SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended October 31, 1998 or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from __________ to __________
Commission File Number 1-7562
THE GAP, INC.
(Exact name of registrant as specified in its charter)
Delaware 94-1697231
(State of Incorporation) (I.R.S. Employer
Identification No.)
One Harrison
San Francisco, California 94105
(Address of principal executive offices)
Registrant's telephone number, including area code: (415) 952-4400
_______________________
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, $0.05 par value New York Stock Exchange, Inc.
(Title of class) Pacific Exchange, Inc.
(Name of each exchange where registered)
Securities registered pursuant to Section 12(g) of the Act: None
_______________________
Indicate by check mark whether Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
Common Stock, as of the latest practicable date.
Common Stock, $0.05 par value, 380,597,122 shares as of November 27, 1998
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<CAPTION>
GAP INC.
PART 1 CONDENSED CONSOLIDATED BALANCE SHEETS
<S> <C> <C> <C> <C>
(unaudited)
($000 and shares in thousands, except October 31, January 31, November 1,
par value) 1998 1998 1997
ASSETS
Current Assets:
Cash and equivalents $ 271,518 $ 913,169 $ 627,760
Merchandise inventory 1,374,916 733,174 980,531
Prepaid expenses and other current assets 195,013 184,604 154,670
Total Current Assets 1,841,447 1,830,947 1,762,961
Property and equipment, net 1,748,840 1,365,246 1,319,462
Lease rights and other assets 164,474 141,309 142,653
Total Assets $ 3,754,761 $ 3,337,502 $ 3,225,076
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Short-term notes payable $ 526,428 $ 84,794 $ 115,245
Accounts payable 536,408 416,976 433,313
Accrued expenses 570,363 389,412 349,999
Income taxes payable 42,008 83,597 93,395
Deferred lease credits and other 12,351 16,769 15,170
current liabilities
Total Current Liabilities 1,687,558 991,548 1,007,122
Long-term Liabilities:
Long-term debt 496,352 496,044 495,941
Deferred lease credits and other 314,855 265,924 249,151
liabilities
Total Long-Term Liabilities 811,207 761,968 745,092
Shareholders' Equity:
Common stock $.05 par value
Authorized 1,500,000 shares
Issued 663,488; 659,884;
and 717,213 shares
Outstanding 570,049; 589,700;
and 592,744 shares 33,174 32,994 35,861
Additional paid-in capital 418,971 306,676 475,140
Retained earnings 2,845,441 2,392,750 2,196,647
Foreign currency translation adjustment (11,298) (15,230) (7,790)
Deferred compensation (35,874) (38,167) (43,908)
Treasury stock, at cost (1,994,418) (1,095,037) (1,183,088)
Total Shareholders' Equity 1,255,996 1,583,986 1,472,862
Total Liabilities and Shareholders' $ 3,754,761 $ 3,337,502 $ 3,225,076
Equity
See accompanying notes to condensed consolidated financial statements.
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<CAPTION>
GAP INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
Unaudited Thirteen Weeks Ended Thirty-nine Weeks Ended
($000 except per share amounts)
October 31, November 1, October 31, November 1,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Net sales $ 2,399,948 $ 1,765,939 $ 6,024,630 $ 4,342,346
Costs and expenses
Cost of goods sold and 1,376,005 1,044,673 3,542,174 2,716,885
occupancy expenses
Operating expenses 636,745 453,977 1,659,017 1,118,350
Net interest (income)/expense 6,800 4,052 6,337 (2,145)
Earnings before income taxes 380,398 263,237 817,102 509,256
Income taxes 142,649 98,714 306,413 190,971
Net earnings $ 237,749 $ 164,523 $ 510,689 $ 318,285
Weighted average number of 571,318,832 591,855,020 579,080,645 597,898,512
shares - basic
Weighted average number of 597,431,414 613,436,672 605,073,243 617,202,378
shares - diluted
Earnings per share - basic $ 0.42 $ 0.28 $ 0.88 $ 0.53
Earnings per share - diluted $ 0.40 $ 0.27 $ 0.84 $ 0.52
Cash dividends per share $ 0.03 $ 0.03 $ 0.10 $ 0.10
See accompanying notes to condensed consolidated financial statements.
