<PAGE>
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a)
OF THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. )
FILED BY THE REGISTRANT [X]
FILED BY A PARTY OTHER THAN THE REGISTRANT [_]
CHECK THE APPROPRIATE BOX:
[_] CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY (AS PERMITTED BY RULE
14a-6(e)(2))
[_] PRELIMINARY PROXY STATEMENT
[X] DEFINITIVE PROXY STATEMENT
[_] DEFINITIVE ADDITIONAL MATERIALS
[_] SOLICITING MATERIAL PURSUANT TO (S)240.14a-11(c) OR (S)240.14a-12
THE GAP, INC.
-------------------------------------------
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
-------------------------------------------
(NAME OF PERSON(S) FILING PROXY STATEMENT, IF OTHER THAN THE REGISTRANT)
PAYMENT OF FILING FEE (CHECK THE APPROPRIATE BOX):
[X] NO FEE REQUIRED.
[_] FEE COMPUTED ON TABLE BELOW PER EXCHANGE ACT RULES 14a-6(i)(4) AND 0-11.
(1) Title of each class of securities to which transaction applies:
--------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
--------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
--------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
--------------------------------------------------------------------------
(5) Total fee paid:
--------------------------------------------------------------------------
[_] FEE PAID PREVIOUSLY WITH PRELIMINARY MATERIALS.
[_] CHECK BOX IF ANY PART OF THE FEE IS OFFSET AS PROVIDED BY EXCHANGE ACT RULE
0-11(a)(2) AND IDENTIFY THE FILING FOR WHICH THE OFFSETTING FEE WAS PAID
PREVIOUSLY. IDENTIFY THE PREVIOUS FILING BY REGISTRATION STATEMENT NUMBER,
OR THE FORM OR SCHEDULE AND THE DATE OF ITS FILING.
(1) Amount Previously Paid:
--------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
--------------------------------------------------------------------------
(3) Filing Party:
--------------------------------------------------------------------------
(4) Date Filed:
--------------------------------------------------------------------------
Notes:
<PAGE>
[LOGO OF THE GAP INC.]
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
APRIL 28, 1998
To Our Shareholders:
The Annual Meeting of Shareholders of The Gap, Inc. (the "Company") will be
held at the Town Hall of the Delancey Street Foundation, 600 The Embarcadero,
San Francisco, California, on Tuesday, April 28, 1998 at 1:30 p.m., for the
following purposes:
1. To elect a Board of Directors;
2. To consider and act upon a proposal recommended by the Board of
Directors to amend the Company's Amended and Restated Certificate of
Incorporation to increase the Company's authorized number of shares of
Common Stock from 500,000,000 to 1,500,000,000;
3. 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 January 30, 1999; and
4. 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 shareholders of record at the close of business on March 9, 1998 are
entitled to notice of and to vote at the Annual Meeting and any adjournments
or postponements thereof. A complete list of shareholders of record as of the
close of business on March 9, 1998 will be available for inspection during
normal business hours ten days before the Annual Meeting at One Harrison
Street, San Francisco, California.
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, PLEASE COMPLETE, DATE
AND SIGN THE ENCLOSED PROXY CARD AND RETURN IT AS PROMPTLY AS POSSIBLE IN THE
ENCLOSED ENVELOPE.
A copy of the Company's Annual Report to Shareholders is being mailed with
the Proxy Statement to shareholders entitled to notice of this meeting.
By Order of the Board of Directors,
/s/ ANNE B. GUST
Anne B. Gust
Secretary
April 6, 1998
PRINTED ON RECYCLED PAPER
[LOGO OF RECYCLED PAPER]
<PAGE>
THE GAP, INC.
ONE HARRISON STREET
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 SHAREHOLDERS OF THE COMPANY TO BE HELD ON APRIL 28, 1998
AT 1:30 P.M. AT THE TOWN HALL OF THE DELANCEY STREET FOUNDATION, 600 THE
EMBARCADERO, IN SAN FRANCISCO, AND AT ANY ADJOURNMENT THEREOF. THIS STATEMENT
AND THE ENCLOSED FORM OF PROXY WERE FIRST SENT TO SHAREHOLDERS ON OR ABOUT
APRIL 6, 1998.
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 proposal to amend the Company's Amended and Restated
Certificate of Incorporation to increase the Company's authorized number of
shares of Common Stock from 500,000,000 to 1,500,000,000; 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
January 30, 1999.
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, or a proxy solicitation firm retained by the Company, may solicit
proxies by telephone, fax or in person.
A shareholder 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 393,500,175 shares were outstanding at the close of
business on March 9, 1998. Only shareholders of record at the close of
business on that date are entitled to vote at the meeting. Each shareholder 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 stock
splits.
The election inspector(s) appointed for the Annual Meeting will determine
whether or not a quorum is present and will tabulate votes cast by proxy or in
person at the Annual Meeting. 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. Election of directors by shareholders shall be
determined by a plurality of the votes cast by the shareholders present in
person or by proxy at the meeting and entitled to vote on the election of
directors. Approval of the proposal to amend the Company's Amended and
Restated Certificate of Incorporation requires the affirmative vote of a
majority of the Company's outstanding Common Stock. Approval of the selection
by the Board of Directors of Deloitte & Touche LLP as independent auditors for
the Company requires the affirmative vote of the holders of the majority of
the shares present or represented by proxy at the Annual Meeting.
1
<PAGE>
Abstentions are included in the determination of shares present for quorum
purposes. Because abstentions represent shares entitled to vote, the effect of
an abstention will be the same as a vote against a proposal.
