Document:

ex-10.1

 

THIS DOCUMENT CONSTITUTES PART OF A PROSPECTUS COVERING SECURITIES

THAT HAVE BEEN REGISTERED UNDER THE

SECURITIES ACT OF 1933, AS AMENDED.

Cliff Restricted Performance Share Unit Award

Overview —  United States

Fiscal 2007

 

 

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 Polo
Express at http://poloexpress.polo.com. Once on the Polo Express 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.

As determined by the Compensation Committee, the Corporation may grant one or more types of
Restricted Performance Share Units (“RPSUs”). This Overview describes one type of RPSU with
three-year cliff vesting (“Cliff RPSU”) and the potential benefits of this award to you.

A Cliff RPSU award granted under the Plan provides a participant the opportunity to receive shares
of Polo Ralph Lauren Class A Common Stock (traded on the New York Stock Exchange under the symbol
RL) based on the achievement of cumulative performance goals over a specified period, generally
three fiscal years. The performance measure(s) are set by the Compensation Committee of the Board
of Directors at the time of 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

AWARD OBJECTIVES

The objectives of the award are:

	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 Cliff 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 Cliff
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 Cliff 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.

ELIGIBILITY FOR GRANT

Equity awards, including Cliff 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 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 size of any grant, if a grant is
made.

A 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 appraisal performance period.

STRUCTURE OF GRANTS AND PAYOUT SCHEDULE

At the time of grant, the award has a target number of Cliff RPSUs. Threshold, Target, and Maximum
levels of performance have been established for the measure(s) applicable to the award.

2

 

The payout schedule will normally be as follows:

	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	% of Target
	Performance	 	% of Goal	 	Cliff RPSUs
	Level	 	Achieved	 	Vested
	Threshold

	 	 	70	%	 	 	75	%
	Target

	 	 	100	%	 	 	100	%
	Maximum

	 	 	110	%	 	 	150	%

Note: Cliff RPSU vesting is interpolated for performance between
70%-110% of target. No payout will be earned for performance below
Threshold.

Once an award is granted in any fiscal year, the performance measure(s), performance goals, vesting
or payout schedule will not be modified for that grant during the award term. However, for any
future awards, the Compensation Committee may change the performance measure(s), goals, vesting and
payout schedule(s). 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.

AWARD VESTING

As shown below, all Cliff RPSUs granted for a particular award will vest at the end of the
three-year performance period, if at least Threshold performance for the applicable goal has been
achieved. This is referred to as “cliff” vesting since all Cliff RPSUs vest at the same time.

If Threshold or better 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 Cliff RPSUs. Dividends will accrue and be
paid only after vesting occurs and actual shares are distributed to the participant.

If performance is below Threshold at the end of the three-year period, all Cliff RPSUs 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 vest.

3

 

VESTING*/EXPIRATION SCHEDULE

If a participant leaves Polo Ralph Lauren (except as a result of retirement, disability, or death)
before the three-year period is over, all unvested Cliff RPSUs units are forfeited. (For details,
please see the chart on Page 6.)

EXAMPLE

An award granted in fiscal 2007 will mature at the end of fiscal 2009 and will be vested in fiscal
2010, subject to achievement of the cumulative performance goals specified for FY 2007-FY 2009.
Vesting of Cliff RPSUs will typically occur in June but may occur earlier or later.

Beginning with fiscal 2008, participants who receive Cliff RPSUs annually would have the
opportunity for an RPSU award to vest each year, as shown below:

	 	 	 	 	 
	Year Granted	 	Performance Period	 	Year Paid 1
	FY05

	 	FY05 — FY07
	 	FY08
	FY06

	 	FY06 — FY08
	 	FY09
	FY07

	 	FY07 — FY09
	 	FY10

 

			
	 	 	1  If at least a Threshold level of performance is achieved.

4

 

Example of awards and payouts to a Division SVP:

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	  Year	 	 	 	 	 	Performance	 	Performance	 	Vested	 	Year	 	 
	Granted	 	# Cliff RPSUs	 	Period	 	Level	 	Percentage	 	Vested	 	# Shares
	FY05

	 	 	1,000	 	 	FY05 — FY07
	 	Target
	 	 	100	%	 	FY08
	 	 	1,000	 
	FY06

	 	 	1,000	 	 	FY06 — FY08
	 	 	70	%	 	 	75	%	 	FY09
	 	 	750	 
	FY07

	 	 	1,000	 	 	FY07 — FY09
	 	 	110	%	 	 	150	%	 	FY10
	 	 	1,500	 

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Total Cliff RPSUs	 	 	 	 	 	 	 	 	 	Total Shares
	 	 	Granted	 	 	 	 	 	 	 	 	 	Vested
	 

	 	 	3,000	 	 	 
	 	 
	 	 
	 	 
	 	 	3,250	 

VALUE OF RESTRICTED PERFORMANCE SHARE UNITS

Unlike stock options, Cliff RPSUs are not dependent on an increase in the price of Polo Ralph
Lauren stock. If Threshold or better performance against the three-year cumulative goal is
achieved, Cliff RPSUs offer the opportunity for you to recognize value in several ways:

	•	 	Receiving shares of RL stock without paying any exercise price.

