THIS DOCUMENT CONSTITUTES PART OF A PROSPECTUS COVERING SECURITIES
THAT HAVE BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED.
(POLO RALPH LAUREN LOGO) [y23830y2383000.gif]
Pro-Rata Restricted Performance Share Unit Award Overview — United States
Fiscal 2007

 

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HIGHLIGHTS OF THE AWARD
This Overview is qualified in its entirety by reference to the Memorandum to
Participants in the Polo Ralph Lauren 1997 Long-Term Stock Incentive Plan and to
the Plan itself. Copies of the Memorandum and the Plan are available from your
Human Resources Department or by logging on to the Intranet at
http://poloexpress.polo.com. Once on the Polo home page, on the left hand side
choose:
Tools & Resources ® Human Resources ® Benefits ® Stock Plan Summaries ®
Long-Term Stock Incentive Plan Summary or ®Long-Term Stock Incentive Plan
Memorandum
OVERVIEW
The Polo Ralph Lauren Corporation 1997 Long-Term Stock Incentive Plan (as
amended and restated as of August 12, 2004, “the Plan”) authorizes the
Compensation Committee of the Board of Directors to grant equity awards to
officers and other employees of the Company and its subsidiaries. The Plan is
designed to give you, our most influential employees, a direct stake in our
success. The Plan aligns your interests with shareholders’ interests in
achieving financial goals.
As the recipient of a Restricted Performance Share Unit (RPSU) award, you have
the opportunity to receive shares of Polo Ralph Lauren Class A Common Stock
(traded on the New York Stock Exchange under the symbol RL), at a later date
based on Company results.
As determined by the Compensation Committee, the Corporation may grant one or
more types of RPSUs. This Overview describes one type of RPSU that has
three-year pro-rata vesting (“Pro-Rata RPSU”), and the potential benefits this
award has for you.
AWARD OBJECTIVES
The objectives of the award are to:

  1.   Motivate you to help the Company achieve performance goals by linking
equity-based compensation to Corporate results.     2.   Continue to attract and
retain individuals of superior talent to support the Corporation’s ongoing
success.

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PLAN ADMINISTRATION
Polo Ralph Lauren’s Human Resources Department administers the Pro-Rata RPSU
Award Program. Record keeping for Pro-Rata RPSU awards is performed by Merrill
Lynch. You must have an open brokerage account at Merrill Lynch in order to
facilitate distribution of your vested Pro-Rata RPSUs. You can contact a Merrill
Lynch representative at 1-877-765-POLO to open an account or login at
www.benefits.ml.com.
The Company’s Board of Directors reserves the right to amend, modify or
terminate the Plan at any time. No such amendment to the Plan would adversely
affect any Pro-Rata RPSU awards then outstanding.
If you have any questions after reading this Overview, please consult the
Memorandum to Participants (available on the Intranet as noted above) or the
Corporate Compensation Department.
WHO IS ELIGIBLE TO RECEIVE A GRANT?
Equity awards, including Pro-Rata RPSU awards, are granted to individuals in key
executive positions that have a significant impact on the strategic direction
and business results of the Company. Individuals in designated positions may
receive an equity award each year.
Guidelines have been established for the number and type of equity awards that
eligible participants may receive. The guidelines reflect a position’s scope,
accountability and impact on the organization, and may also reflect changes in
the value of Polo Ralph Lauren stock.
Please note that the guidelines do not constitute a guarantee that any specific
individual will receive an equity award in any given year or guarantee the type
or the size of any grant, if a grant is made.
Also, an eligible Polo Ralph Lauren employee who receives an Improvement Needed
(I) or Unsatisfactory (U) rating on his/her annual performance appraisal is not
eligible for an equity award in the fiscal year following that performance
appraisal period.
VALUE OF RESTRICTED PERFORMANCE SHARE UNITS
Pro-Rata RPSUs can make you an owner of Polo Ralph Lauren stock. Unlike stock
options, the value is not dependent on an increase in the price of Polo Ralph
Lauren stock after the award date; however, an increase in the stock price does
increase the value of the award. In the following hypothetical example, we are
not forecasting growth in the Company’s stock price, but merely illustrating
both the original award value and the opportunity for gains based on potential
rates of appreciation in the price of the stock.

