Document:

EX-10.3

 

THIS DOCUMENT CONSTITUTES PART OF A PROSPECTUS COVERING SECURITIES

THAT HAVE BEEN REGISTERED UNDER THE

SECURITIES ACT OF 1933, AS AMENDED.

Pro-Rata 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 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.

1

 

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.

2

 

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.

3

 

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)

4

 

     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.

 

5

 

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.

7

 

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.

8

 

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.

9

 

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.

10

 

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.

11EX-10.4

 

AMENDMENT TO 1997 LONG-TERM STOCK INCENTIVE PLAN

     WHEREAS, the Polo Ralph Lauren Corporation (the “Company”) sponsors the Polo Ralph Lauren
Corporation 1997 Long-Term Stock Incentive Plan (as Amended and Restated as of August 12, 2004)
(the “Plan”);

     WHEREAS, the Board of Directors of the Company (the “Board”) desires to amend the Plan to
clarify that members of the Board who are not employees of the Company may receive awards under the
Plan, and to make conforming and other non-material changes to the Plan; and

     WHEREAS, the Board may amend the Plan in accordance with Section 12(a) of the Plan, subject to
stockholder approval to the extent necessary to comply with any tax or regulatory requirement
applicable to the Plan.

     NOW, THEREFORE, the Plan is hereby amended as follows, as of June 30, 2006, but subject to the
subsequent approval of the stockholders of the Company at the Company’s August 10, 2006 annual
stockholders meeting:

	 	1.	 	The first sentence of Section 1 of the Plan is hereby amended
to read in its entirety as follows:

The purposes of this Polo Ralph Lauren Corporation 1997
Long-Term Stock Incentive Plan are to promote the interests of Polo
Ralph Lauren Corporation and its stockholders by (i) attracting and
retaining exceptional directors, officers and other employees and
third party service providers of the Company and its Subsidiaries,
as defined below; (ii) motivating such individuals by means of
performance-related incentives to achieve longer-range performance
goals; and (iii) enabling such individuals to participate in the
long-term growth and financial success of the Company.

	 	2.	 	The definition of “Participant” in Section 2 of the Plan is hereby amended
to read in its entirety as follows:

“Participant” shall mean any person eligible to receive an
Award under Section 5 of the Plan and selected by the Committee to
receive an Award under the Plan.

	 	3.	 	The first sentence of Section 4(a) of the Plan is hereby amended by
inserting, immediately after the phrase “shall be 26,000,000;”, the following:

the maximum number of Shares with respect to which Awards may
be granted to any Participant who is a director of the Company but
not an employee of the Company in any fiscal year may not exceed
25,000;

	 	4.	 	The first sentence of Section 4(e) of the Plan is hereby amended by
replacing the word “shares” with the word “Shares”.

 

 

	 	5.	 	The last sentence of Section 4(e) of the Plan is hereby amended
to read in its entirety as follows:

Subject to the rights of any Participant under an Award
outstanding as of August 12, 2004, the vesting of Full Value Awards
may only be accelerated upon (i) death, disability, retirement or
other termination of employment or service of the Participant or
(ii) a Change of Control.

	 	6.	 	Section 5 of the Plan is hereby amended to read in its entirety as follows:

SECTION 5. Eligibility. Any director, officer or
employee of, or Third Party Service Provider to, the Company or any
of its Subsidiaries (including any prospective director, officer,
employee or Third Party Service Provider) shall be eligible to be
designated a Participant.

	 	7.	 	Clause (ii) of Section 8(d) of the Plan is hereby amended to read in its
entirety as follows:

subject to the rights of any Participant under an Award
outstanding as of August 12, 2004, the vesting of Awards of Shares
of Restricted Stock and/or Restricted Stock Units that are Full
Value Awards may only be accelerated upon (A) death, disability,
retirement or other termination of employment or service of the
Participant or (B) a Change of Control.

	 	8.	 	Clause (ii) of Section 9(d) of the Plan is hereby amended to read in its
entirety as follows:

subject to the rights of any Participant under an Award
outstanding as of August 12, 2004, the vesting of Performance Awards
that are Full Value Awards may only be accelerated upon (A) death,
disability, retirement or other termination of employment or service
of the Participant or (B) a Change of Control.

	 	9.	 	Clause (ii) of Section 10(c) of the Plan is hereby amended to read in its
entirety as follows:

subject to the rights of any Participant under an Award
outstanding as of August 12, 2004, the vesting of “Other Stock-Based
Awards” that are Full Value Awards may only be accelerated upon (A)
death, disability, retirement or other termination of employment or
service of the Participant or (B) a Change of Control.

	 	10.	 	Section 11(c) of the Plan is hereby amended by inserting the word “that”
immediately preceding the phrase “is (are) to apply to the Company”.
	 
	 	11.	 	Section 11(d)(vi)(i) of the Plan is hereby amended by inserting
the word “a” immediately preceding the phrase “Performance Compensation Award”.
	 
	 	12.	 	The first proviso of Section 12(b) of the Plan is hereby
amended by modifying the phrase “that would impair the rights of any
Participant or any holder or

 

 

	 	 	 	beneficiary of any Option theretofore granted” to read as follows: “that would
impair the rights of any Participant or any holder or beneficiary of any Award
theretofore granted”.
	 
	 	13.	 	Section 14(a)(iii) of the Plan is hereby amended by (a)
replacing the phrase “Incentive Options” with the phrase “Incentive Stock
Options”; (b) replacing “grantee” with “Grantee”; and (c) replacing “option”
each time it appears with “Option”.

     This Amendment shall not take effect unless and until it has been approved by the stockholders
of the Company at the Company’s August 10, 2006 annual stockholders meeting. Except as expressly
amended hereby, the Plan shall continue in full force and effect in accordance with the provisions
thereof on the date hereof. The validity, construction and effect of this Amendment shall be
determined in accordance with the laws of the State of New York.

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