SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-12
POLO RALPH LAUREN CORPORATION
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(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is
calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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[POLO RALPH LAUREN LOGO]
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
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TO THE OWNERS OF CLASS A COMMON STOCK, CLASS B COMMON STOCK AND CLASS C
COMMON STOCK OF POLO RALPH LAUREN CORPORATION:
The Annual Meeting of Stockholders of Polo Ralph Lauren Corporation, a
Delaware corporation (the "Company"), will be held at the St. Regis Hotel, 20th
Floor Penthouse, 2 East 55th Street, New York, New York, on Thursday, AUGUST 14,
2003, AT 9:30 A.M., local time, for the following purposes:
1. To elect ten directors to serve until the 2004 Annual Meeting of
Stockholders;
2. To consider a proposed amendment to the Polo Ralph Lauren
Corporation Executive Officer Annual Incentive Plan;
3. To ratify the appointment of Deloitte & Touche LLP as independent
auditors of the Company for the fiscal year ending April 3, 2004; and
4. To transact such other business as may properly come before the
meeting and any adjournments or postponements thereof.
Stockholders of record at the close of business on June 19, 2003 are
entitled to notice of, and to vote at, the Annual Meeting of Stockholders and
any adjournments or postponements thereof.
By Order of the Board of Directors
-s- Edward W. Scheuermann
EDWARD W. SCHEUERMANN
Vice President-Corporate Counsel
and Secretary
New York, New York
June 24, 2003
EACH STOCKHOLDER IS URGED TO EXECUTE AND RETURN THE ENCLOSED PROXY
PROMPTLY. IN THE EVENT A STOCKHOLDER DECIDES TO ATTEND THE MEETING, HE OR SHE
MAY, IF SO DESIRED, REVOKE THE PROXY BY VOTING THE SHARES IN PERSON AT THE
MEETING.
[POLO RALPH LAUREN LOGO]
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PROXY STATEMENT
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FOR ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON AUGUST 14, 2003
This proxy statement is furnished to the stockholders of Polo Ralph Lauren
Corporation, a Delaware corporation (the "Company"), in connection with the
solicitation, on behalf of the Board of Directors, of proxies to be voted at the
Annual Meeting of Stockholders of the Company to be held at the St. Regis Hotel,
20th Floor Penthouse, 2 East 55th Street, New York, New York on Thursday, August
14, 2003, at 9:30 a.m., local time, and at any adjournments or postponements
thereof. This proxy statement and the accompanying proxy are being mailed to
stockholders of the Company on or about July 7, 2003.
Any proxy delivered pursuant to this solicitation is revocable at the
option of the person executing it by giving written notice to the Secretary of
the Company at any time before such proxy is voted, by delivering a later dated
proxy or by voting in person at the Annual Meeting. The mailing address of the
Company's principal executive offices is 650 Madison Avenue, New York, New York
10022.
Only holders of record of shares of the Company's Class A Common Stock,
Class B Common Stock and Class C Common Stock (collectively, the "Common Stock")
at the close of business on June 19, 2003, the record date for the Annual
Meeting, are entitled to notice of, and to vote at, the Annual Meeting or
adjournments or postponements thereof. The presence, in person or by proxy, of
the holders of one-third of the total number of shares of Common Stock
outstanding on the record date will constitute a quorum for the transaction of
business at the Annual Meeting.
All properly executed proxies delivered pursuant to this solicitation and
not revoked will be voted at the Annual Meeting in accordance with the
directions given in such proxies. With respect to the election of directors to
serve until the 2004 Annual Meeting of Stockholders, stockholders may vote in
favor of all nominees, withhold their votes as to specific nominees or withhold
their votes as to all nominees. With respect to the other proposals to be voted
upon, stockholders may vote in favor of a proposal, vote against a proposal or
abstain from voting. Stockholders should specify their choices on the enclosed
form of proxy. If no specific instructions are given with respect to the matters
to be acted upon, the shares represented by a properly signed proxy will be
voted FOR the election of all nominees for election as directors in the
applicable class (Proposal 1), FOR the amendment of the Company's Executive
Officer Annual Incentive Plan (Proposal 2) and FOR the proposal to ratify the
appointment of Deloitte & Touche LLP ("D&T") as the Company's independent
auditors for the fiscal year ending April 3, 2004 (Proposal 3).
THE COMPANY'S BOARD OF DIRECTORS HAS BY RESOLUTION FIXED THE NUMBER OF
DIRECTORS AT TEN. TWO DIRECTORS (THE "CLASS A DIRECTORS") WILL BE ELECTED BY
PLURALITY VOTE OF THE SHARES OF CLASS A COMMON STOCK PRESENT IN PERSON OR BY
PROXY AT THE ANNUAL MEETING AND ELIGIBLE TO VOTE; SEVEN DIRECTORS (THE "CLASS B
DIRECTORS") WILL BE ELECTED BY PLURALITY VOTE OF THE SHARES OF CLASS B COMMON
STOCK PRESENT IN PERSON OR BY PROXY AT THE ANNUAL MEETING AND ELIGIBLE TO VOTE;
AND ONE DIRECTOR (THE "CLASS C DIRECTOR") WILL BE ELECTED BY PLURALITY VOTE OF
THE SHARES OF CLASS C COMMON STOCK PRESENT IN PERSON OR BY PROXY AT THE ANNUAL
MEETING AND ELIGIBLE TO VOTE.
The amendment of the Company's Executive Officer Annual Incentive Plan and
the ratification of the appointment of D&T as the Company's independent auditors
will each require the affirmative vote of a majority of the total votes cast on
such proposal by the shares of Common Stock present in person or by proxy at the
Annual Meeting and eligible to vote. Abstentions will be counted as votes cast
on proposals presented to stockholders, but broker non-votes will not be
considered votes cast. Shares represented by broker non-votes with respect to
any proposal will be considered present but not eligible to vote on such
proposal. Abstentions
and broker non-votes will have no effect on the election of directors, which is
by plurality vote, but abstentions will, in effect, be votes against the
amendment of the Executive Officer Annual Incentive Plan and against the
ratification of the selection of independent public accountants.
Each owner of record of Class A Common Stock or Class C Common Stock on the
record date is entitled to one vote for each share of Class A Common Stock or
Class C Common Stock so held. Each owner of record of Class B Common Stock on
the record date is entitled to ten votes for each share of Class B Common Stock
so held. On June 19, 2003, there were 45,065,188 shares of Class A Common Stock,
43,280,021 shares of Class B Common Stock and 10,570,979 shares of Class C
Common Stock issued and outstanding.
(PROPOSAL 1)
ELECTION OF DIRECTORS
The Company's Board of Directors, in accordance with the Company's Amended
and Restated By-laws, has by resolution fixed the number of directors of the
Company at ten. The Board of Directors is presently divided into three classes,
with all directors being elected annually. Pursuant to the Company's Amended and
Restated Certificate of Incorporation, the two Class A directors will be elected
by the holders of Class A Common Stock, the seven Class B directors will be
elected by the holders of Class B Common Stock and the Class C director will be
elected by the holders of Class C Common Stock, each to serve until the 2004
Annual Meeting and until his or her successor is elected and qualified.
Each of the current directors, Arnold H. Aronson and Dr. Joyce F. Brown
(the Class A directors), Ralph Lauren, F. Lance Isham, Roger N. Farah, Frank A.
Bennack, Jr., Joel L. Fleishman, Judith A. McHale and Terry S. Semel (the Class
B directors), and Richard A. Friedman (the Class C director) has been nominated
to stand for re-election as a director at the 2003 Annual Meeting. Should one or
more of these nominees become unable to serve for any reason, or for good cause
will not serve, which is not anticipated, the Board of Directors may, unless the
Board by resolution provides for a lesser number of directors, designate
substitute nominees, in which event the persons named in the enclosed proxy will
vote all proxies that would otherwise be voted for the named nominee or nominees
for the election of such substitute nominee or nominees.
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS A VOTE FOR EACH NOMINEE AS
A DIRECTOR TO HOLD OFFICE UNTIL THE 2004 ANNUAL MEETING OF STOCKHOLDERS AND
UNTIL HIS OR HER SUCCESSOR IS ELECTED AND QUALIFIED. PROXIES RECEIVED BY THE
BOARD OF DIRECTORS WILL BE SO VOTED UNLESS STOCKHOLDERS SPECIFY IN THEIR PROXIES
THAT AUTHORITY IS WITHHELD AS TO ONE OR MORE NOMINEES.
CLASS A DIRECTOR NOMINEES FOR ELECTION
Arnold H. Aronson.............. Age 68 Mr. Aronson has been a director of the Company since
November 2001, and provides consulting services to the
Company with respect to the Ralph Lauren Home collection.
Mr. Aronson has been a senior advisor at Kurt Salmon
Associates, a global management consulting firm
specializing in services to retail and consumer products
companies, since 1997. Before that, he was a partner at
the consulting firm of Levy-Kerson-Aronson since 1994. He
served as chairman and chief executive officer of Woodward
& Lothrop/John Wanamaker from 1989 to 1994. Prior to that,
Mr. Aronson was chairman and chief executive officer of
the Batus Retail Group, then the parent entity of Saks
Fifth Avenue, Marshall Fields, Kohls, Gimbels, Ivey's,
Frederick & Nelson, Crescent and Breuners. From 1979 to
1983, Mr. Aronson served as chairman and chief executive
officer of Saks Fifth Avenue. Prior to that, Mr. Aronson
also served as chairman and chief executive officer of
Bullock's, now Macy's
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West, a division of Federated Department Stores. Mr.
Aronson currently serves as Chairman of the Board of
Governors of the Parsons School of Design and as Vice
Chairman of the Board of Trustees at New School
University.
Dr. Joyce F. Brown............. Age 56 Dr. Brown has been a director of the Company since May
2001. She has been the President of the Fashion Institute
of Technology and Chief Executive Officer of the
Educational Foundation for the Fashion Industries since
1998. Dr. Brown was a Professor of Clinical Psychology at
the Graduate School and University Center of the City
University of New York from 1994 to 1998, where she is now
Professor Emerita. Dr. Brown is also a member of the Board
of Directors of Neuberger Berman, Inc., Paxar Corporation
and USEC, Inc.
CLASS B DIRECTOR NOMINEES FOR ELECTION
Ralph Lauren................... Age 63 Mr. Lauren has been Chairman, Chief Executive Officer and
a director of the Company since prior to the Company's
initial public offering, and was a member of the Advisory
Board or Board of Directors of the Company's predecessors
since their organization. He founded Polo in 1967 and has
provided leadership in the design, marketing, advertising
and operational areas since such time.
F. Lance Isham................. Age 58 Mr. Isham has been Vice Chairman and a Director of the
Company since April 2000. He was President of the Company
from November 1998 to April 2000, prior to which he served
as Group President of its Menswear operations. Mr. Isham
joined Polo in 1982, and has held a variety of sales
positions at the Company, including Executive Vice
President of Sales and Merchandising.
Roger N. Farah................. Age 50 Mr. Farah has been President, Chief Operating Officer and
a director of the Company since April 2000. He was
Chairman of the Board of Venator Group, Inc. from December
1994 until April 2000, and was Chief Executive Officer of
Venator Group, Inc. from December 1994 until August 1999.
Mr. Farah served as President and Chief Operating Officer
of R.H. Macy & Co., Inc. from July 1994 to October 1994.
He served as Chairman and Chief Executive Officer of
Federated Merchandising Services, the central buying and
product development arm of Federated Department Stores,
Inc., from June 1991 to July 1994. Mr. Farah is also a
member of the Board of Directors of Toys "R" Us, Inc.
Frank A. Bennack, Jr. ......... Age 70 Mr. Bennack has been a director of the Company since
January 1998. In June 2002, Mr. Bennack became Chairman of
the Executive Committee and Vice Chairman of the Board of
Directors of The Hearst Corporation, after serving as
President and Chief Executive Officer of The Hearst
Corporation since 1979. He is also a member of the Board
of Directors of Hearst-Argyle Television, Inc., Wyeth and
J.P. Morgan Chase & Co.
Joel L. Fleishman.............. Age 69 Mr. Fleishman has been a director of the Company since
January 1999. Mr. Fleishman has been a Professor of Law
and Public Policy at the Terry Sanford Institute of Public
Policy at Duke University since 1971, and the Director of
the Samuel and Ronnie Heyman Center for Ethics, Public
Policy and the Professions at Duke
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University since 1989. Mr. Fleishman was the President of
The Atlantic Philanthropies (USA) Inc. from 1993 to 2001,
and currently serves as a Senior Advisor. Mr. Fleishman is
also a member of the Board of Directors of Boston
Scientific Corporation.
Judith A. McHale............... Age 56 Ms. McHale has been a director of the Company since
February 2001. She has been President and Chief Operating
Officer of Discovery Communications, Inc., the parent
company of cable television's Discovery Channel, since
1995. From 1989 to 1995, she served as Executive Vice
President and General Counsel of Discovery Communications,
Inc. Ms. McHale is also a member of the Board of Directors
of Host Marriott Corporation, John Hancock Financial
Services Company and Pepco Holdings, Inc.
Terry S. Semel................. Age 60 Mr. Semel has been a director of the Company since
September 1997. He has been Chairman and Chief Executive
officer of Yahoo! Inc. since May 2001. Mr. Semel was
Chairman of Windsor Media, Inc., Los Angeles, a
diversified media company, from October 1999 to April
2001. Mr. Semel was Chairman of the Board and Co-Chief
Executive Officer of the Warner Bros. Division of Time
Warner Entertainment LP ("Warner Brothers") from March
1994 until October 1999, and of the Warner Music Group
from November 1995 until October 1999. For more than ten
years prior to that, he was President of Warner Brothers
or its predecessor, Warner Bros. Inc. Mr. Semel is also a
member of the Board of Directors of Revlon, Inc. and
Yahoo! Inc.