If you hold shares in "street name" through a broker or other nominee, your
broker or nominee may not be permitted to exercise voting discretion with
respect to certain matters to be acted upon. If you do not give your broker or
nominee specific instructions, your shares may not be voted on those matters
and will not be considered as present and entitled to vote with respect to
those matters. Shares represented by such "broker non-votes" will, however, be
counted in determining whether there is a quorum.
PROPOSAL NO. 1
ELECTION OF DIRECTORS
NOMINEES FOR ELECTION AS DIRECTORS
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 persons whose names are set forth below, all of whom
are current directors. In the absence of instructions to the contrary, shares
represented by the proxy will be voted for the election of all these 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.
<TABLE>
<CAPTION>
SERVED AS
NAME, AGE, PRINCIPAL OCCUPATION DURING PAST FIVE YEARS AND OTHER DIRECTOR
INFORMATION SINCE
---------------------------------------------------------------- ---------
<S> <C>
ADRIAN D. P. BELLAMY, 56#*.......................................... 1995
Chairman of Gucci Group, NV, luxury accessories and apparel
manufacturer and retailer; Director of The Body Shop International,
P.L.C., personal care retailer; Director of Paragon Trade Brands,
Inc., manufacturer of store brand diapers; Director of Shaman
Pharmaceuticals Inc., pharmaceutical research company; and Director
of Williams-Sonoma, Inc., specialty retailer. Chairman and Chief
Executive Officer of DFS Group Limited, specialty retailer, 1983-
95.
JOHN G. BOWES, 69#*................................................. 1974
Chairman of Yakima Products, Inc. since 1994 and FasTrak, Inc.
since 1995. Chairman of Kransco Group Companies, manufacturer of
recreational products, 1962-94.
MILLARD S. DREXLER, 53.............................................. 1983
Chief Executive Officer of the Company since 1995, President of the
Company since 1987 and Chief Executive Officer of the Gap Division
since 1987. Chief Operating Officer of the Company 1993-95; Chief
Executive Officer of Banana Republic, Inc. 1988-97.
DONALD G. FISHER, 69 * +............................................ 1969
Chairman of the Company. Chief Executive Officer of the Company,
1969-95. Director of The Charles Schwab Corporation, discount
securities brokerage; and Director of AirTouch Communications,
telecommunications company.
DORIS F. FISHER, 66 +............................................... 1969
Merchandising consultant to the Company.
ROBERT J. FISHER, 43 ++............................................. 1990
Executive Vice President of the Company since 1992. President, Gap
Division since 1997. Chief Operating Officer from 1992-93 and 1995-
97; Chief Financial Officer of the Company 1993-95. Director of Sun
Microsystems, Inc., manufacturer of computer systems.
JOHN M. LILLIE, 61 # *.............................................. 1992
Chairman, The Epic Team, bicycle and accessory products, since
1996. Chairman and Chief Executive Officer of American President
Companies, Ltd., transportation company, 1992-95. Director of
Consolidated Freightways, Ltd., transportation company; Director of
Circle International Group, Inc., international freight logistics
and services company; and Director of Walker Interactive Systems,
Inc., software company.
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
SERVED AS
NAME, AGE, PRINCIPAL OCCUPATION DURING PAST FIVE YEARS AND OTHER DIRECTOR
INFORMATION SINCE
---------------------------------------------------------------- ---------
<S> <C>
CHARLES R. SCHWAB, 60 @*............................................ 1986
Chairman and Co-Chief Executive Officer of The Charles Schwab
Corporation, discount securities brokerage, since 1986. Director of
Transamerica Corporation, insurance and financial services company;
Director of AirTouch Communications, telecommunications company;
and Director of Siebel Systems, Inc., software company.
BROOKS WALKER, JR., 69 @*........................................... 1972
General Partner, Walker Investors, venture capital investment
partnership, since 1979. Director of Pope & Talbot, Inc.,
manufacturer of wood products.
SERGIO S. ZYMAN, 52 *............................................... 1997
Senior Vice President and Chief Marketing Officer of The Coca-Cola
Company since 1993. President of Sergio Zyman & Company, consulting
company, 1986-93.
</TABLE>
- -------
@ 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.
Lucie J. Fjeldstad and William A. Hasler, who currently serve on the Board
of Directors, are not standing for re-election and will cease to be directors
upon the election of directors at the Annual Meeting. Fewer nominees are named
(ten) than the number fixed by the Board pursuant to the Company's Bylaws
(twelve) because the Company has not yet determined whether to fill those
positions and, if so, who will be invited to join the Board. Proxies cannot be
voted for a greater number of persons than the number of nominees named.
Information concerning executive officers of the Company who are not also
directors is set forth in the Company's Annual Report on Form 10-K for the
fiscal year ended January 31, 1998.
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 the non-employee directors and one
employee director.
The functions of the Audit and Finance Committee are (i) to recommend the
engagement of the Company's independent auditors and review with them the
plan, scope and results of their audit for each year, (ii) to review with the
Company's Consulting and Auditing Services department the plan, scope and
results of their operations, (iii) to consider and review other matters
relating to the financial and accounting affairs of the Company, and (iv) to
oversee the Company's Corporate Compliance Program. 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 and options to purchase stock to selected employees under
the Company's stock plan, to make awards under the Company's annual and long-
term incentive plans to key employees, and to make recommendations to the
Board concerning the compensation of non-employee directors. This committee is
composed exclusively of directors who have not been eligible to receive stock
options or awards under the Company's stock 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.
