SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
THE ESTEE LAUDER COMPANIES INC.
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(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) filing Proxy Statement, if other that the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
1) Title of each class of securities to which transaction applies:
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2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee
is calculated and state how it was determined):
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4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement number,
of the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
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2) Form, Schedule or Registration Statement No.:
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3) Filing Party:
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4) Date Filed:
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The Estee Lauder Companies Inc.
767 Fifth Avenue
New York, NY 10153
Leonard A. Lauder
Chairman
[ESTEE LAUDER LOGO]
September 15, 2003
Dear Fellow Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders. It
will be held on Wednesday, November 5, 2003, at 10:00 a.m., local time, at The
Essex House in New York City.
The enclosed notice and proxy statement contain details concerning the
meeting. The Board of Directors recommends a vote "FOR" all the following items
of business:
1. Election of three Directors to serve until the 2006 Annual Meeting of
Stockholders;
2. Approval of the Executive Annual Incentive Plan; and
3. Ratification of the Audit Committee's appointment of KPMG LLP as
independent auditors for the 2004 fiscal year.
Please sign and return your proxy card in the enclosed envelope at your
earliest convenience to assure that your shares will be represented and voted at
the meeting even if you cannot attend.
I look forward to seeing you at the Annual Meeting.
/s/ Leonard A. Lauder
THE ESTEE LAUDER COMPANIES INC.
767 FIFTH AVENUE
NEW YORK, NEW YORK 10153
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
DATE AND TIME:
Wednesday, November 5, 2003, at 10:00 a.m., local time
PLACE:
The Essex House
Grand Salon
160 Central Park South
New York, New York 10019
ITEMS OF BUSINESS:
1. To elect three Directors to serve until the 2006 Annual Meeting of
Stockholders;
2. To approve the Executive Annual Incentive Plan; and
3. To ratify the Audit Committee's appointment of KPMG LLP as independent
auditors for the 2004 fiscal year.
We also will transact such other business as may properly come before the
meeting and any adjournments or postponements of the meeting.
WHO MAY VOTE?
Stockholders of record of the Class A Common Stock and Class B Common Stock
at the close of business on September 12, 2003 are entitled to notice of and to
vote at the meeting and any adjournments or postponements of the meeting.
ADMISSION TO THE MEETING:
ADMISSION TO THE MEETING WILL REQUIRE A TICKET. If you are a stockholder of
record and plan to attend, please check the appropriate box on the proxy card
and an admission ticket will be mailed to you. If you are a stockholder whose
shares are held through an intermediary such as a bank or broker and you plan to
attend, please request a ticket by writing to the Investor Relations Department
at The Estee Lauder Companies Inc., 767 Fifth Avenue, New York, New York 10153.
Evidence of your ownership, which you can obtain from your bank, broker or other
intermediary, must accompany your letter.
By Order of the Board of Directors
SARA E. MOSS
SENIOR VICE PRESIDENT,
GENERAL COUNSEL AND SECRETARY
New York, New York
September 15, 2003
YOU ARE URGED TO SIGN AND RETURN THE ENCLOSED PROXY PROMPTLY. IN THE EVENT
YOU DECIDE TO ATTEND THE MEETING, YOU MAY, IF YOU DESIRE, REVOKE THE PROXY AND
VOTE THE SHARES IN PERSON.
THE ESTEE LAUDER COMPANIES INC.
767 FIFTH AVENUE
NEW YORK, NEW YORK 10153
September 15, 2003
PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD NOVEMBER 5, 2003
This Proxy Statement is furnished in connection with the solicitation of
proxies on behalf of the Board of Directors of The Estee Lauder Companies Inc.
(the "Company", "we" or "us"), a Delaware corporation, to be voted at the Annual
Meeting of Stockholders to be held in the Grand Salon at The Essex House, 160
Central Park South, New York, New York, on Wednesday, November 5, 2003, at 10:00
a.m., local time, and at any adjournment or postponement of the meeting.
All proxies delivered pursuant to this solicitation are revocable at any
time before they are exercised at the option of the persons signing them by
giving written notice to the Secretary of the Company, by delivering a
later-dated proxy or by voting in person at the Annual Meeting. The mailing
address of our principal executive offices is 767 Fifth Avenue, New York, New
York 10153. The approximate date on which this Proxy Statement and form of proxy
are first being sent or given to stockholders is October 1, 2003.
All properly signed proxies delivered pursuant to this solicitation and not
revoked will be voted at the Annual Meeting in accordance with the directions
given. In the election of Directors to serve until the Annual Meeting of
Stockholders in 2006, stockholders may vote in favor of all nominees or withhold
their votes as to any or all nominees. Regarding the other proposals to be voted
upon, stockholders may vote in favor of a proposal, may vote against a proposal
or may abstain from voting. Stockholders should specify their choices on the
enclosed form of proxy. If no specific instructions are given, the shares
represented by a signed proxy will be voted:
1. FOR the election of all nominees as Director;
2. FOR the approval of the Executive Annual Incentive Plan; and
3. FOR the ratification of the appointment of KPMG LLP as independent
auditors.
Directors will be elected by a plurality of the votes cast by the holders
of the shares of Class A Common Stock and Class B Common Stock voting in person
or by proxy at the Annual Meeting. Under our bylaws, approval of the Executive
Annual Incentive Plan and ratification of the appointment of KPMG LLP each
requires the affirmative vote of a majority of the votes cast "For" and
"Against" the proposal by holders of Class A Common Stock and Class B Common
Stock. Accordingly, abstentions and broker non-votes, while not included in
calculating vote totals for this proposal, will have the practical effect of
reducing the number of "For" votes needed to approve it.
Only owners of record of shares of Class A Common Stock and Class B Common
Stock at the close of business on September 12, 2003 are entitled to vote at the
Annual Meeting or adjournments or postponements of the meeting. Each owner of
record of Class A Common Stock on the record date is entitled to one vote for
each share of Class A Common Stock so held. Each owner of record of Class B
Common Stock on the record date is entitled to ten votes for each share of Class
B Common Stock so held. On September 12, 2003, there were 120,840,387 shares of
Class A Common Stock and 107,162,533 shares of Class B Common Stock issued and
outstanding.
A list of stockholders as of the close of business on September 12, 2003
will be available for inspection during normal business hours from October 22,
2003 through November 4, 2003, at the office of Spencer G. Smul, Associate
Counsel and Assistant Secretary of the Company, at 767 Fifth Avenue, New York,
New York 10153.
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ELECTION OF DIRECTORS
(ITEM 1)
BOARD OF DIRECTORS
The Board of Directors has fixed the number of Directors at ten. The
Directors are divided into three classes, each serving for a period of three
years.
The stockholders elect approximately one-third of the members of the Board
of Directors annually. The Directors whose terms will expire at the 2003 Annual
Meeting of Stockholders are Irvine O. Hockaday, Jr., Fred H. Langhammer, and
Rose Marie Bravo, each of whom has been nominated to stand for reelection as a
Director at the 2003 Annual Meeting, to hold office until the 2006 Annual
Meeting and until his or her successor is elected and qualifies.
In the unanticipated event that one or more of these nominees is unable or
declines to serve for any reason, the Board of Directors may reduce the number
of Directors or may designate a substitute nominee or nominees, in which event
the persons named in the enclosed proxy will vote proxies for the election of
such substitute nominee or nominees.
THE BOARD RECOMMENDS A VOTE FOR EACH NOMINEE AS A DIRECTOR TO HOLD OFFICE
UNTIL THE 2006 ANNUAL MEETING. PROXIES RECEIVED BY THE BOARD WILL BE SO VOTED
UNLESS A CONTRARY CHOICE IS SPECIFIED IN THE PROXY.
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NOMINEES FOR ELECTION TO TERM EXPIRING 2006 (CLASS I)
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Irvine O. Hockaday, Jr. Director since 2001
Age 67
[PHOTO] Mr. Hockaday is the former President and Chief Executive
Officer of Hallmark Cards, Inc. He retired in December
2001. Prior to joining Hallmark in 1983, he was
President and Chief Executive Officer of Kansas City
Southern Industries, Inc. Mr. Hockaday was a member of
the Hallmark Board of Directors from 1978 until January
2002. He is a director of the Ford Motor Company
(Chairman of the Audit Committee since 1997), Dow Jones
& Co., Inc. (member of the Audit Committee from 1990
until 1995), Sprint Corp. (Lead Independent Director
since 2003; member of the Audit Committee from 1997
until 2000), Aquila, Inc., and Crown Media Holdings. He
is a trustee emeritus of the Aspen Institute.
Mr. Hockaday is Chairman of the Audit Committee.
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Fred H. Langhammer Director since 1996
Age 59
[PHOTO] Mr. Langhammer has been Chief Executive Officer since
2000 and President of the Company since 1995. He was
Chief Operating Officer from 1985 through 1999. Mr.
Langhammer joined the Company in 1975 as President of
its operations in Japan and, in 1982, he was appointed
Managing Director of the Company's operations in
Germany. He is a member of the Board of Directors of The
Gillette Company, Inditex, S.A. (an apparel manufacturer
and retailer), The Germany Fund, Inc., the Cosmetics,
Toiletries and Fragrance Association, and the German
American Chamber of Commerce, Inc., and Co-Chairman of
the American Institute for Contemporary German Studies
at Johns Hopkins University. He is also a Senior Fellow
of the Foreign Policy Association and a Director of the
Japan Society.
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Rose Marie Bravo Director Since 2003
Age 52
[PHOTO] Ms. Bravo is Chief Executive of Burberry Group Plc.
Prior to her appointment at Burberry in 1997, Ms. Bravo
was President of Saks Fifth Avenue from 1992, with
responsibility for merchandising, marketing and product
development. From 1974 to 1992, Ms. Bravo held a number
of positions at R.H. Macy & Co., culminating as Chairman
and Chief Executive Officer of the U.S. retailer, I.
Magnin from 1987 to 1992. Ms. Bravo is a member of the
Board of Directors of Tiffany & Co. and Burberry Limited
and serves as a trustee of Fordham University.
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INCUMBENT DIRECTORS - TERM EXPIRING 2004 (CLASS II)
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Lynn Forester de Rothschild Director since 2000
Age 49
[PHOTO] Lady de Rothschild is Founder and Chief Executive
Officer of ELR Holdings, Ltd., a private investment
company. From 1990 to 2002, Lady de Rothschild was
President and Chief Executive Officer of FirstMark
Holdings, Inc., which owned and managed various
telecommunications companies. She was Executive Vice
President for Development at Metromedia
Telecommunications, Inc. from 1984 to1989. She began her
career in 1980 as an associate at the law firm of
Simpson, Thacher and Bartlett, where she practiced
corporate law. Lady de Rothschild is a director of The
Economist Newspaper Limited. She is also a trustee of
the American Fund for the Tate Gallery, the Outward
Bound Trust (UK) and The Old Vic Theatre Trust. Lady de
Rothschild is a member of the Council on Foreign
Relations and the Foreign Policy Association, and she
served as a member of the National Information
Infrastructure Advisory Committee and the Secretary of
Energy Advisory Board under President Clinton.
Lady de Rothschild is Chairman of the Nominating and
Board Affairs Committee and is a member of the Audit
Committee, the Compensation Committee and the Stock Plan
Subcommittee.
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William P. Lauder Director since 1996
Age 43
[PHOTO] Mr. Lauder became Chief Operating Officer of the Company
in January 2003. From July 2001 through December 2002,
he was Group President responsible for the worldwide
business of Clinique and Origins and the Company's
retail store and on-line operations. From 1998 to 2001,
he was President of Clinique Laboratories, Inc. Prior to
1998, he was President of Origins Natural Resources
Inc., and he had been the senior officer of that
division since its inception in 1990. Prior thereto, he
served in various positions since joining the Company in
1986. He is a member of the Board of Trustees of The
Trinity School in New York City and the Boards of
Directors of The Fragrance Foundation, the Fresh Air
Fund and the 92nd Street Y.
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Richard D. Parsons Director since 1999
Age 55
[PHOTO] Mr. Parsons is Chairman (since May 2003) and Chief
Executive Officer (since May 2002) of AOL Time Warner
Inc. From January 2001 until May 2002, he was Co-Chief
Operating Officer of AOL Time Warner. From 1995 until
the merger with America On-Line Inc., he was President
of Time Warner Inc. From 1990 through 1994, he was
Chairman and Chief Executive Officer of Dime Bancorp,
Inc. Mr. Parsons is a director of AOL Time Warner Inc.
and Citigroup. Among his numerous community activities,
he is Chairman of the Apollo Theatre Foundation, and
serves on the boards of the Colonial Williamsburg
Foundation and the Museum of Modern Art. He is also a
trustee of Howard University.
Mr. Parsons is Chairman of the Compensation Committee
and a member of the Nominating and Board Affairs
Committee.
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INCUMBENT DIRECTORS - TERM EXPIRING 2005 (CLASS III)
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Charlene Barshefsky Director since 2001
Age 53
[PHOTO] Ambassador Barshefsky is Senior International Partner at
the law firm of Wilmer, Cutler & Pickering in
Washington, D.C. Prior to joining the law firm, she was
the United States Trade Representative from March 1997
until January 2001 and Deputy United States Trade
Representative and Acting United States Trade
Representative from June 1993 until March 1997. From
February 2001 until July 2001, Ambassador Barshefsky was
a Public Policy Scholar at the Woodrow Wilson
International Center for Scholars in Washington, D.C.
Ambassador Barshefsky is also a director of American
Express Company, Starwood Hotels & Resorts Worldwide,
Inc., and Idenix Pharmaceuticals, Inc. and is a member
of Intel Corporation's Policy Advisory Board.
Ambassador Barshefsky is a member of the Audit
Committee.
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Leonard A. Lauder Director since 1958
Age 70
[PHOTO] Mr. Lauder has been Chairman of the Board of Directors
of the Company since 1995. He served as Chief Executive
Officer of the Company from 1982 through 1999 and as
President from 1972 until 1995. Mr. Lauder formally
joined the Company in 1958 after serving as an officer
in the United States Navy. Since joining the Company, he
has held various positions, including executive officer
positions other than those described above. He is
Chairman of the Board of Trustees of the Whitney Museum
of American Art, a Charter Trustee of the University of
Pennsylvania and a Trustee of The Aspen Institute. He
served as a member of the White House Advisory Committee
on Trade Policy and Negotiations under President Reagan.
Mr. Lauder is a member of the Nominating and Board
Affairs Committee.
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Ronald S. Lauder Director since 1988 and
From 1968 to 1986
Age 59
[PHOTO] Mr. Lauder has served as Chairman of Clinique
Laboratories, Inc. since returning from government
service in 1987 and was Chairman of Estee Lauder
International, Inc. from 1987 through 2002. Mr. Lauder
joined the Company in 1964 and has served in various
capacities. From 1983 to 1986, Mr. Lauder served as
Deputy Assistant Secretary of Defense for European and
NATO Affairs. From 1986 to 1987, he was U.S. Ambassador
to Austria. He is non-executive Chairman of the Board of
Directors of Central European Media Enterprises Ltd. He
is also Chairman of the Board of Trustees of the Museum
of Modern Art.
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Marshall Rose Director since 1996
Age 66
[PHOTO] Mr. Rose has been the Chairman of the Board of The
Georgetown Group, a privately held real estate
development and financial service firm, since 1978. He
is a director of One Liberty Properties Inc. Among his
numerous civic activities, he is Chairman Emeritus of
The New York Public Library, a director and member of
the Executive Committee of Bryant Park Restoration
Corporation, a director and member of the Executive
Committee of the Board of Advisors of the Graduate
School and University Center of the City University of
New York, and a Director of Lincoln Center.