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The example assumes a grant of 450 Pro-Rata RPSUs. At a stock price of $55 when
the grant was made, the value of the underlying shares of Polo Ralph Lauren
stock was $24,750 when granted. Any increase in the stock price above the price
of the stock on the grant date increases the value of the award as shown below.
POTENTIAL VALUE INCREASE
Award of 450 PRO-RATA RPSUs with $55 Price at Grant Date

                                                      If Stock Price Reaches:  
  Number of Shares   $55   $58   $60   $62
Value (assumes all
                                       
shares granted have vested)
    450     $ 24,750     $ 26,100     $ 27,000     $ 27,900  

Note: Value is before tax and shares will be withheld in satisfaction of
withholding taxes.
GRANT AMOUNT AND VESTING
The number of units in a Pro-Rata RPSU award is set as of the grant date. The
award will vest over a three-year period with each third of the award having an
annual Corporate performance goal associated with it. One third of the Pro-Rata
RPSUs granted in fiscal 2007 will vest each year after the end of fiscal 2007,
fiscal 2008 and fiscal 2009 subject to achievement of the applicable annual
performance goal.
The Corporate performance measures(s) are established by the Compensation
Committee at the time of the grant, and may include (among others) one or more
of the following:

•   Net Earnings or Net Income (before or after taxes)   •   Basic or Diluted
Earnings Per Share   •   Net Operating Profit   •   Net Revenue or Net Revenue
Growth   •   Gross Profit or Gross Profit Growth   •   Return on Assets

Once a Pro-Rata RPSU award is granted, the performance measure(s), vesting and
payout schedule will not be modified during the award term, although the fiscal
year performance goal associated with the performance measure for each one-third
of the grant is set by the Compensation Committee annually. For any future
awards granted, the Compensation Committee may change the performance measure(s)
and associated goals, and the vesting and payout schedule. In calculating
performance against the goal for any fiscal year, the Corporate results may be
adjusted to exclude the effects of certain events and transactions as specified
by the Committee at the time of grant.

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For Fiscal 2007 Pro-Rata RPSUs, the performance measure is Net Income Before
Income Tax. This performance measure is also used for the Executive Incentive
Plan (EIP). The performance level that must be achieved for one-third of the
Fiscal 2007 Pro-Rata RPSUs to vest is Threshold, which is 80% of the Target net
income before tax. The EIP goal range is communicated in your Total Executive
Compensation package.

                      Performance   Performance Grant Date   Vesting   Period  
Measure and Level of Achievement
FY07 (June 2006
  1st third of Award   Fiscal 2007   Net Income Before Income Tax (NIBT) at
Threshold (80% of Target)
grant date)
  2nd third of Award   Fiscal 2008   Net Income Before Income Tax (NIBT) at
Threshold (80% of Target)
 
  Final third of Award   Fiscal 2009   Net Income Before Income Tax (NIBT) at
Threshold (80% of Target)

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     The payout provisions for the Fiscal 2007 Pro-Rata RPSU grants will be as
follows:

                  % of Fiscal Year         % of Shares   Goal Achieved  
Performance Level     Vested    
Less than 80% of Corporate NIBT Target
  Below Threshold     0  
 
               
80% or better of Corporate NIBT Target
  Threshold or above     100 %

•   If the level of performance achieved is at or above the NIBT Threshold (80%
of Target) in any given year, then the one-third of the Pro-Rata RPSUs eligible
to vest for that fiscal year will vest, and actual shares of Polo Ralph Lauren
stock will be distributed to you.   •   If the level of performance is below
Threshold for that fiscal year, the Pro-Rata RPSUs that would have been eligible
for vesting in that fiscal year will be forfeited, and there is no opportunity
to earn them in other years. However, vesting opportunities for subsequent years
will not be impacted, regardless of whether the performance Threshold is met for
the current year.

Vesting of Pro-Rata RPSUs will typically occur in June but may occur earlier or
later.

Ownership of Polo Ralph Lauren Shares
If Threshold or better Corporate performance is achieved, participants will
receive shares of stock. You will own the shares and as a shareholder of Polo
Ralph Lauren, you will have voting rights, and you will receive dividends.
Dividends are not earned on Pro-Rata RPSUs. Dividends will accrue and be paid
only after vesting occurs and actual shares are distributed to the participant.