3
<PAGE>
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 directors, the
size and function of the Board of Directors, the functions and duties of the
committees of the Board, the effectiveness and procedures of the Board,
retirement policies of non-employee directors, 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, Walker, and Zyman and Ms. Fjeldstad.
During the last fiscal year, the Board of Directors held seven meetings, the
Compensation and Stock Option Committee held four meetings, the Audit and
Finance Committee held two meetings and the Corporate Governance Committee
held no meetings. Mr. Schwab attended fewer than 75% of the aggregate of (i)
the total number of meetings of the Board of Directors held, and (ii) the
total number of meetings held by all Committees of the Board on which he was a
member.
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 ("non-employee directors") 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 non-employee director of the Company receives director 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 Non-Employee Director Deferred Compensation Plan, each
non-employee director may elect to forego receipt of his or her annual
retainer on a quarterly basis in exchange for an option to purchase 937 shares
of Company Common Stock. Any such option will have an exercise price which is
discounted to reflect the amount of the foregone retainer, will be exercisable
immediately, and will have a maximum term of seven years. Shares issued under
the plan will come from treasury shares. Each non-employee director elected to
participate in the plan for the fourth quarter of fiscal 1997 and for fiscal
1998.
Under the Company's 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 15,000 shares at the then-current fair market value; and
(ii) each continuing non-employee director automatically receives an option to
purchase 3,750 shares at the then-current fair market value. All initial
options to new non-employee directors are granted on the date of appointment
to the Board. All continuing non-employee director options are granted on the
first business day after each annual meeting of shareholders. The options
normally become exercisable three years after the date of grant. In addition,
the Compensation and Stock Option Committee is authorized to grant
discretionary options to non-employee directors using treasury shares. In
January 1998, Mr. Zyman was granted a discretionary option to purchase 7,500
shares at a discounted exercise price of $19.50 per share. The option is
exercisable in five equal annual installments.
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 non-employee 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
1996, the Board of Directors elected to discontinue this plan for future
directors. Directors in office at January 28, 1997 will continue to be
eligible for plan benefits, assuming they meet the requirements of the plan;
however, the benefit payable will be capped at the current level (i.e., 75% of
$36,000).
In fiscal 1997, Doris Fisher received $24,600 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, except for stock-based compensation and
bonus programs.
4
<PAGE>
PROPOSAL NO. 2
PROPOSED AMENDMENT TO THE
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
TO INCREASE AUTHORIZED SHARES OF COMMON STOCK
At the Annual Meeting there will be submitted to shareholders a proposal to
increase the number of shares of Common Stock the Company is authorized to
issue. The Board of Directors recommends adoption of the proposal.
The Company presently is authorized to issue 500,000,000 shares of Common
Stock having a par value of $0.05 per share. As of March 9, 1998,
approximately 440.3 million shares of Common Stock were issued and
approximately 393.5 million shares were outstanding (net of approximately 46.8
million treasury shares). Of the remaining authorized but unissued shares,
approximately 59.7 million shares were reserved for issuance under the
Company's stock option and restricted stock plans. Based upon the foregoing,
the Company has virtually no shares remaining available for other purposes.
From time to time, the Company has issued additional shares of Common Stock
in payment of stock dividends or stock splits or for other purposes. During
fiscal year 1997, the Company issued approximately 146.5 million shares in
connection with a three-for-two stock split in the form of a stock dividend.
Also during fiscal 1997, the Company issued approximately 2.8 million shares
upon exercise of employee stock options and 53,250 shares under the restricted
stock portion of the 1996 Stock Option and Award Plan.
In February 1998, the Board approved a resolution, subject to shareholder
approval at the Annual Meeting on April 28, 1998, amending Article Fifth of
the Company's Amended and Restated Certificate of Incorporation ("Certificate
of Incorporation") to increase the authorized number of shares of Common Stock
from 500,000,000 to 1,500,000,000. The pertinent provisions of the amendment
to the Certificate of Incorporation are set forth in Exhibit A to this Proxy
Statement. The affirmative vote of a majority of the outstanding shares of
Common Stock is required to adopt the proposed amendment. The amendment, if
approved by the shareholders, will take effect upon filing with the Delaware
Secretary of State, which is expected to occur on or about April 29, 1998.
The Board of Directors believes that it is in the Company's best interests
to increase the number of authorized shares of Common Stock which may be made
available for future stock dividends or splits, financing and acquisition
transactions, employee benefit plans and other general corporate purposes. If
the amendment is approved, the Company generally also will have greater
flexibility in the future to issue shares in excess of those presently
authorized, without the expense and delay of a special shareholders' meeting.
Except in connection with its stock option and restricted stock plans, the
Board of Directors currently has no immediate plans, understandings,
agreements, arrangements, or commitments for the issuance of additional shares
of Common Stock and no holder of Common Stock has any preemptive right with
respect to the Common Stock. Thus, should the Board of Directors elect to
issue additional shares of Common Stock, existing shareholders would not have
any preferential rights to purchase such shares. If the Board of Directors
deems it to be in the best interests of the Company and the shareholders to
issue additional shares of Common Stock in the future, the Board of Directors
generally would not seek further authorization by vote of the shareholders,
unless such authorization is otherwise required by applicable law or stock
exchange regulations.
The proposed amendment to increase the authorized number of shares of Common
Stock could, under certain circumstances, have an anti-takeover effect,
although this is not the intention of this proposal. For example, in the event
of a hostile attempt to take over control of the Company, it may be possible
for the Company to endeavor to impede the attempt by issuing shares of the
Common Stock, thereby diluting the voting power of the other outstanding
shares and increasing the potential cost to acquire control of the Company.