Mr. Rose is a member of the Compensation Committee and
the Stock Plan Subcommittee.
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5
OWNERSHIP OF SHARES
The following table sets forth certain information regarding the beneficial
ownership of the Company's Class A Common Stock and Class B Common Stock as of
September 12, 2003 (or such other date specified in the notes to the table) by
(i) each person known by the Company to own beneficially more than 5% of the
outstanding shares of either Class A Common Stock or Class B Common Stock, (ii)
each of the Company's directors, (iii) each of the executive officers whose
names appear in the summary compensation table, and (iv) all directors and
executive officers as a group. Except as set forth in the notes to the table,
the business address of each 5% stockholder is 767 Fifth Avenue, New York, New
York 10153. AS DESCRIBED IN THE NOTES TO THE TABLE, THE NAMED INDIVIDUALS SHARE
VOTING AND/OR INVESTMENT POWER WITH RESPECT TO CERTAIN SHARES OF COMMON STOCK.
CONSEQUENTLY, SUCH SHARES ARE SHOWN AS BENEFICIALLY OWNED BY MORE THAN ONE
PERSON.
CLASS B VOTING
CLASS A COMMON STOCK (1) COMMON STOCK POWER++
------------------------------------------ ----------------- -------
SHARES
UNDERLYING
DIRECTORS, EXECUTIVE OFFICERS STOCK EXERCISABLE
AND 5% STOCKHOLDERS NUMBER % UNITS (2) OPTIONS (#) NUMBER % %
------------------------------------ ---------- ---- --------- ----------- ----------- ---- -----
The Estee Lauder 2002 Trust (3) ....... -- -- -- -- 10,188,803 9.5 8.5
Leonard A. Lauder (3)(4) .............. 10,463,127 8.7 -- 3,421,302 56,740,497 52.9 48.5
Ronald S. Lauder (3)(5) ............... 2,317,552 1.9 -- 1,050,002 37,043,694 34.6 31.3
The Estee Lauder 1994 Trust (3)(6) .... 4,498,951 3.7 -- -- 2,001,049 1.9 2.1
Ira T. Wender, as trustee (3)(7) ...... 118,564 0.1 -- -- 14,034,957 13.1 11.8
William P. Lauder (3)(8) .............. 3,618,984 3.0 -- 329,000 6,093,254 5.7 5.4
Gary M. Lauder (3)(9) ................. 2,575,945 2.1 -- -- 3,852,086 3.6 3.4
Joel S. Ehrenkranz,
as trustee (3)(10) .................. 2,152,266 1.8 -- -- 7,675,370 7.2 6.6
Richard D. Parsons, individually and
as trustee (3)(11) .................. 4,017,605 3.3 -- 21,698 20,304,638 18.9 17.4
Fred H. Langhammer (12) ............... 100,050 0.1 362,751 2,026,502 -- -- *
Charlene Barshefsky (13) .............. 2,000 * -- 15,025 -- -- *
Rose Marie Bravo (14) ................. 2,000 * -- -- -- -- *
Lynn Forester de Rothschild (15) ...... 2,000 * 6,240 15,025 -- -- *
Irvine O. Hockaday, Jr. (16) .......... 3,000 * 8,711 12,325 -- -- *
Marshall Rose (17) .................... 20,449 * 10,107 16,673 -- -- *
Patrick Bousquet-Chavanne (18) ........ 1,322 * -- 249,000 -- -- *
Daniel J. Brestle (19) ................ 5,367 * -- 365,666 -- -- *
All directors and executive officers
as a group (20 persons) (20) ........ 12,414,480 10.3 387,808 8,019,650 102,300,972 95.5 86.8
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++ Voting power represents combined voting power of Class A Common Stock (one
vote per share) and Class B Common Stock (10 votes per share) owned
beneficially by such person or persons. Excludes stock options and stock
units.
* Less than 0.1%.
(1) Each share of Class B Common Stock is convertible at the option of the
holder into one share of Class A Common Stock and is automatically
converted into a share of Class A Common Stock upon transfer to a person
who is not a Lauder Family Member (as defined below). The number of shares
of Class A Common Stock and percentages contained under this heading do
not account for such conversion right.
(2) The stock units beneficially owned by Mr. Langhammer are payable in a like
number of shares of Class A Common Stock. The stock units beneficially
owned by Lady de Rothschild and certain of those beneficially owned by Mr.
Hockaday and Mr. Rose are to be paid out in cash and represent a deferral
of retainers and meeting fees. The remaining stock units beneficially
owned by Mr. Hockaday and Mr. Rose represent the stock portion of their
annual retainers plus dividend equivalents. Such units will be settled in
shares of Class A Common Stock. Amounts are rounded to the nearest whole
unit. See notes (15) through (17).
6
(3) Leonard A. Lauder, Ronald S. Lauder, William P. Lauder, Gary M. Lauder,
each individually and as trustees of various trusts, Ira T. Wender, as
trustee, Joel S. Ehrenkranz, as trustee, and Richard D. Parsons, as
trustee, are parties to a Stockholders' Agreement, pursuant to which each
has agreed to vote his or the trust's shares for the election of Leonard
A. Lauder, Ronald S. Lauder and their respective designees as directors of
the Company. See notes (4), (5), and (7) through (11) for certain
exceptions. Shares owned by each such individual are not attributed to the
others by reason of such voting arrangement.
(4) Includes shares owned beneficially or deemed to be owned beneficially by
Leonard A. Lauder as follows: 5,369,169 shares of Class A Common Stock
directly and with respect to which he has sole voting and investment power
(including 2,894,986 shares of Class A Common Stock which are owed to
Leonard A. Lauder by Ronald S. Lauder; such loan is secured by a pledge of
2,894,986 shares of Class B Common Stock); 3,279,302 shares of Class A
Common Stock and 42,705,540 shares of Class B Common Stock as the majority
stockholder of the sole general partner of a limited partnership and with
respect to which he has sole voting and investment power; 10,188,803
shares of Class B Common Stock as co-trustee of The Estee Lauder 2002
Trust with respect to which he shares voting power with Ronald S. Lauder,
as co-trustee, and investment power with Ronald S. Lauder and Ira T.
Wender, as co-trustees; 1,095,410 shares of Class A Common Stock as
co-trustee of the Estee Lauder 2001 Charitable Trust with respect to which
he shares voting power with Ronald S. Lauder; 15,384 shares of Class A
Common Stock and 3,846,154 shares of Class B Common Stock as an individual
general partner of a limited partnership and as co-trustee of a trust (the
"LAL Trust"), which is a general partner of the same limited partnership,
and with respect to which he shares voting power with Ronald S. Lauder,
who also is an individual general partner of the limited partnership and
co-trustee of another trust (the "RSL Trust"), which is a general partner
of the limited partnership, and with respect to which he shares investment
power with Ronald S. Lauder, as an individual general partner of the
limited partnership and as co-trustee of the RSL Trust, Richard D. Parsons
and Ira T. Wender, as co-trustees of the RSL Trust, and Joel S. Ehrenkranz
and Ira T. Wender, as co-trustees of the LAL Trust; 313,862 shares of
Class A Common Stock as a director of The Lauder Foundation and with
respect to which he shares voting and investment power; and 390,000 shares
of Class A Common Stock owned by Evelyn H. Lauder. Shares owned by the
Estee Lauder 2001 Charitable Trust, Evelyn H. Lauder and The Lauder
Foundation are not subject to the Stockholders' Agreement. Leonard A.
Lauder disclaims beneficial ownership of the shares of Class A Common
Stock owned by The Lauder Foundation and Evelyn H. Lauder. Exercisable
options include options with respect to 121,300 shares granted to Evelyn
H. Lauder. In addition, Leonard A. Lauder has options with respect to
another 999,998 shares granted to him pursuant to his prior employment
agreement that are not yet exercisable. Evelyn H. Lauder has options with
respect to another 33,700 shares granted to her pursuant to the Company's
share incentive plans that are not yet exercisable. Leonard A. Lauder is
also trustee and beneficiary of a trust that owns 683,980 shares of the
Company's $6.50 Cumulative Redeemable Preferred Stock.
(5) Includes shares owned beneficially or deemed to be owned beneficially by
Ronald S. Lauder as follows: 500,000 shares of Class A Common Stock and
23,005,555 shares of Class B Common Stock directly and with respect to
which he has sole voting and investment power; 3,182 shares of Class A
Common Stock and 3,182 shares of Class B Common Stock as sole trustee of a
trust for the benefit of his children and with respect to which he has
sole voting and investment power; 10,188,803 shares of Class B Common
Stock as co-trustee of The Estee Lauder 2002 Trust with respect to which
he shares voting power with Leonard A. Lauder, as co-trustee, and with
respect to which he shares investment power with Leonard A. Lauder and Ira
T. Wender, as co-trustees; 1,095,410 shares of Class A Common Stock as
co-trustee of the Estee Lauder 2001 Charitable Trust with respect to which
he shares voting power with Leonard A. Lauder; 15,384 shares of Class A
Common Stock and 3,846,154 shares of Class B Common Stock as an individual
general partner of a limited partnership and as co-trustee of the RSL
Trust, which is a general partner of the same limited partnership, and
with respect to which he shares voting power with Leonard A. Lauder, who
also is an individual general partner of the limited partnership and
co-trustee of the LAL Trust, which is a general partner of the limited
partnership, and investment power with Leonard A. Lauder, as an individual
general partner of the limited partnership and as co-trustee of the LAL
Trust, Richard D. Parsons and Ira T. Wender, as co-trustees of the RSL
Trust, and Joel S. Ehrenkranz and Ira T. Wender, as co-trustees of the LAL
Trust; 313,862 shares of Class A Common Stock as a director of The Lauder
Foundation and with respect to which he shares voting and investment
power; 36,457 shares of Class A Common Stock as a Director of the
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Ronald S. Lauder Foundation with respect to which he shares voting and
investment power; 230,000 shares of Class A Common Stock as a Director
of the Neue Galerie New York and with respect to which he shares voting
and investment power; and 123,257 shares of Class A Common Stock as a
Director of The Jewish Renaissance Foundation with respect to which he
shares voting and investment power. Shares owned by the Estee Lauder 2001
Charitable Trust, The Lauder Foundation, Neue Galerie New York and The
Jewish Renaissance Foundation are not subject to the Stockholders'
Agreement. Ronald S. Lauder disclaims beneficial ownership of the shares
of Class A Common Stock and Class B Common Stock owned by trusts for the
benefit of one or more of his children, The Lauder Foundation, the Ronald
S. Lauder Foundation, Neue Galerie New York and The Jewish Renaissance
Foundation. Ronald S. Lauder borrowed shares of Class A Common Stock from
certain Family Controlled Trusts (as defined below) and Leonard A. Lauder,
which he sold in the Company's initial public offering. Ronald S. Lauder
is obligated to repay the outstanding loans, which in the aggregate are
currently in respect of 6,394,986 shares of Class A Common Stock, by
delivering to the lending Family Controlled Trusts and Leonard A. Lauder
shares equal in number to the borrowed shares. This obligation is secured
by pledges of 500,000 shares of Class A Common Stock and 5,894,986 shares
of Class B Common Stock owned by Ronald S. Lauder as to which he has sole
voting power and shares investment power with the respective pledgees.
17,110,569 shares of Class B Common Stock are pledged by Mr. Lauder to
secure loans under a loan facility with a group of banks. Ronald S. Lauder
also has options with respect to 249,998 shares granted to him pursuant to
his prior employment agreement that are not yet exercisable.
(6) Ronald Weintraub is the sole trustee of The Estee Lauder 1994 Trust and
has sole voting and investment power with respect to all shares of Class A
Common Stock and Class B Common Stock owned by such trust. The shares of
Class A Common Stock are pledged to JP Morgan Securities Inc. in
connection with delivery obligations under a forward purchase contract
sold by the trust to JP Morgan Securities Inc. The trust also owns
2,916,000 shares of the Company's $6.50 Cumulative Redeemable Preferred
Stock, which are pledged to secure loans from a group of banks. The shares
owned by the trust are not subject to the Stockholders' Agreement. The
address of the trust is c/o George E.B. Maguire, Debevoise & Plimpton, 919
Third Avenue, New York, New York 10021.
(7) Includes shares owned beneficially or deemed to be owned beneficially by
Ira T. Wender as follows: 3,000 shares of Class A Common Stock owned by
his wife; 10,188,803 shares of Class B Common Stock as co-trustee of The
Estee Lauder 2002 Trust and with respect to which he shares investment
power with Leonard A. Lauder and Ronald S. Lauder; 15,384 shares of Class
A Common Stock and 3,846,154 shares of Class B Common Stock as co-trustee
of the LAL Trust and as co-trustee of the RSL Trust, which trusts are
general partners of a limited partnership, which owns the shares and with
respect to which he shares investment power with Leonard A. Lauder, as
co-trustee of the LAL Trust and as an individual general partner of the
limited partnership, Ronald S. Lauder, as co-trustee of the RSL Trust and
as an individual general partner of the limited partnership, Joel S.
Ehrenkranz, as co-trustee of the LAL Trust, and Richard D. Parsons, as
co-trustee of the RSL Trust; and 100,180 shares of Class A Common Stock
with respect to which he has sole voting power as sole trustee of the RSL
4201 Trust. Mr. Wender disclaims beneficial ownership of such shares.
Shares owned by the RSL 4201 Trust are not subject to the Stockholders'
Agreement. Mr. Wender's business address is 1133 Avenue of the Americas,
New York, New York 10036.
(8) Includes shares owned beneficially or deemed to be owned beneficially by
William P. Lauder as follows: 1,168,240 shares of Class A Common Stock and
2,264,038 shares of Class B Common Stock directly and with respect to
which he has sole voting and investment power; 2,136,882 shares of Class A
Common Stock and 3,829,216 shares of Class B Common Stock as co-trustee of
a trust and with respect to which he shares voting power with Gary M.
Lauder, as co-trustee, and investment power with Gary M. Lauder and Joel
Ehrenkranz, as co-trustees; and 313,862 shares of Class A Common Stock as
a director of The Lauder Foundation and with respect to which he shares
voting and investment power. Shares owned by The Lauder Foundation are not
subject to the Stockholders' Agreement. William P. Lauder disclaims
beneficial ownership with respect to shares of Class A Common Stock owned
by The Lauder Foundation. William P. Lauder also has options with respect
to 501,000 shares of Class A Common Stock granted to him pursuant to the
Company's share incentive plans that are not yet exercisable.
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(9) Includes shares owned beneficially or deemed to be owned beneficially by
Gary M. Lauder as follows: 70,375 shares of Class A Common Stock directly
and with respect to which he has sole voting and investment power; 363,454
shares of Class A Common Stock as sole trustee of the Gary M. Lauder 2000
Revocable Trust as to which he has sole voting and investment power;
2,136,882 shares of Class A Common Stock and 3,829,216 shares of Class B
Common Stock as co-trustee of a trust and with respect to which he shares
voting power with William P. Lauder, as co-trustee, and investment power
with William P. Lauder and Joel Ehrenkranz, as co- trustees; and 5,234
shares of Class A Common Stock and 22,870 shares of Class B Common Stock
as custodian for his nieces. Mr. Lauder disclaims beneficial ownership of
the shares held by him as custodian. Gary M. Lauder's business address is
ICTV Inc., 14600 Winchester Boulevard, Los Gatos, California 95030.