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<CAPTION>
GAP INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited ($000) Thirty-nine Weeks Ended
October 31, 1998 November 1, 1997
<S> <C> <C>
Cash Flows from Operating Activities:
Net earnings $510,689 $318,285
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization (a) 236,413 194,571
Tax benefit from exercise of stock options by
employees and from vesting of restricted stock 67,018 16,047
Change in operating assets and liabilities:
Merchandise inventory (641,672) (401,827)
Prepaid expenses and other (13,636) (32,789)
Accounts payable 120,690 81,647
Accrued expenses 179,922 67,138
Income taxes payable (41,742) 1,598
Deferred lease credits and other
long-term liabilities 37,404 52,462
Net cash provided by operating activities 455,086 297,132
Cash Flows from Investing Activities:
Net proceeds from maturity of short-term inve - 174,709
Net purchase of long-term investments - (2,939)
Net purchase of property and equipment (591,056) (352,745)
Acquisition of lease rights and other assets (20,474) (13,223)
Net cash used for investing activities (611,530) (194,198)
Cash Flows from Financing Activities:
Net increase in notes payable 438,393 73,031
Issuance of long-term debt - 495,890
Issuance of common stock 32,462 23,838
Purchase of treasury stock net of reissuances (899,382) (494,287)
Cash dividends paid (57,998) (59,990)
Net cash used for financing activities (486,525) 38,482
Effect of exchange rate changes on cash 1,318 700
Net decrease in cash and equivalents (641,651) 142,116
Cash and equivalents at beginning of year 913,169 485,644
Cash and equivalents at end of quarter $271,518 $627,760
See accompanying notes to condensed consolidated financial statements.
(a) Includes amortization of restricted stock, discounted stock options
and discount on long-term debt.
GAP INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
The condensed consolidated balance sheets as of October 31, 1998 and
November 1, 1997 and the interim condensed consolidated statements of
earnings for the thirteen and thirty-nine weeks ended October 31, 1998
and November 1, 1997 and cash flows for the thirty-nine week periods
ended October 31, 1998 and November 1, 1997 have been prepared by the
Company, without audit. In the opinion of management, such statements
include all adjustments (which include only normal recurring adjustments)
considered necessary to present fairly the financial position, results of
operations and cash flows of the Company at October 31, 1998 and November
1, 1997, and for all periods presented.
Certain information and footnote disclosures normally included in the
annual financial statements prepared in accordance with generally
accepted accounting principles have been omitted from these interim
financial statements. It is suggested that these condensed consolidated
financial statements be read in conjunction with the consolidated
financial statements and notes thereto included in the Company's Annual
Report on Form 10-K for the year ended January 31, 1998.
The condensed consolidated balance sheet as of January 31, 1998 was
derived from the Company's January 31, 1998 balance sheet included in the
1997 Annual Report.
The results of operations for the thirty-nine weeks ended October 31,
1998 are not necessarily indicative of the operating results that may be
expected for the year ending January 30, 1999.
2. THREE-FOR-TWO STOCK SPLIT
On October 28, 1998, the Company's Board of Directors authorized a three-
for-two split of its common stock effective November 30, 1998, in the
form of a stock dividend for shareholders of record at the close of
business on November 11, 1998. All share and per share amounts in the
accompanying consolidated financial statements for all periods have been
restated to reflect the stock split.
3. COMPREHENSIVE EARNINGS
During the first quarter of fiscal 1998, the Company adopted Statement of
Financial Accounting Standards No. 130, Reporting Comprehensive Income.
This Statement requires that all components of comprehensive earnings be
reported in the financial statements. For the Company, other
comprehensive earnings includes only foreign currency translation
adjustments. Total comprehensive earnings for the thirteen and thirty-
nine weeks ended October 31, 1998 and November 1, 1997 were as follows
(in thousands):
Thirteen Thirteen Thirty-nine Thirty-nine
Weeks Ended Weeks Ended Weeks Ended Weeks Ended
October 31, November 1, October 31, November 1,
1998 1997 1998 1997
Net earnings $237,749 $164,523 $510,689 $318,285
Foreign currency
translation adjustments 5,682 (1,300) 3,932 (2,603)
Total comprehensive
earnings $243,431 $163,223 $514,621 $315,682
4. FINANCIAL INSTRUMENTS
The Company enters into foreign exchange contracts to reduce exposure to
foreign currency exchange risk. These contracts are primarily designated
and effective as hedges of commitments to purchase merchandise. The
market value gains and losses on these contracts are deferred and
recognized as part of the underlying cost to purchase the merchandise.
