Document:

EX-10.25

 

EXHIBIT 10.25

THIS DOCUMENT CONSTITUTES PART OF A PROSPECTUS COVERING

SECURITIES THAT HAVE BEEN REGISTERED UNDER THE

SECURITIES ACT OF 1933, AS AMENDED.

Restricted Performance

Share Unit Award

Overview

June 2005

 

 

Highlights of the Award

This Overview is qualified in its entirety by reference to the accompanying 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://poloweb/HRWeb/Benefits.

OVERVIEW

On June 9, 1997, the Board of Directors adopted the Polo Ralph Lauren Corporation 1997
Long-Term Stock Incentive Plan (as amended and restated, “the Plan”), which authorizes the granting
of equity awards to officers and other employees and third party service providers of the Company
and its subsidiaries by the Compensation Committee of the Board of Directors.

A Restricted Performance Share Unit award granted under the Plan provides a participant the right
to receive shares of Polo Ralph Lauren stock (traded on the New York Stock Exchange: RL) based on
the achievement of specified performance goals over a specified period, generally three financial
years. The performance measure(s) are set by the Compensation Committee of the Board of Directors
at the time of grant, and may include one or more of the following:

     Net Earnings

     Earnings Per Share

     Net Revenue or Net Revenue Growth

     Gross Profit or Gross Profit Growth

     Return on Assets

     Cash Flow

This Overview explains the Restricted Performance Share Unit Award program, its benefits to you as
a participant and outlines the various steps you need to take in regard to managing your restricted
performance share unit award.

OBJECTIVES

The intent of the award is to provide additional performance-based compensation opportunities:

	1.	 	For selected executives, to link a portion of their long-term incentive to the achievement of
specific corporate performance objectives.

	2.	 	To attract and retain individuals of superior talent.

1

 

PLAN ADMINISTRATION

Polo Ralph Lauren’s Human Resources Department administers the Restricted Performance Share
Unit Award program. Record keeping for restricted performance share unit awards is performed by
Merrill Lynch.

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 restricted performance share unit
awards then outstanding.

If you have any questions regarding this overview, please consult the Memorandum to Participants or
contact your local Human Resources generalist.

ELIGIBILITY FOR GRANT

Restricted performance share unit 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 will generally receive each year both a stock option award and
a restricted performance share unit award.

Guidelines have been established for the number of restricted performance share units that
participants may receive. The guidelines reflect a position’s scope, accountability and impact on
the organization.

Please note that the guidelines do not constitute a guarantee that any specific individual will
receive a restricted performance share unit award, or a stock option award, in any given year or
guarantee the number of shares (of either restricted performance share units or stock options) if a
grant is made.

An employee who receives an Improvement Needed (I) or Unsatisfactory (U) rating on his/her annual
performance evaluation is not eligible for either restricted performance share units or stock
options in that fiscal year.

STRUCTURE OF GRANTS AND PAYOUT SCHEDULE

At the time of grant, the award has a target number of share units. Threshold, Target, and
Maximum levels of performance have been established for the measure(s) applicable to that award.
The payout schedule will normally be as follows:

2

 

	 	 	 	 	 	 	 	 	 
	Performance Level	 	% of Goal Achieved	 	 	% of Target Share Units Paid	 
	Threshold
	 	 	70	%	 	 	75	%
	Target
	 	 	100	%	 	 	100	%
	Maximum
	 	 	110	%	 	 	150	%

Note: Restricted Performance Share Unit awards interpolate between 70%-100% of target. No
payout will be earned for performance below Threshold.

Once an award is given in any fiscal year, the measure(s), performance goals, or payout
schedule will not be modified prior to the end of the award term. However, for any future awards,
the Compensation Committee may change the performance measure(s), goals and/or payout schedule.

EXAMPLE

An award granted in fiscal 2005 will mature at the end of fiscal 2007 and will be paid in
fiscal 2008 (subject to achievement of the specified performance goals set for FY 2005-FY 2007) at
approximately the same time as the Executive Incentive Plan (EIP).