(10) Includes shares owned beneficially or deemed to be owned beneficially by
Joel S. Ehrenkranz as follows: 2,136,882 shares of Class A Common Stock
and 3,829,216 shares of Class B Common Stock as co-trustee of a trust and
with respect to which he shares investment power with William P. Lauder
and Gary M. Lauder, as co-trustee; and 15,384 shares of Class A Common
Stock and 3,846,154 shares of Class B Common Stock as co-trustee of the
LAL Trust, which is a general partner of a limited partnership, which owns
the shares and with respect to which he shares investment power with
Leonard A. Lauder, who is an individual general partner of the limited
partnership and also a co-trustee of the LAL Trust, Ronald S. Lauder, who
is an individual general partner of the limited partnership and also a
co-trustee of the RSL Trust, Richard D. Parsons and Ira T. Wender, as
co-trustees of the RSL Trust, and Ira T. Wender, as co-trustee of the LAL
Trust. Mr. Ehrenkranz is also a trustee of a trust for the benefit of
Leonard A. Lauder that owns 683,980 shares of the Company's $6.50
Cumulative Redeemable Preferred Stock. Mr. Ehrenkranz disclaims beneficial
ownership of all such shares. Mr. Ehrenkranz's business address is 375
Park Avenue, New York, New York 10152.
(11) Includes shares owned beneficially or deemed to be owned beneficially by
Richard D. Parsons as follows: 2,221 shares of Class A Common Stock
directly and with respect to which he has sole voting and investment
power; 4,000,000 shares of Class A Common Stock and 16,458,484 shares of
Class B Common Stock as trustee of trusts for the benefit of Aerin Lauder
and Jane Lauder and with respect to which Mr. Parsons has sole voting and
investment power; and 15,384 shares of Class A Common Stock and 3,846,154
shares of Class B Common Stock as co-trustee of the RSL Trust, which is a
general partner of a limited partnership, which owns the shares and with
respect to which he shares investment power with Ronald S. Lauder, who is
an individual general partner of the limited partnership and also a
co-trustee of the LAL Trust, Leonard A. Lauder, who is an individual
general partner of the limited partnership and also a co-trustee of the
LAL Trust, Ira T. Wender, as co-trustee of the RSL Trust, and Joel S.
Ehrenkranz and Ira T. Wender, as co-trustees of the LAL Trust. Mr. Parsons
disclaims beneficial ownership of all such shares, other than those owned
by him directly. 3,500,000 shares of Class A Common Stock owned by trusts
for the benefit of Aerin Lauder and Jane Lauder represent shares owed to
the trusts by Ronald S. Lauder to secure repayment of stock loans made to
Mr. Lauder. Such loans, which were made to Mr. Lauder at the time of the
Company's initial public offering, are secured by a pledge of 500,000
shares of Class A Common Stock and 3,000,000 shares of Class B Common
Stock. Options in respect of 13,998 shares of Class A Common Stock are
exercisable and the rest become exercisable on October 31, 2003. Mr.
Parson's business address is 75 Rockefeller Plaza, New York, New York
10019.
(12) Excludes stock options with respect to 2,573,498 shares of Class A Common
Stock granted to Mr. Langhammer under his prior employment agreement and
the Company's Fiscal 1999 and Fiscal 2002 Share Incentive Plans that are
not yet exercisable.
(13) Options in respect of 7,325 shares of Class A Common Stock are exercisable
and the rest become exercisable on October 30, 2003.
(14) Includes 2,000 shares of Class A Common Stock to be granted to Ms. Bravo
on November 5, 2003.
(15) Options in respect of 7,325 shares of Class A Common Stock are exercisable
and the rest become exercisable on October 30, 2003. Lady de Rothschild
defers the cash portion of her board retainer and meeting fees in the form
of cash-payout stock units.
9
(16) Options in respect of 7,325 shares of Class A Common Stock are exercisable
and the rest become exercisable on October 30, 2003. Mr. Hockaday has
share-payout stock units in respect of 907 shares of Class A Common Stock.
Mr. Hockaday defers the cash portion of his board retainer and meeting
fees in the form of cash-payout stock units, which account for the
remaining stock units.
(17) Includes shares of Class A Common Stock owned beneficially by Mr. Rose as
follows: 8,449 shares indirectly as a director of a private foundation,
and 12,000 shares as trustee of trusts for his children, in each case with
respect to which he has sole voting and investment power. Mr. Rose
disclaims beneficial ownership of shares owned by the foundation and by
his child's trust. In addition, Mr. Rose has share-payout stock units in
respect of 1,662 shares of Class A Common Stock and defers the cash
portion of his board retainer and meeting fees in the form of cash-payout
stock units, which account for the remaining stock units. Options in
respect of 11,673 shares of Class A Common Stock are exercisable and the
rest become exercisable on October 30, 2003.
(18) Excludes stock options with respect to 401,000 shares of Class A Common
Stock granted to Mr. Bousquet-Chavanne under the Company's Fiscal 1999
Share Incentive Plan and Fiscal 2002 Share Incentive Plan that are not yet
exercisable.
(19) Excludes stock options with respect to 401,000 shares of Class A Common
Stock granted to Mr. Brestle under a previous employment agreement and the
Company's Fiscal 1999 Share Incentive Plan and Fiscal 2002 Share Incentive
Plan that are not yet exercisable.
(20) See notes (2) through (5), (8), (11) and (13) through (19). Also excludes
stock options with respect to an aggregate of 1,338,268 shares of Class A
Common Stock granted to the executive officers whose names do not appear
in this table or the notes thereto, which are not yet exercisable.
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10
ADDITIONAL INFORMATION REGARDING THE BOARD OF DIRECTORS
STOCKHOLDERS' AGREEMENT. Lauder Family Members (other than The Lauder
Foundation, Aerin Lauder, Jane Lauder, The Estee Lauder 1994 Trust, the RSL 4201
Trust, The 4202 Corporation and the Estee Lauder 2001 Charitable Trust) who own
shares of Common Stock have agreed pursuant to the Stockholders' Agreement to
vote all shares beneficially owned by them for Leonard A. Lauder, Ronald S.
Lauder and one person, if any, designated by each as a director of the Company.
Lauder Family Members who are parties to the Stockholders' Agreement
beneficially owned, in the aggregate, on September 12, 2003, shares of Common
Stock having approximately 86.7% of the voting power of the Company. The right
of each of Leonard A. Lauder and Ronald S. Lauder to designate a nominee exists
only when he (including his descendants) beneficially owns (other than by reason
of the Stockholders' Agreement) shares of Common Stock with at least 10% of the
total voting power of the Company. Currently, William P. Lauder is the nominee
of Leonard A. Lauder and Richard D. Parsons is the nominee of Ronald S. Lauder.
The right of each of Leonard A. Lauder and Ronald S. Lauder to be nominated will
exist so long as he (including his descendants) beneficially owns shares of
Common Stock with at least 5% of the total voting power of the Company. In the
event that Leonard A. Lauder ceases to be a member of the Board of Directors by
reason of his death or disability, then his sons, William P. Lauder and Gary M.
Lauder, will succeed to his rights to be nominated as a director and to
designate one nominee. If either son is unable to serve by reason of his death
or disability, the other son will have the right to designate a nominee.
Similarly, Aerin Lauder and Jane Lauder, Ronald S. Lauder's daughters, will
succeed to their father's rights if he should cease to be a director by reason
of his death or disability. If either daughter is unable to serve by reason of
her death or disability, the other daughter will have the right to designate a
nominee. In the event none of Leonard A. Lauder and his sons and Ronald S.
Lauder and his daughters are able to serve as directors by reason of death or
disability, then the rights under the Stockholders' Agreement to be a nominee
and to designate a nominee will cease.
BOARD COMMITTEES. The Board of Directors has established four regular
committees - the Audit Committee, the Compensation Committee, the Stock Plan
Subcommittee and the Nominating and Board Affairs Committee.
The Company is a "controlled company" in accordance with rules proposed by
the New York Stock Exchange, because the Lauder family controls a majority of
the outstanding voting stock. As a result, under the proposed rules, only the
Audit Committee will be required to be comprised solely of independent
directors.
The Audit Committee members are Ambassador Charlene Barshefsky, Lady de
Rothschild and Irvine O. Hockaday, Jr., Chairman. The Board of Directors has
determined that Mr. Hockaday is an "Audit Committee Financial Expert" in
accordance with the rules promulgated by the Securities and Exchange Commission.
The Audit Committee has a written charter adopted by the Board of Directors. The
Committee, among other things, appoints the independent auditors, reviews the
independence of such auditors, approves the scope of the annual audit activities
of the independent auditors and the Company's Internal Control Department,
reviews audit results and reviews and discusses the Company's financial
statements with management and the independent auditors. The Committee also
meets separately, at least quarterly, with the Chief Financial Officer and Chief
Internal Control Officer and with representatives of the independent auditor.
The Compensation Committee members are Lady de Rothschild, Richard D.
Parsons, Chairman, and Marshall Rose. The Committee, among other things, has the
authority to establish and approve compensation plans and arrangements with
respect to the Company's executive officers and administers certain employee
benefit plans, including the executive annual incentive plan. The Stock Plan
Subcommittee, whose members are Lady de Rothschild and Marshall Rose, has the
authority to adopt and administer the Company's share incentive plans.
The Nominating and Board Affairs Committee members are Leonard A. Lauder,
Richard D. Parsons and Lady de Rothschild, Chairman. The Committee, among other
things, recommends nominees for election as members of the Board, considers and
makes recommendations regarding succession planning, Board practices and
procedures and reviews the compensation for service as a Board member.
Each committee reports regularly to the Board and has authority to engage
its own advisors. As part of continuing director education provided by the
Company, in fiscal 2003 one of the directors on the Audit Committee attended a
program sponsored by Harvard Business School relating to audit committees.
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BOARD AND BOARD COMMITTEE MEETINGS; EXECUTIVE SESSIONS. In fiscal 2003, the
Board of Directors met seven times, the Compensation Committee met six times,
the Stock Plan Subcommittee met four times, the Audit Committee met seven times,
and the Nominating and Board Affairs Committee met five times. The total
combined attendance for all board and committee meetings was 95.5%. In fiscal
2003, the non-employee directors met five times in executive session, including
three meetings at which one employee director was present for all or part of the
session. Rose Marie Bravo joined the Board effective April 1, 2003 and missed
one of the two Board meetings held in the fourth quarter of fiscal 2003.
COMPENSATION OF DIRECTORS. Each non-employee director receives an annual
cash retainer of $60,000, payable quarterly, and an annual grant of options with
10-year terms to purchase 5,000 shares of Class A Common Stock. The exercise
price of the options is equal to the closing price of the Class A Common Stock
on the date of grant and the options vest and are exercisable one year after
grant (subject to post-service limitations). Committee Chairmen receive an
additional annual retainer of $15,000 each. However, starting in fiscal 2004,
the director serving as Chairman of the Audit Committee will receive an
additional $25,000.
An additional $25,000 is payable to each non-employee director by a grant
of stock units (accompanied by dividend equivalent rights) as an annual stock
retainer in the fourth quarter of the calendar year. Each stock unit is
convertible into shares of Class A Common Stock on or after the first business
day of the calendar year following the one in which the director ceases to be a
member of the Board. The number of stock units to be awarded is determined by
dividing $25,000 by the average closing price of the Class A Common Stock on the
twenty trading days next preceding the date of grant. In lieu of receiving stock
units, a director may elect to receive options in respect of Class A Common
Stock. The number of shares subject to such option grant is determined by
dividing $75,000 by the closing price per share of the Class A Common Stock on
the date of grant. Such price per share is also the exercise price per share of
the options. Options have 10-year terms (subject to post-service limitations),
vest immediately, and are exercisable one year after grant. In no event will
stock units or stock options representing more than 5,000 shares be granted in
connection with the annual stock retainer.
On the date of the first annual meeting of stockholders which is more than
six months after a non-employee director's initial election to the Board, the
director receives a grant of 2,000 shares of Class A Common Stock (plus a cash
payment in an amount to cover related income taxes).
Non-employee directors receive $1,500 for each board or committee meeting
attended plus reimbursement of reasonable expenses of attending such meetings.
For services rendered outside board or committee meetings, which are in
furtherance of Board and/or committee business, non-employee directors may
receive an additional fee of $1,500 per day.
Non-employee directors may elect to defer receipt of all or part of their
cash-based compensation. The deferrals may take the form of stock equivalent
units (accompanied by dividend equivalent rights) to be paid out in cash or may
simply accrue interest until paid out in cash.
Directors who are also employees of the Company receive no additional
compensation for service as directors.
DIRECTOR NOMINEES. The Nominating and Board Affairs Committee will consider
stockholder recommendations of nominees with proven business judgment and
experience and impeccable reputations. Proposed nominees should be able to
satisfy the independence and other requirements to serve on our Board's Audit
and/or Compensation Committees and the Stock Plan Subcommittee. Stockholders who
wish to suggest qualified candidates should send their written recommendation to
Sara E. Moss, Senior Vice President, General Counsel and Secretary, The Estee
Lauder Companies Inc., 767 Fifth Avenue, New York, New York 10153. Detailed
information regarding the proposed nominee's experience and qualifications and
the stockholder making the recommendation should accompany any recommendation.
For stockholders intending to nominate an individual for election as a director,
there are specific procedures set forth in our bylaws. See "Stockholder
Proposals and Nominations."
CORPORATE GOVERNANCE GUIDELINES
The Board of Directors has developed corporate governance practices to help
it fulfill its responsibilities to stockholders in providing general direction
and oversight of management of the Company. These practices are memorialized in
corporate governance guidelines that may be found in the "Investor Information"
section of the Company's website: www.elcompanies.com.
12
AUDIT COMMITTEE REPORT
The Audit Committee of the Board of Directors, consisting solely of
"independent directors" as defined by the Board and consistent with the rules of
the New York Stock Exchange, has:
1. reviewed and discussed the Company's audited financial statements for
the fiscal year ended June 30, 2003 with management and
representatives of KPMG LLP;
2. discussed with KPMG the matters required to be discussed by SAS 61, as
modified or supplemented; and
3. received the written disclosures and letter from KPMG required by
Independence Standards Board Standard No. 1 and discussed KPMG's
independence with representatives of KPMG.
Based on the review and discussions referred to above, the Audit Committee
recommended to the Board of Directors that the audited financial statements for
the fiscal year ended June 30, 2003 be included in the Company's annual report
on Form 10-K filed with the Securities and Exchange Commission.
The Audit Committee
Charlene Barshefsky
Lynn Forester de Rothschild
Irvine O. Hockaday, Jr., Chairman
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors, and any persons who own more than 10% of the Class A
Common Stock, to file forms reporting their initial beneficial ownership of
common stock and subsequent changes in that ownership with the Securities and
Exchange Commission and the New York Stock Exchange. Officers, directors and
greater-than-10% beneficial owners also are required to furnish the Company with
copies of all forms they file under Section 16(a). Based solely upon a review of
the copies of the forms furnished to the Company, or a written representation
from a reporting person that no Form 5 was required, the Company believes that
during the 2003 fiscal year all Section 16(a) filing requirements were
satisfied.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
FAMILY RELATIONSHIPS. Mrs. Estee Lauder and her late husband, Joseph
Lauder, founded the Company. Until September 1995, Mrs. Lauder was Chairman of
the Board of Directors. She is currently Founding Chairman, an honorary
position. Her son, Leonard A. Lauder, is the Chairman of the Board of Directors.
Her other son, Ronald S. Lauder, is a Senior Vice President and Director of the
Company and Chairman of Clinique Laboratories, Inc. Leonard A. Lauder's wife,
Evelyn H. Lauder, is Senior Corporate Vice President of the Company. Leonard A.
Lauder and his wife have two sons, William P. Lauder and Gary M. Lauder. William
P. Lauder is Chief Operating Officer and a Director of the Company. Gary M.
Lauder is not an employee of the Company. Ronald S. Lauder and his wife,
Jo-Carole Lauder, have two daughters, Aerin Lauder and Jane Lauder. Aerin Lauder
is Vice President--Global Advertising for Estee Lauder. Jane Lauder is a Vice
President working on new ventures.