CLASS C DIRECTOR NOMINEE FOR ELECTION
Richard A. Friedman............ Age 45 Mr. Friedman has been a director of the Company since
prior to the Company's initial public offering, and a
member of the Advisory Board or Board of Directors of the
Company's predecessors since 1994. Mr. Friedman is a
Managing Director of Goldman, Sachs & Co. and head of its
Principal Investment Area. He joined Goldman, Sachs & Co.
in 1981. Mr. Friedman is also a member of the Board of
Directors of Carmike Cinemas, Inc.
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ADDITIONAL INFORMATION REGARDING THE BOARD OF DIRECTORS
COMMITTEES OF THE BOARD OF DIRECTORS -- BOARD MEETINGS
The Board of Directors has established three committees -- the Audit
Committee, the Compensation Committee and the Executive Committee. The Company
has not established a nominating committee.
The members of the Audit Committee are Frank A. Bennack, Jr., Dr. Joyce F.
Brown and Judith A. McHale. The Audit Committee, among other things, appoints
the independent auditors of the Company, approves in advance all audit and
permitted non-audit services, discusses and reviews in advance the scope and the
cost of the annual audit, reviews the results of the Company's independent
auditors' annual audit and quarterly reviews with the independent auditors,
reviews compliance with the Company's major accounting and financial reporting
policies, reviews the adequacy of the financial organization of the Company and
reviews management's procedures and policies relating to the Company's internal
accounting controls and compliance with applicable laws relating to accounting
practice. The Audit Committee met five times in fiscal 2003. The Board of
Directors has determined that the Audit Committee has at least one member who is
an audit committee financial expert, as defined by the Securities and Exchange
Commission (the "SEC"), and that Mr. Bennack, the Chairperson, is an audit
committee financial expert.
The members of the Compensation Committee are Frank A. Bennack, Jr., Joel
L. Fleishman and Terry S. Semel. The Compensation Committee reviews and approves
compensation plans and arrangements with respect to the Company's executive
officers and other senior executives and administers certain employee benefit
plans, including the Company's 1997 Long-Term Stock Incentive Plan. The
Compensation Committee met five times in fiscal 2003.
The members of the Executive Committee are Ralph Lauren, F. Lance Isham and
Roger N. Farah. The Executive Committee may, between meetings of the full Board
of Directors, exercise all of the powers and authority of the Board of
Directors, except that it does not have the power or authority to adopt, approve
or recommend to stockholders any action or matter that is required by Delaware
law to be submitted to the Company's stockholders for approval, or to adopt,
amend or repeal any by-law of the Company. The Executive Committee did not meet
in fiscal 2003.
In fiscal 2003, the Board of Directors held five meetings. Each director
attended more than 75% of the meetings held by the Board of Directors and the
committees on which he or she served. The Company's Board of Directors and its
committees also act from time to time by unanimous written consent in lieu of
meetings.
COMPENSATION OF DIRECTORS
Each non-employee director receives an annual retainer of $25,000 and, with
the exceptions of Mr. Aronson and Mr. Friedman, annual grants of options to
purchase 3,000 shares of the Company's Class A Common Stock under the Company's
1997 Non-Employee Director Stock Option Plan. Each non-employee director
received an initial grant of options to purchase 7,500 shares of Class A Common
Stock upon first joining the Board. Non-employee directors also receive $1,000
for each Board or committee meeting attended. Directors who are also employees
of the Company receive no additional compensation for service as a director.
AUDIT COMMITTEE REPORT
The Audit Committee of the Board of Directors is composed of independent
directors (as independence is defined in Section 303.01(B)(2)(a) and (3) of the
New York Stock Exchange's listing standards) and operates under a written
charter adopted by the Audit Committee. A copy of the Audit Committee's amended
and restated charter as currently in effect is attached as Appendix A to this
proxy statement.
Management is responsible for the Company's internal controls and the
financial reporting process. The independent auditors are responsible for
performing an independent audit of the Company's consolidated financial
statements in accordance with generally accepted auditing standards and issuing
a report thereon. The Audit Committee's responsibility is to monitor and oversee
these processes.
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In this context, the Committee has met and held discussions with management
and the independent auditors. Management represented to the Committee that the
Company's consolidated financial statements were prepared in accordance with
generally accepted accounting principles, and the Committee has reviewed and
discussed the consolidated financial statements with management and the
independent auditors. The Committee also discussed with the independent auditors
matters required to be discussed by Statement on Auditing Standards No. 61, as
amended (Communication with Audit Committees). The independent auditors provided
to the Committee the written disclosures required by Independence Standards
Board Standard No. 1, as amended (Independence Discussions with Audit
Committees), and the Committee discussed with the independent auditors that
firm's independence.
Based on the Committee's discussions with management, the internal
auditors, and the independent auditors and its review of the representations of
management and the independent auditors, the Committee recommended to the Board
of Directors, and the Board approved, the inclusion of the Company's audited
consolidated financial statements in the Company's Annual Report on Form 10-K
for the fiscal year ended March 29, 2003 filed with the SEC. The Committee also
approved, subject to stockholder ratification, the selection of the Company's
independent auditors.
The Committee reviewed its charter and practices in 2002 and the Audit
Committee adopted a revised charter in February 2003. The Committee has
determined that its charter and practices are consistent with the current and
proposed listing standards of the New York Stock Exchange and applicable law.
Members of the Audit Committee
Frank A. Bennack, Jr. (Chairperson)
Dr. Joyce F. Brown
Judith A. McHale
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of June 19, 2003 by: (i) each
stockholder who is known by the Company to beneficially own in excess of five
percent of any class of the Company's voting securities, (ii) each director,
(iii) each of the executive officers whose names appear in the summary
compensation table (the "Named Executive Officers") and (iv) all directors and
executive officers as a group. Except as otherwise indicated, each stockholder
listed below has sole voting and investment power with respect to the shares
beneficially owned by such person. The rules of the SEC consider a person to be
the "beneficial owner" of any securities over which the person has or shares
voting power or investment power, or any security that the person has the right
to acquire, within 60 days, such sole or shared power.
VOTING
CLASS A CLASS B CLASS C POWER OF
COMMON STOCK COMMON STOCK(1) COMMON STOCK(1) TOTAL
----------------- ------------------ ----------------- COMMON
NUMBER % NUMBER % NUMBER % STOCK %
--------- ---- ---------- --- ---------- --- --------
Ralph Lauren......................... 1,500,000(2) 3.2 43,280,021(3) 100% -- -- 88.6
The Goldman Sachs Group, Inc.(4)..... -- -- -- -- 10,570,979 100% 2.2
F. Lance Isham(5).................... 644,077 1.4 -- -- -- -- *
Roger N. Farah(6).................... 847,123 1.9 -- -- -- -- *
Arnold H. Aronson(7)................. 4,250 * -- -- -- -- *
Frank A. Bennack, Jr.(7)............. 20,000 * -- -- -- -- *
Dr. Joyce F. Brown(7)................ 9,000 * -- -- -- -- *
Joel L. Fleishman(7)................. 17,000 * -- -- -- -- *
Richard A. Friedman.................. -- * -- -- 10,570,979(8) 100% 2.2
Judith A. McHale(7).................. 9,000 * -- -- -- --
Terry S. Semel(7).................... 28,500 * -- -- -- -- *
Douglas L. Williams(9)............... 322,849 * -- -- -- -- *
Gerald M. Chaney(10)................. 58,334 * -- -- -- -- *
FMR Corp.(11)........................ 7,340,467 16.3 -- -- -- -- 1.5
Baron Capital Group, Inc.(12)........ 5,883,000 13.1 -- -- -- -- 1.2
Ziff Asset Management, L.P.(13)...... 3,675,000 8.2 -- -- -- -- *
All directors and executive officers
as a group (13 persons)(14)........ 3,498,467 7.3% 43,280,021(3) 100% 10,570,979(8) 100% 90.9%
---------------
* Less than 1.0%
(1) Each share of Class B Common Stock and Class C Common Stock is convertible
at the option of the holder into one share of Class A Common Stock. Each
share of Class B Common Stock will be automatically converted into a share
of Class A Common Stock upon transfer to a person who is not a member of
the Lauren family. Each share of Class C Common Stock will be automatically
converted into a share of Class A Common Stock upon transfer to a person
who is not a member of the GS Group (as defined in footnote (4)).
(2) Includes vested options representing the right to acquire shares of Class A
Common Stock. Does not include unvested options to purchase 400,000 shares
of Class A Common Stock and 100,000 unvested restricted stock units that,
subject to vesting, entitle Mr. Lauren to receive an equal number of shares
of Class A Common Stock upon retirement. The address of Mr. Lauren is 650
Madison Avenue, New York, New York 10022.
(3) Includes (i) 1,557,503 shares of Class B Common Stock owned by RL Family,
L.P., a partnership of which Mr. Lauren is the sole general partner, (ii)
12,217,571 shares of Class B Common Stock owned by RL Holding, L.P., a
partnership controlled by RL Holding Group, Inc., a corporation wholly
owned by Mr. Lauren and (iii) 11,659 shares of Class B Common Stock owned
by RL Holding Group, Inc. The 12,217,571 shares of Class B Common Stock
constitute 28.2% of the total number of outstanding shares of Class B
Common Stock.
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(4) According to a Schedule 13D/A dated May 13, 2002: (i) GS Capital Partners,
L.P. ("GS Capital Partners") may be deemed to own beneficially and
directly, and its general partner, GS Advisors, L.L.C. may be deemed to own
beneficially and indirectly, 9,983,708 shares of Class A Common Stock
(representing shares issuable upon the conversion of Class C Common Stock);
(ii) Stone Street Fund 1994, L.P. ("Stone Street Fund") may be deemed to
own beneficially and directly 286,878 shares of Class A Common Stock
(representing shares issuable on the conversion of Class C Common Stock);
(iii) Bridge Street Fund 1994, L.P. ("Bridge Street Fund") may be deemed to
own beneficially and directly 300,393 shares of Class A Common Stock
(representing shares issuable on the conversion of Class C Common Stock);
(iv) Stone Street 1994, L.L.C. ("Stone Street L.L.C."), as the general
partner of Stone Street Fund and managing general partner of Bridge Street
Fund, may be deemed to own beneficially and indirectly 587,271 shares of
Class A Common Stock (representing shares issuable on the conversion of
Class C Common Stock) beneficially owned by Stone Street Fund and Bridge
Street Fund; and (v) Goldman, Sachs & Co. and The Goldman Sachs Group, Inc.
("GS Inc.") may be deemed to own beneficially and indirectly the 10,570,979
shares of Class A Common Stock (representing shares issuable upon
conversion of Class C Common Stock) beneficially owned by GS Capital
Partners, Stone Street Fund and Bridge Street Fund because affiliates of
Goldman, Sachs & Co. and GS Inc. are the general partner or managing
general partner of GS Capital Partners, Stone Street Fund and Bridge Street
Fund, and Goldman, Sachs & Co. is the investment manager of each of the
limited partnerships. Excludes (i) shares of Class A Common Stock
beneficially owned by Goldman, Sachs & Co. and its affiliates that were
acquired in the ordinary course of broker-dealer transactions and (ii)
shares of Class A Common Stock held in client accounts for which Goldman,
Sachs & Co. or its affiliates exercise voting or investment authority, or
both, and which are referred to as "managed accounts." Each of GS Inc. and
Goldman, Sachs & Co. disclaims beneficial ownership of the shares (a)
beneficially owned by the limited partnerships, except to the extent
attributable to partnership interests in the limited partnerships held by
GS Inc. and its affiliates, and (b) held in managed accounts. Each of the
limited partnerships shares voting and dispositive power with respect to
its shares with GS Inc. and Goldman, Sachs & Co. GS Capital Partners, The
Goldman Sachs Group, Inc., Goldman, Sachs & Co., Stone Street Fund and
Bridge Street Fund are collectively referred to as the "GS Group." The
address of each member of the GS Group is 85 Broad Street, New York, NY
10004.
(5) Includes vested options representing the right to acquire 542,000 shares of
Class A Common Stock, and 26,144 restricted shares of Class A Common Stock
that will vest on November 10, 2003. Does not include unvested options to
purchase 200,000 shares of Class A Common Stock.
(6) Includes vested options representing the right to acquire 450,000 shares of
Class A Common Stock and 359,149 restricted shares of Class A Common Stock.
Does not include unvested options to purchase 600,000 shares of Class A
Common Stock.
(7) Includes vested options granted to each of Mr. Aronson, Mr. Bennack, Dr.
Brown, Mr. Fleishman, Ms. McHale and Mr. Semel under the 1997 Non-Employee
Director Stock Option Plan representing the right to acquire 3,750, 18,000,
9,000, 15,000, 9,000 and 21,000 shares of Class A Common Stock,
respectively. Does not include unvested options granted to Mr. Aronson, Mr.
Bennack, Dr. Brown, Mr. Fleishman, Ms. McHale and Mr. Semel under the
Company's 1997 Non-Employee Director Stock Option Plan representing the
right to acquire 3,750, 4,500, 4,500, 4,500, 4,500 and 4,500 shares of
Class A Common Stock, respectively.
(8) Mr. Friedman, who is a Managing Director of Goldman, Sachs & Co., may be
deemed to own beneficially and indirectly the shares owned beneficially and
indirectly by Goldman, Sachs & Co. and GS Group. Mr. Friedman disclaims
beneficial ownership of those shares, except to the extent, if any, of his
pecuniary interest in those shares.
(9) Includes vested options representing the right to acquire 312,849 shares of
Class A Common Stock. Does not include unvested options to purchase 73,151
shares of Class A Common Stock. Mr. Williams, age 37, is Group President of
the Company. In April 2000 Mr. Williams was named Group President, Global
Business Development. He was Divisional President of product licensing in
1998, and in 1999 was promoted to President of global licensing and new
business development.