	•	 	The number of Cliff RPSUs vesting can range from 75% (Threshold) to 150% (Maximum) of the target shares granted.

	•	 	Any increase in Polo’s stock price above the grant price increases the value of the award.

The potential gain from Cliff RPSUs can be significant, as shown in the following example. As
depicted, we are not forecasting actual 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.

5

 

In the example, the participant received a grant for 1,000 Cliff RPSUs. At a stock price of $55
when the grant was made, the value of the underlying shares of Polo Ralph Lauren stock was $55,000.
Any increase in the stock price above the market price of the stock on the grant date increases the
value of the award as shown below.

POTENTIAL VALUE INCREASE

AWARD OF 1,000 RPSUs with $55 Price at Grant Date

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	If Stock Price at Payout Reaches:	 
	 	 	Number of Shares	 	 	$55	 	 	$58	 	 	$60	 	 	$62	 
	Value at Threshold Performance
	 	 	750	 	 	$	41,250	 	 	$	43,500	 	 	$	45,000	 	 	$	46,500	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Value at Target Performance
	 	 	1,000	 	 	$	55,000	 	 	$	58,000	 	 	$	60,000	 	 	$	62,000	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Value at Maximum Performance
	 	 	1,500	 	 	$	82,500	 	 	$	87,000	 	 	$	90,000	 	 	$	93,000	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 

Note: Value is before tax and shares will be withheld in satisfaction of withholding taxes.

SELLING YOUR SHARES

When shares acquired through vesting of a Cliff RPSU award are sold at a later date, participants
can benefit from any additional price appreciation that occurred after the date the shares were
vested and distributed. Shares received from a Cliff 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 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.

6

 

IF YOU LEAVE THE COMPANY

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

IMPACT ON CLIFF RESTRICTED PERFORMANCE SHARE UNIT AWARDS

	 	 	 	 
	Event	 	Status of Awards
	Retirement Beginning at age 55

Disability

Death

	 	•
	In the case of retirement, disability or death, a
pro-rated1 Target number of Cliff RPSUs will be
determined.
	 

	 	•
	These pro-rated Cliff RPSUs will vest at the end of
the three-year period and vesting will be based on the
actual degree of achievement. If performance against the
cumulative three-year goal does not reach the Threshold
level, then the pro-rated Cliff RPSUs will be forfeited.
	 
	 	 	 
	 

	 	•
	All remaining Cliff RPSUs are forfeited.
	 
	 	 	 
	Involuntary Termination

	 	•
	All unvested Cliff RPSUs are forfeited.
	 
	 	 	 
	Dismissal for Cause

	 	•
	All vested Cliff RPSUs not yet distributed are
forfeited.
	 
	 

	 	•
	All unvested Cliff RPSUs are forfeited.
	 
	 	 	 
	Voluntary Resignation

	 	•
	All unvested Cliff RPSUs are forfeited.

 

			
	1	 	For purposes of the Cliff RPSU program, the pro-rated portion will be determined
by taking the number of months worked during the corresponding three fiscal years, dividing it
by 36, and then multiplying the resulting decimal by the number of Cliff RPSUs scheduled to
vest for that grant.

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

7

 

TAX LIABILITY

The following statements regarding United States federal income tax consequences of the grant
and vesting of Cliff Vesting 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

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 Cliff RPSUs.

For example, if 1,000 shares are distributed upon vesting of Cliff RPSUs, the shares have a value
of $55 per share for a total value of $55,000 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) 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 by Polo 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 distribution of a Cliff RPSU award must be reported as
income to the Internal Revenue Service (IRS) and will therefore be included on the W-2 form
received in the following January.

SALE OF SHARES SUBSEQUENT TO DISTRIBUTION

Please consult the Memorandum to Participants and your own tax advisor.

8

 

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 vesting of Cliff 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.

9

 

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 Cliff
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 Cliff 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.

10EX-10.2

 

THIS DOCUMENT CONSTITUTES PART OF A PROSPECTUS COVERING SECURITIES

THAT HAVE BEEN REGISTERED UNDER THE

SECURITIES ACT OF 1933, AS AMENDED

Stock Option

Overview — United States

Fiscal 2007

 

 

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 Express 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, among others, officers and other employees of the Company and its
subsidiaries.

A stock option granted under the Plan provides a participant the opportunity to purchase, within a
specified period of time, a stated number of shares of Polo Ralph Lauren Class A Common Stock
(traded on the New York Stock Exchange under the symbol RL) at a fixed price (the option exercise
price). The option exercise price equals the fair market value (the average of the high and the
low trading prices) 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 exercise
price.

This Overview explains the Company’s current stock option program under the Plan, its benefits to
you as a participant, and outlines the various steps you need to take in regard to your stock
option grant.

AWARD OBJECTIVES

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

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

1

 

PLAN ADMINISTRATION

Polo Ralph Lauren’s Human Resources Department administers the stock option program. Record keeping
for stock option awards is performed by Merrill Lynch. You must have an open brokerage account at
Merrill Lynch in order to exercise your vested stock options. See P. 5 for further information on
opening an account and exercising options.