As used in this Proxy Statement, the term "Lauder Family Members" includes
only the following persons: (i) Mrs. Estee Lauder and her estate, guardian,
conservator or committee; (ii) each descendant of Mrs. Lauder (a "Lauder
Descendant") and their respective estates, guardians, conservators or
committees; (iii) each "Family Controlled Entity" (as defined below); and (iv)
the trustees, in their respective capacities as such, of each "Family Controlled
Trust" (as defined below). The term "Family Controlled Entity" means (i) any
not-for-profit corporation if at least 80% of its board of directors is composed
of Mrs. Estee Lauder and/or Lauder Descendants; (ii) any other corporation if at
least 80% of the value of its outstanding equity is owned by Lauder Family
Members; (iii) any partnership if at least 80% of the value of its partnership
interests are owned by Lauder Family Members; and (iv) any limited liability or
similar company if at least 80% of the value of the company is owned by Lauder
Family Members. The term "Family Controlled Trust" includes certain trusts
existing on November 16, 1995 and trusts the primary beneficiaries of which are
Mrs. Estee Lauder, Lauder
13
Descendants, spouses of Lauder Descendants and/or charitable organizations,
provided that if the trust is a wholly charitable trust, at least 80% of the
trustees of such trust consist of Mrs. Lauder and/or Lauder Descendants.
ROYALTY ARRANGEMENTS. In 1969, the Company acquired from Mrs. Estee Lauder
ownership of the trademark Estee Lauder outside the United States in exchange
for royalty payments on sales of Estee Lauder brand products during Mrs.
Lauder's lifetime. The royalty payments also relate to sales of Prescriptives
products, which initially were sold under the Estee Lauder brand. The royalty
with respect to those sales continues to be an obligation of the Company until
Mrs. Estee Lauder's death. The royalty paid to Mrs. Lauder for fiscal 2003
amounted to $20.3 million.
REGISTRATION RIGHTS AGREEMENT. Leonard A. Lauder, Ronald S. Lauder, The
Estee Lauder 1994 Trust, William P. Lauder, Gary M. Lauder, Aerin Lauder, Jane
Lauder, certain Family Controlled Entities and other Family Controlled Trusts,
Morgan Guaranty Trust Company of New York ("Morgan Guaranty") and the Company
are parties to a Registration Rights Agreement (the "Registration Rights
Agreement"), pursuant to which each of Leonard A. Lauder, Ronald S. Lauder and
Morgan Guaranty have three demand registration rights and The Estee Lauder 1994
Trust has six demand registration rights in respect of shares of Class A Common
Stock (including Class A Common Stock issued upon conversion of Class B Common
Stock) held by them. Three of the demand rights granted to The Estee Lauder 1994
Trust may be used only by a pledgee of The Estee Lauder 1994 Trust's shares of
Common Stock. In addition, the Registration Rights Agreement provides
registration rights relating to the Company's $6.50 Cumulative Redeemable
Preferred Stock (the "EL Preferred Stock"). Subject to certain limitations set
forth in the Agreement, three of the six demand registration rights granted to
The Estee Lauder 1994 Trust may only be exercised by a pledgee of its EL
Preferred Stock, and a trust for the benefit of Leonard A. Lauder has one demand
registration right in respect of its shares of EL Preferred Stock. All the
parties to the Registration Rights Agreement (other than the Company) also have
an unlimited number of piggyback registration rights in respect of their shares.
The rights of Morgan Guaranty and any other pledgee of The Estee Lauder 1994
Trust under the Registration Rights Agreement will be exercisable only in the
event of a default under certain loan arrangements. Leonard A. Lauder and Ronald
S. Lauder may assign their demand registration rights to Lauder Family Members.
The Company is not required to effect more than one registration of Class A
Common Stock in any consecutive twelve-month period. The piggyback registration
rights allow the holders to include their shares of Class A Common Stock in any
registration statement filed by the Company, subject to certain limitations.
The Company is required to pay all expenses (other than underwriting
discounts and commissions of the selling stockholders, taxes payable by the
selling stockholders and the fees and expenses of the selling stockholders'
counsel) in connection with any demand registrations, as well as any
registrations pursuant to the exercise of piggyback rights. The Company has
agreed to indemnify the selling stockholders against certain liabilities,
including liabilities arising under the Securities Act of 1933.
STOCKHOLDERS' AGREEMENT. All Lauder Family Members (other than The Lauder
Foundation, Aerin Lauder, Jane Lauder, the Estee Lauder 1994 Trust, the RSL 4201
Trust, The 4202 Corporation and the Estee Lauder 2001 Charitable Trust) that
beneficially own shares of Common Stock are parties to a stockholders' agreement
with the Company (the "Stockholders' Agreement"). The stockholders who are
parties to the Stockholders' Agreement beneficially owned, in the aggregate,
shares of Common Stock having approximately 86.7% of the voting power of the
Company on September 12, 2003. Such stockholders have agreed to vote in favor of
the election of Leonard A. Lauder and Ronald S. Lauder and one designee of each
as directors. See "Additional Information Regarding the Board of
Directors--Stockholders' Agreement." The Stockholders' Agreement also contains
certain limitations on the transfer of shares of Class A Common Stock and Class
B Common Stock. In addition, each stockholder who is a party to the
Stockholders' Agreement (the "Offering Stockholder") has granted to each other
party (the "Offeree") a right of first offer to purchase shares of Class A
Common Stock the Offering Stockholder intends to sell to a person (or group of
persons) who is not a Lauder Family Member, except in certain circumstances,
such as sales in a widely distributed underwritten public offering or sales made
in compliance with Rule 144 under the Securities Act of 1933. Each Offeree has
the opportunity to purchase the Offeree's pro rata portion of the shares to be
offered by the Offering Stockholder, as well as additional shares not purchased
by other Offerees. Any shares not purchased pursuant to the right of first offer
may be sold at or above 95% of the price offered to the Offerees. The agreement
also includes provisions for bona fide pledges of shares
14
of Common Stock and procedures related to such pledges. The Stockholders'
Agreement will terminate upon the occurrence of certain specified events,
including the transfer of shares of Common Stock by a party to the Stockholders'
Agreement that causes all parties thereto immediately after such transaction to
own beneficially in the aggregate shares having less than 10% of the total
voting power of the Company.
OTHER ARRANGEMENTS. The Company has subleased certain of its office space
in New York to an affiliate of Ronald S. Lauder. For fiscal 2003, the rent paid
or accrued was approximately $598,000, which equals the Company's lease payments
for that space. The Company also has agreed to provide such affiliate with
certain services, such as phone systems, payroll service and office and
administrative services, which are reimbursed at a rate approximating the
Company's incremental cost thereof. For fiscal 2003, the affiliate paid
approximately $13.2 million pursuant to such agreement. At June 30, 2003, the
affiliate had deposited with the Company $842,000 to cover expenses. The Company
has similar arrangements with an affiliate of Leonard A. Lauder and his family.
For fiscal 2003, that affiliate and/or family members paid the Company $3.9
million for office space and certain services, such as phone systems, payroll
service and office and administrative services. At June 30, 2003, the affiliate
and family members had deposited with the Company an extra $734,000 to cover
expenses. The payments by the affiliates and family members approximated the
Company's incremental cost of such space and services.
Certain members of the Lauder family (and entities affiliated with one or
more of them) own numerous works of art that are displayed at the Company's
offices. The Company pays no fee to the owners for displaying such works. The
owners of the works pay for their maintenance. In fiscal 2003, the Company paid
premiums of about $7,000 for insurance relating to such works.
The Company, as is common for major global consumer products companies,
regularly advertises in various media, including magazines, television, radio
and the Internet. Some of these advertisements may appear from time to time in
magazines, cable networks and websites owned by or associated with AOL Time
Warner Inc., of which Richard D. Parsons, a Director of the Company, is Chairman
of the Board of Directors as well as Chief Executive Officer. In many cases,
advertisements are placed indirectly through advertising agencies. In fiscal
2003, the Company estimates that the aggregate cost of advertisements appearing
in or on such magazines and other media was about $10.1 million, an amount which
is not material to the Company nor to AOL Time Warner Inc.
Ambassador Barshefsky, one of our Directors, is Senior International
Partner in the law firm of Wilmer, Cutler & Pickering. In fiscal 2003, the firm
provided legal services to the Company. Fees for such services were less than
$40,000, which accounted for considerably less than 5% of the law firm's gross
revenue. Wilmer, Cutler & Pickering has provided services to the Company in
fiscal 2004.
In connection with his employment agreement when he joined the Company in
fiscal 2002, the Company lent Philip Shearer, currently Group President, $1.5
million. Such loan shall be forgiven in its entirety as to principal if he
remains with the Company through July 1, 2006. Mr. Shearer's compensation has
been grossed up to cover interest on the loan and the taxes on such interest.
Loans to Patrick Bousquet-Chavanne are described below under "Executive
Compensation."
15
EXECUTIVE COMPENSATION
The following table sets forth a summary of all compensation awarded or
paid to or earned by the chief executive officer and the four other most highly
compensated executive officers of the Company in the last fiscal year for
services rendered in all capacities to the Company (including its subsidiaries)
for the fiscal years ended June 30, 2003, 2002 and 2001.
SUMMARY COMPENSATION TABLE
LONG-TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
--------------------------------- ---------------------------
OTHER
ANNUAL SECURITIES
FISCAL COMPEN- RESTRICTED STOCK UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) SATION ($) AWARDS ($) OPTIONS (#) COMPENSATION($)
--------------------------- ------ ---------- --------- ---------- ---------------- ----------- ---------------
LEONARD A. LAUDER, 2003 1,710,000 1,740,000 (1) -- -- 5,500(2)
Chairman of the Board 2002 1,800,000 900,000 (1) -- -- 412,140
2001 1,800,000 1,676,000 (1) -- -- 475,790
FRED H. LANGHAMMER, 2003 1,900,000 2,900,000 (1) 2,000,000(3) 500,000 5,500(4)
President and Chief 2002 2,000,000 1,500,000 (1) 2,000,000(3) 500,000 3,483,530
Executive Officer 2001 2,000,000 2,793,000 (1) 2,000,000(3) 500,000 1,817,615
WILLIAM P. LAUDER, 2003 1,125,000 1,527,000 (1) -- 100,000 9,400(8)
Chief Operating Officer (5) 2002 1,000,000 650,000 (1) -- 100,000 4,950
2001 950,000 850,000 (1) -- 100,000 4,950
PATRICK BOUSQUET-CHAVANNE, 2003 950,000 1,202,000 (1) 100,000 236,125(8)
Group President (6) 2002 1,000,000 650,000 834,300(7) -- 100,000 231,915
2001 1,000,000 1,072,000 466,000(7) -- 100,000 21,917
DANIEL J. BRESTLE, 2003 950,000 949,000 (1) 100,000 71,320(8)
Group President (9) 2002 1,000,000 650,000 (1) -- 100,000 20,000
2001 1,000,000 850,000 (1) -- 100,000 20,377
----------
(1) Represents perquisites and other personal benefits, which did not exceed
$50,000 for such executive officer in the fiscal year.
(2) Amounts reported under "All Other Compensation" for fiscal 2003 represent
matching contributions made pursuant to the Company's qualified defined
contribution plan. Substantially all the amounts reported in the prior two
fiscal years represented the estimated dollar value of the benefit to Mr.
Lauder of Company-paid premiums on split-dollar life insurance. A trust
established by Mr. Lauder paid the term-life portion of the policy.
(3) Reflects the dollar value (without consideration of the restrictions) of
restricted stock units granted to Mr. Langhammer pursuant to his
employment agreement. Additional stock units are credited to Mr.
Langhammer in connection with dividends, which are payable in additional
units. At the end of fiscal 2003, Mr. Langhammer held 304,292 restricted
stock units, all of which are vested. Based on the closing price of the
Company's Class A Common Stock at the end of fiscal 2003, the value of
such units (without consideration of the restrictions) was $10,203,000.
The stock units are payable in shares of Class A Common Stock within 90
days after Mr. Langhammer's termination of employment. Pursuant to his
employment agreement and the Fiscal 2002 Share Incentive Plan, he received
an additional grant of 58,459 restricted stock units on July 1, 2003.
(4) Amounts reported under "All Other Compensation" for fiscal 2003 represent
matching contributions made pursuant to the Company's qualified defined
contribution plan. Substantially all the amounts reported in the prior two
fiscal years represented the estimated dollar value of the benefit to Mr.
Langhammer of Company-paid premiums for split-dollar life insurance. A
trust established by Mr. Langhammer paid the term-life portion of the
policy.
16
(5) In fiscal 2001, Mr. W. Lauder was President of Clinique Laboratories, Inc.
In fiscal 2002 and during the first six months of fiscal 2003, Mr. W.
Lauder was Group President responsible for various brands and business
operating units. Mr. W. Lauder became Chief Operating Officer on January
1, 2003.
(6) Mr. Bousquet-Chavanne became Group President responsible for Estee Lauder,
MAC and designer fragrance brands in July 2001. In fiscal 2001, he was
president of Estee Lauder International, Inc.
(7) Represents (i) $466,000 relating to the forgiveness of a remaining portion
of the loan made to him pursuant to his prior employment agreement for
fiscal 2001, and (ii) $834,300 relating to the forgiveness of the
remaining portion of the loan made to him pursuant to his prior employment
agreement for fiscal 2002. Mr. Bousquet-Chavanne did not receive
perquisites and other personal benefits exceeding $50,000 in fiscal 2001
or 2002.
(8) Amounts reported in fiscal 2003 include: (i) matching contributions made
on behalf of named executive officer pursuant to the Company's qualified
defined contribution plan as follows: Mr. W. Lauder, $5,500, Mr.
Bousquet-Chavanne, $4,750, and Mr. Brestle, $5,420; (ii) Company-paid
premiums for term life insurance in fiscal 2003 of $3,900 for Mr. W.
Lauder and $65,900 for Mr. Brestle, and $4,575 in each fiscal year for Mr.
Bousquet-Chavanne; and (iii) $226,800 for Mr. Bousquet-Chavanne
representing imputed interest and reimbursement for taxes related to the
loan to him described below under "Employment Agreements."
(9) In fiscal 2001, Mr. Brestle was President of Estee Lauder (USA & Canada).
Since July 1, 2001, Mr. Brestle has been Group President responsible for
various brands.
OPTION GRANTS IN FISCAL 2003
INDIVIDUAL GRANTS
------------------------------------------------------------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS
UNDERLYING GRANTED TO GRANT DATE
OPTIONS EMPLOYEES IN EXERCISE PRICE EXPIRATION PRESENT VALUES
(#)(1) FISCAL YEAR ($/SH) DATE ($)(2)
---------- ------------ -------------- ---------- --------------
Leonard A. Lauder ............... 0 0.0% N.A. N.A. N.A.
Fred H. Langhammer .............. 500,000 7.5% $32.15 7/10/12 6,220,000
William P. Lauder ............... 100,000 1.5% $32.15 7/10/12 1,244,000
Patrick Bousquet-Chavanne ....... 100,000 1.5% $32.15 7/10/12 1,244,000
Daniel J. Brestle ............... 100,000 1.5% $32.15 7/10/12 1,244,000
----------
(1) The options granted in fiscal 2003 to the named executive officers have a
term of 10 years and were granted pursuant to the Fiscal 2002 Share
Incentive Plan with an exercise price equal to the closing price of the
Class A Common Stock on the date of grant. Options are generally
exercisable in three substantially equal tranches beginning January 1,
2004, 2005, and 2006, respectively, subject to early vesting upon the
occurrence of certain events, such as a change in control or retirement.
