITIES AT A LEVEL ABOVE THAT WHICH MIGHT
OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH ACTIVITIES, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
2
<PAGE>
PROSPECTUS SUMMARY
This summary of the provisions relating to the Securities does not purport
to be complete and is qualified in its entirety by the detailed information
appearing elsewhere in this Prospectus. Certain terms used in this summary are
defined elsewhere in this Prospectus.
THE TRUST
GENERAL. The Trust is a newly organized, finite-term trust. The Trust will
be registered as a non-diversified closed-end management investment company
under the Investment Company Act of 1940, as amended (the 'Investment Company
Act'). Under provisions of the Internal Revenue Code of 1986, as amended (the
'Code'), applicable to grantor trusts, the Trustees will not have the power to
vary the investments held by the Trust.
INVESTMENT OBJECTIVE AND POLICIES. The Trust will initially acquire and
hold a fixed portfolio of stripped U.S. Treasury securities maturing on a
quarterly basis through June , 2001, and the Contracts with the Sellers
obligating each Seller, on the Exchange Date, to deliver to the Trust a number
of shares of Class A Common Stock equal to the product of the Exchange Rate
times the initial number of shares subject to such Seller's Contract (or to the
extent the Seller that has the Cash Settlement Alternative elects to deliver
cash in lieu of shares of Class A Common Stock, an amount of cash equal to the
Average Market Price thereof). The Trust's investment objective is to provide
the Holders of Securities with a quarterly distribution of $ per Security
(which amount equals the pro rata portion of the fixed quarterly cash
distributions from the proceeds of the maturing U.S. Treasury securities
acquired by the Trust with the proceeds of the Securities) and, on the Exchange
Date, a number of shares of Class A Common Stock per Security equal to the
Exchange Rate (or to the extent the Seller that has the Cash Settlement
Alternative elects to deliver cash in lieu of shares of Class A Common Stock, an
amount of cash equal to the Average Market Price thereof).
The Exchange Date under each Contract will be June , 2001, except that
the Extendible Contract, which covers approximately 41.4% of the shares of Class
A Common Stock subject to all Contracts, permits the Seller thereunder (i) to
elect to extend the Exchange Date under such Contract to September , 2001,
provided such Seller delivers to the Trust additional U.S. Treasury securities
sufficient to fund the Trust's pro rated quarterly distribution on such date,
and (ii) following such an extension, to accelerate the Exchange Date, to a date
not earlier than June , 2001, in connection with the consummation of a
Rollover Offering. The Trustee will distribute on June , 2001 those assets
that are delivered to it on that date under the Contracts other than the
Extendible Contract and under the Extendible Contract if it is not extended. If
the Seller under the Extendible Contract exercises its right to extend the
Exchange Date under such Contract, the Trustee will distribute the assets that
are delivered to it under that Contract on the extended Exchange Date promptly
after it receives those assets. Following the distribution on June , 2001, the
value of the Securities will be reduced, and there may be a reduction in the
liquidity of the Securities during the period from June , 2001 until the final
Exchange Date, which will occur not later than September , 2001. The Holders
of record on the regular quarterly record date will receive the full scheduled
quarterly distribution on June , 2001. If the Exchange Date under the
Extendible Contract occurs after June , 2001, the Holders of record on such
later Exchange Date will receive a distribution, in an amount equal to a portion
of the regular quarterly distribution on the Securities proportionate to the
number of shares covered by the Extendible Contract, accruing to such Exchange
Date but not thereafter.
The Exchange Rate will vary in accordance with a formula, depending on the
Average Market Price of the Class A Common Stock on the Exchange Date:
o if the Average Market Price is less than the Appreciation Threshold Price
but equal to or greater than the Initial Price, the Exchange Rate will be
the number of shares of Class A Common Stock having a value (determined
at the Average Market Price) equal to the Initial Price;
o if the Average Market Price is equal to or greater than the Appreciation
Threshold Price, the Exchange Rate will be 0. shares of Class A Common
Stock; and
3
<PAGE>
o if the Average Market Price is less than the Initial Price, the Exchange
Rate will be one share of Class A Common Stock.
For purposes of this formula, the Appreciation Threshold Price is $ and the
Initial Price is $ . The formula will be subject to adjustment in certain
events.
The Exchange Rate formula provides the Trust with the potential for a
portion of any capital appreciation above the Appreciation Threshold Price on
the Class A Common Stock, but no protection from depreciation of the Class A
Common Stock.
All Holders otherwise entitled to receive fractional shares in respect of
their aggregate holdings of Securities will receive cash in lieu thereof. See
'Investment Objective and Policies--Trust Termination'.
STRUCTURE. The purchase price under the Contracts is equal to $ per
share of Class A Common Stock initially subject thereto and $ (4,576,548
shares of Class A Common Stock) in the aggregate (assuming no exercise of the
Underwriters' over-allotment option) and is payable to the Sellers by the Trust
at the closing of the offering of the Securities, out of the proceeds of such
offering. The obligations of the Sellers under the Contracts will be secured by
a pledge of the Class A Common Stock (or at the election of the Sellers, by
substitute collateral consisting of short-term, direct obligations of the U.S.
Government). See 'Investment Objective and Policies--The Contracts--Collateral
Arrangements; Acceleration'.
The balance of the offering proceeds will be used to purchase a fixed
portfolio comprised of stripped U.S. Treasury securities with face amounts and
maturities corresponding to the quarterly distributions payable with respect to
the Securities and the payment dates thereof through June , 2001. The Seller
under the Extendible Contract may extend the Exchange Date under that Contract
to September , 2001 (subject to subsequent acceleration at the election of
such Seller in connection with a Rollover Offering), provided such Seller
delivers to the Trust, on or prior to June , 2001, additional U.S. Treasury
securities sufficent to fund the Trust's pro rated quarterly distribution on
September , 2001. If such Seller later accelerates the Exchange Date under
such Contract, such Seller will, pursuant to the Extendible Contract, repurchase
such additional U.S. Treasury securities from the Trust on or prior to the
Exchange Date, as accelerated, at a price equal to the aggregate unpaid
distributions on the Securities accruing to such Exchange Date.
THE OFFERING
The Trust is offering 4,576,548 Securities to the public at a purchase
price of $ per Security (which is equal to the last reported sale
price of the Class A Common Stock on the date of this Prospectus) through
Goldman, Sachs & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated and
J.P. Morgan Securities Inc. (the 'Underwriters'). In addition, the Underwriters
have been granted an option to purchase up to 686,482 additional Securities
solely for the purpose of covering over-allotments. See 'Underwriting'.
THE SECURITIES
GENERAL. The Securities are designed to provide investors with a higher
distribution per Security than the dividend currently paid per share on the
Class A Common Stock. The annual distribution per Security is $ .
Based on the current annual dividend rate of $0.34 per share of Class A Common
Stock, the annual per share distribution per Security is $ greater
than the current annual per share dividend rate on the Class A Common Stock.
Future declarations of dividends on the Class A Common Stock by the Company and
the amount of such dividends are discretionary with its Board of Directors and
subject to legal and other factors. Such further declarations will necessarily
depend on the Company's future earnings, financial condition, capital
requirements and other factors. Quarterly distributions on the Securities
through June , 2001 will consist solely of the cash received from the U.S.
Treasury securities acquired by the Trust with the proceeds of the Securities.
The Trust will not be entitled to any dividends that may be declared on the
Class A Common Stock. A portion of each year's distributions through June ,
2001 on the Securities will constitute a return of capital for U.S. federal
income tax purposes. See 'Investment Objectives and Policies--Tax Treatment of
Distributions'.
4
<PAGE>
Holders will receive distributions at a higher annual rate than the current
annual dividends paid on the Class A Common Stock. There is no assurance,
however, that this relative relationship will prevail over the term of the
Trust. In addition, the opportunity for equity appreciation afforded by an
investment in the Securities is less than that afforded by an investment in the
Class A Common Stock because Holders will realize no equity appreciation if, on
the Exchange Date, the Average Market Price of the Class A Common Stock is at or
below the Appreciation Threshold Price (which represents an appreciation of
% of the Initial Price). Moreover, because a Holder will only receive 0.
shares of Class A Common Stock per Security (or, in the case of a cash
settlement, the Average Market Price thereof) if the Average Market Price
exceeds the Appreciation Threshold Price, Holders will only be entitled to
receive upon exchange % of any appreciation of the value of the Class A
Common Stock in excess of the Appreciation Threshold Price. Holders of
Securities will realize the entire decline in equity value if the Average Market
Price on the Exchange Date is less than the price to public per Security shown
on the cover page hereof.
DISTRIBUTIONS. Holders are entitled to receive distributions at the rate
per Security of $ per annum or $ per quarter, payable
quarterly on each March , June , September and December or, if any such
date is not a business day, on the next succeeding business day, to Holders of
record as of each February , May , August and November , respectively.
The first distribution will be payable on September , 1998 to Holders of
record as of August , 1998. See 'Investment Objective and Policies--Tax
Treatment of Distributions'.
MANDATORY EXCHANGE. On the Exchange Date, each outstanding Security will
be exchanged automatically for between 0. shares and one share of Class A
Common Stock, subject to adjustment in the event of certain dividends or
distributions, subdivisions, splits, combinations, issuances of certain rights
or warrants or distributions of certain assets with respect to the Class A
Common Stock. In lieu of delivering Class A Common Stock, the Extendible
Contract, which covers approximately 41.4% of the shares of Class A Common Stock
subject to all Contracts, entitles the Seller thereunder to elect to pay cash
upon settlement of such Contract in an amount equal to the then Average Market
Price of the number of shares of Class A Common Stock determined pursuant to the
above formula (the 'Cash Settlement Alternative') and to elect to extend the
Exchange Date to September , 2001 (subject to acceleration to a date not
earlier than June , 2001 in connection with the consummation of a Rollover
Offering). Holders of Securities will receive cash instead of a portion of the
Class A Common Stock otherwise deliverable upon settlement of the Contracts if
such Seller elects the Cash Settlement Alternative.
The 'Average Market Price' per share of Class A Common Stock on any date
means the average Closing Price per share of Class A Common Stock for the 20
Trading Days immediately prior to, but not including, such date, provided that
for purposes of determining the payment required upon cash settlement of the
Extendible Contract in connection with a Rollover Offering, 'Average Market
Price' means the Closing Price per share of Class A Common Stock on the Trading
Day immediately preceding the date that the Rollover Offering is priced (the
'Pricing Date') or, if the Rollover Offering is priced after 4:00 P.M., New York
City time, on the Pricing Date, the Closing Price per share on the Pricing Date.
'Rollover Offering' means a reoffering or refinancing of up to % of the
Securities effected not earlier than June , 2001 by means of a completed
public offering or offerings (which may include one or more exchange offers) by
or on behalf of the Seller under the Extendible Contract. The Trustees will
notify the Holders of (i) any election of the Cash Settlement Alternative, and
whether it is intended to be in connection with a Rollover Offering, not less
than 30 nor more than 90 days prior to the Exchange Date, and (ii) any
acceleration of the Exchange Date in connection with a Rollover Offering, not
later than the Exchange Date.
In addition, in the event of a merger of the Company with another entity,
or the liquidation of the Company, or certain related events, Holders would
receive consideration in the form of cash or Marketable Securities (as defined
below under the caption 'Investment Objective and Policies--The
Contracts--Dilution Adjustments') rather than shares of Class A Common Stock.
Further, the occurrence of certain defaults by the Sellers under the Contracts
or the collateral arrangements would
5
<PAGE>
cause the acceleration of the Contracts and the exchange of each Security for an
amount of shares of Class A Common Stock (or Marketable Securities), cash, or a
combination thereof, in respect of the shares of Class A Common Stock and the
U.S. Treasury Securities. See 'Investment Objective and Policies--The
Contracts--Collateral Arrangements; Acceleration'; '--The U.S. Treasury
Securities' and '--Trust Termination'.
VOTING RIGHTS. Holders will have the right to vote on matters affecting
the Trust, as described below under the caption 'Description of the Securities',
but will have no voting rights with respect to the Class A Common Stock prior to
receipt of shares of Class A Common Stock by the Holders as a result of the
exchange of the Securities for the Class A Common Stock on the Exchange Date or
upon earlier settlement. See 'Investment Objective and Policies--The Company'
and 'Description of the Securities'.
THE COMPANY
The Estee Lauder Companies Inc. is one of the world's leading manufacturers
and marketers of quality skin care, makeup, fragrance and hair care products.
The Company's 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. The
Company is also the global licensee for fragrances and cosmetics for the Tommy
Hilfiger, Donna Karan New York and DKNY brands.
Reference is made to the accompanying prospectus of the Company (pages A-1
through A-23 hereof) which describes the Company and the shares of Class A
Common Stock of the Company deliverable to the Holders upon the exchange of the
Securities on the Exchange Date. The Company is not affiliated with the Trust
and will not receive any of the proceeds from the sale of the Securities. The
Company prospectus relates to an aggregate of 4,576,548 shares of Class A Common
Stock (plus an additional 686,482 shares that may be delivered upon exercise of
the Underwriters' over-allotment option).
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The Trust will be treated as a grantor trust for federal income tax
purposes. Accordingly, each Holder will be treated for federal income tax
purposes as the owner of its pro rata portion of the U.S. Treasury securities
and the Contracts acquired by the Trust with the proceeds from the sale of the
Securities to the Holders, and income received (including original issue
discount treated as received) by the Trust will generally be treated as income
of the Holders. The U.S. Treasury securities acquired by the Trust with the
proceeds from the sale of the Securities to the Holders will be treated for
federal income tax purposes as having 'original issue discount' that will accrue
over the term of such U.S. Treasury securities. Actual receipts of cash in
respect of such U.S. Treasury securities will not be included in income,
however, but rather will reduce the aggregate tax basis of the Securities. A
Holder will have taxable gain or loss upon receipt by the Trust of cash in lieu
of Class A Common Stock. Holders should also be aware that there are alternative
characterizations of the assets of the Trust and the Securities which could
require Holders to include more interest in income than they would include in
income under the analysis set out above. See 'Certain Federal Income Tax
Considerations'.
MANAGEMENT AND ADMINISTRATION OF THE TRUST
The Trust will be internally managed and will not have an investment
adviser. The administration of the Trust will be overseen by three Trustees. The
day-to-day administration of the Trust will be carried out by The Chase
Manhattan Bank (or its successor) as trust administrator (the 'Administrator').
The Chase Manhattan Bank (or its successor) will also act as custodian (the
'Custodian') for the Trust's assets and ChaseMellon Shareholder Services, L.L.C.
(or its successor) will act as paying agent (the 'Paying Agent'), registrar and
transfer agent with respect to the Securities. Except as aforesaid, The Chase
Manhattan Bank and ChaseMellon Shareholder Services, L.L.C. have no other
affiliation with, and are not engaged in any other transaction with, the Trust.
See 'Management and Administration of the Trust'.
6
<PAGE>
LIFE OF THE TRUST
The Trust will terminate automatically on or shortly after the final
Exchange Date. Promptly after the final Exchange Date, the shares of Class A
Common Stock and any cash to be exchanged for the Securities and other remaining
Trust assets, if any, will be distributed pro rata to the Holders. See
'Investment Objective and Policies--Trust Termination'.
RISK FACTORS
The Trust will not be managed in the traditional sense. The Trust has
adopted a policy that the Contracts may not be disposed of during the term of
the Trust and that the U.S. Treasury securities acquired by the Trust with the
proceeds from the sale of the Securities to Holders may not be disposed of prior
to the earlier of their respective maturities and the termination of the Trust.
The Trust will continue to hold the Contracts despite any significant decline in
the market price of the Class A Common Stock or adverse changes in the financial
condition of the Company. See 'Risk Factors-- Internal Management; No Portfolio
Management' and 'Management and Administration of the Trust-- Trustees'.
Holders will receive distributions at a higher annual rate than the current
annual dividends paid on the Class A Common Stock. There is no assurance,
however, that this relative relationship will prevail over the term of the
Trust. In addition, the opportunity for equity appreciation afforded by an
investment in the Securities is less than that afforded by an investment in the
Class A Common Stock because Holders will realize no equity appreciation if, on
the Exchange Date, the Average Market Price of the Class A Common Stock is at or
below the Appreciation Threshold Price (which represents an appreciation of
% of the Initial Price). Moreover, because a Holder will only receive 0.
shares of Class A Common Stock per Security (or to the extent that the Seller
that has the Cash Settlement Alternative elects to deliver cash in lieu of
shares of Class A Common Stock, the Average Market Price thereof) if the Average
Market Price exceeds the Appreciation Threshold Price, Holders will only be
entitled to receive upon exchange % of any appreciation of the value of the
Class A Common Stock in excess of the Appreciation Threshold Price. Holders of
Securities will realize the entire decline in equity value if the Average Market
Price on the Exchange Date is less than the price to public per Security shown
on the cover page hereof.
The Trust is classified as a 'non-diversified' investment company under the
Investment Company Act. Consequently, the Trust is not limited by the Investment
Company Act in the proportion of its assets that may be invested in the
securities of a single issuer. Since the only assets held by the Trust will be
the U.S. Treasury securities and the Contracts, the Trust will be subject to
greater risk than would be the case for an investment company with diversified
investments. See 'Investment Objective and Policies' and 'Risk
Factors--Non-Diversified Status'.
The trading prices of the Securities in the secondary market will be
directly affected by the trading prices of the Class A Common Stock in the
secondary market. Trading prices of Class A Common Stock will be influenced by
the Company's operating results and prospects and by economic, financial and
other factors and market conditions.
Holders of the Securities will not be entitled to any rights with respect
to the Class A Common Stock (including, without limitation, voting rights and
rights to receive any dividends or other distributions in respect thereof)
unless and until such time, if any, as the Sellers shall have delivered shares
of Class A Common Stock pursuant to the Contracts.
7
<PAGE>
LISTING
Application has been made to list the Securities on the New York Stock
Exchange (the 'NYSE') under the symbol 'ECT'.
FEES AND EXPENSES
In light of the fact that the proceeds of the sale of the Securities will
be used in part by the Trust to purchase the Contracts from the Sellers, the
Underwriting Agreement provides that the Sellers will pay Underwriters'
Compensation to the Underwriters of $ per Security. See 'Underwriting'.
Estimated organization costs of the Trust in the amount of $10,000 and estimated
costs of the Trust in connection with the initial registration and public
offering of the Securities in the amount of $ will be paid by the
Sellers. Each of the Administrator, the Custodian and the Paying Agent, and each
Trustee, will be paid by the Sellers at the closing of the offering of the
Securities a one-time, up-front amount in respect of its ongoing fees and, in
the case of the Administrator, anticipated expenses of the Trust (estimated to
be $ in the aggregate), over the term of the Trust. The Sellers have
agreed to pay any on-going expenses of the Trust in excess of these estimated
amounts and to reimburse the Trust for any amounts it may be required to pay as
indemnification to any Trustee, the Administrator, the Custodian or the Paying
Agent. See 'Management and Administration of the Trust--Estimated Expenses'.
Regulations of the Securities and Exchange Commission ('SEC') applicable to
closed-end investment companies designed to assist investors in understanding
the costs and expenses that an investor will bear directly or indirectly require
the presentation of the Trust's expenses in the following format. Because the
Trust will not bear any fees or expenses, investors will not bear any direct
expenses. The only expenses that an investor might be considered to be bearing
indirectly are (i) the Underwriters' Compensation payable by the Sellers with
respect to such investor's Securities and (ii) the ongoing expenses of the Trust
(including fees of the Administrator, Custodian, Paying Agent and Trustees),
estimated at $ per year, payable by the Sellers at the closing of the
offering. See 'Investment Objective and Policies--General'.
INVESTOR TRANSACTION EXPENSES
Sales Load (as a percentage of offering price)..................... %
Dividend Reinvestment and Cash Purchase Plan Fees.................. N/A
ANNUAL EXPENSES
Management Fees.................................................... 0%
Other Expenses (after reimbursement by the Sellers)................ %
---
Total Annual Expenses (after reimbursement by the Sellers)*... %
---
---
- ------------------
* Absent the reimbursement, the Trust 'Other Expenses' and 'Total Annual
Expenses' would be equal to approximately % of the Trust's average net
assets.
SEC regulations also require that closed-end investment companies present
an illustration of cumulative expenses (both direct and indirect) that an
investor would bear. The example is required to factor in the applicable Sales
Load and to assume, in addition to a 5% annual return, the reinvestment of all
distributions at net asset value. INVESTORS SHOULD NOTE THAT THE ASSUMPTION OF A
5% ANNUAL RETURN DOES NOT ACCURATELY REFLECT THE FINANCIAL TERMS OF THE TRUST.
SEE 'INVESTMENT OBJECTIVE AND POLICIES--GENERAL'. ADDITIONALLY, THE TRUST DOES
NOT PERMIT THE REINVESTMENT OF DISTRIBUTIONS.
<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS
- ------------------------------------------------------------------------- ---------- ----------
<S> <C> <C>
You would bear the following expenses (i.e., the applicable sales load
and allocable portion of ongoing expenses paid by the Sellers) on a
$1,000 investment, assuming a 5% annual return......................... $ $
</TABLE>
8
<PAGE>
THE TRUST
The Trust is a newly organized New York trust and is registered as a
closed-end investment company under the Investment Company Act. The Trust was
formed on April 21, 1998 pursuant to a trust agreement dated as of such date and
amended and restated as of June , 1998 (the 'Amended and Restated Trust
Agreement'). The address of the Trust is 85 Broad Street, New York, New York
10004 (telephone no. (212) 902-1000).
USE OF PROCEEDS
The net proceeds of this offering will be used immediately upon the closing
of this offering (a) to purchase a fixed portfolio comprised of stripped U.S.
Treasury securities with face amounts and maturities corresponding to the
quarterly distributions payable with respect to the Securities and the payment
dates thereof through June , 2001, and (b) to pay the purchase price under the
Contracts to the Sellers.
INVESTMENT OBJECTIVE AND POLICIES
GENERAL
With the proceeds of the Securities, the Trust will acquire and hold a
fixed portfolio of stripped U.S. Treasury securities maturing on a quarterly
basis through June , 2001 and the Contracts relating to the Class A Common
Stock of the Company. The Trust's investment objective is to provide each Holder
with a quarterly cash distribution of $ per Security (which amount equals
the pro rata portion of the fixed quarterly distributions from the proceeds of
the maturing U.S. Treasury securities held by the Trust) and, on the Exchange
Date, a number of shares of Class A Common Stock per Security equal to the
Exchange Rate (or if the Seller that has the Cash Settlement Alternative elects
to deliver cash in lieu of shares of Class A Common Stock, an amount in cash
equal to the Average Market Price thereof).
The Exchange Date under each Contract will be June , 2001, except that
the Extendible Contract, which covers approximately 41.4% of the shares of Class
A Common Stock subject to all Contracts, permits the Seller thereunder to elect
(i) to extend the Exchange Date under such Contract to September , 2001,
provided such Seller delivers to the Trust additional U.S. Treasury securities
sufficient to fund the Trust's pro rated quarterly distribution on such date,
and (ii) following such an extension, to accelerate the Exchange Date under such
Contract, to a date not earlier than June , 2001, in connection with the
consummation of a Rollover Offering. The Trustee will distribute on June ,
2001 those assets that are delivered to it on that date under the Contracts
other than the Extendible Contract and under the Extendible Contract if it is
not extended. If the Seller under the Extendible Contract exercises its right to
extend the Exchange Date under such Contract, the Trustee will distribute the
assets that are delivered to it under that Contract on the extended Exchange
Date promptly after it receives those assets. Following the distribution on June
, 2001, the value of the Securities will be reduced, and there may be a
reduction in the liquidity of the Securities during the period from June ,
2001 until the final Exchange Date, which will occur not later than September
, 2001. The Holders of record on the regular quarterly record date will
receive the full scheduled quarterly distribution on June , 2001. If the
Exchange Date under the Extendible Contract occurs after June , 2001, the
Holders of record on such later Exchange Date will receive distributions
accruing to such Exchange Date, in an amount equal to the regular quarterly
distribution on the Securities multiplied by a fraction, the numerator of which
is the number of shares covered by the Extendible Contract and the denominator
of which is the total number of shares covered by all the Contracts. No
distributions will accrue after the final Exchange Date.
9
<PAGE>
The Exchange Rate will vary in accordance with a formula, depending on the
Average Market Price of the Class A Common Stock on the Exchange Date:
o if the Average Market Price is less than the Appreciation Threshold Price
but equal to or greater than the Initial Price, the Exchange Rate will be
the number of shares of Class A Common Stock having a value (determined
at the Average Market Price) equal to the Initial Price;
o if the Average Market Price is equal to or greater than the Appreciation
Threshold Price, the Exchange Rate will be 0. shares of Class A Common
Stock; and
o if the Average Market Price is less than the Initial Price, the Exchange
Rate will be one share of Class A Common Stock.
The formula will be subject to adjustment in certain events. See '--The
Contracts--Dilution Adjustments'. For purposes of the first part of the formula,
the Exchange Rate will be rounded upward or downward to the nearest 1/10,000 (or
if there is not a nearest 1/10,000, to the next lower 1/10,000). All Holders
otherwise entitled to receive fractional shares in respect of their aggregate
holdings of Securities will receive cash in lieu thereof. See '--Trust
Termination'.
The 'Average Market Price' per share of Class A Common Stock on any date
means the average Closing Price (as defined below) of a share of Class A Common
Stock on the 20 Trading Days (as defined below) immediately prior to but not
including such date, provided that for purposes of determining the payment
required upon cash settlement of the Extendible Contract in connection with a
Rollover Offering, 'Average Market Price' means the Closing Price per share of
Class A Common Stock on the Trading Day immediately preceding the date that the
Rollover Offering is priced (the 'Pricing Date') or, if the Rollover Offering is
priced after 4:00 P.M., New York City time, on the Pricing Date, the Closing
Price per share on the Pricing Date.
'Rollover Offering' means a reoffering or refinancing of up to 41.4% of the
Securities effected not earlier than June , 2001, by means of a completed
public offering or offerings (which may include one or more exchange offers) by
or on behalf of the Seller under the Extendible Contract. The Trustees will
notify the Holders of (i) any election of the Cash Settlement Alternative, and
whether it is intended to be in connection with a Rollover Offering, not less
than 30 nor more than 90 days prior to the Exchange Date, and (ii) any
acceleration of the Exchange Date in connection with a Rollover Offering, not
later than the Exchange Date.
The 'Closing Price' of the Class A Common Stock on any date of
determination means the daily closing sale price (or, if no closing sale price
is reported, the last reported sale price) of the Class A Common Stock as
reported on the NYSE Consolidated Tape on such date of determination or, if the
Class A Common Stock is not listed for trading on the NYSE on any such date, as
reported in the composite transactions for the principal United States
securities exchange on which the Class A Common Stock is so listed, or if the
Class A Common Stock is not so listed on a United States national or regional
securities exchange, as reported by The NASDAQ National Market or, if the Class
A Common Stock is not so reported, the last quoted bid price for the Class A
Common Stock in the over-the-counter market as reported by the National
Quotation Bureau or similar organization, provided that if any event that
results in an adjustment to the number of shares of Class A Common Stock
deliverable under the Contracts as described under '--The Contracts--Dilution
Adjustments' occurs prior to the Exchange Date, the Closing Price as determined
pursuant to the foregoing will be appropriately adjusted to reflect the
occurrence of such event.
A 'Trading Day' means a day on which the Class A Common Stock (A) is not
suspended from trading on any national or regional securities exchange or
association or over-the-counter market at the close of business and (B) has
traded at least once on the national or regional securities exchange or
association or over-the-counter market that is the primary market for the
trading of such security.
A fundamental policy of the Trust is to invest at least 70% of its total
assets in the Contracts. The Trust has also adopted a fundamental policy that
the Contracts may not be disposed of during the term
10
<PAGE>
of the Trust and that the U.S. Treasury securities acquired by the Trust with
the proceeds of the Securities may not be disposed of prior to the earlier of
their respective maturities and the termination of the Trust. The foregoing
investment objective and policies are fundamental policies of the Trust that may
not be changed without the approval of a majority of the Trust's outstanding
Securities. A 'majority of the Trust's outstanding Securities' means the lesser
of (i) 67% of the Securities represented at a meeting at which more than 50% of
the outstanding Securities are represented, and (ii) more than 50% of the
outstanding Securities.
The value of the Class A Common Stock (or cash or Marketable Securities
received in lieu thereof) that will be received by Holders in respect of the
Securities on the Exchange Date may be more or less than the amount paid for the
Securities offered hereby.
For illustrative purposes only, the following chart shows the number of
shares of Class A Common Stock that a Holder would receive for each Security at
various Average Market Prices. The chart assumes that there would be no
adjustments to the number of shares of Class A Common Stock deliverable under
the Contracts by reason of the occurrence of any of the events described under
'--The Contracts--Dilution Adjustments'. There can be no assurance that the
Average Market Price on the Exchange Date will be within the range set forth
below. Given the Initial Price of $ per Security and the Appreciation
Threshold Price of $ , a Holder would receive in connection with the
exchange of Securities on the Exchange Date the following number of shares of
Class A Common Stock:
<TABLE>
<CAPTION>
NUMBER OF SHARES
AVERAGE MARKET PRICE OF CLASS A
OF CLASS A COMMON STOCK COMMON STOCK
- --------------------------------------------------------- ----------------
<S> <C>
</TABLE>
TAX TREATMENT OF DISTRIBUTIONS
The following table sets forth information regarding the distributions to
be received on the U.S. Treasury securities to be acquired by the Trust with a
portion of the proceeds of the Securities (assuming no exercise of the
Underwriters' over-allotment option), the portion of each year's distributions
through June , 2001 that will constitute a return of capital for U.S. federal
income tax purposes and the amount of original issue discount accruing (assuming
a yield-to-maturity accrual election in respect of any short-term U.S. Treasury
securities) on such U.S. Treasury securities with respect to a Holder who
acquires its Securities at the issue price from an Underwriter pursuant to the
original offering. See 'Certain Federal Income Tax Considerations--Recognition
of Original Issue Discount on the U.S. Treasury Securities'. Holders should not
be required to include any amounts in income upon the Trust's receipt of
additional U.S. Treasury securities as a result of the extension of the Exchange
Date and should not be required to include any original issue discount in income
in respect of such U.S. Treasury securities. See 'Certain Federal Income Tax
Considerations--Extension of the Exchange Date'.
<TABLE>
<CAPTION>
ANNUAL GROSS
ANNUAL GROSS DISTRIBUTIONS FROM ANNUAL RETURN OF ANNUAL INCLUSION OF
DISTRIBUTIONS FROM U.S. TREASURIES CAPITAL PER ORIGINAL ISSUE DISCOUNT
YEAR U.S. TREASURIES PER SECURITY SECURITY IN INCOME PER SECURITY
- ---------------------------- ------------------ ------------------ ---------------- -----------------------
<S> <C> <C> <C> <C>
1998........................
1999........................
2000........................
2001........................
</TABLE>
The annual distribution of $ per Security is payable quarterly on each
March , June , September and December , commencing September , 1998.
Quarterly distributions on the Securities through June , 2001 will consist
solely of the cash received from the U.S. Treasury
11
<PAGE>
securities acquired by the Trust with the proceeds of the Securities. The Trust
will not be entitled to any dividends that may be declared on the Class A Common
Stock. See 'Management and Administration of the Trust--Distributions'.