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
the Corporate Compensation Department.

ELIGIBILITY FOR GRANT

The Polo Ralph Lauren stock option program awards stock option grants to key contributors who 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 types of equity awards and the number of shares 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 these guidelines do not constitute a guarantee that any specific individual
will receive an equity award in any given year or guarantee the type or 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 year following that appraisal period.

OPTION PRICE

The option exercise price, which is determined on the date of grant, is stated in your Total
Executive Compensation package or your notification letter. Though the stock price may fluctuate
over the term of the option, the option exercise price does not change, except in the event of a
stock split or other similar event.

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.

2

 

VESTING PERIOD

The vesting period for your options is three years starting from the grant date. Stock options
vest in equal annual installments (as is reasonably possible and in whole numbers only) over the
three year period. Stock options are 100% vested three years from the initial grant date. As
stock options vest, participants may exercise any vested portion of the stock option award.

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

VESTING/EXPIRATION SCHEDULE

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 price. If a
participant leaves Polo Ralph Lauren (except as a result of disability or death) before stock
options have fully vested, all rights to the unvested options are forfeited. (For further details
on the impact of termination, please see the chart on Page 6).

In addition, the expiration date of any vested stock options may be accelerated. (See chart on
Page 6.)

EXPIRATION OF OPTIONS

Options that have not been exercised by the end of the “contractual term” expire. Beginning with
stock option awards made in June 2006, the contractual term is seven years. This means that all
vested options in a grant must be exercised within seven years of the initial grant date.

Options granted prior to June 2006 have a ten year contractual term and 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 exercise price is considered the gain received from the exercise.

EXERCISE = BUYING STOCK

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

Example: The participant has 1,000 stock options at a $55 option price. The gain per share is
calculated by subtracting the option price from the stock trading price (i.e., $55 — $55 = $0, $62
- $55 = $7 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 GAIN

Award of 1,000 Options with $55 Exercise Price

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	If Future Stock Price Reaches:	 
	 	 	$55	 	 	$58	 	 	$60	 	 	$62	 
	Gain per Share
(assumes all shares
granted have
vested)
	 	$	0	 	 	$	3	 	 	$	5	 	 	$	7	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	Total Gain
	 	$	0	 	 	$	3,000	 	 	$	5,000	 	 	$	7,000	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 

4

 

OPTION EXERCISE

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

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

You must have an open brokerage account at Merrill Lynch in order to effect a cashless exercise
(as described below) of 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 through a cashless exercise.

Methods of exercising stock options:

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

	 	•	 	Cash Exercise: Paying cash for the exercise price.
	 
	 	•	 	Cashless Exercise: Exercising stock options and paying for the exercise by
simultaneously selling the stock and retaining the net gain.
	 
	 	•	 	Stock-for-Stock Exchange: Delivering shares of Polo Ralph Lauren stock that
you have owned for at least six months and that are not subject to any pledge
or other security interest, to pay for the exercise price.

SALE OF SHARES SUBSEQUENT TO EXERCISE

When shares are acquired due to exercise of stock options and sold at a later date, participants
benefit from any price appreciation that may have occurred since the purchase date. As noted
above, shares realized from a stock option exercise 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 8). Please note that these restrictions apply to the sale of
shares in a cashless exercise. 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

 

IF YOU LEAVE POLO RALPH LAUREN

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

IMPACT ON STOCK OPTIONS

	 	 	 	 	 	 	 	 	 
	Event	 	Vested Options	 	Unvested Options
	Normal Retirement

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.
	 	•
	 	All unvested stock options
are forfeited.
	 
	 	 	 	 	 	 	 	 
	Early
Retirement
Age 55 with seven or more
yearsof service

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

Death

	 	•
	 	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.
	 	•
	 	Unvested options continue
to vest according to the
original vesting schedule
(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 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 within the three years.	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	Involuntary Termination (1)

	 	•
	 	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

Voluntary Resignation

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

 

			
	(1)	 	Refers to termination by Polo without cause and when the
employee has executed a general release with terms satisfactory to the
Company.

6

 

TAX LIABILITY

The following statements regarding United States federal income tax consequences of the grant
and exercise of stock options granted under the Company’s stock option program 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 VESTING

No United States federal income tax is owed at vesting.

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 exercise price and the market price
of the stock at the time of exercise. The gain will be taxed at ordinary income tax rates. In
addition, the gain will be subject to state and local taxes, as well as Federal Insurance
Contributions Act (FICA) tax 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.

If a participant elects to do a “cashless” exercise (see Page 5), 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 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. As a result, participants may wish to consult with their tax
advisors regarding their individual tax liability.

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 the following January.

SALE OF SHARES SUBSEQUENT TO OPTION EXERCISE

Please consult the Memorandum to Participants and your own tax advisor.

7

 

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. The prohibition on insider trading applies to the sale of shares in a cashless
option exercise.

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 through the
cashless 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 (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.

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 (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 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://poloexpress.polo.com.

9

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