At the end of the third quarter, the Company held various put option
contracts to repurchase up to 1,650,000 shares of Gap stock. The
contracts have an exercise price of $40.00, with expiration dates
extending through January 1999.
5. EARNINGS PER SHARE
Under SFAS No. 128, the Company provides dual presentation of EPS on a
basic and diluted basis. The Company's granting of certain stock options
and restricted stock resulted in potential dilution of basic EPS. The
following summarizes the effects of the assumed issuance of dilutive
securities on weighted-average shares for basic EPS.
Thirteen Thirteen Thirty-nine Thirty-nine
Weeks Ended Weeks Ended Weeks Ended Weeks Ended
October 31, November 1, October 31, November 1,
1998 1997 1998 1997
Weighted-average number of
shares - basic 571,318,832 591,855,020 579,080,645 597,898,512
Incremental shares from
assumed issuance of:
Stock options 23,042,775 16,023,132 22,246,213 13,165,906
Restricted stock 3,069,807 5,558,520 3,746,385 6,137,960
Weighted-average number
of shares - diluted 597,431,414 613,436,672 605,073,243 617,202,378
The number of incremental shares from the assumed issuance of stock
options and restricted stock is calculated applying the treasury stock
method.
Excluded from the above computation of weighted-average shares for
diluted EPS were options to purchase 1,992,332 and 2,234,084 shares of
common stock during the thirteen and thirty-nine weeks ended October 31,
1998 respectively, and 41,378 and 297,846 shares during the thirteen and
thirty-nine weeks ended November 1, 1997, respectively. Issuance of
these securities would have resulted in an antidilutive effect on EPS.
6. NEW ACCOUNTING PRONOUNCEMENT
In June 1998 the Financial Accounting Standards Board issued Statements
of Financial Accounting Standard (SFAS) No. 133, Accounting for
Derivative Instruments and Hedging Activities, which requires that all
derivative instruments be recorded on the balance sheet at fair value,
and that changes in the fair value of the derivative instruments be
recorded in net earnings or comprehensive earnings. SFAS 133 must be
adopted for fiscal years beginning after June 15, 1999, with earlier
adoption permitted. Management has determined that adoption of SFAS 133
will not have a material impact on the Company's consolidated financial
statements.
Deloitte &
Touche LLP
50 Fremont Street Telephone: (415) 247-4000
San Francisco, California 94105-2230 Facsimile: (415) 247-4329
INDEPENDENT ACCOUNTANTS' REPORT
To the Board of Directors and Stockholders of
The Gap, Inc.:
We have reviewed the accompanying condensed consolidated balance sheets of The
Gap, Inc. and subsidiaries as of October 31, 1998 and November 1, 1997 and the
related condensed consolidated statements of earnings for the thirteen and
thirty-nine week periods ended October 31, 1998 and November 1, 1997 and
condensed consolidated statements of cash flows for the thirty-nine week
periods ended October 31, 1998 and November 1, 1997. These financial
statements are the responsibility of the Company's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures
to financial data and of making inquiries of persons responsible for financial
and accounting matters. It is substantially less in scope than an audit
conducted in accordance with generally accepted auditing standards, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that
should be made to such consolidated financial statements for them to be in
conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of The Gap, Inc. and subsidiaries as
of January 31, 1998, and the related consolidated statements of earnings,
stockholders' equity and cash flows for the year then ended (not presented
herein); and in our report dated February 27, 1998, we expressed an
unqualified opinion on those consolidated financial statements. In our
opinion, the information set forth in the accompanying consolidated balance
sheet as of January 31, 1998 is fairly stated, in all material respects, in
relation to the consolidated balance sheet from which it was derived.