Beginning with fiscal 2008, participants would have the opportunity to receive a LTI payout each
year as awards previously granted would mature, as shown below:

	 	 	 	 	 
	Year Granted	 	Performance Period	 	Year Paid 1
	FY05

	 	FY05 — FY07
	 	FY08
	FY06

	 	FY06 — FY08
	 	FY09
	FY07

	 	FY07 — FY09
	 	FY10

     1If at least Threshold performance is achieved.

3

 

Example of awards and payouts to a Division SVP:

	 	 	 	 	 	 	 	 	 
	Year Granted	 	Performance Period	 	 	 	 	 	Year Paid
	and # Share Units	 	and Achievement	 	Payout %	 	and # Share Units
	FY05 2,500

	 	FY05 — FY07 Target
	 	 	100	%	 	FY08 2,500
	FY06 2,500

	 	Fy06 — FY08 70%
	 	 	75	%	 	FY09 1,875
	FY07 2,500

	 	FY07 — FY09 110%
	 	 	150	%	 	FY10 3,750

	 	 	 	 	 
	Total Share Units Granted	 	Total Share Units Paid	 
	7,500
	 	 	8,125	 

AWARD VESTING/EXPIRATION

As shown below, all restricted performance share units granted for a particular award will
vest at the end of the three-year performance period, subject to achieving at least a Threshold
level of performance. This is sometimes referred to as “cliff” vesting since all share units vest
at the same time.

If Threshold or better performance is achieved and shares are paid out, you will own those shares,
so you will have voting rights and you will receive dividends.

If performance is below Threshold at the end of the three-year period, all share units for that
award will be forfeited. As noted above, as participants receive awards over a period of years,
they will have potential vesting on their other awards even if the award maturing in that fiscal
year does not pay out.

4

 

If a participant leaves Polo Ralph Lauren (except as a result of retirement, disability, or
death) before the three-year period is over, all rights to unvested share units are forfeited.
(For details, please see chart on Page 8.)

VALUE OF RESTRICTED PERFORMANCE SHARE UNITS

A restricted performance share unit offers two opportunities to recognize value.

First, if Threshold or better performance is achieved you will receive a payout of actual shares.
Unlike options, this type of award is not dependent on the share price going up to provide value.

The second opportunity would result from an increase in the share price. The benefit to you is
that you receive the same number of shares regardless of how much the stock price may have
increased.

The potential gain from restricted performance share units can be significant, as shown in the
following example. In this example, we are not forecasting actual growth in the company’s stock
price, but merely illustrating both the original award value and the potential for gains based on
potential rates of stock price appreciation.

In the example, the participant received a grant for 2,500 restricted performance share units. At
a stock price of $30 when the grant was made, the award has a value at target of $75,000. Any
increase in the stock price above the stock price at the grant date increases the value of the
award as shown below.

SALE OF SHARES

When shares acquired through payout of a restricted performance share unit award are sold at a
later date, participants can benefit from any price appreciation that has occurred since the
purchase date, similar to any other stock you own. Shares received from a performance share unit
award payout may be sold at any time, except during those “Blackout” periods specified by the
Company’s Securities Trading Policy (see Page10). Executive Officers, however, may sell shares
only pursuant to SEC Rule 144 or another applicable exception under the Securities Act of 1933, as
Amended.

5

 

Impact of Employment Termination

The following chart explains what happens if you leave Polo Ralph Lauren.

IMPACT ON RESTRICTED PERFORMANCE SHARE UNIT AWARDS

	 	 	 	 	 
	Event	 	Unvested Awards
	Retirement Beginning at age 55,

Disability or Death

	 	·
	 	In the case of retirement, disability
or death, a pro-rated target number of share
units will be determined.
	 

	 	·
	 	These pro-rated share units will vest
at the end of the three-year period, and
payout will be based on the actual degree of
achievement. If performance does not reach
the Threshold level, then the pro-rated share
units will be forfeited.
	Involuntary Termination (without cause)

	 	·
	 	All unvested share units are
forfeited.
	Dismissal for Cause

	 	·
	 	All vested share units
not yet paid are forfeited. All unvested
share units are forfeited.
	Voluntary Resignation

	 	·
	 	All unvested share units are
forfeited.

If a participant has received any shares of Polo Ralph Lauren stock, as a result of payout of
any Restricted Performance Share Unit award, the participant retains all rights to those shares.

