SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
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Check the appropriate box:
[_] Preliminary Proxy Statement
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14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
The Gap, Inc.
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(Name of Registrant as Specified In Its Charter)
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[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
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M A Y 2 1, 1 9 9 6
To Our Stockholders:
The Annual Meeting of Stockholders of The Gap, Inc. will be held at the
Ritz-Carlton Hotel, San Francisco, California, on Tuesday, May 21, 1996 at 1:30
P.M., for the following purposes:
1. To elect a Board of Directors;
2. To consider and act upon the 1996 Stock Option and Award
Plan;
3. To consider and act upon the Company's Executive Long-Term
Cash Award Perfomance Plan;
4. To consider and act upon the selection by the Board of
Directors of Deloitte & Touche LLP as independent auditors for the Company for
the fiscal year ending on February 1, 1997; and
5. To transact such other business as may properly come before
the meeting.
The foregoing items of business are more fully described in the Proxy
Statement following this Notice.
Only stockholders of record at the close of business on March 25, 1996,
are entitled to notice of and to vote at the Annual Meeting and any
adjournments or postponements thereof.
A copy of the Company's annual report is being mailed with this proxy
statement to stockholders entitled to notice of this meeting.
By Order of the Board of Directors,
Anne B. Gust
Secretary
April 22, 1996
THE GAP, INC.
ONE HARRISON
SAN FRANCISCO, CALIFORNIA 94105
PROXY STATEMENT
This proxy statement is furnished in connection with the
solicitation of proxies by the Board of Directors of The Gap,
Inc. (the "Company") for use at the Annual Meeting of
Stockholders of the Company to be held on May 21, 1996 at 1:30
P.M. at the Ritz-Carlton Hotel in San Francisco, and at any
adjournment thereof. This statement and the enclosed form of
proxy were first sent to stockholders on or about April 22, 1996.
THE PROXY
The persons named as proxyholders were selected by the Board
of Directors of the Company and are officers of the Company.
All proxies will be voted, or an abstention or withholding
recorded, in accordance with the directions on the proxy. If no
contrary direction is given, the shares will be voted:
FOR the election of directors nominated by the Board of
Directors;
FOR the approval of the 1996 Stock Option and Award Plan;
FOR the approval of the Executive Long-Term Cash Award
Performance Plan; and
FOR the approval of the selection by the Board of Directors
of Deloitte & Touche LLP as independent auditors for the Company
for the fiscal year ending February 1, 1997.
All expenses in connection with the solicitation of the
enclosed proxy, including the charges of brokerage houses and
other custodians, nominees or fiduciaries for forwarding
documents to security owners, will be paid by the Company. In
addition to solicitation by mail, officers, directors and
employees of the Company, who will receive no extra compensation
for their services, may solicit proxies by telephone, fax or in
person.
A stockholder giving the enclosed proxy may revoke it at any
time prior to its exercise by a written revocation delivered to
the Company, by a subsequent proxy, or by attending the Annual
Meeting and voting in person.
VOTING SECURITIES AND VOTING RIGHTS
The only outstanding voting securities of the Company are
its shares of Common Stock, of which 144,188,673 shares were
outstanding at the close of business on March 25, 1996
(288,377,346 after giving effect to a two-for-one stock split in
the form of a stock dividend to stockholders of record as of
March 18, 1996). Only stockholders of record at the close of
business on that date are entitled to vote at the meeting. Each
stockholder is entitled to one vote per share on each matter
submitted to the meeting. All share amounts in this proxy
statement have been restated to reflect the two-for-one stock
split.
The holders of a majority of the outstanding shares of the
Common Stock of the Company, present in person or by proxy, will
constitute a quorum for the transaction of business at the Annual
Meeting or any adjournment thereof.
Votes cast by proxy or in person at the Annual Meeting will
be tabulated by the election inspector(s) appointed for the
meeting and will determine whether or not a quorum is present.
The election inspector(s) will treat abstentions as shares that
are present and entitled to vote for purposes of determining the
presence of a quorum but as unvoted for purposes of determining
the approval of any matter submitted to the stockholders for a
vote. If a broker indicates on the proxy that it does not have
discretionary authority as to certain shares to vote on a
particular matter, those shares will not be considered as present
and entitled to vote with respect to that matter.
BENEFICIAL OWNERSHIP OF SHARES
The following table sets forth certain information as of
March 25, 1996, to indicate beneficial ownership by (i) each
person known by the Company to be the beneficial owner of more
than 5% of the Company's Common Stock; (ii) each director and
nominee and each executive officer named in the Summary
Compensation Table; and (iii) all directors and executive
officers of the Company, as a group, of the Common Stock of the
Company. Unless otherwise indicated, beneficial ownership is
direct and the person indicated has sole voting and investment
power.
Amount Beneficially Percent
Name of Beneficial Owner Owned of Class
Adrian D. P. Bellamy 6,000 *
John G. Bowes 362,400 *
Millard S. Drexler 5,022,600 (1) (2) 1.7%
Donald G. Fisher 65,450,960 (3) 22.7%(3)
Doris F. Fisher 65,450,960 (3) 22.7%(3)
Robert J. Fisher 11,198,086 (4) 3.9%
Lucie J. Fjeldstad 400 (5) *
Magdalene Gross 227,190 (6) (2) *
William A. Hasler 1,000 *
John M. Lillie 2,000 (7) *
Richard M. Lyons 303,418 (8) (2) *
Charles R. Schwab 5,082 (9) *
Brooks Walker, Jr. 137,600 (10) *
All directors and executive 82,947,828 (11) (2) 28.8%
officers as a group (15 persons)
* Indicates ownership of less than 1% of the outstanding
shares of the Company's Common Stock.
(1) Includes 198,600 shares which Mr. Drexler has the right to
acquire within 60 days after March 25, 1996 upon exercise of
stock options.
(2) Includes shares as to which restrictions have not lapsed
which were granted under the Company's Restricted Stock
Plan, and/or shares held by the executive officer in his or
her retirement account under the GapShare Plan, a retirement
plan that qualifies under Section 401(k) of the Internal
Revenue Code of 1986, as amended.
(3) Donald G. Fisher and Doris F. Fisher, who are husband and
wife, are the founders of the Company, directors, and,
respectively, the Chairman of, and a merchandising
consultant to, the Company. Their address is the same as
that shown for the Company on the first page of this Proxy
Statement. In the table shown above, 65,450,960 shares
beneficially owned by Donald G. Fisher and Doris F. Fisher
are reflected as being beneficially owned by each of them;
therefore, the number of shares and percentage of class
reflected for each of them should not be added in
determining the actual number of shares or percentage owned
by both of them. Of the shares shown as owned by each of
them, 55,318,950 shares, representing 19.2% of the Company's
Common Stock, are held in The Donald and Doris Fisher 1991
Revocable Trust, of which they are trustees and 1,243,946
shares are held as community property. The remainder of the
shares are held in various trusts and foundations of which
they are trustees. The shares shown as owned by each of
them exclude an aggregate of 34,744,006 shares beneficially
held by family members, as to which shares Mr. and Mrs.
Fisher each disclaim any beneficial interest.
(4) Includes 129,800 shares which Robert Fisher has the right to
acquire within 60 days after March 25, 1996 upon exercise of
stock options, and shares as to which restrictions have not
lapsed which were granted under the Company's Restricted
Stock Plan. Also included are 140,000 shares held jointly
by Mr. Robert Fisher and his spouse, 31,628 shares owned by
his spouse and 47,808 shares held by Robert Fisher as
trustee for his nieces and nephews.
(5) Represents shares held in an Individual Retirement Account
for which Ms. Fjeldstad has sole voting and investment
power.
(6) Includes 120,400 shares which Ms. Gross has the right to
acquire within 60 days after March 25, 1996 upon exercise of
stock options. Also included are 4,368 shares owned by Ms.
Gross' spouse, and 4,000 shares held for the benefit of her
minor children.
(7) Represents shares held under the Lillie Family Living Trust,
for which Mr. Lillie and his wife share voting and
investment power.
(8) Includes 49,600 shares which Mr. Lyons has the right to
acquire within 60 days after March 25, 1996 upon exercise of
stock options. Also included are 33,400 shares owned
jointly by Mr. Lyons and his spouse, and 1,860 shares held
for the benefit of his minor children.
(9) Includes 1,000 shares owned by Mr. Schwab's spouse.
(10) Includes 60,000 shares owned by the Brooks Walker, Jr.
Charitable Remainder Trust, of which Mr. Walker is the
trustee and over which he has sole voting and investment
power.
(11) Includes 655,200 shares which certain directors and
executive officers have the right to acquire within 60 days
after March 25, 1996 upon exercise of stock options.
PROPOSAL NO. 1
ELECTION OF DIRECTORS
NOMINEES FOR ELECTION AS DIRECTORS
All directors were elected at the Annual Meeting held in
1995. Directors will be elected at the Annual Meeting to serve
until the next Annual Meeting and until their successors are
elected. The Board of Directors proposes to nominate the eleven
current directors. In the absence of instructions to the
contrary, shares represented by the proxy will be voted for the
election of all such nominees to the Board of Directors. The
Board of Directors has no reason to believe that any of these
nominees will be unable to serve. However, if any nominee should
for any reason be unavailable to serve, the proxies will be voted
for the election of such other person to the office of director
as the Board of Directors may recommend in place of such nominee.
Set forth below is certain information concerning the nominees
which is based on data furnished by them.
Name, Age, Principal Occupation Served as
During Past Five Years and Director
Other Information Since
Adrian D. P. Bellamy, 54 # * 1995
Chairman of Airport Group International, LLC, airport management
and services company; Chairman of Compass Limited, footwear
manufacturer and retailer; and Chairman of Gucci Group, NV,
luxury accessories and apparel manufacturer and retailer.
Director of Paragon Trade Brands, Inc., manufacturer of store
brand diapers; and Director of Starbucks Corporation, gourmet
coffee retailer. Chairman and Chief Executive Officer of DFS
Group Limited, specialty retailer, 1983-95.
John G. Bowes, 67 # * 1974
Former Chairman of Kransco Group Companies, manufacturer of
recreational products.
Millard S. Drexler, 51 1983
Chief Executive Officer of the Company since 1995 and President
of the Company since 1987; Chief Operating Officer of the
Company since 1993; Chief Executive Officer of Banana
Republic, Inc. since 1988; Chief Executive Officer of the Gap
Division since 1987. Director of Williams-Sonoma, Inc.,
specialty retailer.
Donald G. Fisher, 67 * + 1969
Chairman of the Company. Chief Executive Officer from 1969 to
1995. Director of The Charles Schwab Corporation, discount
securities brokerage; and Director of AirTouch Communications,
telecommunications company.
Doris F. Fisher, 64 + 1969
Merchandising consultant to the Company.
Robert J. Fisher, 41 ++ 1990
Executive Vice President and Chief Operating Officer of the
Company since 1995 and 1992-1993. Executive Vice President
and Chief Financial Officer, 1993-1995; President of Banana
Republic, Inc., 1989-1992. Director of Sun Microsystems, Inc.,
manufacturer of computer systems.
Lucie J. Fjeldstad, 52 # * 1995
President, Video and Networking, Tektronix, Inc., electronics
company, since 1995. President, Fjeldstad International,
consulting company, from 1993 to 1995. Vice President and
General Manager, Multimedia, IBM, from 1992 to 1993; and Vice
President, IBM, and President, Multimedia and Education
Division, IBM, from 1990 to 1992. Director of KeyCorp Ohio,
bank holding company; Director of Entergy Corp. DE, utility
holding company; and Director of Bolt Beranek & Newman, Inc.,
manufacturer of computer support systems.
William A. Hasler, 54 @ * 1991
Dean, Haas Graduate School of Business, University of
California, Berkeley since 1991. Vice Chairman, Management
Consulting, KPMG Peat Marwick from 1986 to 1991. Director of
Tenera, Inc., information services company; Director of
Aphton, Inc., biotechnology pharmaceutical company; Director
of Walker Interactive Systems, Inc., software company;
and Director of TCSI, communications technology company.
Governor of the Pacific Stock Exchange.
John M. Lillie, 59 # * 1992
Chairman and Chief Executive Officer of American President
Companies, Ltd., transportation company, 1992-1995. President
and Chief Operating Officer of American President Companies,
Ltd., 1990-1991. General Partner of Sequoia Associates, private
investment firm, 1989-1990. Director of Vons Companies,
supermarket chain.
Charles R. Schwab, 58 @ * 1986
Chairman and Chief Executive Officer of The Charles Schwab
Corporation, discount securities brokerage. Director of
Transamerica Corporation, insurance and financial services
company; and Director of AirTouch Communications,
telecommunications company.
Brooks Walker, Jr., 68 @ * 1972
General Partner, Walker Investors, venture capital investment
partnership. Director of Pope & Talbot, Inc., manufacturer
of wood products; and Director of AT&T Capital Corporation,
equipment leasing and financing company.
____________________________
@ Member of the Audit and Finance Committee.
# Member of the Compensation and Stock Option Committee.
* Member of the Corporate Governance Committee.
+ Donald G. Fisher and Doris F. Fisher are husband and wife.
++ Robert J. Fisher is the son of Donald G. and Doris F. Fisher.
INFORMATION ABOUT THE BOARD OF DIRECTORS
AND COMMITTEES OF THE BOARD
The Board of Directors has three standing committees: the
Audit and Finance Committee, and the Compensation and Stock
Option Committee, both of which are composed of directors who are
not employees of the Company, and the Corporate Governance
Committee, which is made up of seven non-employee directors and
one employee director.
The functions of the Audit and Finance Committee are to
recommend the engagement of the Company's independent auditors;
to review with them the plan, scope and results of their audit
for each year; to review with the Company's internal auditors the
plan, scope and results of their operations; and to consider and
review other matters relating to the financial and accounting
affairs of the Company. This committee is composed exclusively
of directors who are, in the opinion of the Board of Directors,
free from any relationship that will interfere with the exercise
of independent judgment as a committee member. The present
members of the Audit and Finance Committee are Messrs. Hasler,
Schwab and Walker (who is Chairman).
The functions of the Compensation and Stock Option Committee
are to review and approve salaries and other forms of
compensation for all corporate and divisional officers; to
approve the guaranteeing or granting of loans to certain
corporate and divisional officers under the Company's Relocation
Loan Plan; to grant stock to selected employees under the
Company's stock plan; and to make awards under the Company's
management incentive plans to key employees. This committee is
composed exclusively of directors who have not been eligible to
receive stock options or awards under such plan (except for
predetermined, formula-based awards, as described below) for a
period of at least one year prior to membership on the committee.