(2) In accordance with Securities and Exchange Commission rules, the
Black-Scholes option-pricing model was chosen to estimate the Grant Date
Present Value of the options set forth in this table. The Company's use of
this model should not be construed as an endorsement of its accuracy for
valuing options. All stock option models require a prediction about the
future movement of the stock price. The following assumptions were made
for purposes of calculating Grant Date Present Value: expected average
time of exercise of seven years, volatility of 31%, dividend yield of 0.6%
and average risk-free rate of return of 4.2%. The real value of the
options in this table depends upon the actual performance of the Company's
stock during the applicable period and upon the date when they are
exercised.
17
AGGREGATED OPTION EXERCISES IN FISCAL 2003 AND 2003 FISCAL YEAR-END OPTIONS
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
SHARES VALUE OPTIONS AT FISCAL YEAR-END(#) FISCAL YEAR-END($)(2)
ACQUIRED ON REALIZED ---------------------------- ---------------------------
EXERCISE(#) ($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- ----------- ------------ ------------- ----------- -------------
Leonard A. Lauder 200,000 $ 4,165,195 4,000,002 999,998 41,465,000 --
Fred H. Langhammer 500,000 $10,223,069 2,026,502 2,073,498 8,374,000 690,000
William P. Lauder -- -- 329,000 301,000 1,867,650 138,000
Patrick Bousquet-Chavanne -- -- 249,000 301,000 956,063 138,000
Daniel J. Brestle -- -- 365,666 301,000 1,688,325 138,000
----------
(1) Value realized is calculated for each option as the difference between the
exercise prices of the options and the sales prices of the shares of the
Company's Class A Common Stock obtained upon exercise. Income taxes
payable upon exercise and associated fees and commissions that reduce the
value received are not reported in this table.
(2) Value of unexercised in-the-money unexercisable options is the difference
between (a) the market price of a share of Class A Common Stock on June
30, 2003, the last trading day in fiscal 2003 ($33.53), multiplied by the
number of shares of Class A Common Stock underlying the unexercisable
in-the-money options and (b) the aggregate exercise price if one were to
exercise all the unexercisable in-the-money options on that date. The
value of in-the-money exercisable options is calculated in the same way,
but using the exercisable options instead of the unexercisable ones. No
reduction is made for income taxes payable upon exercise or associated
fees and commissions that would reduce the value that could be received.
PENSION PLANS
The Company provides retirement benefits to its employees in the United
States through a defined benefit plan, which is intended to be qualified under
Section 401 of the Internal Revenue Code, and a related non-qualified
restoration plan. In general, for employees who were at least 50 years old and
had five years of Company qualifying employment on January 1, 1993 or who had
ten years of Company qualifying employment as of that date, retirement benefits
pursuant to the plans are calculated as a multiple of years of qualifying
Company employment, times final qualifying average compensation, times a
percentage (currently 1.5%), offset by certain amounts calculated with reference
to Social Security entitlements. For other employees, retirement benefits under
the plans are the aggregate amount of annual credits (calculated with reference
to total annual compensation, with certain items excluded) plus interest credits
thereon. The benefits payable to Leonard A. Lauder and Fred H. Langhammer are
calculated with reference to supplemental undertakings.
Leonard A. Lauder has 45 years of qualifying Company employment and is
retirement eligible. If he were to retire currently, his annual retirement
benefits would be approximately $1.0 million. Pursuant to applicable law, when
Mr. Lauder is 70 1/2 years old, he is required to receive partial distribution
of this amount during his continued employment. He (or his wife, estate or
designee) is also entitled to be paid approximately $1.9 million per year,
pursuant to an arrangement in his current and former employment agreements.
Payments under such arrangement commenced upon his 70th birthday in March 2003
and will continue for ten years thereafter.
Mr. Langhammer currently has 28 years of qualifying Company employment. If
he retired at normal retirement age with 34 years of qualifying Company
employment, his projected annual retirement benefit would be approximately $2.0
million payable during his lifetime.
William P. Lauder currently has 17 years of qualifying Company employment.
If he retired at normal retirement age with 39 years of qualifying Company
employment, his projected annual retirement benefit would be approximately
$591,000 payable during his lifetime.
Mr. Bousquet-Chavanne currently has 12 years of qualifying Company
employment. If he retired at normal retirement age with 32 years of qualifying
Company employment, his projected annual retirement benefit would be
approximately $417,000 payable during his lifetime.
Mr. Brestle currently has 25 years of qualifying Company employment. If he
retired at normal retirement age with 32 years of qualifying Company employment,
his projected annual retirement benefit would be approximately $472,000 payable
during his lifetime.
18
EMPLOYMENT AGREEMENTS
LEONARD A. LAUDER. Mr. Lauder's current employment agreement (the "2000
Agreement") provides for his employment as Chairman of the Board of the Company
until such time as he resigns, retires or is terminated. The agreement provides
for a base salary of $1.8 million per year, which Mr. Lauder agreed would be
limited to $1.71 million for fiscal 2003. Mr. Lauder is entitled to participate
in standard benefit plans, such as the Company's pension and medical plans, and
has a supplemental pension arrangement discussed above. Mr. Lauder's aggregate
annual bonus opportunities for fiscal 2004 under the Executive Annual Incentive
Plan amount to $1.8 million. Mr. Lauder may elect to defer a certain portion of
his cash compensation. Mr. Lauder is entitled to participate in the Fiscal 1999
Share Incentive Plan and Fiscal 2002 Share Incentive Plan, but no grants have
been made to him under either plan to date. The Company may terminate Mr.
Lauder's employment at any time if he becomes "permanently disabled," in which
event Mr. Lauder will be entitled to (i) receive his base salary for a period of
two years after termination, (ii) receive bonus compensation at an annual rate
equal to the average of the actual bonuses paid to him prior to such termination
under the 2000 Agreement (the "Leonard Lauder Bonus Compensation") and (iii)
participate in the Company's benefit plans for two years. In the event of Mr.
Lauder's death during the term of his employment, for a period of one year from
the date of Mr. Lauder's death, his beneficiary or legal representative will be
entitled to receive Mr. Lauder's base salary and the Leonard Lauder Bonus
Compensation. Mr. Lauder may terminate his employment at any time upon six
months' written notice to the Company, in which event Mr. Lauder will be
entitled to receive his base salary and the Leonard Lauder Bonus Compensation
for the six-month period following termination. In addition, the Company may
terminate Mr. Lauder's employment for any reason upon 60 days' written notice.
In the event of termination of his employment by the Company (other than for
cause, disability or death) or a termination by Mr. Lauder for good reason after
a change of control, (a) Mr. Lauder, for a period of three years from the date
of termination, will be entitled to (i) receive his base salary in effect at the
time of termination, (ii) receive the Leonard Lauder Bonus Compensation and
(iii) participate in the Company's benefit plans and (b) in the case of
termination by the Company (other than for cause, disability or death), Mr.
Lauder will not be subject to the non-competition covenant contained in the 2000
Agreement. If Mr. Lauder receives any severance payments, then he is entitled to
be reimbursed for any excise taxes that may be imposed on them. Upon termination
for any reason, options previously granted to Mr. Lauder will remain exercisable
for the remainder of their respective terms, subject to certain non-competition
and good conduct provisions. In fiscal 2003, the Company did not make any
further payments in connection with the split-dollar life insurance arrangements
with Mr. Lauder because of uncertainty relating to Section 402 of The
Sarbanes-Oxley Act of 2002 ("Sarbanes-Oxley").
FRED H. LANGHAMMER. Mr. Langhammer's employment agreement provides for his
employment as President and Chief Executive Officer of the Company through June
30, 2006, unless earlier terminated. The agreement provides for an annual base
salary of $2.0 million, which Mr. Langhammer agreed would be only $1.9 million
for fiscal 2003. Mr. Langhammer is entitled to participate in standard benefit
plans, such as the Company's pension and medical plans. Mr. Langhammer is
entitled to additional pension payments under a supplemental undertaking by the
Company. See "Pension Plans" above. His employment agreement provides that his
annual bonus opportunities under the Executive Annual Incentive Plan would be
$3.0 million in fiscal 2003 and 150% of his base salary in subsequent contract
years. Mr. Langhammer may elect to defer certain of his cash compensation. He
was granted options with respect to 1.0 million shares of Class A Common Stock
on January 1, 2000 with an exercise price of $50.4375 per share. His agreement
provides for additional annual option grants in respect of 500,000 shares. The
grants made in each of fiscal 2001 through 2004 have exercise prices of $43.6875
per share, $40.50 per share, $32.15 per share and $33.44 per share respectively.
In addition, Mr. Langhammer's agreement provides for the grant to him of $2.0
million worth of restricted stock units each year. On July 1, 2003, Mr.
Langhammer received stock units with respect to 58,459 shares, accompanied by
dividend equivalents which are payable in additional stock units. Stock units
awarded in any fiscal year may be forfeited under certain circumstances if Mr.
Langhammer is terminated during such year. The stock units will be paid in
shares of Class A Common Stock at a time to be determined by the Company, but in
no event later than ninety days after the termination of Mr. Langhammer's
employment. Including grants that remain outstanding from his prior agreement,
Mr. Langhammer currently holds restricted stock units in respect of 362,751
shares of Class A Common Stock. The Company may terminate Mr. Langhammer's
employment at any time if he becomes "permanently disabled," in which event Mr.
Langhammer will be entitled to (i) receive his base salary in effect at the time
of termination (the "Langhammer Base Salary") for a period of one year after
termination, (ii) receive his
19
pro rata bonus through the date of termination and (iii) participate in the
Company's benefit plans through the date of termination. In the event of Mr.
Langhammer's death during the term of his employment, his beneficiary or legal
representative will be entitled to receive the benefits of certain
Company-sponsored insurance, including supplemental split-dollar arrangements.
The Company may terminate Mr. Langhammer's employment for any reason upon 60
days' written notice. In the event of (X) the Company's termination of his
employment (other than for cause, disability or death) or (Y) Mr. Langhammer's
termination of the agreement as a result of the Company's material breach
thereof, which would include a material reduction in Mr. Langhammer's duties or
responsibilities, or (Z) Mr. Langhammer's termination of his employment for good
reason after a change of control of the Company, (a) Mr. Langhammer, for a
period of three years from the date of termination (or until June 30, 2006),
will be entitled to (i) receive the Langhammer Base Salary, (ii) receive his
average bonus paid during the term of the agreement and (iii) participate in the
Company's benefit plans and (b) Mr. Langhammer will not be subject to the
covenant not to compete contained in such agreement. Mr. Langhammer may
terminate his employment for any other reason at any time upon six months'
written notice to the Company, in which event the Company shall have no further
obligations after termination. If Mr. Langhammer receives any severance
payments, then he is entitled to be reimbursed for any excise taxes that may be
imposed on them. Upon termination for any reason, options granted to Mr.
Langhammer will remain exercisable for the remainder of their respective terms,
subject to certain non-competition and good conduct provisions. In fiscal 2003,
the Company did not make any further payments in connection with the
split-dollar life insurance arrangements with Mr. Langhammer because of
uncertainty relating to Section 402 of Sarbanes-Oxley.
WILLIAM P. LAUDER. Mr. Lauder's current employment agreement provides for
his employment as Chief Operating Officer through June 30, 2005, unless earlier
terminated. The agreement provides for a base salary of $1.3 million. Mr. Lauder
agreed to a 5% salary reduction prior to his promotion, which resulted in a
salary for fiscal 2003 equal to $1,125,000. Mr. Lauder is entitled to
participate in standard benefit plans, such as the Company's pension and medical
plans. The Compensation Committee has granted to Mr. Lauder bonus opportunities
equal to $1.75 million for fiscal 2004 and at least that much for fiscal 2005.
Mr. Lauder may elect to defer certain of his cash compensation and did defer a
portion of his compensation in fiscal 2003. Mr. Lauder has been granted options
with respect to 200,000 shares of Class A Common Stock with an exercise price of
$33.44 per share so far during the term of this agreement and the agreement
contemplates additional stock option grants of 200,000 shares of Class A Common
Stock in fiscal 2005. The Company may terminate Mr. Lauder's employment at any
time if he becomes "permanently disabled," in which event Mr. Lauder will be
entitled to (i) receive for a period of one year from the date of termination
his base salary in effect at the time of termination, (ii) receive unpaid bonus
compensation otherwise payable for the fiscal year in which such disability
occurred pro-rated to the date of termination, and (iii) participate in the
Company's benefit plans for such one-year period. In the event of Mr. Lauder's
death during the term of his employment, his beneficiary or legal representative
will be entitled to (i) receive for a period of one year Mr. Lauder's base
salary in effect at the time of death, (ii) receive bonus compensation otherwise
payable in respect of the fiscal year prior to that in which he dies and a
one-time payment equal to fifty percent (50%) of the average actual bonuses paid
or payable during the contract term, and (iii) to receive any other amounts to
which he otherwise would have been entitled prior to the date of his death. The
Company may terminate his employment for any reason upon 120 days' written
notice. In the event of the Company's termination of his employment (other than
for cause, disability or death) or a termination by Mr. Lauder for good reason
after a change of control of the Company, (a) Mr. Lauder will be entitled to (i)
receive for the Post-Termination Period his base salary in effect at the time of
termination, (ii) receive bonus compensation equal to 50% of the average of
incentive compensation bonuses previously paid or payable to him during the
contract term, and (iii) participate in the Company's benefit plans during the
Post-Termination Period, and (b) in the case of termination by the Company
(other than for cause, disability or disability), Mr. Lauder will not be subject
to the non-competition covenant contained in his current employment agreement.
Mr. Lauder may terminate his employment for any reason at any time upon six
months' written notice to the Company, in which event the Company shall have no
further obligations after termination. "Post Termination Period" means the
longest from the date of termination of (a) one year, (b) the period until June
30, 2005, and (c) the period set forth in the Company's policy (which in no
event will be more than two years). If Mr. Lauder receives any severance
payments, then he is entitled to be reimbursed for any excise taxes that may be
imposed on them. If the Company does not renew the term of his employment, Mr.
Lauder will be entitled to receive during the Post-Termination Period his base
salary and certain other benefits consistent with Company policy.
20
PATRICK BOUSQUET-CHAVANNE. Mr. Bousquet-Chavanne's current employment
agreement provides for his employment as Group President through June 30, 2005,
unless earlier terminated. The agreement provides for an annual base salary of
$1 million, which Mr. Bousquet-Chavanne agreed would be $950,000 in fiscal 2003.
Mr. Bousquet-Chavanne is entitled to participate in standard benefit plans, such
as the Company's pension and medical plans. The Compensation Committee has
granted to Mr. Bousquet-Chavanne bonus opportunities equal to $1.5 million for
fiscal 2004. Mr. Bousquet-Chavanne may elect to defer certain of his cash
compensation. Mr. Bousquet-Chavanne has been granted options with respect to
100,000 shares of Class A Common Stock in each of fiscal 2002 through 2004 with
exercise prices of $40.50 per share, $32.15 per share and $33.44 per share and
the agreement contemplates additional stock option grants of 100,000 shares of
Class A Common Stock in fiscal 2005. The Company may terminate Mr.