ENHANCED YIELD; LESS EQUITY APPRECIATION THAN CLASS A COMMON STOCK; NO
DEPRECIATION PROTECTION
Holders will receive distributions at a higher annual rate than the current
annual dividends paid on the Class A Common Stock. However, there is no
assurance that this relative relationship will prevail over the term of the
Trust. In addition, the opportunity for equity appreciation afforded by an
investment in the Securities is less than that afforded by an investment in the
Class A Common Stock because Holders will realize no equity appreciation if, on
the Exchange Date, the Average Market Price of the Class A Common Stock is at or
below the Appreciation Threshold Price (which represents an appreciation of
% of the Initial Price). Moreover, because Holders will only receive 0.
shares of Class A Common Stock per Security (or, in the case of cash settlement
of the Extendible Contract, the Average Market Price in respect of a portion
thereof) if the Average Market Price exceeds the Appreciation Threshold Price,
Holders will only be entitled to receive upon exchange % (the percentage
equal to the Initial Price divided by the Appreciation Threshold Price) of any
appreciation of the value of the Class A Common Stock in excess of the
Appreciation Threshold Price. Holders of Securities will realize the entire
decline in value if the Average Market Price on the Exchange Date is less than
the price to public per Security shown on the cover page hereof.
THE COMPANY
The Estee Lauder Companies Inc. is one of the world's leading manufacturers
and marketers of quality skin care, makeup, fragrance and hair care products.
The Company's 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. The
Company is also the global licensee for fragrances and cosmetics for the Tommy
Hilfiger, Donna Karan New York and DKNY brands.
The Class A Common Stock is traded on the NYSE. The following table sets
forth, for the fiscal quarters indicated, the reported high and low sales prices
of the Class A Common Stock on the NYSE Consolidated Tape and the cash dividends
per share of Class A Common Stock declared in respect of such quarters. As of
May 15, 1998, there were approximately 2,500 record holders of Class A Common
Stock and 12 record holders of the Company's Class B Common Stock, par value
$.01 per share (the 'Class B Company Stock').
<TABLE>
<CAPTION>
MARKET PRICE
OF
CLASS A
COMMON STOCK
-------------- CASH
HIGH LOW DIVIDENDS
---- --- ---------
<S> <C> <C> <C>
FISCAL 1997
First Quarter................................................................. $47 1/2 $34 3/4 $.085
Second Quarter................................................................ 53 1/2 42 3/8 .085
Third Quarter................................................................. 52 1/4 44 7/8 .085
Fourth Quarter................................................................ 52 1/2 39 3/8 .085
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 (through May 19, 1998)......................................... 73 15/16 62 1/8 .085(1)
</TABLE>
- ------------------
(1) The dividend with respect to the Class A Common Stock and Class B Common
Stock is payable July 2, 1998 to holders of record on June 15, 1998.
12
<PAGE>
The Company expects to continue the payment of cash dividends in the
future, but there can be no assurance that such payment of cash dividends will
continue.
Holders will not be entitled to rights with respect to the Class A Common
Stock (including, without limitation, voting rights and rights to receive
dividends or other distributions in respect thereof) until receipt of shares of
Class A Common Stock by the Holders as a result of the exchange of the
Securities for the Class A Common Stock on the Exchange Date.
Reference is made to the accompanying prospectus of the Company, dated June
, 1998 (pages A-1 through A-23 hereof) (the 'Company Prospectus'), which
describes the Company and the shares of Class A Common Stock deliverable to the
Holders upon mandatory exchange of the Securities on the Exchange Date. The
Company is not affiliated with the Trust and will not receive any of the
proceeds from the sale of the Securities. The Company Prospectus relates to an
aggregate of 4,576,548 shares of Class A Common Stock (plus an additional
686,482 shares that may be delivered upon exercise of the Underwriters'
over-allotment option).
THE CONTRACTS
GENERAL. The Trust will enter into a Contract with each Seller obligating
that Seller deliver to the Trust on the Exchange Date a number of shares of
Class A Common Stock equal to the product of the Exchange Rate times the initial
number of shares of Class A Common Stock subject to such Contract. The aggregate
initial number of shares of Class A Common Stock under the Contracts will equal
the aggregate number of Securities offered hereby (subject to increase in the
event the Underwriters exercise their over-allotment option). The Extendible
Contract, which covers approximately 41.4% of the shares of Class A Common Stock
subject to all Contracts, also provides that the Seller thereunder may deliver
to the Trust upon settlement of such Contract, at such Seller's option, an
amount of cash equal to the then Average Market Price of the number of shares of
Class A Common Stock deliverable pursuant to such Contract (the 'Cash Settlement
Alternative'). If the Seller under the Extendible Contract elects to deliver
cash in lieu of shares of Class A Common Stock, such Seller would be required to
deliver cash in respect of all shares deliverable pursuant to the Extendible
Contract. The Trustees will notify the Holders of (i) any election of the Cash
Settlement Alternative, and whether it is intended to be in connection with a
Rollover Offering (which would affect the computation of the Average Market
Price in connection with such settlement, as described under '--General' above),
not less than 30 nor more than 90 days prior to the Exchange Date, and (ii) any
acceleration of the Exchange Date in connection with a Rollover Offering, not
later than the Exchange Date. The cash payment received by the Trust upon such
settlement in connection with a Rollover Offering will be distributed to Holders
within five business days of the Exchange Date. If notice of a cash settlement
in connection with a Rollover Offering is given but the Rollover Offering is not
completed, the Extendible Contract will settle by cash payment on June , 2001
(or September , 2001, if the Exchange Date was previously extended) and the
Average Market Price will be computed on the basis of the average Closing Price
for 20 Trading Days.
The Exchange Date under the Extendible Contract may be extended to
September , 2001 (subject to subsequent acceleration at the election of the
Seller thereunder in connection with a Rollover Offering), provided such Seller
delivers to the Trust, on or prior to June , 2001, additional U.S. Treasury
securities sufficient to fund the Trust's pro rated quarterly distribution on
September , 2001. If such Seller later accelerates the Exchange Date under
such Contract, such Seller will, pursuant to the Extendible Contract, repurchase
such additional U.S. Treasury securities from the Trust on or prior to the
Exchange Date as accelerated, at a price equal to the aggregate unpaid
distributions on the Securities accruing to such Exchange Date. The Trustees
will notify the Holders of (i) any extension of the Exchange Date to September
, 2001, not less than 30 nor more than 90 days prior to June , 2001 and (ii)
any subsequent acceleration in connection with a Rollover Offering, not later
than the Exchange Date, as so extended.
13
<PAGE>
Each Contract also provides that if the Seller thereunder delivers
Securities to the Trust on or prior to the Exchange Date, its obligation under
the Contract will be proportionately reduced. Such delivery of Securities in
partial or complete satisfaction of a Seller's obligations will affect the
relative amounts of Class A Common Stock and cash receivable by Holders of
Securities upon settlement of the Contracts.
The purchase price of the Contracts was arrived at by arm's-length
negotiation between the Trust and the Sellers taking into consideration factors
including the price, expected dividend level and volatility of the Class A
Common Stock, current interest rates, the term of the Contracts, current market
volatility generally, the collateral security pledged by the Sellers, the value
of other similar instruments and the costs and anticipated proceeds of the
offering of the Securities. All matters relating to the administration of the
Contracts will be the responsibility of either the Administrator or the
Custodian.
DILUTION ADJUSTMENTS. The Exchange Rate is subject to adjustment if the
Company (i) pays a stock dividend or makes a distribution with respect to the
Class A Common Stock in shares of such stock, (ii) subdivides or splits its
outstanding shares of Class A Common Stock, (iii) combines its outstanding
shares of Class A Common Stock into a smaller number of shares, or (iv) issues
by reclassification of its shares of Class A Common Stock any shares of other
common stock of the Company. In any such event, the Exchange Rate shall be
adjusted as follows: for each share of Class A Common Stock that would have been
deliverable upon exchange prior to the adjustment, the Holder will receive the
number of shares of Class A Common Stock (or, in the case of a reclassification
referred to in clause (iv) above, the number of shares of other common stock of
the Company issued pursuant thereto), or fraction thereof, that a shareholder
who held one share of Class A Common Stock immediately prior to such event would
be entitled solely by reason of such event to hold immediately after such event.
In addition, if the Company issues rights or warrants to all holders of
Class A Common Stock entitling them to subscribe for or purchase shares of Class
A Common Stock at a price per share less than the Then-Current Market Price of
the Class A Common Stock (as defined below) (other than rights to purchase Class
A Common Stock pursuant to a plan for the reinvestment of dividends or
interest), then the Exchange Rate shall be adjusted pursuant to the following
formula:
A = ER X OS + AS
-------
OS + PS
where
ER = the Exchange Rate prior to the adjustment;
OS = the number of shares of Class A Common Stock outstanding immediately
prior to the time (determined as described below) the adjustment is
calculated by reason of the issuance of such rights or warrants;
AS = the number of additional shares offered for subscription or purchase
pursuant to such rights or warrants; and
PS = the number of additional shares that the aggregate offering price of
the shares so offered for subscription or purchase would purchase at
the Then-Current Market Price.
To the extent that, after expiration of such rights or warrants, the shares
offered thereby shall not have been delivered, the Exchange Rate shall be
further adjusted to equal the Exchange Rate that would have been in effect had
the foregoing adjustment been made upon the basis of delivery of only the number
of shares of Class A Common Stock actually delivered.
The 'Then-Current Market Price' of the Class A Common Stock means the
average Closing Price per share of Class A Common Stock for a Calculation Period
of five Trading Days immediately prior to the time such adjustment is effected
(or, in the case of an adjustment effected at the opening of business on the
business day following a record date, as described below, immediately prior to
the
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<PAGE>
earlier of the time such adjustment is effected and the related 'ex-date' on
which the shares of Class A Common Stock first trade regular way on their
principal market without the right to receive the relevant dividend,
distribution or issuance); provided that if no Closing Price for the Class A
Common Stock is determined for one or more (but not all) of such Trading Days,
such Trading Day shall be disregarded in the calculation of the Then-Current
Market Price (but no additional Trading Days shall be added to the Calculation
Period). If no Closing Price for the Class A Common Stock is determined for any
of such Trading Days, the most recently available Closing Price for the Class A
Common Stock prior to such five Trading Days shall be the Then-Current Market
Price. 'Calculation Period' means any period of Trading Days for which an
average security price must be determined pursuant to the Contracts.
In addition, if the Company pays a dividend or makes a distribution to all
holders of Class A Common Stock, in either case, of evidences of its
indebtedness or other non-cash assets (excluding any stock dividends or
distributions in shares of Class A Common Stock) or issues to all holders of
Class A Common Stock rights or warrants to subscribe for or purchase any of its
securities (other than rights or warrants referred to in the second paragraph of
this subsection), then the Exchange Rate shall be adjusted pursuant to the
following formula:
A = ER X T
-----
T - V
where
ER = the Exchange Rate prior to adjustment;
T = the Then-Current Market Price per share of Class A Common Stock; and
V = the fair market value (as determined by a nationally recognized
independent investment banking firm retained for this purpose by the
Administrator) as of the time the adjustment is calculated of the
portion of such evidences of indebtedness, non-cash assets or rights or
warrants payable in respect of one share of Class A Common Stock.
In addition, if the Company distributes cash (other than an Excluded
Distribution), by dividend or otherwise, to all holders of Class A Common Stock
or makes an Excess Purchase Payment, then the Exchange Rate shall be adjusted
pursuant to the following formula:
A = ER X T
-----
T - D
where
ER = the Exchange Rate prior to adjustment;
T = the Then-Current Market Price on the record date in respect of such
distribution; and
D = the amount of such distribution applicable to one share of Class A
Common Stock that would not be a Permitted Dividend (or in the case of
an Excess Purchase Payment, the aggregate amount of such Excess
Purchase Payment divided by the number of outstanding shares of Class A
Common Stock on such record date).
For purposes of these adjustments,
(a) the term 'Excluded Distribution' means any Permitted Dividend, any cash
distributed in consideration of fractional shares of Class A Common
Stock and any cash distributed in a Reorganization Event;
(b) the term 'Permitted Dividend' means any quarterly cash dividend in
respect of the Class A Common Stock, other than a quarterly cash
dividend that exceeds the immediately preceding
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<PAGE>
quarterly cash dividend, and then only to the extent that the per share
amount of such dividend results in an annualized dividend yield on the
Class A Common Stock in excess of 12.5%; and
(c) the term 'Excess Purchase Payment' means the excess, if any, of (i) the
cash and the value (as determined by a nationally recognized
independent investment banking firm retained for this purpose by the
Administrator, whose determination shall be conclusive) of all other
consideration paid by the Company with respect to one share of Class A
Common Stock acquired in a tender offer or exchange offer by the
Company over (ii) the Then-Current Market Price per share of Class A
Common Stock.
If any adjustment in the Exchange Rate is required to be calculated
pursuant to the formulas described above, corresponding adjustments to the
Initial Price and the Appreciation Threshold Price shall be calculated.
Dilution adjustments shall be effected: (i) in the case of any dividend,
distribution or issuance described above, at the opening of business on the
business day following the record date for determination of holders of Class A
Common Stock entitled to receive such dividend, distribution or issuance or, if
the announcement of any such dividend, distribution or issuance is after such
record date, at the time such dividend, distribution or issuance shall be
announced by the Company; (ii) in the case of any subdivision, split,
combination or reclassification described above, on the effective date of such
transaction; (iii) in the case of any Excess Purchase Payment for which the
Company shall announce, at or prior to the time it commences the relevant share
repurchase, the repurchase price for such shares to be repurchased, on the date
of such announcement; and (iv) in the case of any other Excess Purchase Payment,
on the date that the holders of Class A Common Stock become entitled to payment
with respect thereto. There will be no adjustment under the Contracts in respect
of any dividends, distributions, issuances or repurchases that may be declared
or announced after the Exchange Date. If any announcement or declaration of a
record date in respect of a dividend, distribution, issuance or repurchase shall
subsequently be canceled by the Company, or such dividend, distribution,
issuance or repurchase shall fail to receive requisite approvals or shall fail
to occur for any other reason, then the Exchange Rate shall be further adjusted
to equal the Exchange Rate that would have been in effect had the adjustment for
such dividend, distribution, issuance or repurchase not been made. If after an
announcement of a share repurchase, the Company reduces the repurchase price or
repurchases fewer shares than announced, upon completion of such share
repurchase, the Exchange Rate shall be further adjusted to equal the Exchange
Rate that would have been in effect had the adjustment for such repurchase been
based on the actual price and amount repurchased. All adjustments described
herein shall be rounded upward or downward to the nearest 1/10,000 (or if there
is not a nearest 1/10,000, to the next lower 1/10,000). No adjustment in the
Exchange Rate shall be required unless such adjustment would require an increase
or decrease of at least one percent therein; provided, however, that any
adjustments which by reason of the foregoing are not required to be made shall
be carried forward and taken into account in any subsequent adjustment.
In the event of a Reorganization Event, the Exchange Rate will be adjusted
such that, on the Exchange Date, each Holder will receive for each Security cash
in an amount equal to:
(i) if the Transaction Value (as defined below) is less than the
Appreciation Threshold Price but equal to or greater than the Initial Price, the
Initial Price,
(ii) if the Transaction Value is greater than or equal to the Appreciation
Threshold Price, 0. multiplied by the Transaction Value, and
(iii) if the Transaction Value is less than the Initial Price, the
Transaction Value;
provided, however, that if the consideration received by holders of Class A
Common Stock in such Reorganization Event does not include Marketable
Securities, then (a) the Sellers' delivery obligations under the Contracts will
be accelerated, and the Transaction Value will be deliverable promptly upon
consummation of the Reorganization Event; (b) the Custodian will liquidate the
U.S. Treasury securities
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<PAGE>
acquired by the Trust with the proceeds of the Securities and then held by the
Trust; and (c) such Transaction Value and the proceeds of such liquidation will
be distributed to the Holders.
Notwithstanding the foregoing, to the extent that any Marketable Securities
are received by holders of Class A Common Stock in such Reorganization Event,
then in lieu of delivering cash as provided above, the Sellers may at their
option deliver a proportional amount of such Marketable Securities on the
Exchange Date. If the Sellers elect to deliver such Marketable Securities on the
Exchange Date, Holders will be responsible for the payment of any and all
brokerage and other transaction costs upon the sale of such securities.
'Reorganization Event' means (A) any consolidation or merger of the
Company, or any surviving entity or subsequent surviving entity of the Company
(a 'Company Successor'), with or into another entity (other than a merger or
consolidation in which the Company is the continuing corporation and in which
the Class A Common Stock outstanding immediately prior to the merger or
consolidation is not exchanged for cash, securities or other property of the
Company or another corporation), (B) any sale, transfer, lease or conveyance to
another corporation of the property of the Company or any Company Successor as
an entirety or substantially as an entirety, (C) any statutory exchange of
securities of the Company or any Company Successor with another corporation
(other than in connection with a merger or acquisition) or (D) any liquidation,
dissolution or winding up of the Company or any Company Successor.
'Transaction Value' means (i) for any cash received in any such
Reorganization Event, the amount of cash received per share of Class A Common
Stock, (ii) for any property other than cash or Marketable Securities received
in any such Reorganization Event, an amount equal to the market value on the
date the Reorganization Event is consummated of such property received per share
of Class A Common Stock as determined by a nationally recognized independent
investment banking firm retained for this purpose by the Administrator and (iii)
for any Marketable Securities received in any such Reorganization Event, an
amount equal to the average Closing Price per share of such securities on the 20
Trading Days immediately prior to the Exchange Date multiplied by the number of
such securities received for each share of Class A Common Stock; provided that
if no Closing Price for such Marketable Securities is determined for one or more
(but not all) of such Trading Days, such Trading Days shall be disregarded in
the calculation of such average Closing Price (but no additional Trading Days
shall be added to the Calculation Period). If no Closing Price for such
Marketable Securities is determined for all such Trading Days, the calculation
in the preceding clause (iii) shall be based on the most recently available
Closing Price for such Marketable Securities prior to such 20 Trading Days. The
number of shares of such Marketable Securities included in the calculation of
Transaction Value for purposes of the preceding clause (iii) shall be subject to
adjustment if a dilution event of the type described above shall occur with
respect to the issuer of such Marketable Securities between the time of the
Reorganization Event and the Exchange Date.
For purposes of determining the Transaction Value, the terms 'Trading Day'
and 'Closing Price' will have the same meanings, as applied to such Marketable
Securities, as these terms have as applied to the Class A Common Stock for
purposes of determining the Average Market Price.
'Marketable Securities' means any common equity securities (whether voting
or non-voting) listed on a U.S. national securities exchange or reported by The
NASDAQ National Market.
No dilution adjustments will be made for events, other than those described
above, such as offerings of Class A Common Stock (other than through the
issuance of rights or warrants described above) for cash or in connection with
acquisitions.
COLLATERAL ARRANGEMENTS; ACCELERATION. Each Seller's obligations under the
Contract between such Seller and the Trust initially will be secured by a
security interest in the maximum number of shares of Class A Common Stock
subject to such Contract (subject to adjustment in accordance with the dilution
adjustment provisions of such Contract, described above), pursuant to a
Collateral Agreement between each Seller and The Chase Manhattan Bank, as
collateral agent (the 'Collateral
17
<PAGE>
Agent'). Unless a Seller is in default in its obligations under its Collateral
Agreement, such Seller will be permitted to substitute for the pledged shares of
Class A Common Stock collateral consisting of short-term, direct obligations of
the U.S. Government. Any U.S. Government obligations pledged as substitute
collateral will be required to have an aggregate market value at the time of
substitution and at daily mark-to-market valuations thereafter of not less than
150% (or, from and after any Insufficiency Determination that shall not be cured
by the close of business on the next business day thereafter, as described
below, 200%) of the product of the market price of the Class A Common Stock at
the time of each valuation times the number of shares of Class A Common Stock
for which such obligations are being substituted. The Collateral Agreements will
provide that, in the event of a Reorganization Event, each Seller will pledge as
alternative collateral any Marketable Securities received by it in respect of
the maximum number of shares of Class A Common Stock subject to its Contract at
the time of the Reorganization Event, plus cash in an amount equal to 100% of
such Seller's Cash Delivery Obligations (or U.S. Government obligations having
an aggregate market value when pledged and at daily mark-to-market valuations
thereafter of not less than 105% thereof). The Collateral Agent will be
required, under the Collateral Agreements, to invest any such cash in U.S.
Treasury securities maturing on or before June , 2001. A Seller's 'Cash
Delivery Obligations' shall be the Transaction Value of any consideration other
than Marketable Securities received by such Seller in respect of the maximum
number of shares subject to its Contract at the time of the Reorganization
Event. The number of shares of such Marketable Securities required to be pledged
shall be subject to adjustment if any event requiring a dilution adjustment
under the Contracts shall occur. The Sellers will be permitted to substitute
U.S. Government obligations for Marketable Securities pledged at the time of or
after any Reorganization Event. Any U.S. Government obligations so substituted
will be required to have an aggregate market value at the time of substitution
and at daily mark-to-market valuations thereafter of not less than 150% (or,
from and after any Insufficiency Determination that shall not be cured by the
close of business on the next business day thereafter, as described below, 200%)
of the product of the market price per share of such Marketable Securities at
the time of each valuation times the number of shares of such Marketable
Securities for which such obligations are being substituted. The Collateral
Agent will promptly pay over to each Seller any dividends, interest, principal
or other payments received by the Collateral Agent in respect of any collateral
pledged by such Seller, including any substitute collateral, unless such Seller
is in default of its obligations under its Collateral Agreement, or unless the
payment of such amount to such Seller would cause the collateral to become
insufficient under its Collateral Agreement. Each Seller shall have the right to
vote any pledged shares of Class A Common Stock or Marketable Securities for so
long as such shares are owned by it and pledged under its Collateral Agreement,
including after an event of default under such Seller's Contract or Collateral
Agreement.
If the Collateral Agent shall determine (an 'Insufficiency Determination')
that U.S. Government obligations pledged by any Seller as substitute collateral
shall fail to meet the foregoing requirements at any valuation, or that such
Seller has failed to pledge additional collateral required as a result of a
dilution adjustment increasing the maximum number of shares of Class A Common
Stock or shares of Marketable Securities subject to such Seller's Contract, and
such failure shall not be cured by the close of business on the next business
day after such determination, then, unless a Collateral Event of Default (as
defined below) under such Collateral Agreement shall have occurred and be
continuing, the Collateral Agent shall commence (i) sales of the collateral
consisting of U.S. Government obligations and (ii) purchases, using the proceeds
of such sales, of shares of Class A Common Stock or shares of Marketable
Securities, in an amount sufficient to cause the collateral to meet the
requirements under such Collateral Agreement. The Collateral Agent shall
discontinue such sales and purchases if at any time a Collateral Event of
Default under a Seller's Collateral Agreement shall have occurred and be
continuing. A 'Collateral Event of Default' under such Seller's Collateral
Agreement shall mean, at any time, (A) if no U.S. Government obligations shall
be pledged as substitute collateral at such time, failure of the collateral to
consist of at least the maximum number of shares of Class A Common Stock subject
to such Seller's Contract at such time (or, if a Reorganization Event shall have
occurred at or prior to such time, failure of the collateral to include the
maximum number of shares of any Marketable Securities required to be pledged as
described above); (B) if any U.S. Government obligations shall be
18
<PAGE>
pledged as substitute collateral for shares of Class A Common Stock (or shares
of Marketable Securities deliverable pursuant to the Contracts) at such time,
failure of such U.S. Government obligations to have a market value at such time
of at least 105% of the market price per share of Class A Common Stock (or the
then-Average Market Price per share of such Marketable Securities, as the case
may be) times the difference between (x) the maximum number of shares of Class A
Common Stock (or shares of such Marketable Securities) subject to such Contract
at such time and (y) the number of shares of Class A Common Stock (or shares of
such Marketable Securities) pledged as collateral at such time; and (C) at any
time after a Reorganization Event in which consideration other than Marketable
Securities shall have been delivered, failure of any U.S. Government obligations
pledged in respect of Cash Delivery Obligations to have a market value at such
time of at least 105% of such Cash Delivery Obligations, if such failure shall
not be cured within one business day after notice thereof is delivered to such
Seller.
The occurrence of a Collateral Event of Default under a Collateral
Agreement, or the bankruptcy or insolvency of a Seller, will cause an automatic
acceleration of such Seller's obligations under its Contract. In any such event,
such Seller (a 'Defaulting Seller') will become obligated to deliver the initial
number of shares of Class A Common Stock (or, after a Reorganization Event, the
Marketable Securities or cash or a combination thereof deliverable in respect
thereof) subject to such Seller's Contract, or any U.S. Government obligations
then pledged in respect thereof.
Upon any acceleration under a Collateral Agreement, (i) the Collateral
Agent will deliver to the Trust, for distribution pro rata to the Holders, the
shares of Class A Common Stock then pledged by the Defaulting Seller, or cash
generated from the liquidation of U.S. Government obligations then pledged by
the Defaulting Seller, or a combination thereof (or, after a Reorganization
Event, the Marketable Securities then pledged by the Defaulting Seller, cash
generated from the liquidation of U.S. Government obligations then pledged by
the Defaulting Seller, or a combination thereof) and (ii) the Custodian will
liquidate a proportionate amount of the U.S. Treasury securities acquired by the
Trust with the proceeds of the Securities and then held by the Trust and
distribute the proceeds pro rata to the Holders. Following any distributions
upon acceleration and liquidation in accordance with the foregoing sentence, the
number of shares of Class A Common Stock or Marketable Securities, as
applicable, deliverable to Holders on the Exchange Date will be proportionately
reduced. In addition, in the event that by the Exchange Date any substitute
collateral has not been replaced by Class A Common Stock (or, after a
Reorganization Event, cash or Marketable Securities deliverable pursuant to the
Contracts) sufficient to meet the obligations under any Contract, the Collateral
Agent will deliver to the Trust for distribution pro rata to the Holders the
market value of the Class A Common Stock required to be delivered thereunder, in
the form of any shares of Class A Common Stock then pledged by the Sellers plus
cash generated from the liquidation of U.S. Government obligations then pledged
by the Sellers (or, after a Reorganization Event, the market value of the
alternative consideration required to be delivered thereunder, in the form of
any Marketable Securities then pledged, plus any cash then pledged, plus cash
generated from the liquidation of U.S. Government obligations then pledged). See
'--Trust Termination'.
DESCRIPTION OF THE SELLERS. The Sellers are The Estee Lauder 1994 Trust
(which will enter into the Extendible Contract), The LAL 4002 Trust and The RSL
4201 Trust. Reference is made to the caption 'TRACES Stockholders' in Company
Prospectus for information about the Sellers.
THE U.S. TREASURY SECURITIES
The Trust will purchase with a portion of the proceeds of the Securities
and hold a fixed portfolio of zero-coupon ('stripped') U.S. Treasury securities
with face amounts and maturities corresponding to the quarterly distributions
payable with respect to the Securities and the payment dates thereof through
June , 2001. Up to 30% of the Trust's total assets may be invested in these
U.S. Treasury securities. In the event that any Contract is accelerated, then a
proportionate amount of the U.S. Treasury securities acquired by the Trust with
the proceeds of the Securities and then held by the Trust shall be liquidated by
the Administrator and the proceeds thereof distributed pro rata to the Holders,
together
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<PAGE>
with the amounts distributed upon acceleration. See '--Collateral Arrangements;
Acceleration' and '--Trust Termination'.
Additional U.S. Treasury securities may be transferred to the Trust in
connection with an extension of the Exchange Date under the Extendible Contract
to September , 2001. If the Seller under such Contract later accelerates the
Exchange Date under such Contract, such Seller will, pursuant to the Extendible
Contract, repurchase such additional U.S. Treasury securities from the Trust on
or prior to the Exchange Date, at a price equal to the aggregate unpaid
distributions on the Securities accruing to the Exchange Date.
TEMPORARY INVESTMENTS
For cash management purposes, the Trust may invest the proceeds of the U.S.
Treasury securities and any other cash held by the Trust in short-term
obligations of the U.S. Government maturing no later than the business day
preceding the next following distribution date. Not more than 5% of the Trust's
total assets will be invested in such short-term obligations or held in cash at
any one time.
INVESTMENT RESTRICTIONS
As a matter of fundamental policy, the Trust may not purchase any
securities or instruments other than the U.S. Treasury securities, the Contracts
and the Class A Common Stock or other assets received pursuant to the Contracts
and, for cash management purposes, short-term obligations of the U.S.
Government; issue any securities or instruments except for the Securities; make
short sales or purchase securities on margin; write put or call options; borrow
money; underwrite securities; purchase or sell real estate, commodities or
commodities contracts including futures contracts; or make loans (other than the
purchase of stripped U.S. Treasury securities as described in this Prospectus).
The Trust also has adopted a fundamental policy that the Contracts may not be
disposed of during the term of the Trust and that the U.S. Treasury securities
acquired by the Trust with the proceeds of the Securities may not be disposed of
prior to the earlier of their respective maturities and the termination of the
Trust.
Because of the foregoing limitations, the Trust's investments will be
concentrated in the cosmetics industry, which is the industry in which the
Company operates. The Trust is not permitted to purchase restricted securities.
TRUST TERMINATION
The Trust will terminate automatically on or shortly after the final
Exchange Date. Alternatively, in the event that all Contracts are accelerated,
then any U.S. Treasury securities acquired by the Trust with the proceeds of the
Securities and then held by the Trust shall be liquidated by the Administrator
and the proceeds distributed pro rata to the Holders, together with the amounts
distributed upon acceleration, and the Trust shall be terminated. See
'--Collateral Arrangements; Acceleration' and '--The U.S. Treasury Securities'.
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RISK FACTORS
INTERNAL MANAGEMENT; NO PORTFOLIO MANAGEMENT
The Trust will be internally managed by its Trustees and will not have any
separate investment adviser. It is a fundamental policy of the Trust that the
Contracts may not be disposed of during the term of the Trust and that the U.S.
Treasury securities acquired by the Trust with the proceeds of the Securities
may not be disposed of prior to the earlier of their respective maturities and
the termination of the Trust. As a result, the Trust will continue to hold the
Contracts despite significant declines in the market price of the Class A Common
Stock or adverse changes in the financial condition of the Company (or, after a
Reorganization Event, comparable developments affecting any Marketable
Securities or the issuer thereof). The Trust will not be managed like a typical
closed-end investment company.
LIMITED APPRECIATION POTENTIAL; CLASS A COMMON STOCK DEPRECIATION RISK
The Trust anticipates that on the Exchange Date, it will receive the Class
A Common Stock deliverable pursuant to the Contracts, which it will then
distribute to Holders. Although Holders will initially receive distributions at
a higher annual rate than the current annual dividends paid on the Class A
Common Stock, there is no assurance that this relative relationship will prevail
over the term of the Trust. In addition, because the Contracts call for the
Sellers to deliver less than the full number of shares of Class A Common Stock
subject to the Contracts where the Average Market Price equals or exceeds the
Initial Price (and therefore less than one full share of Class A Common Stock
for each outstanding Security), the Securities have more limited appreciation
potential than the Class A Common Stock. Therefore, the Securities may trade
below the value of the Class A Common Stock if the Class A Common Stock
appreciates in value. The value of the Class A Common Stock to be received by
Holders on the Exchange Date (and any cash received in lieu thereof) may be less
than the amount paid for the Securities. Holders of Securities will realize the
entire decline in value if the Average Market Price is less than the price to
public per Security shown on the cover page hereof.