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EXAMPLES
A Pro-Rata RPSU award granted in fiscal 2007 will vest in equal installments
over three fiscal years, subject to achievement of Threshold or better
performance against the Corporate NIBT goal in each of the fiscal years 2007,
2008 and 2009.
Example 1 — Fiscal 2007 Award and Shares Vested with Various Performance Levels
in following years
FY07 Grant (June 2006)
450 Pro-Rata RPSUs Granted

                                              # Pro-Rata                   #
Pro-Rata         RPSUs   Performance           RPSUs     Performance   Eligible
to   Level   Vesting   Vested and   Date of    Period   Vest   Achieved 1  
Percentage   Delivered   Vesting
FY07
    150     Threshold     100 %     150     June 2007
FY08
    150     Below Threshold     0 %     0       N/A  
FY09
    150     Threshold     100 %     150     June 2009
Totals
    450                       300          

 

1   Threshold refers to attaining at least 80% of the Corporate NIBT goal.

Additionally, beginning with fiscal 2008, depending on grants received, more
than one Pro-Rata RPSU award will be eligible to vest each year, as shown below:
Example 2 — Multiple Awards with Shares Eligible to Vest

                                                      # of Pro-Rata            
    RPSUs   1/3 of Pro-Rata RPSU Eligible to Vest1     Year Granted   Granted  
June 2007   June 2008   June 2009
 
    FY07       450       150       150       150  
 
  June 2006                                
 
    FY08       480       —       160       160  
 
  June 2007                                
 
    FY09       420       —       —       140  
 
  June 2008                                
 
  Total Pro-Rata     1,350       150       310       450  
 
  RPSUs                                

Note: Additional Pro-Rata RPSUs may vest in future years.
 

1   If at least Threshold (80% of Target) Corporate performance is achieved

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TAX CONSEQUENSES AT VESTING
The value of the shares at vesting will be subject to federal, state, and local
taxes. See Page 9 for further information.
SELLING YOUR SHARES
When shares acquired through vesting of a Pro-Rata RPSU award are sold at a
later date, you can benefit from any additional price appreciation that occurred
after the date the units were vested and distributed. Note that you may have
additional tax liability when shares are sold. Shares received from a Pro-Rata
RPSU award may be sold at any time, except when such sale would be considered
insider trading or during those “Blackout” periods specified by the Company’s
Securities Trading Policy (see Page 10). Executive Officers, however, may sell
shares only pursuant to SEC Rule 144 or another applicable exception under the
Securities Act of 1933, as amended.

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IF YOU LEAVE THE COMPANY
The following chart explains what happens if you leave Polo Ralph Lauren.
IMPACT ON PRO-RATA RESTRICTED PERFORMANCE SHARE UNIT AWARDS

          Event   Status of Awards
Retirement Beginning at age 55
Disability
Death
  •   In the fiscal year of retirement, disability or death, a pro-rated1 number
of the Pro-Rata RPSUs for that fiscal year will be determined and will vest at
their normal vesting date, assuming Threshold or better Corporate performance is
achieved. If Corporate performance does not reach the Threshold level, then the
pro-rated RPSUs will be forfeited.
 
       
 
  •   All remaining Pro-Rata RPSUs (for that fiscal year and any other fiscal
years remaining) are forfeited.
 
       
Involuntary Termination (without cause)
  •   All unvested Pro-Rata RPSUs are forfeited.
 
       
Dismissal for Cause
  •   All vested Pro-Rata RPSUs not yet distributed are forfeited.
 
       
 
  •   All unvested Pro-Rata RPSUs are forfeited.
 
       
Voluntary Resignation
  •   All unvested Pro-Rata RPSUs are forfeited.

 

1   For purposes of the Pro-Rata RPSU program, the pro-rated portion will be
determined by taking the number of months worked in the fiscal year, dividing it
by 12, and then multiplying the resulting decimal by the number of Pro-Rata
RPSUs scheduled to vest for that fiscal year.

Once Pro-Rata RPSUs have vested and a participant receives shares of Polo Ralph
Lauren stock from any Pro-Rata RSPU award, the participant retains all rights to
those shares.