The present members of the Compensation and Stock Option
Committee are Messrs. Bellamy, Bowes, and Lillie (who is
Chairman), and Ms. Fjeldstad.
The functions of the Corporate Governance Committee are to
make recommendations to the Board on all matters concerning
corporate governance and directorship practices, including the
qualifications of officers, directors, candidates for election as
directors, the size, composition, compensation and function of
the Board of Directors, the functions and duties of the
committees of the Board, the effectiveness and procedures of the
Board, and succession planning for important Company functions.
The present members of the Corporate Governance Committee are
Messrs. Bellamy, Bowes, Donald Fisher, Hasler (who is Chairman),
Lillie, Schwab and Walker and Ms. Fjeldstad.
During the last fiscal year, the Board of Directors held six
meetings, and the Audit and Finance Committee, the Compensation
and Stock Option Committee, and the Corporate Governance
Committee each held two meetings. Except for Mr. Hasler, no
directors attended fewer than 75% of the aggregate of (i) the
total number of meetings of the Board of Directors held while
they were members, and (ii) the total number of meetings held by
all Committees of the Board on which they were members.
COMPENSATION OF DIRECTORS
The Company does not pay director fees to directors who are
employees of the Company or any affiliated company. Directors
who are not employees of or consultants to the Company do not
receive any form of direct remuneration other than as described
below. In addition, travel expenses to attend meetings of the
Board of Directors are reimbursed by the Company. All directors
are eligible to receive discounts on Company merchandise.
Each director of the Company who is not an employee receives
director's fees in the form of an annual retainer of $36,000 per
year, payable quarterly, which is diminished by $2,500 for each
Board and/or Committee meeting day missed.
Under the Company's proposed 1996 Stock Option and Award
Plan, non-employee directors are eligible to receive stock
options according to a pre-determined formula, as follows: (i)
each new non-employee director automatically receives an option
to purchase 10,000 shares at the then-current fair market value;
and (ii) each continuing non-employee director automatically
receives an option to purchase 2,000 shares at the then-current
fair market value. All non-employee director options are granted
on the first business day after each annual meeting of
stockholders. The options normally become exercisable three
years after the date of grant. Furthermore, non-employee
directors may elect to receive all or a portion of their fees in
Company stock. For more information on the 1996 Stock Option and
Award Plan, see page 14 of this proxy statement.
The Non-Employee Director Retirement Plan is an unfunded
deferred compensation plan which sets mandatory retirement from
service on the Board at age 72 and provides for annual benefits
if a director has served on the Board for five consecutive years
and is still a director at age 72. The annual benefit payable to
an eligible retired director is equal to 75% of the annual
retainer fee in effect at the time of the director's retirement.
The duration of these annual payments equals the number of years
that the director served on the Board. If the director dies
before the maximum payment period expires, payments will continue
for the life of his or her surviving spouse, or until the end of
the maximum payment period, whichever is sooner.
In fiscal 1995, Doris Fisher received $24,500 for
merchandising services rendered in the course of her employment
with the Company. As a Company employee, Mrs. Fisher
participates in all benefits which the Company makes available to
its employees generally.
Information concerning the executive officers of the Company
is set forth in the Company's annual report on Form 10-K for the
fiscal year ended February 3, 1996.
EXECUTIVE COMPENSATION
The following table sets forth compensation paid to, earned
by or awarded to the Chief Executive Officer and the four other
most highly compensated executive officers of the Company for the
periods presented. The footnotes to the table provide additional
information concerning the Company's compensation and benefit
programs.
<TABLE>
<CAPTION> Summary Compensation Table
Long-Term Compensation
Annual Compensation Awards
Other All
Annual Restricted Securities Other
Compen- Stock Underlying Compen-
Name and Fiscal sation Awards Options sation
Principal Position Year Salary($) Bonus($) ($) (1) (#) (3) ($) (4)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Millard S. Drexler 1995 1,588,616 314,100 108,831 0 4,062,500 10,100
President and Chief 1994 1,449,731 715,000 22,490 0 38,600 7,616
Executive Officer 1993 1,396,907 1,082,500 _ 38,600 8,882
Donald G. Fisher 1995 1,508,777 299,100 155,812 N/A N/A 10,008
Chairman 1994 1,450,662 715,000 32,085 N/A N/A 9,606
1993 1,397,808 1,082,000 - N/A N/A 9,259
Robert J. Fisher 1995 694,162 137,500 1,399 840,625 1,034,000 9,782
Executive Vice President 1994 600,940 297,675 - 0 28,000 9,296
Chief Operating Officer 1993 570,904 450,000 - 566,250 28,000 7,852
Richard M. Lyons 1995 693,240 100,000 329 1,681,250 442,500 10,163
Executive Vice President 1994 581,324 288,000 - 0 28,000 9,717
Gap, Inc. & 1993 463,115 400,000 - 1,269,375 28,000 9,415
President, Gap Division
Magdalene Gross 1995 478,440 95,000 2,009 630,000 134,000 9,517
Executive Vice President 1994 444,808 176,400 - 0 28,000 8,838
Advertising, Gap Division 1993 406,554 250,000 - 424,688 28,000 8,294
_________________________________________
(1) While the named executive officers enjoy certain
perquisites, for fiscal years 1993, 1994 and 1995 these did
not exceed the lesser of $50,000 or 10% of each officer's
salary and bonus. The amounts listed for Messrs. Donald
Fisher, Drexler and Robert Fisher represent above-market
earnings on deferred compensation payable during the fiscal
year but deferred at their election under the Company's
Executive Capital Accumulation Plan and Executive Deferred
Compensation Plan. The amounts listed for Mr. Lyons and
Ms. Gross represent above-market earnings on deferred
compensation payable during the fiscal year but deferred at
their election under the Company's Supplemental Executive
Retirement Plan.
(2) Donald Fisher does not participate in the Company's
restricted stock plan. As of the end of fiscal 1995, the
aggregate restricted stock holdings for the named
executives consisted of 6,370,000 shares worth $152,880,000
at the then-current fair market value (as represented by
the closing price of the Company's Common Stock on February
2, 1996), without giving effect to the diminution of value
attributable to the restrictions on such stock. Such
amount included $144,000,000 for Mr. Drexler (6,000,000
shares), $2,160,000 for Robert Fisher (90,000 shares),
$4,560,000 for Mr. Lyons (190,000 shares), and $2,160,000
for Ms. Gross (90,000 shares). Dividends are paid on the
restricted shares to the extent payable on the Company's
Common Stock generally. Unless otherwise noted in the
following sentence, no shares granted to the named
executives vest in less than three years from the date of
grant. On May 23, 1995, Mr. Lyons was granted a total of
100,000 shares, vesting as follows: 10,000 shares on March
21, 1998, 40,000 shares on March 21, 1999 and 50,000 shares
on March 21, 2000. On March 21, 1995, Ms. Gross was
granted a total of 40,000 shares, vesting as follows:
10,000 on March 21, 1997, 10,000 shares on March 21, 1999
and 20,000 shares on March 21, 2000.
(3) Donald Fisher does not participate in the Company's stock
option plan.
(4) These amounts represent the Company's contributions to the
Company's GapShare Plan for fiscal years 1995, 1994 and
1993.
</TABLE>
The following two tables set forth certain information
regarding stock options granted to, exercised by and held by the
executive officers named in the foregoing Summary Compensation
Table.
<TABLE>
<CAPTION>
Option Grants In Last Fiscal Year
Individual Grants
Number of Potential Realizable Value at
Securities % of Total Assumed Annual Rates of
Underlying Options Granted Exercise or Stock Price Appreciation
Options to Employees in Base Price Expiration for Option Term (4)
Name Granted(#)(1) Fiscal Year ($/Sh)(2) Date (3) 5%($) 10%($)
<S> <C> <C> <C> <C> <C> <C>
Millard S. Drexler(5) 62,500 0.7% $15.96875 03/21/2003 $476,523 $1,141,355
4,000,000 42.3% $19.54375 11/01/2003 $37,325,079 $89,400,055
Donald G. Fisher N/A N/A N/A N/A N/A N/A
Robert J. Fisher (6) 434,000 2.5% $15.96875 03/21/2003 $3,308.975 $7,925,571
600,000 6.3% $19.54375 11/01/2003 $5,598,762 $13,410,008
Richard M. Lyons (7) 442,500 4.7% $15.96875 03/21/2003 $3,373,782 $8,080,795
Magdalene Gross 134,000 1.4% $15.96875 03/21/2003 $1,021,665 $2,447,066
__________________________________________
(1) Under the terms of the Company's Amended and Restated 1981
Stock Option Plan, the Compensation and Stock Option
Committee retains discretion, subject to plan limits, to
modify the terms of outstanding options. Donald Fisher
does not participate in the Company's stock option plan.
(2) All options were granted at market value (average of high
and low stock prices for the Company's Common Stock as
reported in the Western edition of The Wall Street Journal)
at date of grant.
(3) All options granted in fiscal 1995 were granted for a term
of eight years, subject to termination 90 days following
termination of employment in certain events.
(4) Realizable values are reported net of the option exercise
price but before any income taxes that the executives may
have to pay. The dollar amounts under these columns are
the result of calculations at the 5% and 10% rates
(determined from the price at the date of grant, not the
stock's current market value) set by the Securities and
Exchange Commission and therefore are not intended to
forecast possible future appreciation, if any, of the
Company's stock price. Actual gains, if any, on stock
option exercises are dependent on the future performance of
the Common Stock as well as the optionholder's continued
employment through the vesting period. The potential
realizable value calculation assumes that the optionholder
waits until the end of the option term (eight years from
date of grant) to exercise the option. The amounts
reflected in this table may not be achieved.
(5) The 62,500 options granted to Mr. Drexler on March 21, 1995
will become exercisable in full three years from date of
grant. Conversely, the 4 million options granted to him on
November 1, 1995 upon his promotion to Chief Executive
Officer will become exercisable in two equal installments
five and six years from date of grant.
(6) The 434,000 options granted to Mr. Robert Fisher on March
21, 1995 will become exercisable as follows: 34,000 shares
on March 21, 1998, 200,000 shares on March 21, 1999, and
200,000 shares on March 21, 2000. The 600,000 options
granted to him on November 1, 1995 upon his promotion to
Chief Operating Officer will become exercisable as follows:
200,000 shares on November 1, 2000, and 400,000 shares on
November 1, 2001.
(7) The options granted to Mr. Lyons will become exercisable as
follows: 42,500 shares on March 21, 1998, 200,000 shares on
March 21, 1999, and 200,000 shares on March 21, 2000.
(8) The options granted to Ms. Gross will become exercisable as
follows: 34,000 shares on March 21, 1998, 50,000 shares on
March 21, 1999, and 50,000 shares on March 21, 2000.
</TABLE>
<TABLE>
<CAPTION>
Aggregated Option Exercises in Last Fiscal Year
and Fiscal Year End Option Values
Number of Value of
Securities Underlying Unexercised
Unexercised In-the-Money
Shares Acquired Options at FY-End Options at FY-End ($)
Name On Exercise (#) Value Realized Exercisable/Unexercisable Exercisable/Unexercisable(1)
<S> <C> <C> <C> <C> <C> <C>
Millard S. Drexler 0 0 240,000 4,139,700 3,742,969 18,761,203
Donald G. Fisher (2) N/A N/A N/A N/A N/A N/A
Robert J. Fisher 0 0 101,800 1,090,000 1,260,009 6,474,313
Richard M. Lyons 0 0 21,600 498,500 196,875 3,868,828
Magdalene Gross 0 0 92,400 190,000 1,270,200 1,391,188
(1) Represents the difference between the closing price of the
company's Common Stock on February 2, 1996 and the exercise
price of the options.
(2) Donald Fisher does not participate in the Company's stock
option plan.
</TABLE>
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT ARRANGEMENTS
The Company has an employment agreement with Mr. Drexler,
which provides that Mr. Drexler's employment can only be
terminated for cause. In addition, the agreement provides: (i)
in the event of termination of employment by either party, that
Mr. Drexler can require the Company to repurchase his San
Francisco residence for an amount equal to his federal income tax
basis in the residence plus an amount calculated to reflect the
average increase in value of certain New York City properties
during the period from November 1983 to the date of repurchase;
(ii) in the event Mr. Drexler's employment with the Company is
terminated within stated time periods of a change of control of
the Company (defined to include an acquisition of shares of the
Company having a majority of the votes that can be cast for
election of directors or an event resulting in a change of a
majority of the members of the Board of Directors), that he is
entitled to receive an amount equal to two times his then current
annual salary; and (iii) in the event Mr. Drexler voluntarily
terminates his employment with the Company on less than twelve
months' prior notice, that he must pay the Company $100,000 as
liquidated damages for each month less than twelve.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation and Stock Option Committee of the Board of
Directors consists of Ms. Fjeldstad and Messrs. Bellamy, Bowes,
and Lillie, all of whom are outside directors. Mr. Lillie was
the Chairman and Chief Executive Officer of American President
Companies, Ltd., whose foreign and domestic subsidiaries furnish
consolidation and distribution services to the Company. A total
of $14,041,034 was paid by the Company to these entities during
fiscal 1995 for these services.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation and Stock Option Committee of the Board of
Directors is responsible for reviewing and approving the
Company's compensation policies and the compensation paid to
executive officers. The Committee is comprised of the members
named below, all of whom are non-employee Directors.
Compensation Philosophy
The general philosophy of the Company's compensation
program, which has been reviewed and approved by the Committee,
is to offer employees competitive compensation based both on the
Company's performance and on the individual's contribution and
performance. Corporate and divisional performance are evaluated
by reviewing the extent to which financial and strategic goals
are met, including such factors as profitability, sales growth
and expense control. These performance criteria are reviewed
each year to ensure that they are consistent with the Company's
mission and strategies. Individual performance is evaluated by
reviewing organizational and management development progress
against set objectives and the degree to which teamwork and
Company values are fostered.
The Company's compensation policies are intended to motivate
and reward highly qualified executives for long-term strategic
management and the enhancement of stockholder value, to support a
performance-oriented environment that rewards achievement of
specific internal Company goals, and to attract and retain
executives whose abilities are critical to the long-term success
and competitiveness of the Company. The program is heavily
oriented toward incentive compensation tied to the annual and
longer-term financial performance of the Company and to the
longer-term return realized by the Company's stockholders.