DILUTION ADJUSTMENTS; SHAREHOLDER RIGHTS
The number of shares of Class A Common Stock that Holders are entitled to
receive at the termination of the Trust is subject to adjustment for certain
events arising from stock splits and combinations, stock dividends and certain
other actions of the Company that modify its capital structure. See 'Investment
Objective and Policies--The Contracts--Dilution Adjustments'. The number of
shares to be received by Holders may not be adjusted for other events, such as
offerings of Class A Common Stock for cash or in connection with acquisitions,
that may adversely affect the price of the Class A Common Stock and, because of
the relationship of the amount to be received pursuant to the Contracts to the
price of the Class A Common Stock, such other events may adversely affect the
trading price of the Securities. There can be no assurance that the Company will
not take any of the foregoing actions, or that it will not make offerings of, or
that major shareholders will not sell any, Class A Common Stock in the future,
or as to the amount of any such offerings or sales. In addition, until the
receipt of the Class A Common Stock by Holders as a result of the exchange of
the Securities for the Class A Common Stock, Holders will not be entitled to any
rights with respect to the Class A Common Stock (including without limitation
voting rights and the rights to receive any dividends or other distributions in
respect thereof).
TRADING VALUE; LISTING
The Trust is a newly organized closed-end investment company with no
previous operating history and the Securities are innovative securities. It is
not possible to predict how the Securities will trade in the secondary market.
The trading price of the Securities may vary considerably prior to the Exchange
Date due to, among other things, fluctuations in the price of the Class A Common
Stock (which may occur due to changes in the Company's financial condition,
results of operations or prospects, or because of complex and interrelated
political, economic, financial and other factors that can affect the
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<PAGE>
capital markets generally, the stock exchanges or quotation systems on which the
Class A Common Stock is traded and the market segment of which the Company is a
part) and fluctuations in interest rates and other factors that are difficult to
predict and beyond the Trust's control. The Trust believes, however, that
because of the yield on the Securities and the formula for determining the
number of shares of Class A Common Stock to be delivered on the Exchange Date,
the Securities will tend to trade at a premium to the market value of the Class
A Common Stock to the extent the Class A Common Stock price falls and at a
discount to the market value of the Class A Common Stock to the extent the Class
A Common Stock price rises. There can, however, be no assurance that the
Securities will trade at a premium to the market value of the Class A Common
Stock.
Shares of closed-end investment companies frequently trade at a discount
from net asset value. This characteristic of investments in a closed-end
investment company is a risk separate and distinct from the risk that the
Trust's net asset value will decrease. The Trust cannot predict whether its
shares will trade at, below or above net asset value. The risk of purchasing
investments in a closed-end investment company that might trade at a discount
may be greater for investors who wish to sell their investments soon after
completion of an initial public offering because for those investors,
realization of a gain or loss on their investments is likely to be more
dependent upon the existence of a premium or discount than upon portfolio
performance.
The Underwriters currently intend, but are not obligated, to make a market
in the Securities. There can be no assurance that a secondary market will
develop or, if a secondary market does develop, that it will provide the Holders
with liquidity of investment or that it will continue for the life of the
Securities. The Underwriters may cease to make a market in the Securities at any
time without notice. Application has been made to list the Securities on the
NYSE. Assuming the acceptance of such application, there can be no assurance
that the Securities will not later be delisted or that trading in the Securities
on the NYSE will not be suspended. In the event of a delisting or suspension of
trading on such exchange, the Trust will apply for listing of the Securities on
another national securities exchange or for quotation on another trading market.
If the Securities are not listed or traded on any securities exchange or trading
market, or if trading of the Securities is suspended, pricing information for
the Securities may be more difficult to obtain, and the price and liquidity of
the Securities may be adversely affected.
NON-DIVERSIFIED STATUS
The Trust is considered non-diversified under the Investment Company Act,
which means that the Trust is not limited in the proportion of its assets that
may be invested in the obligations of a single issuer. Since the only assets
held or received by the Trust will be U.S. Treasury securities and the Contracts
or other assets consistent with the terms of the Contracts, the Trust will be
subject to greater risk than would be the case for an investment company with
diversified investments.
DESCRIPTION OF THE SECURITIES
Each Security represents an equal proportional interest in the Trust, and a
total of 4,576,548 Securities will be issued (assuming no exercise of the
Underwriters' over-allotment option). Upon liquidation of the Trust, Holders are
entitled to share pro rata in the net assets of the Trust available for
distribution. The Securities have no preemptive, redemption or conversion
rights. Securities are fully paid and nonassessable by the Trust. The only
securities that the Trust is authorized to issue are the Securities offered
hereby and those sold to the initial Holder referred to below. See
'Underwriting'.
Holders are entitled to a full vote for each Security held on all matters
to be voted on by Holders and are not able to cumulate their votes in the
election of Trustees. The Trustees of the Trust have been selected initially by
Goldman, Sachs & Co., as the initial Holder of Securities of the Trust. The
Trust intends to hold annual meetings as required by the rules of the NYSE. The
Trustees may call special meetings of Holders for action by Holder vote as may
be required by either the Investment Company Act or the Amended and Restated
Trust Agreement. The Holders have the right, upon the declaration in writing or
vote of more than two-thirds of the outstanding Securities, to remove a Trustee.
The Trustees will call a meeting of Holders to vote on the removal of a Trustee
upon the written request of the Holders
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of record of 10% of the Securities or to vote on other matters upon the written
request of the Holders of record of 51% of the Securities (unless substantially
the same matter was voted on during the preceding 12 months). The Trustees shall
establish, and notify the Holders in writing of, the record date for each such
meeting, which shall be not less than 10 nor more than 50 days before the
meeting date. Holders at the close of business on the record date will be
entitled to vote at the meeting. The Trust will also assist in communications
with other Holders as required by the Investment Company Act.
In calculating the net asset value of the Trust as required by the
Investment Company Act, the Amended and Restated Trust Agreement provides that
(i) the Treasury securities will be valued at the mean between the last current
bid and asked prices or, if quotations are not available, as determined in good
faith by the Trustees, (ii) short-term investments having a maturity of 60 days
or less will be valued at cost with accrued interest or discount earned included
in interest receivable and (iii) the Contracts will be valued on the basis of
the bid price received by the Trust in respect of the Contracts, or any portion
thereof covering not less than 1,000 shares, from an independent broker-dealer
firm unaffiliated with the Trust to be named by the Trustees who is in the
business of making bids on financial instruments similar to the Contracts and
with terms comparable thereto, or if such a bid quotation is not available, as
determined in good faith by the Trustee.
BOOK-ENTRY-ONLY ISSUANCE
The Depository Trust Company ('DTC') will act as securities depository for
the Securities. The information in this section concerning DTC and DTC's
book-entry system is based upon information obtained from DTC. The Securities
offered hereby will be issued only as fully-registered securities registered in
the name of Cede & Co. (as nominee for DTC). One or more fully-registered global
Security certificates will be issued, representing in the aggregate the total
number of Securities, and will be deposited with DTC.
DTC is a limited-purpose trust company organized under the New York Banking
Law, a 'banking organization' within the meaning of the New York Banking Law, a
member of the Federal Reserve System, a 'clearing corporation' within the
meaning of the New York Uniform Commercial Code and a 'clearing agency'
registered pursuant to the provisions of Section 17A of the Securities Exchange
Act of 1934, as amended. DTC holds securities that its participants
('Participants') deposit with DTC. DTC also facilitates the settlement among
Participants of securities transactions, such as transfers and pledges, in
deposited securities through electronic computerized book-entry changes in
Participants' accounts, thereby eliminating the need for physical movement of
securities certificates. Direct Participants include securities brokers and
dealers, banks, trust companies, clearing corporations and certain other
organizations ('Direct Participants'). Access to the DTC system is also
available to others such as securities brokers and dealers, banks and trust
companies that clear through or maintain a custodial relationship with a Direct
Participant, either directly or indirectly ('Indirect Participants').
Purchases of Securities within the DTC system must be made by or through
Direct Participants, which will receive a credit for the Securities on DTC's
records. The ownership interest of each actual purchaser of a Security
('Beneficial Owner') is in turn to be recorded on the Direct or Indirect
Participants' records. Beneficial Owners will not receive written confirmation
from DTC of their purchases, but Beneficial Owners are expected to receive
written confirmations providing details of the transactions, as well as periodic
statements of their holdings, from the Direct or Indirect Participants through
which the Beneficial Owners purchased Securities. Transfers of ownership
interests in Securities are to be accomplished by entries made on the books of
Participants acting on behalf of Beneficial Owners. Beneficial Owners will not
receive certificates representing their ownership interests in Securities,
except upon a resignation of DTC.
DTC has no knowledge of the actual Beneficial Owners of the Securities;
DTC's records reflect only the identity of the Direct Participants to whose
accounts such Securities are credited, which may or may not be the Beneficial
Owners. The Participants will remain responsible for keeping account of their
holdings on behalf of their customers.
23
<PAGE>
Conveyance of notices and other communications by DTC to Direct
Participants, by Direct Participants to Indirect Participants, and by Direct
Participants and Indirect Participants to Beneficial Owners will be governed by
arrangements among them, subject to any statutory or regulatory requirements as
may be in effect from time to time.
Payments on the Securities will be made to DTC. DTC's practice is to credit
Direct Participants' accounts on the relevant payment date in accordance with
their respective holdings shown on DTC's records unless DTC has reason to
believe that it will not receive payments on such payment date. Payments by
Participants to Beneficial Owners will be governed by standing instructions and
customary practices and will be the responsibility of such Participant and not
of DTC or the Trust, subject to any statutory or regulatory requirements as may
be in effect from time to time. Payment of dividends to DTC is the
responsibility of the Trust, disbursement of such payments to Direct
Participants is the responsibility of DTC, and disbursement of such payments to
the Beneficial Owners is the responsibility of Direct and Indirect Participants.
Except as provided herein, a Beneficial Owner of an interest in a global
Security will not be entitled to receive physical delivery of Securities.
Accordingly, each Beneficial Owner must rely on the procedures of DTC to
exercise any rights under the Securities.
DTC may discontinue providing its services as securities depository with
respect to the Securities at any time by giving reasonable notice to the Trust.
Under such circumstances, in the event that a successor securities depository is
not obtained, certificates representing the Securities will be printed and
delivered.
MANAGEMENT AND ADMINISTRATION OF THE TRUST
TRUSTEES
The Trust will be internally managed by three trustees (the 'Trustees'),
none of which is an 'interested person' of the Trust as defined in the
Investment Company Act. One of the Trustees will be designated as the 'Managing
Trustee' of the Trust. Under the provisions of the Code applicable to grantor
trusts, the Trustees will not have the power to vary the investments held by the
Trust. It is a fundamental policy of the Trust that the Contracts may not be
disposed of during the term of the Trust and that the U.S. Treasury securities
acquired by the Trust with the proceeds of the Securities may not be disposed of
prior to the earlier of their respective maturities and termination of the
Trust.
The names of the persons who have been elected by Goldman, Sachs & Co., the
initial Holder of the Trust, and who will serve as the Trustees are set forth
below. The positions and the principal occupations of the individual Trustees
during the past five years are also set forth below.
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
NAME, AGE AND ADDRESS TITLE DURING PAST FIVE YEARS
- --------------------------------------------------- ---------------- ----------------------
<S> <C> <C>
Donald J. Puglisi, 52.............................. Managing Trustee Professor of Finance
Department of Finance University of Delaware
University of Delaware
Newark, DE 19716
William R. Latham III, 53.......................... Trustee Professor of Economics
Department of Economics University of Delaware
University of Delaware
Newark, DE 19716
James B. O'Neill, 58............................... Trustee Professor of Economics
Center for Education & Entrepreneurship University of Delaware
University of Delaware
Newark, DE 19716
</TABLE>
Each Trustee who is not a director, officer or employee of any Underwriter
or the Administrator, or of any affiliate thereof, will be paid by the Sellers,
on behalf of the Trust, in respect of its annual fee and
24
<PAGE>
anticipated out-of-pocket expenses, a one-time, up-front fee of $10,800. The
Trust's Managing Trustee will also receive an additional up-front fee of $3,600
for serving in that capacity, resulting in total compensation to the Managing
Trustee of $14,400. The Trustees will not receive, either directly or
indirectly, any other compensation, including any pension or retirement
benefits, from the Trust. None of the Trustees receives any compensation for
serving as a trustee or director of any other affiliated investment company.
ADMINISTRATOR
The day-to-day affairs of the Trust will be managed by The Chase Manhattan
Bank as Trust Administrator pursuant to an Administration Agreement. Under the
Administration Agreement, the Trustees have delegated most of their operational
duties to the Administrator, including without limitation, the duties to: (i)
receive invoices for expenses incurred by the Trust; (ii) with the approval of
the Trustees, engage legal and other professional advisors (other than the
independent public accountants for the Trust); (iii) instruct the Paying Agent
to pay distributions on Securities as described herein; (iv) prepare and mail,
file or publish all notices, proxies, reports, tax returns and other
communications and documents, and keep all books and records, for the Trust; (v)
at the direction of the Trustees, institute and prosecute legal and other
appropriate proceedings to enforce the rights and remedies of the Trust; and
(vi) make all necessary arrangements with respect to meetings of Trustees and
any meetings of Holders. The Administrator, however, will not select the
independent public accountants for the Trust or sell or otherwise dispose of the
Trust assets (except in connection with an acceleration of a Contract or the
settlement of the Contracts and upon termination of the Trust), subject to the
Sellers' right to repurchase U.S. Treasury securities transferred to the Trust
in connection with an extension of the Exchange Date.
The Administration Agreement may be terminated by either the Trust or the
Administrator upon 60 days' prior written notice, except that no termination
shall become effective until a successor Administrator has been chosen and has
accepted the duties of the Administrator.
The address of the Administrator is 450 West 33rd Street, New York, New
York 10001.
CUSTODIAN
The Trust's custodian (the 'Custodian') is The Chase Manhattan Bank
pursuant to a custodian agreement (the 'Custodian Agreement'). In the event of
any termination of the Custodian Agreement by the Trust or the resignation of
the Custodian, the Trust must engage a new Custodian to carry out the duties of
the Custodian as set forth in the Custodian Agreement. Pursuant to the Custodian
Agreement, all net cash received by the Trust will be invested by the Custodian
in short-term U.S. Treasury securities maturing on or shortly before the next
quarterly distribution date. The Custodian will also act as collateral agent
under the Collateral Agreements and will hold a perfected security interest in
the Class A Common Stock and U.S. Government obligations or other assets
consistent with the terms of the Contracts.
PAYING AGENT
The transfer agent, registrar and paying agent (the 'Paying Agent') for the
Securities is ChaseMellon Shareholder Services, L.L.C. pursuant to a paying
agent agreement (the 'Paying Agent Agreement'). In the event of any termination
of the Paying Agent Agreement by the Trust or the resignation of the Paying
Agent, the Trust will use its best efforts to engage a new Paying Agent to carry
out the duties of the Paying Agent.
Except for their roles as Administrator, Custodian, Paying Agent, registrar
and transfer agent for the Trust, The Chase Manhattan Bank and ChaseMellon
Shareholder Services, L.L.C. have no other affiliation with, and are not engaged
in any other transactions with, the Trust.
25
<PAGE>
INDEMNIFICATION
The Trust will indemnify each Trustee, the Paying Agent, the Administrator
and the Custodian with respect to any claim, liability, loss or expense
(including the costs and expenses of the defense against any claim or liability)
that it may incur in acting as Trustee, Paying Agent, Administrator or
Custodian, as the case may be, except in the case of willful misfeasance, bad
faith, gross negligence or reckless disregard of their respective duties or
where applicable law prohibits such indemnification. Goldman, Sachs & Co. have
agreed to reimburse the Trust for any amounts it may be required to pay as
indemnification to any Trustee, the Paying Agent, the Administrator or the
Custodian. Goldman, Sachs & Co. will in turn be reimbursed by the Sellers for
all such reimbursements paid by them.
DISTRIBUTIONS
The Trust intends to distribute to Holders on a quarterly basis an amount
equal to $ per Security (which amount equals the pro rata portion of the
fixed quarterly cash distributions from the proceeds of the maturing U.S.
Treasury securities acquired by the Trust with the proceeds of the Securities).
The first distribution, reflecting the Trust's operations from the date of this
offering, will be made on September , 1998 to Holders of record as of August
, 1998. Thereafter, distributions will be made on March , June , September
and December of each year to Holders of record as of each February , May
, August and November , respectively. A portion of each such distribution
through June , 2001 should be treated as a tax-free return of the Holder's
investment. See 'Investment Objective and Policies--Tax Treatment of
Distributions' and 'Certain Federal Income Tax Considerations--Recognition of
Interest on the U.S. Treasury Securities'.
In connection with any extension of the Exchange Date to September ,
2001, the Seller under the Extendible Contract will be required to deliver to
the Trust, on or prior to June , 2001, additional U.S. Treasury securities
sufficient to fund the Trust's pro rated quarterly distribution on September ,
2001. If such Seller later accelerates the Exchange Date under such Contract,
such Seller will, pursuant to the Extendible Contract, repurchase such
additional U.S. Treasury securities from the Trust on or prior to the Exchange
Date as accelerated, at a price equal to the aggregate unpaid distributions on
the Securities accruing to such Exchange Date.
Upon termination of the Trust, as described under the caption 'Investment
Objective and Policies-- Trust Termination', each Holder of Securities
outstanding on the date of the Trust's termination will receive any remaining
net assets of the Trust, subject to the repurchase by the Seller under the
Extendible Contract of the U.S. Treasury securities transferred to the Trust in
connection with an extension of the Exchange Date.
The Trust does not permit the reinvestment of distributions.
ESTIMATED EXPENSES
At the closing of this offering the Sellers will pay to each of the
Administrator, the Custodian and the Paying Agent, and to each Trustee, a
one-time, up-front amount in respect of its fee and, in the case of the
Administrator, anticipated expenses of the Trust over the term of the Trust. The
anticipated Trust expenses to be borne by the Administrator include, among other
things, expenses for legal and independent accountants' services, costs of
printing proxies, Securities certificates and Holder reports, expenses of the
Trustees, fidelity bond coverage, stock exchange listing fees and expenses of
qualifying the Securities for sale in the various states. Organization costs of
the Trust in the amount of $ and estimated costs of the Trust in
connection with the initial registration and public offering of the Securities
in the amount of $ will be paid by the Sellers.
The amount payable to the Administrator in respect of ongoing expenses of
the Trust was determined based on estimates made in good faith on the basis of
information currently available to the Trust, including estimates furnished by
the Trust's agents. There cannot, however, be any assurance that actual
operating expenses of the Trust will not be substantially more than this amount.
Any excess expenses will be paid by the Sellers or, in the event of failure by
the Sellers to pay such amounts, the Trust, which will reduce the amount
available to distribute to Holders.
26
<PAGE>
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following discussion of the principal United States federal income tax
consequences of ownership of Securities represents the opinion of Sullivan &
Cromwell, counsel to the Trust. It deals only with Securities held as capital
assets by a Holder who acquires its Securities at the issue price from an
Underwriter pursuant to the original offering, and not with special classes of
Holders, such as dealers in securities or currencies, banks, life insurance
companies, persons who are not United States Holders (as defined below), persons
that hold Securities that are part of a hedging transaction, straddle or
conversion transaction, or persons whose functional currency is not the U.S.
dollar. The summary is based on the Internal Revenue Code of 1986, as amended
(the 'Code'), its legislative history, existing and proposed regulations
thereunder, published rulings and court decisions, all as currently in effect
and all subject to change or different interpretation at any time, perhaps with
retroactive effect. It should be noted that the Trust has not sought a ruling
from the Internal Revenue Service with respect to the federal income tax
consequences of ownership of Securities, and the opinion of counsel of Sullivan
& Cromwell is not binding on the Internal Revenue Service.
Prospective purchasers of Securities should consult their own tax advisors
concerning the consequences, in their particular circumstances, under the Code
and the laws of any state, local or other taxing jurisdiction, of ownership of
Securities.
A United States Holder is a beneficial owner of Securities who or that is
(i) a citizen or resident of the United States, (ii) a domestic corporation or
(iii) otherwise subject to United States federal income taxation on a net income
basis in respect of Securities.
Holders should also be aware that there are alternative characterizations
of the assets of the Trust which could result in different federal income tax
consequences. See '--Alternative Characterizations' below. While Sullivan &
Cromwell does not believe these alternative characterizations should apply for
federal income tax purposes, there can be no assurance in this regard, and
Holders should consult their tax advisors concerning the risks associated with
alternative characterizations. The following discussion assumes that no such
alternative characterizations will apply.
TAX STATUS OF THE TRUST. The Trust will be treated as a grantor trust for
federal income tax purposes and, under the grantor trust rules of the Code, each
Holder will be considered the owner of its pro rata portions of the stripped
U.S. Treasury securities and the Contracts acquired by the Trust with the
proceeds from the sale of the Securities to Holders. Income received by the
Trust will be treated as income of the Holders in the manner set forth below.
RECOGNITION OF ORIGINAL ISSUE DISCOUNT ON THE U.S. TREASURY SECURITIES. The
U.S. Treasury securities in the Trust will consist of stripped U.S. Treasury
securities. A Holder will be required to treat its pro rata portion of each U.S.
Treasury security acquired by the Trust with the proceeds from the sale of the
Securities to Holders as a bond that was originally issued on the date the Trust
acquired the U.S. Treasury security and will include original issue discount in
income over the life of such U.S. Treasury securities in an amount equal to the
Holder's pro rata portion of the excess of the amounts payable on such U.S.
Treasury securities over the price of the U.S. Treasury securities at the time
the Trust acquires them. The amount of such excess will constitute only a
portion of the total amounts payable in respect of such U.S. Treasury securities
held by the Trust, however. Consequently, a substantial portion of each
quarterly cash distribution to the Holders through June , 2001 will be treated
as a tax-free return of the Holders' investment in such U.S. Treasury securities
and will not be considered current income for federal income tax purposes. See
'Investment Objective and Policies--Tax Treatment of Distributions'.
A Holder (whether on the cash or accrual method of tax accounting) will be
required to include original issue discount (other than original issue discount
on short-term U.S. Treasury securities as defined below) in income for federal
income tax purposes as it accrues on a constant yield basis. The Trust expects
that more than 20% of the Holders will be accrual basis taxpayers, in which case
original issue discount on any short-term U.S. Treasury security (i.e., any U.S.
Treasury security with a maturity of one year or less from the date it is
purchased) held by the Trust also will be required to be included in income by
the Holders as it is accrued. Unless a Holder elects to accrue the original
issue discount on a
27
<PAGE>
short-term U.S. Treasury security according to a constant yield method based on
daily compounding, such original issue discount will be accrued on a
straight-line basis.
EXTENSION OF THE EXCHANGE DATE. Holders should not be required to include
any amounts in income upon the Trust's receipt of additional U.S. Treasury
Securities as a result of an extension of the Exchange Date under the Extendible
Contract and should not be required to include any original issue discount in
respect of such U.S. Treasury Securities. See 'Investment Objective and
Policies--The Contracts'.
Although there is no direct authority for the treatment of the cash
distribution paid on the Securities on the extended Exchange Date, it is likely
that such distribution should not be considered income to a Holder upon receipt,
but instead should be considered to reduce a Holder's basis with respect to such
Holder's pro rata portion of the Extendible Contract held by the Trust, by
analogy to the treatment of rebates or option premiums. If such treatment is
respected, receipt of the cash distribution on the extended Exchange Date will
increase the amount of gain (or decrease the amount of loss) recognized by a
Holder on a subsequent sale or other disposition of the Extendible Contract
(including a disposition pursuant to cash settlement of such Contract) or the
Class A Common Stock delivered pursuant to such Contract. Because there can be
no assurance that the Internal Revenue Service will agree with this
characterization of the cash distribution paid on the extended Exchange Date,
Holders are urged to consult their tax advisors concerning the tax consequences
of receiving such payment.
TAX BASIS OF THE U.S. TREASURY SECURITIES AND THE CONTRACTS. A Holder's
initial tax basis in the Contracts and the U.S. Treasury securities,
respectively, will equal its pro rata portion of the amounts paid for them by
the Trust. It is currently anticipated that % and % of the net proceeds of
the offering will be used by the Trust to purchase the U.S. Treasury securities
and as payments for the Contracts, respectively, and that % of such net
proceeds will be used by the Trust as payment for the Extendible Contract. A
Holder's tax basis in the U.S. Treasury securities will be increased by the
amounts of original issue discount included in income in respect of U.S.
Treasury securities and decreased by each amount of cash received in respect of
U.S. Treasury securities. A Holder's tax basis in the Extendible Contract should
be reduced by the receipt of the cash distribution paid on the Securities on the
extended Exchange Date (See '--Extension of the Exchange Date' above).
TREATMENT OF THE CONTRACTS. Each Holder will be treated as having entered
into a pro rata portion of the Contracts and, at the Exchange Date (including,
if applicable, the extended Exchange Date), as having received a pro rata
portion of the Class A Common Stock or cash, Marketable Securities or a
combination thereof delivered to the Trust.
DISTRIBUTION OF THE CLASS A COMMON STOCK. The delivery of Class A Common
Stock to the Trust pursuant to the Contracts and the Trust's distribution of
Class A Common Stock to the Holders will not be taxable to the Holders. Each
Holder's basis in its Class A Common Stock will be equal to its basis in its pro
rata portion of the Contracts which are settled in Class A Common Stock less the
portion of such basis allocable to any fractional shares of Class A Common Stock
for which cash is received. A Holder will recognize short-term capital gain or
loss upon receipt by the Trust of cash in lieu of fractional shares of Class A
Common Stock equal to the difference between the Holder's allocable portion of
the amount of cash received and the Holder's basis in such fractional shares.
The holding period for the Class A Common Stock will begin on the day after it
is acquired by the Trust.
DISTRIBUTION OF CASH. If the Trust receives cash upon settlement of the
Extendible Contract, a Holder will recognize capital gain or loss equal to the
difference between the Holder's allocable portion of the amount of cash received
and the Holder's basis for the Extendible Contract. Any gain or loss will be
capital gain or loss which is taxable to Holders as described below under
'--Sale of Securities'.
SALE OF SECURITIES. A Holder who sells Securities will be treated as
having sold its pro rata portions of the U.S. Treasury securities and the
Contracts underlying the Securities. The Holder will therefore recognize capital
gain or loss equal to the difference between the amount realized and the
Holder's aggregate tax bases in its pro rata portions of the U.S. Treasury
securities and the Contracts. Any gain or loss will be long-term capital gain or
loss if the Trust has held the relevant property for more than one year.
Long-term capital gain of an individual Holder will be subject to a maximum tax
rate of
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<PAGE>
28% in respect of property held for more than one year. The maximum rate is
reduced to 20% in respect of property held in excess of 18 months.
ALTERNATIVE CHARACTERIZATIONS. Sullivan & Cromwell believes the Contracts
should be treated for federal income tax purposes as prepaid forward contracts
for the purchase of a variable number of shares of Class A Common Stock.
The Internal Revenue Service could conceivably seek to treat the Contracts
differently. The Internal Revenue Service might, for example, seek to treat all
or a portion of the cash paid to the Sellers pursuant to the Contracts as loans
to the Sellers in exchange for contingent debt obligations of the Sellers. If
the Internal Revenue Service were to prevail in making such an assertion, a
Holder might be required to include original issue discount in income over the
life of the Securities at a market rate of interest for the Seller, taking
account of all the relevant facts and circumstances. In addition, a Holder would
be required to include interest (rather than capital gain) in income on the
Exchange Date in an amount equal to the excess, if any, of the value of the
Class A Common Stock received on the Exchange Date (or the proceeds from cash
settlement of the Extendible Contract) over the aggregate of the basis of the
Contracts and any interest on the Contracts previously included in income (or
might be entitled to an ordinary deduction to the extent of interest previously
included in income and not ultimately received). The Internal Revenue Service
could also conceivably take the view that a Holder should include in income the
amount of cash actually received each year in respect of the Securities.
BACKUP WITHHOLDING AND INFORMATION REPORTING. The payments of principal
and original issue discount on the U.S. Treasury securities, and the proceeds
received from cash settlement of the Contracts or the sale of Securities may be
subject to U.S. backup withholding tax at the rate of 31% if the Holder thereof
fails to supply an accurate taxpayer identification number or otherwise to
comply with applicable U.S. information reporting or certification requirements.
Any amounts so withheld will be allowed as a credit against such Holder's U.S.
federal income tax liability and may entitle such Holder to a refund, provided
that the required information is furnished to the Internal Revenue Service.
After the end of each calendar year, the Trust will furnish to each record
Holder of Securities an annual statement containing information relating to the
payments on the U.S. Treasury securities received by the Trust. The Trust will
also furnish annual information returns to each record Holder of the Securities
and to the Internal Revenue Service.
29
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Trust has agreed to sell to each of the Underwriters named below, and each of
such Underwriters has severally agreed to purchase from the Trust, the
respective number of Securities set forth opposite its name below:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SECURITIES
- -------------------------------------------------------------------------------- ---------
<S> <C>
Goldman, Sachs & Co.............................................................
Merrill Lynch, Pierce, Fenner & Smith
Incorporated........................................................
J.P. Morgan Securities Inc......................................................
Total...................................................................... 4,576,548
---------
---------
</TABLE>
Under the terms and conditions of the Underwriting Agreement, the
Underwriters are committed to take and pay for all of the Securities offered
hereby, if any are taken.
The Underwriters propose to offer the Securities in part directly to the
public at the price to the public set forth on the cover page of this Prospectus
and in part to certain securities dealers at such price less a concession of
$ per Security. The Underwriters may allow, and such dealers may re-allow, a
concession not in excess of $ per Security to certain brokers and dealers.
After the Securities are released for sale to the public, the offering price and
other selling terms may from time to time be varied by the Underwriters. The
sales load of $ per Security is equal to % of the initial public
offering price. Investors must pay for any Securities purchased in the initial
public offering on or before June , 1998.
In connection with the offering, the Underwriters may purchase and sell the
Securities and the Class A Common Stock in the open market. These transactions
may include over-allotment and stabilizing transactions and purchases to cover
short positions created by the Underwriters in connection with the offering.
Stabilizing transactions consist of certain bids or purchases for the purpose of
preventing or retarding a decline in the market price of the securities or the
Class A Common Stock; and short positions created by the Underwriters involve
the sale by the Underwriters of a greater number of Securities than they are
required to purchase from the Trust in the offering. The Underwriters also may
impose a penalty bid, whereby selling concessions allowed to broker-dealers in
respect of the Securities sold in the offering may be reclaimed by the
Underwriters if such securities are repurchased by the Underwriters in
stabilizing or covering transactions. These activities may stabilize, maintain
or otherwise affect the market price of the Securities which may be higher than
the price that might otherwise prevail in the open market, and these activities,
if commenced, may be discontinued at any time. These transactions may be
effected on the NYSE, in the over-the-counter market or otherwise.
In light of the fact that proceeds from the sale of the Securities will be
used by the Trust to purchase the Contracts from the Sellers, the Underwriting
Agreement provides that the Sellers will pay to the Underwriters the
Underwriters' Compensation of $ per Security.
The Trust has granted the Underwriters an option exercisable for 30
calendar days after the date of this Prospectus to purchase up to an aggregate
of 686,482 additional Securities solely to cover over-allotments, if any. If the
Underwriters exercise their over-allotment option, they will receive the
Underwriters' Compensation referred to above for each Security so purchased.