The amendment therefore may have the effect of discouraging unsolicited
takeover attempts. By potentially discouraging initiation of any such
unsolicited takeover attempt, the proposed amendment may limit the opportunity
for the Company's shareholders to dispose of their shares at the higher price
generally available in takeover attempts or that may be available under a
merger proposal. The proposed amendment may have the effect of permitting the
Company's current management, including the current Board of Directors, to
retain its position, and place it in a better position to resist changes that
shareholders may wish to make if they are dissatisfied with the conduct of the
Company's business. However, the Board of Directors is not aware of any
attempt to take control of the Company and the Board of Directors has not
presented this proposal with the intent that it be utilized as a type of anti-
takeover device.
5
<PAGE>
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" THE
APPROVAL OF THE AMENDMENT TO THE COMPANY'S CERTIFICATE OF INCORPORATION TO
INCREASE THE AUTHORIZED NUMBER OF SHARES OF COMMON STOCK FROM 500,000,000 TO
1,500,000,000. Unless a contrary choice is specified, proxies solicited by the
Board of Directors will be voted FOR approval of the amendment.
PROPOSAL NO. 3
SELECTION OF INDEPENDENT AUDITORS
The Board of Directors has selected Deloitte & Touche LLP as independent
auditors for the Company for the fiscal year ending January 30, 1999. Deloitte
& Touche LLP has acted as auditors for the Company since 1972. Although action
by the shareholders is not required by law, the Board of Directors has
determined that it is desirable to request approval of this selection by the
shareholders of the Company. If the shareholders fail to approve the selection
of such auditors, the Board of Directors will reconsider the selection.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS 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 Shareholders and available to make statements to, and
respond to appropriate questions of, shareholders.
BENEFICIAL OWNERSHIP OF SHARES
The following table sets forth certain information as of March 9, 1998, to
indicate beneficial ownership of the Common Stock of the Company by (i) each
person known by the Company to be the beneficial owner of more than 5% of the
outstanding shares 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.
Unless otherwise indicated, beneficial ownership is direct and the person
indicated has sole voting and investment power.
<TABLE>
<CAPTION>
AMOUNT
BENEFICIALLY PERCENT
NAME OF BENEFICIAL OWNER OWNED (1) OF CLASS
------------------------ ------------ --------
<S> <C> <C> <C>
DIRECTORS AND EXECUTIVE OFFICERS
--------------------------------
Adrian D. P. Bellamy........................ 30,337 *
John G. Bowes............................... 565,537 *
Millard S. Drexler.......................... 7,048,050 (2) 1.8%
Donald G. Fisher and (3) (3)
Doris F. Fisher ............................ 94,625,861 (3) 24.0% (3)
Robert J. Fisher ........................... 14,534,020 (2)(4) 3.7%
Lucie J. Fjeldstad ......................... 22,979 *
William A. Hasler .......................... 14,527 *
Warren R. Hashagen ......................... 240,366 (2) *
John M. Lillie ............................. 24,937 (5) *
Charles R. Schwab .......................... 29,561 (6) *
Brooks Walker, Jr........................... 214,837 (7) *
John B. Wilson.............................. 53,410 *
Sergio S. Zyman............................. 1,041 (8) *
All directors and executive officers as a
group (15 persons) ........................ 117,479,531 (9) 29.8%
CERTAIN OTHER BENEFICIAL OWNERS
-------------------------------
FMR Corp., Edward C. Johnson 3d, and Abigail
P. Johnson ................................ 20,977,094 (10) 5.3%
</TABLE>
- -------
* Indicates ownership of less than 1% of the outstanding shares of the
Company's Common Stock.
(1) Shares issuable upon exercise of options to acquire Common Stock that are
exercisable within 60 days after March 9, 1998 are treated as beneficially
owned as follows: Mr. Bellamy, 15,937; Mr. Bowes, 21,937; Mr. Drexler,
329,550;
6
<PAGE>
Mr. Robert Fisher, 212,700; Ms. Fjeldstad, 19,777; Mr. Hasler, 10,777; Mr.
Hashagen, 79,500; Mr. Lillie, 21,937; Mr. Schwab, 21,937; Mr. Walker,
21,937; Mr. Wilson, 53,410; Mr. Zyman, 937; and all directors and executive
officers as a group, 859,236.
(2) Includes shares as to which restrictions have not lapsed which were
granted under the Company's Management Incentive Restricted Stock Plan
and/or the 1996 Stock Option and Award Plan.
(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, the 94,625,861 shares beneficially owned by
Donald G. Fisher and Doris F. Fisher are beneficially owned by each of
them. Of the shares shown, 74,182,790 shares are held as community
property. The remainder of the shares are held by the Fishers as trustees
for various foundations and trusts. Amounts shown include 109,519 shares
held by the Donald and Doris Fisher Family Foundation Trust, of which the
Fishers constitute a minority of the trustees, beneficial ownership of
which is disclaimed, and exclude shares held directly or indirectly by
the Fishers' three adult sons, beneficial ownership of which is
disclaimed.
(4) Includes 563,400 shares held jointly by Robert Fisher and his spouse,
47,442 shares owned by his spouse, 72,825 shares held by Robert Fisher as
trustee for his nieces and nephews, and 6,666,460 shares held by Robert
Fisher as trustee for certain other trusts.
(5) Includes 3,000 shares held under the Lillie Family Living Trust, over
which Mr. Lillie and his wife share voting and investment power.
(6) Includes 1,500 shares owned by Mr. Schwab's spouse.
(7) Includes 90,000 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.
(8) Includes 104 shares held by Mr. Zyman's minor children.