Two major factors affected the actions of the Committee in
fiscal year 1995:
- On November 1, 1995, Donald G. Fisher resigned as Chief
Executive Officer. He remains as Chairman of the
Board, with significant management responsibilities and
involvement in industry relations; and
- On November 1, 1995 the Board of Directors appointed
Millard S. Drexler as Chief Executive Officer and
Robert J. Fisher as Chief Operating Officer.
There are three main components in the Company's executive
compensation program:
- Base Salary
- Annual Incentives
- Long-Term Incentives
Base Salary
Executive officers' salaries have been targeted at or above
the average rates paid by competitors to enable the Company to
attract, motivate, reward and retain highly skilled executives.
The Committee believes that the historical growth in the
Company's revenues, stores and profitability has made the Company
a target for other companies seeking employees and that,
therefore, these rates are necessary to retain key officers. The
Committee reviews and approves salaries for the Chief Executive
Officer and the executive officers on an annual basis, generally
in the first quarter.
The Committee believes that the market for retailing
executives, and thus the relevant competitive data, includes a
broader group of companies than that shown in the stock price
performance graph presented in this proxy statement on page 13.
Thus, in reviewing the 1995 salaries for executive officers, the
Committee examined salary increase surveys for specialty retail
and general industry groups which were prepared by national
consulting companies (e.g., The Hay Group, Wyatt, William Mercer,
Coopers & Lybrand and ACA). These surveys were considered when
individual base salaries of executive officers were reviewed and
salaries were adjusted based on actual individual job performance
and/or changes in the position's duties and responsibilities.
Due to the restructuring of the top-level positions, each of the
named executive officers had significant changes in his/her job
duties during fiscal year 1995. In making salary decisions, the
Committee exercised its discretion and judgment based on these
factors. No specific formula was applied to determine the weight
of each factor.
Donald Fisher's base salary for fiscal year 1995 was
$1,533,000, representing a salary increase of 5% over fiscal
1994. On November 1, 1995, this salary was decreased to an
annual rate of $1,383,000 upon his resignation from the Chief
Executive Officer position. In contrast, Mr. Drexler's base
salary for fiscal year 1995 was initially set at $1,533,000,
representing an increase of 5% over the prior year, and was later
increased to an annual rate of $1,683,000 upon his promotion to
Chief Executive Officer.
In setting the Chief Executive Officers' 1995 salaries, the
Committee considered the Company's 1994 results, future
objectives and challenges, and Messrs. Fisher's and Drexler's
individual performances and contributions. The Company's 1994
performance (including increases of 13% in sales and 24% in
earnings) was judged by the Committee to be very good during a
period of intensified competition. Among Mr. Fisher's individual
contributions to the Company were his leadership role in
achieving its three strategic priorities for the year (earnings
growth, boosting employee performance and satisfaction, and
exceeding the expectations of the Company's customers) while
continuing to build the Company's global brand. Mr. Drexler's
initial increase also reflects his outstanding performance in
achieving these strategic priorities; his subsequent increase was
due to his increased responsibilities. The Committee also
considered Mr. Drexler's knowledge of the industry and his unique
qualifications to lead the Company to its next stage of growth.
In making its salary decisions with respect to Messrs. Fisher and
Drexler, the Committee exercised its discretion and judgment
based on the above factors, and no specific formula was applied
to determine the weight of each factor.
Annual Incentive Bonus
Annual incentive bonuses for executive officers are intended
to reflect the Committee's belief that a significant portion of
the annual compensation of each executive officer should be
contingent upon the performance of the Company.
To carry out this philosophy, the Company has implemented a
performance-based Executive Management Incentive Cash Award Plan
(Executive MICAP), in which executive officers are measured
solely on Company performance targets. There is no individual
performance measurement for executive officers in the plan. As a
pay-for-performance plan, the Executive MICAP is intended to
motivate and reward executive officers by directly linking the
amount of any cash bonus to specific corporate and/or divisional
financial goals. Specific measurements are chosen each year among
earnings, sales growth and volume, return on assets, and/or
return on equity; and threshold, target and maximum payout levels
are established to reflect the Company's objectives. These goals
and the potential amounts of executive officer bonuses are
reviewed and approved by the Committee in the first quarter of
each year. Under the 1995 guidelines adopted by the Committee,
executive officers were eligible to receive between 16.6% and 75%
of their salary as a bonus, depending on actual earnings
performance compared to target earnings goals set for each
division. Actual bonus amounts are calculated within this range
pursuant to a set formula which takes into account the growth
potential of a division, the extent to which earnings goals were
achieved, and the grade level of the officer.
The performance-based philosophy underlying the Executive
MICAP is illustrated by the bonus payments made in fiscal 1992,
when the Company's performance fell short of the goals set by the
Committee: in that year, the Chief Executive Officer and the
President received no bonuses and bonuses received by the other
named executive officers aggregated $200,000. Conversely, in
1993, when the Company exceeded the goals set by the Committee
and achieved record operating profits, all executive officers
were paid the maximum level of bonuses. In 1994, performance
bonuses were right at the target range.
The Company's 1995 performance was judged by the Committee
to be below expectation but good compared to industry/competitor
results. As a result, the Chief Executive Officers and other
named executive officers received annual incentive bonuses for
1995 which aggregated $945,700 and which were slightly above
threshold levels.
The Chief Executive Officers were eligible to receive
between 16.6% and 75% of their base salary as a bonus under the
1995 guidelines adopted by the Committee. The actual bonuses
received by Messrs. Donald Fisher and Drexler were 21.6% and
18.7%, respectively, of their base salary at the end of the year.
The Committee believes that the Executive MICAP program
provides an excellent link between annual results and the
incentives paid to executives.
Long-Term Incentives
The executive compensation program is oriented toward
stockholder interests through the use of long-term incentives
that create a direct linkage between executive rewards and
increased stockholder value. The long-term incentive component,
which is comprised of both cash- and stock-based incentives,
represents over half the total income opportunity for the
officers. In 1995, the Committee evaluated the Company's long-
term compensation practices and decided to revise the
compensation mix so that, starting with fiscal year 1996, 50% of
the bonus compensation will be delivered through stock options
and the remaining 50% through a cash performance plan with three-
year overlapping performance cycles. This compensation program
is designed to balance Company performance, individual
performance and individual risk. The Committee also determined
it was in the Company's best interests to reduce the use of
restricted stock as a compensation vehicle in order to more
closely tie executive compensation to the Company's business
performance. Furthermore, unlike restricted stock, which may not
be deductible for purposes of Section 162(m) of the Internal
Revenue Code, the new Executive Long-Term Cash Award Performance
Plan described below meets the requirements of this regulation.
The Committee believes that executive officers and other key
employees should have significant ownership of the Company's
stock. Notably, all executive officers as a group own
approximately 29% of the outstanding shares of Common Stock. In
particular, Mr. Donald Fisher, the Company's founder and
Chairman, owns jointly with his wife Doris Fisher approximately
23% of the outstanding shares.
- - Long-Term Performance Plan
The Company is implementing an Executive Long-Term Cash
Performance Plan (ELCAPP), in which executives will be measured
solely on Company or business unit performance targets. There is
no individual performance measurement for executive officers in
the plan. Under the ELCAPP, a three-year performance cycle is
established each year, with participants receiving a cash payout
if certain minimum, target or maximum predetermined performance
goals are achieved at the end of the cycle. As a pay-for-
performance plan, the ELCAPP is intended to motivate and reward
executive officers by directly linking the amount of any cash
bonus to specific corporate and/or divisional long-term financial
goals. Specific measurements are chosen each year for each
successive three-year cycle. The type of measurements include
comparable store sales, earnings, return on equity, return on net
assets, return on invested capital, sales volume and total sales.
Threshold, target and maximum payout levels are established to
reflect the Company's objectives. These goals and the potential
amounts of executive officer bonuses will be reviewed and
approved by the Committee in the first quarter of each year.
Under the 1996 guidelines adopted by the Committee, executive
officers will be eligible to receive between 40% and 100% of
their salary as a bonus, depending on actual performance compared
to target goals set for each division. Actual bonus amounts are
calculated within this range pursuant to a set formula which
takes into account the growth potential of a division, the extent
to which earnings goals were achieved, and the grade level of the
officer.
- - Stock Option Plan
With respect to executive officers, it has been the
Committee's practice to grant stock options on an annual basis,
usually in the first quarter. Generally, stock options have
vested three years after the grant date and employees must be
employed by the Company at the time of vesting in order to
exercise the options. The Committee believes that stock option
grants provide an incentive that focuses the executives'
attention on managing the Company from the perspective of an
owner with an equity stake in the business and intends to
increase their use as a compensation vehicle starting in fiscal
year 1996. The Company's stock options are tied to the future
performance of the Company's stock and will provide value to the
recipient only when the price of the Company's stock increases
above the option grant price, that is, only to the extent that
stockholders as a whole have benefitted.
In order to determine the appropriate number of options to
be granted to its executive officers, in 1995 the Company relied
on competitive guidelines prepared by an independent outside
compensation consultant based on practices for a wide array of
companies in a large number of industries. The consultant was
solely responsible for the criteria used to select the companies
included in the comparison group. The calculations underlying
these guidelines are based on the grant value of the option
(i.e., number of shares times the exercise price) in relation to
the employee's salary and performance level. The Company's
actual 1995 option grants to executive officers were in line with
those ranges. The size of each grant was based on a range of
potential shares (high, medium, low) for each eligible employee's
salary level. Actual shares awarded were based on the score
obtained by eligible employees on their yearly individual
performance evaluation. No consideration was given to the amount
of shares previously granted to executive officers.
Starting in fiscal year 1996, under the new guidelines set
by the Committee, stock options will constitute a greater portion
of executives' potential long-term pay. Generally, the options
will become exercisable in two equal installments three and four
years from date of grant.
Mr. Donald Fisher does not participate in the Company's
stock option plan. In 1995, Mr. Drexler was initially granted
options to purchase 62,500 shares. When Mr. Drexler was promoted
to Chief Executive Officer, the Committee evaluated his increased
responsibilities and decided to grant him options to purchase
another 4 million shares. These stock options become exercisable
in two equal installments five and six years from date of grant.
The primary basis for the Committee's determination was its
assessment of Mr. Drexler's ability and dedication to enhance the
long-term value of the Company by continuing to provide the
leadership and vision that he has provided throughout his 13-year
tenure as a Company executive, during which, on a compound annual
growth basis, the Company's earnings increased by 26%, sales by
20% and market value by 36%. Stock options represented the
predominant portion of the increase in Mr. Drexler's total
compensation package for 1995, reflecting the Committee's
emphasis on variable, at-risk compensation and increased stock
ownership. This grant is consistent with the Committee's
philosophy that at-risk compensation should comprise a
significant part of an executive's overall compensation.
- - Restricted Stock Plan
The Company's restricted stock grants have also been a
significant part of its long-term incentives. Restricted stock
awards are granted from time to time under the Company's
restricted stock plan. Generally, restrictions on the shares
lapse in three to five years from the grant date and the employee
must be employed by the Company on the date the restrictions
lapse in order to receive the stock. The Committee utilizes
these awards to attract new key executives, to recognize and
reward current executive officers for special individual
accomplishments, and to retain high-performing officers and key
employees by financially linking them to future employment with
the Company.
The ultimate value of any restricted stock received varies
based both on dividends which may be paid and on the value of the
stock at the time when shares vest. Restricted stock awards
build stock ownership and provide a long-term focus since the
stock is restricted from being sold, transferred or assigned, and
is forfeitable.
Under the new guidelines set by the Committee starting with
fiscal year 1996, restricted stock will be de-emphasized as long-
term compensation vehicle for executives, in favor of the long-
term performance plan described above. In the future, the
Committee intends to focus the use of restricted stock on
recruiting and retaining key executives.
Mr. Donald Fisher does not participate in the Company's
restricted stock plan, and Mr. Drexler was not granted any
restricted stock during fiscal year 1995.
Impact of Section 162(m) of the Internal Revenue Code
The Committee has considered the potential impact of Section
162(m) of the Internal Revenue Code on its compensation plans and
has determined that it is the Company's preference to qualify to
the maximum extent possible its executives' compensation for
deductibility under applicable tax laws. Except for the
Restricted Stock Plan, the Company's other compensation plans
have been designed to permit the Committee to grant awards which
qualify for deductibility under Section 162(m).
In addition, to allow for full deductibility of base
salaries, those Named Executive Officers whose base salaries
exceed the $1,000,000 limit have in the past deferred that
portion of their compensation above the limit under either or
both of the Company's nonqualified deferred compensation plans,
the Executive Capital Accumulation Plan and the Executive
Deferred Compensation Plan.
John M. Lillie (Chairman)
Adrian D. P. Bellamy
John G. Bowes
Lucie J. Fjeldstad
PERFORMANCE GRAPH
The graph below compares the percentage changes in the
Company's cumulative total stockholder return* on its Common
Stock for the five-year period ended February 3, 1996, with the
cumulative total return of the S&P 500 Index and the Dow Jones
Retailers - All Specialty Index.
The following chart represents data points on the performance graph
which appears in the printed version of this proxy.
Cumulative Total Return
1/91 1/92 1/93 1/94 1/95 1/96
Gap Inc. 100 253 165 205 159 234
S & P 500 100 123 136 153 154 213
DJ Retailers - All 100 142 164 156 162 170
Specialty Index
* Total return assumes quarterly reinvestment of dividends.
OTHER REPORTABLE TRANSACTIONS
The Company has an agreement with Fisher Development, Inc.
("FDI"), which is wholly owned by Robert S. Fisher, the brother
of Donald G. Fisher, the Chairman and a principal stockholder of
the Company. The agreement, which is reviewed annually by the
Audit and Finance Committee of the Board of Directors, sets forth
the terms under which FDI may act as general contractor in
connection with the Company's construction activities. During
the 1995 fiscal year, FDI supervised the construction of new
store leasehold improvements for 204 stores, expansions of 54
stores, and remodels of existing stores and administrative
offices. The total cost of such construction was $154,820,117,
including profit and overhead costs of $11,753,057 paid by the
Company to FDI relating to this construction.
Robert J. Fisher and William S. Fisher, adult sons of
Donald G. and Doris F. Fisher, are employed as: Executive Vice
President and Chief Operating Officer of the Company; and
President, International Division of the Company, respectively.