The Company, the Sellers, the other Lauder Family Members (as defined in
the Company Prospectus) who are stockholders of the Company (other than the
Lauder Foundation) and Morgan Guaranty Trust Company of New York ('Morgan
Guaranty') have agreed that, during the period beginning from the date of this
Prospectus and continuing to and including the date 90 days after the date of
this Prospectus, they will not offer, sell, contract to sell or otherwise
dispose of any Class A Common Stock or other securities which are convertible
into or exchangeable for Class A Common Stock without the prior written consent
of Goldman, Sachs & Co. except as otherwise provided in the Underwriting
Agreement and except for transfers among Lauder Family Members.
30
<PAGE>
The Securities will be a new issue of securities with no established
trading market. Application has been made to list the Securities on the NYSE
under the symbol 'ECT'. The Underwriters have advised the Trust that they intend
to make a market in the Securities, but they are not obligated to do so and may
discontinue market making at any time without notice. No assurance can be given
as to the liquidity of the trading market for the Securities.
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 Company and its subsidiaries and certain
Lauder Family Members for which such Underwriters or their affiliates have
received and will receive fees and commissions. Morgan Guaranty, an affiliate of
J.P. Morgan Securities Inc., is a lender to the Company and certain Lauder
Family Members. More than 10% of the net proceeds of the offering may be used to
repay borrowings to Morgan Guaranty. Accordingly, the offering will be conducted
in accordance with NASD Conduct Rule 2710(c)(8).
The Underwriters have informed the Trust that they do not expect sales to
any accounts over which they exercise discretionary authority to exceed 5% of
the total number of Securities offered by them.
The Company and the Sellers have agreed to indemnify the Underwriters
against certain liabilities, including certain liabilities under the Securities
Act of 1933. The Sellers have agreed to pay certain expenses of the Trust.
One Security has been subscribed for by Goldman Sachs at an aggregate
purchase price of $100.00. No Securities will be sold to the public until the
Securities subscribed for have been purchased and the purchase price thereof
paid in full to the Trust.
VALIDITY OF SECURITIES
The validity of the Securities will be passed upon for the Trust by
Sullivan & Cromwell, New York, New York, and for the Underwriters by Fried,
Frank, Harris, Shriver & Jacobson (a partnership including professional
corporations), New York, New York.
EXPERTS
The financial statement included in this Prospectus has been audited by
Coopers & Lybrand L.L.P., independent accountants, as stated in their opinion
appearing herein, and has been so included in reliance upon such opinion given
upon the authority of that firm as experts in accounting and auditing.
FURTHER INFORMATION
The Trust has filed with the SEC, Washington, D.C. 20549, a Registration
Statement under the Securities Act of 1933 with respect to the Securities
offered hereby. Further information concerning the Securities and the Trust may
be found in the Registration Statement of which this Prospectus constitutes a
part. The Registration Statement may be inspected without charge at the SEC's
office in Washington, D.C., and copies of all or any part thereof may be
obtained from such office after payment of the fees prescribed by the
Commission. Such Registration Statement is also available on the Commission's
website (http://www.sec.gov).
31
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Trustees and Securityholder of
Estee Lauder Automatic Common Exchange Security Trust:
We have audited the accompanying statement of assets and liabilities of
Estee Lauder Automatic Common Exchange Security Trust as of May 29, 1998. This
financial statement is the responsibility of the Trust's management. Our
responsibility is to express an opinion on this financial statement based on our
audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the statement of assets and liabilities is
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statement. An
audit also includes assessing the accounting principles used and significant
estimates made by the Trust's management as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statement referred to above presents fairly,
in all material respects, the financial position of Estee Lauder Automatic
Common Exchange Security Trust as of May 29, 1998, in conformity with generally
accepted accounting principles.
/s/ Coopers & Lybrand L.L.P.
New York, New York
May 29, 1998
32
<PAGE>
ESTEE LAUDER AUTOMATIC COMMON EXCHANGE SECURITY TRUST
STATEMENT OF ASSETS AND LIABILITIES
MAY 29, 1998
<TABLE>
<S> <C>
ASSETS
Cash...................................................................................................... $100
----
Total assets......................................................................................... $100
----
----
LIABILITIES
$ 0
----
Net Assets
Balance applicable to 1 Security outstanding.............................................................. $100
----
Net asset value per Security.............................................................................. $100
----
----
</TABLE>
- ------------------
Notes to Financial Statements
(1) Estee Lauder Automatic Common Exchange Security Trust (the 'Trust') was
established on April 21, 1998 and has had no operations to date other than
matters relating to its organization and registration as a non-diversified,
closed-end management investment company under the Investment Company Act of
1940. Costs incurred in connection with the organization of the Trust will
be paid by the Selling Stockholders referred to below.
(2) The Trust proposes to sell Trust Automatic Common Exchange Securities (the
'Securities') to the public pursuant to a Registration Statement on Form N-2
under the Securities Act of 1933, as amended, and the Investment Company Act
of 1940, as amended.
The Trust is a newly organized, finite-term trust established to purchase
and hold a fixed portfolio of stripped U.S. Treasury securities and forward
purchase contracts with existing stockholders of The Estee Lauder Companies
Inc. (the 'Selling Stockholders') relating to the Class A Common Stock, par
value $.01 per share, of The Estee Lauder Companies Inc. The Trust will be
internally managed and will not have an investment adviser. The
administration of the Trust, which will be overseen by the trustees, will be
carried out by The Chase Manhattan Bank as trust administrator. The Chase
Manhattan Bank will also serve as custodian for the Trust, and ChaseMellon
Shareholder Services, L.L.C. will serve as paying agent, registrar and
transfer agent with respect to the Securities. Ongoing fees and anticipated
expenses for the term of the Trust will be paid for by the Selling
Stockholders.
(3) The Trust issued one Security on May 29, 1998 to Goldman, Sachs & Co. in
consideration for the aggregate purchase price of $100.
The Amended and Restated Trust Agreement of the Trust provides that prior to
the offering, the Trust will split the outstanding Security to be effected
on the date that the price and underwriting discount of the Securities being
offered to the public is determined, but prior to the sale of the Securities
to Goldman, Sachs & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated
and J.P. Morgan Securities, Inc. The initial Security will be split into the
smallest whole number of Securities that would result in the per Security
amount recorded as shareholders' equity after effecting the split not
exceeding the public offering price per Security.
33
<PAGE>
GLOSSARY
'Administration Agreement' means the Administration Agreement between the
Trust and The Chase Manhattan Bank, as Trust Administrator.
'Administrator' means The Chase Manhattan Bank (or its successor) in its
capacity as Trust Administrator under the Administration Agreement.
'Amended and Restated Trust Agreement' means the trust agreement dated as
of April 21, 1998 pursuant to which the Trust was formed, as amended and
restated as of June , 1998.
'Appreciation Threshold Price' means $ .
'Average Market Price' per share of Class A Common Stock on any date means
the average Closing Price per share of Class A Common Stock for the 20 Trading
Days immediately prior to, but not including, such date, provided that for
purposes of determining the payment required upon cash settlement of the
Extendible Contract in connection with a Rollover Offering, 'Average Market
Price' means the Closing Price per share of Class A Common Stock on the Trading
Day immediately preceding the Pricing Date or, if the Rollover Offering is
priced after 4:00 P.M., New York City time, on the Pricing Date, the Closing
Price per share on the Pricing Date.
'Beneficial Owner' means an actual purchaser of a Security, which will not
receive written confirmation from DTC of their purchases of Securities but which
are expected to receive written confirmations providing details of the
transactions, as well as periodic statements of their holdings, from the Direct
or Indirect Participants through which the Beneficial Owners purchased
Securities.
'Calculation Period' means any period of Trading Days for which an average
security price must be determined pursuant to the Contracts.
'Cash Delivery Obligations' means, in respect of any Seller after a
Reorganization Event, the Transaction Value of any consideration other than
Marketable Securities received by such Seller in respect of the maximum number
of shares subject to its Contract at the time of the Reorganization Event.
'Cash Settlement Alternative' means the provision of the Extendible
Contract that permits The Estee Lauder 1994 Trust, as Seller, to elect to pay
cash upon settlement of such Contract in an amount equal to the then Average
Market Price of the number of shares of Class A Common Stock determined pursuant
to the definition of 'Exchange Rate'.
'Class A Common Stock' means the Class A Common Stock, par value $.01 per
share, of the Company.
'Class B Common Stock' means the Class B Common Stock, par value $.01 per
share, of the Company.
'Closing Price' of the Class A Common Stock on any date of determination
means the daily closing sale price (or, if no closing sale price is reported,
the last reported sale price) of the Class A Common Stock as reported on the
NYSE Consolidated Tape on such date of determination or, if the Class A Common
Stock is not listed for trading on the NYSE on any such date, as reported in the
composite transactions for the principal United States securities exchange on
which the Class A Common Stock is so listed, or if the Class A Common Stock is
not so listed on a United States national or regional securities exchange, as
reported by The NASDAQ National Market or, if the Class A Common Stock is not so
reported, the last quoted bid price for the Class A Common Stock in the
over-the-counter market as reported by the National Quotation Bureau or similar
organization, provided that if any event that results in an adjustment to the
number of shares of Class A Common Stock deliverable under the Contracts as
described under '--The Contracts--Dilution Adjustments' occurs prior to the
Exchange Date, the Closing Price as determined pursuant to the foregoing will be
appropriately adjusted to reflect the occurrence of such event.
'Code' means the Internal Revenue Code of 1986, as amended.
34
<PAGE>
'Collateral Agent' means The Chase Manhattan Bank (or its successor) in its
capacity as Collateral Agent under the Collateral Agreements.
'Collateral Agreements' means the Collateral Agreements between the Sellers
and The Chase Manhattan Bank, as Collateral Agent, securing the Sellers'
obligations under their respective Contracts.
'Collateral Event of Default' under any Seller's Collateral Agreement
means, at any time, (A) if no U.S. Government obligations shall be pledged as
substitute collateral at or prior to such time, failure of the collateral to
consist of at least the maximum number of shares of Class A Common Stock subject
to such Seller's Contract at such time (or, if a Reorganization Event shall have
occurred at or prior to such time, failure of the collateral to include the
maximum number of shares of any Marketable Securities required to be pledged as
described under 'Investment Objective and Policies--The Contracts-- Collateral
Arrangements; Acceleration' above); (B) if any U.S. Government obligations shall
be pledged as substitute collateral for shares of Class A Common Stock (or
shares of Marketable Securities deliverable pursuant to the Contracts) at such
time, failure of such U.S. Government obligations to have a market value at such
time of at least 105% of the market price per share of Class A Common Stock (or
the then-Average Market Price per share of such Marketable Securities, as the
case may be) times the difference between (x) the maximum number of shares of
Class A Common Stock (or shares of such Marketable Securities) subject to such
Contract at such time and (y) the number of shares of Class A Common Stock (or
shares of such Marketable Securities) pledged as collateral at such time; and
(C) at any time after a Reorganization Event in which consideration other than
Marketable Securities shall have been delivered, failure of any U.S. Government
obligations pledged in respect of Cash Delivery Obligations to have a market
value at such time of at least 105% of such Cash Delivery Obligations, if such
failure shall not be cured within one business day after notice thereof is
delivered to such Seller.
'Company' means The Estee Lauder Companies Inc., a Delaware corporation.
'Company Prospectus' means the prospectus of the Company, dated June ,
1998 (pages A-1 through A-23 hereof), which describes the Company and the shares
of Class A Common Stock deliverable to the Holders upon mandatory exchange of
the Securities on the Exchange Date.
'Company Successor' means a surviving entity or subsequent entity of the
Company.
'Contracts' means the forward purchase contracts between the Sellers and
the Trust relating to the Class A Common Stock.
'Custodian' means The Chase Manhattan Bank (or its successor) in its
capacity as Custodian under the Custodian Agreement.
'Custodian Agreement' means the Custodian Agreement between the Trust and
The Chase Manhattan Bank, as Custodian.
'Defaulting Seller' means a Seller with respect to which a Collateral Event
of Default has occurred under such Seller's Collateral Agreement or that is the
subject of a bankruptcy or insolvency.
'Direct Participants' means Participants of DTC, including brokers and
dealers, banks, trust companies, clearing corporation an certain other
organizations, that are direct Participants of DTC.
'DTC' means The Depository Trust Company.
'Excess Purchase Payment' means the excess, if any, of (i) the cash and the
value (as determined by a nationally recognized independent investment banking
firm retained for this purpose by the Administrator, whose determination shall
be conclusive) of all other consideration paid by the Company with respect to
one share of Class A Common Stock acquired in a tender offer or exchange offer
by the Company over (ii) the Then-Current Market Price per share of Class A
Common Stock.
'Exchange Date' means June , 2001, except that the Extendible Contract
permits The Estee Lauder 1994 Trust, as Seller, to elect (i) to extend the
Exchange Date under such Contract to September , 2001, provided such Seller
delivers to the Trust additional U.S. Treasury securities sufficient to fund the
Trust's quarterly distribution on such date and (ii) following such an
extension, to
35
<PAGE>
accelerate the Exchange Date under such Contract to a date not earlier than June
, 2001, in connection with the consummation of a Rollover Offering.
'Exchange Rate' means the rate of exchange of Class A Common Stock for
Securities on the Exchange Date, and shall be determined as follows (subject to
adjustment in certain events):
o if the Average Market Price is less than the Appreciation Threshold
Price but equal to or greater than the Initial Price, the Exchange
Rate will be the number of shares of Class A Common Stock having a
value (determined at the Average Market Price) equal to the Initial
Price;
o if the Average Market Price is equal to or greater than the
Appreciation Threshold Price, the Exchange Rate will be 0.
shares of Class A Common Stock; and
o if the Average Market Price is less than the Initial Price, the
Exchange Rate will be one share of Class A Common Stock.
'Excluded Distribution' means any Permitted Dividend, any cash distributed
in consideration of fractional shares of Class A Common Stock and any cash
distributed in a Reorganization Event.
'Extendible Contract' means the Contract to which The Estee Lauder 1994
Trust is a party, which permits that Seller to (i) elect to pay cash upon
settlement of such Contract in an amount equal to the then Average Market Price
of the number of shares of Class A Common Stock determined pursuant to the
definition of 'Exchange Rate' and (ii) to elect (a) to extend the Exchange Date
under such Contract to September , 2001, provided such Seller delivers to the
Trust additional U.S. Treasury securities sufficient to fund the Trust's
quarterly distribution on such date and (b) following such an extension, to
accelerate the Exchange Date under such Contract to a date not earlier than June
, 2001, in connection with the consummation of a Rollover Offering.
'Holders' means the registered holders of the Securities.
'Indirect Participants' means Participants of DTC, such as securities
brokers and dealers, banks and trust companies, that clear through or maintain a
custodial relationship with a Direct Participant, either directly or indirectly.
'Initial Price' means $ .
'Insufficiency Determination' means a determination by the Collateral Agent
that U.S. Government obligations pledged by any Seller as substitute collateral
shall fail to meet the requirements described under 'Investment Objective and
Policies--The Contracts--Collateral Arrangements; Acceleration' above at any
valuation, or that such Seller has failed to pledge additional collateral
required as a result of a dilution adjustment increasing the maximum number of
shares of Class A Common Stock or shares of Marketable Securities subject to
such Seller's Contract.
'Investment Company Act' means the Investment Company Act of 1940, as
amended.
'majority of the Trust's outstanding Securities' means the lesser of (i)
67% of the Securities represented at a meeting at which more than 50% of the
outstanding Securities are represented, and (ii) more than 50% of the
outstanding Securities.
'Managing Trustee' means the Trustee of the Trust designated to serve as
Managing Trustee.
'Marketable Securities' means any common equity securities (whether voting
or non-voting) listed on a U.S. national securities exchange or reported by The
NASDAQ National Market.
'NYSE' means the New York Stock Exchange.
'Participants' means participants of DTC.
'Paying Agent' means ChaseMellon Shareholder Services, L.L.C. (or its
successor) in its capacity as transfer agent, registrar and Paying Agent under
the Paying Agent Agreement.
36
<PAGE>
'Paying Agent Agreement' means the Paying Agent Agreement between the Trust
and ChaseMellon Shareholder Services, L.L.C., as transfer agent, registrar and
Paying Agent.
'Permitted Dividend' means any quarterly cash dividend in respect of the
Class A Common Stock, other than a quarterly cash dividend that exceeds the
immediately preceding quarterly cash dividend, and then only to the extent that
the per share amount of such dividend results in an annualized dividend yield on
the Class A Common Stock in excess of 12.5%.
'Pricing Date' means the date that a Rollover Offering is priced.
'Reorganization Event' means (A) any consolidation or merger of the
Company, or any Company Successor, with or into another entity (other than a
merger or consolidation in which the Company is the continuing corporation and
in which the Class A Common Stock outstanding immediately prior to the merger or
consolidation is not exchanged for cash, securities or other property of the
Company or another corporation), (B) any sale, transfer, lease or conveyance to
another corporation of the property of the Company or any Company Successor as
an entirety or substantially as an entirety, (C) any statutory exchange of
securities of the Company or any Company Successor with another corporation
(other than in connection with a merger or acquisition) or (D) any liquidation,
dissolution or winding up of the Company or any Company Successor.
'Rollover Offering' means a reoffering or refinancing of up to % of the
Securities effected not earlier than June , 2001 by means of a completed
public offering or offerings (which may include one or more exchange offers) by
or on behalf of the Seller under the Extendible Contract.
'SEC' means the Securities and Exchange Commission.
'Securities' means the $ Trust Automatic Common Exchange
Securities of the Trust.
'Sellers' means The Estee Lauder 1994 Trust, The LAL 4002 Trust and The RSL
4201 Trust.
'Then-Current Market Price' of the Class A Common Stock means the average
Closing Price per share of Class A Common Stock for a Calculation Period of five
Trading Days immediately prior to the time such adjustment is effected (or, in
the case of an adjustment effected at the opening of business on the business
day following a record date, immediately prior to the earlier of the time such
adjustment is effected and the related 'ex-date' on which the shares of Class A
Common Stock first trade regular way on their principal market without the right
to receive the relevant dividend, distribution or issuance); provided that if no
Closing Price for the Class A Common Stock is determined for one or more (but
not all) of such Trading Days, such Trading Day shall be disregarded in the
calculation of the Then-Current Market Price (but no additional Trading Days
shall be added to the Calculation Period). If no Closing Price for the Class A
Common Stock is determined for any of such Trading Days, the most recently
available Closing Price for the Class A Common Stock prior to such five Trading
Days shall be the Then-Current Market Price.
'Trading Day' means a day on which the Class A Common Stock (A) is not
suspended from trading on any national or regional securities exchange or
association or over-the-counter market at the close of business and (B) has
traded at least once on the national or regional securities exchange or
association or over-the-counter market that is the primary market for the
trading of such security.
'Transaction Value' means (i) for any cash received in a Reorganization
Event, the mount of cash received per share of Class A Common Stock, (ii) for
any property other than cash or Marketable Securities received in any such
Reorganization Event, an amount equal to the market value on the date the
Reorganization Event is consummated of such property received per share of Class
A Common Stock as determined by a nationally recognized independent investment
banking firm retained for this purpose by the Administrator and (iii) for any
Marketable Securities received in any such Reorganization Event, an amount equal
to the average Closing Price per share of such securities on the 20 Trading Days
immediately prior to the Exchange Date multiplied by the number of such
securities received for each share of Class A Common Stock; provided that if no
Closing Price for such Marketable Securities is determined for one or more (but
not all) of such Trading Days, such Trading Days shall be disregarded in the
calculation of such average Closing Price (but no additional Trading Days shall
be
37
<PAGE>
added to the Calculation Period). If no Closing Price for the Marketable
Securities is determined for all such Trading Days, the calculation in the
preceding clause (iii) shall be based on the most recently available Closing
Price for the Marketable Securities prior to such 20 Trading Days. The number of
shares of Marketable Securities included in the calculation of Transaction Value
for purposes of the preceding clause (iii) shall be subject to adjustment if a
dilution event of the type described above shall occur with respect to the
issuer of the Marketable Securities between the time of the Reorganization Event
and the Exchange Date. For purposes of determining the Transaction Value, the
terms 'Trading Day' and 'Closing Price' will have the same meanings, as applied
to such Marketable Securities, as these terms have as applied to the Class A
Common Stock for purposes of determining the Average Market Price.
'Trust' means the Estee Lauder Automatic Common Exchange Security Trust.
'Trustees' means the three trustees who will internally manage the Trust.
'Underwriters' means Goldman, Sachs & Co., Merrill Lynch, Pierce, Fenner &
Smith Incorporated and J.P. Morgan Securities Inc., the Underwriters of the
Securities.
'Underwriters' Compensation' means the compensation of $ per Security
payable to the Underwriters by the Sellers pursuant to the Underwriting
Agreement.
'United States Holders' means a beneficial owner of Securities who or that
is (i) a citizen or resident of the United States, (ii) a domestic corporation
or (iii) otherwise subject to United States federal income taxation on a net
income basis in respect of Securities.
38
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
No person has been authorized to give any information or make any
representations other than those contained in this Prospectus and, if given or
made, such information or representations must not be relied upon as having been
authorized. This Prospectus does not constitute an offer to sell or the
solicitation of an offer to buy securities other than the securities to which it
relates or an offer to sell or the solicitation of an offer to buy such
securities in any circumstances in which such offer or solicitation is unlawful.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----------
<S> <C>
Prospectus Summary........................... 3
The Trust.................................... 9
Use of Proceeds.............................. 9
Investment Objective and Policies............ 9
Risk Factors................................. 21
Description of the Securities................ 22
Management and Administration of the Trust... 24
Certain Federal Income Tax Considerations.... 27
Underwriting................................. 30
Validity of Securities....................... 31
Experts...................................... 31
Further Information.......................... 31
Report of Independent Accountants............ 32
Statement of Assets and Liabilities.......... 33
Glossary..................................... 39
The Estee Lauder Companies Inc.
Class A Common Stock Prospectus............ Appendix A
</TABLE>
------------------
Until June , 1998 (25 days after the date of this Prospectus) all dealers
effecting transactions in the Securities, whether or not participating in this
distribution, may be required to deliver a Prospectus. This is in addition to
the obligation of dealers to deliver a Prospectus when acting as underwriters
and with respect to their unsold allotments or subscriptions.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
4,576,548 Shares
Estee Lauder Automatic
Common Exchange
Security Trust
$ Trust Automatic Common
Exchange Securities
(TRACESTM/SM)
----------------------
PROSPECTUS
----------------------
Goldman, Sachs & Co.
Merrill Lynch & Co.
J.P. Morgan & Co.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
<TABLE>
<CAPTION>
(a) Financial Statements
<S> <C>
Part A-- Report of Independent Accountants.
Statement of Assets and Liabilities.
Part B-- None.
(b) Exhibits
2.a.(i) Trust Agreement*
2.a.(ii) Form of Amended and Restated Trust Agreement*
2.d Form of Specimen Certificate of Trust Automatic Common Exchange Security (included in Exhibit
2.a.(ii))*
2.h Form of Underwriting Agreement
2.j Form of Custodian Agreement*
2.k.(i) Form of Administration Agreement*
2.k.(ii) Form of Paying Agent Agreement*
2.k.(iii)(a) Form of Purchase Contract (With Cash Settlement Option)*
2.k.(iii)(b) Form of Purchase Contract (Without Cash Settlement Option)*
2.k.(iv) Form of Collateral Agreement
2.k.(v) Form of Fund Expense Agreement*
2.k.(vi) Form of Fund Indemnity Agreement*
2.l Opinion and Consent of Counsel to the Trust
2.n.(i) Tax Opinion and Consent of Counsel to the Trust
2.n.(iii) Consent of Independent Accountants
2.n.(iv) Consents to Being Named as Trustee
2.p Form of Subscription Agreement*
2.r Financial Data Schedule
</TABLE>
- ------------------
* Previously Filed.
ITEM 25. MARKETING ARRANGEMENTS
See the Form of Underwriting Agreement filed as Exhibit 2.h to this
Registration Statement.
ITEM 26. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated expenses to be incurred in
connection with the offering described in this Registration Statement:
Registration fees................................................. $ 97,813
New York Stock Exchange listing fee............................... 22,610
Printing (other than certificates)................................ 40,000
Fees and expenses of qualification under state securities laws
(excluding fees of counsel)..................................... 0
Accounting fees and expenses...................................... 50,000
Legal fees and expenses........................................... 200,000
NASD fees......................................................... 30,500
Miscellaneous..................................................... 34,077
--------
Total............................................................ $475,000
--------
--------
C-1
<PAGE>
ITEM 27. PERSON CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
Prior to April 21, 1998 the Trust had no existence. As of the effective
date, the Trust will have entered into a Subscription Agreement for one Security
with Goldman, Sachs & Co. and an Underwriting Agreement with respect to
4,576,548 Securities (plus the 686,482 Securities subject to the over-allotment
option) with Goldman, Sachs & Co., Merrill Lynch, Pierce, Fenner & Smith
Incorporated and J.P. Morgan Securities, Inc.
ITEM 28. NUMBER OF HOLDERS OF SECURITIES
NUMBER OF
TITLE OF CLASS RECORD HOLDERS
- -------------- --------------
Trust Automatic Common Exchange Securities................. 1
ITEM 29. INDEMNIFICATION
The form of Underwriting Agreement filed as Exhibit 2.h to this
Registration Statement provides for indemnification of the Underwriters against
certain liabilities, including liabilities under the Securities Act of 1933, as
amended (the 'Securities Act').
The form of Amended and Restated Trust Agreement filed as Exhibit 2.a.(ii)
to this Registration Statement provides for indemnification of each Trustee
against any claim or liability incurred in acting as Trustee of the Trust,
except in the case of willful misfeasance, bad faith, gross negligence or
reckless disregard of the Trustee's duties. The forms of Custodian Agreement,
Administration Agreement and Paying Agent Agreement filed as Exhibits 2.j,
2.k.(i) and 2.k.(ii) to this Registration Statement provide for indemnification
of the Custodian, Administrator and Paying Agent against any loss or expense
incurred in the performance of their obligations under the respective
agreements, unless such loss or expense is due to willful misfeasance, bad
faith, gross negligence or reckless disregard of their obligations. The Fund
Indemnity Agreement filed as Exhibit 2.k.(vi) to this Registration Statement
provides that Goldman, Sachs & Co. will indemnify the Trust for certain
indemnification expenses incurred under the Amended and Restated Trust
Agreement, the Custodian Agreement, the Administration Agreement and the Paying
Agent Agreement.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to trustees, 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 trustee, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
trustee, 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 governed by the final
adjudication of such issue.
ITEM 30. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
Not Applicable.
ITEM 31. LOCATION OF ACCOUNTS AND RECORDS
The Trust's accounts, books and other documents are currently located at
the offices of the Registrant, c/o Goldman, Sachs & Co., 85 Broad Street, New
York, New York 10004 and at the offices of ChaseMellon Shareholder Services,
L.L.C., 450 West 33rd Street, New York, New York 10001, the Registrant's paying
agent, transfer agent and registrar.
C-2
<PAGE>
ITEM 32. MANAGEMENT SERVICES
Not applicable.
ITEM 33. UNDERTAKINGS
(a) The Registrant hereby undertakes to suspend offering of its units until
it amends its prospectus if (1) subsequent to the effective date of its
Registration Statement, the net asset value declines more than 10% from its net
asset value as of the effective date of the Registration Statement or (2) the
net asset value increases to an amount greater than its net proceeds as stated
in the prospectus.
(b) The Registrant hereby undertakes that (i) for the purpose 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
under Rule 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective; and (ii) 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 the securities at that time shall be deemed to be the initial
bona fide offering thereof.
C-3
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933 AND THE
INVESTMENT COMPANY ACT OF 1940, THE REGISTRANT HAS DULY CAUSED THIS AMENDMENT TO
THE REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED,
THERETO DULY AUTHORIZED, IN THE CITY OF NEW YORK, STATE OF NEW YORK, ON THE 1ST
DAY OF JUNE, 1998.
ESTEE LAUDER AUTOMATIC COMMON
EXCHANGE SECURITY TRUST
By: /s/ Paul S. Efron
-----------------------------------
Paul S. Efron
Trustee
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSON, IN
THE CAPACITIES AND ON THE DATE INDICATED.
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<S> <C> <C>
/s/ Paul S. Efron Principal Executive Officer, June 1, 1998
- ------------------------------------------ Principal Financial Officer,
Paul S. Efron Principal Accounting Officer and Trustee
</TABLE>
C-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
- ------------- --------------------------------------------------------------------------------------- ----------
<S> <C> <C>
2.a.(i) Trust Agreement*
2.a.(ii) Form of Amended and Restated Trust Agreement*
2.d Form of Specimen Certificate of Trust Automatic Common Exchange Security (included in
Exhibit 2.a.(ii))*
2.h Form of Underwriting Agreement
2.j Form of Custodian Agreement*
2.k.(i) Form of Administration Agreement*
2.k.(ii) Form of Paying Agent Agreement*
2.k.(iii)(a) Form of Purchase Contract (With Cash Settlement Option)*
2.k.(iii)(b) Form of Purchase Contract (Without Cash Settlement Option)*
2.k.(iv) Form of Collateral Agreement
2.k.(v) Form of Fund Expense Agreement*
2.k.(vi) Form of Fund Indemnity Agreement*
2.l Opinion and Consent of Counsel to the Trust
2.n.(i) Tax Opinion and Consent of Counsel to the Trust
2.n.(iii) Consent of Independent Accountants
2.n.(iv) Consents to Being Named as Trustee
2.p Form of Subscription Agreement*
2.r Financial Data Schedule
</TABLE>
- ------------------
* Previously Filed.
<PAGE>
Exhibit 2.h
ESTEE LAUDER AUTOMATIC COMMON EXCHANGE SECURITY TRUST
(subject to exchange into shares of Class A Common Stock of
The Estee Lauder Companies Inc.)
$__________________TRUST AUTOMATIC COMMON EXCHANGE SECURITIES
Underwriting Agreement
----------------------
June __, 1998
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:
Estee Lauder Automatic Common Exchange Security Trust, a trust duly
created under the laws of the State of New York (such trust and the trustees
thereof acting in their capacities as such being referred to herein as the
"Trust"), proposes, subject to the terms and conditions stated herein, to
issue and sell to the Underwriters named in Schedule I hereto (the
"Underwriters") an aggregate of 4,576,548 shares of the $_____ Automatic
Common Exchange Securities of the Trust specified above (the "Firm
Securities") and, at the election of the Underwriters, up to an aggregate of
686,482 additional shares of the $_____ Automatic Common Exchange Securities
(the "Optional Securities") (the Firm Securities and the Optional Securities
which the Underwriters elect to purchase pursuant to Section 2 hereof are
herein collectively called the "Securities").
The $_____ Automatic Common Exchange Securities of the Trust to be
outstanding after giving effect to the sales contemplated hereby are
hereinafter called the "Automatic Common Exchange Securities". Each Automatic
Common Exchange Security may be exchanged for one or fewer shares of Class A
Common Stock, par value $.01 per share ("Stock"), of The Estee Lauder
Companies Inc., a Delaware corporation (the "Company"), on June __, 2001 (the
"Exchange Date") to be delivered pursuant to forward purchase contracts (the
"Contracts"), dated June __, 1998, between the Trust and certain existing
stockholders of the Company (collectively, the "Selling Stockholders"). In
lieu of delivery of shares of Stock, one of the Contracts provides that the
Selling Stockholder may elect (i) to pay cash or deliver other securities on
the Exchange Date for each share of Stock then deliverable and (ii) to extend
the Exchange Date to a date not later than September __, 2001, in each case
subject to the terms and conditions of the Contract. The Trust will enter into
a Contract with each Selling Stockholder obligating that Selling Stockholder
to deliver to the Trust on the Exchange Date a number of shares of Stock equal
to the product of the Exchange Rate (as such term is defined in the Trust
Prospectus (as defined in Section 1(c)(i))) times the initial number of shares
of Stock subject to such Contract. Each Selling Stockholder's obligations
under such Contract will be secured by a pledge of shares of Stock and,
<PAGE>
if applicable, other collateral pursuant to the terms of collateral
agreements, dated June __, 1998, between such Selling Stockholders, The Chase
Manhattan Bank ("Chase Manhattan"), as collateral agent (in such capacity, the
"Collateral Agent"), and the Trust (the "Collateral Agreements").