Bousquet-Chavanne's employment at any time if he becomes "permanently disabled,"
in which event Mr. Bousquet-Chavanne will be entitled to (i) receive for a
period of one year from the date of termination his base salary in effect at the
time of termination, (ii) receive unpaid bonus compensation otherwise payable
for the fiscal year in which such disability occurred pro-rated to the date of
termination, and (iii) participate in the Company's benefit plans for such
one-year period. In the event of Mr. Bousquet-Chavanne's death during the term
of his employment, his beneficiary or legal representative will be entitled to
receive (i) for a period of one year Mr. Bousquet-Chavanne's base salary in
effect at the time of death and (ii) bonus compensation otherwise payable in
respect of the fiscal year prior to that in which he dies. The Company may
terminate his employment for any reason upon 60 days' written notice. In the
event of the Company's termination of his employment (other than for cause,
disability or death), (a) Mr. Bousquet-Chavanne will be entitled to (i) receive
for the Post-Termination Period, his base salary in effect at the time of
termination, (ii) receive bonus compensation equal to 50% of the average of
incentive compensation bonuses previously paid or payable to him during the
contract term and (iii) participate in the Company's benefit plans during the
Post-Termination Period and (b) in the case of termination by the Company (other
than for cause, disability or death), Mr. Bousquet-Chavanne will not be subject
to the non-competition covenant contained in his current Agreement. If the
Company does not renew the term of his employment, Mr. Bousquet-Chavanne will be
entitled to receive during the Post-Termination Period his base salary and other
benefits consistent with Company policy. In addition to his employment
agreement, in 2001, the Company made a loan in the amount of $2 million to Mr.
Bousquet-Chavanne. Mr. Bousquet-Chavanne's compensation is grossed up to cover
interest on the loan and the taxes on such interest. A separate agreement
provides that the loan shall be forgiven in its entirety as to principal if he
remains with the Company through July 1, 2005 and shall be forgiven in its
entirety with a gross-up for taxes if he remains with the Company through July
1, 2006. In fiscal 2003, the Company did not make any further payments in
connection with the split-dollar life insurance arrangements with Mr.
Bousquet-Chavanne because of uncertainty relating to Section 402 of
Sarbanes-Oxley.
DANIEL J. BRESTLE. Mr. Brestle's current employment agreement provides for
his employment as Group President through June 30, 2005, unless earlier
terminated. The agreement provides for an annual base salary of $1 million,
which Mr. Brestle agreed would be $950,000 in fiscal 2003. Mr. Brestle is
entitled to participate in standard benefit plans, such as the Company's pension
and medical plans. The Compensation Committee has granted to Mr. Brestle bonus
opportunities equal to $1.5 million for fiscal 2004. Mr. Brestle may elect to
defer certain of his cash compensation. Mr. Brestle has been granted options
with respect to 100,000 shares of Class A Common Stock in each of fiscal 2002
through 2004 with exercise prices of $40.50 per share, $32.15 per share and
$33.44 per share and the agreement contemplates additional stock option grants
of 100,000 shares of Class A Common Stock in fiscal 2005. The Company may
terminate Mr. Brestle's employment at any time if he becomes "permanently
disabled," in which event Mr. Brestle will be entitled to (i) receive for a
period of one year from the date of termination his base salary in effect at the
time of termination, (ii) receive unpaid bonus compensation otherwise payable
for the fiscal year in which such disability occurred pro-rated to the date of
termination, and (iii) participate in the Company's benefit plans for such
one-year period. In the event of Mr. Brestle's death during the term of his
employment, his beneficiary or legal representative will be entitled to receive
(i) for a period of one year Mr. Brestle's base salary in effect at the time of
death and (ii) bonus compensation otherwise payable in respect of the fiscal
year prior to that in which he dies. The Company may terminate his employment
for any reason upon 60 days' written notice. In the event of the Company's
termination of his employment (other than for cause, disability or death), (a)
Mr. Brestle will be entitled to (i) receive for the Post-Termination Period his
base salary in effect at the time of termination, (ii) receive bonus
compensation equal to 50% of the average of incentive compensation bonuses
previously paid or payable to him
21
during the contract term and (iii) participate in the Company's benefit plans
during the Post-Termination Period and (b) in the case of termination by the
Company (other than for cause, disability or death), Mr. Brestle will not be
subject to the non-competition covenant contained in his current Agreement. If
the Company does not renew the term of his employment, Mr. Brestle will be
entitled to receive during the Post-Termination Period his base salary and
certain other benefits consistent with the Company's policy. Upon termination
for any reason, options previously granted to Mr. Brestle will remain
exercisable for the remainder of their respective terms, subject to certain
non-competition and good conduct provisions. In fiscal 2003, the Company did not
make any further payments in connection with the split-dollar life insurance
arrangements with Mr. Brestle because of uncertainty relating to Section 402 of
Sarbanes-Oxley.
Each agreement described above provides that the Company may require the
executive to defer certain amounts to be received by him to the extent such
amounts may not be deductible by reason of Section 162(m) of the Internal
Revenue Code. Each employment agreement also contains certain confidentiality
and non-competition provisions.
COMPENSATION COMMITTEE AND STOCK PLAN SUBCOMMITTEE REPORT
The Company's executive compensation program is designed to attract and
retain high quality senior executives, and to motivate them to achieve both
short-term and long-term Company, divisional and individual goals. For fiscal
2003, compensation was paid primarily pursuant to employment agreements (for
those executive officers that have such agreements), the share incentive plans
(which provide for stock-based compensation) and the Executive Annual Incentive
Plan (for cash bonuses).
The Compensation Committee, consisting solely of outside directors,
oversees and approves compensation arrangements for the executive officers of
the Company (including the opportunities and bonuses paid under the Executive
Annual Incentive Plan). The Stock Plan Subcommittee administers the Company's
share incentive plans.
The Committee and the Subcommittee intend to engage independent
compensation consultants in fiscal 2004.
Salary and Bonuses
The Committee believes that the level of responsibility undertaken by
individual executives should be appropriately reflected in the establishment of
base salary amounts. Additionally, the Committee notes the long tenure of many
of the most senior executive officers. The Committee also considers comparative
information available from other companies, including companies in the peer
group in the performance graph. For fiscal 2003, the Committee also considered
projected business conditions, and the need to control overall expenses.
Accordingly, the Committee recommended and most executive officers, including
those with contractual rights, accepted 5% reductions in salary in fiscal 2003
as compared to fiscal 2002 levels.
The Committee believes that the performance-based bonus structure provided
under the Company's Executive Annual Incentive Plan is of key importance.
Accordingly, for executive officers in charge of sales divisions (i.e. the Group
Presidents), a material portion of total bonus eligibility is tied to
year-to-year achievements in financial and operational indicators, such as net
sales and net operating profit measured at the divisional level. For executive
officers in charge of corporate departments, bonuses are based in large part on
improvements in the Company's net earnings per common share and net sales. For
fiscal 2003, the Committee set performance targets based on business conditions
and assumptions existing in September 2002. The Committee authorized the payment
of bonuses in accordance with the pre-set targets. For fiscal 2003, the
Committee maintained aggregate bonus opportunities at fiscal 2002 levels, except
for the stretch goals.
Stock-Based Compensation
In fiscal 2003, the Stock Plan Subcommittee granted stock options to the
executive officers under the Fiscal 2002 Share Incentive Plan and in accordance
with applicable employment agreements. The size of each award reflected the
recipient's position and anticipated level of future contribution. In certain
cases, grants also were made to reward past performance.
Compensation of the Chief Executive Officer
Mr. Langhammer's salary reflects his long service with the Company, the
exceptional results he has achieved and his stature in the industry. The amount
of salary for fiscal 2003 represents a 5% reduction that Mr.
22
Langhammer agreed to take from the amount established in his employment
agreement in 2000 when he became Chief Executive Officer. His bonus for fiscal
2003 was based on the Company's net sales and net earnings results. The option
grant and stock unit grant in fiscal 2003 were made to Mr. Langhammer in
accordance with his employment agreement. The grant of stock units to Mr.
Langhammer in August 2003 was made in accordance with his employment agreement.
Also in fiscal 2003, the Committee extended the term of Mr. Langhammer's
employment agreement for one year.
Limitations on Deductibility
The Committee is aware of the limitations on deductibility for income tax
purposes of certain compensation paid to its most highly compensated executive
officers and considers the deduction limitation in determining compensation.
While the Company's compensation program as it applied to such persons in fiscal
2003 was designed to take advantage of the "performance-based" exception to the
deduction limitation, certain non-deductible compensation was authorized. Each
employment agreement with the named executive officers provides that amounts
payable pursuant thereto may be deferred to the extent such amounts would not be
deductible.
The Compensation Committee The Stock Plan Subcommittee
Lynn Forester de Rothschild Lynn Forester de Rothschild
Richard D. Parsons, Chairman Marshall Rose
Marshall Rose
PERFORMANCE GRAPH
The following graph compares the cumulative total stockholder return (stock
price appreciation plus dividends) on the Company's Class A Common Stock with
the cumulative total return of the S&P 500 Index and a market weighted index of
publicly traded peers. The returns are calculated by assuming an investment of
$100 in the Class A Common Stock and each in index on June 30, 1998. The
publicly traded companies included in the peer group are: Avon Products, Inc.,
Groupe Clarins S.A., L'Oreal S.A., LVMH Moet Hennessy Louis Vuitton, The Procter
& Gamble Company, Shiseido Company, Ltd. and Unilever N.V.
[TABLE BELOW REPRESENTS A LINE CHART IN THE ORIGINAL REPORT.]
The Estee Lauder
Companies, Inc. S & P 500 Peer Group
---------------- --------- ----------
6/98 100.00 100.00 100.00
6/99 144.55 122.76 106.81
6/00 143.23 131.66 76.66
6/01 125.47 112.13 93.41
6/02 103.06 91.96 101.31
6/03 98.89 92.19 92.46
Source: Research Data Group, Inc.
23
EQUITY COMPENSATION PLAN INFORMATION
The following table summarizes the equity compensation plans under which
our securities may be issued as of June 30, 2003 and does not include grants
made or cancelled and options exercised after such date. The securities that may
be issued consist solely of shares of our Class A Common Stock and, except as
disclosed in note (2) to the table, all plans were approved by stockholders of
the Company.
EQUITY COMPENSATION PLAN INFORMATION AS OF JUNE 30, 2003
NUMBER OF SECURITIES
REMAINING AVAILABLE
FOR FUTURE ISSUANCE
NUMBER OF SECURITIES WEIGHTED-AVERAGE UNDER EQUITY
TO BE ISSUED UPON EXERCISE PRICE OF COMPENSATION PLANS
EXERCISE OF OUTSTANDING (EXCLUDING SECURITIES
OUTSTANDING OPTIONS, OPTIONS, WARRANTS REFLECTED IN THE FIRST
PLAN CATEGORY WARRANTS AND RIGHTS AND RIGHTS COLUMN)
------------- -------------------- ----------------- ----------------------
Equity compensation plans approved
by security holders(1) ................. 29,542,243(2)(3) $34.93 7,118,577(4)
----------
(1) Includes the Fiscal 1996 Share Incentive Plan (the "1996 Plan"), Fiscal
1999 Share Incentive Plan (the "1999 Plan"), Fiscal 2002 Share Incentive
Plan (the "2002 Plan"), Non-Employee Director Share Incentive Plan (the
"Director Plan"), two Sassaby stock option plans (see note 2) and five
employment agreements entered into in 1995 prior to the initial public
offering.
(2) Includes outstanding options in respect of 14,104 shares of Class A Common
Stock that were granted under two stock option plans assumed by the
Company when it acquired Sassaby, Inc. in 1997. The Company never granted
any additional options under the plans.
(3) Excludes stock units in respect of 306,861 shares of Class A Common Stock.
(4) The 1996 Plan, the 1999 Plan and the 2002 Plan are similar omnibus plans.
Each authorizes the Stock Plan Subcommittee of the Board of Directors to
grant shares and benefits other than stock options. As of June 30, 2003,
there were 235,352, 7,053 and 6,011,322 shares of Class A Common Stock
available for issuance under each plan, respectively. Shares underlying
grants cancelled or forfeited under the 1996 Plan and the 1995 employment
agreements may be used for grants under the 1999 Plan or the 2002 Plan.
Shares underlying grants cancelled or forfeited under the 1999 Plan may be
used for grants under the 2002 Plan. The Director Plan provides for an
annual grant of options and a grant of either options or stock units to
non-employee directors. As of June 30, 2003, there were 203,257 shares
available pursuant to the Director Plan. Additionally, there were 661,593
shares available for issuance pursuant to one employment agreement at June
30, 2003. However, under the terms of that employment agreement no
additional grants may be made, other than dividend equivalent stock units.
In fiscal 2003, the dividend equivalent units granted under that
employment agreement were in respect of 1,364 shares.
If all of the outstanding options, warrants and rights and stock units and
the securities available for future issuance included in the first and third
columns in the table above were converted to shares of Class A Common Stock as
of June 30, 2003, the total shares of Common Stock outstanding (i.e. Class A
Common Stock plus Class B Common Stock) would increase 16% to 264,423,864. Of
the outstanding options to purchase 29,542,243 shares of Class A Common Stock,
options in respect of 15,893,729 shares are exercisable at a price less than
$33.53, the closing price on June 30, 2003. Assuming the exercise of only those
in-the-money options, the total shares outstanding would increase by 7% to
243,349,912.
24
APPROVAL OF THE ESTEE LAUDER COMPANIES INC.
EXECUTIVE ANNUAL INCENTIVE PLAN
(ITEM 2)
BACKGROUND
The Board of Directors is proposing for stockholder approval The Estee
Lauder Companies Inc. Executive Annual Incentive Plan (the "Executive Incentive
Plan"). The Executive Incentive Plan is being submitted for stockholder approval
in order to satisfy the "performance-based compensation" exception of Section
162(m) of the Internal Revenue Code. Generally, Section 162(m) denies a
deduction to publicly held corporations for compensation paid to certain
executive officers in excess of $1 million per executive per taxable year. An
exception applies to certain performance-based compensation provided that such
compensation has been approved by stockholders in a separate vote and certain
other requirements are met.
On May 28, 2003, the Compensation Committee adopted, and on July 17, 2003,
the Board of Directors ratified, subject to stockholder approval, the Executive
Incentive Plan. If approved by the stockholders, the Company believes that
opportunities granted under the Executive Incentive Plan should qualify for the
performance-based compensation exception to Section 162(m) of the Internal
Revenue Code. The following description summarizes the material features of the
Executive Incentive Plan; it is not intended to be a complete description and is
qualified in its entirety by reference to the copy of the Executive Incentive
Plan annexed to this Proxy Statement.
SUMMARY OF PLAN
The Executive Incentive Plan is designed to provide incentives and rewards
to the "Executive Officers" of the Company and to assist the Company in
motivating them to achieve the Company's annual performance goals. The Executive
Incentive Plan is substantially identical to the Executive Annual Incentive Plan
approved by stockholders at the Annual Meeting in 1998 (the "1998 Plan"), except
o the maximum amount payable to any "Executive Officer" in a fiscal year
has been reduced by 50% to $5 million (an amount that was not
surpassed under the 1998 Plan); and
o for purposes of setting a bonus opportunity, the business criteria
used to set a target relating to net sales may be based on targets,
rather than just growth, to accommodate those situations where net
sales for a division or group is expected to decrease due to planned
shifts in resources.
If the Executive Annual Incentive Plan is approved by stockholders, the
Company will cease using the 1998 Plan.
For purposes of the plan, Executive Officers means those persons who are
denoted as such from time to time by the Company in the Company's filings with
the Securities and Exchange Commission and those other persons as may be
designated as such from time to time by the Compensation Committee.
Approximately 15 persons are expected to be eligible to participate in the
Executive Incentive Plan.
Under the Executive Incentive Plan, each participant is granted
opportunities that will be paid if the performance target for the particular
opportunity is achieved. Under the plan, aggregate opportunities for an
individual, and therefore payouts, are limited to 200% of the executive's annual
base salary (except in the case of the Chief Executive Officer to whom such
limit does not apply) or such lower level as determined by the committee
administering the plan.
Currently, the Chief Executive Officer's aggregate target bonus
opportunities for a fiscal year is capped at $3 million (150% of his salary). In
no event may a participant receive more than $5 million on account of any fiscal
year.