(9) Reflects the information in the footnotes set forth above.
(10) The address of FMR Corp., Edward C. Johnson 3d, and Abigail P. Johnson is
82 Devonshire Street, Boston, Massachusetts 02109. FMR Corp. indicates
that it has sole power to vote or direct the vote of only 954,669 of
these shares and sole power to dispose of or direct the disposition of
all of these shares. Edward C. Johnson 3d and Abigail P. Johnson each
indicate that they have no power to vote or direct the vote of these
shares and have sole power to dispose of or direct the disposition of all
these shares. This disclosure is based on information contained in a
report as of December 31, 1997 on Schedule 13G filed with the Securities
and Exchange Commission pursuant to Rule 13d-1(b) or 13d-2(b) of the
Securities Exchange Act of 1934, as amended.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
As required by the Securities Exchange Act of 1934, as amended, the Company
notes that (i) Mr. Bellamy reported on a Form 4 filed late one transaction
involving the purchase of Common Stock in an open market transaction in
October 1997 and (ii) Mr. Walker reported on a Form 5 filed in March 1998 a
transaction involving the gifting by him of Common Stock in June 1996.
7
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY OF 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.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
---------------------------------- ---------------------
OTHER RESTRICTED SECURITIES
ANNUAL STOCK UNDERLYING ALL OTHER
NAME AND FISCAL COMPENSATION AWARDS OPTIONS COMPENSATION
PRINCIPAL POSITION YEAR SALARY($) BONUS($) ($)(1) ($)(2) (#)(3) ($)(4)
------------------ ------ ---------- ---------- ------------ ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Millard S. Drexler,..... 1997 $1,882,928 $1,615,000 $ 0 $ 0 180,000 $244,712
President and Chief 1996 1,780,385 1,350,000 0 0 180,000 141,404
Executive Officer 1995 1,588,616 314,100 0 0 6,093,750 118,931
Donald G. Fisher,....... 1997 499,274 425,000 0 N/A N/A 492,278
Chairman 1996 1,058,047 787,313 0 N/A N/A 278,105
1995 1,508,777 299,100 0 N/A N/A 165,820
Robert J. Fisher,....... 1997 848,548 650,250 0 0 150,000 269,791
Executive Vice 1996 840,940 637,500 0 0 150,000 93,227
President 1995 694,162 137,500 0 840,625 1,551,000 11,181
and President, Gap
Division
John B. Wilson,......... 1997 626,794 531,250 156,030 0 600,000 8,800
Executive Vice 1996 188,098 1,006,750 11,812 597,581 555,000 0
President, 1995 0 0 0 0 0 0
Chief Operating
Officer(5)
Warren R. Hashagen,..... 1997 328,100 197,540 0 0 51,000 9,254
Senior Vice President, 1996 311,660 175,000 0 0 36,000 6,272
Chief Financial Officer 1995 275,192 40,000 0 127,750 90,000 8,468
</TABLE>
- -------
(1) While the named executive officers enjoy certain perquisites, for fiscal
years 1995, 1996 and 1997 these did not exceed the lesser of $50,000 or
10% of each executive officer's salary and bonus, except for perquisites
of Mr. Wilson in 1997. The amount listed for Mr. Wilson in 1997 includes,
among other things, amounts paid to Mr. Wilson in connection with his
relocation as follows: $42,308 for temporary housing, $41,856 for tax
gross-up payments in connection with the reimbursement for temporary
housing, and $43,562 for closing costs. The amount listed for Mr. Wilson
in 1996 represents tax gross-up payments in connection with the
reimbursement of relocation expenses.
(2) Donald Fisher does not participate in the Company's restricted stock plan.
As of the end of fiscal 1997, the aggregate restricted stock holdings for
the named executive officers consisted of 3,159,000 shares worth
$123,398,438 at the then-current market value (as represented by the
closing price of the Company's Common Stock of $39.0625 on January 30,
1998), without giving effect to the diminution of value attributable to
the restrictions on such stock. Such amount included $117,187,500 for Mr.
Drexler (3,000,000 shares), $5,273,438 for Robert Fisher (135,000 shares),
and $937,500 for Mr. Hashagen (24,000 shares). Dividends are paid on the
restricted shares to the extent payable on the Company's Common Stock
generally. The restricted stock award of 30,450 shares for Mr. Wilson in
1996 had a vesting date of less than three years and was canceled in 1997
pursuant to a prior arrangement with Mr. Wilson. See "Employment Contracts
and Termination of Employment Arrangements." No other shares granted to
the named executive officers vest in less than three years from the date
of grant.
(3) Donald Fisher does not participate in the Company's stock option plan. Of
the securities underlying options for Mr. Wilson in 1996, 9,590 were
canceled in 1997 pursuant to a prior arrangement with Mr. Wilson. See
"Employment Contracts and Termination of Employment Arrangements."
(4) These amounts include above-market earnings on deferred compensation
credited, but not paid or payable, during the fiscal year under the
Company's Executive Capital Accumulation Plan, Executive Deferred
Compensation Plan and/or Supplemental Executive Retirement Plan as
follows: Mr. Drexler, $238,520 for 1997, $135,367 for 1996, and $108,831
for 1995; Mr. Donald Fisher, $486,109 for 1997, $273,219 for 1996, and
$155,812 for 1995; Mr. Robert Fisher, $263,391 for 1997, $86,742 for 1996,
and $1,399 for 1995; Mr. Wilson, $477 for 1997; and Mr. Hashagen, $2,803
for 1997 and $822 for 1996. All remaining amounts shown represent the
Company's contributions to the Company's GapShare Plan.