6

 

Tax Liability

The following statements regarding United States federal income tax consequences of the grant
and vesting of Restricted Performance Share Unit awards under the Plan should be read in
conjunction with the “Federal Income Tax Consequences” 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

United States federal income tax is owed on the value of the share units, if any, received at
payout. As previously indicated, the value at vesting is based on the number of share units earned
times the share price on the payout date.

A percentage of the share units earned will be withheld to satisfy applicable federal, state, and
local payroll and income tax withholding requirements. However, the amount withheld by Polo may be
less than a participant’s actual federal, state or local income tax liabilities because the rate at
which the participant’s income is taxed may exceed required withholding rates. Participants may
wish to arrange for additional withholding or estimated tax payments.

The value of the share units paid out is treated as ordinary income for U.S. federal tax liability.
In the example above, the value of 2,500 share units at $30 per share is $75,000, so that amount
will 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) to the extent applicable.

Any value generated from the payout of a restricted performance share unit award must be reported
as income to the Internal Revenue Service (IRS) and will therefore be included on the W-2 form
received in January.

SUBSEQUENT SALES

Please consult the Prospectus and your own tax advisor.

7

 

Other Administrative Issues

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. 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, 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.

8

 

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 Restricted
Performance Share Unit 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, 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 this Restricted Performance
Share Unit Award 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://poloweb/HRWeb/Benefits.

9EX-10.26

 

EXHIBIT 10.26

THIS DOCUMENT CONSTITUTES PART OF A PROSPECTUS COVERING

SECURITIES THAT HAVE BEEN REGISTERED UNDER THE

SECURITIES ACT OF 1933, AS AMENDED.

Stock Option Award

Overview – United States

June 2005

 

 

Highlights of the Award

This Overview is qualified in its entirety by reference to the accompanying 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://poloweb/HRWeb/Benefits.

OVERVIEW

On June 9, 1997, the Board of Directors adopted the Polo Ralph Lauren Corporation 1997
Long-Term Stock Incentive Plan (as amended and restated, “the Plan”), which authorizes the granting
of equity awards to officers and other employees and third party service providers of the Company
and its subsidiaries by the Compensation Committee of the Board of Directors.

A stock option granted under the Plan provides a participant the right to purchase, within a
specified period of time, a stated number of shares of Polo Ralph Lauren stock (traded on the New
York Stock Exchange: RL) at a fixed price (the option price). The option price equals the fair
market value (the average of the high and the low price) of a share of Polo Ralph Lauren common
stock on the grant date. Stock options increase in value when the price of Polo Ralph Lauren’s
stock moves above the option price.

Stock option grants reward individuals who make important leadership contributions to the company’s
success. Along with Polo Ralph Lauren’s other compensation elements, stock options create a highly
competitive and attractive total compensation package.

This Overview explains the Stock Option program, its benefits to you as a participant and outlines
the various steps you need to take in regards to managing your stock option grant.

OBJECTIVES

The intent of the stock option program is to provide awards that:

	1.	 	Attract and retain individuals of superior talent.
	 
	2.	 	Motivate key contributors to continuously improve the Company’s performance which should
ultimately result in increased shareholder value.
	 
	3.	 	Enable individuals to participate in the long-term growth and financial success of the
Company.

PLAN ADMINISTRATION

1

 

Polo Ralph Lauren’s Human Resources Department administers the stock option program. Stock
option exercise transactions and record keeping services are performed by Merrill Lynch.

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 stock options then outstanding.

If you have any questions regarding this overview please consult the Memorandum to Participants or
contact your local Human Resources generalist.

ELIGIBILITY FOR GRANT

The Polo Ralph Lauren stock option program awards stock option grants to key contributors who
have a direct impact on the strategic direction and business results of the Company.

Each year, participants are notified of their eligibility to participate in the stock option
program and to receive a stock option award for that fiscal year.

Guidelines are established for the number of shares eligible participants may receive. These
guidelines are based on current position levels and reflect competitive opportunities which are
determined by a position’s scope, accountability and direct impact on the organization.

Please note that these guidelines do not constitute a guarantee that any specific individual
will receive a grant in any given year or guarantee a specific number of shares if a grant is
awarded. 