Robert J. Fisher is also a director of the Company. William S.
Fisher was paid a salary and bonus of $523,875 during the 1995
fiscal year; Company contributions to his account under GapShare
for fiscal year 1995 amounted to $9,448.
Comparable transactions with the persons described above are
expected to continue during the current fiscal year.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF
1934
Section 16(a) of the Securities Exchange Act of 1934
requires the Company's officers and directors, and persons who
own more than ten percent of a registered class of the Company's
equity securities to file reports of ownership and changes in
ownership with the Securities and Exchange Commission ("SEC") and
the New York Stock Exchange. Officers, directors and greater
than ten percent stockholders are required by SEC regulation to
furnish the Company with copies of all Section 16(a) forms they
file.
Based solely on its review of the copies of such forms
received by it, or written representations from certain reporting
persons that no Forms 5 were required for those persons, the
Company believes that, during the period from January 29, 1995 to
February 3, 1996, all filing requirements applicable to its
officers, directors and greater than ten percent beneficial
owners were complied with.
PROPOSAL NO. 2
PROPOSED ADOPTION OF THE
1996 STOCK OPTION AND AWARD PLAN
At the Annual Meeting there will be submitted to
stockholders a proposal to adopt the 1996 Stock Option and Award
Plan (the "1996 Plan"). The Board of Directors unanimously
approved the adoption of the 1996 Plan on March 26, 1996.
Adoption of the 1996 Plan is subject to the approval of a
majority of the shares of the Company's common stock which are
present in person or by proxy and entitled to vote at the Annual
Meeting. If the 1996 Plan is approved by the Company's
stockholders, the Plan would replace the Company's 1981 Stock
Option Plan and Management Incentive Restricted Stock Plan II,
both of which previously were approved by stockholders. The
following summary of the principal features of the amendments to
the Plan is qualified in its entirety by the full text of the
Plan, a copy of which is attached hereto as Exhibit A.
Purpose
The 1996 Plan is intended to increase incentive and to
encourage stock ownership on the part of (1) employees of the
Company and its affiliates, (2) consultants who provide
significant services to the Company and its affiliates
("consultants"), and (3) directors of the Company who are
employees of neither the Company nor any affiliate ("nonemployee
directors"). The 1996 Plan also is intended to further the
growth and profitability of the Company.
General
The 1996 Plan permits the granting of stock options, stock
appreciation rights, restricted stock awards, performance units
and performance shares (collectively, "Awards") to eligible
participants. The total number of shares of the Company's common
stock available for Awards to be granted under the 1996 Plan will
consist of the 7,675,994 which currently remain available under
the Company's 1981 Stock Option Plan and Management Incentive
Restricted Stock Plan (which plans are being replaced by the 1996
Plan), plus an additional 20,000,000 shares. If an Award expires
or is canceled without having been fully exercised or vested, the
unvested or canceled shares generally will be available again for
grants of Awards.
Administration of the 1996 Plan
The 1996 Plan is administered by the Compensation and Stock
Option Committee of the Company's Board of Directors (the
"Committee"). The members of the Committee must qualify as
"disinterested persons" under Rule 16b-3 under the Securities
Exchange Act of 1934 ("Rule 16b-3"), and as "outside directors"
under section 162(m) of the Internal Revenue Code (the "Code").
Subject to the terms of the 1996 Plan, the Committee has the sole
discretion to determine the key employees and consultants who
shall be granted Awards, the terms and conditions of such Awards,
and to construe and interpret the 1996 Plan. The Committee also
is responsible for making adjustments in Awards, the shares
available for Awards, and the numerical limitations for Awards
(including as to nonemployee directors) to reflect any
transactions such as stock splits or stock dividends. The
Committee may delegate its authority to a separate committee
appointed by the Committee, but only the Committee can make
Awards to participants who are executive officers of the Company.
The Board of Directors may amend or terminate the 1996 Plan at
any time and for any reason, but as required under Rule 16b-3,
certain material amendments to the 1996 Plan must be approved by
stockholders.
Eligibility to Receive Awards
Employees and consultants of the Company and its affiliates
(i.e., any corporation or other entity controlling, controlled
by, or under common control with the Company) are eligible to be
selected to receive one or more Awards. The Company and its
affiliates currently have approximately 60,000 employees. The
actual number of employees and consultants who will receive
Awards under the 1996 Plan cannot be determined because
eligibility for participation in the Plan is in the discretion of
the Committee. The 1996 Plan also permits nonemployee directors
to elect to receive all or part of their annual retainer in
shares of the Company's common stock, and provides for the
automatic grant of stock options to nonemployee directors. Such
options will be granted pursuant to an automatic,
nondiscretionary formula. Nonemployee directors are not eligible
for any of the other Awards available under the 1996 Plan.
Options
The Committee may grant nonqualified stock options and/or
incentive stock options (which are entitled to favorable tax
treatment). The number of shares covered by each option will be
determined by the Committee, but during any fiscal year of the
Company, no participant may be granted options for more than 8
million shares. The price of the shares of the Company's common
stock subject to each option is set by the Committee but cannot
be less than 25% of the fair market value (on the date of grant)
of the shares covered by the option, as determined by the
Committee. In addition, the exercise price of an incentive stock
option must be at least 100% of fair market value on the grant
date (110% of fair market value if the participant owns stock
possessing more than 10% of the total combined voting power of
all classes of stock of the Company or any of its subsidiaries).
The exercise price of each option must be paid in full at
the time of exercise. The Committee also may permit payment
through the tender of shares of the Company's common stock
already owned by the participant, or by any other means which the
Committee determines to be consistent with the Plan's purpose.
Any taxes required to be withheld must be paid by the participant
at the time of exercise. If the exercise price of an option is
paid in shares, the Committee may provide that the participant
will receive a new option covering a number of shares equal to
the number of shares tendered to exercise the previously granted
option (including shares used for tax withholding). The terms
and conditions of the new option generally will be similar to the
terms and conditions applicable to the exercised option, except
that the new option will have an exercise price determined on the
date of its grant.
Options become exercisable and terminate at the times and on
the terms established by the Committee, but options generally may
not expire later than 10 years after the date of grant (11 years
in the event of the optionee's death).
Stock Appreciation Rights
Stock appreciation rights ("SARs") may be granted as a
separate Award or together with an option. Upon exercise of an
SAR, the participant will receive a payment from the Company
equal to: (1) the excess of the fair market value of a share on
the date of exercise over the exercise price, times (2) the
number of shares with respect to which the SAR is exercised.
SARs may be paid in cash or shares of the Company's common stock,
as determined by the Committee. The number of shares covered by
each SAR will be determined by the Committee, but during any
fiscal year of the Company, no participant may be granted SARs
for more than 1,000,000 shares. The Committee also determines
the other terms and conditions of each SAR. SARs expire at the
times established by the Committee, but subject to the same
maximum time limits as are applicable to employee options granted
under the 1996 Plan.
Restricted Stock Awards
Restricted stock awards are shares of the Company's common
stock which vest in accordance with terms established by the
Committee in its discretion. For example, the Committee may
provide that restricted stock will vest only if one or more
performance goals are satisfied and/or only if the participant
remains employed with the Company for a specified period of time.
Any performance measures may be applied on a Company-wide or an
individual business unit basis, as deemed appropriate in light of
the participant's specific responsibilities.
Performance Units and Performance Shares
Performance units and performance shares are amounts
credited to a bookkeeping account established for the
participant. A performance unit has an initial value that is
established by the Committee at the time of its grant. A
performance share has an initial value equal to the fair market
value of a share of the Company's common stock on the date of
grant. Whether a performance unit or share actually will result
in a payment to a participant will depend upon the extent to
which performance goals established by the Committee are
satisfied. The applicable performance goals (and all other terms
and conditions of the Award) will be determined in the discretion
of the Committee. After a performance unit or share has vested
(that is, after the applicable performance goal or goals have
been achieved), the participant will be entitled to a payment of
cash and/or common stock, as determined by the Committee. The
Committee also may waive the achievement of any performance goals
for any performance units or shares.
Nonemployee Director Options and Stock
The 1996 Plan also provides for the automatic grant of stock
options to nonemployee directors. Each nonemployee director
automatically will receive, as of the first business day after
each Annual Meeting of Stockholders, an option to purchase 2,000
shares, except that for each nonemployee director who first joins
the Board after March 25, 1996, his or her first option grant
will be for 10,000 shares. The exercise price of each
nonemployee director option will be 100% of the fair market value
(on the date of grant) of the shares covered by the option. Each
such option will become exercisable three years after the date of
grant (assuming continuous service as a nonemployee director) or
upon the director's departure from the Board due to retirement
(as defined) or death.
All options granted to nonemployee directors normally will
expire ten years after the date of grant (up to eleven years in
the event of the director's death). If a director terminates
service on the Board prior to an option's normal expiration date,
an option may terminate sooner than its normal expiration date,
depending upon the reason for the termination. An option will
terminate three months after termination of service for any
reason other than death, disability or retirement (but not later
than the original maximum term of the option). Expiration will
occur one year after termination on account of retirement or
total disability (but not beyond the original maximum term of the
option) and one year after termination on account of death (even
if beyond the original maximum term of the option). The
nonemployee director portion of the Plan will be administered by
the Board of Directors (rather than the Committee). Doris F.
Fisher is not eligible to receive options under the 1996 Plan.
The 1996 Plan also permits each nonemployee director to
elect to forego receipt of all or a portion of the director's
annual retainer and meeting fees in exchange for shares of the
Company's common stock having a fair market value equal to the
amount of foregone compensation. The number of shares received
by any director will be determined by dividing the amount of
foregone compensation by the fair market value of a share on the
date that the compensation otherwise would have been paid.
Awards to be Granted to Certain Individuals and Groups
As described above, the Committee has discretion to
determine the number of Awards (if any) to be granted to any
employee or consultant. Accordingly, the actual number of Awards
to be granted to any individual is not determinable. No Awards
have been granted under the 1996 Plan. The following table sets
forth the aggregate number of stock options expected to be
granted under the 1996 Plan if the 1996 Plan is approved by
stockholders.
Number of
Name of Individual or Group Options
Expected to be
Granted
Millard S. Drexler, President and CEO 120,000
Donald G. Fisher, Chairman N/A
Robert J. Fisher, Executive Vice President and 100,000
COO
Richard M. Lyons, Exec. Vice President-Gap, 88,500
Inc. and President-Gap Division
Magdalene Gross, Executive Vice President, 88,500
Advertising-Gap Division
All executive officers, as a group 465,000
All directors who are not executive officers, 14,000
as a group
All employees who are not executive officers, 4,317,000
as a group
Nontransferability of Options
Awards granted under the 1996 Plan may not be sold,
transferred, pledged, assigned, or otherwise alienated or
hypothecated, other than by will or by the applicable laws of
descent and distribution.
Tax Aspects
Based on management's understanding of current federal
income tax laws, the tax consequences of the grant of options
under the 1996 Plan are as follows.
A recipient of an option or SAR granted under the 1996 Plan
will not have taxable income at the time of grant.
Upon exercise of a nonqualified stock option or SAR, the
optionee generally must recognize taxable income in an amount
equal the fair market value on the date of exercise of the shares
exercised, minus the exercise price. Any gain or loss recognized
upon any later sale or other disposition of the acquired shares
generally will be capital gain or loss.
Upon exercise of an incentive stock option, the optionee
generally will not be required to recognize any taxable income on
account of such exercise. Upon a later sale or other disposition
of the shares, the optionee must recognize long-term capital gain
or ordinary taxable income, depending upon whether the optionee
holds the shares for a specified period.
A participant who receives restricted stock or performance
units or shares will not recognize taxable income upon receipt,
but instead will recognize ordinary income when the shares or
units vest. Alternatively, a participant may elect under section
83(b) of the Internal Revenue Code (the "Code") to be taxed at
the time of receipt. In all cases, the amount of ordinary income
recognized by the participant will be equal to the fair market
value of the shares at the time income is recognized, less the
amount of any price paid for the shares.
At the discretion of the Committee, a participant may
satisfy tax withholding requirements under federal and state tax
laws in connection with the exercise or receipt of an Award by
electing to have shares withheld, or by delivering to the Company
already-owned shares, having a value equal to the amount required
to be withheld.
The Company generally will be entitled to a tax deduction in
connection with an Award made under the 1996 Plan only to the
extent that the participant recognizes ordinary income from the
Award. Section 162(m) of the Code contains special rules
regarding the federal income tax deductibility of compensation
paid to the Company's Chief Executive Officer and to each of the
other four most highly compensated executive officers. The
general rule is that annual compensation paid to any of these
specified executives will be deductible only to the extent that
it does not exceed $1,000,000 or qualifies as "performance-based"
compensation under section 162(m). The amended and restated Plan
has been designed so that, following stockholder approval at the
1996 Annual Meeting, the Committee (in its discretion) may in the
future make grants of options and SARs which will qualify as
performance-based compensation under section 162(m).
Required Vote
The adoption of the 1996 Plan requires the affirmative vote
of a majority of the shares represented and voting, in person or
by proxy, at the Annual Meeting.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE
"FOR" THE ADOPTION OF THE 1996 STOCK OPTION AND AWARD PLAN.
PROPOSAL NO. 3
PROPOSED ADOPTION OF THE
EXECUTIVE LONG-TERM CASH AWARD PERFORMANCE PLAN
At the Annual Meeting there will be submitted to
stockholders a proposal to approve the Company's Executive Long-
Term Cash Award Performance Plan ("ELCAPP"). The ELCAPP is
intended to provide certain of the Company's senior officers with
long-term financial incentives to meet and exceed pre-determined
financial goals of the Company and its divisions. The ELCAPP is
the result of a reevaluation of the Company's long-term
compensation practices and the consequent revision of the
compensation mix available to senior-level officers. Thus, as
discussed in the Compensation Committee Report on page 11 of this
proxy statement, starting with fiscal year 1996, 50% of the long-
term compensation will be delivered through stock options and the
remaining 50% through the ELCAPP, while restricted stock grants
as a compensation vehicle will be reduced in order to more
closely tie executive compensation to the Company's business
performance. Unlike restricted stock, which may not be
deductible for purposes of Section 162(m) of the Internal Revenue
Code, the ELCAPP meets the requirements of this regulation.
Under Section 162(m), the federal income tax deductibility
of compensation paid to the Company's Chief Executive Officer and
to each of its next four most highly compensated executive
officers may be limited to the extent that it exceeds $1 million
in any one year. However, the Company can continue to deduct
compensation in excess of that amount if the compensation
qualifies as "performance-based compensation" under Section
162(m).