(5) Mr. Wilson joined the Company in October 1996.
8
<PAGE>
STOCK OPTIONS
The following two tables set forth certain information regarding stock
options granted to, exercised by and held by the executive officers named in
the foregoing Summary Compensation Table. All stock option awards in the
following tables and elsewhere in this Proxy Statement have been adjusted to
reflect stock splits.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
--------------------------------------------------------------
NUMBER OF PERCENT OF MARKET
SECURITIES TOTAL OPTIONS PRICE ON GRANT
UNDERLYING GRANTED TO EXERCISE OR GRANT DATE
OPTIONS GRANTED EMPLOYEES IN BASE PRICE DATE EXPIRATION PRESENT
NAME (#)(1) FISCAL YEAR ($/SH) ($/SH)(2) DATE(3) VALUE($)(4)
---- --------------- ------------- ----------- --------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Millard S. Drexler...... 180,000 1.6% $20.8750 $20.8750 4/14/07 $1,501,542
Donald G. Fisher........ N/A N/A N/A N/A N/A N/A
Robert J. Fisher........ 150,000 1.3 20.8750 20.8750 4/14/07 1,046,535
John B. Wilson.......... 150,000 1.3 20.8750 20.8750 4/14/07 1,046,535
300,000 2.6 29.5208 29.5208 8/26/07 3,279,300
150,000 1.3 14.7604 29.5208 8/26/07 2,739,210
Warren R. Hashagen...... 36,000 0.3 20.8750 20.8750 4/14/07 251,168
15,000 0.1 10.4375 20.8750 4/14/07 193,698
</TABLE>
- -------
(1) Except as noted below, all options granted to the named executive officers
during fiscal 1997 will become exercisable in two equal installments three
and four years from the date of grant. The second and third option grants
to Mr. Wilson will become exercisable in two equal installments four and
five years from the date of grant and the second option grant to Mr.
Hashagen will become exercisable in five years from the date of grant.
Under the terms of the Company's 1996 Stock Option and Award 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) 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 1997 were granted for a term of ten years,
subject to termination 90 days following termination of employment in
certain events.
(4) This column represents the present value of the options on the grant date
using the Black-Scholes option pricing model for the Common Stock,
utilizing the following assumptions: five-year stock price volatility of
31%; dividend yield of 0.73%; 4.17- to 5.75-year expected option terms;
6.75% to 6.89% risk-free interest rate; and no adjustment for non-
transferability or forfeiture. The actual value, if any, that an executive
officer may realize will depend on the excess of the market price over the
exercise price on the date the option is exercised so that there is no
assurance that the value realized by an executive will be at or near the
value estimated by the Black-Scholes model, which is based on arbitrary
assumptions as to the variables of stock price volatility, future dividend
yield and interest rate. For an estimate of the impact of all stock option
grants on the Company's financial results using the Black-Scholes
valuation method, see note G to the Consolidated Financial Statements in
the Company's Annual Report to Shareholders for the fiscal year ended
January 31, 1998.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
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 $ 0 355,800 6,453,750 $ 10,731,806 $ 166,814,998
Donald G. Fisher (2).... N/A N/A N/A N/A N/A N/A
Robert J. Fisher........ 0 0 221,700 1,851,000 6,580,891 47,673,250
John B. Wilson.......... 0 0 0 1,145,410 0 21,059,907
Warren R. Hashagen...... 47,400 1,187,500 60,000 177,000 1,699,125 4,130,600
</TABLE>
9
<PAGE>
- -------
(1) Represents the difference between the average of the high and low price of
the Company's Common Stock on January 30, 1998 ($39.3125) and the exercise
price of the options.
(2) Donald Fisher does not participate in the Company's stock option plan.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During all of fiscal year 1997, the Compensation and Stock Option Committee
of the Board of Directors consisted of Ms. Fjeldstad and Messrs. Bellamy,
Bowes, and Lillie, all of whom are non-employee directors.
REPORT OF COMPENSATION COMMITTEE 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 currently 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 provide a competitive advantage
and rewards based both on the Company's performance and on the individual's
contribution to the Company. Corporate and divisional performance are
evaluated by reviewing the extent to which financial and strategic goals are
met, including such factors as profitability and sales growth. These
performance criteria are reviewed each year to ensure that they are consistent
with the Company's mission and strategies. Officers are also given annual
goals and their individual performance is evaluated by reviewing progress
against these objectives.
The Company's compensation policies are intended to motivate and reward
highly qualified executives for long-term strategic management and the
enhancement of shareholder value, to support a performance-oriented
environment that rewards achievement of specific internal Company and
individual 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 shareholders.
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 above the average rates paid
by competitors to enable the Company to attract 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 the performance of 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
under the heading "Performance Graph." Thus, in reviewing the 1997 salaries
for executive officers, the Committee examined market data and salary increase
surveys for specialty retail, consumer/branded goods, and general industry
groups which were prepared by national consulting companies. Salaries were
adjusted based on actual individual job performance and/or changes in duties
and responsibilities.
10
<PAGE>
Mr. Drexler's base salary for fiscal year 1997 was $1.9 million,
representing an increase of 6% over the prior year. In setting the Chief
Executive Officer's 1997 salary, the Committee considered the Company's 1996
results, future objectives and challenges, and Mr. Drexler's individual
performance and contributions. The Company's 1996 performance was judged by
the Committee to be significantly above expectations and very good compared to
industry/competitor results. The Committee reviewed in detail Mr. Drexler's
achievement of his 1996 goals and his individual contributions to the Company.