A Polo Ralph Lauren employee who receives an Improvement Needed (I) or Unsatisfactory (U) rating on
his/her annual performance evaluation is not eligible to participate in the stock option program
for that fiscal year.

OPTION PRICE

The option price, which is determined on the date of grant, is stated in the grant
notification letter. Though the stock price may fluctuate over the term of the option,
participants retain the right to purchase the stock at the option price once the stock options
become vested.

A stock option is not the same as owning actual shares of stock. Stock option holders do not have
the right to participate in shareholder voting or the right to receive dividends. However, these
rights do apply to individuals who own actual shares of Polo Ralph Lauren stock.

VESTING PERIOD

The vesting period for your options is three years starting from the grant date. Stock
options vest in equal installments over the three year period. Stock options are 100% vested three
years from

2

 

the initial grant date. As stock options vest, participants may exercise any portion of the vested
stock option award.

As shown below, one-third of the stock options in any annual grant vest on the anniversary of the
initial grant date.

Although participants have the right to exercise stock options once they have vested, they may
choose to hold them in anticipation of future gains from an increase in the stock’s price. If a
participant leaves Polo Ralph Lauren (except as a result of retirement, disability, or death)
before the stock options have fully vested, all rights to unvested options are forfeited. (For
further details on the impact of termination, please see the chart on Page 7).

In addition, the expiration date of any vested stock options may be accelerated. (See chart on
Page 7.)

EXPIRATION OF OPTIONS

Options that have not been exercised by the end of the option period expire. All stock
options in a grant must be exercised within ten years of the initial grant date.

3

 

VALUE OF STOCK OPTIONS

As mentioned earlier, stock options increase in value when the market price of Polo Ralph
Lauren common stock rises above the option grant price. When this occurs, participants can exercise
their vested stock options by buying stock at a price below the market price. The difference
between the market price and the option price is considered the gain received from the exercise.

The potential gain from stock options can be significant, as shown in the example above. This
example is not a forecast of actual growth in Polo Ralph Lauren’s stock, but merely an illustration
showing potential gains based on potential rates of stock price appreciation.

Example: the participant has 1,000 stock options at a $30 option price. The gain per share is
calculated by subtracting the option price from the stock trading price (i.e., $30 – $30 = $0, $40
– $30 = $10 per share, etc.) The total gain is calculated by multiplying the gain per share by the
number of stock options (1,000).

POTENTIAL STOCK OPTION GAINS

1,000 Options/$30 Option Price

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	If Future Stock Price Reaches:	 
	 	 	$30	 	 	$40	 	 	$50	 	 	$70	 
	Gain per Share
	 	$	0	 	 	$	10	 	 	$	20	 	 	$	40	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	Total gain
	 	$	0	 	 	$	10,000	 	 	$	20,000	 	 	$	40,000	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 

4

 

OPTION EXERCISE

All stock option exercise transaction and record keeping are performed for the Company by
Merrill Lynch.

If you wish to exercise your vested stock options, you should use the Merrill Lynch website at
www.benefits.ml.com and follow the instructions you received for accessing the site. You may also
view information about stock options you have received at the Merrill Lynch website.

You must have an open brokerage account at Merrill Lynch in order to exercise your options.

If you prefer to use the Merrill Lynch call center (exercise fees for this option are higher) you
may contact a Merrill Lynch representative at 1-877-765-POLO and indicate your intent to exercise.

Please refer to Page 7 for important information regarding the tax consequences of stock option
exercise and Page 8 for information about “Blackout” periods when stock options may not be
exercised.

Methods of exercising stock options:

When you exercise your stock options, you purchase Polo Ralph Lauren shares at the option price set
at the time the option was granted. Stock options may be exercised in three ways:

	•	 	Cash Exercise: Paying cash for the exercise cost.
	 
	•	 	Cashless Exercise: Exercising stock options and paying for the exercise
costs by simultaneously selling the stock and retaining the net gain.
	 
	•	 	Stock-for-Stock Exchange: Using shares of Polo Ralph Lauren stock that you
have owned for at least six months to pay for the exercise costs.