/s/ Deloitte & Touche LLP
November 10, 1998
Deloitte Touche
Tohmatsu
International
GAP INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
The information below contains certain forward-looking statements which reflect
the current view of Gap Inc. (the "Company") with respect to future events and
financial performance. Wherever used, the words "expect," "plan,"
"anticipate," "believe," and similar expressions identify forward-looking
statements.
Any such forward-looking statements are subject to risks and uncertainties that
could cause the Company's actual results of operations to differ materially
from historical results or current expectations. Some of these risks include,
without limitation, ongoing competitive pressures in the apparel industry,
risks associated with challenging international retail environments, changes
in the level of consumer spending or preferences in apparel, trade restrictions
and political or financial instability in countries where the Company's goods
are manufactured and/or disruption to operations from Year 2000 issues, and
other factors that may be described in the Company's Annual Report on Form 10-K
and/or other filings with the Securities and Exchange Commission. Future
economic and industry trends that could potentially impact revenues and
profitability remain difficult to predict.
It is suggested that this document be read in conjunction with the Management's
Discussion and Analysis included in the Company's 1997 Annual Report on Form
10-K.
The Company does not undertake to publicly update or revise its forward-looking
statements even if experience or future changes make it clear that any
projected results expressed or implied therein will not be realized.
RESULTS OF OPERATIONS
Net Sales
Thirteen Weeks Ended Thirty-nine Weeks Ended
October 31, November 1, October 31, November 1,
1998 1997 1998 1997
Net sales ($000) 2,399,948 1,765,939 6,024,630 4,342,346
Total net sales
growth percentage 36 28 39 20
Comparable store sales growth
percentage 13 9 16 4
Net sales per average square
foot ($) 138 123 366 319
Square footage of gross store
space at period end (000) 17,858 14,679
Fifty-two Fifty-two
Weeks Ended Weeks Ended
October 31, November 1,
1998 1997
Number of
New stores 285 281
Expanded stores 134 76
Closed stores 18 27
The increases in net sales for the third quarter and year-to-date 1998 over the
same periods last year were attributable to the increase in retail selling
space, both through the opening of new stores (net of stores closed) and the
expansion of existing stores, as well as to the increase in comparable store
sales.
The increases in net sales per average square foot were primarily attributable
to the increases in comparable store sales.
Cost of Goods Sold and Occupancy Expenses
Cost of goods sold and occupancy expenses as a percentage of net sales
decreased 1.9 and 3.8 percentage points in the third quarter and year-to-date
1998, respectively, from the same periods in 1997. The decreases were driven
by increased merchandise margins and decreased occupancy expenses as a
percentage of sales. The increase in merchandise margin for the quarter was
driven by higher initial merchandise markup and higher margins achieved on
marked-down goods.
For the year-to-date period, the increase in merchandise margin as a percentage
of net sales was due to a greater percentage of merchandise sold at regular
price and higher margins from marked-down goods.
For both the third quarter and year-to-date 1998, the decreases in occupancy
expenses as a percentage of net sales were primarily driven by leverage
achieved through the growth in comparable store sales and total sales growth.
As a general business practice, the Company reviews its inventory levels in
order to identify slow-moving merchandise and broken assortments (items no
longer in stock in a sufficient range of sizes) and uses markdowns to clear
merchandise. Such markdowns may have an adverse impact on earnings depending
upon the extent of the markdowns and amount of inventory affected.
Operating Expenses
Operating expenses as a percentage of net sales increased .8 and 1.8 percentage
points for the third quarter and year-to-date 1998, respectively, from the
comparable periods in 1997. The increases were driven by significantly higher
advertising/marketing costs as part of the Company's continued brand
development efforts. These were partially offset by decreased write-offs of
leasehold improvements and fixtures of certain stores, and leverage from
comparable store sales growth and total sales growth. A decrease in bonus as a
percentage of sales also positively affected the operating expense rate in the
quarter.
Net Interest Income/Expense
Net interest expense increased in the third quarter and year-to-date period
from the same periods last year, primarily due to an increase in average
borrowings.
Income Taxes
The effective tax rate was 37.5 percent for year-to-date 1998 and 1997.