1. (a) The Company represents and warrants to, and agrees with, each
of the Underwriters, the Trust and the Selling Stockholders that:
(i) A registration statement on Form S-3 (File No.
333-52609) (the "Initial Company Registration Statement") in respect
of the shares of Stock deliverable pursuant to the Contracts has been
filed with the Securities and Exchange Commission (the "Commission");
the Initial Company 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 delivery
to each of the other Underwriters, have been declared effective by,
or have been filed with, as the case may be, the Commission in such
form; other than a registration statement, if any, increasing the
size of the offering (a "Company 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 Company Registration Statement
has heretofore been filed with the Commission; and no stop order
suspending the effectiveness of the Initial Company Registration
Statement, any post-effective amendment thereto or the Company 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
Company 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 "Company Preliminary Prospectus";
the various parts of the Initial Company Registration Statement and
the Company 462(b) Registration Statement, if any, including all
exhibits thereto and including (A) 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
Company Registration Statement at the time it was declared effective
or such part of the Company Rule 462(b) Registration Statement, if
any, became or hereafter becomes effective and (B) the documents
incorporated by reference in the prospectus contained in the Initial
Company Registration Statement at the time such part of the Initial
Company Registration Statement became effective as amended at the
time such part of the Initial Company Registration Statement became
effective, are hereinafter collectively called the "Company
Registration Statement"; such final prospectus, in the form first
filed pursuant to Rule 424(b) under the Act, is hereinafter called
the "Company Prospectus"; the Trust Registration Statement (as
defined in Section 1(c)(i) hereof) and the Company Registration
Statement are hereinafter collectively called the "Registration
Statements" and the Trust Prospectus and the Company Prospectus are
hereinafter collectively called the "Prospectuses"; any reference
herein to any Company Preliminary Prospectus or the Company
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 Company Preliminary Prospectus
or Company Prospectus, as the case may be; any reference to any
amendment or supplement to any Company Preliminary Prospectus or the
Company Prospectus shall be deemed to refer to and include any
documents filed after the date of such Company Preliminary Prospectus
or Company Prospectus, as the case may be, under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and
incorporated by reference in such Company Preliminary Prospectus or
Company Prospectus, as the case may be; and any reference to any
amendment to the Company Registration Statement shall be deemed to
refer to and include any annual report of the Company filed pursuant
to
-2-
<PAGE>
Section 13(a) or 15(d) of the Exchange Act after the effective date
of the Initial Company Registration Statement that is incorporated
by reference in the Company Registration Statement);
(ii) No order preventing or suspending the use of any
Company Preliminary Prospectus has been issued by the Commission, and
each Company 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 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
Company 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
Company 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 Company Registration Statement conforms, and
the Company Prospectus and any further amendments or supplements to
the Company Registration Statement or the Company Prospectus, when
they become effective or are filed with the Commission, will conform,
in all material respects to the requirements of the Act and the rules
and regulations of the Commission thereunder and the Company
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 Company 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. or by a
Selling Stockholder 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
-3-
<PAGE>
Company 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 Company Prospectus; and, since the respective
dates as of which information is given in the Company Registration
Statement and the Company Prospectus, there has not been any change
in the capital stock 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 operations of the Company and its subsidiaries
taken as a whole, in each case, otherwise than as set forth or
contemplated in the Company 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 Company 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
Company 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 Company 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 Company 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 Company Prospectus) are owned directly or
indirectly by the Company, 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
-4-
<PAGE>
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
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 of Stock and such consents, approvals,
authorizations, registrations or qualifications as may be required
under state securities or Blue Sky laws in connection with the
purchase and distribution of the shares of Stock by the Trust
pursuant to the Contracts;
(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, 1997 and
incorporated by reference into the Company's Annual Report on Form
10-K for the year ended June 30, 1997, 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 Company
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) 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 of 1940, as amended (the
"Investment Company Act" and, together with the Act, the "Acts");
(xiv) The Stock is listed on the New York Stock
Exchange;
-5-
<PAGE>
(xv) 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;
(xvi) 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 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; and
(xvii) There are no contracts or documents of a
character required to be described in the Company Registration
Statement or the Company Prospectus or to be filed as exhibits to the
Company Registration Statement that are not so described or filed.
(b) Each Selling Stockholder represents and warrants to, and agrees
with, each of the Underwriters, the Company and the Trust that:
(i) It 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) The compliance by such Selling Stockholder with
all of the provisions of this Agreement, and the Contract, the power
of attorney in connection with this transaction (the "Power of
Attorney"), the Custody Agreement in connection with this transaction
(the "Custody Agreement") and the Collateral Agreement, each to which
such Selling Stockholder is a party, and the consummation 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 under, any statute, 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 will such action
result in any violation of the provisions of the constitutive
documents of such Selling Stockholder, or any statute or any order,
rule or regulation of any court or governmental agency or body having
jurisdiction over such Selling Stockholder or any of the property of
such Selling Stockholder; and no consent, approval, authorization,
order, registration or qualification of or with any such court or
governmental agency or body is required for the execution and
delivery of or compliance by such Selling Stockholder with or the
consummation by such Selling Stockholder of the transactions
contemplated by this Agreement, the Contract to which such Selling
Stockholder is a party, the Collateral Agreement to which such
Selling Stockholder is a party, the Power of Attorney to which such
Selling Stockholder is a party or the Custody Agreement to which such
Selling Stockholder is a party, except the registration under the Act
of the Stock and such consents, approvals, authorizations,
registrations or qualifications as may be required under state
securities or Blue Sky laws in connection with the purchase and
distribution of the Stock by the Trust pursuant to the Contracts;
-6-
<PAGE>
(iii) This Agreement has been duly authorized,
executed and delivered by such Selling Stockholder. The Contract, the
Collateral Agreement, the Power of Attorney and the Custody
Agreement, each to which such Selling Stockholder is a party, have
been duly authorized, executed and delivered by such Selling
Stockholder and, assuming due authorization, execution and delivery
by the other parties thereto, constitute valid and legally binding
agreements of such Selling Stockholder, enforceable in accordance
with their respective terms, subject, as to enforcement, to
bankruptcy, insolvency, reorganization and other laws of general
applicability relating to or affecting creditors' rights and to
general equity principles;
(iv) Such Selling Stockholder has, and immediately
prior to each Time of Delivery (as defined in Section 4(a) hereof)
such Selling Stockholder will have, good and valid title to the
shares of Stock to be pledged and assigned by it under the Collateral
Agreement to which such Selling Stockholder is a party, free and
clear of all liens, encumbrances, equities or claims other than those
created pursuant to such Collateral Agreement; all consents,
approvals, authorizations and orders necessary for such Selling
Stockholder to pledge and assign the shares of Stock to be pledged
and assigned by such Selling Stockholder pursuant to such Collateral
Agreement have been obtained; such Selling Stockholder has full
right, power and authority to pledge and assign the shares of Stock
to be pledged and assigned by such Selling Stockholder pursuant to
such Collateral Agreement to which such Selling Stockholder is a
party; and upon delivery of such shares of Stock to the Collateral
Agent, as defined in the Collateral Agreement, for the benefit of the
Trust and payment therefor pursuant to the Contracts to which such
Selling Stockholder is a party, good and valid title to such shares
of Stock, free and clear of all liens, encumbrances, equities or
claims, will pass to the Trust;
(v) The representations and warranties of such
Selling Stockholder set forth in Section 3 of such Collateral
Agreement are true and correct on and as of the date hereof with the
same effect as though such representations and warranties had been
set forth in full in this Agreement;
(vi) During the period beginning from the date hereof
and continuing to and including the date 90 days after the date of
the Prospectuses, such Selling Stockholder will not offer, sell,
contract to sell or otherwise dispose of, except as provided
hereunder, any Stock or any securities of the Company that are
substantially similar to the Stock, 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 (as such term is defined in the Company Prospectus) 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;
(vii) 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
Securities; and
(viii) To the extent that any statements or omissions
made in the Registration Statements, any Preliminary Prospectus, the
Prospectuses or any amendment or supplement thereto are made in
reliance upon and in conformity with written information furnished to
the
-7-
<PAGE>
Company or the Trust, as the case may be, by such Selling
Stockholder expressly for use therein, (A) such Preliminary
Prospectus and the Registration Statements did, and the Prospectuses
and any further amendments or supplements to the Registration
Statements and the Prospectuses, 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 Acts and the rules and
regulations of the Commission thereunder, (B) the Registration
Statements and any amendment or supplement thereto do not and will
not, as of the applicable effective date, 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 and (C) the Prospectuses do 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.
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, each of the Selling
Stockholders agrees to deliver to you prior to or at the First Time of
Delivery (as hereinafter defined) 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).
Each of the Selling Stockholders represents and warrants that
certificates in negotiable form and containing no restrictive legends
representing all of the shares of Stock to be pledged and assigned by such
Selling Stockholder hereunder have been placed in custody under a Custodial
Agreement, in the form heretofore furnished to you, duly executed and
delivered by such Selling Stockholder to Chase Manhattan, as custodian (the
"POA Custodian"), and that such Selling Stockholder has duly executed and
delivered a Power of Attorney, in the form heretofore furnished to you,
appointing the persons indicated in Schedule II hereto, and each of them, as
such Selling Stockholder's attorneys-in-fact (the "Attorneys-in-Fact") with
authority to execute and deliver this Agreement on behalf of such Selling
Stockholder, to execute and deliver the Contract to which such Selling
Stockholder is a party and the Collateral Agreement to which such Selling
Stockholder is a party, to authorize the delivery of the shares of Stock to be
pledged and assigned by such Selling Stockholder hereunder and otherwise to
act on behalf of such Selling Stockholder in connection with the transactions
contemplated by this Agreement, the Custody Agreement, the Contract and the
Collateral Agreement.
Each of the Selling Stockholders specifically agrees that the shares
of Stock represented by the certificates held in custody for such Selling
Stockholder under the Custody Agreement are subject to the interests of the
Collateral Agent for the benefit of the Trust hereunder, and that the
arrangements made by such Selling Stockholder for such custody, and the
appointment by such Selling Stockholder of the Attorneys-in-Fact by the Power
of Attorney, are to that extent irrevocable. Each of the Selling Stockholders
specifically agrees that the obligations of the Selling Stockholders hereunder
shall not be terminated by operation of law, whether by the death or
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 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 of Stock hereunder, certificates representing the shares of Stock shall
be delivered by or on behalf of the Selling Stockholders in accordance with
the terms and conditions of this Agreement, of the Contracts, of the
Collateral Agreements and of the Custody
-8-
<PAGE>
Agreements, as appropriate, and actions taken by the Attorneys-in-Fact
pursuant to the Powers 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.
(c) The Trust represents and warrants to, and agrees with, each of
the Underwriters, the Selling Stockholders and the Company that:
(i) A notification on Form N-8A (the "Notification")
of registration of the Trust as an investment company has been filed
with the Commission; a registration statement on Form N-2 (File No.
333-50597 and File No. 811-08761) (the "Initial Trust Registration
Statement") in respect of the Securities has been filed with the
Commission; the Initial Trust Registration Statement and any
post-effective amendment thereto, each in the form heretofore
delivered to you, and, excluding exhibits thereto, to you for
delivery to each of the other Underwriters, have been declared
effective by the Commission in such form; no other document with
respect to the Initial Trust Registration Statement has heretofore
been filed with the Commission; and no stop order suspending the
effectiveness of the Initial Trust Registration Statement, or any
post-effective amendment thereto has been issued and no proceeding
for that purpose has been initiated or threatened by the Commission
(any preliminary prospectus included in the Initial Trust
Registration Statement or filed with the Commission pursuant to Rule
497(a) of the rules and regulations of the Commission under the Act,
is hereinafter called a "Trust Preliminary Prospectus"; the various
parts of the Initial Trust Registration Statement including all
exhibits thereto and including the information contained in the form
of final prospectus filed with the Commission pursuant to Rule 497(h)
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 Trust
Registration Statement at the time it was declared effective, as
amended at the time such part of the registration statement became
effective, are hereinafter collectively called the "Trust
Registration Statement"; and such final prospectus, in the form first
filed pursuant to Rule 497(h) under the Act, is hereinafter called
the "Trust Prospectus");
(ii) No order preventing or suspending the use of any
Trust Preliminary Prospectus has been issued by the Commission, and
each Trust Preliminary Prospectus, at the time of filing thereof,
conformed in all material respects to the requirements of the Acts,
and the rules and regulations of the Commission thereunder, and did
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, 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 Trust by an Underwriter through Goldman,
Sachs & Co. or by a Selling Stockholder expressly for use therein;
(iii) The Notification and the Trust Registration
Statement conform, and the Trust Prospectus and any further
amendments or supplements to the Notification, the Trust Registration
Statement or the Trust Prospectus will conform, in all material
respects to the requirements of the Acts and the rules and
regulations of the Commission thereunder and do not and will not, as
of the applicable effective date as to the Trust Registration
Statement and any amendment thereto and as of the applicable filing
date as to the Trust Prospectus and any amendment or supplement
thereto, 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
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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 Trust
by an Underwriter through Goldman, Sachs & Co. or by a Selling
Stockholder expressly for use therein;
(iv) Since the respective dates as of which
information is given in the Trust Registration Statement and the
Trust Prospectus, there has not been any material adverse change, or
any development involving a prospective material adverse change, in
or affecting the general affairs, management, financial position,
results of operations, prospects, investment objectives, investment
policies, or liabilities of the Trust, otherwise than as set forth or
contemplated in the Trust Prospectus, and there have been no
transactions entered into by the Trust which are material to the
Trust other than those in the ordinary course of its business or as
described in the Trust Prospectus;
(v) The Trust has been duly created, is validly
existing as a trust under the laws of the State of New York, with
power and authority to own its properties and conduct its business as
described in the Trust Prospectus and to enter into and perform its
obligations under this Agreement and the Fundamental Agreements (as
defined in Section 1(c)(vii) hereof); the Trust has all necessary
consents, approvals, authorizations, orders, registrations or
qualifications, of and from, and has made all declarations and
filings with, all courts and governmental agencies and bodies, to own
and use its assets and to conduct its business in the manner
described in the Trust Prospectus, except to the extent that the
failure to obtain or file the foregoing would not have a material
adverse effect on the Trust and except the registration under the Act
of the Securities and such consents, approvals, authorizations,
registrations or qualifications as may be required under state
securities or Blue Sky laws in connection with the purchase and
distribution of the Securities by the Underwriters; the Trust has no
subsidiaries;
(vi) The Trust is registered with the Commission as a
non-diversified, closed-end management investment company under the
Investment Company Act and no order of suspension or revocation of
such registration has been issued or proceedings therefor initiated
or, to the knowledge of the Trust, threatened by the Commission; no
person is serving or acting as an officer or trustee of the Trust
except in accordance with the provisions of the Investment Company
Act;
(vii) Each of the Contracts, the Collateral
Agreements, the Administration Agreement between Chase Manhattan and
the Trust (the "Administration Agreement"), the Custodian Agreement
between Chase Manhattan and the Trust (the "Custodian Agreement"),
the Paying Agent Agreement between ChaseMellon Shareholder Services,
L.L.C. and the Trust (the "Paying Agent Agreement"), the Fund Expense
Agreement between Goldman, Sachs & Co. and Chase Manhattan (the "Fund
Expense Agreement") and the Fund Indemnity Agreement between Goldman,
Sachs & Co. and the Trust (the "Fund Indemnity Agreement") (the
Contracts, the Collateral Agreements, the Administration Agreement,
the Custodian Agreement, the Paying Agent Agreement, the Fund Expense
Agreement and the Fund Indemnity Agreement are herein collectively
called the "Fundamental Agreements") has been duly authorized,
executed and delivered by the Trust and, assuming due authorization,
execution and delivery by the other parties thereto, constitutes a
valid and legally binding agreement of the Trust, enforceable in
accordance with its terms, subject, as to enforcement, to bankruptcy,
insolvency, reorganization and other laws of general applicability
relating to or affecting creditors' rights and to general equity
principles;
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(viii) The Amended and Restated Trust Agreement dated
as of June __, 1998 (the "Trust Agreement") and the Fundamental
Agreements comply with all applicable provisions of the Acts, and all
approvals of such agreements required under the Investment Company
Act by the holders of the Automatic Common Exchange Securities and
the trustees have been obtained and are in full force and effect;
(ix) All of the outstanding Automatic Common Exchange
Securities have been duly and validly authorized and issued and are
fully paid and non-assessable, and the form of certificates used to
evidence the Automatic Common Exchange Securities is in due and
proper form and complies with all provisions of applicable law; the
Trust Agreement and the Fundamental Agreements conform to the
descriptions thereof contained in the Trust Prospectus;
(x) The Securities have been duly authorized and,
when issued and delivered pursuant to this Agreement, will be validly
issued, fully paid and nonassessable; the Securities will conform to
the description thereof in the Trust Prospectus; no person has rights
to registration of any securities because of the filing of the Trust
Registration Statement;
(xi) The issue and sale of the Securities and the
compliance by the Trust with all of the provisions of the Securities,
this Agreement and each Fundamental Agreement and the consummation 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 under, the Trust Agreement or
any indenture, mortgage, deed of trust, loan agreement or other
agreement or instrument to which the Trust is a party or by which the
Trust is bound or to which any of the property or assets of the Trust
is subject, nor will such action result in any violation of any
statute or any order, rule or regulation of any court or governmental
agency or body having jurisdiction over the Trust or any of its
properties; and no consent, approval, authorization, order,
registration or qualification of or with any such court or
governmental agency or body is required for the issue and sale of the
Securities or the consummation by the Trust of the transactions
contemplated by this Agreement or the Fundamental Agreements, other
than the registration under the Act of the Securities and such
consents, approvals, authorizations, registrations or qualifications
as may be required under state securities or Blue Sky laws in
connection with the purchase and distribution of the Securities by
the Underwriters;
(xii) Assuming due authorization, execution and
delivery by the parties other than the Trust, the Fundamental
Agreements are in full force and effect and the Trust is not in
default in the performance or observance of any obligation, covenant
or condition thereunder and, to the knowledge of the Trust, no event
has occurred which with the passage of time or the giving of notice
or both would constitute a default thereunder; the Trust is not in
default in the performance or observance of any obligation, covenant
or condition contained in any other agreement or instrument to which
it is a party or by which it or any of its properties may be bound;
(xiii) The statements set forth in the Trust
Prospectus under the caption "Description of the Securities", insofar
as they purport to constitute a summary of the terms of the
Securities, under the caption "Certain Federal Income Tax
Considerations", and under the caption "Underwriting", insofar as
they purport to describe the provisions of the laws and agreements
referred to therein, are accurate, complete and fair in all material
respects;
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(xiv) Other than as set forth in the Trust
Prospectus, there are no legal or governmental proceedings pending to
which the Trust is a party or of which any property of the Trust is
the subject which, if determined adversely to the Trust, would
individually or in the aggregate have a material adverse effect on
the current or future financial position, or results of operations of
the Trust; and, to the best of the Trust's knowledge, no such
proceedings are threatened or contemplated by governmental
authorities or threatened by others;
(xv) There are no material restrictions, limitations
or regulations with respect to the ability of the Trust to invest its
assets as described in the Trust Prospectus, other than as described
therein;
(xvi) The Automatic Common Exchange Securities
outstanding prior to the issuance of the Securities and the
Securities have been approved for listing on the New York Stock
Exchange subject to notice of issuance; the Trust's Registration
Statement on Form 8-A under the Exchange Act is effective; and
(xvii) Coopers & Lybrand L.L.P., who have certified
certain financial statements included in the Trust Registration
Statement, are independent public accountants as required by the Act
and the rules and regulations of the Commission thereunder.
2. Subject to the terms and conditions herein set forth, (a) the
Trust agrees to issue and sell to each of the Underwriters, and each of the
Underwriters agrees, severally and not jointly, to purchase from the Trust, at
a purchase price of $______ per Security, the number of Firm Securities set
forth opposite the name of such Underwriter in Schedule I hereto and (b) in
the event and to the extent that the Underwriters shall exercise the election
to purchase Optional Securities as provided below, the Trust agrees to issue
and sell to each of the Underwriters, and each of the Underwriters agrees,
severally and not jointly, to purchase from the Trust, at the same purchase
price set forth in clause (a) of this Section 2, that portion of the aggregate
number of Optional Securities as to which such election shall have been
exercised (to be adjusted by you so as to eliminate fractional securities)
determined by multiplying such number of Optional Securities by a fraction,
the numerator of which is the maximum aggregate number of Optional Securities
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 aggregate number of Optional Securities that all of the Underwriters
are entitled to purchase hereunder. The agreements in this Section made by the
Trust are for the benefit of and enforceable by the Underwriters and the
Selling Stockholders. The agreements in this Section made by the Underwriters
are for the benefit of and are enforceable by the Selling Stockholders and the
Trust.
The Trust hereby grants to the Underwriters the right to purchase at
their election up to 686,482 Optional Securities, at the purchase price set
forth in clause (a) of the first paragraph of this Section 2, for the sole
purpose of covering overallotments in the sale of the Firm Securities. Any
such election to purchase Optional Securities may be exercised only by written
notice from you to the Trust (with copies to Jeffrey J. Weinberg, Weil,
Gotshal & Manges LLP, 767 Fifth Avenue, New York, New York 10153), given
within a period of 30 calendar days after the date of this Agreement, setting
forth the aggregate principal amount of Optional Securities to be purchased
and the date on which such Optional Securities are to be delivered, as
determined by you but in no event earlier than the First Time of Delivery (as
defined in Section 4(a) hereof) or, unless you and the Trust otherwise agree
in writing, earlier than two or later than ten business days after the date of
such notice.
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As compensation to the Underwriters for their commitments hereunder,
and in view of the fact that the proceeds of the sale of the Securities will
be used by the Trust as specified in the Contracts, the Selling Stockholders
at each Time of Delivery will pay to Goldman, Sachs & Co., for the accounts of
the several Underwriters, an amount equal to $_____ per Security for the
Securities to be delivered at such Time of Delivery; provided that the
aggregate amount payable to Goldman, Sachs & Co. by the Selling Stockholders
shall be paid by the Selling Stockholders on a pro rata basis according to the
number of shares of Stock pledged by each Selling Stockholder pursuant to the
Collateral Agreement to which such Selling Stockholder is a party.
Alternatively, as a matter of convenience, Goldman, Sachs & Co. may deduct
such amount from the purchase price of the Securities, and in such event the
Selling Stockholders shall be deemed to have paid the same.
3. Upon the authorization by you of the release of the Firm
Securities, the several Underwriters propose to offer the Firm Securities for
sale upon the terms and conditions set forth in the Trust Prospectus.
4. (a) The Securities 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 Trust, shall be delivered by or on behalf of the
Trust 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 or certified or official bank check or checks, payable to the
order of the Trust in Federal (same day) funds. The Trust will cause the
certificates representing the Securities to be made available for checking and
packaging at least twenty-four hours prior to the Time of Delivery (as defined
below) at the office of Goldman, Sachs & Co., 85 Broad Street, New York, New
York 10004 (the "Designated Office"). The time and date of such delivery and
payment shall be, with respect to the Firm Securities, 9:30 a.m., New York
City time, on June __, 1998 or such other time and date as Goldman, Sachs &
Co. and the Trust may agree upon in writing, and, with respect to the Optional
Securities, 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 Securities, or such other
time and date as Goldman, Sachs & Co. and the Trust may agree upon in writing.
Such time and date for delivery of the Firm Securities is herein called the
"First Time of Delivery", such time and date for delivery of the Optional
Securities, 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 Securities and any additional documents requested by the
Underwriters pursuant to Section 7(o) 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 Securities will be delivered at the Designated
Office, all at such Time of Delivery. A meeting will be held at the Closing
Location at 3:30 p.m., New York City time, on the New York Business Day next
preceding such 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 City are
generally authorized or obligated by law or executive order to close.
5. (a) The Trust agrees with each of the Underwriters:
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(i) To prepare the Trust Prospectus in a form
approved by you and to file such Trust Prospectus pursuant to Rule
497(h) 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 Trust Registration Statement or
Trust 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 Trust Registration Statement has been filed
or becomes effective or any supplement to the Trust 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 Trust with the
Commission pursuant to the Acts and the Exchange Act subsequent to
the date of the Trust Prospectus and for so long as the delivery of a
prospectus is required in connection with the offering or sale of the
Securities; 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 Trust Preliminary Prospectus
or prospectus or any order pursuant to Section 8(e) of the Investment
Company Act, of the suspension of the qualification of the Securities
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 Trust
Registration Statement or Trust 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 Trust
Preliminary Prospectus or prospectus or suspending any such
qualification or order pursuant to Section 8(e) of the Investment
Company Act, promptly to use its best efforts to obtain the
withdrawal of such order;
(ii) Promptly from time to time to take such action
as you may reasonably request to qualify the Securities 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 Securities,
provided that in connection therewith the Trust shall not be required
to qualify as a foreign trust or association or to file a general
consent to service of process in any jurisdiction;
(iii) 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, at the expense of the Selling Stockholders, to
furnish the Underwriters with copies of the Trust 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 Trust
Prospectus in connection with the offering or sale of the Securities
and if at such time any event shall have occurred as a result of
which the Trust 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
Trust Prospectus is delivered, not misleading, or, if for any other
reason it shall be necessary during such period to amend or
supplement the Trust Prospectus in order to comply with the Act, to
notify you and upon your request 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
Trust Prospectus or a supplement to the Trust 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 Securities at any time nine
months or more after the time of issue of the Trust Prospectus, upon
your
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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 Trust Prospectus complying with Section
10(a)(3) of the Act;
(iv) To make generally available to the Trust's
security holders as soon as practicable, but in any event not later
than eighteen months after the effective date of the Trust
Registration Statement (as defined in Rule 158(c) under the Act), an
earnings statement of the Trust (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 Trust, Rule
158);
(v) To use the net proceeds received by it from the
sale of the Securities pursuant to this Agreement in the manner
specified in the Trust Prospectus under the caption "Use of
Proceeds"; and
(vi) To use its best efforts to maintain the listing
of the Automatic Common Exchange Securities and the Securities on the
New York Stock Exchange.
(b) The Company agrees with each of the Underwriters:
(i) To prepare the Company Prospectus in a form
approved by you and to file such Company 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 Company Registration Statement or
Company Prospectus prior to the last Time of Delivery which shall be
disapproved by you promptly after reasonable notice thereof, such
disapproval not to be unreasonably exercised; to advise you, promptly
after it receives notice thereof, of the time when any amendment to
the Company Registration Statement has been filed or becomes
effective or any supplement to the Company Prospectus or any amended
Company 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 Company Prospectus and for
so long as the delivery of a prospectus is required in connection
with the offering or sale of the Securities; 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 Company Preliminary Prospectus or prospectus, of the suspension
of the qualification of the shares of Stock to be delivered pursuant
to the Contracts 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 Company Registration Statement or Company Prospectus or for
additional information; and, in the event of the issuance of any stop
order or any order preventing or suspending the use of any Company
Preliminary Prospectus or prospectus or suspending any such
qualification, to promptly use its best efforts to obtain the
withdrawal of such order;
(ii) If the Company elects to rely upon Rule 462(b),
to file a Company 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 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;
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<PAGE>
(iii) 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 in any jurisdiction;
(iv) 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 furnish the Underwriters with copies of the
Company Prospectus 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 Company
Prospectus in connection with the offering or sale of the Securities
and if at such time any events shall have occurred as a result of
which the Company 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
Company Prospectus is delivered, not misleading, or, if for any other
reason it shall be necessary during such same period to amend or
supplement the Company Prospectus or to file under the Exchange Act
any document incorporated by reference in the Company 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 Company Prospectus or a supplement to the Company 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 Securities at any
time nine months or more after the time of issue of the Company
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 Company Prospectus complying
with Section 10(a)(3) of the Act;
(v) To make generally available to its security-
holders 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 earning
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);
(vi) During the period beginning from the date hereof
and continuing to and including the date 90 days after the First Time
of Delivery, not to offer, sell, contract to sell or otherwise
dispose of any Stock or any securities of the Company (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) which are substantially similar to the Stock,
including but not limited to any securities that are convertible into
or exchangeable for, or that represent the right to receive, Stock or
such substantially similar securities without your prior written
consent;
(vii) 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
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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;
(viii) 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 will 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; and
(ix) To use its best efforts to maintain the listing
of the Stock on the New York Stock Exchange.
6. The Trust, the Company and the Selling Stockholders covenant and
agree with the several Underwriters that (a) the Selling Stockholders will pay
or cause to be paid a pro rata share (based on the number of shares of Stock
to be sold by each such Selling Stockholder pursuant to the Contracts) of the
following: (i) the organizational expenses and the ongoing expenses of the
Trust and all reasonable fees, disbursements and expenses of the Trust's
counsel and the Trust's accountants in connection with the registration of the
Securities under the Acts; (ii) the fees, disbursements and expenses of the
Company's outside accountants and of the Company's outside counsel in
connection with the registration of the Securities and the Stock under the Act
and all other expenses in connection with the preparation, printing and filing
of the Notification, the Trust Registration Statement, the Company
Registration Statement, any Trust Preliminary Prospectus or Company
Preliminary Prospectus, the Trust Prospectus and the Company Prospectus and
amendments and supplements thereto and the mailing and delivering of copies
thereof to the Underwriters and dealers; (iii) the cost of printing or
producing any Agreement among Underwriters, this Agreement and Blue Sky
Memorandum, closing documents (including any compilations thereof) and any
other documents in connection with the offering, purchase, sale and delivery
of the Securities and the Stock; (iv) all expenses in connection with the
qualification of the Securities and the Stock for offering and sale under
state securities laws as provided in Section 5(b)(ii) hereof, including the
fees and disbursements of counsel for the Underwriters in connection with such
qualification and in connection with the Blue Sky survey; (v) the filing fees
incident to, and the fees and disbursements of counsel for the Underwriters in
connection with, securing any required review by the NASD of the terms of the
sale of the Stock and the Securities; (vi) all fees and expenses in connection
with the preparation and filing of a registration statement under the Exchange
Act relating to the Securities and all costs and expenses incident to the
listing of the Securities on the New York Stock Exchange or other national or
regional exchange; (vii) the cost of preparing certificates representing the
Securities; (viii) the cost and charges of any transfer agent or registrar for
the Securities; (ix) all expenses and taxes incident to the sale and delivery
of the shares of Stock to be sold or pledged by the Selling Stockholders; (x)
all fees, expenses and costs in connection with the marketing of the
Securities; and (xi) all other costs and expenses incident to the performance
of all obligations hereunder which are not otherwise specifically provided for
in this Section; (b) the Company will pay or cause to be paid (i) the cost of
preparing Stock certificates; and (ii) the cost and charges of any transfer
agent or registrar for the Stock; and (c) each 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
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provided for in this Section, 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 Attorneys-in-Fact and the POA Custodian, and
(iii) all expenses and taxes incident to the sale and delivery of the shares
of Stock to be sold or pledged by such Selling Stockholder. In connection with
Clause (c)(iii) of the preceding sentence, Goldman, Sachs & Co. agrees to pay
New York State stock transfer tax, and the Selling Stockholders agree 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 the Company shall bear,
and the Selling Stockholders shall not be required to pay or to reimburse the
Company for, the cost of any other matters not directly relating to the sale
and purchase of the Shares pursuant to this Agreement, and that, except as
provided in this Section, Section 8 and Section 11 hereof, the Underwriters
will pay all of their own costs and expenses, including the fees of their
counsel, transfer taxes on resale of any of the Securities by them, and any
advertising expenses connected with any offers they may make.