8
(10) Includes vested options representing the right to acquire 58,334 shares of
Class A Common Stock. Does not include unvested options to purchase 61,666
shares of Common Stock. Mr. Chaney, age 56, has been the Company's Senior
Vice President of Finance and Chief Financial Officer since November 2000.
Mr. Chaney was Vice President of Finance and Chief Financial Officer of
Kellwood Company from December 1998 to November 2000. From April 1996 to
December 1998, Mr. Chaney was Executive Vice President, Chief
Administrative Officer and Chief Financial Officer of Petrie Retail, Inc.
(11) According to a Schedule 13G/A dated February 14, 2003: (i) Fidelity
Management & Research Company ("Fidelity"), a wholly-owned subsidiary of
FMR Corp., is the beneficial owner of 6,941,170 shares of Class A Common
Stock (including 2,708,100 shares of Class A Common Stock held by Fidelity
Low Priced Stock Fund), as a result of Fidelity acting as investment
advisor to various investment companies registered under Section 8 of the
Investment Company Act of 1940 (the "Fidelity Funds"); (ii) Fidelity
Management Trust Company ("FMTC"), a wholly-owned subsidiary of FMR Corp.,
is the beneficial owner of 182,600 shares of Class A Common Stock, as a
result of its serving as investment manager of certain institutional
accounts; (iii) Geode Capital Management, LLC ("Geode"), an entity
ultimately controlled by certain shareholders and employees of FMR Corp.,
is the beneficial owner of 14,177 shares of Class A Common Stock; and (iv)
Fidelity International Limited ("FIL") is the beneficial owner of 202,520
shares of Class A Common Stock. Each of FMR Corp., Edward C. Johnson 3d.,
chairman of FMR Corp., and Abigail P. Johnson, a director of FMR Corp., may
be deemed to beneficially own the shares of Class A Common Stock
beneficially owned by Fidelity, FMTC, Geode and FIL. Each of Edward C.
Johnson 3d, FMR Corp., through its control of Fidelity, and the Fidelity
Funds, has sole power to dispose of the 6,941,170 shares of Class A Common
Stock owned by the Fidelity Funds. Each of Edward C. Johnson 3d and FMR
Corp, through its control of FMTC, has the sole power to dispose of the
182,600 shares of Class A Common Stock owned by institutional accounts
managed by FMTC. Neither FMR Corp. nor Edward C. Johnson has the sole power
to vote or direct the voting of the shares of Class A Common Stock owned
directly by the Fidelity Funds or 73,700 shares of Class A Common Stock
held by the institutional accounts managed by FMTC. The address of each of
these persons, other than FIL, is 82 Devonshire Street, Boston,
Massachusetts 02109. The address of FIL is Pembroke Hall, 42 Crowlane,
Hamilton, Bermuda.
(12) According to a Schedule 13G/A dated February 14, 2003: (i) BAMCO, Inc.
("BAMCO") may be deemed to beneficially own 4,643,000 shares of Class A
Common Stock; (ii) Baron Asset Fund ("BAF"), an investment advisory client
of BAMCO, may be deemed to beneficially own 4,175,500 shares of Class A
Common Stock; (iii) Baron Capital Management, Inc. ("BCM") may be deemed to
beneficially own 1,240,000 shares of Class A Common Stock; (iv) Baron
Capital Group, Inc. ("BCG"), the parent holding company of BAMCO and BCM,
may be deemed to beneficially own 5,883,000 shares of Class A Common Stock;
and (v) Ronald Baron, who holds a controlling interest in BCG, may be
deemed to beneficially own 5,883,000 shares of Class A Common Stock. BCG
and Ronald Baron disclaim beneficial ownership of shares held by their
controlled entities (or the investment advisory clients thereof) to the
extent such shares are held by persons other than BCG and Ronald Baron.
BAMCO and BCM disclaim beneficial ownership of shares held by their
investment advisory clients to the extent such shares are held by persons
other than BAMCO, BCM and their affiliates. Each of these persons may be
deemed to share voting and dispositive powers with respect to the shares
beneficially owned by such person as a result of either control
relationships or investment advisory relationships with advisory clients.
The address of each of these persons is 767 Fifth Avenue, 49th Floor, New
York, New York 10153.
(13) According to a Schedule 13G/A dated February 14, 2003, each of Ziff Asset
Management, L.P., PBK Holdings, Inc. and Philip B. Korsant share voting and
dispositive power over the 3,675,000 shares of Class A Common Stock held by
Ziff Asset Management, L.P. The address of each of these persons is 283
Greenwich Avenue, Greenwich, CT 06830.
(14) Includes vested options granted to all directors and executive officers as
a group under the Company's 1997 Long-Term Stock Incentive Plan and 1997
Non-Employee Director Stock Option Plan representing the right to acquire
2,977,267 shares of Class A Common Stock and 385,293 restricted shares of
Class A Common Stock granted to all executive officers as a group under the
Company's 1997 Long-Term Stock Incentive Plan. Does not include unvested
options granted to all directors and executive
9
officers as a group under the 1997 Long-Term Stock Incentive Plan and the
1997 Non-Employee Director Stock Option Plan representing the right to
acquire 1,417,733 shares of Class A Common Stock or 100,000 unvested
restricted stock units granted to Mr. Lauren. Includes shares and options
held and beneficially owned by Mitchell Kosh. Mr. Kosh, age 52, has been
the Company's Senior Vice President of Human Resources since July 2000. Mr.
Kosh was Senior Vice President and Chief Human Resources Officer of Conseco
from February 2000 to July 2000. Prior to that he was with the Venator
Group, Inc. where since 1996 he held executive human resource positions,
including serving as Senior Vice President of Human Resources for Foot
Locker Worldwide.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers to file with the SEC initial reports of
ownership and reports of changes in ownership of the Company's Common Stock.
Copies of all such Section 16(a) reports are required to be furnished to the
Company. These filing requirements also apply to beneficial owners of more than
ten percent of the Company's Common Stock. To the Company's knowledge, based
solely on review of the copies of Section 16(a) reports furnished to the Company
during the fiscal year ended March 29, 2003, or written representations from
certain reporting persons that no Forms 5 were required for those persons, all
reportable transactions were reported on a timely basis.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth a summary of all compensation awarded or
paid to or earned by the chief executive officer and the four other most
highly-compensated executive officers of the Company (the "Named Executive
Officers") in the last fiscal year for services rendered in all capacities to
the Company (including its subsidiaries) for the fiscal years ended March 29,
2003, March 30, 2002 and March 31, 2001.
LONG TERM COMPENSATION
AWARDS
ANNUAL COMPENSATION ------------------------
------------------------------------ RESTRICTED SECURITIES
OTHER ANNUAL STOCK UNDERLYING ALL OTHER
SALARY BONUS COMPENSATION AWARDS OPTIONS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($)(1) ($) (#) ($)
--------------------------- ---- --------- --------- ------------ ---------- ---------- --------------
Ralph Lauren............. 2003 1,000,000 5,400,000 -- 0 250,000 517,135(2)
Chairman of the Board 2002 1,000,000 3,533,000 -- 0 250,000 3,192,075(2)
and Chief Executive 2001 1,000,000 5,556,000 -- 0 250,000 3,213,638(2)
Officer
F. Lance Isham........... 2003 900,000 1,490,400 210,612(3) 0 100,000 306,652(4)
Vice Chairman 2002 900,082 543,375 310,612(3) 0 100,000 262,812(4)
2001 900,000 1,366,200 -- 0 200,000 305,562(4)
Roger N. Farah........... 2003 900,000 2,592,000 -- 5,490,000(5) 500,000 431,734(6)
President and Chief 2002 900,000 723,375 -- 0 100,000 81,169(6)
Operating Officer 2001 858,461 1,546,200 -- 2,000,000(5) 350,000 122,757(6)
Douglas L. Williams...... 2003 705,000 861,400 -- 0 55,000 94,021(7)
Group President 2002 704,903 340,785 -- 0 55,000 65,582(7)
2001 700,000 766,500 -- 0 42,000 90,117(7)
Gerald M. Chaney......... 2003 450,000 324,000 -- 0 30,000 40,602(8)
Senior Vice President 2002 443,269 116,484 -- 0 35,000 28,012(8)
and Chief Financial 2001 138,942(9) 200,000 -- 0 25,000 0
Officer
---------------
(1) As permitted by SEC rules, excludes Other Annual Compensation that did not
exceed, in the aggregate, the lesser of $50,000 and 10% of the total salary
and bonus of the Named Executive Officer.
10
(2) The amounts reported under "All Other Compensation" in fiscal 2003, fiscal
2002 and fiscal 2001 for Mr. Lauren include the value of Company-paid
premiums on split-dollar life insurance policies on the lives of the
executive and his spouse in the amounts of $501,154, $3,169,161 and
$3,190,904, respectively. The Company will recover all premiums paid by it
at the time death benefits are paid thereon, and may recover such amounts
earlier under certain circumstances. See "Certain Relationships and Related
Transactions." The Company ceased paying such premiums in fiscal 2003. The
amounts reported in fiscal 2003, fiscal 2002 and fiscal 2001 also reflect:
(i) supplementary medical benefits in the amounts of $14,349, $18,475 and
$19,334, respectively; and (ii) benefits paid under the Company's 401(k)
plans in the amounts of $1,632, $4,439 and $3,400, respectively.
(3) The amounts reported under "Other Annual Compensation" for Mr. Isham
represent allowances related to his relocation to London at the Company's
request.
(4) The amounts reported under "All Other Compensation" in fiscal 2003, fiscal
2002 and fiscal 2001 for Mr. Isham reflect: (i) the value of Company-paid
premiums on split-dollar life insurance policies on behalf of the executive
officer in the amounts of none, $2,109 and $3,752, respectively; (ii)
contributions to the Company's Supplemental Executive Retirement Plan in the
amounts of $119,520, $72,169 and $113,310, respectively; (iii) contributions
to the Company's deferred compensation trust in the amount of $180,000 each
year and (iv) amounts contributed to the Company's 401(k) Plan in the
amounts of $7,132, $8,534 and $8,500, respectively. The split-dollar life
insurance arrangement was terminated in fiscal 2003.
(5) On April 12, 2000, Mr. Farah was granted 118,299 restricted shares of Class
A Common Stock with a fair market value of $2,000,000, or $16.91 per share,
based upon the mean between the high and low sales price per share of Class
A Common Stock on that date. The April 12, 2000 grant of restricted shares
vest ratably on each of the second, third, fourth and fifth anniversary of
the grant date, subject to Mr. Farah's continued employment with the
Company. On July 23, 2002, Mr. Farah was granted 300,000 restricted shares
of Class A Common Stock with a fair market value of $5,490,000, or $18.30
per share, based upon the closing price per share of Class A Common Stock on
that date. The July 23, 2002 grant of restricted shares vest ratably on each
of the first, second, third, fourth and fifth anniversary of the grant date,
subject to Mr. Farah's continued employment with the Company. Dividends are
paid on the shares of restricted stock granted to Mr. Farah, although any
dividends paid with respect to shares of restricted stock that have not
vested are withheld by the Company and paid only when and if such shares
become fully vested. At March 29, 2003, the aggregate number of restricted
shares held by Mr. Farah was 359,149 and the aggregate value thereof (based
upon the closing price of the Company's Class A Common Stock as of March 28,
2003, the last trading day in fiscal 2003) was $8,026,980.
(6) The amounts reported under "All Other Compensation" for Mr. Farah reflect:
(i) a contribution to the Company's Supplemental Executive Retirement Plan
in the amounts of $174,600, $81,169 and $122,310 in fiscal 2003, fiscal 2002
and fiscal 2001, respectively; (ii) supplementary medical benefits in the
amount of $447 in fiscal 2001; (iii) contributions to the Company's deferred
compensation trust in the amount of $250,002 in fiscal 2003; and (iv)
amounts contributed to the Company's 401(k) Plan in the amount of $7,132 in
fiscal 2003.
(7) The amounts reported under "All Other Compensation" in fiscal 2003, fiscal
2002 and fiscal 2001 for Mr. Williams reflect: (i) the value of Company paid
premiums on split-dollar life insurance policies on behalf of the executive
officer in the amounts of $5,296, $5,506 and $5,718, respectively; (ii)
supplementary medical benefits in the amounts of $3,273, $292 and $2,574,
respectively; (iii) contributions to the Company's Supplemental Executive
Retirement Plan in the amounts of $78,320, $52,289 and $73,325,
respectively; and (iv) amounts contributed to the Company's 401(k) Plan in
the amounts of $7,132, $7,495 and $8,500, respectively. The split-dollar
life insurance arrangement was terminated in fiscal 2003.
(8) The amounts reported under "All Other Compensation" for Mr. Chaney reflect:
(i) supplementary medical benefits in the amount of $270 in fiscal 2003;
(iii) contributions to the Company's Supplemental Executive Retirement Plan
in the amounts of $38,700 and $28,012 in fiscal 2003 and fiscal 2002,
respectively; and (iv) amounts contributed to the Company's 401(k) Plan in
the amounts of $1,632 in fiscal 2003.
(9) The amount reported under "Salary" in fiscal 2001 for Mr. Chaney reflect
compensation paid to him during the period from November 27, 2000 to March
31, 2001.
11
OPTION GRANTS IN FISCAL 2003
Unless otherwise noted in the table below, the options granted in fiscal
2003 to the Named Executive Officers have a term of 10 years, were granted
pursuant to the Company's Long-Term 1997 Stock Incentive Plan on June 7, 2002,
and vest ratably on each of the first, second and third anniversary of the grant
date.