SALE OF SHARES

When shares are acquired due to exercise of stock options and sold at a later date,
participants can benefit from any price appreciation that has occurred since the purchase date. As
noted above, shares realized from a stock option exercise may be sold at any time, except during
those “Blackout” periods specified by the Company’s Securities Trading Policy (see Page 8).
Executive Officers, however, may sell shares only pursuant to SEC Rule 144 or another applicable
exception under the Securities Act of 1933, as Amended.

5

 

Impact of Employment Termination

The following chart explains the impact on options if you leave Polo Ralph Lauren.

IMPACT ON OPTIONS

	 	 	 	 	 	 	 	 	 
	Event	 	Vested Options	 	Unvested Options
	Normal Retirement at

age 65

	 	·
	 	Up to three
years to exercise any
vested stock options
after retirement,
provided they do not
expire sooner. The
options expire after
the three years.
	 	·
	 	Unvested
options continue to
vest according to the
original vesting
schedule (one-third
each year for three
years). If the
options are not
exercised once vested
within three years of
retirement date, they
expire. Any unvested
options are forfeited
if the participant
goes to work for a
competitor.
	 
	 	 	 	 	 	 	 	 
	Early Retirement at
age 55 with seven or
more years of service

	 	·
	 	Up to one year
to exercise vested
options after
retirement, provided
they do not expire
sooner. The options
expire at the end of
one year. However, any
vested options are
forfeited if a
participant goes to
work for a competitor.
	 	·
	 	All unvested
stock options are
forfeited.
	 
	 	 	 	 	 	 	 	 
	Death/Disability

	 	·
	 	In the case of
death, the estate has
up to three years to
exercise any vested
stock options,
provided they do not
expire sooner.
Options expire if not
exercised after three
years.

	 	·
	 	Unvested
options continue to
vest according to the
original vesting
schedule (i.e.,
one-third each year
for three years). If
not exercised, once
vested, within three
years of the date of
death or disability,
the options expire.
	 

	 	·
	 	In the case of
disability,
participants have up
to three years to
exercise any vested
stock options after
long-term disability
begins, provided they
do not expire sooner.
The options expire if
not exercised within
the three years.	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	Involuntary Termination

	 	·
	 	Up to three
months to exercise any
vested stock options,
provided they do not
expire sooner.
	 	·
	 	All unvested
stock options are
forfeited.
	 
	 	 	 	 	 	 	 	 
	Dismissal for Cause or

Voluntary Resignation

	 	·
	 	All vested
stock options are
forfeited as of date
of termination.
	 	·
	 	All unvested
stock options are
forfeited.

If a participant has exercised any stock options or currently owns Polo Ralph Lauren stock,
the participant retains all rights to those shares.

6

 

Tax Liability

The following statements regarding United States federal income tax consequences of the grant
and exercise of Stock Option 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 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 EXERCISE

United States federal income tax is owed on the stock option gain when options are exercised.
The gain is the amount equal to the difference between the option grant price and the market price
of the stock at the time of exercise.

A percentage of the gain will be withheld to satisfy applicable federal, state, and local payroll
and income tax withholding requirements. However, the amount withheld by Polo may be less than a
participant’s actual federal, state, or local income tax liabilities because the rate at which the
participant’s income is taxed may exceed required withholding rates. Participants may wish to
arrange for additional withholding or estimated tax payments.

U.S. Federal tax liability is based on ordinary income on the gain. For example, if the gain is
$10,000, and the federal income tax withholding rate is 25 percent, the withholding tax will be
$2,500 ($10,000 x .25). In addition, the gain will be subject to state and local taxes, as well as
Federal Insurance Contributions Act (FICA) to the extent applicable.

Participants are required to provide Polo Ralph Lauren with either cash or stock to satisfy any
withholding tax requirements at the time they exercise their stock options.

Any income generated from exercising stock options must be reported to the Internal Revenue Service
(IRS) and will therefore be included on the W-2 form received in January.

SUBSEQUENT SALES

Please consult the Prospectus and your own tax advisor.

7

 

Other Administrative Issues

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 the
exercise of stock options. 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, members of the Board of Directors, officers, 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.

8

 

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 — we have simply extended this prohibition to all
employees. (Exercise of options with an exercise price above the
then current market price of the stock, however, 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, 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

In the event of any discrepancy between the terms of the Plan and the Stock Option 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://poloweb/HRWeb/Benefits.

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