LIQUIDITY AND CAPITAL RESOURCES
The following sets forth certain measures of the Company's liquidity:
Thirty-nine Weeks Ended
October 31, 1998 November 1, 1997
Cash provided by operating
activities ($000) 455,086 297,132
Working capital ($000) 153,889 755,839
Current ratio 1.09:1 1.75:1
For the thirty-nine weeks ended October 31, 1998, the increase in cash flows
provided by operating activities was primarily attributable to the increase in
net earnings and timing of certain payables, partially offset by purchases of
merchandise inventory.
The decreases in working capital and current ratio are primarily due to a
decrease in cash and increase in short-term borrowings. The Company issued
approximately $500 million in short-term commercial paper during the third
quarter to partially finance its increased capital expenditures and repurchases
of its common stock.
The Company funds inventory expenditures during normal and peak periods through
a combination of cash flows provided by operations and normal trade credit
arrangements. The Company's business follows a seasonal pattern, peaking over
a total of about ten to twelve weeks during the Back-to-School and Holiday
periods.
The Company has committed credit facilities totaling $950 million, consisting
of an $800 million, 364-day revolving credit facility, and a $150 million, 5-
year revolving credit facility through June 30, 2002. These credit facilities
provide for the issuance of up to $450 million in letters of credit. The
Company has additional uncommitted credit facilities of $450 million for the
issuance of letters of credit. At October 31, 1998, the Company had
outstanding letters of credit of approximately $575 million.
For the thirty-nine weeks ended October 31, 1998, capital expenditures, net of
construction allowances and dispositions, totaled approximately $599 million.
These expenditures resulted in a net increase in store space of approximately
2.5 million square feet due to the addition of 224 new stores, the expansion of
103 stores, and the remodeling of certain stores.
For 1998, the Company expects capital expenditures to exceed $750 million, net
of construction allowances. This represents the addition of 300 to 350 new
stores, the expansion of approximately 100 stores, the remodeling of certain
stores, as well as amounts for headquarters facilities, distribution centers,
equipment, and a catalog facility. The Company expects to fund these capital
expenditures with cash flows from operations and other sources of financing.
New stores are generally expected to be leased.
To further support its growth, the Company acquired land in 1998 in San Bruno
and San Francisco on which to construct additional headquarter facilities.
Construction commenced during the third quarter on the San Francisco property.
During 1997 the Company commenced construction on a distribution center for an
estimated cost at completion of $60 million. The majority of the expenditures
for this facility will be incurred this fiscal year and is thus included in the
projected capital expenditures above. The facility is expected to begin
operations in early 1999.
In October 1998, the Board of Directors approved a program under which the
Company may purchase up to 45 million shares of its common stock. This program
follows an earlier 67.5 million share repurchase program, under which the
Company acquired 23.8 million shares for approximately $910 million during
1998. To date under the earlier program 66.1 million shares have been
repurchased for approximately $1.7 billion. These amounts exclude
approximately 1.65 million shares subject for repurchase under outstanding put
option contracts. All share amounts reflect the three-for-two stock split
effective November 30, 1998 described in the Notes to Condensed Consolidated
Financial Statements (Note 2).
During 1998, the Company entered into various put option contracts in
connection with the share repurchase program to hedge against stock price
fluctuations. The Company also continued to enter into foreign exchange
forward contracts to reduce exposure to foreign currency exchange risk involved
in its commitments to purchase merchandise for foreign operations. Additional
information on these contracts and agreements is presented in the Notes to
Condensed Consolidated Financial Statements (Note 4).
YEAR 2000 ISSUE
The Year 2000 issue is primarily the result of computer programs using a two-
digit format, as opposed to four digits, to indicate the year. Such computer
systems will be unable to interpret dates beyond the year 1999, which could
cause a system failure or other computer errors, leading to a disruption in the
operation of such systems. In 1996, the Company established a project team to
coordinate existing Year 2000 activities and address remaining Year 2000
issues. The team has focused its efforts on three areas: (1) information
systems software and hardware; (2) facilities and distribution equipment; and
(3) third-party relationships.