INDIVIDUAL GRANTS
----------------------------------------------------------------------
NUMBER OF PERCENT OF
SECURITIES TOTAL OPTIONS
UNDERLYING GRANTED TO EXERCISE GRANT DATE
OPTIONS EMPLOYEES IN PRICE PRESENT
GRANTED(#) FISCAL 2003 ($/SHARE) EXPIRATION DATE VALUE($)(2)
---------- ------------- --------- --------------- -----------
Ralph Lauren.................... 250,000 9.4% $24.78 June 7, 2012 $2,627,200
F. Lance Isham.................. 100,000 3.8% $24.78 June 7, 2012 $1,050,880
Roger N. Farah.................. 100,000 3.8% $24.78 June 7, 2012 $1,050,880
400,000(1) 15.0% $18.22 July 23, 2012 $4,203,520
Douglas L. Williams............. 55,000 2.1% $24.78 June 7, 2012 $ 577,984
Gerald M. Chaney................ 30,000 1.1% $24.78 June 7, 2012 $ 315,264
---------------
(1) These options were granted on July 23, 2002 and vest ratably on each of the
second, third and fourth anniversary of the grant date.
(2) As permitted by SEC rules, the Company has elected to calculate the Grant
Date Present Value of the options set forth in this table using the
Black-Scholes option-pricing model. The Company's use of this model should
not be construed as an endorsement of its accuracy at valuing options. All
stock option models require a prediction about the future movement of stock
price. The following assumptions were made for purposes of calculating the
Grant Date Present Values: expected time of exercise of 5.2 years,
volatility of 47.25%, risk-free interest rate of 3.69% and, as the Company
did not declare a dividend until May 2003, no future dividends. The actual
value of the options in this table will depend upon the actual market value
of the Company's stock during the applicable period and upon when options
are exercised. The dollar amounts in this column are not intended to
forecast potential future appreciation, if any, of the Company's Class A
Common Stock.
AGGREGATED OPTION EXERCISES IN FISCAL 2003 AND FISCAL 2003 YEAR-END OPTION
VALUES
The following table sets forth information concerning options that the
Company's Named Executive Officers exercised during fiscal 2003 and the number
of shares subject to both exercisable and unexercisable stock options as of
March 29, 2003. The table also reports values for "in-the-money" options that
represent the positive spread between the exercise prices of such options and
$22.35 per share, the closing sale price of the Class A Common Stock on the New
York Stock Exchange on March 28, 2003, the last trading day in fiscal 2003.
NUMBER OF SECURITIES VALUE OF SECURITIES
UNDERLYING UNEXERCISED UNEXERCISED
SHARES OPTIONS ON IN-THE-MONEY OPTION
ACQUIRED ON VALUE MARCH 29, 2003(#) ON MARCH 28, 2003($)
EXERCISE(#) REALIZED($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
----------- ------------ ------------------------- -------------------------
Ralph Lauren............... 0 0 1,250,000/500,000 2,203,125/698,438
F. Lance Isham............. 0 0 408,667/233,333 1,440,000/558,750
Roger N. Farah............. 0 0 266,667/683,333 1,466,042/2,385,020
Douglas L. Williams........ 7,000 $97,781 280,333/105,667 902,563/117,343
Gerald M. Chaney........... 0 0 28,334/61,666 0/0
12
EQUITY COMPENSATION PLAN INFORMATION AT MARCH 29, 2003
The following table sets forth information as of March 29, 2003 regarding
compensation plans under which the Company's equity securities are authorized
for issuance.
(A) (B) (C)
-------------------- ----------------- -------------------------
NUMBER OF SECURITIES
REMAINING AVAILABLE FOR
NUMBER OF SECURITIES WEIGHTED-AVERAGE FUTURE ISSUANCE UNDER
TO BE ISSUED UPON EXERCISE PRICE OF EQUITY COMPENSATION PLANS
EXERCISE OF OUTSTANDING (EXCLUDING SECURITIES
PLAN CATEGORY OUTSTANDING OPTIONS OPTIONS($) REFLECTED IN COLUMN (A))
------------- -------------------- ----------------- -------------------------
Equity compensation plans approved by
security holders................... 10,767,572 22.75 7,178,035
Equity compensation plans not
approved by security holders....... -- -- --
Total................................ 10,767,572 22.75 7,178,035
---------------
(1) 6,796,535 of the securities remaining available for future issuance set
forth in column (c) may be in the form of options, stock appreciation
rights, restricted stock, restricted stock units, performance awards or
other stock-based awards under the Company's 1997 Long-Term Stock Incentive
Plan. An additional 385,293 outstanding shares of restricted stock granted
under the Company's 1997 Long-Term Stock Incentive Plan that remain subject
to forfeiture are not reflected in column (c).
EXECUTIVE COMPENSATION AGREEMENTS
Ralph Lauren's Prior Employment Agreement. The five-year initial term of
the amended and restated employment agreement pursuant to which Ralph Lauren was
employed as the Chairman of the Board and Chief Executive of the Company (the
"Prior Employment Agreement") expired in June 2002. That agreement provided for
automatic successive one-year extensions of the term unless either Mr. Lauren or
the Company gave prior written notice electing not to extend the term, and the
term had been so extended. In June 2003, the Compensation Committee, which had
engaged an independent benefit consultant and independent counsel to assist it,
recommended to the Board of Directors an amendment and restatement of the Prior
Employment Agreement for a new five-year term. The Board approved the amendment
and restatement, which became effective on June 23, 2003 (the "New Employment
Agreement") and is described below under the heading "Ralph Lauren's New
Employment Agreement."
Under the Prior Employment Agreement, Mr. Lauren was entitled to an annual
base salary of $1 million and, since fiscal 2000, an annual bonus opportunity of
up to $8 million, based upon the achievement of Company financial performance
goals established under the Company's Executive Officer Annual Incentive Plan.
He was eligible to participate in all employee benefit plans and arrangements of
the Company for its senior executive officers. In addition, the Company was
obligated, until fully funded in accordance with applicable insurance
projections, to continue to maintain, and make premium contributions with
respect to, certain split-dollar and other life insurance arrangements between
the Company and Mr. Lauren, his family and/or life insurance trusts for the
benefit of any of them, that had previously been maintained or contributed to by
the Company. The aggregate amount of these premiums paid by the Company exceeded
$3 million in both fiscal 2002 and fiscal 2001. The Company ceased paying such
premiums during fiscal 2003 after the enactment of the Sarbanes-Oxley Act, as
such payments might be construed as loans prohibited by such Act. See "Executive
Compensation -- Summary Compensation Table."
If Mr. Lauren's employment had terminated as a result of his death or
disability, he or his estate would have been entitled to receive a lump sum cash
payment equal to the sum of: (i) his base salary through the date on which his
death or termination due to disability occurred; (ii) any accrued and unpaid
compensation for any prior fiscal year; and (iii) a pro rata portion of the
annual bonus he would otherwise have received for the fiscal year in which his
death or termination due to disability occurred. In addition, any unvested
options held by Mr. Lauren would have vested immediately and remained
exercisable for a period of three years after his employment terminated.
13
If Mr. Lauren had resigned for good reason (as defined in the Prior
Employment Agreement), or if the Company had terminated Mr. Lauren's employment
without cause (as defined in the Prior Employment Agreement) or elected not to
extend the term of the agreement, Mr. Lauren would have been entitled to receive
a lump sum cash payment equal to the sum of: (i) his base salary otherwise
payable through three years from the date of termination; (ii) any accrued but
unpaid compensation for any prior fiscal year; and (iii) three times the average
annual bonus paid to Mr. Lauren for the two fiscal years immediately preceding
the termination of his employment. In addition, any unvested options would have
continued to vest on schedule, provided that Mr. Lauren complied with certain
non-compete and other restrictive covenants. During the three-year severance
period, the Company would have been obligated to continue to provide Mr. Lauren
with office facilities and secretarial assistance, welfare and medical plan
coverage and certain other fringe benefits, and to continue to maintain and fund
the life insurance arrangements referred to above.
If Mr. Lauren had resigned without good reason or had elected not to renew
the term of his employment agreement, or if the Company had terminated Mr.
Lauren's employment for cause, then Mr. Lauren would have been entitled to a
lump sum cash payments equal to: (i) the sum of his base salary through the date
of termination; (ii) any accrued but unpaid compensation for any prior fiscal
year; and (iii) and a pro rata portion of his annual bonus for the fiscal year
in which termination occurred, to be paid when bonuses are normally paid. In
addition, any unvested options held by Mr. Lauren would have been forfeited.
Under Mr. Lauren's Prior Employment Agreement, he could not compete with
the Company during the term of his employment. In addition, if Mr. Lauren had
resigned his employment with or without good reason, or the Company had
terminated Mr. Lauren's employment without cause, then Mr. Lauren could not
compete with the Company for two years from the date of his termination of
employment. If Mr. Lauren's employment was terminated by the Company for cause,
the Company could have elected to prohibit Mr. Lauren from competing with the
Company for up to two years in consideration for the payment of an amount equal
to his base salary and the average annual incentive bonus awarded to him for the
two fiscal years immediately preceding the termination of his employment for
each year that Mr. Lauren is prohibited from competing with the Company.
Ralph Lauren's New Employment Agreement. The New Employment Agreement
became effective as of June 23, 2003 and provides for an initial term that ends
on the last day in the Company's 2008 fiscal year, subject to automatic,
successive one-year extensions thereafter unless either party gives the other at
least 90 days' notice that the term will not be extended.
The terms of the New Employment Agreement are substantially similar to the
Prior Employment Agreement described above, with the following exceptions: The
range of the bonus opportunity for each fiscal year will be as determined by the
Compensation Committee of the Board, but the annual target bonus opportunities
for fiscal years 2004 through 2008 will be $8 million, $9 million, $10 million,
$11 million and $12 million, respectively, based upon the achievement of Company
financial performance goals under the Company's Executive Officer Annual
Incentive Plan. The maximum bonus that may be paid in any fiscal year is 150% of
the target bonus for that fiscal year, provided that in no event may the annual
bonus exceed the maximum annual bonus permitted to be paid to any single
individual under the Company's Executive Officer Annual Incentive Plan. To
accommodate the increase in Mr. Lauren's maximum bonus opportunity under the New
Employment Agreement, the Company has proposed for approval by the stockholders
an amendment to the Executive Officer Annual Incentive Plan increasing the
maximum annual bonus from $10 million to $18 million. Please see Proposal 2 of
this proxy statement for a more complete discussion of this amendment.
The increase in Mr. Lauren's performance-based annual cash incentive
compensation opportunity in the New Employment Agreement reflects, among other
things, the Company's domestic and international growth and increased
profitability during the term of the Prior Employment Agreement, the termination
of the Company's obligation to pay split-dollar and other insurance premiums
discussed below, and the facts that the Prior Employment Agreement dated back to
the Company's initial public offering in 1997 and Mr. Lauren's compensation
arrangements thereunder had not been revised since the Company's 2000 fiscal
year.
In addition, under the New Employment Agreement, Mr. Lauren will receive
annual option grants to purchase 150,000 shares of the Company's Class A Common
Stock and annual grants of 100,000 restricted
14
stock units each under the Company's 1997 Long-Term Stock Incentive Plan. The
options will have a term of ten years and will vest ratably on the first three
anniversaries of the date of grant, subject to accelerated vesting upon
termination of employment in certain circumstances as discussed above. Each
annual grant of restricted stock units will vest in its entirety on the fifth
anniversary of the grant, subject to accelerated vesting upon Mr. Lauren's
termination of employment (except for a termination by the Company for cause or
a voluntary resignation without good reason that occurs prior to the last day of
Company's 2008 fiscal year), and will be payable in shares of Company common
stock as soon as practicable following the date of Mr. Lauren's termination of
employment with the Company. With respect to each restricted stock unit, Mr.
Lauren is also entitled to dividend equivalents in the form of additional
restricted stock units upon the issuance of a cash dividend on the Company
common stock.
Under the New Employment Agreement, the Company has no further obligation
to maintain and/or make premium payments or contributions with respect to the
various split-dollar and other life insurance arrangements described above.
However, the Company remains entitled to reimbursement for any insurance
premiums previously contributed. Finally, upon a termination of Mr. Lauren's
employment by the Company for cause, Mr. Lauren will be bound by a two-year
non-compete covenant (as well as other restrictive covenants) without the right
to receive any additional compensation.
F. Lance Isham's Employment Agreement. Mr. Isham, Vice Chairman, has an
employment agreement with the Company that provides for his employment through
November 10, 2003, subject to automatic, successive one-year extensions
thereafter unless either party gives the other at least 12 months' prior notice
that the term will not be extended. Mr. Isham is entitled to annual base salary
of not less than $900,000, and he is eligible to earn an annual incentive bonus
ranging from 115% to 230% of his annual base salary, based upon the achievement
of Company performance goals established under the Company's Executive Officer
Annual Incentive Plan.
If Mr. Isham resigns for good reason (as defined in his employment
agreement) or if the Company terminates his employment for any reason other than
death, disability or cause (as defined in his employment agreement), Mr. Isham
would be entitled to receive, within 30 days, a pro-rata incentive bonus for the
portion of the then current fiscal year that had elapsed prior to the
termination of his employment (based on the average annual incentive bonus paid
to him for the two immediately preceding fiscal years) plus an amount, payable
over a three-year period, equal to the sum of: (i) three times his annual base
salary and (ii) two times the average annual incentive bonus paid to Mr. Isham
for the two immediately preceding fiscal years. In addition, Mr. Isham would be
entitled to (i) continued participation in the Company's health benefit plans
during such three-year period and (ii) continued use of his Company automobile
until the then existing lease expires. The restricted stock and stock options
granted to Mr. Isham under his employment agreement that remained unvested would
continue to vest, and such options would remain exercisable for a period of at
least one year, provided that he continued to comply with the non-competition
and other restrictive covenants contained in his agreement. If a change of
control of the Company occurred prior to any such termination of Mr. Isham's
employment, he would be entitled to elect to receive the foregoing severance
payments in two equal lump sum installments, the first payable within 30 days
after the date of termination and the second on the first anniversary of the
date of termination, respectively.