The Committee concluded that he had achieved his 1996 goals and had provided a
leadership role in achieving the Company's three strategic priorities for
1996: growing earnings and improving the return on investments, developing
employees and strengthening the Brand. The Committee also considered Mr.
Drexler's decisive management of operational and strategic issues, his drive
to reinforce a culture of innovation and his ability and dedication to enhance
the long-term value of the Company for the shareholders. The Committee
believes that Mr. Drexler has continued to provide the leadership and vision
that he has provided throughout his 14-year tenure as a Company executive,
during which, on a compounded annual growth basis, the Company's net earnings
increased by 26%, net sales by 20% and market value by 39%. In making its
salary decisions with respect to Mr. 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.
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 bonuses are reviewed and approved by the Committee in the first
quarter of each fiscal year. Under the 1997 guidelines adopted by the
Committee, executive officers were eligible to receive between 17.5% and 100%
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 extent to which earnings goals were achieved and the grade level
of the officer.
The Company's 1997 performance was judged by the Committee to be
significantly above expectations. The Company achieved record earnings and
surpassed its financial goals for the year. The Chief Executive Officer was
eligible to receive between 25% and 100% of his base salary as a bonus under
the 1997 guidelines adopted by the Committee. Because the Company exceeded its
goals and achieved superior results, the actual bonus received by Mr. Drexler
was 85% of his base pay.
The Committee believes that the Executive MICAP program provides an
excellent link between annual results and the incentives paid to executives.
LONG-TERM INCENTIVES
Long-term incentives represent over half the total income opportunity for
executive officers. These incentives create a direct linkage between executive
rewards and increased shareholder value by delivering a significant portion of
total compensation opportunity through both stock options and through a cash
performance plan with three-year overlapping performance cycles. This
compensation program is designed to focus on Company performance.
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 beneficially own approximately 29.6% of the
outstanding shares of Common Stock. In particular, Mr. Donald Fisher, the
Company's founder and Chairman, beneficially owns jointly with his wife Doris
Fisher approximately 24.0% of the outstanding shares.
11
<PAGE>
Long-Term Performance Plan
In order to emphasize its compensation philosophy oriented to longer-term
results, the Company has an Executive Long-Term Cash Award Performance Plan
("ELCAPP"), in which officers are measured and compensated on Company and/or
business unit performance targets. 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, ELCAPP is intended to
motivate and reward 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 considered include 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 officer bonuses
are reviewed and approved by the Committee in the first quarter of each fiscal
year. Under the 1997 and 1998 guidelines adopted by the Committee, officers
will be eligible to receive between 15% and 150% of their three-year average
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 extent to which goals
were achieved and the grade level of the officer. Because the ELCAPP was
established in 1996, no payouts have yet been made under the plan for the
1996-98 cycle.
Stock Option and Award Plan
The Committee has the power to grant both stock options and restricted stock
under the Company's 1996 Stock Option and Award 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 of each fiscal year.
Generally, the options vest in three years or more from date of grant and
executives must be employed by the Company at the time of vesting in order to
exercise the options. The Committee has discretion to grant discounted stock
options and it has done so when it felt it was necessary to attract and/or
retain key executives. 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. 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.
In order to determine the appropriate number of options to be granted to its
executive officers, in 1997 the Company relied on competitive practices for a
wide array of companies in a large number of industries. 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 1997 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.
In 1997, Mr. Drexler was granted options to purchase 180,000 shares at
market value at the date of grant. The shares become exercisable in two equal
installments three and four years from date of grant. This grant is consistent
with the Committee's philosophy that at-risk compensation should comprise a
significant part of an executive's overall compensation.
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. The
Company's compensation plans have been designed to permit the Committee to
grant awards (other than restricted stock and discounted stock options) which
qualify for deductibility under Section 162(m).
12
<PAGE>
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 shareholder return* on its Common Stock for the five-year period ended
January 31, 1998, with the cumulative total return of the S&P 500 Index and
the Dow Jones Retailers All Specialty Index.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
AMONG THE GAP,INC., S&P 500 INDEX AND DJ RETAILERS ALL SPECIALTY INDEX
PERFORMANCE GRAPH APPEARS HERE
<TABLE>
<CAPTION>
Measurement Period THE S&P DJ RETAILERS
(Fiscal Year Covered) GAP, INC. 500 INDEX ALL SPECIALTY INDEX
- ------------------- ---------- --------- -------------------
<S> <C> <C> <C>
Measurement Pt-01/29/93 $100 $100 $100
FYE 01/29/94 $125 $113 $ 95
FYE 01/28/95 $ 97 $113 $ 99
FYE 02/03/96 $143 $157 $105
FYE 02/01/97 $175 $198 $124
FYE 01/31/98 $359 $250 $189
</TABLE>
- -------
* Total return assumes quarterly reinvestment of dividends.
13
<PAGE>
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT ARRANGEMENTS
When John B. Wilson joined the Company in October 1996, the Company entered
into an arrangement with him providing for the grant of 30,450 shares of
restricted stock and options to purchase 555,000 shares (105,000 at a
discount). Mr. Wilson received the restricted stock and a portion of the
options to compensate him for the loss of certain unvested options to purchase
stock of his prior employer. Mr. Wilson agreed with the Company that if he
received any acceleration of those stock options ("Accelerated Stock"), then
his grant of restricted stock and stock options was to be reduced by his pre-
tax gain on the Accelerated Stock. For this purpose, Mr. Wilson's pre-tax gain
on the Accelerated Stock was to be calculated as of the market value on the
accelerated vesting date ("Vesting Date"). Fifty percent of the gain (up to a
maximum of $1.15 million) was to be used to reduce the value of his restricted
stock and option grant from the Company by first reducing the number of shares
of restricted stock (calculated at their market value on the Vesting Date) and
then reducing the number of discounted option shares, until the $1.15 million
maximum was recaptured by the Company. In 1997, the Company recaptured $1.15
million by canceling 23,755 shares of restricted stock in August and 6,695
shares of restricted stock and options to purchase 9,590 shares in September.