The annual performance target for each opportunity shall be based on
achievement of hurdle rates, targets and/or growth in one or more business
criteria that apply to the individual participant, one or more business units or
the Company as a whole. The business criteria shall be as follows, individually
or in combination: (i) net earnings; (ii) earnings per share; (iii) net sales;
(iv) market share; (v) net operating profit; (vi) expense control; (vii) working
capital relating to inventory and/or accounts receivable; (viii) operating
margin; (ix) return on equity; (x) return on assets; (xi) planning accuracy (as
measured by comparing planned results to actual results);
25
(xii) market price per share; and (xiii) total return to stockholders. In
addition, the annual performance targets may include comparisons to performance
at other companies, such performance to be measured by one or more of the
foregoing business criteria.
The Executive Incentive Plan is administered by a committee appointed by
the Board of Directors comprised, unless otherwise determined by the Board of
Directors, solely of not less than two members who shall be "outside directors"
within the meaning of treasury regulation Section 1.162-27(e)(3) under Section
162(m) of the Code. Payouts are determined annually following the determination
of the Company's fiscal year-end results and certification by the committee that
the achievement of the opportunities has been accurately determined.
The Board has appointed, and expects to continue to appoint, to the
committee administering the Executive Incentive Plan only directors who are
"independent" as defined under the New York Stock Exchange's proposed rules.
However, it should be noted that the Company is a "controlled company" under the
New York Stock Exchange's proposed rules and is not required to appoint
directors who fit within that definition to the committee administering the
Executive Incentive Plan.
No opportunity may be granted after May 28, 2013.
The Executive Incentive Plan is subject to amendment or termination at any
time by the Compensation Committee, but no such action may adversely affect any
rights or obligations with respect to any awards previously made under the
Executive Incentive Plan and, unless the stockholders of the Company shall have
first approved thereof, no amendment of the plan shall be effective which would:
(i) increase the maximum amount which can be paid to any participant under the
plan; (ii) change the types of business criteria on which performance targets
are to be based under the plan; or (iii) modify the requirements as to
eligibility for participation in the plan. The Executive Incentive Plan also
specifically provides that it will be governed by New York law, which is the law
governing the Company's employment agreements and other principal compensation
plans.
OTHER INFORMATION
Approval of the Executive Incentive Plan requires the affirmative vote of a
majority of the votes cast by the holders of the shares of Class A Common Stock
and Class B Common Stock of the Company voting in person or by proxy at the 2003
Annual Meeting of Stockholders. If stockholders do not approve the Executive
Incentive Plan, the Company will reconsider the alternatives available with
respect to the compensation of the executive officers of the Company.
NEW PLAN BENEFITS
EXECUTIVE ANNUAL INCENTIVE PLAN
Currently, the amounts to be paid under the Executive Incentive Plan are
not determinable, but if the Executive Incentive Plan had been in effect for the
fiscal year ended June 30, 2003, amounts paid to executives would have been:
DOLLAR VALUE
NAME AND POSITION (IN THOUSANDS)
----------------- --------------
Leonard A. Lauder, Chairman of the Board ..................... $1,740
Fred H. Langhammer, President and Chief Executive Officer .... $2,900
William P. Lauder, Chief Operating Officer ................... $1,527
Patrick Bousquet-Chavanne, Group President ................... $1,202
Daniel J. Brestle, Group President ........................... $949
Executive Group (14 persons) ................................. $12,145
Non-Executive Director Group ................................. $0
Non-Executive Officer Group .................................. $0
THE BOARD BELIEVES THAT THE EXECUTIVE INCENTIVE PLAN IS IN THE BEST
INTERESTS OF THE COMPANY AND ITS STOCKHOLDERS AND THEREFORE RECOMMENDS THAT THE
STOCKHOLDERS VOTE FOR THE APPROVAL OF THE EXECUTIVE INCENTIVE PLAN. PROXIES
RECEIVED BY THE BOARD WILL BE SO VOTED UNLESS STOCKHOLDERS SPECIFY IN THEIR
PROXIES A CONTRARY CHOICE.
26
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
(ITEM 3)
The Audit Committee of the Board of Directors of the Company has appointed
the firm of KPMG LLP to serve as independent auditors of the Company for the
fiscal year ending June 30, 2004, subject to ratification of this appointment by
the stockholders of the Company. KPMG LLP was first appointed in April 2002 and
replaced Arthur Andersen LLP, which had served as independent auditors of the
Company for many years. KPMG LLP audited the Company's financial statements at
June 30, 2003 and 2002 and for the 2003 and 2002 fiscal years, and is considered
by management of the Company to be well qualified. The firm has advised the
Company that neither it nor any of its members has any direct or material
indirect financial interest in the Company.
For the fiscal years ended June 30, 2003 and 2002, the Company paid (or
will pay) the following fees to KPMG LLP (and its affiliates) for services
rendered during the year or for the audit in respect of those years:
FISCAL 2003 FISCAL 2002
----------- -----------
FEE TYPE (IN THOUSANDS)
--------
Audit Fees(1) ............................ $2,214 $1,523
Audit-Related Fees(2) .................... 659 --
Tax Fees(3) .............................. 755 --
All Other Fees ........................... -- --
------ ------
Total .................................... $3,628 $1,523
====== ======
----------
(1) Fees paid for professional services rendered in connection with the audit
of the annual financial statements and statutory audits of certain
international subsidiaries for each fiscal year and, for fiscal 2003, also
includes the review of the quarterly financial statements.
(2) Includes fees paid for professional services rendered in connection with
the audits of the Company's employee benefit plans, contractual audits,
due diligence and post-acquisition audit work.
(3) Includes fees paid for tax compliance, tax planning and related tax
services.
The Audit Committee of the Board of Directors has considered whether the
provision of non-audit services by KPMG LLP is compatible with maintaining
auditor independence. In 2002, the Audit Committee adopted a formal policy
concerning approval of audit and non-audit services to be provided by KPMG LLP.
The policy requires that all services KPMG LLP may provide to the Company,
including audit services and permitted audit-related and non-audit services, be
pre-approved by the Committee. The Chairman of the Audit Committee may approve
certain permitted non-audit services in between Committee meetings, which
services are subsequently reported to and approved by the Committee. In
addition, for particular permitted services, the Chief Financial Officer may
approve the engagement of KPMG LLP provided such engagement will amount to fees
of less than $50,000 and such engagement is reported to the Chairman of the
Committee and reported to and ratified by the Committee at its next meeting.
One or more representatives of KPMG LLP will be present at the Annual
Meeting of Stockholders, will have an opportunity to make a statement if he or
she desires to do so and will be available to respond to appropriate questions.
Ratification of the appointment of the independent auditors requires the
affirmative vote of a majority of the votes cast by the holders of the shares of
Class A Common Stock and Class B Common Stock of the Company voting in person or
by proxy at the Annual Meeting of Stockholders. If the stockholders do not
ratify the appointment of KPMG LLP, the Audit Committee of the Board of
Directors will reconsider the appointment.
On April 12, 2002, the Board of Directors, on the recommendation of the
Audit Committee, decided to end the engagement of Arthur Andersen LLP as the
Company's independent public accountants, effective after Arthur Andersen's
review of the Company's financial results for the quarter ended March 31, 2002
and the filing of the Company's report on Form 10-Q for such quarter, and
authorized the engagement of KPMG LLP to serve as the Company's independent
public accountants for fiscal 2002. None of Arthur Andersen's reports on the
Company's consolidated financial statements for the fiscal years ended June 30,
2001 and 2000 contained an
27
adverse opinion or disclaimer of opinion, nor was any such report qualified or
modified as to uncertainty, audit scope or accounting principles.
During the fiscal years ended June 30, 2001, 2000 and 1999 and through the
date the engagement ended, there were no disagreements between the Company and
Arthur Andersen on any matter of accounting principle or practice, financial
statement disclosure, or auditing scope or procedure which, if not resolved to
Arthur Andersen's satisfaction, would have caused them to make reference to the
subject matter in connection with their report on the Company's consolidated
financial statements for such years; and there were no reportable events as
defined in Item 304(a)(1)(v) of Regulation S-K.
The Company provided Arthur Andersen with a copy of the foregoing
disclosure in 2002.
During the fiscal years ended June 30, 2001 and 2000 and through the date
of the appointment, the Company did not consult KPMG LLP with respect to the
application of accounting principles to a specified transaction, either
completed or proposed, or the type of audit opinion that might be rendered on
the Company's consolidated financial statements, or any other matter or
reportable events as set forth in Items 304(a)(2)(i) and (ii) of Regulation S-K.
The Company provided KPMG LLP with a copy of the foregoing disclosure.
THE BOARD RECOMMENDS A VOTE FOR THE PROPOSAL TO RATIFY THE APPOINTMENT OF
KPMG LLP AS INDEPENDENT AUDITORS OF THE COMPANY FOR THE FISCAL YEAR ENDING JUNE
30, 2004. PROXIES RECEIVED BY THE BOARD WILL BE SO VOTED UNLESS A CONTRARY
CHOICE IS SPECIFIED IN THE PROXY.
PROXY PROCEDURE AND EXPENSES OF SOLICITATION
The Company will hold the votes of all stockholders in confidence from the
Company, its directors, officers and employees except: (i) as necessary to meet
applicable legal requirements and to assert or defend claims for or against the
Company; (ii) in case of a contested proxy solicitation; (iii) in the event that
a stockholder makes a written comment on the proxy card or otherwise
communicates his/her vote to management; or (iv) to allow the independent
inspectors of election to certify the results of the vote. The Company will
retain an independent tabulator to receive and tabulate the proxies and
independent inspectors of election to certify the results.
All expenses incurred in connection with the solicitation of proxies will
be borne by the Company. The Company will reimburse brokers, fiduciaries and
custodians for their costs in forwarding proxy materials to beneficial owners of
Common Stock held in their names.
Solicitation may be undertaken by mail, telephone, electronic means and
personal contact by directors, officers and employees of the Company without
additional compensation.
STOCKHOLDER PROPOSALS AND NOMINATIONS
If a stockholder intends to present a proposal for action at the 2004
Annual Meeting and wishes to have such proposal considered for inclusion in the
Company's proxy materials in reliance on Rule 14a-8 under the Securities
Exchange Act of 1934, the proposal must be submitted in writing and received by
the Secretary of the Company by May 17, 2004. Such proposal also must meet the
other requirements of the rules of the Securities and Exchange Commission
relating to stockholder proposals.
The Company's bylaws establish an advance notice procedure with regard to
certain matters, including stockholder proposals and nominations of individuals
for election to the Board of Directors, outside the process of Rule 14a-8. In
general, notice of a stockholder proposal or a director nomination for an annual
meeting must be received by the Company not less than 60 days nor more than 90
days prior to the first anniversary of the date on which the Company first
mailed its proxy materials for the preceding annual meeting of stockholders and
must contain specified information and conform to certain requirements, as set
forth in the bylaws. If the chairman at any meeting of stockholders determines
that a stockholder proposal or director nomination was not made in accordance
with the bylaws, the Company may disregard such proposal or nomination.
In addition, if a stockholder submits a proposal outside of Rule 14a-8 for
the 2004 Annual Meeting and the proposal fails to comply with the advance notice
procedure prescribed by the bylaws, then the Company's proxy may confer
discretionary authority on the persons being appointed as proxies on behalf of
the Board of Directors
28
to vote on the proposal. Proposals and nominations should be addressed to Sara
E. Moss, Senior Vice President, General Counsel and Secretary, The Estee Lauder
Companies Inc., 767 Fifth Avenue, New York, New York 10153.
OTHER INFORMATION
Management of the Company does not know of any matters that may properly
come before the meeting other than those referred to in the accompanying Notice
of Annual Meeting of Stockholders or other matters incident to the conduct of
the meeting. As to any other matter or proposal that may properly come before
the meeting, including voting for the election of any person as a Director in
place of a nominee named herein who becomes unable or declines to serve and
voting on a proposal omitted from this Proxy Statement pursuant to the rules of
the Securities and Exchange Commission, proxies will be voted in accordance with
the discretion of the proxy holders.
SARA E. MOSS
SENIOR VICE PRESIDENT,
GENERAL COUNSEL AND SECRETARY
New York, New York
September 15, 2003
THE ANNUAL REPORT TO STOCKHOLDERS OF THE COMPANY FOR THE FISCAL YEAR ENDED
JUNE 30, 2003, WHICH INCLUDES FINANCIAL STATEMENTS, HAS BEEN MAILED TO
STOCKHOLDERS OF THE COMPANY. THE ANNUAL REPORT DOES NOT FORM ANY PART OF THE
MATERIAL FOR THE SOLICITATIONS OF PROXIES.
29
ANNEX
THE ESTEE LAUDER COMPANIES INC.
EXECUTIVE ANNUAL INCENTIVE PLAN
1. PURPOSE.
The principal purposes of The Estee Lauder Companies Inc. Executive Annual
Incentive Plan (the "Plan") are to provide incentives and rewards to the
Executive Officers of The Estee Lauder Companies Inc. (the "Company"), including
those who may be employed by any of the Company's subsidiaries and affiliates,
and to assist the Company in motivating them to achieve the Company's annual
performance goals.
2. ADMINISTRATION OF THE PLAN.
The Plan will be administered by a committee (the "Committee") appointed by
the Board of Directors of the Company from among its members (which may be the
Compensation Committee) and shall be comprised, unless otherwise determined by
the Board of Directors, solely of not less than two members who shall be
"outside directors" within the meaning of Treasury Regulation Section
1.162-27(e)(3) under Section 162(m) of the Internal Revenue Code of 1986, as
amended (the "Code").
The Committee shall have all the powers vested in it by the terms of this
Plan, such powers to include authority (within the limitations described herein)
to select the persons to be granted opportunities under the Plan, to determine
the time when opportunities will be granted, to determine whether objectives and
conditions for achieving an opportunity have been met, to determine whether
opportunities will be paid out at the end of the opportunity period or deferred,
and to determine whether an opportunity or payout of an opportunity should be
reduced or eliminated.
The Committee shall have full power and authority to administer and
interpret the Plan and to adopt such rules, regulations, agreements, guidelines
and instruments for the administration of the Plan and for the conduct of its
business as the Committee deems necessary or advisable. The Committee's
interpretations of the Plan, and all actions taken and determinations made by
the Committee pursuant to the powers vested in it hereunder, shall be conclusive
and binding on all parties concerned, including the Company, its stockholders
and any person granted an opportunity under the Plan.
The Committee may delegate all or a portion of its administrative duties
under the Plan to such officers or other employees of the Company as it shall
determine; provided, however, that no delegation shall be made regarding the
selection of Executive Officers of the Company who shall be granted
opportunities under the Plan, the amount and timing thereof, or the objectives
and conditions pertaining thereto.
3. ELIGIBILITY.
The Committee, in its discretion, may grant opportunities to Executive
Officers for each fiscal year of the Company as it shall determine. For purposes
of the Plan, Executive Officers shall be defined as those persons who shall be
denoted as such from time to time by the Company in the Company's filings with
the Securities and Exchange Commission and those other persons as may be
designated as such from time to time by the Compensation Committee. Executive
Officers granted opportunities for a fiscal year of the Company are referred to
as "participants" for such fiscal year.