If the Company at any time elects not to extend the term of his employment
agreement, Mr. Isham would be entitled to receive an amount, payable in twelve
equal monthly installments, equal to the sum of (i) his annual base salary, and
(ii) the average annual incentive bonus paid to him for the two immediately
preceding fiscal years, and any then unvested restricted shares or options that
were granted to Mr. Isham under his employment agreement would continue to vest
as described in the preceding paragraph. If Mr. Isham resigns without good
reason or elects not to renew the term, or if the Company terminates his
employment for cause, he would be entitled to receive only his base salary
through the date of termination, and any then unvested restricted shares or
options granted to Mr. Isham under his employment agreement will be forfeited.
In the event of Mr. Isham's termination due to his death or disability, he would
be entitled to any payments due to him through the date of termination,
including a payment of a pro rata portion of the annual incentive bonus to which
he would have been entitled for the year of termination, any unvested restricted
15
shares and options granted to Mr. Isham under his employment agreement would
vest, and such options would remain exercisable for a period of three years.
Mr. Isham may not compete with the Company during the term of Mr. Isham's
employment. If Mr. Isham resigns his employment with or without good reason, or
the Company terminates his employment without cause, then he cannot compete with
the Company for two years after the date of termination of his employment. If
Mr. Isham's employment is terminated for cause, the Company may elect to
prohibit him from competing with the Company for up to two years in
consideration of the payment of an amount equal to his base salary and bonus
(based on the average annual incentive bonus over the preceding two years) for
each year that Mr. Isham is prohibited from competing with the Company.
The Company has entered into a deferred compensation agreement with Mr.
Isham, effective as of April 2, 1995 and amended as of November 28, 2000. This
agreement provides that the Company will, on a monthly basis, contribute to
Company's deferred compensation trust, and credit to a book reserve account in
Mr. Isham's name, an amount equal to 20% of Mr. Isham's monthly base salary,
provided that Mr. Isham is employed with the Company on the last day of such
month. Funds invested under the Company's deferred compensation trust continue
to be part of the general funds of the Company. Mr. Isham is vested in his
deferred compensation account.
Roger N. Farah's Employment Agreement. Mr. Farah's employment agreement,
as amended and restated as of July 23, 2002, provides for his employment as
President and Chief Operating Officer through December 31, 2007 (extended from
April 12, 2005 prior to the amendment and restatement), subject to automatic,
successive one year extensions thereafter unless either party gives the other at
least 180 days' prior notice that the term will not be extended. Mr. Farah's
annual base salary is $900,000, and he is eligible to receive an annual
incentive bonus ranging from 100% to 300% of his annual salary, based upon the
achievement of Company or other performance goals established under the
Company's Executive Officer Annual Incentive Plan by the Compensation Committee,
with a target bonus of 200% of his annual salary.
In addition, Mr. Farah is also entitled to receive $250,000 per year for
fiscal years 2003 through 2008 in the form of deferred compensation, which is
credited monthly to the Company's deferred compensation trust; this deferred
compensation generally vests over five years, subject to accelerated vesting
upon Mr. Farah's termination by the Company without cause (as defined in his
employment agreement), Mr. Farah's termination of his employment for good reason
(as defined in his employment agreement) or Mr. Farah's death or disability. The
vested deferred compensation is payable to Mr. Farah upon the earlier of January
1, 2012 or his termination of employment.
Mr. Farah is eligible to participate in all employee benefit plans and
arrangements of the Company for its senior executive officers, and receives a
monthly car allowance. In connection with the amendment and restatement of his
employment agreement, on July 23, 2002 Mr. Farah was granted 300,000 shares of
restricted stock (see "Executive Compensation -- Summary Compensation Table")
and 400,000 options to purchase the Company's Class A Common Stock (see
"Executive Compensation -- Option Grants in Fiscal 2003"). If Mr. Farah resigns
for good reason or if the Company terminates his employment for any reason other
than death, disability, cause or non-renewal, Mr. Farah will be entitled to
receive a pro rata portion of his target annual incentive bonus (as defined in
his employment agreement) for the year of termination plus an amount, generally
payable over Mr. Farah's severance period, equal to the sum of: (i) the
severance multiplier times his annual base salary, and (ii) the severance
multiplier times his target annual incentive bonus. Mr. Farah's severance
multiplier is the greater of (i) the number of years remaining in the term up to
three or (ii) two. The total number of months in the severance multiplier is Mr.
Farah's severance period. Mr. Farah will be entitled to exercise any options
granted to him before July 23, 2002 until the later of April 12, 2005 or the
first anniversary of the termination date, and to exercise any vested options
granted to him on or after July 23, 2002 until the later of December 31, 2007 or
the first anniversary of the termination date. Upon any such termination, the
options granted to him on July 23, 2002 shall vest in an amount equal to the
greater of (x) the percentage of such options that would have been vested on the
July 23 following his termination if no termination had occurred or (y) 50% of
such options. In addition, Mr. Farah shall vest in the greater of the number of
restricted shares granted to him on July 23, 2002 that would have vested as of
the July 23 following
16
his termination if no termination had occurred or 50% of such restricted shares.
In addition, Mr. Farah will be entitled to continued participation in the
Company's health benefit plans and continued payment of his automobile allowance
during the severance period. If a change of control of the Company occurs prior
to any such termination of employment, then Mr. Farah may elect to receive the
cash severance payments described above in two equal lump sum installments, the
first payable within 30 days after the date of termination and the second on the
first anniversary of the date of termination, and all options and restricted
shares awarded to him, whether pursuant to his employment agreement or
otherwise, will immediately vest and remain exercisable for a period of at least
one year.
If either the Company or Mr. Farah elects not to extend the term of his
employment, Mr. Farah will be entitled to receive his salary through the date of
termination plus the annual incentive bonus he would have been entitled to
receive had he been employed by the Company through the end of the fiscal year,
prorated to the date of termination. If it is the Company that elects not to
extend the term, Mr. Farah will also be entitled to receive an amount, payable
in twelve equal monthly installments, equal to the sum of (i) his annual base
salary, and (ii) his target annual incentive bonus. If the Company terminates
Mr. Farah for cause or Mr. Farah resigns other than for good reason, he is
entitled to receive only his base salary through the date of termination. In the
event of Mr. Farah's termination due to his death or disability, Mr. Farah is
entitled to receive all payments due to him through the date of his death or
termination due to disability, including a pro-rated annual incentive bonus for
the year of termination.
Mr. Farah may not compete with the Company during the term of Mr. Farah's
employment and for 12 months thereafter.
Douglas L. Williams' Employment Agreement. Mr. Williams' employment
agreement provides for his employment as Group President through January 1,
2005, subject to automatic, successive one year extensions thereafter unless
either party gives at least 180 days' prior notice that the term will not be
extended. Mr. Williams' annual base salary is $705,000, and he is entitled to
receive an annual incentive bonus ranging from 75% to 150% of his annual base
salary, based upon the achievement of Company performance goals established
under the Company's Executive Officer Annual Incentive Plan.
If Mr. Williams resigns for good reason (as defined in his employment
agreement) or if the Company terminates his employment for any reason other than
death, disability or cause (as defined in his employment agreement), then Mr.
Williams will be entitled to receive a pro rata portion of his incentive bonus
for the year of termination (based on the average of the annual incentive
bonuses paid to him over the two immediately preceding fiscal years), plus an
amount equal to the sum of: (i) two times his annual base salary (or, if
greater, the number of full and fractional years remaining in the initial term
of his employment agreement) and (ii) the average of the annual incentive
bonuses paid to him for the two immediately preceding fiscal years. Payments
will be made in equal monthly installments over a period of two years or, if
longer, the remaining portion of the initial term of his employment agreement
(the "Williams Severance Period"). In addition, Mr. Williams will be entitled to
(i) continued participation in the Company's health benefit plans during the
Williams Severance Period and (ii) continued use of his Company automobile or
payment of his automobile allowance, as applicable, until the expiration of the
Williams Severance Period. If a change of control of the Company shall have
occurred prior to the termination of Mr. Williams' employment, Mr. Williams may
elect to receive the cash severance payments described above in two equal lump
sum installments, the first payable within 30 days after the date of termination
and the second on the first anniversary of the date of termination.
If Mr. Williams' employment terminates due to either the Company's or Mr.
Williams' election not to extend the term, Mr. Williams will be entitled to
receive his salary through the date of termination plus the annual incentive
bonus, if any, that he would have been entitled to receive had he remained in
the Company's employment through the end of its fiscal year, prorated to the
date of termination. If it is the Company that elects not to extend the term,
then Mr. Williams will also be entitled to receive an amount, payable in twelve
equal monthly installments, equal to the sum of (i) his annual base salary, plus
(ii) his average annual incentive bonus paid for the two immediately preceding
fiscal years. If Mr. Williams resigns without good reason or if the Company
terminates his employment for cause, Mr. Williams will be entitled to receive
only his base salary through the date of termination. In the event of Mr.
Williams' termination due to his death or
17
disability, Mr. Williams or his estate will be entitled to receive all payments
due to him through the date of his death or termination due to disability
including a payment of a pro rata portion of his annual incentive bonus for the
year of termination (based on the average annual incentive bonus paid to him for
the preceding two years).
Mr. Williams may not compete with the Company during the term of his
employment. If Mr. Williams resigns his employment with or without good reason,
or if the Company terminates his employment without cause, he cannot compete
with the Company for twelve months from the date of termination of his
employment. If Mr. Williams' employment is terminated for cause, the Company may
elect to prohibit him from competing with the Company for up to twelve months in
consideration for the monthly payment of an amount equal to one-twelfth of Mr.
Williams' base salary and bonus (based on the average of the annual incentive
bonuses paid to Mr. Williams over the two immediately preceding fiscal years).
Gerald M. Chaney's Employment Agreement. Mr. Chaney's employment agreement
provides for his employment through January 1, 2004. Mr. Chaney's annual base
salary is $450,000, and he is entitled to participate in any annual bonus
program that the Company maintains and is applicable to Mr. Chaney. If the
Company terminates Mr. Chaney's employment for any reason other than death,
disability or cause (as defined in his employment agreement), Mr. Chaney will be
entitled to continue to receive, in accordance with the Company's normal payroll
practices, an amount equal to his base salary for a period of one year or the
remaining term of his employment agreement, whichever is longer (the "Chaney
Severance Period"), plus an amount, payable at the end of the Chaney Severance
Period equal to the bonus that Mr. Chaney received for the fiscal year
immediately preceding the fiscal year in which his employment was terminated. In
addition, Mr. Chaney will be entitled to continue his participation in any group
medical, dental or life insurance plans during the Chaney Severance Period. If a
change of control of the Company shall have occurred prior to the termination of
Mr. Chaney's employment without cause, Mr. Chaney will be entitled to receive a
lump sum amount, payable within 15 days after the termination of his employment,
equal to twice the sum of his base annual salary and the bonus paid to him for
the fiscal year immediately preceding the fiscal year in which his employment
was terminated, any unvested options held by Mr. Chaney will immediately vest,
and all options held by him will remain exercisable for six months.
If Mr. Chaney voluntarily terminates his employment, or if the Company
terminates his employment for cause, Mr. Chaney will be entitled to receive only
his base salary through the date of termination. In the event of Mr. Chaney's
termination due to his death or disability, Mr. Chaney or his estate will be
entitled to receive all payments due him through the date of his death or
termination due to disability. Mr. Chaney may not compete with the Company
during the term of his employment and for a period of one year thereafter. The
one-year post-termination non-compete period will not apply, however, if the
Company terminates Mr. Chaney's employment agreement without cause.
CODE OF ETHICS FOR PRINCIPAL EXECUTIVE OFFICERS AND SENIOR FINANCIAL OFFICERS
The Board of Directors has adopted a written Code of Ethics that is
applicable to the Company's Chief Executive Officer, Chief Operating Officer,
Chief Financial Officer, Principal Accounting Officer, Controller and persons
performing similar functions. The Company's Code of Ethics is designed to deter
wrongdoing and to promote:
- honest and ethical conduct, including the ethical handling of actual or
apparent conflicts of interest between personal and professional
relationships;
- full, fair, accurate, timely, and understandable disclosure in reports
and documents that the Company files with, or submits to, the SEC and in
other public communications made by the Company;
- compliance with applicable governmental laws, rules and regulations;
- the prompt internal reporting of violations of the Code to the
Chairperson of the Company's Audit Committee; and
- accountability for adherence to the Code.
18
The Company's Code of Ethics is filed as an exhibit to its Annual Report on
Form 10-K. Any amendments to or waivers from the Company's Code of Ethics will
be posted on the Company's web-site at http://investor.polo.com.
COMPENSATION COMMITTEE REPORT
Compensation Philosophy. The Company's compensation philosophy, as
formulated by the Compensation Committee and endorsed by the Board of Directors,
is designed to attract, motivate and retain highly qualified executives and to
support a performance-oriented environment that rewards achievement of the
Company's short and long-term goals. Consistent with this philosophy, a key
objective of the Committee is to ensure that the executive compensation program
links a significant portion of compensation directly to operating performance.
The employment agreements of each of Mr. Lauren and Mr. Farah were extended,
amended and restated in fiscal 2003 in accordance with this philosophy.
The Company's compensation structure consists of base salary, variable
annual cash bonuses, long-term incentive awards in the form of stock options and
restricted stock awards, benefits and deferred compensation. These components of
compensation are reviewed both internally and externally relative to companies
that compete with the Company for business and/or executive and creative talent
to ensure the appropriateness of the Company's executive pay program.
Base Salary and Bonus. The Company's employment agreements with Mr. Lauren
and certain other executives set forth base salary amounts and provide for an
annual bonus payable for attaining performance goals. Annual bonuses for Messrs.