In addition, in the event that Mr. Wilson is involuntarily terminated for any
reason other than cause within the first 24 months of employment, the Company
will provide him with one year of severance pay at his then-effective base
rate, payments to cease as soon as new employment is effective.
OTHER REPORTABLE TRANSACTIONS
The Company has an agreement with Fisher Development, Inc. ("FDI"), a
company which is wholly owned by Robert S. Fisher, the brother of Donald G.
Fisher, the Chairman and a principal shareholder 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 1997 fiscal year, FDI supervised the construction of new store
leasehold improvements for 266 stores and certain headquarters facilities,
expansions of 97 stores, and remodels of existing stores and headquarters
facilities. The total cost of such construction was approximately $233.8
million, including profit and overhead costs of approximately $16.8 million
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 of the Company and President,
Gap Division 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 $983,066 during the 1997
fiscal year; Company contributions to his account under GapShare for fiscal
year 1997 amounted to $6,481.
Comparable transactions with the persons described above are expected to
continue during the current fiscal year, except that William S. Fisher is
expected to take an unpaid leave of absence from July 1, 1998 through the
remainder of 1998.
Pursuant to the Company's Relocation Loan Plan, on November 30, 1996, the
Company made a $550,000 loan to Mr. Wilson at the interest rate of 3% per
year, secured by a second mortgage on his home and by the stock granted to him
under the Company's 1996 Stock Option and Award Plan. The loan is payable in
full on November 25, 2001, or earlier upon termination of employment. Mr.
Wilson is also required to apply 50% of any after-tax (withholding) gain on
the sale of stock acquired upon exercise of stock options to decrease the
amount of this loan. The Company waived this requirement as it relates to the
exercise by Mr. Wilson on March 12, 1998 of an option to purchase 53,410
shares. Interest on the loan is payable via bi-weekly payroll deductions. The
amount outstanding on February 28, 1998 with respect to this loan was
$550,000.
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.
14
<PAGE>
PROPOSALS OF SHAREHOLDERS
Proposals of shareholders intended to be presented at the 1999 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 7,
1998. Proposals should be addressed to the Company's Secretary at One Harrison
Street, San Francisco, California 94105.
By Order of the Board of Directors,
/s/ ANNE B. GUST
Anne B. Gust
Secretary
15
<PAGE>
EXHIBIT A
AMENDMENT TO AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
THE GAP, INC.
Section 1 of Article FIFTH of the Company's Amended and Restated Certificate
of Incorporation shall be amended to read as follows:
FIFTH: Section 1. Classes and Number of Shares.
The total number of shares of all classes of stock which this corporation
shall have authority to issue is 1,590,000,000 shares. The classes and the
aggregate number of shares of stock of each class which this corporation shall
have authority to issue are as follows:
(i) 1,500,000,000 shares of Common Stock, $0.05 par value per share
(hereinafter the "Common Stock");
(ii) 60,000,000 shares of Class B Common Stock, $0.05 par value per share
(hereinafter the "Class B Stock"); and
(iii) 30,000,000 shares of Preferred Stock, $0.05 par value per share, with
such rights, privileges, restrictions and preferences as the Board of
Directors may authorize from time to time (hereinafter the "Preferred
Stock").
<PAGE>
THE GAP, INC.
Annual Meeting of Shareholders - April 28, 1998
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,
in accordance with the instructions set forth in this Proxy, all shares of
common stock of The Gap, Inc. which the undersigned is entitled to vote at the
Annual Meeting of Shareholders to be held on April 28, 1998, and any
postponements and adjournments thereof. The proxies are authorized in their
discretion to vote upon such other business as may properly come before the
meeting.
IMPORTANT - THIS PROXY MUST BE SIGNED AND DATED ON THE REVERSE SIDE.
THE SHARES COVERED BY THIS PROXY WILL BE VOTED IN ACCORDANCE WITH THE
SPECIFICATIONS MADE ON THE REVERSE SIDE. IF NO CHOICES ARE INDICATED, THE
SHARES COVERED BY THIS PROXY WILL BE VOTED FOR ALL NOMINEES LISTED ON THE
---
REVERSE SIDE, FOR PROPOSAL 2, FOR PROPOSAL 3, 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 WITHHOLD FOR ALL
Adrian D. P. Bellamy, John G. Bowes, ALL ALL (EXCEPT NOMINEES
Millard S. Drexler, Donald G. Fisher, WRITTEN BELOW)
Doris F. Fisher, Robert J. Fisher, [_] [_] [_]
John M. Lillie, Charles R. Schwab,
Brooks Walker, Jr., Sergio S. Zyman
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2. Proposal to amend Amended and Restated FOR AGAINST ABSTAIN
Certificate of Incorporation to increase [_] [_] [_]
the number of authorized shares of Common
Stock of The Gap, Inc. from 500,000,000 to
1,500,000,000.
3. Ratify the appointment of Deloitte & FOR AGAINST ABSTAIN
Touche LLP as independent auditors. [_] [_] [_]
Date:
-------------------------------------, 1998
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(Signature)
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(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. If a corporation, please sign in full corporate
name by President or other authorized officer. If a partnership, please sign in
partnership name by authorized person.