7. The obligations of the Underwriters hereunder, as to the
Securities to be delivered at each Time of Delivery, shall be subject, in
their discretion, to the condition that all representations and warranties of
the Trust, the Company and the Selling Stockholders herein are, at and as of
such Time of Delivery, true and correct, the condition that the Trust, 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 Prospectuses shall have been filed with the Commission
pursuant to Rule 424(b) or Rule 497(h), as applicable, within the applicable
time period prescribed for such filing by the rules and regulations under the
Act and in accordance with Sections 5(a)(i) and 5(b)(i) hereof; if the Company
has elected to rely upon Rule 462(b), the Company 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 Statements or any part thereof, and no order pursuant to Section
8(e) of the Investment Company Act affecting this transaction, 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 their written opinion (a draft of
such opinion is attached as Annex II(a) hereto), dated such Time of Delivery,
with respect to paragraphs (i), (ii), (iii), (v), (vi) and (viii) of
subsection (c) below and paragraphs (i), (ii) and (vi) of subsection (d)
below, as well as a statement to the effect of the text following paragraph
(xii) of subsection (d) below, and 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;
(c) Sullivan & Cromwell, counsel for the Trust, 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
satisfactory to you, to the effect that:
(i) The Trust (x) has been duly formed and is validly
existing as a trust under the laws of the State of New York and (y)
is registered with the Commission under the Investment Company Act as
a non-diversified, closed-end management investment company;
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(ii) The Securities have been duly authorized and
validly issued and are fully paid and non-assessable and are entitled
to the benefits provided by the Trust Agreement;
(iii) The Securities will be exchanged for shares of
Stock in accordance with the terms of the Trust Agreement and the
Contracts (unless a Reorganization Event occurs or a Seller elects
the Cash Settlement Alternative (each as defined in one or more of
the Contracts)), subject to bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium and similar laws of general
applicability relating to or affecting creditors' rights and to
general equity principles;
(iv) All regulatory consents, authorizations,
approvals and filings required to be obtained or made by the Trust
under the Federal laws of the United States and the laws of the State
of New York for the issuance, sale and delivery of the Securities by
the Trust to you have been obtained or made;
(v) This Agreement has been duly authorized, executed
and delivered by the Trust;
(vi) Each Fundamental Agreement has been duly
authorized, executed and delivered by the Trust and, assuming due
authorization, execution and delivery by the other parties thereto,
constitutes a valid and legally binding agreement of the Trust
enforceable in accordance with its terms, subject to bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium and
similar laws of general applicability relating to or affecting
creditors' rights and to general equity principles;
(vii) The statements in the Trust Prospectus under
the caption "Certain Federal Income Tax Considerations", to the
extent that such statements constitute summaries of the legal matters
referred to therein, fairly represent their opinion as to such
matters; and
(viii) On the basis of information which was reviewed
in the course of the performance of the services referred to in their
opinion, considered in the light of their understanding of the
applicable law and the experience they have gained through their
practice under the Acts, such counsel confirm to you that, in their
opinion, the Trust Registration Statement, as of its effective date,
and the Trust Prospectus, as of the date of the Trust Prospectus,
appeared on their face to be appropriately responsive in all material
respects to the requirements of the Acts and the applicable rules and
regulations of the Commission thereunder; and that nothing that came
to their attention in the course of such review has caused them to
believe that the Trust Registration Statement, as of its effective
date, contained any untrue statement of a material fact or omitted to
state any material fact required to be stated therein or necessary to
make the statements therein not misleading or that the Trust
Prospectus, as of the date of the Trust Prospectus, contained any
untrue statement of a material fact or omitted to state any material
fact necessary in order to make the statements therein, in the light
of the circumstances under which they were made, not misleading;
also, nothing that has come to such counsel's attention in the course
of certain procedures (as described in such opinion) has caused such
counsel to believe that the Trust Prospectus, as of the date and time
of delivery of such opinion, contained any untrue statement of a
material fact or omitted to state any material fact necessary in
order to make the statements therein, in the light of the
circumstances under which they were made, not misleading; provided,
however, that such opinion may state that the limitations inherent in
the independent verification of factual matters and the character of
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determinations involved in the registration process are such,
however, that such counsel do not assume any responsibility for the
accuracy, completeness or fairness of the statements contained in the
Trust Registration Statement or the Trust Prospectus except for those
made under the captions "Investment Objective and Policies",
"Description of the Securities" and "Underwriting" in the Trust
Prospectus insofar as such statements relate to provisions of
documents referred to therein, and such counsel need not express any
opinion or belief as to the financial statements or other financial
data contained in the Trust Registration Statement or the Trust
Prospectus; and provided further that such counsel may state that
they have not participated in the preparation of the Company
Registration Statement or the Company Prospectus, and need not
express any opinion or belief with respect thereto or with respect to
information relating to the Company contained in the Trust Prospectus
under the captions "Prospectus Summary--The Company" and "Investment
Objectives and Policies--The Company".
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.
(d) Sullivan & Cromwell, counsel for the Trust, shall have
furnished to the Selling Stockholders their written opinion (a draft of such
opinion is attached as Annex II(c) hereto), dated such Time of Delivery, with
respect to paragraphs (i)(y), (iv) and (vii) of subsection (c) above and, in
addition, to the effect that the statements in the Trust Prospectus under the
captions "Investment Objective and Policies", "Description of the Securities"
and "Underwriting", insofar as such statements summarize provisions of the
documents referred to therein, are accurate in all material respects and
fairly summarize the matters referred to therein, provided, however, that such
counsel may state that in rendering such opinion, such counsel are not passing
upon the Federal income tax treatment of the Selling Stockholders in
connection with the transactions described in the Trust Prospectus, that such
counsel express no opinion as to such matters, and that the Selling
Stockholders should draw no inference with respect to such matters from the
language set out in the Trust Prospectus.
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.
(e) 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(d) hereto), dated such Time of Delivery, in form and
substance 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 Company
Prospectus;
(ii) The Company has an authorized capitalization as
set forth in the Company Prospectus, and all of the shares of Stock
to be pledged under the Collateral Agreements have been duly and
validly authorized and issued and are fully paid and non-assessable;
and the shares of Stock conform to the description of the Stock
contained in the Company Prospectus;
(iii) 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
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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);
(iv) 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;
(v) To such counsel's knowledge and other than as set
forth in the Company 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 Company
Prospectus;
(vi) This Agreement has been duly authorized,
executed and delivered by the Company;
(vii) 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 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;
(viii) 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;
(ix) The statements set forth in the Company
Prospectus under the caption "Description of Capital Stock", insofar
as they purport to constitute a summary of the terms of the Stock
(including shares of Stock subject to the Contracts), present fairly
the information disclosed therein in all material respects;
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(x) 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;
(xi) The documents incorporated by reference in the
Company 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, each appeared to comply as to form in
all material respects with the requirements of the Exchange Act and
the rules and regulations of the Commission thereunder; and
(xii) The Company Registration Statement and the
Company 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
Company Registration Statement or Company 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,
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 Company Registration Statement, the Company Prospectus and
related matters were discussed, and, although such counsel has not
independently verified and is not passing upon and assumes no responsibility
for the accuracy, completeness or fairness of the statements contained in the
Company Registration Statement and Company Prospectus, except to the extent
specified in subsection (ix) of this Section 7(e), no facts have come to such
counsel's attention which leads such counsel to believe that the Company
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 Company 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 Company
Registration Statement or Company Prospectus) and they do not know of any
contracts or other documents of a character required to be filed as an exhibit
to the Company Registration Statement or required to be incorporated by
reference into the Company Prospectus or required to be described in the
Company Registration Statement or the Company 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 outside the United States;
(f) Debevoise and Plimpton, counsel for (i) The Estee Lauder
1994 Trust and (ii) The RSL 4201 Trust, each as a Selling Stockholder, shall
have furnished to you their written opinion (a draft of each such opinion is
attached as Annex II(e) hereto), dated such Time of Delivery, in form and
substance satisfactory to you, to the effect that:
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(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 Power of Attorney, Custody Agreement, Contract
and Collateral Agreement, and to consummate the transactions
contemplated hereby and thereby;
(ii) A Power of Attorney and a Custody Agreement 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, subject to customary
bankruptcy and equitable principles qualifications;
(iii) This Agreement has been duly executed and
delivered by or on behalf of such Selling Stockholder; each of the
Contract and the Collateral Agreement to which such Selling
Stockholder is a party has been duly executed and delivered by or on
behalf of such Selling Stockholder and constitutes a valid and
binding agreement of such Selling Stockholder enforceable in
accordance with its terms, subject to customary bankruptcy and
equitable principles qualifications;
(iv) The compliance by such Selling Stockholder with
all of the provisions of this Agreement and the Power of Attorney,
the Custody Agreement, the Contract and the Collateral Agreement to
which such Selling Stockholder is a party and the consummation of the
transactions herein and therein contemplated will not conflict with
or result in a breach or violation of, or constitute a default under,
(i) 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, (ii) the
provisions of the constitutive documents of such Selling Stockholder,
(iii) any present law, or present regulation of any government agency
or authority, of the State of New York or the United States of
America known by us to be applicable to such Selling Stockholder or
its properties or (iv) any court decree or order binding upon such
Selling Stockholder or its properties;
(v) No consent, approval, authorization or order of
any United States or New York court or governmental agency or body is
required by or of such Selling Stockholder for the consummation of
the transactions contemplated by this Agreement, the Contract to
which such Selling Stockholder is a party and the Collateral
Agreement to which such Selling Stockholder is a party, except for
the registration of the Securities and the Stock, under the Acts and
such as may be required under state or foreign securities or Blue Sky
laws, rules or regulations in connection with the purchase and
distribution of the Securities and the Stock (it being understood
that this opinion is limited to those consents, approvals,
authorizations, orders, registrations or qualifications that, in our
experience, are normally applicable to transactions of the type
contemplated by this Agreement);
(vi) Assuming due authorization, execution and
delivery thereof in the State of New York by the Trust and the
Collateral Agent, the Collateral Agreement, together with the
delivery of (x) the certificates in registered form representing the
Stock pledged thereunder by such Selling Stockholder and (y) undated
stock powers with respect thereto endorsed in blank, to the
Collateral Agent for the benefit of the Trust, creates in favor of
the Collateral Agent for the benefit of the Trust a perfected
security interest in such Stock under the Uniform Commercial Code as
in effect in the State of New York (the "New York UCC"); upon such
delivery, at the
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First Time of Delivery, assuming that (A) the Collateral Agent and
the Trust will acquire the security interest in such shares without
notice of any adverse claim (within the meaning of the New York UCC)
and (B) such Selling Stockholder has rights in the shares of Stock
subject to such Collateral Agreement, the Collateral Agent will
acquire such security interest in such shares of Stock for the
benefit of the Trust free of any adverse claim (within the meaning
of the New York UCC); and
(vii) Assuming (A) due authorization, execution and
delivery of the Contract and the Collateral Agreement by the Trust
and each Collateral Agreement by the Collateral Agent, (B) such
Selling Stockholder continues to be the sole registered owner of the
shares of Stock to be sold by it, (C) the holders of Securities
acquire such shares of Stock without notice of any adverse claim
(within the meaning of the New York UCC) and (D) undated stock powers
with respect to the certificates representing such shares of Stock
endorsed in blank are delivered to the holders of Securities, upon
payment for and delivery to the holders of Securities of the shares
of Stock in accordance with the Contract and Collateral Agreement to
which such Selling Stockholder is a party, the holders of Securities
will acquire all of the rights of such Selling Stockholder in such
shares of Stock and will also acquire their interest in such shares
of Stock free of any adverse claim (within the meaning 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 the
opinion in subparagraphs (vi) and (vii) 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 of
Stock to be 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 for The LAL 4002
Trust as a Selling Stockholder, shall have furnished to you their written
opinion (a draft of such opinion is attached as Annex II(f) hereto), 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 Power of Attorney, Custody Agreement, Contract
and Collateral Agreement, and to consummate the transactions
contemplated hereby and thereby;
(ii) A Power of Attorney and a Custody Agreement 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, subject to customary
bankruptcy and equitable principles qualifications;
(iii) This Agreement has been duly executed and
delivered by or on behalf of such Selling Stockholder; each of the
Contract and the Collateral Agreement to which such Selling
Stockholder is a party has been duly executed and delivered by or on
behalf of such Selling Stockholder and constitutes a valid and
binding agreement of such Selling Stockholder enforceable in
accordance with its terms, subject to customary bankruptcy and
equitable principles qualifications;
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(iv) The compliance by such Selling Stockholder with
all of the provisions of this Agreement and the Power of Attorney,
the Custody Agreement, the Contract and the Collateral Agreement to
which such Selling Stockholder is a party and the consummation of the
transactions herein and therein contemplated will not conflict with
or result in a breach or violation of, or constitute a default under,
(i) 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, (ii) the
provisions of the constitutive documents of such Selling Stockholder,
(iii) any present law, or present regulation of any government agency
or authority, of the State of New York or the United States of
America known by us to be applicable to such Selling Stockholder or
its properties or (iv) any court decree or order binding upon such
Selling Stockholder or its properties;
(v) No consent, approval, authorization or order of
any United States or New York court or governmental agency or body is
required by or of such Selling Stockholder for the consummation of
the transactions contemplated by this Agreement, the Contract to
which such Selling Stockholder is a party and the Collateral
Agreement to which such Selling Stockholder is a party, except for
the registration of the Securities and the Stock, under the Acts and
such as may be required under state or foreign securities or Blue Sky
laws, rules or regulations in connection with the purchase and
distribution of the Securities and the Stock (it being understood
that this opinion is limited to those consents, approvals,
authorizations, orders, registrations or qualifications that, in our
experience, are normally applicable to transactions of the type
contemplated by this Agreement);
(vi) Assuming due authorization, execution and
delivery thereof in the State of New York by the Trust and the
Collateral Agent, the Collateral Agreement, together with the
delivery of (x) the certificates in registered form representing the
Stock pledged thereunder by such Selling Stockholder and (y) undated
stock powers with respect thereto endorsed in blank, to the
Collateral Agent for the benefit of the Trust, creates in favor of
the Collateral Agent for the benefit of the Trust a perfected
security interest in such Stock under the Uniform Commercial Code as
in effect in the State of New York (the "New York UCC"); upon such
delivery, at the First Time of Delivery, assuming that (A) the
Collateral Agent and the Trust will acquire the security interest in
such shares without notice of any adverse claim (within the meaning
of the New York UCC) and (B) such Selling Stockholder has rights in
the shares of Stock subject to such Collateral Agreement, the
Collateral Agent will acquire such security interest in such shares
of Stock for the benefit of the Trust free of any adverse claim
(within the meaning of the New York UCC); and
(vii) Assuming (A) due authorization, execution and
delivery of the Contract and the Collateral Agreement by the Trust
and each Collateral Agreement by the Collateral Agent, (B) such
Selling Stockholder continues to be the sole registered owner of the
shares of Stock to be sold by it, (C) the holders of Securities
acquire such shares of Stock without notice of any adverse claim
(within the meaning of the New York UCC) and (D) undated stock powers
with respect to the certificates representing such shares of Stock
endorsed in blank are delivered to the holders of Securities, upon
payment for and delivery to the holders of Securities of the shares
of Stock in accordance with the Contract and Collateral Agreement to
which such Selling Stockholder is a party, the holders of Securities
will acquire all of the rights of such Selling Stockholder in such
shares of Stock and will also acquire their interest in such shares
of Stock free of any adverse claim (within the meaning of the New
York UCC).
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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 the
opinion in subparagraphs (vi) and (vii) 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 of
Stock to be 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) On the date of the Trust 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 Trust Registration
Statement filed subsequent to the date of this Agreement and also at each Time
of Delivery, Coopers & Lybrand L.L.P. shall have furnished to you a letter or
letters, dated the respective dates of delivery thereof, in form and substance
satisfactory to you;
(i) On the date of the Company 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 Company Registration
Statement filed subsequent to the date of this Agreement and also at each Time
of Delivery, the accounting firm listed in Section 1(a)(xv) hereof 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;
(j) (i) Since the respective dates as of which information is
given in the Trust Registration Statement and the Trust Prospectus, there
shall not have been any change, or any development involving a prospective
change, in or affecting the general affairs, management, financial position,
results of operations, prospects, investment objectives, investment policies
or liabilities of the Trust, otherwise than as set forth or contemplated in
the Trust Prospectus, (ii) neither the Company nor any of its subsidiaries
shall have sustained since the date of the latest audited financial statements
included in the Company Prospectus or incorporated by reference therein any
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 Company Prospectus, and (iii) since the respective dates
as of which information is given in the Company Prospectus there shall not
have been any change in the capital stock short-term debt 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 or results of operations
of the Company and its subsidiaries, taken as a whole, otherwise than as set
forth or contemplated in the Company Prospectus, the effect of which, in any
such case described in clause (i), (ii) or (iii), is in your judgment so
material and adverse as to make it impracticable or inadvisable to proceed
with the public offering or the delivery of the Securities being issued at
such Time of Delivery on the terms and in the manner contemplated in the Trust
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; (ii) a suspension or
material limitation in trading in the securities of the Company or the Trust
on the New York Stock Exchange; (iii) a general moratorium on commercial
banking activities declared by either Federal or New York State authorities;
or (iv) the outbreak or material 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 your
judgment makes it impracticable or inadvisable to proceed with the public
offering or the delivery of the Securities being issued at such Time of
Delivery on the terms and in the manner contemplated in the Trust Prospectus;
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(l) The Securities shall have been duly listed, subject to
notice of issuance, on the New York Stock Exchange;
(m) Each Fundamental Agreement shall have been executed and
delivered by all parties thereto and each Selling Stockholder shall have
delivered to the Collateral Agent the number of shares of Stock required by
the Collateral Agreement to which such Selling Stockholder is a party to be
initially pledged thereunder in accordance with the requirements of such
Collateral Agreement;
(n) The Trust and the Company shall have complied with the
provisions of Section 5(a)(iii) and 5(b)(iii) hereof with respect to the
furnishing of prospectuses on the New York Business Day next succeeding the
date of this Agreement;
(o) The Trust, 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 Trust, the Company and the Selling
Stockholders, respectively, satisfactory to you as to the accuracy of the
representations and warranties of the Trust, the Company and the Selling
Stockholders, respectively, herein and in the Contracts and Collateral
Agreements at and as of such Time of Delivery, as to the satisfaction and
performance by the Trust, the Company and the Selling Stockholders of all of
their respective obligations hereunder and thereunder to be performed at or
prior to such Time of Delivery, as to the matters set forth in subsections (a)
and (j) of this Section (except in the case of the Selling Stockholders) and
as to such other matters relating to the transactions contemplated herein and
therein as you may reasonably request; and
(p) The Company shall have obtained and delivered to the
Underwriters executed copies of an agreement from all Lauder Family Members
which own shares of Common Stock (other than The Lauder Foundation), from each
trustee, in his or her capacity as a trustee, of a trust that is a Lauder
Family Member and from Morgan Guaranty Trust Company of New York, to the
effect set forth in Subsection 1(b)(vi) hereof in form and substance
satisfactory to you.
8. (a) (i) The Company and each of the Selling Stockholders, jointly
and severally, will indemnify and hold harmless the Trust and each Underwriter
against any losses, claims, damages or liabilities, joint or several, to which
the Trust or 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 fact contained in any Company Preliminary Prospectus,
the Company Registration Statement or the Company 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 the Trust and each Underwriter for any legal or other expenses
reasonably incurred by the Trust or 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 Company
Preliminary Prospectus, the Company Registration Statement or the Company
Prospectus, or any such amendment or supplement thereto, in reliance upon and
in conformity with written information furnished to the Company by any
Underwriter through Goldman, Sachs & Co. expressly for use therein. (ii) The
Selling Stockholders, jointly and severally, will indemnify and hold harmless
the Trust and each Underwriter against any losses, claims, damages or
liabilities, joint or several, to which the Trust or 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
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<PAGE>
or are based upon an untrue statement or alleged untrue statement of a material
fact
contained in any Trust Preliminary Prospectus, the Trust Registration
Statement or the Trust 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 the Trust and each
Underwriter for any legal or other expenses reasonably incurred by the Trust
or such Underwriter in connection with investigating or defending any such
action or claim as such expenses are incurred; provided, however, that 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 Trust Preliminary Prospectus, the Trust Registration Statement or
the Trust Prospectus, or any such amendment or supplement thereto, 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 Section 8, in no event shall any
Selling Stockholder be liable under this Section 8 for an amount in excess of
the pro rata share (based on the number of shares of Stock to be sold by each
Selling Stockholder pursuant to the Contracts) of the gross proceeds from the
transactions contemplated by this Agreement and the Fundamental Agreements
received by such Selling Stockholder from the sale of the Shares.
(b) Each Underwriter will indemnify and hold harmless the
Company, the Trust and each Selling Stockholder against any losses, claims,
damages or liabilities to which the Company, the Trust 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 Company Preliminary Prospectus or Trust
Preliminary Prospectus, either of the Registration Statements or either of the
Prospectuses, 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 Company Preliminary Prospectus or Trust Preliminary Prospectus, either of
the Registration Statements or either of the Prospectuses, or any amendment or
supplement thereto, in reliance upon and in conformity with written information
furnished to the Trust or the Company by such Underwriter through Goldman, Sachs
& Co. expressly for use therein; and will reimburse the Company, the Trust and
each Selling Stockholder for any legal or other expenses reasonably incurred by
the Company, the Trust 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
the 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
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<PAGE>
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, 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, the Trust and the
Selling Stockholders on the one hand and the Underwriters on the other from
the offering of the Securities. 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, the Trust 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, the Trust 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 (before deducting
expenses) received by the Company, the Trust and the Selling Stockholders bear
to the total underwriting discounts and commissions received by the
Underwriters, in each case as set forth in the table on the cover page of the
Trust 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, the Trust 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, the Trust, the Selling
Stockholders and the Underwriters agree that it would not be just and
equitable if contribution 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 Securities 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.
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<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 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 or the
Selling Stockholders, to each trustee of the Trust and to each person, if any,
who controls the Company, the Trust or any Selling Stockholder within the
meaning of the Act.
9. (a) If any Underwriter shall default in its obligation to purchase
the Securities which it has agreed to purchase hereunder, you may in your
discretion arrange for you or another party or other parties to purchase such
Securities on the terms contained herein at a Time of Delivery. If within
thirty-six hours after such default by any Underwriter you do not arrange for
the purchase of such Securities, then the Company, the Trust and 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 Securities on such terms. In the event that, within the
respective prescribed periods, you notify the Company, the Trust and the
Selling Stockholders that you have so arranged for the purchase of such
Securities, or the Company, the Trust and the Selling Stockholders notify you
that they have so arranged for the purchase of such Securities, you or the
Company, the Trust and 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 Statements or the Prospectuses, or in any other documents or
arrangements, and the Company, the Trust and the Selling Stockholders agree to
file promptly any amendments to the Registration Statements or the
Prospectuses 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 Securities.
(b) If, after giving effect to any arrangements for the
purchase of the Securities of a defaulting Underwriter or Underwriters by you
and the Company, the Trust and the Selling Stockholders as provided in
subsection (a) above, the aggregate principal amount of such Securities which
remains unpurchased does not exceed one-eleventh of the aggregate principal
amount of all the Securities to be purchased at such Time of Delivery, then
the Company, the Trust and the Selling Stockholders shall have the right to
require each non-defaulting Underwriter to purchase the principal amount of
Securities 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 principal amount of Securities which
such Underwriter agreed to purchase hereunder) of the Securities 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 Securities of a defaulting Underwriter or Underwriters by you
and the Company, the Trust and the Selling Stockholders as provided in
subsection (a) above, the aggregate principal amount of such Securities which
remains unpurchased exceeds one-eleventh of the aggregate principal amount of
all the Securities to be purchased at such Time of Delivery, or if the
Company, the Trust and the Selling Stockholders shall not exercise the right
described in subsection (b) above to require non-defaulting Underwriters to
purchase Securities of a defaulting Underwriter or Underwriters, then this
Agreement (or, with respect to the Second Time of Delivery, the obligations of
the Underwriters to purchase and of the Trust to sell the Optional Securities)
shall thereupon terminate, without liability on the part of any non-defaulting
Underwriter or the Company, the Trust and the Selling Stockholders, except for
the expenses to be borne by the Company,
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<PAGE>
the Trust, the Selling Stockholders and the Underwriters as provided in
Section 6 hereof and the indemnity and 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 Trust, 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, the Trust or the
Selling Stockholders or any officer or director or controlling person of the
Company, the Trust or the Selling Stockholders and shall survive delivery of
and payment for the Securities.
11. If this Agreement shall be terminated pursuant to Section 9
hereof, neither the Company, the Trust 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 Securities are not delivered by or
on behalf of the Trust as provided herein, the Selling Stockholders, pro rata
(based on the number of shares of Stock to be sold by each such Selling
Stockholder pursuant to the Contracts), 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
Securities not so delivered, but the Company, the Trust and the Selling
Stockholders shall then be under no further liability to any Underwriter in
respect of the Securities 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, the Trust 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 the Trust shall be delivered or sent by mail,
telex or facsimile transmission in care of _____________________; 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:
Secretary; and 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; 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. This Agreement shall be binding upon, and inure solely to the
benefit of, the Underwriters, the Company, the Trust, the Selling Stockholders
and, to the extent provided in Sections 8 and 10 hereof, the officers and
directors of the Company, the Trust, the Selling Stockholders and each person
who controls the Company, any Selling Stockholder or any Underwriter, and
their respective heirs, executors,
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<PAGE>
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 Securities from any Underwriter shall be deemed a successor or assign by
reason merely of such purchase.
14. 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.
15. This Agreement shall be governed by and construed in accordance
with the laws of the State of New York.
16. 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.
<PAGE>
If the foregoing is in accordance with your understanding, please
sign and return to us eight 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 between each of the
Underwriters, the Trust, the Company and 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.
Very truly yours,
THE ESTEE LAUDER COMPANIES INC.
By: _______________________________________
Leonard A. Lauder
Chief Executive Officer
ESTEE LAUDER AUTOMATIC COMMON
EXCHANGE SECURITY TRUST
By: _______________________________________
Donald J. Puglisi
By: _______________________________________
William R. Latham III
By: _______________________________________
James B. O'Neill
each a trustee of the Estee Lauder
Automatic Common Exchange
Security Trust
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<PAGE>
LEONARD A. LAUDER, RONALD S. LAUDER
AND IRA T. WENDER AS TRUSTEES OF THE
TRUST, U/A/D JUNE 2, 1994, AS AMENDED,
BETWEEN ESTEE LAUDER, AS SETTLOR,
AND SUCH TRUSTEES
--------------------------------------------
Leonard A. Lauder, Trustee
--------------------------------------------
Ronald S. Lauder, Trustee
--------------------------------------------
Ira T. Wender, Trustee
JOEL S. EHRENKRANZ AS TRUSTEE OF
THE LAL 4002 TRUST, U/A/D MAY 13, 1998,
BETWEEN LEONARD A. LAUDER, AS
SETTLOR, AND JOEL S. EHRENKRANZ,
AS TRUSTEE
--------------------------------------------
Joel S. Ehrenkranz, Trustee
IRA T. WENDER AS TRUSTEE OF
THE RSL 4201 TRUST, U/A/D MAY 13, 1998,
BETWEEN RONALD S. LAUDER, AS
SETTLOR, AND IRA T. WENDER,
AS TRUSTEE
--------------------------------------------
Ira T. Wender, Trustee
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<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
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<PAGE>
SCHEDULE I
Number of Optional
Total Securities to be
Number of Purchased if
Firm Securities Maximum Option
Underwriter to be Purchased Exercised
- ----------- --------------- ----------
Goldman, Sachs & Co.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
J.P. Morgan Securities Inc.
=============== ===============
Total 4,567,548 686,482
=============== ===============
<PAGE>
SCHEDULE II
Number of
Optional
Shares to be
Total Delivered if
Number of Maximum
Firm Shares Option
to be Delivered Exercised
--------------- ---------
The Selling Stockholders*:
The Estee Lauder 1994 Trust.........
The LAL 4002 Trust
The RSL 4201 Trust
=============== ==============
Total...................... 4,567,548 686,482
=============== ==============
* Each Selling Stockholder has appointed Robert J. Bigler and Spencer G.
Smul, and each of them, as the Attorneys-in-Fact for such Selling
Stockholder.