Lauren, Isham, Farah and Williams for fiscal 2003 were provided under the
Executive Officer Annual Incentive Plan. The Plan is designed (i) to promote the
success of the Company; (ii) to provide designated executives with an
opportunity to receive incentive compensation dependent upon that success; and
(iii) to provide awards that are "qualified performance-based" compensation
under Section 162(m) of the Code. See "-- Certain Tax Matters" below.
Payment of annual cash incentive awards to participants is conditioned upon
the attainment of pre-established performance goals set by the Committee to
reflect Company and/or business unit performance using one or more of the
following performance measures: basic or diluted earnings per share, net
revenues, gross profit, income before income taxes, income before income taxes
less a charge for capital, return on capital, return on equity, return on
investment, working capital ratios, operating expenses as a percentage of net
revenues, selling, general and administrative expenses as a percentage of net
revenues, inventory turn rate and inventory shrinkage control, each as
determined in accordance with generally accepted accounting principles as
consistently applied by the Company.
Performance measures may vary from performance period to performance period
and from participant to participant and may be established on a stand-alone
basis, in tandem or in the alternative. If so determined by the Committee,
performance relative to goals may be adjusted, to the extent permitted under
Section 162(m) of the Code, to omit the effects of extraordinary items, gain or
loss on the disposal of a business segment, unusual or infrequently occurring
events and transactions and cumulative effects of changes in accounting
principles. Additionally, except in the case of Mr. Lauren, bonus payments may
be adjusted relative to strategic goals. Amounts payable under the Plan may be
reduced or eliminated, but cannot be increased.
For fiscal 2003, annual bonuses for executives (other than Messrs. Lauren,
Isham, Farah and Williams) were provided for by the Executive Incentive Plan.
The Executive Incentive Plan is designed to motivate executives and other key
employees of the Company to achieve and exceed the Company's annual financial
and strategic goals, and in the case of employees with operating division
responsibility, the goals of the executive's operating division.
Under the Executive Incentive Plan, each participant is eligible for a
range of incentive bonuses (each expressed as a percent of such participant's
gross fiscal salary earnings) according to his or her position in the Company,
if pre-established operating income objectives of the Company and/or of the
participant's operating division are met. In fiscal 2003, the bonus awards of
the Company's Division Presidents and Executive Vice Presidents under the
Executive Incentive Plan were based 50% on corporate objectives and 50% on
divisional
19
performance goals. The bonus awards of most other participants working in the
Company's operating divisions were based 30% on the satisfaction of corporate
objectives and 70% on the satisfaction of objectives for the participant's
operating division. In addition, designated participants working in centralized
Company positions had their incentive awards determined entirely on overall
Company performance.
All incentive bonuses under the Executive Incentive Plan were adjusted
based on the achievement of Company-wide strategic goals relative to inventory
turn rate and expense reduction. No payments will be made under the Executive
Incentive Plan in any fiscal year in which the Company is not profitable,
regardless of the performance of any particular division.
Long-Term Equity-Based Incentives. The Committee is responsible for
determining long-term equity-based incentive grants to eligible executive
officers and employees of the Company. Individual stock option awards granted
during fiscal 2003 under the 1997 Stock Incentive Plan were determined based on
the executive's position in the Company and an assessment of the prevailing
compensation levels among the Company's competitors and U.S. general industry
companies. Awards also may include restricted stock and other performance and
stock-based awards.
Chief Executive Officer Compensation. During fiscal 2003, Mr. Ralph
Lauren, the Company's Chairman and Chief Executive Officer, was paid a base
salary of $1 million. This amount was governed by the terms of the employment
agreement between Mr. Lauren and the Company that was in effect during fiscal
2003. On June 23, 2003, Mr. Lauren's employment agreement was amended and
restated. The agreement in effect during fiscal 2003 and the New Employment
Agreement are each described above under "Executive Compensation -- Executive
Compensation Agreements."
The employment agreement in effect during fiscal 2003 provided for an
annual bonus payment within a range of none to $8 million. Based on the
Company's achievement of performance goals relative to income before income
taxes established by the Committee, for fiscal 2003, Mr. Lauren received an
incentive bonus of $5,400,000, equal to 102% of his target bonus opportunity.
In June 2002 the Company granted Mr. Lauren 250,000 stock options with an
exercise price set at the fair market value of the Class A Common Stock on the
date of the grant as part of the annual stock option grant cycle. These options
vest ratably on each of the first, second and third anniversary of the date of
grant.
Certain Tax Matters. Section 162(m) of the Code generally disallows a tax
deduction to public companies for compensation over $1 million paid to the
corporation's Chief Executive Officer and the four other most highly compensated
executive officers. Qualifying performance-based compensation is not subject to
the deduction limit if certain requirements are met. The Company's Executive
Officer Annual Incentive Plan is designed to permit the deductibility for
federal income tax purposes of awards to the Company's executive officers.
In making its decisions, the Committee considers the deductibility of
executive compensation, but reserves the right to compensate executive officers
in a manner commensurate with performance and the competitive environment for
executive and creative talent. As a result, some portion of compensation paid in
the future to an executive officer whose compensation is subject to the
deduction limits described above may not be deductible by the Company.
Members of the Compensation Committee:
Joel L. Fleishman (Chairperson)
Frank A. Bennack, Jr.
Terry S. Semel
20
STOCK PERFORMANCE GRAPH
The following graph compares the cumulative total return (stock price
appreciation plus dividends) on the Company's Class A Common Stock with the
cumulative total return of the Standard & Poor's 500 Index and the Standard &
Poor's SuperCap Apparel, Accessories & Luxury Goods Index, which replaced the
Standard & Poor's SuperCap Textile Index during our 2002 fiscal year, for the
period from March 27, 1998, the last day of trading in fiscal 1998, through
March 28, 2003, the last trading day in fiscal 2003. The returns are calculated
by assuming an investment in the Company's Class A Common Stock and each index
of $100 on March 27, 1998, with all dividends reinvested.
COMPARISON OF CUMULATIVE TOTAL RETURN
MARCH 27, 1998 THROUGH MARCH 29, 2003
(STOCK PERFORMANCE GRAPH)
MARCH 27, 1998 APRIL 1, 1999 MARCH 31, 2000 MARCH 30, 2001 MARCH 28, 2002 MARCH 28, 2003
-------------- ------------- -------------- -------------- -------------- --------------
Polo Ralph Lauren
Corporation........ $100 $ 65.48 $ 62.55 $ 92.05 $ 97.67 $ 74.81
S&P 500.............. $100 $118.46 $139.72 $109.43 $109.69 $ 82.53
S&P SuperCap Apparel,
Accessories &
Luxury Goods....... $100 $ 84.18 $ 73.41 $ 91.33 $105.51 $105.18
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
REGISTRATION RIGHTS AGREEMENTS
Certain of the Lauren Family Members (as defined below), certain investment
funds associated with the Goldman Sachs Group, Inc. (collectively, the "GS
Group") and the Company are parties to a Registration Rights Agreement (the
"Registration Rights Agreement") pursuant to which each of the Lauren Family
Members and GS Group have certain demand registration rights in respect of
shares of Class A Common Stock (including Class A Common Stock issuable upon
conversion of Class B Common Stock and Class C
21
Common Stock, as the case may be, held by them). With respect to the demand
rights of the Lauren Family Members, the Lauren Family Members may make a demand
once every nine months. With respect to the demand rights of the GS Group, the
GS Group may make a demand once every nine months so long as the GS Group owns
at least 10% of the Common Stock outstanding. Once its ownership of the Common
Stock is less than 10% of the outstanding shares of Common Stock, the GS Group
may make one additional demand; provided, however, that if the sale of Class A
Common Stock pursuant to such demand registration does not result in the GS
Group owning less than 5% of the Common Stock due to a cutback in the number of
shares that it may include in such registration, such demand will not count as
its one demand. In the case of each demand registration, at least $20 million of
Class A Common Stock must be requested to be registered. The Lauren Family
Members and the GS Group also have an unlimited number of piggyback registration
rights in respect of their shares. The piggyback registration rights allow the
holders to include all or a portion of the shares of Class A Common Stock
issuable upon conversion of their shares of Class B Common Stock and Class C
Common Stock, as the case may be, under any registration statement filed by the
Company, subject to certain limitations.
The Company is required to pay all expenses (other than underwriting
discounts and commissions of the selling stockholders and taxes payable by the
selling stockholders) in connection with any demand registration, as well as any
registration pursuant to the exercise of piggyback rights. The Company also must
indemnify such persons and any underwriters against certain liabilities,
including liabilities arising under the Securities Act of 1933.
As used in this proxy statement, the term "Lauren Family Members" includes
only the following persons: (i) Ralph Lauren and his estate, guardian,
conservator or committee; (ii) the spouse of Ralph Lauren and her estate,
guardian, conservator or committee; (iii) each descendant of Ralph Lauren (a
"Lauren Descendant") and their respective estates, guardians, conservators or
committees; (iv) each Family Controlled Entity (as defined below); and (v) the
trustees, in their respective capacities as such, of each Lauren Family Trust
(as defined below). The term "Family Controlled Entity" means (i) any
not-for-profit corporation if at least a majority of its board of directors is
composed of Ralph Lauren, Mr. Lauren's spouse and/or Lauren Descendants; (ii)
any other corporation if at least a majority of the value of its outstanding
equity is owned by Lauren Family Members; (iii) any partnership if at least a
majority of the economic interest of its partnership interests are owned by
Lauren Family Members; and (iv) any limited liability or similar company if at
least a majority of the economic interest of the Company is owned by Lauren
Family Members. The term "Lauren Family Trust" includes trusts, the primary
beneficiaries of which are Mr. Lauren, Mr. Lauren's spouse, Lauren Descendants,
Mr. Lauren's siblings, spouses of Lauren Descendants and their respective
estates, guardians, conservator or committees and/or charitable organizations,
provided that if the trust is a wholly charitable trust, at least a majority of
the trustees of such trust consist of Mr. Lauren, the spouse of Mr. Lauren
and/or Lauren Family Members.
OTHER AGREEMENTS, TRANSACTIONS AND RELATIONSHIPS
In connection with the reorganization that preceded the Company's initial
public offering in June 1997, the stockholders of the Company and the Company
entered into a stockholders' agreement (the "Stockholders' Agreement") which
sets forth certain voting and other agreements for the period prior to
completion of the initial public offering. All of the provisions of the
Stockholders' Agreement terminated upon completion of the initial public
offering, except for certain provisions relating to certain tax matters with
respect to the Company's predecessor entities, certain restrictions on transfers
of shares of Common Stock and indemnification and exculpation provisions.
The Company has entered into indemnification agreements with each of its
directors and certain executives. The indemnification agreements require, among
other things, that the Company indemnify its directors and executives against
certain liabilities and associated expenses arising from their service as
directors and executives of the Company and reimburse certain related legal and
other expenses. In the event of a change of control (as defined therein), the
Company will, upon request by an indemnitee under the agreements, create and
fund a trust for the benefit of such indemnitee sufficient to satisfy reasonably
anticipated claims for indemnification.
22
Four employees of the Company perform full-time services for Mr. Lauren
which are non-Company related; three employees carry out domestic activities in
Mr. Lauren's household and one employee works in an administrative assistant
capacity. Mr. Lauren reimburses the Company for the full amount of the salary,
benefits and other expenses relating to such employees. Pursuant to his
employment agreement with the Company, Mr. Lauren will continue to be entitled
to have such employees perform such services provided he reimburses the Company
for the full amount of salary, benefits and other expenses relating to such
employees. Amounts reimbursed by Mr. Lauren for his use of such four employees
for non-Company related services in fiscal 2003 were approximately $349,838. In
addition, during fiscal 2003, certain of the Company's creative services
employees spent a portion of their time performing services for Mr. Lauren which
are non-Company related. Mr. Lauren reimburses the Company for all direct
expenses incurred by the Company in connection with such employees' performance
of services for him, including an allocation of such employees' salaries and
benefits. The Company anticipates that certain of its creative services
employees will continue to perform services for Mr. Lauren in fiscal 2004.
Amounts reimbursed to the Company by Mr. Lauren for the salaries and benefits of
such creative services employees for non-Company related services in fiscal 2003
were approximately $160,693. In connection with the adoption of the "RRL"
trademarks by the Company, pursuant to an agreement with the Company, Mr. Lauren
retained the royalty-free right to use as trademarks "Ralph Lauren," "Double RL"
and "RRL" in perpetuity in connection with, among other things, beef and living
animals. The trademarks "Double RL" and "RRL" are currently used by the Double
RL Company, an entity wholly owned by Mr. Lauren. In addition, Mr. Lauren has
reserved the right to engage in personal projects involving non-Company related
film or theatrical productions through RRL Productions, Inc., a Company wholly
owned by Mr. Lauren. In addition, the Company paid the premiums on split-dollar
life insurance policies on the lives of Mr. Lauren and his spouse for portions
of fiscal 2003. See "Executive Compensation -- Summary Compensation Table."
Mr. Jerome Lauren, the Executive Vice President of Menswear Design of the
Company, is Mr. Ralph Lauren's brother.
Mr. David Lauren, Senior Vice President of Advertising, Marketing and
Corporate Communications of the Company, is Mr. Ralph Lauren's son.
Mr. F. Lance Isham, Vice Chairman of the Company, relocated to London in
February 2001. In connection with such relocation, Polo Jeans Company Europe,
Ltd., a subsidiary of the Company, guaranteed the rental payments under Mr.
Isham's residential lease. See "Executive Compensation -- Summary Compensation
Table."
In April 2002, Mr. Arnold H. Aronson, a member of the Company's Board of
Directors, entered into a consulting agreement with one of the Company's
subsidiaries to provide consulting services with respect to the development of
the Ralph Lauren Home business. Pursuant to this agreement, which will terminate
on March 25, 2004, Mr. Aronson receives annual fees of $250,000, payable in
monthly installments, and the reimbursement of reasonable and necessary
expenses. In Mr. Aronson's capacity as a Senior Advisor to Kurt Salmon
Associates ("KSA"), he received fees from KSA based on the fees KSA received
from the Company. During fiscal 2003, Mr. Aronson received approximately $74,000
in such fees.