In order that the Company might provide long-term incentive
compensation to its executive officers, and receive a federal
income tax deduction for the payment of such compensation, the
Company's Board of Directors in January 1996 adopted the ELCAPP,
which is intended to qualify as performance-based compensation
under Section 162(m). If the ELCAPP is approved by stockholders,
the Company will receive a federal income tax deduction with
respect to ELCAPP payments made to the Company's CEO and its
other executive officers.
The following summary of the principal features of the
ELCAPP is qualified in its entirety by the full text of the
ELCAPP, a copy of which is attached hereto as Exhibit B.
Eligibility for the ELCAPP is determined annually in the
discretion of the Compensation and Stock Option Committee of the
Company's Board of Directors (the "Committee"), which is
responsible for the administration of the ELCAPP. In selecting
participants for the ELCAPP, each year the Committee chooses from
among the officers of the Company and its affiliates whose
responsibilities significantly influence Company financial
performance. For fiscal year 1996, the participants in the
ELCAPP are the four individuals named in the table below, the
Company's two other executive officers, and 41 senior-level
officers. Participation in future years will be at the
discretion of the Committee, but it currently is expected that a
similar number of officers will participate each year.
Under the ELCAPP, cash awards are paid to eligible
participants at the end of three-year performance cycles for the
achievement of target goals for one or more of the following
financial performance measures for the Company and/or its
divisions: comparable store sales, earnings, return on equity,
return on net assets, return on invested capital, sales volume,
and/or total sales. Each of these measures is defined in the
Plan. For each performance cycle, the Committee will set (1) the
target bonuses for each participant, and (2) the financial
performance goals which must be achieved prior to the payment of
any bonuses. Target bonuses will be expressed as a percentage of
the participant's average annual base salary during the
performance cycle. The Committee may set performance goals which
differ from participant to participant. For example, the goals
applicable to a participant for a given performance cycle may be
based on either company-wide or divisional financial goal(s), as
deemed appropriate by the Committee in light of the officer's
specific responsibilities. Furthermore, the performance goals
may provide for a comparison of actual performance by the Company
or a division to actual performance by a group of competitors
determined in the discretion of the Committee. For the
performance cycle which runs from fiscal year 1996 through 1998,
the Committee has established performance goals which require the
achievement of target goals for pre-tax earnings or divisional
earnings.
A participant actually will be eligible to receive a bonus
only if the target goals applicable to him or her are achieved.
In setting the target bonuses and performance goals for a
performance cycle, the Committee will establish threshold
(minimum), target, and maximum payout bonus levels which will
apply depending upon the actual level of performance that is
achieved. The payout levels for differing performance results
will be established by the Committee for each performance cycle,
with payouts which increase or decrease as performance increases
or decreases, depending upon the extent to which the pre-
determined goals are achieved or exceeded. However, under no
circumstances may the maximum bonus payable to any participant
under the ELCAPP for any performance cycle exceed $3 million.
After the end of each performance cycle, and prior to any payment
being made under the ELCAPP, the Committee must certify in
writing the extent to which the performance goals applicable to
each participant were achieved or exceeded.
Under the ELCAPP, all bonuses are to be paid in cash.
However, the Committee reserves the right to reduce (but not to
increase) the bonuses which otherwise would be payable under the
ELCAPP for any performance cycle. Also, if a participant's
employment with the Company or its affiliates is terminated prior
to the end of a performance cycle, the ELCAPP provides that he or
she shall not be eligible for a bonus for that performance cycle.
The Committee may amend the ELCAPP at any time; however, in
doing so, the requirements of Section 162(m) must be met in order
that payments made to the Company's executive officers thereunder
remain eligible as deductible compensation expense to the Company
for federal income tax purposes.
Pro Forma Benefits for ELCAPP
Given that payments under the ELCAPP are determined by
comparing the future actual financial performance of the Company
and its divisions to the targets established by the Committee, it
is not possible to conclusively state the amount of benefits
which will be paid under the ELCAPP for any performance cycle.
Instead, the following table sets forth the amounts that would
have been received by each of the following persons and groups if
the ELCAPP had been in effect for a performance cycle running
from fiscal year 1993 through 1995, using the performance goals
which were previously applicable under the Company's annual
performance plan for each of the three years. There can be no
assurance that the performance goals for the 1996-1998
performance cycle actually will be achieved, and therefore there
can be no assurance that the awards shown below actually will be
paid.
New Plan Benefits
Executive Long-Term Cash Award Performance Plan
Dollar Number
Name of Individual or Group Value($) of Units
Millard S. Drexler, President and CEO 1,518,000 N/A
Donald G. Fisher, Chairman * N/A
Robert J. Fisher, Executive Vice President and COO 662,000 N/A
Richard M. Lyons, Exec. Vice President-Gap, Inc. 600,000 N/A
and President-Gap Division
Magdalene Gross, Executive Vice President, 269,000 N/A
Advertising-Gap Division
All executive officers, as a group 3,292,000 N/A
All non-executive directors, as a group * N/A
All non-executive-officer employees, as a group 4,748,000 N/A
_______________________________________________________
* Not eligible to participate in the ELCAPP.
Required Vote
The adoption of the Executive Long-Term Cash Award
Performance Plan requires the affirmative vote of a majority of
the shares represented, in person or by proxy, and entitled to
vote at the Annual Meeting.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE
"FOR" THE ADOPTION OF THE EXECUTIVE LONG-TERM CASH AWARD
PERFORMANCE PLAN.
PROPOSAL NO. 4
SELECTION OF INDEPENDENT AUDITORS
The Board of Directors has selected Deloitte & Touche LLP as
independent auditors for the Company for the fiscal year ending
February 1, 1997. Deloitte & Touche LLP has acted as auditors
for the Company since 1972. Although action by the stockholders
is not required by law, the Board of Directors has determined
that it is desirable to request approval of this selection by the
stockholders of the Company. If the stockholders fail to approve
the selection of such auditors, the Board of Directors will
reconsider the selection.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE
"FOR" THE APPROVAL OF THE SELECTION OF DELOITTE & TOUCHE LLP AS
INDEPENDENT AUDITORS.
Representatives of Deloitte & Touche LLP are expected to be
present at the Annual Meeting of Stockholders and available to
make statements to, and respond to appropriate questions of,
stockholders.
OTHER BUSINESS
The Company's management is not aware of any other matters
to come before the meeting. If any matter not mentioned herein
is properly brought before the meeting, the persons named in the
enclosed proxy will have discretionary authority to vote all
proxies with respect thereto in accordance with their judgment.
PROPOSALS OF STOCKHOLDERS
Proposals of stockholders intended to be presented at the
next annual meeting must be received by the Company for inclusion
in the Company's proxy statement and form of proxy relating to
that meeting on or before December 27, 1996. Proposals should be
addressed to the Company's Secretary at One Harrison Street, San
Francisco, California 94105.
By Order of the Board of Directors,
Anne B. Gust
Secretary
EXHIBIT A
THE GAP, INC.
1996 STOCK OPTION AND AWARD PLAN
1 BACKGROUND, PURPOSE AND DURATION
1.1 Effective Date. The Plan is effective as of March 26,
1996, subject to ratification by an affirmative vote of the
holders of a majority of the Shares which are present in person
or by proxy and entitled to vote at the 1996 Annual Meeting of
Stockholders. Awards may be granted prior to the receipt of such
vote, but such grants shall be null and void if such vote is not
in fact received.
1.2 Purpose of the Plan. The Plan is intended to increase
incentive and to encourage Share ownership on the part of
(1) employees of the Company and its Affiliates, (2) consultants
who provide significant services to the Company and its
Affiliates, and (3) directors of the Company who are employees of
neither the Company nor any Affiliate. The Plan also is intended
to further the growth and profitability of the Company.
2 DEFINITIONS
The following words and phrases shall have the
following meanings unless a different meaning is plainly required
by the context:
2.1 "1934 Act" means the Securities Exchange Act of 1934,
as amended. Reference to a specific section of the 1934 Act or
regulation thereunder shall include such section or regulation,
any valid regulation promulgated under such section, and any
comparable provision of any future legislation or regulation
amending, supplementing or superseding such section or
regulation.
2.2 "Affiliate" means any corporation or any other entity
(including, but not limited to, partnerships and joint ventures)
controlling, controlled by, or under common control with the
Company.
2.3 "Affiliated SAR" means a SAR that is granted
in connection with a related Option, and which automatically will
be deemed to be exercised at the same time that the related
Option is exercised. The deemed exercise of an Affiliated SAR
shall not necessitate a reduction in the number of Shares subject
to the related Option.
2.3 "Award" means, individually or collectively, a grant
under the Plan of Nonqualified Stock Options, Incentive Stock
Options, SARs, Restricted Stock, Performance Units, or
Performance Shares.
2.4 "Award Agreement" means the written agreement setting
forth the terms and provisions applicable to each Award granted
under the Plan.
2.5 "Board" means the Board of Directors of the Company.
2.6 "Code" means the Internal Revenue Code of 1986, as
amended. Reference to a specific section of the Code or
regulation thereunder shall include such section or regulation,
any valid regulation promulgated under such section, and any
comparable provision of any future legislation or regulation
amending, supplementing or superseding such section or
regulation.
2.7 "Committee" means the committee appointed by the Board
(pursuant to Section 3.1) to administer the Plan.
2.8 "Company" means The Gap, Inc., a Delaware corporation,
or any successor thereto.
2.9 "Consultant" means any consultant, independent
contractor, or other person who provides significant services to
the Company or its Affiliates, but who is neither an Employee nor
a Director.
2.10 "Director" means any individual who is a member of the
Board.
2.11 "Disability" means a permanent and total disability
within the meaning of Code section 22(e)(3), provided that in the
case of Awards other than Incentive Stock Options, the Committee
in its discretion may determine whether a permanent and total
disability exists in accordance with uniform and non-
discriminatory standards adopted by the Committee from time to
time.
2.12 "Employee" means any employee of the Company or of an
Affiliate, whether such employee is so employed at the time the
Plan is adopted or becomes so employed subsequent to the adoption
of the Plan.
2.13 "Exercise Price" means the price at which a Share may
be purchased by a Participant pursuant to the exercise of an
Option.
2.14 "Fair Market Value" means the fair market value of a
Share on a particular date, as determined by the Committee in
good faith.
2.15 "Fiscal Year" means the fiscal year of the Company.
2.16 "Freestanding SAR" means a SAR that is granted
independently of any Option.
2.17 "Grant Date" means, with respect to an Award, the date
that the Award was granted.
2.18 "Incentive Stock Option" means an Option to purchase
Shares which is designated as an Incentive Stock Option and is
intended to meet the requirements of section 422 of the Code.
2.19 "Nonemployee Director" means a Director who is an
employee of neither the Company nor of any Affiliate.
2.20 "Nonqualified Stock Option" means an option to purchase
Shares which is not intended to be an Incentive Stock Option.
2.21 "Option" means an Incentive Stock Option or a
Nonqualified Stock Option.
2.22 "Participant" means an Employee, Consultant, or
Nonemployee Director who has an outstanding Award.
2.23 "Performance Share" means a Performance Share granted
to a Participant pursuant to Section 8.
2.24 "Performance Unit" means a Performance Unit granted to
a Participant pursuant to Section 8.
2.25 "Period of Restriction" means the period during which
shares of Restricted Stock are subject to forfeiture and/or
restrictions on transferability.
2.26 "Plan" means The Gap, Inc. 1996 Stock Option and Award
Plan, as set forth in this instrument and as hereafter amended
from time to time.
2.27 "Restricted Stock" means an Award granted to a
Participant pursuant to Section 7.
2.28 "Retirement" means, in the case of an Employee, a
Termination of Service by reason of the Employee's retirement at
or after his or her normal retirement date under GapShare (the
Company's "401(k)" plan), or any successor plan. With respect to
a Consultant, no Termination of Service shall be deemed to be on
account of "Retirement". With respect to a Nonemployee Director,
"Retirement" means termination of service on the Board on account
of retirement pursuant to The Gap, Inc. Nonemployee Director
Retirement Plan.
2.29 "Rule 16b-3" means Rule 16b-3 promulgated under the
1934 Act, as amended, and any future regulation amending,
supplementing or superseding such regulation.
2.30 "Section 16 Person" means a person who, with respect to
the Shares, is subject to section 16 of the 1934 Act.
2.31 "Shares" means the shares of the Company's common
stock, $0.05 par value.
2.32 "Stock Appreciation Right" or "SAR" means an Award,
granted alone or in connection with a related Option, that
pursuant to Section 6 is designated as a SAR.
2.33 "Subsidiary" means any corporation in an unbroken chain
of corporations beginning with the Company if each of the
corporations other than the last corporation in the unbroken
chain then owns stock possessing fifty percent (50%) or more of
the total combined voting power of all classes of stock in one of
the other corporations in such chain.
2.34 "Tandem SAR" means a SAR that is granted in connection
with a related Option, the exercise of which shall require
forfeiture of the right to purchase an equal number of Shares
under the related Option (and when a Share is purchased under the
Option, the SAR shall be canceled to the same extent).
2.35 "Termination of Service" means (a) in the case of an
Employee, a cessation of the employee-employer relationship
between an Employee and the Company or an Affiliate for any
reason, including, but not by way of limitation, a termination by
resignation, discharge, death, Disability, Retirement, or the
disaffiliation of an Affiliate, but excluding any such
termination where there is a simultaneous reemployment by the
Company or an Affiliate; (b) in the case of a Consultant, a
cessation of the service relationship between a Consultant and
the Company or an Affiliate for any reason, including, but not by
way of limitation, a termination by resignation, discharge,
death, Disability, or the disaffiliation of an Affiliate, but
excluding any such termination where there is a simultaneous re-
engagement of the consultant by the Company or an Affiliate; and
(c) in the case of a Nonemployee Director, a cessation of the
Nonemployee Director's service on the Board for any reason.
3 ADMINISTRATION
3.1 The Committee. The Plan shall be administered by the
Committee. The Committee shall consist of not less than two (2)
Directors. The members of the Committee shall be appointed from
time to time by, and shall serve at the pleasure of, the Board.
The Committee shall be comprised solely of Directors who both are
(a) "disinterested persons" under Rule 16b-3, and (b) "outside
directors" under section 162(m) of the Code.