<PAGE>
ANNEX I
Pursuant to Section 7(j) of the Underwriting Agreement, the
accountants shall furnish letters to the Underwriters to the effect that:
(i) They are independent certified public accountants
with respect to the Company and its subsidiaries within the meaning
of the Act and the applicable published rules and regulations
thereunder;
(ii) In their opinion, the financial statements and
any supplementary financial information and schedules (and, if
applicable, financial forecasts and/or pro forma financial
information) examined by them and included or incorporated by
reference in the Registration Statement or the Prospectus comply as
to form in all material respects with the applicable accounting
requirements of the Act or the Exchange Act, as applicable, and the
related published rules and regulations thereunder; and, if
applicable, they have made a review in accordance with standards
established by the American Institute of Certified Public Accountants
of the consolidated interim financial statements, selected financial
data, pro forma financial information, financial forecasts and/or
condensed financial statements derived from audited financial
statements of the Company for the periods specified in such letter,
as indicated in their reports thereon, copies of which have been
separately furnished to the representatives of the Underwriters (the
"Representatives");
(iii) They have made a review in accordance with
standards established by the American Institute of Certified Public
Accountants of the unaudited condensed consolidated statements of
income, consolidated balance sheets and consolidated statements of
cash flows included in the Prospectus and/or included in the
Company's quarterly report on Form 10-Q incorporated by reference
into the Prospectus as indicated in their reports thereon; and on the
basis of specified procedures including inquiries of officials of the
Company who have responsibility for financial and accounting matters
regarding whether the unaudited condensed consolidated financial
statements referred to in paragraph (vi)(A)(i) below comply as to
form in all material respects with the applicable accounting
requirements of the Act and the Exchange Act and the related
published rules and regulations, nothing came to their attention that
caused them to believe that the unaudited condensed consolidated
financial statements do not comply as to form in all material
respects with the applicable accounting requirements of the Act and
the Exchange Act and the related published rules and regulations;
(iv) The unaudited selected financial information
with respect to the consolidated results of operations and financial
position of the Company for the five most recent fiscal years
included in the Prospectus and included or incorporated by reference
in Item 6 of the Company's Annual Report on Form 10-K for the most
recent fiscal year incorporated by reference in the Prospectus agrees
with the corresponding amounts (after restatement where applicable)
in the audited consolidated financial statements for such five fiscal
years which were included or incorporated by reference in the
Company's Annual Reports on Form 10-K for such fiscal years;
(v) They have compared the information in the
Prospectus under selected captions with the disclosure requirements
of Regulation S-K and on the basis of limited procedures specified in
such letter nothing came to their attention as a result of the
foregoing
<PAGE>
procedures that caused them to believe that this information does
not conform in all material respects with the disclosure
requirements of Items 301, 302, 402 and 503(d), respectively, of
Regulation S-K;
(vi) On the basis of limited procedures, not
constituting an examination in accordance with generally accepted
auditing standards, consisting of a reading of the unaudited
financial statements and other information referred to below, a
reading of the latest available interim financial statements of the
Company and its subsidiaries, inspection of the minute books of the
Company and its subsidiaries since the date of the latest audited
financial statements included or incorporated by reference in the
Prospectus, inquiries of officials of the Company and its
subsidiaries responsible for financial and accounting matters and
such other inquiries and procedures as may be specified in such
letter, nothing came to their attention that caused them to believe
that:
(A) (i) the unaudited condensed consolidated statements of
income, consolidated balance sheets and consolidated
statements of cash flows included in the Company's Quarterly
Reports on Form 10-Q incorporated by reference in the
Prospectus do not comply as to form in all material respects
with the applicable accounting requirements of the Exchange
Act as it applies to Form 10-Q and the related published
rules and regulations, or (ii) any material modifications
should be made to the unaudited condensed consolidated
statements of income, consolidated balance sheets and
consolidated statements of cash flows included in the
Company's Quarterly Reports on Form 10-Q incorporated by
reference in the Prospectus, for them to be in conformity
with generally accepted accounting principles;
(B) any other unaudited income statement data and balance
sheet items included in the Prospectus do not agree with the
corresponding items in the unaudited consolidated financial
statements from which such data and items were derived, and
any such unaudited data and items were not determined on a
basis substantially consistent with the basis for the
corresponding amounts in the audited consolidated financial
statements included or incorporated by reference in the
Company's Annual Report on Form 10-K for the most recent
fiscal year;
(C) the unaudited financial statements which were not
included in the Prospectus but from which were derived the
unaudited condensed financial statements referred to in
Clause (A) and any unaudited income statement data and
balance sheet items included in the Prospectus and referred
to in Clause (B) were not determined on a basis
substantially consistent with the basis for the audited
financial statements included or incorporated by reference
in the Company's Annual Report on Form 10-K for the most
recent fiscal year;
(D) any unaudited pro forma consolidated condensed financial
statements included or incorporated by reference in the
Prospectus do not comply as to form in all material respects
with the applicable accounting requirements of the Act and
the published rules and regulations thereunder or the pro
forma adjustments have not been properly applied to the
historical amounts in the compilation of those statements;
(E) as of a specified date not more than five days prior to
the date of such letter, there have been any changes in the
consolidated capital stock (other than issuances of capital
stock upon exercise of options and stock appreciation
rights, upon earn-outs of
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<PAGE>
performance shares and upon conversions of convertible
securities, in each case which were outstanding on the
date of the latest balance sheet included or incorporated
by reference in the Prospectus) or any increase in the
consolidated long-term debt of the Company and its
subsidiaries, or any decreases in consolidated net current
assets or stockholders' equity or other items specified by
the Representatives, or any increases in any items
specified by the Representatives, in each case as compared
with amounts shown in the latest balance sheet included or
incorporated by reference in the Prospectus, except in
each case for changes, increases or decreases which the
Prospectus discloses have occurred or may occur or which
are described in such letter; and
(F) for the period from the date of the latest financial
statements included or incorporated by reference in the
Prospectus to the specified date referred to in Clause (E)
there were any decreases in consolidated net revenues or
operating profit or the total or per share amounts of
consolidated net income or other items specified by the
Representatives, or any increases in any items specified by
the Representatives, in each case as compared with the
comparable period of the preceding year and with any other
period of corresponding length specified by the
Representatives, except in each case for increases or
decreases which the Prospectus discloses have occurred or
may occur or which are described in such letter; and
(vii) In addition to the examination referred to in
their report(s) included or incorporated by reference in the
Prospectus and the limited procedures, inspection of minute books,
inquiries and other procedures referred to in paragraphs (iii) and
(vi) above, they have carried out certain specified procedures, not
constituting an examination in accordance with generally accepted
auditing standards, with respect to certain amounts, percentages and
financial information specified by the Representatives which are
derived from the general accounting records of the Company and its
subsidiaries, which appear in the Prospectus (excluding documents
incorporated by reference) or in Part II of, or in exhibits and
schedules to, the Registration Statement specified by the
Representatives or in documents incorporated by reference in the
Prospectus specified by the Representatives, and have compared
certain of such amounts, percentages and financial information with
the accounting records of the Company and its subsidiaries and have
found them to be in agreement.
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<PAGE>
S&C Draft of May 29, 1998
COLLATERAL AGREEMENT
Among
---------------------,
As Pledgor,
THE CHASE MANHATTAN BANK, As Collateral Agent
and
ESTEE LAUDER AUTOMATIC COMMON EXCHANGE SECURITY TRUST
Dated as of
June __, 1998
<PAGE>
The following Table of Contents has been inserted for
convenience of reference only and does not constitute a part of the Collateral
Agreement.
TABLE OF CONTENTS
SECTION PAGE
1. The Security Interests............................................... 1
2. Definitions.......................................................... 3
3. Representations and Warranties of the Pledgor........................ 7
4. Representations and Warranties of the Collateral Agent .............. 8
5. Certain Covenants of the Pledgor..................................... 8
6. Administration of the Collateral and Valuation of the Securities..... 10
7. Income and Voting Rights on Collateral............................... 16
8. Remedies upon Events of Default...................................... 17
9. The Collateral Agent................................................. 20
10. Miscellaneous........................................................ 24
11. Termination of Collateral Agreement.................................. 25
12. No Personal Liability of Trustees.................................... 26
Exhibit A - Notice of Pledge Value
Exhibit B - Certificate for Substituted Collateral
Exhibit C - Certificate for Additional Collateral
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<PAGE>
COLLATERAL AGREEMENT
THIS COLLATERAL AGREEMENT (the "Agreement"), dated as of June
__, 1998, among _____________________ (the "Pledgor"), The Chase Manhattan Bank,
a New York banking corporation, as collateral agent (the "Collateral Agent")
hereunder for the benefit of Estee Lauder Automatic Common Exchange Security
Trust, a trust duly created under the laws of the State of New York (such trust
and the trustees thereof acting in their capacity as such being referred to
herein as the "Trust" or "Purchaser"), and the Trust;
WITNESSETH:
WHEREAS, pursuant to the Purchase Agreement (the "Purchase
Agreement"), dated as of June __, 1998, between the Pledgor and Purchaser, the
Pledgor has agreed to sell and Purchaser has agreed to purchase Class A Common
Stock, par value $.01 per share ("Class A Common Stock"), of The Estee Lauder
Companies Inc., a Delaware corporation (the "Company"), subject to the terms and
conditions of the Purchase Agreement;
NOW, THEREFORE, to secure the performance by the Pledgor of
its obligations under the Purchase Agreement and to secure the observance and
performance of the covenants and agreements contained herein and in the Purchase
Agreement, the parties hereto agree as follows:
1. The Security Interests.
In order to secure the observance and performance of the
covenants and agreements contained herein and in the Purchase Agreement:
(a) Security Interests. Effective upon and subject to the
receipt by the Pledgor of the Firm Purchase Price at the First Time of Delivery,
the Pledgor hereby grants, sells, conveys, assigns, transfers and pledges unto
the Collateral Agent, as agent of and for the benefit of the Trust, a security
interest in and to, and a lien upon and
<PAGE>
right of set-off against, all of its right, title and interest in and to (i) the
Pledged Items described in paragraphs (b) and (c); (ii) all additions to and
substi tutions for such Pledged Items; (iii) all income, products and proceeds
and collections received or to be received, or derived or to be derived, now or
any time hereafter from or in connection with the Pledged Items; and (iv) all
powers and rights now owned or hereafter acquired under or with respect to the
Pledged Items (such Pledged Items, additions, substitutions, products and
proceeds, collections, powers and rights being herein collectively called the
"Collateral"). The Collateral Agent shall have all of the rights, remedies and
recourses with respect to the Collateral afforded a secured party by the UCC, in
addition to, and not in limitation of, the other rights, remedies and recourses
afforded to the Collateral Agent by this Agreement.
(b) First Time of Delivery. At the First Time of Delivery, the
Pledgor shall either (1) deliver to the Collateral Agent in pledge hereunder one
or more certifi cates in registered form representing in the aggregate at least
__________ shares of the Class A Common Stock, together with undated stock
powers with respect thereto duly endorsed in blank, or (2) if such shares of
Class A Common Stock are not held in certificated form but are held in book
entry form by The Depository Trust Company or other comparable depositary,
transfer such shares of Class A Common Stock to an account of the Collateral
Agent with The Depositary Trust Company or such other depositary, as applicable.
(c) Second Time of Delivery. Effective upon and subject to the
receipt by the Pledgor of the Additional Purchase Price, at the Second Time of
Delivery, the Pledgor shall either (1) deliver to the Collateral Agent in pledge
hereunder one or more certificates in registered form repre senting in the
aggregate Class A Common Stock representing the Additional Share Base Amount of
Class A Common Stock, together with undated stock powers with respect thereto
duly endorsed in blank, or (2) if such shares of Class A Common Stock are not
held in certificated form but are held in book
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<PAGE>
entry form by The Depository Trust Company or other comparable depositary,
transfer such number of shares of Class A Common Stock representing the
Additional Share Base Amount of Class A Common Stock to an account of the
Collateral Agent or to an account (other than an account of the Pledgor)
designated by the Collateral Agent with the Depositary Trust Company or such
other depositary, as applicable.
2. Definitions.
Capitalized terms used and not otherwise defined herein shall
have the meanings ascribed to them in the Purchase Agreement. Capitalized terms
used herein shall have the meanings as follows:
"Authorized Representative" of the Pledgor means any trustee
or other representative as to whom Pledgor shall have delivered notice to the
Collateral Agent that such trustee or other representative is authorized to act
here under on behalf of Pledgor.
"Business Day" means any day except a Saturday, Sunday or
other day on which banking institutions in New York City are authorized or
obligated by law or regulation to close or a day on which the New York Stock
Exchange, Inc. is closed.
"Cash Delivery Obligations" means, at any time (A) if no
Reorganization Event shall have occurred prior to such time, zero, and (B) from
and after any Reorganization Event, the Dilution Adjustment (or successive
Dilution Adjustments) that shall have been applied to the Exchange Rate pursuant
to Section 6.1 of the Purchase Agreement at or prior to the Reorganization
Event, times the product of: (i) the Firm Share Base Amount plus the Additional
Share Base Amount (if any); and (ii) the Transaction Value of any property other
than Marketable Securities received by the Pledgor in such Reorganization Event.
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<PAGE>
"Collateral" has the meaning specified in Section 1(a).
"Collateral Agent" means the financial institution identified
as such in the preliminary paragraph hereof, or any successor appointed in
accordance with Section 9.
"Collateral Agreement" means this Collateral Agreement and
any exhibits hereto.
"Collateral Event of Default" has the meaning specified in
Section 6(e).
"Collateral Requirement" means, as of any date and with
respect to: (i) any Class A Common Stock, 100%; (ii) any Marketable Securities,
100%; (iii) any U.S. Government Securities pledged in respect of Cash Delivery
Obligations, 105%; and (iv) any other U.S. Government Secur ities, an aggregate
market value at the time of substitution and daily mark-to-market valuations
thereafter of not less than 150%, provided that upon and after any failure to
cure an Insufficiency Determination by 4:00 p.m. New York City time on the next
Business Day following telephonic notice of such Insufficiency Determination as
described in Sec tion 6(e), which insufficiency shall be continuing on such next
business day, the Collateral Requirement relating to any U.S. Government
Securities shall be 200%. The portion of any pledged U.S. Government Securities
that shall be deemed at any time to be in respect of Cash Delivery Obligations
shall be as provided in Section 6(e).
"Distribution Date" has the meaning specified in the Trust
Agreement.
"Eligible Collateral" means (i) Class A Common Stock, (ii)
U.S. Government Securities, and (iii) from and after any Reorganization Event,
Marketable Securities, provided, in each case, that the Pledgor has good and
marketable title thereto, free of all Liens (other than the Liens created by
this Collateral Agreement) and Transfer Restrictions and that the Collateral
Agent has a valid, first priority perfected security interest therein and first
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<PAGE>
lien thereon, and provided further that to the extent the number of shares of
Marketable Securities pledged hereunder exceeds at any time the Maximum
Deliverable Number thereof, such excess shares shall not be Eligible Collateral.
"Event of Default" means the occurrence of: (i) an event
described in clause (a) or (b) of Article VII of the Purchase Agreement, (ii) a
Collateral Event of Default, (iii) a failure by Pledgor to have caused the
Collateral to meet the requirements described in Section 5(d) on the Exchange
Date or (iv) if a Reorganization Event shall have occurred prior to the Exchange
Date, failure by Pledgor to cause to be delivered to Purchaser on the Exchange
Date the consideration then required to be delivered pursuant to Section 6.2 of
the Purchase Agreement.
"Ineligible Collateral" means Collateral that does not
constitute "Eligible Collateral".
"Lien" means any lien, mortgage, security interest, pledge,
charge, encumbrance or adverse claim of any kind.
"Market Value" means, as of any date: (a) with respect to any
Class A Common Stock (except as otherwise provided in Section 6(e)(2)), the
Closing Price of the Class A Common Stock on such date; (b) with respect to any
U.S. Government Security, the product of (x)(i) the average unit bid price for
such security as published on the Trading Day prior to such date in the New York
edition of The Wall Street Journal or The New York Times or, if not so
published, (ii) the lower bid price quoted (which quotation shall be evidenced
in writing) on the Trading Day prior to such date by either of two nationally
recognized dealers making a market in such security which are members of the
National Association of Securities Dealers, Inc. and (y) the number of such
units comprised in the outstanding principal amount of such security; and (c)
with respect to any share of Marketable Securities, the Closing Price thereof on
the Trading Day prior to such date; provided that the "Market Value" of any
Ineligible Collateral shall be zero.
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<PAGE>
"Maximum Deliverable Number" means, on any date, with respect
to the Class A Common Stock, the product of the Firm Share Base Amount plus the
Additional Share Base Amount (if any), multiplied successively by each number by
which the Exchange Rate shall have been multiplied on or prior to such date
pursuant to the Dilution Adjustments provided for under Section 6.1 of the
Purchase Agreement. The Maximum Deliverable Number of Marketable Securities
means, on any date, the product of (i) the Firm Share Base Amount plus the
Additional Share Base Amount (if any) and (ii) the number of Marketable
Securities received by the Pledgor in the Reorganization Event for each share of
Class A Common Stock, multiplied successively by each number by which the
Exchange Rate shall have been multiplied on or prior to such date and after the
date of such Reorganization Event pursuant to the adjustments provided for under
Article VI of the Purchase Agreement.
"Person" means an individual, a corporation, a partnership, an
association, a trust or any other entity or organization, including a government
or political subdivision or an agency or instrumentality thereof.
"Pledge Value" means, as of any date and with respect to any
particular type of Collateral, an amount equal to the aggregate Market Value of
such Collateral divided by the Collateral Requirement for such Collateral.
"Pledge Value Requirement" means, as of any date, (a) the
aggregate Market Value on such date of the Maximum Deliverable Number of shares
of Class A Common Stock on such date or, from and after a Reorganization Event,
Marketable Securities, plus (b) from and after a Reorganization Event, the Cash
Delivery Obligations.
"Pledged Items" means, as of any date, any and all securities
and instruments delivered by the Pledgor to be held by the Collateral Agent
under this Collateral Agreement as Collateral, whether Eligible Collateral or
Ineligible Collateral.
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<PAGE>
"Prior Collateral" has the meaning specified in
Section 6(b)(1).
"Responsible Officer" means, when used with respect to the
Collateral Agent, any vice president, assistant vice president, assistant
treasurer or assistant secretary located in the division or department of the
Collateral Agent responsible for performing the obligations of the Collateral
Agent under this Collateral Agreement.
"Transfer Restriction" means, with respect to any item of
Collateral, any condition to or restriction on the ability of the holder thereof
to sell, assign or otherwise transfer such item of Collateral or to enforce the
provisions thereof or of any document related thereto whether set forth in such
item of Collateral itself or in any document related thereto, including, without
limitation, (i) any requirement that any sale, assignment or other transfer or
enforcement of such item of Collateral be consented to or approved by any
Person, including, without limitation, the issuer thereof or any other obligor
thereon, (ii) any limitations on the type or status, financial or otherwise, of
any purchaser, pledgee, assignee or transferee of such item of Collateral, (iii)
any requirement of the delivery of any certificate, consent, agreement, opinion
of counsel, notice or any other document of any Person to the issuer of, any
other obligor on or any registrar or transfer agent for, such item of
Collateral, prior to the sale, pledge, assignment or other transfer or
enforcement of such item of Collateral and (iv) any registration or
qualification requirement for such item of Collateral pursuant to any federal or
state securities law that has not been satisfied; provided that the required
delivery of any assignment from the seller, pledgor, assignor or transferor of
such item of Collateral, together with any evidence of the corporate or other
authority of such Person, shall not constitute a "Transfer Restriction".
"Trustee" or "Trustees" means any trustee or trustees of the
Trust identified on the signature pages hereto, or any successor as such trustee
or trustees.
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<PAGE>
"UCC" means the Uniform Commercial Code as in effect in the
State of New York.
"U.S. Government Securities" means direct obligations of the
United States of America that mature on a date that is one year or less from the
date such obligations are pledged hereunder, but in any event prior to June __,
2001.
3. Representations and Warranties of the Pledgor.
The Pledgor hereby represents and warrants to the Collateral
Agent and the Trust that:
(a) No Transfer Restrictions. [Except for the legend with
respect to restrictions pursuant to applicable federal and state securities laws
on transfer of the Class A Common Stock pledged by the Pledgor hereunder which,
as of the date hereof, appears on the face of the stock certificates
representing such Class A Common Stock,] no Transfer Restrictions exist with
respect to or otherwise apply to the assignment of, or transfer by the Pledgor
of possession of, any items of Collateral to the Collateral Agent hereunder, or
the subsequent sale or transfer of such items of Collateral by the Collateral
Agent pursuant to the terms hereof.
(b) Title to Collateral; Perfected Security Interest. The
Pledgor has good and marketable title to the Pledged Items, free of all Liens
(other than the Lien created by this Collateral Agreement) and Transfer
Restrictions [(other than as described in Section 3(a))]. Upon delivery of the
Pledged Items described in paragraphs (b) and (c) of Section 1 to the Collateral
Agent hereunder, the Collateral Agent will obtain a valid, first priority
perfected security interest in, and a first lien upon, such Pledged Items
subject to no other Lien. None of the Collateral is or shall be pledged by the
Pledgor as collateral for any other purpose.
-8-
<PAGE>
4. Representations and Warranties of the Collateral Agent.
The Collateral Agent represents and warrants to the Pledgor
and the Trust that:
(a) Corporate Existence and Power. The Collateral Agent is a
banking corporation, duly incorporated, validly existing and in good standing
under the laws of the jurisdiction of its incorporation, and has all corporate
powers and all material governmental licenses, authorizations, consents and
approvals required to enter into, and perform its obligations under, this
Collateral Agreement.
(b) Authorization and Non-Contravention. The execution,
delivery and performance by the Collateral Agent of this Collateral Agreement
have been duly authorized by all necessary corporate action on the part of the
Collateral Agent (no action by the shareholders of the Collateral Agent being
required) and do not and will not violate, contravene or constitute a default
under any provision of applicable law or regulation or of the charter or by-laws
of the Collateral Agent or of any material agreement, judgment, injunction,
order, decree or other instrument binding upon the Collateral Agent.
(c) Binding Effect. This Collateral Agreement constitutes a
valid and binding agreement of the Collateral Agent enforceable against the
Collateral Agent in accordance with its terms.
5. Certain Covenants of the Pledgor.
The Pledgor agrees that, so long as any of its obligations
under the Purchase Agreement remain outstanding:
(a) Title to Collateral. The Pledgor shall at all times
hereafter have good and marketable title to the Collateral pledged by it, free
of all Liens (other than the Liens created by this Collateral Agreement) and
Transfer Restrictions [(other than as set forth in Section 3(a))],
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<PAGE>
and, subject to the terms of this Collateral Agreement, will at all times
hereafter have good, right and lawful authority to assign, transfer and pledge
such Collateral and all such additions thereto and substitutions therefor under
this Collateral Agreement.
(b) Pledge Value Requirement. The Pledgor shall cause the
aggregate Pledge Value of the Collateral to be equal to or greater than the
Pledge Value Requirement at all times, and shall pledge additional Collateral in
the manner described in Section 6(d) as necessary to cause such requirement to
be met.
(c) Pledge upon Reorganization Event. Upon the occurrence of
a Reorganization Event, the Pledgor shall immediately cause to be delivered to
the Collateral Agent, in the manner provided in Section 6(d): (i) cash in an
amount equal to 100% of Pledgor's Cash Delivery Obligations (or U.S. Government
Securities having an aggregate Market Value when pledged and at daily
mark-to-market valuations thereafter at least equal to 105% of the Cash Delivery
Obligations); and (ii) Marketable Securities in an amount at least equal to the
Maximum Deliverable Number thereof, or, at Pledgor's election, U.S. Government
Securities having an aggregate Market Value at least equal to 150% of such
Maximum Deliverable Number of Marketable Securities; in each case to be held as
substitute Collateral hereunder.
(d) Pledge of Purchase Agreement Consideration.
Notwithstanding the Pledgor's right to substitute Collateral pursuant to Section
6(b), the Pledgor shall cause the Collateral to include, on the Exchange Date,
unless a Reorganization Event shall have occurred, a number of shares of Class A
Common Stock at least equal to the number of shares of Class A Common Stock
required to be delivered under the Purchase Agreement on the Exchange Date.
(e) Further Assurances. The Pledgor shall, at its expense and
in such manner and form as the Trust or the Collateral Agent may reasonably
require, give, execute, deliver, file and record any financing statement,
notice, instrument, document, agreement or other papers that may be
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<PAGE>
necessary or desirable in order to create, preserve, perfect, substantiate or
validate any security interest granted pursuant hereto or to enable the
Collateral Agent to exercise and enforce its rights and the rights of the Trust
hereunder with respect to such security interest. To the extent permitted by
applicable law, the Pledgor hereby authorizes the Collateral Agent to execute
and file, in the name of the Pledgor or otherwise, UCC financing or continuation
statements (which may be carbon, photographic, photostatic or other
reproductions of this Agreement or of a financing statement relating to this
Agreement) which the Collateral Agent may reasonably deem necessary or
appropriate to further perfect, or maintain the perfection of, the security
interests granted hereby.
6. Administration of the Collateral and Valuation of the
Securities.
(a) Valuation of Collateral. The Collateral Agent shall
determine as of 4:00 p.m., New York City time, on each Business Day whether the
Pledge Value is at least equal to the Pledge Value Requirement and whether an
Insufficiency Determination or Collateral Event of Default shall have occurred
and, from and after any substitution of U.S. Government Securities for pledged
Class A Common Stock or Marketable Securities pursuant to paragraph (b) of this
Section 6, shall determine the Pledge Value and the Pledge Value Requirement on
each Business Day and shall provide written notice of the Pledge Value and the
Pledge Value Requirement, in the form of Exhibit A, to the Pledgor.
(b) Substitution of Collateral. Pledgor may substitute
Collateral in accordance with the following provisions:
(1) Unless an Event of Default or a failure by the Pledgor to
meet any of its obligations under Section 5(b) or (c) hereof has
occurred and is continuing, the Pledgor shall have the right at any
time and from time to time to deposit Eligible Collateral with the
Collateral Agent in substitution for Pledged Items previously deposited
hereunder
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<PAGE>
("Prior Collateral") and to obtain the release from the Lien hereof of
such Prior Collateral.
(2) If the Pledgor wishes to deposit Eligible Collateral with
the Collateral Agent in substitution for Prior Collateral, it shall (i)
give written notice to the Collateral Agent identifying the Prior
Collateral to be released from the Lien hereof, (ii) deliver to the
Collateral Agent concurrently with such Eligible Collateral a
certificate of the Pledgor substantially in the form of Exhibit B
hereto and dated the date of such delivery, (A) identifying the items
of Eligible Collateral being substituted for the Prior Collateral and
the Prior Collateral that is to be transferred to the Pledgor and (B)
certifying that the representations and warranties contained in such
Exhibit B hereto are true and correct on and as of the date thereof and
(iii) deliver to the Collateral Agent concurrently with such Eligible
Collateral an opinion (dated the date of such delivery) of counsel
addressed to the Collateral Agent confirming the representa tions
contained in the second sentence of para graph 3(b) of Exhibit B
hereto. The Pledgor hereby covenants and agrees to take all actions
required under Section 6(d) and any other actions necessary to create
for the benefit of the Collateral Agent a valid, first priority
perfected security interest in, and a first lien upon, such Eligible
Collateral deposited with the Collateral Agent in substitution for
Prior Collateral.
(3) No such substitution shall be made unless and until the
Collateral Agent shall have determined that the aggregate Pledge Value
of all of the Collateral at the time of such proposed substitution,
after giving effect to the proposed substitution, shall at least equal
the Pledge Value Requirement.
(c) Additional Collateral. The Pledgor may pledge additional
Collateral hereunder at any time.
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<PAGE>
Concurrently with the delivery of any additional Eligible Collateral, the
Pledgor shall deliver (i) a certificate of the Pledgor substantially in the form
of Exhibit C hereto and dated the date of such delivery, (A) identifying the
additional items of Eligible Collateral being pledged and (B) certifying that
with respect to such items of additional Eligible Collateral the representations
and warranties contained in such Exhibit C hereto are true and correct on and as
of the date thereof and (ii) an opinion, dated the date of such delivery, of
counsel addressed to the Collateral Agent confirming the representations
contained in the second sentence of paragraph 2(b) of Exhibit C hereto. The
Pledgor hereby covenants and agrees to take all actions required under Section
6(d) and any other actions necessary to create for the benefit of the Collateral
Agent a valid, first priority perfected security interest in, and a first lien
upon, such additional Eligible Collateral.
(d) Delivery of Collateral. The Pledgor shall deliver the
Collateral to the Collateral Agent in accordance with the following provisions:
(1) Pledged Class A Common Stock. In the case of Collateral
consisting of Class A Common Stock, by delivery to the Collateral Agent
of Class A Common Stock, registered in the name of the Collateral Agent
or its nominee or duly endorsed in blank or accompanied by stock powers
duly executed in blank;
(2) Pledged U.S. Government Securities. In the case of
Collateral consisting of U.S. Government Securities, by transfer
thereof through the Book Entry System of the Federal Reserve System to
the account of the Collateral Agent or to an account (other than an
account of the Pledgor) designated by the Collateral Agent; and
(3) Pledged Marketable Securities. In the case of Collateral
consisting of Marketable Securities, by delivery of certificates
evidencing such Marketable Securities, registered in the name of the
Collateral Agent or its nominee, together with undated stock
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<PAGE>
powers with respect thereto duly endorsed in blank, or, if such
Marketable Securities are not issuable in certificated form but are
held in book entry form by The Depository Trust Company, by transfer to
an account of the Collateral Agent or to an account (other than an
account of the Pledgor) designated by the Collateral Agent with The
Depository Trust Company. Each such delivery of Marketable Securities
shall be accompanied by an opinion of counsel satisfactory to the
Collateral Agent that the Collateral Agent has obtained a valid, first
priority perfected security interest in, and a first lien upon, such
Marketable Securities.
Upon delivery of any Pledged Item under this Collateral Agreement, the
Collateral Agent shall examine such Pledged Item and any opinions and
certificates delivered pursuant to Sections 6(b) or (c) or otherwise pursuant to
the terms hereof in connection therewith to determine that they comply as to
form with the requirements for Eligible Collateral. The Pledgor hereby
designates the Collateral Agent as the person in whose name any Collateral held
in book entry form in the Federal Reserve System shall be registered.
(e) Insufficiency Determination.
(1) If at 4:00 p.m., New York City time, on any Business Day
the Collateral Agent determines that the aggregate Pledge Value of the
Collateral is less than the Pledge Value Requirement (any such determination, an
"Insufficiency Determination"), the Collateral Agent shall promptly notify the
Pledgor of such determination by telephone call to an Authorized Representative
of the Pledgor followed by a written confirmation of such call.
(2) If, by 4:00 p.m., New York City time on the next Business
Day following the day on which telephonic notice shall have been given pursuant
to the preceding paragraph (e)(1), the Pledgor shall have failed to deliver, in
the manner set forth in paragraphs (c) and (d) of this Section 6, sufficient
additional Eligible Collateral so that, after giving effect to such delivery,
the aggregate Pledge Value of the Collateral, as of such next business
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<PAGE>
day, is at least equal to the Pledge Value Requirement, then (x) the Collateral
Requirement with respect to any U.S. Government Securities pledged hereunder
(other than in respect of Cash Delivery Obligations) shall be increased from
150% to 200%, and (y) unless a Collateral Event of Default shall have occurred
and be continuing, the Collateral Agent shall:
(i) commence sales, in the manner described in paragraph (3)
below, of such portion of the Collateral consisting of U.S. Government
Securities as may be required to be sold in order to generate proceeds
sufficient to purchase Class A Common Stock or, after a Reorganization
Event, Marketable Securities, as described in the following clause
(ii); and
(ii) commence purchases, in the manner described in paragraph
(3) below, of Class A Common Stock or, after a Reorganization Event,
Marketable Securities, in an amount sufficient to cause the aggregate
Pledge Value of the Collateral to be at least equal to the Pledge Value
Requirement.
Notwithstanding the foregoing, the Collateral Agent shall discontinue sales and
purchases pursuant to the preceding clauses (i) and (ii), respectively, if at
any time a Collateral Event of Default shall have occurred and be continuing.
The Collateral Agent shall determine the Market Value and the Pledge Value of
the Collateral after each purchase of Class A Common Stock or Marketable
Securities pursuant to the preceding clause (ii) in order to determine whether
the Pledge Value Requirement is met and whether a Collateral Event of Default
has occurred. Solely for purposes of such calculation, the Market Value of the
Class A Common Stock or Marketable Securities shall be: (A) the most recent
sales price as reported in the composite transactions for the principal
securities exchange on which the Class A Common Stock or Marketable Securities,
as the case may be, are then listed or, if such securities are not so listed,
the last quoted ask price for such securities in the over-the-counter market as
reported by The NASDAQ National Market or, if not so reported, by the National
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<PAGE>
Quotation Bureau or a similar organization; or (B) if higher, in the case of
Class A Common Stock, the most recent available Closing Price.