Mr. Richard A. Friedman, a member of the Company's Board of Directors, is a
managing director of Goldman, Sachs & Co. and head of its Principal Investment
Area. In May 2002, Goldman, Sachs & Co. acted as a co-lead underwriter of a
secondary offering of the Company's Class A Common Stock. The selling
stockholders in the offering were affiliates of Goldman, Sachs & Co.
Transactions between the Company and Mr. Lauren or between the Company and
The GS Group will be approved by the Board of Directors or a committee of
directors not affiliated with Mr. Lauren or the GS Group, as applicable.
23
(PROPOSAL 2)
APPROVAL OF AMENDMENTS TO THE POLO RALPH LAUREN CORPORATION
EXECUTIVE OFFICER ANNUAL INCENTIVE PLAN
The Polo Ralph Lauren Corporation Executive Officer Annual Incentive Plan
(the "Plan") is designed to qualify bonuses paid under the Plan as "qualified
performance-based compensation" for purposes of Section 162(m) of the Code. This
enables the Company to exclude compensation payable under the Plan from the
deduction limitations of Section 162(m), which generally preclude a deduction
for compensation paid to a public company's chief executive officer and next
four highest compensated executive officers to the extent compensation for a
taxable year to any such individual exceeds $1 million. The purposes of the Plan
are to promote the success of the Company; to provide designated executive
officers with an opportunity to receive incentive compensation dependent upon
that success; to attract, retain and motivate such individuals; and to provide
awards that are "qualified performance-based" compensation under Section 162(m).
Proposed Amendment. On June 18, 2003, the Company's Board of Directors
approved, subject to stockholder approval at the 2003 Annual Meeting, an
amendment to the Plan, as described below under the caption "Duration and
Payment of Incentives," that will increase the annual maximum amount of any
individual award under the Plan from $10 million to $18 million. The purpose of
this amendment is to accommodate the maximum annual bonus opportunities set
forth in Mr. Lauren's New Employment Agreement, which provides for maximum
annual bonus opportunities ranging from $12 million for fiscal 2004 to $18
million for fiscal 2008, but provides that in no event may the annual bonus for
any year exceed the maximum amount payable to any individual in any year under
the Plan.
MATERIAL TERMS OF THE PLAN
Modification. The Board of Directors of the Company may at any time amend
or terminate the Plan. However, no amendment may be made after the date an
executive officer is selected as a participant for a performance period that may
adversely affect the rights of such participant for that performance period, and
no amendment may increase the maximum award payable under the Plan without
stockholder approval or otherwise be effective without stockholder approval if
such approval is necessary so that awards will be "qualified performance-based
compensation" under Section 162(m) of the Code. Accordingly, stockholder
approval of the proposed amendment is being sought.
Administration. The Plan must be administered by a committee or
subcommittee of the Board of Directors designated by it to administer the Plan
that consists of not less than two directors, each of whom is intended to be an
"outside director" within the meaning of Section 162(m) of the Code. Currently
the Compensation Committee of the Board of Directors administers the Plan.
Eligibility. The committee designates the executive officers eligible to
participate in the Plan for each performance period. The executive officers of
the Company are the Company's Chief Executive Officer and other executives of
the Company considered to be executive officers for purposes of the Securities
Exchange Act of 1934.
Performance Measures and Goals. Payment of a cash incentive to
participants is conditioned upon the attainment of pre-established performance
goals measured over a performance period designated by the committee. A
performance period may be one or more periods of time over which the attainment
of one or more performance goals will be measured for the purposes of
determining a participant's right to payment in respect of an award under the
Plan. Since the Plan's inception, the committee has used the Company's fiscal
years as the performance periods. The performance goals applicable to a
performance period must be established in writing by the committee no later than
the earlier of (i) 90 days after the start of the performance period, or (ii)
the date upon which 25% of the performance period has elapsed.
The performance goals are determined by reference to one or more of the
following performance measures, as selected by the committee and as applicable
to Company and/or business unit performance: earnings per share, net revenues,
gross profit, income before income taxes, income before income taxes less a
charge for capital, return on capital, return on equity, return on investment,
working capital ratios, operating
24
expenses as a percentage of net revenues, selling, general and administrative
expenses as a percentage of net revenue, inventory turn rate and inventory
shrinkage control. Each performance measure is determined in accordance with
generally accepted accounting principles as consistently applied by the Company,
and if so determined by the committee, adjusted to the extent permitted under
Section 162(m) of the Code, to omit the effects of extraordinary items of gain
or loss on the disposal of a business segment, unusual or infrequently occurring
events and transactions and the cumulative effects of changes in accounting
principles. The application of performance measure(s) from among these measures
may vary from performance period to performance period and from participant to
participant.
Determination and Payment of Incentives -- Amendment. The cash incentive
amount that is payable to a participant in a performance period will be
determined in accordance with a pre-established objective award formula based on
the achievement of performance goals. The committee has the discretion to reduce
or eliminate, but cannot increase, any amounts otherwise payable under the Plan.
All payments under the Plan will be made in cash. As discussed above, upon
stockholder approval of the amendment to the Plan, the maximum cash incentive
payable under the Plan to any participant with respect to any fiscal year (or a
portion thereof) contained within a performance period shall be raised from $10
million to $18 million.
Plan Benefits. The executive officers selected for participation in the
Plan for fiscal 2004 are Ralph Lauren, F. Lance Isham and Roger N. Farah. These
individuals and Douglas L. Williams were the only participants in the Plan in
fiscal 2003. As described in the Compensation Committee Report included in this
proxy statement, the annual bonus opportunities for these officers, subject to
the achievement of the performance measures and goals established under the
Plan, are provided in their respective employment agreements. See "Executive
Compensation -- Executive Compensation Agreements" for a description of the
provisions of these agreements. The amounts awarded to Messrs. Lauren, Isham and
Farah under the Plan during the last fiscal year appear in the Summary
Compensation Table included elsewhere in this proxy statement under the column
"Bonus." The amount awarded to Mr. Williams under the Plan during the last
fiscal year was $761,400.
Required Vote. Approval of the proposed amendment to the Plan requires the
affirmative vote of a majority of the votes cast by the holders of the shares of
Common Stock of the Company, voting as a single class, present in person or by
proxy at the 2003 Annual Meeting and eligible to vote. In the event stockholders
do not approve the amendment, awards may still continue to be granted and paid
out under the Plan as currently in effect.
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS A VOTE FOR THE APPROVAL OF
THE AMENDMENT TO THE POLO RALPH LAUREN CORPORATION EXECUTIVE OFFICER ANNUAL
INCENTIVE PLAN. PROXIES RECEIVED BY THE BOARD OF DIRECTORS WILL BE SO VOTED
UNLESS STOCKHOLDERS SPECIFY A CONTRARY CHOICE IN THEIR PROXIES.
(PROPOSAL 3)
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Audit Committee of the Board of Directors has appointed D&T as
independent auditor to audit the financial statements of the Company and its
subsidiaries for the year ending April 3, 2004. A resolution will be presented
at the meeting to ratify their appointment.
The Company has elected to early adopt the SEC's new proxy disclosure
requirements pertaining to fee categories, pursuant to the implementation of the
Sarbanes-Oxley Act of 2002. Under the new requirements, the fee categories have
been expanded to four: Audit, Audit-related, Tax and All other. Under previous
requirements, financial information systems design and implementation fees were
reported in a separate category, with tax, audit-related, and consulting
services combined into the "All other" category. Under the new requirements, the
"Audit" category has been expanded to include audit and attest services provided
in connection with statutory and regulatory filings and SEC consent letters.
25
In adopting these new disclosures, the SEC requires that comparative
information for the prior fiscal year be presented. Accordingly, fee information
presented for the 2002 Annual Meeting of Stockholders proxy statement has been
restated here for comparative purposes.
All services provided by D&T have been reviewed with the Audit Committee to
confirm that the performance of such services is consistent with the regulatory
requirements for auditor independence.
The Audit Committee has adopted a policy requiring pre-approval by the
Audit Committee of all services (audit and non-audit) to be provided to the
Company by its independent auditor. In accordance with that policy, the Audit
Committee has given its approval for the provision of audit services by D&T for
fiscal 2004 and has also given its approval for the provision by D&T of
particular categories or types of services, in each case subject to a specific
budget. In addition, the Audit Committee may delegate authority to one or more
persons to pre-approve the provision of services, provided that such
pre-approvals are reported to the full Audit Committee.
INDEPENDENT AUDITOR FEES
Aggregate fees for professional services rendered for the Company by D&T
for fiscal 2003 and fiscal 2002 were:
FISCAL 2003 FISCAL 2002
----------- -----------
Audit fees.................................................. $1,640,000 $1,400,000
Audit-related fees.......................................... 638,000 260,000
Tax fees.................................................... 2,253,000 972,000
All other fees.............................................. -- --
---------- ----------
Total..................................................... $4,531,000 $2,632,000
========== ==========
Audit Fees. Audit fees are fees billed by D&T for professional services
for the audit of the Company's annual financial statements and review of
financial statements included in the Company's Form 10-Qs, or for services that
are normally provided by D&T in connection with statutory and regulatory filings
or engagements.
Audit-related Fees. Audit-related fees are fees billed by D&T for
assurance and related services that are reasonably related to the performance of
the audit or review of the Company's financial statements. These services
include statutory audits, employee benefit plan audits, accounting consultations
and due diligence services. These are normally provided by D&T in connection
with the recurring audit engagement. Under previous proxy reporting rules, many
of these services were required to be included in the All other fees category.
Tax Fees. Tax fees are fees billed by D&T for tax consulting and
compliance services and tax acquisition and tax due diligence, including in
connection with the operational consolidation of the Company's European
businesses.
All Other Fees. All other fees are fees billed by D&T for any services
that did not constitute audit fees, audit-related fees or tax fees. No such
services were provided by D&T to the Company in fiscal 2003 or fiscal 2002.
A representative of D&T will be present at the meeting, will have the
opportunity to make a statement and will be available to respond to appropriate
questions by stockholders.
The affirmative vote of a majority of the total number of shares of common
stock represented at the annual meeting and entitled to vote is needed to ratify
D&T's appointment. If the stockholders do not ratify the appointment of D&T, the
selection of the independent auditor will be reconsidered by the Audit Committee
of the Board of Directors.
26
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS A VOTE FOR THE PROPOSAL TO
RATIFY THE APPOINTMENT OF DELOITTE & TOUCHE LLP AS INDEPENDENT AUDITORS OF THE
COMPANY FOR THE FISCAL YEAR ENDING APRIL 3, 2004. PROXIES RECEIVED BY THE BOARD
OF DIRECTORS WILL BE SO VOTED UNLESS STOCKHOLDERS SPECIFY A CONTRARY CHOICE IN
THEIR PROXIES.
PROXY PROCEDURE AND EXPENSES OF SOLICITATION
The Company will retain an independent tabulator to receive and tabulate
the proxies and independent inspectors of election to certify the results.
All expenses incurred in connection with the solicitation of proxies will
be borne by the Company. The Company will reimburse brokers, fiduciaries,
custodians and other nominees for their costs in forwarding proxy materials to
beneficial owners of Common Stock held in their names.
Solicitation may be undertaken by mail, telephone, personal contact or
other similar means by directors, officers and employees of the Company without
additional compensation.
STOCKHOLDER PROPOSALS
Eligible stockholders wishing to have a proposal for action by the
stockholders at the 2004 Annual Meeting included in the Company's proxy
statement must submit such proposal at the principal offices of the Company not
later than March 9, 2004. It is suggested that any such proposals be submitted
by certified mail, return receipt requested.
The Company's Amended and Restated By-laws contain advance notice
requirements for stockholders to make nominations of candidates for election as
directors or to bring other business before an annual meeting of stockholders of
the Company. Subject to the rights of any holders of Preferred Stock, only
nominations of persons for election as directors and other proposals for
stockholder action that are made by, or at the direction of, the Board of
Directors, or by a stockholder who has given timely written notice to the
Secretary of the Company prior to the meeting, may be brought before such
meeting. To be timely, notice of stockholder nominations or proposals to be made
at an annual or special meeting must be received by the Company not less than 60
days nor more than 90 days prior to the scheduled date of the meeting (or, if
less than 70 days' notice or prior public disclosure of the date of the meeting
is given, by the 10th day following the earlier of (i) the day such notice was
mailed or (ii) the day such public disclosure was made).
A stockholder's notice to the Company must include a full description of
such proposal (including all information that would be required in connection
with such proposal under the SEC's proxy rules if such proposal were the subject
of a proxy solicitation and the written consent of each nominee for election to
the Board of Directors named therein (if any) to serve if elected) and the name,
address and number of shares of Common Stock held of record or beneficially as
of the record date for such meeting by the person proposing to bring such
proposal before the meeting.
Nothing in this section shall be interpreted or construed to require the
inclusion of information about any stockholder proposal in the Company's proxy
statement.
27
OTHER INFORMATION
As of the mailing date of this proxy statement, the Board of Directors
knows of no matters other than those referred to in the accompanying Notice of
Annual Meeting of Stockholders that may properly come before the meeting. If any
stockholder proposal or other matter were to properly come before the meeting,
including voting for the election of any person as a director in place of a
nominee named herein who becomes unable to serve or for good cause will not
serve and voting on a proposal omitted from this proxy statement pursuant to the
rules of the SEC, all proxies received will be voted in accordance with the
discretion of the proxy holders, unless a stockholder specifies otherwise in its
proxy.
The form of proxy and the proxy statement have been approved by the Board
of Directors and are being mailed and delivered to stockholders by its
authority.