3.2 Authority of the Committee. It shall be the duty of
the Committee to administer the Plan in accordance with the
Plan's provisions. The Committee shall have all powers and
discretion necessary or appropriate to administer the Plan and to
control its operation, including, but not limited to, the power
to (a) determine which Employees and Consultants shall be granted
Awards, (b) prescribe the terms and conditions of the Awards
(other than the Options granted to Nonemployee Directors pursuant
to Section 9), (c) interpret the Plan and the Awards, (d) adopt
such procedures and subplans as are necessary or appropriate to
permit participation in the Plan by Employees, Consultants and
Directors who are foreign nationals or employed outside of the
United States, (e) adopt rules for the administration,
interpretation and application of the Plan as are consistent
therewith, and (f) interpret, amend or revoke any such rules.
3.3 Delegation by the Committee. The Committee, in its
sole discretion and on such terms and conditions as it may
provide, may delegate all or any part of its authority and powers
under the Plan to one or more directors or officers of the
Company; provided, however, that the Committee may not delegate
its authority and powers (a) with respect to Section 16 Persons,
or (b) in any way which would jeopardize the Plan's qualification
under section 162(m) of the Code or Rule 16b-3.
3.4 Nonemployee Directors. Notwithstanding any contrary
provision of this Section 3, the Board shall administer Section 9
of the Plan, and the Committee shall exercise no discretion with
respect to Section 9. In the Board's administration of Section 9
and the Options and any Shares granted to Nonemployee Directors,
the Board shall have all of the authority and discretion
otherwise granted to the Committee with respect to the
administration of the Plan.
3.5 Decisions Binding. All determinations and decisions
made by the Committee, the Board, and any delegate of the
Committee pursuant to the provisions of the Plan shall be final,
conclusive, and binding on all persons, and shall be given the
maximum deference permitted by law.
4 SHARES SUBJECT TO THE PLAN
4.1 Number of Shares. Subject to adjustment as provided in
Section 4.3, the total number of Shares available for grant under
the Plan shall not exceed 27,656,694. Shares granted under the
Plan may be either authorized but unissued Shares or treasury
Shares.
4.2 Lapsed Awards. If an Award terminates, expires, or
lapses for any reason, any Shares subject to such Award again
shall be available to be the subject of an Award.
4.3 Adjustments in Awards and Authorized Shares. In the
event of any merger, reorganization, consolidation,
recapitalization, separation, liquidation, stock dividend,
split-up, Share combination, or other change in the corporate
structure of the Company affecting the Shares, the Committee
shall adjust the number and class of Shares which may be
delivered under the Plan, the number, class, and price of Shares
subject to outstanding Awards, and the numerical limit of
Section 5.1 in such manner as the Committee (in its sole
discretion) shall determine to be appropriate to prevent the
dilution or diminution of such Awards. In the case of Options
granted to Nonemployee Directors pursuant to Section 9, the
foregoing adjustments shall be made by the Board, and any such
adjustments also shall apply to the future grants provided by
Section 9. Notwithstanding the preceding, the number of Shares
subject to any Award always shall be a whole number.
5 STOCK OPTIONS
5.1 Grant of Options. Subject to the terms and provisions
of the Plan, Options may be granted to Employees and Consultants
at any time and from time to time as determined by the Committee
in its sole discretion. The Committee, in its sole discretion,
shall determine the number of Shares subject to each Option,
provided that during any Fiscal Year, no Participant shall be
granted Options covering more than 8,000,000 Shares. The
Committee may grant Incentive Stock Options, Nonqualified Stock
Options, or a combination thereof.
5.2 Award Agreement. Each Option shall be evidenced by an
Award Agreement that shall specify the Exercise Price, the
expiration date of the Option, the number of Shares to which the
Option pertains, any conditions to exercise of the Option, and
such other terms and conditions as the Committee, in its
discretion, shall determine. The Award Agreement shall specify
whether the Option is intended to be an Incentive Stock Option or
a Nonqualified Stock Option. In the Award Agreement with respect
to each Option, the Participant, in consideration of the granting
of the Option, shall agree to remain in the employ or service of
the Company or an Affiliate for a period of at least one year
from the Grant Date (but subject to Section 10.1).
5.3 Exercise Price. Subject to the provisions of this
Section 5.3, the Exercise Price for each Option shall be
determined by the Committee in its sole discretion.
5.3.1 Nonqualified Stock Options. In the case of a
Nonqualified Stock Option, the Exercise Price shall be not less
than twenty-five percent (25%) of the Fair Market Value of a
Share on the Grant Date.
5.3.2 Incentive Stock Options. In the case of an
Incentive Stock Option, the Exercise Price shall be not less than
one hundred percent (100%) of the Fair Market Value of a Share on
the Grant Date; provided, however, that if on the Grant Date, the
Employee (together with persons whose stock ownership is
attributed to the Employee pursuant to section 424(d) of the
Code) owns stock possessing more than 10% of the total combined
voting power of all classes of stock of the Company or any of its
Subsidiaries, the Exercise Price shall be not less than one
hundred and ten percent (110%) of the Fair Market Value of a
Share on the Grant Date.
5.3.3 Substitute Options. Notwithstanding the
provisions of Sections 5.3.1 and 5.3.2, in the event that the
Company or an Affiliate consummates a transaction described in
section 424(a) of the Code (e.g., the acquisition of property or
stock from an unrelated corporation), persons who become
Employees or Consultants on account of such transaction may be
granted Options in substitution for options granted by their
former employer. If such substitute Options are granted, the
Committee, in its sole discretion and consistent with
section 424(a) of the Code, shall determine the exercise price of
such substitute Options.
5.4 Expiration of Options.
5.4.1 Expiration Dates. Each Option shall terminate no
later than the first to occur of the following events:
(a) The date for termination of the Option set
forth in the written Award Agreement; or
(b) The expiration of ten (10) years from the
Grant Date; or
(c) The expiration of three (3) months from the
date of the Participant's Termination of Service for a
reason other than the Participant's death, Disability or
Retirement; or
(d) The expiration of one (1) year from the date
of the Participant's Termination of Service by reason of
Disability; or
(e) The expiration of one (1) year from the date
of the Participant's Retirement (except as provided in
Section 5.8.2 regarding Incentive Stock Options).
5.4.2 Death of Participant. Notwithstanding
Section 5.4.1, if a Participant dies prior to the expiration of
his or her options, the Committee, in its discretion, may provide
that his or her options shall be exercisable for up to one (1)
year after the date of death.
5.4.3 Committee Discretion. Subject to the limits of
Sections 5.4.1 and 5.4.2, the Committee, in its sole discretion,
(a) shall provide in each Award Agreement when each Option
expires and becomes unexercisable, and (b) may, after an Option
is granted, extend the maximum term of the Option (subject to
Section 5.8.4 regarding Incentive Stock Options).
5.5 Exercisability of Options. Options granted under the
Plan shall be exercisable at such times and be subject to such
restrictions and conditions as the Committee shall determine in
its sole discretion. After an Option is granted, the Committee,
in its sole discretion, may accelerate the exercisability of the
Option. However, in no event may any Option granted to a
Section 16 Person be exercisable until at least six (6) months
following the Grant Date.
5.6 Payment. Options shall be exercised by the
Participant's delivery of a written notice of exercise to the
Secretary of the Company (or its designee), setting forth the
number of Shares with respect to which the Option is to be
exercised, accompanied by full payment for the Shares.
Upon the exercise of any Option, the Exercise Price
shall be payable to the Company in full in cash or its
equivalent. The Committee, in its sole discretion, also may
permit exercise (a) by tendering previously acquired Shares
having an aggregate Fair Market Value at the time of exercise
equal to the total Exercise Price, or (b) by any other means
which the Committee, in its sole discretion, determines to both
provide legal consideration for the Shares, and to be consistent
with the purposes of the Plan.
As soon as practicable after receipt of a written
notification of exercise and full payment for the Shares
purchased, the Company shall deliver to the Participant (or the
Participant's designated broker), Share certificates (which may
be in book entry form) representing such Shares.
5.7 Restrictions on Share Transferability. The Committee
may impose such restrictions on any Shares acquired pursuant to
the exercise of an Option as it may deem advisable, including,
but not limited to, restrictions related to applicable Federal
securities laws, the requirements of any national securities
exchange or system upon which Shares are then listed or traded,
or any blue sky or state securities laws.
5.8 Certain Additional Provisions for Incentive Stock
Options.
5.8.1 Exercisability. The aggregate Fair Market Value
(determined on the Grant Date(s)) of the Shares with respect to
which Incentive Stock Options are exercisable for the first time
by any Employee during any calendar year (under all plans of the
Company and its Subsidiaries) shall not exceed $100,000.
5.8.2 Termination of Service. No Incentive Stock Option
may be exercised more than three (3) months after the
Participant's Termination of Service for any reason other than
Disability or death, unless (a) the Participant dies during such
three-month period, and (b) the Award Agreement or the Committee
permits later exercise.
5.8.3 Company and Subsidiaries Only. Incentive Stock
Options may be granted only to persons who are employees of the
Company or a Subsidiary on the Grant Date.
5.8.4 Expiration. No Incentive Stock Option may be
exercised after the expiration of ten (10) years from the Grant
Date; provided, however, that if the Option is granted to an
Employee who, together with persons whose stock ownership is
attributed to the Employee pursuant to section 424(d) of the
Code, owns stock possessing more than 10% of the total combined
voting power of all classes of the stock of the Company or any of
its Subsidiaries, the Option may not be exercised after the
expiration of five (5) years from the Grant Date.
5.9 Grant of Reload Options. The Committee may provide
in an Award Agreement that a Participant who exercises all or
part of an Option by payment of the Exercise Price with already-
owned Shares, shall be granted an additional option (a "Reload
Option") for a number of shares of stock equal to the number of
Shares tendered to exercise the previously granted Option plus,
if the Committee so determines, any Shares withheld or delivered
in satisfaction of any tax withholding requirements. As
determined by the Committee, each Reload Option shall: (a) have a
Grant Date which is the date as of which the previously granted
Option is exercised, and (b) be exercisable on the same terms and
conditions as the previously granted Option, except that the
Exercise Price shall be determined as of the Grant Date.
6 STOCK APPRECIATION RIGHTS
6.1 Grant of SARs. Subject to the terms and conditions of
the Plan, a SAR may be granted to Employees and Consultants at
any time and from time to time as shall be determined by the
Committee, in its sole discretion. The Committee may grant
Affiliated SARs, Freestanding SARs, Tandem SARs, or any
combination thereof. The Committee shall have complete
discretion to determine the number of SARs granted to any
Participant, provided that during any Fiscal Year, no Participant
shall be granted SARs covering more than 1,000,000 Shares.
6.1.1 Exercise Price and Other Terms. The Committee,
subject to the provisions of the Plan, shall have complete
discretion to determine the terms and conditions of SARs granted
under the Plan. However, the exercise price of a Freestanding
SAR shall be not less than twenty-five percent (25%) of the Fair
Market Value of a Share on the Grant Date. The exercise price of
Tandem or Affiliated SARs shall equal the Exercise Price of the
related Option. In no event shall a SAR granted to a Section 16
Person become exercisable until at least six (6) months after the
Grant Date (or such shorter period as may be permissible while
maintaining compliance with Rule 16b-3).
6.2 Exercise of Tandem SARs. Tandem SARs may be exercised
for all or part of the Shares subject to the related Option upon
the surrender of the right to exercise the equivalent portion of
the related Option. A Tandem SAR may be exercised only with
respect to the Shares for which its related Option is then
exercisable. With respect to a Tandem SAR granted in connection
with an Incentive Stock Option: (a) the Tandem SAR shall expire
no later than the expiration of the underlying Incentive Stock
Option; (b) the value of the payout with respect to the Tandem
SAR shall be for no more than one hundred percent (100%) of the
difference between the Exercise Price of the underlying Incentive
Stock Option and the Fair Market Value of the Shares subject to
the underlying Incentive Stock Option at the time the Tandem SAR
is exercised; and (c) the Tandem SAR shall be exercisable only
when the Fair Market Value of the Shares subject to the Incentive
Stock Option exceeds the Exercise Price of the Incentive Stock
Option.
6.3 Exercise of Freestanding SARs. Freestanding SARs shall
be exercisable on such terms and conditions as the Committee, in
its sole discretion, shall determine. However, no SAR granted to
a Section 16 Person shall be exercisable until at least six (6)
months after the Grant Date (or such shorter period as may be
permissible while maintaining compliance with Rule 16b-3).
6.4 SAR Agreement. Each SAR grant shall be evidenced by an
Award Agreement that shall specify the exercise price, the term
of the SAR, the conditions of exercise, and such other terms and
conditions as the Committee, in its sole discretion, shall
determine.
6.5 Expiration of SARs. A SAR granted under the Plan shall
expire upon the date determined by the Committee, in its sole
discretion, and set forth in the Award Agreement.
Notwithstanding the foregoing, the rules of Section 5.4 also
shall apply to SARs.
6.6 Payment of SAR Amount. Upon exercise of a SAR, a
Participant shall be entitled to receive payment from the Company
in an amount determined by multiplying:
(a) The difference between the Fair Market Value of a
Share on the date of exercise over the exercise price; times
(b) The number of Shares with respect to which the SAR
is exercised.
At the discretion of the Committee, payment for a SAR
may be in cash, Shares or a combination thereof.
7 RESTRICTED STOCK
7.1 Grant of Restricted Stock. Subject to the terms and
provisions of the Plan, the Committee, at any time and from time
to time, may grant Shares of Restricted Stock to Employees and
Consultants in such amounts as the Committee, in its sole
discretion, shall determine. The Committee, in its sole
discretion, shall determine the number of Shares to be granted to
each Participant.
7.2 Restricted Stock Agreement. Each Award of Restricted
Stock shall be evidenced by an Award Agreement that shall specify
the Period of Restriction, the number of Shares granted, any
price to be paid for the Shares, and such other terms and
conditions as the Committee, in its sole discretion, shall
determine. Unless the Committee determines otherwise, Shares of
Restricted Stock shall be held by the Company as escrow agent
until the restrictions on such Shares have lapsed.
7.3 Transferability. Shares of Restricted Stock may not be
sold, transferred, pledged, assigned, or otherwise alienated or
hypothecated until the end of the applicable Period of
Restriction. In no event may the restrictions on Restricted
Stock granted to a Section 16 Person lapse prior to six (6)
months following the Grant Date.