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TAX LIABILITY
The following statements regarding United States federal income tax consequences
of the grant and vesting of Pro-Rata Restricted Performance Share Unit awards
under the Plan should be read in conjunction with the “Federal Income Tax
Consequences” section of the Memorandum to Participants in the Polo Ralph Lauren
Corporation 1997 Long-Term Stock Incentive Plan and are not intended to be a
complete summary of applicable law, nor do they address state, local or non-U.S.
tax considerations. Moreover, the federal income tax consequences to any
particular participant may differ from those described herein by reason of,
among other things, the specific circumstances of such participant. For these
reasons, participants are urged to consult their tax advisors with respect to
the consequences of their participation in the Plan.
AT GRANT
No United States federal income tax is owed at grant.
AT VESTING
You must have an open brokerage account at Merrill Lynch in order to receive
vested Pro-Rata RPSUs.
United States federal income tax is owed on the value of the shares of Polo
Ralph Lauren stock, if any, to be distributed upon vesting of any Pro-Rata
RPSUs.
In the example above, for an award of 450 Pro-Rata RPSUs, 150 shares would be
eligible to vest one year after grant if Threshold or better Corporate
performance has been achieved. If the stock price was $55 on the vesting date,
the value of 150 Pro-Rata RPSUs at $55 per share would be $8,250, so that amount
would be subject to federal income taxes. In addition, the value will be subject
to state and local taxes, as well as Federal Insurance Contributions Act
(FICA) tax to the extent applicable.
A participant will automatically have a portion of their shares sold (a whole
number of shares only) and the proceeds used to satisfy applicable federal,
state, and local payroll and income tax withholding requirements. However, the
amount withheld for taxes may be less than a participant’s actual federal, state
or local income tax liabilities because a participant’s individual tax rate may
exceed required withholding rates. As a result, participants may wish to consult
with their tax advisors regarding their individual tax liability.
Any income generated from the vesting and payout of a Pro-Rata RPSU award must
be reported as income to the Internal Revenue Service (IRS) and will therefore
be included on the W-2 form received the following January.
SALE OF SHARES SUBSEQUENT TO DISTRIBUTION
Please consult the Memorandum to Participants and your own tax advisor.

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OTHER IMPORTANT PLAN INFORMATION
INSIDER TRADING
As provided in the Polo Ralph Lauren Employee Handbook, employees are prohibited
by law from buying or selling stock if an employee has or is aware of any
material, non-public information about Polo Ralph Lauren. This is commonly
referred to as “insider information.” Material, non-public information is any
information that has not been disclosed to the public that could affect the
price of RL stock — either positively or negatively — or affect a person’s
decision to buy, hold or sell stock.
Examples of what might be considered “insider information” include but are not
limited to the following:

•   Earnings or other financial information;   •   Changes in dividend policy;  
•   Stock splits;   •   Mergers and acquisitions;   •   Major new contracts or
product-line introductions;   •   Litigation involving substantial amounts of
money; or   •   Changes in management

These insider-trading rules are applicable to employees of Polo Ralph Lauren and
its related companies worldwide.
COMPANY BLACKOUT PERIODS
To avoid even the appearance of “insider trading,” our Company’s policy
prohibits members of the Board of Directors and all employees from making trades
involving stock of the Company during certain “blackout periods.” This
prohibition covers buying or selling shares, including shares received upon the
vesting of Pro Rata RPSUs. These blackout periods generally begin two weeks
before the end of each of our fiscal quarters and continue through one trading
day after the Company issues its earnings release for the fiscal quarter or year
just ended. If the earnings release is issued before the opening of the market
on a trading day, trading may begin the next day. The “blackout periods” are
announced at the start of each year. In addition, the Board of Directors,
officers (any employee who is a Vice President or above), and employees in the
Finance and Legal departments must clear all trades with the Corporate Counsel,
whether they occur within a blackout period or not.

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ADDITIONAL PROHIBITED TRANSACTIONS
Because we believe it is inappropriate for any Company personnel to engage in
short-term or speculative transactions involving the Company’s common stock, it
is Company policy that employees do not engage in any of the following
activities with respect to the securities of the Company:

•   “In and out” trading in securities of the Company. Any Company stock
purchased in the market must be held for a minimum of six months and ideally
longer. (Note that the Securities and Exchange Commission (SEC) has a
“short-swing profit recapture” rule that effectively prohibits Executive
Officers and members of the Board of Directors from selling any Company stock
within six months of a purchase. The Company has extended this prohibition to
all employees. The receipt of shares pursuant to the vesting of Pro-Rata RPSU
awards is not considered a purchase under the SEC’s rule.)

•   Short sales (i.e., selling stock one does not own and then borrowing the
shares to make delivery.)

•   Buying or selling “puts” or “calls” (i.e., making commitments to buy or sell
securities at a specified price for a fixed period of time.)

CLEARANCE OF ALL TRADES BY DIRECTORS, OFFICERS AND OTHER KEY PERSONNEL
All transactions in Company stock (purchases, sales, transfers, etc.) by members
of the Board of Directors, officers (any employee who is a Vice President or
above), and personnel in the Finance and Legal departments must be cleared by
the Corporate Counsel. If you contemplate a transaction, you must contact the
Corporate Counsel at (212) 705-8280 before contacting Merrill Lynch or taking
any other step to initiate a transaction.

In the event of any discrepancy between the terms of the Plan and the Pro-Rata
RPSU Overview, the terms of the Plan will govern. A copy of the official Polo
Ralph Lauren Corporation 1997 Long-Term Stock Incentive Plan is available from
your Human Resources department or you may log on to the Intranet at
http://poloexpress.polo.com.

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