A "Collateral Event of Default" shall mean, at any time, the
occurrence of any of the following: (A) if no U.S. Government Securities shall
be pledged as substitute Collateral at such time, failure of the aggregate
Market Value of the Collateral to equal or exceed the Pledge Value Requirement;
(B) if any U.S. Government Securities shall be pledged as substitute Collateral
at such time, failure of the Market Value of any U.S. Government Securities
pledged at such time (not including any U.S. Government Securities pledged in
respect of Cash Delivery Obligations at such time) to have an aggregate Market
Value of at least 105% of the Market Value of a number of shares of Class A
Common Stock (or, from and after any Reorganization Event, Marketable
Securities) equal to (x) the Maximum Deliverable Number thereof minus (y) the
number thereof pledged as Collateral hereunder at such time; or (C) from and
after any Reorganization Event in which consideration other than Marketable
Securities shall have been delivered, failure of the U.S. Government Securities
pledged in respect of Cash Delivery Obligations to have an aggregate Market
Value at least equal to 105% of the Cash Delivery Obligations at such time, if,
in the case of a failure described in this clause (C), such failure shall
continue to be in effect at 4:00 p.m., New York City time, on the next Business
Day following the day on which telephonic notice in respect thereof shall have
been given pursuant to paragraph (e)(1) above. For purposes of this Agreement,
the portion of any pledged U.S. Government Securities that shall be deemed to be
in respect of Cash Delivery Obligations at any time shall be a portion having a
Market Value equal to 105% of the Cash Delivery Obligations at such time (or, if
less, the aggregate Market Value of all U.S. Government Securities pledged at
such time).
(3) Collateral sold and Class A Common Stock or shares of
Marketable Securities purchased by the Collateral Agent pursuant to the
preceding paragraphs (e)(1) and (2) may be sold and purchased on any securities
exchange or in
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<PAGE>
any over-the-counter market or in any private purchase transaction, and at such
price or prices, in each case as the Collateral Agent may deem satisfactory. The
Pledgor covenants and agrees that it will execute and deliver such documents and
take such other action as the Collateral Agent deems necessary or advisable in
order that any such sales and purchases may be made in compliance with law.
(f) Release of Excess Collateral. If on any Business Day the
Collateral Agent determines that the aggregate Pledge Value of the Pledgor's
Eligible Collateral exceeds the Pledge Value Requirement and no Event of Default
or failure by the Pledgor to meet any of its obligations under Sections 5 or 6
hereof has occurred and is continuing, the Pledgor may obtain the release from
the Lien hereof of any Collateral having an aggregate Pledge Value on such
Business Day less than or equal to such excess, upon delivery to the Collateral
Agent of a written notice from an Authorized Representative of the Pledgor
indicating the items of Collateral to be released. Such Collateral shall be
released only after the Collateral Agent shall have determined that the
aggregate Pledge Value of all of the Collateral remaining after such release as
determined on such Business Day is at least equal to the Pledge Value
Requirement.
(g) Delivery of Purchase Agreement Consideration. On the
Exchange Date, unless (i) a Reorganization Event shall have occurred prior
thereto or (ii) Seller shall have elected the Cash Settlement Alternative
pursuant to Section 1.3(d) of the Contract and made the cash payment required by
that Section, the Collateral Agent shall deliver to the Trust Class A Common
Stock then held by it hereunder representing the number of shares of Class A
Common Stock then required to be delivered under the Purchase Agreement. If a
Reorganization Event shall have occurred prior to the Exchange Date, then, (A)
if the consideration received by holders of Class A Common Stock in such
Reorganization Event does not include Marketable Securities, the Collateral
Agent shall deliver to the Trust all cash or other assets then held by the
Collateral Agent and required to be delivered under the Purchase Agreement; and
(B) in any other case, if
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so instructed by the Pledgor by the close of business on the Business Day
preceding the Exchange Date, the Collateral Agent shall deliver to the Trust, to
the extent permitted to be delivered in lieu of cash required to be delivered on
such date under Section 6.2 of the Purchase Agreement, the Marketable Securities
then held by the Collateral Agent hereunder. Upon such delivery, the Trust shall
hold such Class A Common Stock or Marketable Securities, as the case may be,
absolutely and free from any claim or right whatsoever.
(h) Investment of Cash Collateral. The Collateral Agent shall
invest any cash received by it pursuant to Section 6.2 of the Purchase Agreement
in U.S. Treasury Securities maturing on or before June __, 2001.
7. Income and Voting Rights on Collateral.
(a) Unless an Event of Default or failure by the Pledgor to
meet any of its obligations under Section 5(b) or (c) hereof has occurred and is
continuing, the Pledgor shall be entitled to receive for its own account all
dividends, interest and, if any, principal and premium relating to all of the
Collateral, unless the payment thereof to the Pledgor would reduce the aggregate
Pledge Value of the Collateral below the Pledge Value Requirement. The
Collateral Agent agrees to remit to the Pledgor on the Business Day received or
the first Business Day thereafter all such payments received by it. If an Event
of Default or failure by the Pledgor to meet any of its obligations under
Section 5(b) or (c) hereof has occurred and is continuing, all such payments
made or accrued after and during the continuance of such default or failure
shall be retained by the Collateral Agent, and any such payments which are
received by the Pledgor shall be received in trust for the benefit of the Trust,
shall be segregated from other funds of the Pledgor and shall forthwith be paid
over to the Collateral Agent. Any such payments so retained by, or paid over to,
the Collateral Agent shall be held by the Collateral Agent as Collateral
hereunder.
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(b) Unless an Event of Default has occurred and is continuing,
the Pledgor shall have the right, from time to time, to vote and to give
consents, ratifications and waivers with respect to the Collateral, and the
Collateral Agent shall, upon receiving a written request from the Pledgor,
deliver to the Pledgor or as specified in such request such proxies, powers of
attorney, consents, ratifications and waivers in respect of any of the
Collateral which is registered in the name of the Collateral Agent or its
nominee as shall be specified in such request and be in form and substance
satisfactory to the Collateral Agent.
If an Event of Default shall have occurred and be continuing,
the Collateral Agent shall have the right to the extent permitted by law, and
the Pledgor shall take all such action as may be necessary or appropriate to
give effect to such right, to vote and to give consents, ratifications and
waivers, and take any other action with respect to any or all of the Collateral
with the same force and effect as if the Collateral Agent were the absolute and
sole owner thereof.
8. Remedies upon Events of Default.
(a) If any Event of Default shall have occurred and be
continuing, the Collateral Agent may exercise on behalf of the Trust all the
rights of a secured party under the UCC (whether or not in effect in the
jurisdiction where such rights are exercised) and, in addition, without being
required to give any notice, except as herein provided or as may be required by
mandatory provisions of law, shall: (i) deliver all Collateral consisting of
Class A Common Stock or Marketable Securities (but not, in either case, in
excess of the number of shares thereof deliverable under the Purchase Agreement
at such time) to the Trust on the date of the Acceleration Notice relating to
such Event of Default (or, in the case of an Event of Default described in
clause (iii) or (iv) of the definition thereof, on the Exchange Date) (in either
case, the "Delivery Date"), whereupon the Trust shall hold such Class A Common
Stock or Marketable Securities absolutely free from any claim or
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right of whatsoever kind, including any equity or right of redemption of the
Pledgor which may be waived, and the Pledgor, to the extent permitted by law,
hereby specifically waives all rights of redemption, stay or appraisal which it
has or may have under any law now existing or hereafter adopted; and (ii) if
such delivery shall be insufficient to satisfy in full all of the obligations of
Pledgor under the Purchase Agreement, sell all of the remaining Collateral, or
such lesser portion thereof as may be necessary to generate proceeds sufficient
to satisfy in full all of the obligations of Pledgor under the Purchase
Agreement, at public or private sale or at any broker's board or on any
securities exchange, for cash, upon credit or for future delivery, and at such
price or prices as the Collateral Agent may deem satisfactory. The Pledgor
covenants and agrees that it will execute and deliver such documents and take
such other action as the Collateral Agent reasonably deems necessary or
advisable in order that any such sale may be made in compliance with law. Upon
any such sale the Collateral Agent shall have the right to deliver, assign and
transfer to the purchaser thereof the Collateral so sold. Each purchaser at any
such sale shall hold the Collateral so sold absolutely and free from any claim
or right of whatsoever kind, including any equity or right of redemption of the
Pledgor which may be waived, and the Pledgor, to the extent permitted by law,
hereby specifically waives all rights of redemption, stay or appraisal which it
has or may have under any law now existing or hereafter adopted. The notice (if
any) of such sale required by Article 9 of the UCC shall (1) in case of a public
sale, state the time and place fixed for such sale, (2) in case of sale at a
broker's board or on a securities exchange, state the board or exchange at which
such sale is to be made and the day on which the Collateral, or the portion
thereof so being sold, will first be offered for sale at such board or exchange,
and (3) in the case of a private sale, state the day after which such sale may
be consummated. Any such public sale shall be held at such time or times within
ordinary business hours and at such place or places as the Collateral Agent may
fix in the notice of such sale. At any such sale the Collateral may be sold in
one lot as an entirety or in separate parcels, as the Collateral Agent may
determine.
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The Collateral Agent shall not be obligated to make any such sale pursuant to
any such notice. The Collateral Agent may, without notice or publication,
adjourn any public or private sale or cause the same to be adjourned from time
to time by announcement at the time and place fixed for the sale, and such sale
may be made at any time or place to which the same may be so adjourned. In case
of any sale of all or any part of the Collateral on credit or for future
delivery, the Collateral so sold may be retained by the Collateral Agent until
the selling price is paid by the purchaser thereof, but the Collateral Agent
shall not incur any liability in case of the failure of such purchaser to take
up and pay for the Collateral so sold and, in case of any such failure, such
Collateral may again be sold upon like notice. The Collateral Agent, instead of
exercising the power of sale herein conferred upon it, may proceed by a suit or
suits at law or in equity to foreclose the security interests and sell the
Collateral, or any portion thereof, under a judgment or decree of a court or
courts of competent jurisdiction.
(b) Power of Attorney. Upon any delivery or sale of all or any
part of any Collateral made either under the power of delivery or sale given
hereunder or under judgment or decree in any judicial proceedings for
foreclosure or otherwise for the enforcement of this Collateral Agreement, the
Collateral Agent is hereby irrevocably appointed the true and lawful attorney of
the Pledgor, in the name and stead of the Pledgor, to make all necessary deeds,
bills of sale and instruments of assignment, transfer or conveyance of the
property thus delivered or sold. For that purpose the Collateral Agent may
execute all such documents and instruments. This power of attorney shall be
deemed coupled with an interest, and the Pledgor hereby ratifies and confirms
all that its attorneys acting under such power, or such attorneys' successors or
agents, shall lawfully do by virtue of this Collateral Agreement. If so
requested by the Collateral Agent, by the Trustees or by any purchaser of the
Collateral or a portion thereof, the Pledgor shall further ratify and confirm
any such delivery or sale by executing and delivering to the Collateral Agent,
to the Trustees or to such purchaser or purchasers at the expense of the
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Pledgor all proper deeds, bills of sale, instruments of assignment, conveyance
of transfer and releases as may be designated in any such request.
(c) Application of Collateral and Proceeds. In the case of an
Event of Default, the Collateral Agent may proceed to realize upon the security
interest in the Collateral against any one or more of the types of Collateral,
at any one time, as the Collateral Agent shall determine in its sole discretion
subject to the foregoing provisions of this Section 8. The proceeds of any sale
of, or other realization upon, or other receipt from, any of the remaining
Collateral shall be applied by the Collateral Agent in the following order of
priorities:
first, to the payment to the Trust of an amount equal to: (A)
the aggregate Market Value of a number of shares of Class A Common
Stock equal to (1) the number of shares of Class A Common Stock
required to be delivered under the Purchase Agreement on the Delivery
Date minus (2) the number of shares of Class A Common Stock delivered
by the Collateral Agent to the Trust on the Delivery Date as described
above; or (B) from and after a Reorganization Event, the sum of (1) the
Cash Delivery Obligations on the Delivery Date and (2) the aggregate
Market Value on the Delivery Date of a number of Marketable Securities
equal to (x) the number thereof permitted to be delivered on the
Delivery Date under Section 6.2 of the Purchase Agreement minus (y) the
number thereof delivered by the Collateral Agent to the Trust on the
Delivery Date as described above;
second, to the payment to the Collateral Agent of the expenses
of such sale or other realization, including reasonable compensation to
the Collateral Agent and its agents and counsel, and all expenses,
liabilities and advances incurred or made by the Collateral Agent in
connection therewith, including brokerage fees in connection with the
sale by the Collateral Agent of any Pledged Item; and
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<PAGE>
finally, if all of the obligations of the Pledgor hereunder
and under the Purchase Agreement have been fully discharged or
sufficient funds have been set aside by the Collateral Agent at the
request of the Pledgor for the discharge thereof, any remaining
proceeds shall be released to the Pledgor.
9. The Collateral Agent.
The Collateral Agent accepts its duties and responsibilities
hereunder as agent for the Trust, on and subject to the following terms and
conditions:
(a) Performance of Duties. The Collateral Agent undertakes to
perform such duties and only such duties as are expressly set forth herein and,
beyond the exercise of reasonable care in the performance of such duties, no
implied covenants or obligations shall be read into this Collateral Agreement
against the Collateral Agent. No provision hereof shall be construed to relieve
the Collateral Agent from liability for its own grossly negligent action,
grossly negligent failure to act or its own wilful misconduct, subject to the
following:
(1) The Collateral Agent may consult with counsel, and the
advice or opinion of such counsel shall be full and complete
authorization and protection in respect of an action taken or suffered
hereunder in good faith and in accordance with such advice or opinion
of counsel.
(2) The Collateral Agent shall not be liable with respect to
any action taken, suffered or omitted by it in good faith (i)
reasonably believed by it to be authorized or within the discretion or
rights or powers conferred on it by this Collateral Agreement or (ii)
in accordance with any direction or request of the Trustees.
(3) The Collateral Agent shall not be liable for any error of
judgment made in good faith by any of its
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officers, unless the Collateral Agent was grossly negligent in
ascertaining the pertinent facts.
(4) In the absence of bad faith on its part, the Collateral
Agent may conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon any note, notice,
resolution, consent, certificate, affidavit, letter, telegram, teletype
message, statement, order or other document believed by it to be
genuine and correct and to have been signed or sent by the proper
Person or Persons.
(5) No provision of this Collateral Agreement shall require
the Collateral Agent to expend or risk its own funds or otherwise incur
any financial liability in the performance of any of its duties
hereunder, or in the exercise of any of its rights or powers, if it
shall have reasonable grounds for believing that repayment of such
funds or adequate indemnity against such risk or liability is not
reasonably assured to it.
(6) The Collateral Agent may perform any duties hereunder
either directly or by or through agents or attorneys, and the
Collateral Agent shall not be responsible for any misconduct or
negligence on the part of any agent or attorney appointed with due care
by it hereunder. In furtherance thereof, any subsidiary owned or
controlled by the Collateral Agent, or its successors, as agent for the
Collateral Agent, may perform any or all of the duties of the
Collateral Agent relating to the valuation of securities and other
instruments constituting Collateral hereunder.
(7) In no event shall the Collateral Agent be personally
liable for any taxes or other governmental charges imposed upon or in
respect of (i) the collateral or (ii) the income or other distributions
thereon.
(8) Unless and until the Collateral Agent shall have received
notice from the Pledgor, or unless and
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until a Responsible Officer of the Collateral Agent shall have actual
knowledge to the contrary, the Collateral Agent shall be entitled to
deem and treat all Collateral delivered to it hereunder as Eligible
Collateral hereunder, provided that the Collateral Agent has carried
out the duties specified in Section 6 with respect to such Collateral
at the time of delivery thereof.
The Collateral Agent shall not be responsible for the correctness of the
recitals and statements herein which are made by the Pledgor or for any
statement or certificate delivered by the Pledgor pursuant hereto. Except as
specifically provided herein, the Collateral Agent shall not be responsible for
the validity, sufficiency, collectibility or marketability of any Collateral
given to or held by it hereunder or for the validity or sufficiency of the
Purchase Agreement or the Lien on the Collateral purported to be created hereby.
(b) Knowledge. The Collateral Agent shall not be deemed to
have knowledge of any Event of Default (except a Collateral Event of Default),
unless and until a Responsible Officer of the Collateral Agent shall have actual
knowledge thereof or shall have received written notice thereof.
(c) Merger. Any corporation or association into which the
Collateral Agent may be converted or merged, or with which it may be
consolidated, or to which it may sell or transfer its agency business and assets
as a whole or substantially as a whole, or any corporation or association
resulting from any such conversion, sale, merger, consolidation or transfer to
which it is a party, shall be and become a successor Collateral Agent hereunder
and vested with all of the title to the Collateral and all of the powers,
discretions, immunities, privileges and other matters as was its predecessor
without, except as provided above, the execution or filing of any instrument or
any further act, deed or conveyance on the part of any of the parties hereto,
anything herein to the contrary notwithstanding.
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(d) Resignation. The Collateral Agent and any successor
Collateral Agent may at any time resign by giving thirty days' written notice by
registered or certified mail to the Pledgor and notice to the Trust in
accordance with the provisions of Section 10(d) hereof. Such resignation shall
take effect upon the appointment of a successor Collateral Agent by the Trust.
(e) Removal. The Collateral Agent may be removed at any time
by an instrument or concurrent instruments in writing delivered to the
Collateral Agent and to the Pledgor and signed by the Trust.
(f) Appointment of Successor. (1) If the Collateral Agent
hereunder shall resign or be removed, or be dissolved or shall be in the course
of dissolution or liquidation or otherwise become incapable of action hereunder,
or if it shall be taken under the control of any public officer or officers or
of a receiver appointed by a court, a successor may be appointed by the Trust by
an instrument or concurrent instruments in writing signed by the Trust or by its
attorneys in fact fully authorized. A copy of such instrument or concurrent
instruments shall be sent by registered mail to the Pledgor.
(2) Every such temporary or permanent successor Collateral
Agent appointed pursuant to the provisions hereof shall be a trust company or
bank in good standing, having a reported capital and surplus of not less than
$100,000,000 and capable of holding the Collateral in the State of New York, if
there be such an institution willing, qualified and able to accept the duties of
the Collateral Agent hereunder upon customary terms.
(g) Acceptance by Successor. Every temporary or permanent
successor Collateral Agent appointed hereunder shall execute, acknowledge and
deliver to its predecessor and also to the Pledgor an instrument in writing
accepting such appointment hereunder, whereupon such successor, without any
further act, deed or conveyance, shall become fully vested with all the estates,
properties, rights, powers, duties and obligations of its predecessors. Such
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predecessor shall, nevertheless, on the written request of its successor or the
Pledgor, execute and deliver an instrument transferring to such successor all
the estates, properties, rights and powers of such predecessor hereunder. Every
predecessor Collateral Agent shall deliver all Collateral held by it as the
Collateral Agent hereunder to its successor. Should any instrument in writing
from the Pledgor be required by a successor Collateral Agent for more fully and
certainly vesting in such successor the estates, properties, rights, powers,
duties and obligations hereby vested or intended to be vested in the
predecessor, any and all such instruments in writing shall, at the request of
the temporary or permanent successor Collateral Agent, be forthwith executed,
acknowledged and delivered by the Pledgor.
10. Miscellaneous.
(a) Benefit of Agreement; Successors and Assigns. Whenever any
of the parties hereto is referred to, such reference shall be deemed to include
the successors and assigns of such party. All the covenants and agreements
herein contained by or on behalf of the Pledgor and the Collateral Agent shall
bind, and inure to the benefit of, their respective successors and assigns
whether so expressed or not, and shall be enforceable by and inure to the
benefit of the Trust and its successors and assigns.
(b) Separability. To the extent permitted by law, the
unenforceability or invalidity of any provision or provisions of this Collateral
Agreement shall not render any other provision or provisions herein contained
unenforceable or invalid.
(c) Amendments and Waivers. Any term, covenant, agreement or
condition of this Collateral Agreement may be amended or compliance therewith
may be waived (either generally or in a particular instance and either
retrospectively or prospectively) but only by a writing signed by the Collateral
Agent, the Pledgor and the Trust.
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(d) Notices. (1) Any notice provided for herein, unless
otherwise specified, shall be in writing (including transmittals by telex or
telecopier) and shall be given to a party at the address set forth opposite such
party's name on the signature pages hereto or at such other address as may be
designated by notice duly given in accordance with this Section 10(d) to each
other party hereto.
(2) Each such notice given pursuant to paragraph (1) shall be
effective (i) if sent by certified mail (return receipt requested), 72 hours
after being deposited in the United States mail, postage prepaid; (ii) if given
by telex or telecopier, when such telex or telecopied notice is transmitted; or
(iii) if given by any other means, when delivered at the address specified in
this Section 10(d).
(e) Governing Law. This Collateral Agreement shall in all
respects be construed in accordance with and governed by the laws of the State
of New York; provided that as to Pledged Items located in any jurisdiction other
than the State of New York, the Collateral Agent on behalf of the Trust shall
have all of the rights to which a secured party is entitled under the laws of
such other jurisdiction.
(f) Counterparts. This Collateral Agreement may be executed,
acknowledged and delivered in any number of counterparts and such counterparts
taken together shall constitute one and the same instrument.
11. Termination of Collateral Agreement.
This Collateral Agreement and the rights hereby granted by the
Pledgor in the Collateral shall cease, terminate and be void upon fulfillment of
all of the obligations of the Pledgor under the Purchase Agreement, and the
Pledgor shall have no further liability hereunder upon such termination. Any
Collateral remaining at the time of such termination (including any Class A
Common Stock held following Seller's election of the Cash Settlement Alternative
and payment in respect thereof pursuant to the Contract) shall be fully released
and discharged from the
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Lien hereof and delivered to the Pledgor by the Collateral Agent, all at the
expense of the Pledgor.
12. No Personal Liability of Trustees.
By executing this Collateral Agreement none of the Trustees
assumes any personal liability hereunder.
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<PAGE>
IN WITNESS WHEREOF, the Pledgor has caused this Collateral
Agreement to be duly executed on its behalf, and the Collateral Agent has caused
this Collateral Agreement to be duly executed on its behalf, as of the date
hereof.
PLEDGOR:
------------------
By
-------------------------------
Name:
Title:
Address for Notices:
---------------------
Attention:
-----------------------
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<PAGE>
COLLATERAL AGENT:
The Chase Manhattan Bank,
as Collateral Agent
By
-------------------------------
Name:
Title:
Address for Notices:
450 West 33rd Street
New York, New York 10001
Attention: Collateral Management
Services
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<PAGE>
THE TRUST:
ESTEE LAUDER AUTOMATIC COMMON
EXCHANGE SECURITY TRUST
---------------------------------
Donald J. Puglisi,
as Trustee
---------------------------------
William R. Latham III,
as Trustee
---------------------------------
James B. O'Neill,
as Trustee
Address for Notices:
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<PAGE>
Exhibit A
to
Collateral Agreement
NOTICE OF PLEDGE VALUE
To: [Name and Address of Seller]
The Chase Manhattan Bank, as Collateral Agent (the "Collateral
Agent") under the Collateral Agreement, dated as of June __, 1998 (the
"Collateral Agreement"), among the Pledgor, the Collateral Agent and Estee
Lauder Automatic Common Exchange Security Trust, hereby notifies you, pursuant
to Section 6(a) of the Collateral Agreement, that as of 4:00 p.m. New York City
time on _________ __, ____:
1. The Pledge Value was $__________; and
2. The Pledge Value Requirement was $__________.
Terms used and not otherwise defined herein shall have the
meanings set forth in the Collateral Agreement.
THE CHASE MANHATTAN BANK,
as Collateral Agent
By:
---------------------------------
Name:
Title:
<PAGE>
Exhibit B
to
Collateral Agreement
CERTIFICATE FOR SUBSTITUTED COLLATERAL
The undersigned, _____________ (the "Pledgor"), hereby
certifies, pursuant to Section 6(b) of the Collateral Agreement dated as of June
__, 1998 among the Pledgor, The Chase Manhattan Bank, as Collateral Agent, and
ESTEE LAUDER AUTOMATIC COMMON EXCHANGE SECURITY TRUST (the "Collateral
Agreement"; terms defined in the Collateral Agreement being used herein as
defined therein), that:
1. The Pledgor is delivering the following securities to the
Collateral Agent to be held by the Collateral Agent as substituted Collateral
(the "Substituted Collateral"):
2. The Pledgor requests that the Collateral Agent transfer to
the Pledgor the following Prior Collateral, pursuant to Section 6(b) of the
Collateral Agreement:
3. The Pledgor hereby represents and warrants to the
Collateral Agent and the Trust that:
(a) Consents to Transfer. No Transfer Restrictions exist with
respect to or otherwise apply to the assignment of, or transfer by the Pledgor
of possession of, any items of Substituted Collateral to the Collateral Agent
under the Collateral Agreement, or the subsequent sale or transfer of such items
of Substituted Collateral by the Collateral Agent pursuant to the terms of the
Collateral Agreement.
(b) Title to Collateral; Perfected Security Interest. The
Pledgor has good and marketable title to the Substituted Collateral, free of all
Liens (other than the Lien created by the Collateral Agreement) and Transfer
Restrictions. Upon delivery of the Collateral to the Collateral Agent, the
Collateral Agent will obtain a valid, first priority perfected security interest
in, and a first lien upon, such Substituted Collateral subject to no other
<PAGE>
Lien. None of such Substituted Collateral is or shall be
pledged by the Pledgor as collateral for any other purpose.
This Certificate may be relied upon by the Trust as fully and
to the same extent as if this Certificate had been specifically addressed to the
Trust.
IN WITNESS WHEREOF, the undersigned has executed this
Certificate this _____ day of ____________, ____.
-----------------------------------
Name:
Title:
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<PAGE>
Exhibit C
to
Collateral Agreement
CERTIFICATE FOR ADDITIONAL COLLATERAL
The undersigned, __________________ (the "Pledgor"), hereby
certifies, pursuant to Section 6(c) of the Collateral Agreement, dated as of
June __, 1998, among the Pledgor, The Chase Manhattan Bank, as Collateral Agent
and ESTEE LAUDER AUTOMATIC COMMON EXCHANGE SECURITY TRUST (the "Collateral
Agreement"; terms defined in the Collateral Agreement being used herein as
defined therein), that:
1. The Pledgor is delivering the following securities to the
Collateral Agent to be held by the Collateral Agent as additional Collateral
(the "Additional Collateral"):
2. The Pledgor hereby represents and warrants to the
Collateral Agent that:
(a) Consents to Transfer. No Transfer Restrictions exist with
respect to or otherwise apply to the assignment of, or transfer by the Pledgor
of possession of, any items of Additional Collateral to the Collateral Agent
under the Collateral Agreement, or the subsequent sale or transfer of such items
of Additional Collateral by the Collateral Agent pursuant to the terms of the
Collateral Agreement.
(b) Title to Collateral; Perfected Security Interest. The
Pledgor has good and marketable title to the Additional Collateral, free of all
Liens (other than the Lien created by the Collateral Agreement) and Transfer
Restrictions. Upon delivery of the Collateral to the Collateral Agent, the
Collateral Agent will obtain a valid, first priority perfected security interest
in, and a first lien upon, such additional Collateral subject to no other Lien.
None of such Additional Collateral is or shall be pledged by the Pledgor as
collateral for any other purpose.
This Certificate may be relied upon by the Trust as fully and
to the same extent as if this Certificate had been specifically addressed to the
Trust.
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this
Certificate this _____ day of ____________, ____.
-------------------------------
Name:
Title:
-2-
<PAGE>
Exhibit 2.l
SULLIVAN & CROMWELL
125 Broad Street
New York, New York 10004
(212) 558-4000
May 29, 1998
Estee Lauder Automatic Common Exchange Security Trust,
c/o Goldman, Sachs & Co.,
85 Broad Street,
New York, New York 10004.
Ladies and Gentlemen:
In connection with the registration under the Securities Act
of 1933 (the "Act") and the Investment Company Act of 1940 (the "Investment
Company Act") of the Trust Automatic Common Exchange Securities (the
"Securities") of Estee Lauder Automatic Common Exchange Security Trust, a New
York trust (the "Trust"), we, as your counsel, have examined such trust
records, certificates and other documents, and such questions of law, as we
have considered necessary or appropriate for the purposes of this opinion.
Upon the basis of such examination, we advise you that, in our opinion, when
the registration statement relating to the Securities (the "Registration
Statement") has become effective under the Act, the Trust's Amended and
Restated Trust Agreement has been duly executed and delivered by the parties
thereto, and the Securities have been duly issued and sold as contemplated by
the Registration Statement, the Securities will be validly issued, fully paid
and nonassessable.
The foregoing opinion is limited to the Federal
laws of the United States and the laws of the State of New
<PAGE>
CVS Automatic Common Exchange Security Trust -2-
York, and we are expressing no opinion as to the effect 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 reference to us under the
heading "Validity of Securities" in the Prospectus. In giving such consent, we
do not thereby admit that we are in a category of persons whose consent is
required under Section 7 of the Act.
Very truly yours,
/s/ Sullivan & Cromwell
<PAGE>
Exhibit 2.n.(i)
SULLIVAN & CROMWELL
125 Broad Street
New York, New York 10004
(212) 558-4000
May 28, 1998
Estee Lauder Automatic Common Exchange Security Trust,
c/o Goldman, Sachs & Co.,
85 Broad Street,
New York, New York 10004.
Dear Sirs:
We have acted as special tax counsel to Estee Lauder
Automatic Common Exchange Security Trust (the "Trust") in connection with the
Registration Statement on Form N-2 of the Trust filed with the Securities and
Exchange Commission (the "Registration Statement") and hereby confirm to you
our opinion as set forth under the heading "Certain Federal Income Tax
Considerations" in the Prospectus included in the Registration Statement.
We hereby consent to the filing with the Securities and Exchange
Commission of this letter as an exhibit to the Registration Statement and the
reference to us under the heading "Certain Federal Income Tax Considerations".
In giving such consent, we do not thereby admit that we are in the category of
persons whose consent is required under Section 7 of the Securities Act of
1933.
Very truly yours,
/s/ Sullivan & Cromwell
<PAGE>
Exhibit 2.n.(iii)
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form N-2
(Securities Act File No. 333-50597 and Investment Company Act File No.
811-08761) of our report dated May 29, 1998, on our audit of the statement of
assets and liabilities of Estee Lauder Automatic Common Exchange Security Trust.
We also consent to the reference to our firm under the caption "Experts."
/s/ Coopers & Lybrand L.L.P.
New York, New York
May 29, 1998
<PAGE>
Exhibit 2.n.(iv)
CONSENT TO BEING NAMED AS TRUSTEE
The undersigned hereby consents to being named in the Registration
Statement on Form N-2 of Estee Lauder Automatic Common Exchange Security Trust
(the "Trust") and any amendments thereto, as a person about to become a
trustee of the Trust.
Dated: May 29, 1998
/s/ Donald J. Puglisi
--------------------------------
Donald J. Puglisi
<PAGE>
CONSENT TO BEING NAMED AS TRUSTEE
The undersigned hereby consents to being named in the Registration
Statement on Form N-2 of Estee Lauder Automatic Common Exchange Security Trust
(the "Trust") and any amendments thereto, as a person about to become a
trustee of the Trust.
Dated: May 29, 1998
/s/ William R. Latham III
--------------------------------
William R. Latham III
<PAGE>
CONSENT TO BEING NAMED AS TRUSTEE
The undersigned hereby consents to being named in the Registration
Statement on Form N-2 of Estee Lauder Automatic Common Exchange Security Trust
(the "Trust") and any amendments thereto, as a person about to become a
trustee of the Trust.
Dated: May 29, 1998
/s/ James B. O'Neil
--------------------------------
James B. O'Neil
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ESTEE LAUDER
AUTOMATIC COMMON EXCHANGE SECURITY TRUST STATEMENT OF ASSETS AND LIABILITIES AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> MAY-26-1998
<PERIOD-END> MAY-26-1998
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 100
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 100
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 100
<SHARES-COMMON-STOCK> 1
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 100
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 0
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 0
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 100
<PER-SHARE-NAV-BEGIN> 100
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 100
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