The Program. The Company has adopted a five-phase Year 2000 program consisting
of: Phase I - identification and ranking of the components of the Company's
systems, equipment and suppliers that may be vulnerable to Year 2000 problems;
Phase II - assessment of items identified in Phase I; Phase III - remediation or
replacement of non-compliant systems and components and determination of
solutions for non-compliant suppliers; Phase IV - testing of systems and
components following remediation; and Phase V - developing contingency plans to
address the most reasonably likely worst case Year 2000 scenarios. The Company
has completed Phases I and II and continues to make progress according to plan
on Phases III, IV and V.
Information Systems Software and Hardware. The Company has completed Phase II
and has made substantial progress in Phase III. Phase IV testing is being
conducted concurrently with Phase III activities. The Company is on track to
complete remediation, testing and implementation of its individual information
systems by mid-1999.
Facilities and Distribution Equipment. The Company has completed Phase II and
is actively working on Phase III.
Third-Party Relationships. The Company has completed Phase II and is actively
working on Phase III.
Risks / Contingency Plans. Based on the assessment efforts to date, the
Company does not believe that the Year 2000 issue will have a material adverse
effect on its financial condition or results of operations. The Company
operates a large number of geographically dispersed stores and has a large
supplier base and believes that this will mitigate any adverse impact. The
Company's beliefs and expectations, however, are based on certain assumptions
and expectations that ultimately may prove to be inaccurate. The Company
believes that by the end of 1998, it will be able to fully determine its most
reasonably likely worst case scenarios. Potential sources of risk include (a)
the inability of principal suppliers to be Year 2000 ready, which could result
in delays in product deliveries from such suppliers, and (b) disruption of the
distribution channel, including ports, transportation vendors, and the
Company's own distribution centers as a result of a general failure of systems
and necessary infrastructure such as electricity supply. Phase V contingency
plan development is in process.
The Company does not expect the costs associated with its Year 2000 efforts to
be substantial. Approximately $30 million has been allocated to address the
Year 2000 issue, of which $10 million has been incurred through October 31,
1998. The Company's aggregate cost estimate does not include time and costs
that may be incurred by the Company as a result of the failure of any third
parties, including suppliers, to become Year 2000 ready or costs to implement
any contingency plans.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The market risk of the Company's financial instruments as of October
31, 1998 has not significantly changed since January 31, 1998. The market
risk profile on January 31, 1998 is disclosed in the Company's 1997 Annual
Report. The net change in unrealized losses since January 31, 1998 for the
Company's foreign exchange forward contracts and long-term debt was $13
million.
PART II
OTHER INFORMATION
Item 5. Other Information
On October 28, 1998, the Company's Board of Directors authorized a three-
for-two split of its common stock effective November 30, 1998. The
following selected financial data has been restated to reflect the stock
split.
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<S> <C> <C> <C> <C> <C>
1997 1996 1995 1994 1993
Fiscal Year 52 Weeks 52 Weeks 53 Weeks 52 Weeks 52 Weeks
Earnings Per Share - basic $0.90 $0.72 $0.57 $0.51 $0.41
Earnings Per Share - diluted $0.87 $0.71 $0.55 $0.49 $0.40
Weighted-Average Shares - basic 594,269,963 625,719,947 626,577,596 632,466,639 626,858,004
Weighted-Average Shares - diluted 615,301,137 640,900,830 641,628,773 647,429,741 643,406,853
Number of shares outstanding 589,699,542 617,663,996 647,432,964 651,441,371 653,619,276
net of treasury shares
Thirteen Thirteen Thirteen
Weeks Ended Weeks Ended Weeks Ended
Fiscal 1998 Quarter Ended May 2, 1998 August 1, 1998 October 31, 1998
Earnings Per Share - basic $0.23 $0.23 $0.42