4. OPPORTUNITIES.
(a) SETTING OF OPPORTUNITIES. For each fiscal year of the Company
commencing with the fiscal year beginning July 1, 2003, each
participant shall be granted an opportunity (or opportunities) under
the Plan as soon as practicable after the start of such fiscal year
and no later than 90 days after the commencement of such fiscal year;
provided, however, that if an individual becomes eligible to
participate during a fiscal year and after such 90 day period that
individual may be granted an opportunity (or opportunities) for a
portion of such fiscal year ending on the last day of such fiscal year
if such opportunity (or opportunities) is granted after no more than
25% of the period of service to which the opportunity (or
opportunities) relates has elapsed. The aggregate of opportunities
shall be
A-1
limited to 200% of the annual base salary of the participant (except
in the case of the Chief Executive Officer of the Company to whom such
limitation shall not apply) and shall not exceed the amount provided
for in Section 4(f) hereof.
(b) PERFORMANCE TARGETS. For each fiscal year of the Company commencing
with the fiscal year beginning July 1, 2003, the annual performance
target for each opportunity shall be determined by the Committee in
writing, by resolution of the Committee or other appropriate action,
not later than 90 days after the commencement of such fiscal year, and
each such performance target shall state, in terms of an objective
formula or standard, the method for computing the amount of
compensation payable to the applicable participant if such performance
target is attained; provided, however, that if an individual becomes
eligible to participate during a fiscal year and after such 90 day
period that individual's performance target (or targets) may be
determined by the Committee in writing, by resolution of the Committee
or other appropriate action, after no more than 25% of the period of
service to which the performance target (or targets) relates has
elapsed. The annual performance target for each opportunity shall be
based on achievement of hurdle rates, targets and/or growth in one or
more business criteria that apply to the individual participant, one
or more business units or the Company as a whole. The business
criteria shall be as follows, individually or in combination: (i) net
earnings; (ii) earnings per share; (iii) net sales; (iv) market share;
(v) net operating profit; (vi) expense control; (vii) working capital
relating to inventory and/or accounts receivable; (viii) operating
margin; (ix) return on equity; (x) return on assets; (xi) planning
accuracy (as measured by comparing planned results to actual results);
(xii) market price per share; and (xiii) total return to stockholders.
In addition, the annual performance targets may include comparisons to
performance at other companies, such performance to be measured by one
or more of the foregoing business criteria.
(c) PAYOUT OF OPPORTUNITIES. As a condition to the right of a participant
to receive cash payout of an opportunity granted under this Plan, the
Committee shall first be required to certify in writing, by resolution
of the Committee or other appropriate action, that the achievement of
the opportunity has been accurately determined in accordance with the
provisions of this Plan. Opportunities for a fiscal year shall be
payable as soon as practicable following the certification thereof by
the Committee for such fiscal year.
(d) DISCRETION. After an opportunity has been granted, the Committee shall
not increase such opportunity, and after a performance target has been
determined, the Committee shall not revise such performance target.
Notwithstanding the attainment by the Company and a participant of the
applicable targets, the Committee has the discretion, by participant,
to reduce, prior to the certification of the opportunity, some or all
of an opportunity that otherwise would be paid.
(e) DEFERRAL. The Committee may determine that the payout of an
opportunity or a portion of an opportunity shall be deferred, the
periods of such deferrals and any interest, not to exceed a reasonable
rate, to be paid in respect of deferred payments. The Committee may
also define such other conditions of payouts of opportunities as it
may deem desirable in carrying out the purposes of the Plan.
(f) MAXIMUM PAYOUT PER FISCAL YEAR. No individual participant may receive
aggregate opportunities or a payout under the Plan which are more than
$5 million on account of any fiscal year.
5. MISCELLANEOUS PROVISIONS.
(a) GUIDELINES. The Committee may adopt from time to time written policies
for its implementation of the Plan.
(b) WITHHOLDING TAXES. The Company (or the relevant subsidiary or
affiliate) shall have the right to deduct from all payouts of
opportunities hereunder any federal, state, local or foreign taxes
required by law to be withheld with respect to such payouts.
(c) NO RIGHTS TO OPPORTUNITIES. Except as set forth herein, no Executive
Officer shall have any claim or right to be granted an opportunity
under the Plan. Neither the Plan nor any action taken hereunder shall
be construed as giving any Executive Officer any right to be retained
in the employ of the Company or any of its subsidiaries, divisions or
affiliates.
A-2
(d) COSTS AND EXPENSES. The cost and expenses of administering the Plan
shall be borne by the Company and not charged to any opportunity or
payout nor to any Executive Officer receiving an opportunity or a
payout.
(e) FUNDING OF PLAN. The Plan shall be unfunded. The Company shall not be
required to establish any special or separate fund or to make any
other segregation of assets to assure the payout of any opportunity
under the Plan.
(f) GOVERNING LAW. The Plan, opportunities granted hereunder and actions
taken in connection herewith shall be governed and construed in
accordance with the laws of the State of New York (regardless of the
law that might otherwise govern under the applicable New York
principles of conflict of laws).
6. EFFECTIVE DATE, AMENDMENTS AND TERMINATION.
(a) EFFECTIVE DATE. The Plan shall be effective as of May 28, 2003, the
date on which the Plan was adopted by the Committee (the "Effective
Date"), provided that the Plan is approved by the stockholders of the
Company at an annual meeting or any special meeting of stockholders of
the Company within 12 months of the Effective Date, and such approval
of stockholders shall be a condition to the right of each participant
to receive any opportunities or payouts hereunder. Any opportunities
granted under the Plan prior to such approval of stockholders shall be
effective as of the date of grant (unless, with respect to any
opportunity, the Committee specifies otherwise at the time of grant),
but no such opportunity may be paid out prior to such stockholder
approval, and if stockholders fail to approve the Plan as specified
hereunder, any such opportunity shall be cancelled.
(b) AMENDMENTS. The Committee may at any time terminate or from time to
time amend the Plan in whole or in part, but no such action shall
adversely affect any rights or obligations with respect to any
opportunities theretofore granted under the Plan. Unless the
stockholders of the Company shall have first approved thereof, no
amendment of the Plan shall be effective which would: (i) increase the
maximum amount which can be paid to any participant under the Plan;
(ii) change the types of business criteria on which performance
targets are to be based under the Plan; or (iii) modify the
requirements as to eligibility for participation in the Plan.
(c) TERMINATION. No opportunities shall be granted under the Plan after
ten (10) years after the Effective Date.
A-3
[ESTEE LAUDER COMPANIES LOGO]
[LOGO]
THE ESTEE LAUDER COMPANIES INC.
PROXY CLASS A COMMON STOCK
ANNUAL MEETING OF STOCKHOLDERS
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
The undersigned, revoking all previous proxies, hereby constitutes and
appoints Fred H. Langhammer, William P. Lauder and Richard W. Kunes, and each of
them, proxies with full power of substitution to vote for the undersigned all
shares of Class A Common Stock of The Estee Lauder Companies Inc. (the
"Company") which the undersigned would be entitled to vote if personally present
at the Annual Meeting of Stockholders to be held on November 5, 2003, at The
Essex House, Grand Salon, 160 Central Park South, New York, New York, at 10:00
a.m. (local time), and at any adjournment thereof, upon the matters described in
the accompanying Proxy Statement and upon any other business that may properly
come before the meeting or any adjournment thereof. Said proxies are directed to
vote or refrain from voting as checked on the reverse side upon the matters
listed on the reverse side, and otherwise in their discretion.
THIS PROXY IS CONTINUED ON THE REVERSE SIDE.
PLEASE SIGN ON THE REVERSE SIDE AND RETURN PROMPTLY.
ADDRESS CHANGE/COMMENTS (MARK THE CORRESPONDING BOX ON THE REVERSE SIDE)
FOLD AND DETACH HERE
THIS PROXY WHEN PROPERLY EXECUTED, WILL BE VOTED AS Please [ ]
DIRECTED HEREIN. IF NO DIRECTION IS GIVEN, THIS PROXY Mark Here
WILL BE VOTED IN ACCORDANCE WITH THE RECOMMENDATIONS OF for Address
THE COMPANY'S BOARD OF DIRECTORS "FOR" ALL NOMINEES IN Change or
ITEM 1 AND "FOR" ITEMS 2 AND 3. Comments
SEE REVERSE SIDE
Item 1 - Election of three (3) Class I Directors:
01 Irvine O. Hockaday, Jr., 02 Fred H. Langhammer
03 Rose Marie Bravo
FOR ALL NOMINEES WITHHOLD AUTHORITY
with exceptions noted FOR ALL NOMINEES
[ ] [ ]
Withheld for the following only:
(Write the name(s) of the Nominee(s) in the space below)
________________________________________________________
FOR AGAINST ABSTAIN
Item 2 - Approval of the Executive Annual [ ] [ ] [ ]
Incentive Plan
FOR AGAINST ABSTAIN
Item 3 - Ratification of appointment of KPMG LLP [ ] [ ] [ ]
as independent auditors for the 2004 fiscal
year.
By checking the box to the right, I consent to future access of the Annual
Reports, Proxy Statements, prospectuses and other communications electronically
via the Internet. I understand that the Company may no longer distribute printed
materials to me for any future stockholder meeting until such consent is
revoked. I understand that I may revoke my consent at any time by contacting the
Company's transfer agent, Mellon Investor Services, Ridgefield Park, NJ and that
costs normally associated with electronic access, such as usage and telephone
charges, will be my responsibility.
I plan to attend the [ ]
Annual Meeting
Please mark, date and sign exactly as your name appears hereon and return in the
enclosed envelope. If acting as executor, administrator, trustee, guardian,
etc., you should so indicate when signing. If the signer is a corporation,
please sign the full corporate name, by duly authorized officer. If shares are
held jointly, each stockholder named should sign.
Dated: ______________________________________, 2003
___________________________________________________
SIGNATURE(S) OF STOCKHOLDER(S)
TITLE: ____________________________________________
___________________________________________________
SIGNATURE(S) OF STOCKHOLDER(S)
TITLE: ____________________________________________
FOLD AND DETACH HERE
NOTICE: IF YOU PLAN TO ATTEND THE 2003 ANNUAL MEETING,
PLEASE CHECK THE BOX ON THE PROXY CARD ABOVE.
AN ADMISSION TICKET WILL BE MAILED TO YOU.
NO ADMISSION WILL BE GRANTED WITHOUT AN ADMISSION TICKET.
[ESTEE LAUDER COMPANIES LOGO]
THE ESTEE LAUDER COMPANIES INC.
ANNUAL MEETING OF STOCKHOLDERS
NOVEMBER 5, 2003, 10:00 A.M. (LOCAL TIME)
THE ESSEX HOUSE
GRAND SALON
160 CENTRAL PARK SOUTH
NEW YORK, NEW YORK
--------------------------------------------------------------------------------
IF YOU WISH TO ACCESS FUTURE ANNUAL REPORTS AND PROXY STATEMENTS ELECTRONICALLY
VIA THE INTERNET AND NO LONGER RECEIVE THE PRINTED MATERIALS, PLEASE PROVIDE
YOUR CONSENT WITH YOUR PROXY VOTE.
YOU MAY VIEW THE 2003 ANNUAL REPORT AND PROXY STATEMENT AT
HTTP://WWW.ELCOMPANIES.COM.
--------------------------------------------------------------------------------
THE ESTEE LAUDER COMPANIES INC.
PROXY CLASS B COMMON STOCK
ANNUAL MEETING OF STOCKHOLDERS
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
The undersigned, revoking all previous proxies, hereby constitutes and
appoints Fred H. Langhammer, William P. Lauder and Richard W. Kunes, and each of
them, proxies with full power of substitution to vote for the undersigned all
shares of Class B Common Stock of The Estee Lauder Companies Inc. (the
"Company") which the undersigned would be entitled to vote if personally present
at the Annual Meeting of Stockholders to be held on November 5, 2003, at The
Essex House, Grand Salon, 160 Central Park South, New York, New York, at 10:00
a.m. (local time), and at any adjournment thereof, upon the matters described in
the accompanying Proxy Statement and upon any other business that may properly
come before the meeting or any adjournment thereof. Said proxies are directed to
vote or refrain from voting as checked on the reverse side upon the matters
listed on the reverse side, and otherwise in their discretion.
THIS PROXY IS CONTINUED ON THE REVERSE SIDE.
PLEASE SIGN ON THE REVERSE SIDE AND RETURN PROMPTLY.
ADDRESS CHANGE/COMMENTS (MARK THE CORRESPONDING BOX ON THE REVERSE SIDE)
FOLD AND DETACH HERE
THIS PROXY WHEN PROPERLY EXECUTED, WILL BE VOTED AS Please [ ]
DIRECTED HEREIN. IF NO DIRECTION IS GIVEN, THIS PROXY Mark Here
WILL BE VOTED IN ACCORDANCE WITH THE RECOMMENDATIONS OF for Address
THE COMPANY'S BOARD OF DIRECTORS "FOR" ALL NOMINEES IN Change or
ITEM 1 AND "FOR" ITEMS 2 AND 3. Comments
SEE REVERSE SIDE
Item 1 - Election of three (3) Class I Directors:
01 Irvine O. Hockaday, Jr., 02 Fred H. Langhammer
03 Rose Marie Bravo
FOR ALL NOMINEES WITHHOLD AUTHORITY
with exceptions noted FOR ALL NOMINEES
[ ] [ ]
Withheld for the following only:
(Write the name(s) of the Nominee(s) in the space below)
________________________________________________________
FOR AGAINST ABSTAIN
Item 2 - Approval of the Executive Annual [ ] [ ] [ ]
Incentive Plan
FOR AGAINST ABSTAIN
Item 3 - Ratification of appointment of KPMG LLP [ ] [ ] [ ]
as independent auditors for the 2004 fiscal
year.
By checking the box to the right, I consent to future access of the Annual
Reports, Proxy Statements, prospectuses and other communications electronically
via the Internet. I understand that the Company may no longer distribute printed
materials to me for any future stockholder meeting until such consent is
revoked. I understand that I may revoke my consent at any time by contacting the
Company's transfer agent, Mellon Investor Services, Ridgefield Park, NJ and that
costs normally associated with electronic access, such as usage and telephone
charges, will be my responsibility.
I plan to attend the [ ]
Annual Meeting
Please mark, date and sign exactly as your name appears hereon and return in the
enclosed envelope. If acting as executor, administrator, trustee, guardian,
etc., you should so indicate when signing. If the signer is a corporation,
please sign the full corporate name, by duly authorized officer. If shares are
held jointly, each stockholder named should sign.
Dated: ______________________________________, 2003
___________________________________________________
SIGNATURE(S) OF STOCKHOLDER(S)
TITLE: ____________________________________________
___________________________________________________
SIGNATURE(S) OF STOCKHOLDER(S)
TITLE: ____________________________________________
FOLD AND DETACH HERE
NOTICE: IF YOU PLAN TO ATTEND THE 2003 ANNUAL MEETING,
PLEASE CHECK THE BOX ON THE PROXY CARD ABOVE.
AN ADMISSION TICKET WILL BE MAILED TO YOU.
NO ADMISSION WILL BE GRANTED WITHOUT AN ADMISSION TICKET.
[ESTEE LAUDER COMPANIES LOGO]
THE ESTEE LAUDER COMPANIES INC.
ANNUAL MEETING OF STOCKHOLDERS
NOVEMBER 5, 2003, 10:00 A.M. (LOCAL TIME)
THE ESSEX HOUSE
GRAND SALON
160 CENTRAL PARK SOUTH
NEW YORK, NEW YORK
--------------------------------------------------------------------------------
IF YOU WISH TO ACCESS FUTURE ANNUAL REPORTS AND PROXY STATEMENTS ELECTRONICALLY
VIA THE INTERNET AND NO LONGER RECEIVE THE PRINTED MATERIALS, PLEASE PROVIDE
YOUR CONSENT WITH YOUR PROXY VOTE.
YOU MAY VIEW THE 2003 ANNUAL REPORT AND PROXY STATEMENT AT
HTTP://WWW.ELCOMPANIES.COM.
--------------------------------------------------------------------------------