7.4 Other Restrictions. The Committee, in its sole
discretion, may impose such other restrictions on Shares of
Restricted Stock as it may deem advisable or appropriate, in
accordance with this Section 7.4. For example, the Committee may
set restrictions based upon the achievement of specific
performance objectives (Company-wide, divisional, or individual),
applicable Federal or state securities laws, or any other basis
determined by the Committee in its discretion. The Committee, in
its discretion, may legend the certificates representing
Restricted Stock to give appropriate notice of the restrictions
applicable to such Shares.
7.5 Removal of Restrictions. Shares of Restricted Stock
covered by each Restricted Stock grant made under the Plan shall
be released from escrow as soon as practicable after the last day
of the Period of Restriction. The Committee, in its discretion,
may accelerate the time at which any restrictions shall lapse,
and remove any restrictions; provided, however, that the Period
of Restriction on Shares granted to a Section 16 Person may not
lapse until at least six (6) months after the Grant Date. After
the restrictions have lapsed, the Participant shall be entitled
to have any legend or legends under Section 7.4 removed from his
or her Share certificate, and the Shares shall be freely
transferable by the Participant.
7.6 Voting Rights. During the Period of Restriction,
Participants holding Shares of Restricted Stock granted hereunder
may exercise full voting rights with respect to those Shares,
unless otherwise provided in the Award Agreement.
7.7 Dividends and Other Distributions. During the Period
of Restriction, Participants holding Shares of Restricted Stock
shall be entitled to receive all dividends and other
distributions paid with respect to such Shares unless otherwise
provided in the Award Agreement. If any such dividends or
distributions are paid in Shares, the Shares shall be subject to
the same restrictions on transferability and forfeitability as
the Shares of Restricted Stock with respect to which they were
paid. With respect to Restricted Stock granted to a Section 16
Person, any dividend or distribution that constitutes a
"derivative security" or an "equity security" under section 16 of
the 1934 Act shall be subject to a Period of Restriction equal to
the longer of: (a) the remaining Period of Restriction on the
Shares of Restricted Stock with respect to which the dividend or
distribution is paid; or (b) six (6) months.
7.8 Return of Restricted Stock to Company. On the date set
forth in the Award Agreement, the Restricted Stock for which
restrictions have not lapsed shall revert to the Company and
again shall become available for grant under the Plan.
8 PERFORMANCE UNITS AND PERFORMANCE SHARES
8.1 Grant of Performance Units/Shares. Performance Units
and Performance Shares may be granted to Employees and
Consultants at any time and from time to time, as shall be
determined by the Committee, in its sole discretion. The
Committee shall have complete discretion in determining the
number of Performance Units and Performance Shares granted to any
Participant.
8.2 Initial Value. Each Performance Unit shall have an
initial value that is established by the Committee on or before
the Grant Date. Each Performance Share shall have an initial
value equal to the Fair Market Value of a Share on the Grant
Date.
8.3 Performance Objectives and Other Terms. The Committee
shall set performance objectives in its discretion which,
depending on the extent to which they are met, will determine the
number or value of Performance Units or Shares that will be paid
out to the Participants. The Committee may set performance
objectives based upon the achievement of Company-wide,
divisional, or individual goals, or any other basis determined by
the Committee in its discretion. The time period during which
the performance objectives must be met shall be called the
"Performance Period". Performance Periods of Awards granted to
Section 16 Persons shall exceed six (6) months in length (or such
shorter period as may be permissible while maintaining compliance
with Rule 16b-3). Each Award of Performance Units/Shares shall
be evidenced by an Award Agreement that shall specify the
Performance Period, and such other terms and conditions as the
Committee, in its sole discretion, shall determine.
8.4 Earning of Performance Units and Performance Shares.
After the applicable Performance Period has ended, the
Participant shall be entitled to receive a payout of the number
of Performance Units or Shares earned during the Performance
Period, depending upon the extent to which the applicable
performance objectives have been achieved. After the grant of a
Performance Unit or Share, the Committee, in its sole discretion,
may reduce or waive any performance objectives for Award;
provided that Performance Periods of Awards granted to Section 16
Persons shall not be less than six (6) months (or such shorter
period as may be permissible while maintaining compliance with
Rule 16b-3).
8.5 Form and Timing of Payment. Payment of earned
Performance Units or Performance Shares shall be made as soon as
practicable after the expiration of the applicable Performance
Period. The Committee, in its sole discretion, may pay earned
such Awards in cash, Shares or a combination thereof.
8.6 Cancellation. On the date set forth in the Award
Agreement, all unearned or unvested Performance Units or
Performance Shares shall be forfeited to the Company, and again
shall be available for grant under the Plan.
9 NONEMPLOYEE DIRECTORS
9.1 Granting of Options.
9.1.1 New Nonemployee Directors. Each Nonemployee
Director who first becomes a Nonemployee Director on or after the
effective date of the Plan shall be granted an Option to purchase
10,000 Shares. Such Option shall be granted on the first
business day after the first Annual Meeting of Stockholders at
which the Nonemployee Director is such, but only if he or she
remains a Nonemployee Director on the Grant Date. Thereafter,
for so long as the Nonemployee Director remains such, he or she
annually shall be granted an Option for an additional 2,000
Shares. Each such Option shall be granted on the first business
day after each Annual Meeting of Stockholders, but only if the
Nonemployee Director has continuously served as such through the
Grant Date.
9.1.2 Continuing Nonemployee Directors. Each
Nonemployee Director who became a Nonemployee Director prior to
the effective date of the Plan annually shall be granted an
Option to purchase 2,000 Shares for as long as he or she remains
a Nonemployee Director. Each such Option shall be granted on the
first business day after each Annual Meeting of Stockholders, but
only if the Nonemployee Director has continuously served as such
through the Grant Date.
9.2 Terms of Options.
9.2.1 Option Agreement. Each Option granted pursuant to
this Section 9 shall be evidenced by a written stock option
agreement which shall be executed by the Participant and the
Company.
9.2.2 Exercise Price. The Exercise Price for the Shares
subject to each Option granted pursuant to this Section 9 shall
be 100% of the Fair Market Value of such Shares on the Grant
Date.
9.2.3 Exercisability. Each Option granted pursuant
to this Section 9 shall become exercisable in full three years after
the date the Option is granted. If a Nonemployee Director incurs
a Termination of Service for a reason other than Retirement,
death or Disability, his or her Options which are not exercisable
on the date of such Termination shall never become exercisable.
If the Termination of Service is on account of Retirement, death
or Disability, the Option shall become exercisable in full on the
date of the Termination of Service.
9.2.4 Expiration of Options. Each Option shall
terminate upon the first to occur of the following events:
(a) The expiration of ten (10) years from the
Grant Date; or
(b) The expiration of three (3) months from the
date of the Participant's Termination of Service for a
reason other than death, Disability or Retirement; or
(c) The expiration of one (1) year from the date
of the Participant's Termination of Service by reason of
Disability or Retirement.
9.2.5 Death of Director. Notwithstanding Section 9.2.4,
if a Director dies prior to the expiration of his or her options
in accordance with Section 9.2.4, his or her options shall
terminate one (1) year after the date of his or her death.
9.2.6 Special Rule for Retirement. Notwithstanding the
provisions of Section 9.2.4, if the exercisability of an Option
is accelerated under Section 9.2.3 on account of the
Participant's Retirement, such Option shall terminate upon the
first to occur of: (a) The expiration of ten (10) years from the
date the Option was granted; or (b) the expiration of one year
from the date of the Participant's death.
9.2.7 Not Incentive Stock Options. Options granted
pursuant to this Section 9 shall not be designated as Incentive
Stock Options.
9.2.8 Other Terms. All provisions of the Plan not
inconsistent with this Section 9 shall apply to Options granted
to Nonemployee Directors; provided, however, that Section 5.2
(relating to the Committee's discretion to set the terms and
conditions of Options) shall be inapplicable with respect to
Nonemployee Directors.
9.3 Elections by Nonemployee Directors. Pursuant to such
procedures as the Board (in its discretion) may adopt from time
to time, each Nonemployee Director may elect to forego receipt of
all or a portion of the annual retainer, committee fees and
meeting fees otherwise due to the Nonemployee Director in
exchange for Shares. The number of Shares received by any
Nonemployee Director shall equal the amount of foregone
compensation divided by the Fair Market Value of a Share on the
date that the compensation otherwise would have been paid to the
Nonemployee Director, rounded up to the nearest whole number of
Shares. The procedures adopted by the Board for elections under
this Section 9.3 shall be designed to ensure that each any such
election by a Nonemployee Director will not disqualify him or her
as a "disinterested person" under Rule 16b-3.
10 MISCELLANEOUS
10.1 No Effect on Employment or Service. Nothing in the
Plan shall interfere with or limit in any way the right of the
Company to terminate any Participant's employment or service at
any time, with or without cause. For purposes of the Plan,
transfer of employment of a Participant between the Company and
any one of its Affiliates (or between Affiliates) shall not be
deemed a Termination of Service. Employment with the Company and
its Affiliates is on an at-will basis only.
10.2 Participation. No Employee or Consultant shall have
the right to be selected to receive an Award under this Plan, or,
having been so selected, to be selected to receive a future
Award.
10.3 Indemnification. Each person who is or shall have been
a member of the Committee, or of the Board, shall be indemnified
and held harmless by the Company against and from (a) any loss,
cost, liability, or expense that may be imposed upon or
reasonably incurred by him or her in connection with or resulting
from any claim, action, suit, or proceeding to which he or she
may be a party or in which he or she may be involved by reason of
any action taken or failure to act under the Plan or any Award
Agreement, and (b) from any and all amounts paid by him or her in
settlement thereof, with the Company's approval, or paid by him
or her in satisfaction of any judgment in any such claim, action,
suit, or proceeding against him or her, provided he or she shall
give the Company an opportunity, at its own expense, to handle
and defend the same before he or she undertakes to handle and
defend it on his or her own behalf. The foregoing right of
indemnification shall not be exclusive of any other rights of
indemnification to which such persons may be entitled under the
Company's Certificate of Incorporation or Bylaws, by contract, as
a matter of law, or otherwise, or under any power that the
Company may have to indemnify them or hold them harmless.
10.4 Successors. All obligations of the Company under the
Plan, with respect to Awards granted hereunder, shall be binding
on any successor to the Company, whether the existence of such
successor is the result of a direct or indirect purchase, merger,
consolidation, or otherwise, of all or substantially all of the
business or assets of the Company.
10.5 Beneficiary Designations. If permitted by the
Committee, a Participant under the Plan may name a beneficiary or
beneficiaries to whom any vested but unpaid Award shall be paid
in the event of the Participant's death. Each such designation
shall revoke all prior designations by the Participant and shall
be effective only if given in a form and manner acceptable to the
Committee. In the absence of any such designation, any vested
benefits remaining unpaid at the Participant's death shall be
paid to the Participant's estate and, subject to the terms of the
Plan and of the applicable Award Agreement, any unexercised
vested Award may be exercised by the administrator or executor of
the Participant's estate.
10.6 Nontransferability of Awards. No Award granted under
the Plan may be sold, transferred, pledged, assigned, or
otherwise alienated or hypothecated, other than by will, by the
laws of descent and distribution, or to the limited extent
provided in Section 10.5. All rights with respect to an Award
granted to a Participant shall be available during his or her
lifetime only to the Participant.
10.7 No Rights as Stockholder. Except to the limited extent
provided in Sections 7.6 and 7.7, no Participant (nor any
beneficiary) shall have any of the rights or privileges of a
stockholder of the Company with respect to any Shares issuable
pursuant to an Award (or exercise thereof), unless and until
certificates representing such Shares shall have been issued,
recorded on the records of the Company or its transfer agents or
registrars, and delivered to the Participant (or beneficiary).
10.8 Withholding Requirements. Prior to the delivery of any
Shares or cash pursuant to an Award (or exercise thereof), the
Company shall have the power and the right to deduct or withhold,
or require a Participant to remit to the Company, an amount
sufficient to satisfy Federal, state, and local taxes (including
the Participant's FICA obligation) required to be withheld with
respect to such Award (or exercise thereof).
10.9 Withholding Arrangements. The Committee, in its sole
discretion and pursuant to such procedures as it may specify from
time to time, may permit or require a Participant to satisfy all
or part of the tax withholding obligations in connection with an
Award by (a) having the Company withhold otherwise deliverable
Shares, or (b) delivering to the Company already-owned Shares
having a Fair Market Value equal to the amount required to be
withheld. The amount of the withholding requirement shall be
deemed to include any amount which the Committee determines, not
to exceed the amount determined by using the maximum federal,
state or local marginal income tax rates applicable to the
Participant with respect to the Award on the date that the amount
of tax to be withheld is to be determined. The Fair Market Value
of the Shares to be withheld or delivered shall be determined as
of the date that the taxes are required to be withheld.
10.10 Deferrals. The Committee, in its sole discretion,
may permit a Participant to defer receipt of the payment of cash
or the delivery of Shares that would otherwise be delivered to a
Participant under the Plan. Any such deferral elections shall be
subject to such rules and procedures as shall be determined by
the Committee in its sole discretion.
11 AMENDMENT, TERMINATION, AND DURATION
11.1 Amendment, Suspension, or Termination. The Board, in
its sole discretion, may amend or terminate the Plan, or any part
thereof, at any time and for any reason. However, if and to the
extent required to maintain the Plan's qualification under
Rule 16b-3, any such amendment shall be subject to stockholder
approval. In addition, as required by Rule 16b-3, the provisions
of Section 9 regarding the formula for determining the amount,
exercise price, and timing of Nonemployee Director Options shall
in no event be amended more than once every six (6) months, other
than to comport with changes in the Code or the Employee
Retirement Income Security Act of 1974, as amended ("ERISA").
(ERISA is inapplicable to the Plan.) The amendment, suspension,
or termination of the Plan shall not, without the consent of the
Participant, alter or impair any rights or obligations under any
Award theretofore granted to such Participant. No Award may be
granted during any period of suspension or after termination of
the Plan.
11.2 Duration of the Plan. The Plan shall commence on the
date specified herein, and subject to Section 11.1 (regarding the
Board's right to amend or terminate the Plan), shall remain in
effect thereafter. However, without further stockholder
approval, no Incentive Stock Option may be granted under the Plan
after March 25, 2006.
12 LEGAL CONSTRUCTION
12.1 Gender and Number. Except where otherwise indicated by
the context, any masculine term used herein also shall include
the feminine; the plural shall include the singular and the
singular shall include the plural.