Earnings Per Share - diluted $0.22 $0.22 $0.40
Weighted-Average Shares - basic 582,976,320 582,949,343 571,318,832
Weighted-Average Shares - diluted 607,500,656 609,708,908 597,431,414
Number of shares outstanding 589,081,187 582,405,242 570,048,782
net of treasury shares
Thirteen Thirteen Thirteen Thirteen
Weeks Ended Weeks Ended Weeks Ended Weeks Ended
Fiscal 1997 Quarter Ended May 3, 1997 August 2, 1997 November 1, 1997 January 1, 1998
Earnings Per Share - basic $0.14 $0.12 $0.28 $0.37
Earnings Per Share - diluted $0.14 $0.11 $0.27 $0.36
Weighted-Average Shares - basic 604,205,309 597,621,705 591,855,020 583,357,655
Weighted-Average Shares - diluted 619,974,720 615,138,011 613,436,672 606,532,092
Number of shares outstanding 610,628,429 603,102,425 592,743,868 589,699,542
net of treasury shares
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Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
(10.1) Amendment Number 3 to the Registrant's 1996 Stock Option and
Award Plan
(10.2) Amendment Number 1 to the Registrant's Non-employee Director
Deferred Compensation Plan
(10.3) The Gap, Inc. Executive Deferred Compensation Plan
(10.4) Form of Nonqualified Stock Option Agreement for consultants
under Registrant's 1996 Stock Option and Award Plan
(10.5) Form of Nonqualified Stock Option Agreement for employees in
France under Registrant's 1996 Stock Option and Award Plan
(10.6) Form of Nonqualified Stock Option Agreement for
international employees under Registrant's 1996 Stock Option
and Award Plan
(10.7) Form of Nonqualified Stock Option Agreement for employees in
Japan under Registrant's 1996 Stock Option and Award Plan
(10.8) Form of stock option agreement for employees under the UK
Sub-plan to the U.S. Stock Option and Award Plan
(15) Letter re: Unaudited Interim Financial Information
(27) Financial Data Schedule
b) The Company did not file any reports on Form 8-K during the three
months ended October 31, 1998.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE GAP, INC.
Date: December 7, 1998 By /s/ Warren R. Hashagen
Warren R. Hashagen
Chief Financial Officer
(Principal financial officer
of the registrant)
Date: December 7, 1998 By /s/ Millard S. Drexler
Millard S. Drexler
President and Chief
Executive Officer
EXHIBIT INDEX
(10.1) Amendment Number 3 to the Registrant's 1996 Stock Option
and Award Plan
(10.2) Amendment Number 1 to the Registrant's Non-employee Director
Deferred Compensation Plan
(10.3) The Gap, Inc. Executive Deferred Compensation Plan
(10.4) Form of Nonqualified Stock Option Agreement for consultants
under Registrant's 1996 Stock Option and Award Plan.
(10.5) Form of Nonqualified Stock Option Agreement for employees in
France under Registrant's 1996 Stock Option and Award Plan.
(10.6) Form of Nonqualified Stock Option Agreement for
international employees under Registrant's 1996 Stock Option
and Award Plan.
(10.7) Form of Nonqualified Stock Option Agreement for
employees in Japan under Registrant's 1996 Stock Option and
Award Plan.
(10.8) Form of stock option agreement for employees under the
UK Sub-plan to the U.S. Stock Option and Award Plan
(15) Letter re: Unaudited Interim Financial
Information
(27) Financial Data Schedule
AMENDMENT NO. 3 TO
THE GAP, INC.
1996 STOCK OPTION AND AWARD PLAN
The Gap, Inc., having adopted The Gap, Inc. 1996 Stock Option and Award
Plan (the "Plan") effective as of March 26, 1996, and amended effective as
of May 20, 1997, and amended effective as of January 27, 1998, hereby further
amends the Plan, effective as of October 28, 1998, as follows:
1. The second sentence of Section 4.3 is hereby amended in its
entirety to read as follows:
In the case of Options granted to Non-employee Directors
pursuant to Section 9, the foregoing adjustments shall be made
by the Board, and beginning October 28, 1998 any such
adjustments by stock dividend or split-up shall not apply to
the future grants provided by Section 9.
2. The following sentence is hereby added to the end of Section
9.1.1:
The number of Shares covered by each Option to be granted in
the future to Non-employee Directors under this Section 9.1.1
shall be fixed as set forth herein (i.e., 15,000 and 3,750 on a
split-adjusted basis), and beginning October 28, 1998 any
adjustments by stock dividend or split-up shall not apply to
these future grants.