Ralph Lauren
Chairman & Chief Executive Officer
New York, New York
June 24, 2003
THE ANNUAL REPORT TO STOCKHOLDERS OF THE COMPANY FOR THE FISCAL YEAR ENDED
MARCH 29, 2003, WHICH INCLUDES FINANCIAL STATEMENTS, HAS BEEN MAILED TO
STOCKHOLDERS OF THE COMPANY. THE ANNUAL REPORT DOES NOT FORM ANY PART OF THE
MATERIAL FOR THE SOLICITATIONS OF PROXIES.
28
APPENDIX A
POLO RALPH LAUREN CORPORATION
CHARTER OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
The Audit Committee of the Board of Directors (the "Board") of Polo Ralph
Lauren Corporation (the "Corporation"), by resolutions dated February 4, 2003,
has adopted this Audit Committee Charter, which supersedes the charter
previously adopted on June 23, 2000. The Audit Committee of the Board (the
"Audit Committee") shall review and reassess this charter annually and recommend
any proposed changes to the Board for approval.
I. PURPOSE
The primary objective of the Audit Committee is to assist the Board in
fulfilling its oversight responsibilities with respect to (a) the Corporation's
financial statements, (b) the Corporation's compliance with legal and regulatory
requirements, (c) the independent auditors' qualifications and independence, and
(d) the performance of the Corporation's internal audit function and independent
auditors.
Although the Audit Committee has the powers and responsibilities set forth
in this Charter, the role of the Audit Committee is oversight. The members of
the Audit Committee are not full-time employees of the Corporation and may or
may not be accountants or auditors by profession or experts in the fields of
accounting or auditing and, in any event, do not serve in such capacities.
Consequently, it is not the duty of the Audit Committee to conduct audits or to
determine that the Corporation's financial statements and disclosures are
complete and accurate and are in accordance with generally accepted accounting
principles and applicable rules and regulations. These are the responsibilities
of management and the independent auditors.
II. ORGANIZATION
The Audit Committee shall consist of three or more directors, each of whom
shall satisfy the independence, financial literacy and experience requirements
of Section 10A of the Securities Exchange Act, the New York Stock Exchange and
any other regulatory requirements. The members of the Audit Committee shall be
appointed by the Board.
The Audit Committee may form and delegate authority to subcommittees when
appropriate.
III. MEETINGS
The Audit Committee shall meet at least four times per year on a quarterly
basis, or more frequently as circumstances require. As part of its job to foster
open communication, the Audit Committee shall meet periodically with management,
the chief internal auditor and the independent auditors in separate executive
sessions to discuss any matters that the Audit Committee or any of these groups
believe should be discussed privately.
The members of the Audit Committee shall select a chairperson who will
preside at each meeting of the Audit Committee and, in consultation with the
other members of the Audit Committee, shall set the frequency and length of each
meeting and the agenda of items to be addressed at each upcoming meeting. The
chairperson shall ensure that the agenda for each upcoming meeting of the Audit
Committee is circulated to each member of the Audit Committee in advance of the
meeting.
The chairperson of the Audit Committee will appoint someone to act as
Secretary of each meeting who will prepare minutes of the meeting. After
approval by the Audit Committee members, the Secretary of the Corporation will
maintain files of the minutes. Copies will be furnished to each Director of the
Corporation who is not a member of the Audit Committee.
IV. AUTHORITY AND RESPONSIBILITIES
The Audit Committee shall have the sole authority and responsibility to
select, evaluate and, where appropriate, replace the independent auditors (or to
nominate the independent auditors for stockholder
A-1
approval), and shall approve all audit engagement fees and terms and all
significant non-audit engagements with the independent auditors. The Audit
Committee shall consult with management and the internal audit group but shall
not delegate these responsibilities.
To fulfill its responsibilities, the Audit Committee shall:
WITH RESPECT TO THE INDEPENDENT AUDITORS:
1. Be directly responsible for the appointment, compensation and
oversight of the work of the independent auditors (including resolution of
disagreements between management and the independent auditors regarding
financial reporting and reviewing with management and the independent
accountants instances where management has obtained "second opinions" from
other accountants) for the purpose of preparing the audit report or related
work.
2. Inform the independent accountants and management that the Audit
Committee will maintain open communication with the independent accountants
at all times, and that the Audit Committee Chairman may call a special
meeting with them whenever necessary.
3. Have the sole authority to review in advance, and grant any
appropriate pre-approvals of (a) all auditing services to be provided by
the independent auditors and (b) all non-audit services to be provided by
the independent auditors as permitted by Section 10A of the Securities
Exchange Act, and in connection therewith to approve all fees and other
terms of engagement. The Audit Committee shall also review and approve
disclosures required to be included in Securities and Exchange Commission
periodic reports filed under Section 13(a) of the Securities Exchange Act
with respect to non-audit services.
4. Review on an annual basis the performance of the independent
auditors.
5. Ensure that the independent auditors submit to the Audit Committee
on an annual basis a written statement consistent with Independent
Standards Board Standard No. 1, discuss with the independent auditors any
disclosed relationships or services that may impact the objectivity and
independence of the independent auditors, and satisfy itself as to the
independent auditors' independence.
6. At least annually, obtain and review an annual report from the
independent auditors describing (a) the independent auditors' internal
quality control procedures and (b) any material issues raised by the most
recent internal quality control review, or peer review, of the independent
auditors, or by any inquiry or investigation by governmental or
professional authorities, within the preceding five years, respecting one
or more independent audits carried out by the independent auditors, and any
steps taken to deal with any such issues.
7. Confirm that the lead audit partner, the concurring partner and
the other audit partners have not performed audit services for the
Corporation in contravention of the rotation requirements of Rule
2-01(c)(b) of Regulation S-X.
8. Review all reports required to be submitted by the independent
auditors to the Audit Committee under Section 10A of the Securities
Exchange Act.
9. Review, based upon the recommendation of the independent auditors
and the chief internal auditor, the scope and plan of the work to be done
by the independent auditors.
WITH RESPECT TO THE ANNUAL FINANCIAL STATEMENTS:
10. Review and discuss with management and the independent auditors
the Corporation's annual audited financial statements, including
disclosures made in "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
11. Discuss with the independent auditors the matters required to be
discussed by Statement on Auditing Standards No. 61, as amended, relating
to the conduct of the audit.
A-2
12. Recommend to the Board, if appropriate, that the Corporation's
annual audited financial statements be included in the Corporation's annual
report on Form 10-K for filing with the Securities and Exchange Commission.
13. Prepare the report required by the Securities and Exchange
Commission to be included in the Corporation's annual proxy statement and
any other reports of the Audit Committee required by applicable securities
laws or stock exchange listing requirements or rules.
WITH RESPECT TO QUARTERLY FINANCIAL STATEMENTS:
14. Review and discuss with management and the independent auditors
the Corporation's quarterly financial statements, including disclosures
made in "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
ANNUAL REVIEWS:
15. Discuss with management and the independent auditors any major
issues relating to the accounting principles used in the preparation of the
Corporation's financial statements, including any significant changes in
the Corporation's selection or application of accounting principles. Review
and discuss analyses prepared by management and/or the independent auditors
setting forth significant financial reporting issues and judgments made in
connection with the preparation of the financial statements, including
analyses of the effects of alternative approaches under GAAP on the
financial statements.
PERIODIC REVIEWS:
16. Periodically review separately with management and the
independent auditors (a) any significant disagreement between management
and the independent auditors or the internal audit group in connection with
the preparation of the financial statements and (b) any difficulties
encountered during the course of the audit, including any restrictions on
the scope of work or access to required information.
DISCUSSIONS WITH MANAGEMENT:
17. Discuss with management the Corporation's earnings press
releases, including the use of non-GAAP financial measures (as defined in
Regulation G), as well as financial information and earnings guidance
provided to analysts and rating agencies. This may be done generally (i.e.,
discussion of the types of information to be disclosed and the type of
presentation to be made); the Audit Committee need not discuss in advance
each earnings release or each instance in which the Corporation may provide
earnings guidance.
18. Review and discuss with management the Corporation's major risk
exposures and the steps management has taken to monitor, control and manage
such exposures, including the Corporation's risk assessment and risk
management guidelines and policies.
WITH RESPECT TO THE INTERNAL AUDIT FUNCTION AND INTERNAL CONTROLS:
19. Review, based upon the recommendation of the independent auditors
and the chief internal auditor, the scope and plan of the work to be done
by the internal audit group and the responsibilities, budget and staffing
needs of the internal audit group.
20. Review on an annual basis the performance of the internal audit
group.
21. In consultation with the independent auditors, review major
issues as to the adequacy of the Corporation's internal controls and any
special audit steps adopted in light of material deficiencies in controls.
22. Establish procedures for (a) the receipt, retention and treatment
of complaints received by the Corporation regarding accounting, internal
accounting controls or auditing matters and (b) the confidential, anonymous
submission by employees of the Corporation of concerns regarding the
questionable accounting or auditing matters.
A-3
23. Review (i) the internal control report prepared by management,
including management's assessment of the effectiveness of the Corporation's
internal control structure and procedures for financial reporting and (ii)
the independent auditors' attestation, and report, on the assessment made
by management.
OTHER:
24. Review and approve (a) any change or waiver in the Corporation's
code of ethics for the chief executive officer, the chief operating officer
and senior financial officers and (b) any public disclosure of such change
or waiver.
25. Establish a policy addressing the Corporation's hiring of
employees or former employees of the independent auditors who were engaged
on the Corporation's account.
26. Review and reassess the adequacy of this Charter annually and
recommend to the Board any changes deemed appropriate by the Audit
Committee.
27. Review its own performance annually.
28. Report regularly to the Board and review with the full Board any
issues that may arise with respect to the quality or integrity of the
Corporation's financial statements, its compliance with applicable legal
and regulatory requirements, the performance and independence of the
independent auditors and the performance of the internal audit group.
29. Perform any other activities consistent with this Charter, the
Corporation's by-laws and governing law as the Audit Committee or the Board
deems necessary or appropriate.
V. RESOURCES
The Audit Committee shall have the authority to retain independent legal,
accounting and other consultants to advise the Audit Committee. The Audit
Committee shall determine the extent of funding necessary for payment of
compensation to any independent legal, accounting and other consultants retained
to advise the Audit Committee. The Audit Committee may request any officer or
employee of the Corporation or the Corporation's outside counsel or independent
auditors to attend a meeting of the Audit Committee or to meet with any members
of, or consultants to, the Audit Committee.
A-4
[POLO/RALPH LAUREN LOGO]
POLO RALPH LAUREN CORPORATION
CLASS A COMMON STOCK
PROXY
ANNUAL MEETING OF STOCKHOLDERS
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
The undersigned, revoking all previous proxies, hereby constitutes and
appoints F. Lance Isham, Roger N. Farah, Gerald M. Chaney and Edward W.
Scheuermann, and each of them, proxies with full power of substitution to vote
for the undersigned all shares of Class A Common Stock of Polo Ralph Lauren
Corporation which the undersigned would be entitled to vote if personally
present at the Annual Meeting of the Stockholders to be held on August 14, 2003
at the St. Regis Hotel, 20th Floor Penthouse, 2 East 55th Street, New York, New
York, at 9:30 a.m. (local time), and at any adjournment or postponement thereof,
upon the matters described in the accompanying Proxy Statement and, in such
proxies' discretion, upon any other business that may properly come before the
meeting or any adjournment or postponement thereof.
THIS PROXY WHEN PROPERLY EXECUTED, WILL BE VOTED AS DIRECTED HEREIN. IF
NO DIRECTION IS GIVEN, THIS PROXY WILL BE VOTED "FOR" THE NOMINEES FOR ELECTION
AS DIRECTORS, "FOR" THE PROPOSED AMENDMENT TO THE POLO RALPH LAUREN CORPORATION
EXECUTIVE OFFICER ANNUAL INCENTIVE PLAN AND "FOR" THE RATIFICATION OF THE
APPOINTMENT OF DELOITTE & TOUCHE LLP AS INDEPENDENT AUDITORS.
This proxy is continued on the reverse side. Please sign on the reverse
side and return promptly.
POLO RALPH LAUREN CORPORATION
P.O. BOX 11045
NEW YORK, N.Y. 10203-0045
(PLEASE SIGN, DATE AND
RETURN THIS PROXY IN THE X
ENCLOSED POSTAGE PREPAID
ENVELOPE.)
VOTES MUST BE INDICATED
(X) IN BLACK OR BLUE INK.
Item 1. Election of two (2) Class A Director Nominees as Class A Directors:
Arnold H. Aronson and Dr. Joyce F. Brown.
IF YOU PLAN ON ATTENDING THE [ ]
FOR all nominees [ ] WITHHOLD AUTHORITY to vote [ ] * EXCEPTIONS [ ] 2003 ANNUAL MEETING, PLEASE
listed above for all nominees listed above CHECK THIS BOX.
(INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, MARK
THE "EXCEPTIONS" BOX AND WRITE THAT NOMINEE'S NAME IN THE SPACE PROVIDED BELOW.)
* Exceptions___________________________________________________________________
To change your address, please [ ]
mark this box.
To include any comments, please [ ]
mark this box.
Item 2. Approval of proposed amendment to the Polo Ralph Lauren Corporation
Executive Officer Annual Incentive Plan.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
Item 3. Ratification of appointment of Deloitte & Touche LLP as
independent auditors to serve for the fiscal year ending
April 3, 2004.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
Please mark, date and sign exactly as your
name appears hereon and return in the
enclosed envelope. If acting as executor,
administrator, trustee, guardian, etc., you
should so indicate when signing. If the
signer is a corporation, please write in the
full corporate name and sign by a duly
authorized officer. If shares are held
jointly, each stockholder named should sign.
Date Share Owner sign here/Title Co-Owner sign here/Title