12.2 Severability. In the event any provision of the Plan
shall be held illegal or invalid for any reason, the illegality
or invalidity shall not affect the remaining parts of the Plan,
and the Plan shall be construed and enforced as if the illegal or
invalid provision had not been included.
12.3 Requirements of Law. The granting of Awards and the
issuance of Shares under the Plan shall be subject to all
applicable laws, rules, and regulations, and to such approvals by
any governmental agencies or national securities exchanges as may
be required.
12.4 Compliance with Rule 16b-3. Transactions under this
Plan with respect to Section 16 Persons are intended to comply
with all applicable conditions of Rule 16b-3. To the extent any
provision of the Plan, Award Agreement or action by the Committee
fails to so comply, it shall be deemed null and void, to the
extent permitted by law and deemed advisable by the Committee.
Notwithstanding any contrary provision of the Plan, if the
Committee specifically determines that compliance with Rule 16b-3
no longer is required, all references in the Plan to Rule 16b-3
shall be null and void.
12.5 Governing Law. The Plan and all Award Agreements shall
be construed in accordance with and governed by the laws of the
State of California.
12.6 Captions. Captions are provided herein for convenience
only, and shall not serve as a basis for interpretation or
construction of the Plan.
EXHIBIT B
THE GAP, INC.
EXECUTIVE LONG-TERM CASH AWARD PERFORMANCE PLAN
1. Purpose of the Plan
The purpose of the Executive Long-Term Performance Plan is to
provide financial incentives for certain of the Company's
officers to meet and exceed the Company's multi-year financial
goals. The Plan is intended to qualify as "performance-based
compensation" under Code Section 162(m).
2. Definitions
2.1 "Affiliated Company" means any company controlling,
controlled by, or under common control with the Company.
2.2 "Award" means a cash award pursuant to the provisions of
the Plan.
2.3 "Code" means the Internal Revenue Code of 1986, as
amended. Reference to a specific section of the Code shall
include such section, any valid regulation promulgated
thereunder, and any comparable provision of any further
legislation or regulation amending, supplementing or superseding
such section or regulation.
2.4 "Committee" means the Compensation and Stock Option
Committee of the Company's Board of Directors, or any other
Committee appointed by the Board pursuant to Section 3 of the
Plan.
2.5 "Company" means The Gap, Inc., a Delaware corporation.
2.6 "Comparable Store Sales" means the Company's or a
division's net sales from stores open more than one year.
2.7 "Determination Date" means as to a Performance Cycle, the
earlier of: (a) the first business day in April of such
Performance Cycle; or (b) the latest date possible which will not
jeopardize the Plan's qualification as "performance-based
compensation" under Code section 162(m).
2.8 "Earnings" means either (a) operating income of the
Company or one of its divisions for a given Performance Cycle
less certain allocated expenses (e.g., headquarters, distribution
centers, etc.), or (b) income before taxes of the Company or one
of its divisions; determined in accordance with Generally
Accepted Accounting Principles, provided that prior to the
Determination Date the Committee shall determine (1) whether
Earnings will be measured under clause (a) or (b), and (2)
whether any significant adjustments should be made to the
calculation (e.g., exclusions for non-recurring items or
adjustments for costs not accounted for under Generally Accepted
Accounting Principles, etc.).
2.9 "Fiscal Year" means the 1996 fiscal year of the Company
and each succeeding fiscal year of the Company.
2.10 "Officer" means an officer (whether or not a member of the
Company's Board of Directors) employed by the Company or any
Affiliated Company.
2.11 "Participant" means as to any Performance Cycle, an
Officer who has been selected by the Committee for participation
in the Plan for such Performance Cycle.
2.12 "Performance Cycle" means a period of three consecutive
Fiscal Years. More than one Performance Cycle may be in progress
at any one time.
2.13 "Performance Goals" means the goal(s) (or combined
goal(s)) determined by the Committee (in its sole discretion) to
be applicable to a Participant for a Performance Cycle. As
determined by the Committee, the Performance Goals applicable to
each Participant shall provide for a targeted level or levels of
achievement using one or more of the following measures: (a)
Comparable Store Sales; (b) Earnings; (c) Return on Equity; (d)
Return on Invested Capital; (e) Return on Net Assets; (f) Sales
Volume; and (g) Total Sales. As determined in the discretion of
the Committee, the Performance Goals for any Performance Cycle
may: (a) differ among Participants, (b) relate to performance on
a Company-wide or divisional basis, and/or (c) provide for a
comparison of actual performance by the Company or a division to
actual performance by a group of competitors determined in the
discretion of the Committee. For each Performance Cycle, the
Performance Goals applicable to each Participant shall be set
forth in writing on or prior to the Determination Date.
2.14 "Plan" means the Executive Long-Term Performance Plan, as
set forth in this document and as hereafter amended from time to
time.
2.15 "Return on Equity" means the Company's or a division's
average Earnings over the three fiscal Years expressed as a
percentage of the Company's or a division's average shareholders
equity over the three Fiscal Years, determined in accordance with
Generally Accepted Accounting Principles.
2.16 "Return on Invested Capital" means the Company's or a
division's average net operating profit after tax over the three
Fiscal Years expressed as a percentage of the Company's or a
division's average total capital over the three Fiscal Years.
Net operating profit after tax means the operating income of the
Company or one of its divisions for a given performance cycle
less certain allocated expenses (e.g., headquarters, distribution
centers, etc.), adjusted for interest expense on capitalized
leases, less taxes reported on a cash basis. Total capital for a
division includes controllable assets (inventory, net property,
plant and equipment, net lease rights, and an allocation of
distribution center net assets) plus an estimate of the value of
the division's operating leases if they had been capitalized.
For the Company, total capital includes total assets less non-
interest-bearing current liabilities, plus an estimate of the
value of the Company's operating leases if they had been
capitalized.
2.17 "Return on Net Assets" means the Company's or a division's
average Earnings over the three Fiscal Years expressed as a
percentage of the Company's or a division's average assets over
the three Fiscal years, determined in accordance with Generally
Accepted Accounting Principles.
2.18 "Sales Volume" means the average total sales volume per
store of the Company or one of its divisions for the Performance
Cycle, determined in accordance with Generally Accepted
Accounting Principles.
2.19 "Termination of Employment" means the time when the
employee-employer relationship between the Participant and the
Company and its Affiliated Companies is terminated for any
reason, including, but not limited to, a termination by
resignation, discharge, death, permanent disability, retirement,
or the disaffiliation of an Affiliated Company, but excluding any
such termination where there is a simultaneous reemployment by
either the Company or one of its Affiliated Companies.
2.20 "Total Sales" means the Company's or a division's net
sales for the Performance Cycle.
3. Administration of the Plan
3.1 The Plan shall be administered by the Committee, which
shall consist of no fewer than two members of the Company's Board
of Directors, who shall be appointed and serve at the pleasure
of the Company's Board of Directors. No member of the Company's
Board of Directors who is not an "outside director" under Code
section 162(m) shall serve on the Committee.
3.2 Subject to the provisions of the Plan, the Committee shall
have exclusive authority to select the Participants, and to
determine the target Award levels, the times when Awards will be
granted, and the Performance Goals which must be achieved prior
to payment of any Awards. For each Performance Cycle, all
actions by the Committee shall be taken by the Determination
Date.
3.3 The Committee shall have all discretion and authority
necessary or appropriate to administer the Plan, including, but
not limited to, the power to interpret the Plan, to prescribe,
amend and rescind rules and regulations relating to it, and to
make all other determinations necessary or advisable in the
administration of the Plan, and all such determinations shall be
final and binding upon all persons having an interest in the
Plan.
3.4 A majority of the Committee shall constitute a quorum, and
the acts of a majority of the members present at a meeting at
which a quorum is present or any action taken without a meeting
by a writing executed by a majority of the Committee shall
constitute the act of the Committee.
3.5 All expenses and liabilities incurred by the Committee in
the administration of the Plan shall be borne by the Company.
The Committee may employ attorneys, consultants, accountants, or
other persons. The Committee, the Company and its officers and
directors shall be entitled to rely upon the advice, opinion, or
valuations of any such persons. No member of the Committee shall
be personally liable for any action, determination, or
interpretation taken or made with respect to the Plan, unless
such action, determination, or interpretation constitutes
criminal misconduct, willful negligence or demonstrates bad
faith, and all members of the Committee shall be fully protected
by the Company in respect to any such action, determination or
interpretation.
4. Eligibility and Participation
The Plan is designed for Officers whose responsibilities
significantly influence Company results. Participants shall be
selected by the Committee prior to or on the Determination Date.
Participation in the Plan is on a Performance Cycle basis and in
the sole discretion of the Committee. Thus, an Officer who is
selected for participation in a given Performance Cycle is in no
way guaranteed to be selected for participation in any subsequent
Performance Cycle or Performance Cycles.
5. Determination of Awards
5.1 Prior to or on the Determination Date, the Committee, in
its sole discretion, shall assign each Participant a target Award
expressed as a percentage of the Participant's average annual
base salary during the Performance Cycle.
5.2 On or prior to the Determination Date, the Committee, in
its sole discretion, shall establish a formula for purposes of
determining the actual Award (if any) payable to each
Participant. Each formula shall: (a) be in writing; (b) be based
on a comparison of actual performance to the Performance Goals;
(c) provide for the payment of a Participant's target Award if
the Performance Goals for the Performance Cycle are achieved; and
(d) provide for an actual Award greater than or less than the
Participant's target Award, depending upon the extent to which
actual performance exceeds or falls below the Performance Goals.
5.3 After the end of each Performance Cycle, the Committee
shall certify in writing the extent to which the Performance
Goals applicable to each Participant for the Performance Cycle
were achieved or exceeded. The actual Award for each Participant
shall be determined by applying the formula established pursuant
to Section 5.2 of the Plan to the level of actual performance
which has been certified by the Committee. However, each
Participant's actual Award (if any) shall be subject to the
maximum provided in Section 6.
5.4 No Awards shall be paid to a Participant for a Performance
Cycle unless the minimum actual performance for the Performance
Cycle specified by the Committee pursuant to Section 5.2 of the
Plan is achieved.
5.5 The Committee, in its sole discretion, may eliminate any
Participant's Award, or reduce it below that which otherwise
would be payable in accordance with the Plan.
6. Maximum Award Payable
For any Performance Cycle, the maximum Award payable to any
Participant under the Plan shall be $3,000,000.
7. Payment of Award
7.1 Except as provided in Section 7.2 of the Plan, payment of
Awards (if any) for a Performance Cycle will be made in cash or
its equivalent on or about the first April 1 following the end of
the Performance Cycle.
7.2 A Participant actually will be entitled to payment of an
Award only if the Participant is an Officer on the date of
payment (except to the limited extent provided in the following
sentence). If, after the completion of a Performance Cycle, a
Participant incurs a Termination of Employment due to death or
permanent disability, the Participant still shall be entitled to
the payment of any Award for such Performance Cycle otherwise
payable to the Participant. In the event an Award is payable to
a Participant subsequent to the Participant's death, such payment
shall be made to the Participant's estate.
7.3 The Company shall withhold all applicable income and other
taxes from any Award payment to any Participant, including any
federal, FICA, state and local taxes.
7.4 Each Award shall be payable solely from the general assets
of the Company. Each Participant's right to payment of an Award
(if any) shall be solely as an unsecured general creditor of the
Company.
8. Employment Rights
Nothing in the Plan shall confer upon any Participant the right
to continue in the employ of the Company or its Affiliated
Companies or shall interfere with or restrict in any way the
rights of the Participant's employer to discharge or change the
terms of employment of any Participant at any time for any reason
whatsoever, with or without cause.
9. Effect on Other Plans
The adoption of the Plan shall not affect any other equity or
other compensation or incentive plan in effect for the Company or
any Affiliated Company, and the Plan shall not preclude the
Company's Board of Directors from establishing any other forms of
incentive compensation for Officers.
10. Amendment or Termination of the Plan
The Board, in its sole discretion, may alter, amend, or
terminate the Plan or any part thereof at any time and for any
reason; provided, however, that to the extent required to ensure
the Plan's qualification under Code section 162(m) as
"performance-based compensation", any such amendment shall be
subject to stockholder approval.
11. Effective Date
The effective date of the Plan is January 23, 1996.
THE GAP, INC.
Annual Meeting of Stockholders - May 21, 1996
Proxy Solicited on Behalf of the Board of Directors
The undersigned hereby appoints Donald G. Fisher, Warren R. Hashagen
and Anne B. Gust, or any of them, each with full power of
substitution, as proxies to vote all shares of common stock the The
Gap, Inc. which the undersigned is entitled to vote at the Annual
Meeting of Stockholders to be held on May 21, 1996, and any
postponements and adjournments thereof, on all matters properly coming
before the meeting.
IMPORTANT - This proxy must be signed and dated on the reverse side.
THIS PROXY WILL BE VOTED IN ACCORDANCE WITH THE SPECIFICATIONS MADE ON
THE REVERSE SIDE. IF NO CHOICES ARE INDICATED, THIS PROXY WILL BE
VOTED FOR ALL NOMINEES LISTED ON THE REVERSE SIDE, FOR PROPOSALS 2, 3
AND 4, AND, WITH RESPECT TO ANY OTHER MATTERS AS MAY PROPERLY COME
BEFORE THE MEETING, IN ACCORDANCE WITH THE DISCRETION OF THE PROXIES.
THE GAP, INC.
PLEASE MARK IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY
1. Election of Directors, Nominees: FOR ALL
Adrian D. P. Bellamy, John G. Bowes, FOR WITHHOLD EXCEPT AS
Millard S. Drexler, Donald G. Fisher, LISTED
Doris F. Fisher, Robert J. Fisher,
Lucie J. Fjeldstad, William A. Hasler,
John M. Lillie, Charles R. Schwab,
Brooks Walker, Jr.
2. Approval of the 1996 Stock Option FOR AGAINST ABSTAIN
and Award Plan.
3. Approval of the Executive Long-Term FOR AGAINST ABSTAIN
Cash Award Performance Plan.
4. Ratify the appointment of Deloitte & FOR AGAINST ABSTAIN
Touche LLP as independent auditors.
Date: , 1996
(Signature)
(Signature)
NOTE: Please sign exactly as name appears hereon. Joint owners should
each sign. When signing as Attorney, executor, administrator, trustee
or guardian, please give full title as such.