3. The following sentence is hereby added to the end of Section
9.1.2:
The number of Shares covered by each Option to be granted in
the future to Non-employee Directors under this Section 9.1.2
shall be fixed as set forth herein (i.e., 3,750 on a split-
adjusted basis), and beginning October 28, 1998 any adjustments
by stock dividend or split-up shall not apply to these future
grants.
IN WITNESS WHEREOF, The Gap, Inc., by its duly authorized officer, has
executed this Amendment No. 3 as of the date indicated below.
THE GAP, INC.
Date: October 28, 1998 By /s/ Anne B. Gust
Name: Anne B. Gust
Title: Executive Vice President
AMENDMENT NO. 1 TO
THE GAP, INC.
NON-EMPLOYEE DIRECTOR DEFERRED
COMPENSATION PLAN
The Gap, Inc., having adopted The Gap, Inc. Non-employee Director
Deferred Compensation Plan (the "Plan") effective as of August 26, 1997,
hereby amends the Plan, effective as of October 28, 1998, as follows:
1. The following sentence shall be added between the first and
second sentences of Section 4.3:
Beginning October 28, 1998 any such adjustments by stock
dividend or split-up shall not apply to the future grants
provided by Section 5.
2. The following sentence is hereby added to the end of Section
5.3.1:
The number of Shares covered by each Option to be granted in
the future to Non-employee Directors under this Section 5.3.1
shall be fixed as set forth herein (i.e., 937 on a split-
adjusted basis), and beginning October 28, 1998 any adjustments
by stock dividend or split-up shall not apply to these future
grants.
IN WITNESS WHEREOF, The Gap, Inc., by its duly authorized officer, has
executed this Amendment No. 1 as of the date indicated below.
THE GAP, INC.
Date: October 28, 1998 By/s/ Anne B. Gust
Name: Anne B. Gust
Title: Executive Vice President
THE GAP, INC.
EXECUTIVE DEFERRED COMPENSATION PLAN
(January 1, 1999 Restatement)
The Gap, Inc. (the "Company"), having established The Gap, Inc.
Executive Deferred Compensation Plan, effective January 1, 1994, and The Gap,
Inc. Executive Capital Accumulation Plan, effective April 1, 1994, for the
benefit of a select group of management employees of the Company and its
participating Affiliates, in order to provide such employees with certain
deferred compensation benefits, hereby amends and restates the Plans into one
Plan effective as of January 1, 1999. The Plan is an unfunded deferred
compensation plan that is intended to qualify for the exemptions provided in
sections 201, 301, and 401 of ERISA.
SECTION 1
DEFINITIONS
The following words and phrases shall have the following meanings
unless a different meaning is plainly required by the context:
1.1 "Affiliate" shall mean a corporation, trade or business
which is, together with the Company, a member of a controlled group of
corporations or an affiliated service group or under common control (within
the meaning of section 414(b), (c), or (m) of the Code).
1.2 "Beneficiary" shall mean the person or persons entitled to
receive the balance credited to a Participant's Account under the Plan upon
the death of the Participant, as provided in Section 5.5.
1.3 "Board" shall mean the Board of Directors of the Company, as
from time to time constituted.
1.4 "Bonus" shall mean an award of cash payable to an Employee
in April of any fiscal year other than an ELCAPP Bonus.
1.5 "Code" shall mean 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 future legislation amending, supplementing or superseding
such section.
1.6 "Committee" shall mean the Global Benefits Committee of the
Company's Board.
1.7 "Company" shall mean The Gap, Inc.
1.8 "Company Contributions" shall mean the amounts credited to
Participants' Accounts under the Plan by the Company, in accordance with
Section 3.3.
1.9 "Deferral Contributions" shall mean the amounts credited to
Participants' Accounts under the Plan pursuant to their deferral elections
made in accordance with Section 2.2. A Participant's Deferral Contributions
shall include his or her Bonus and ELCAPP Bonus Deferral Contributions and
Salary Deferral Contributions, as described in Section 3.1.
1.10 "ELCAPP Bonus" shall mean an award of cash payable to an
Employee pursuant to the Executive Long-Term Cash Award Performance Plan
("ELCAPP").
1.11 "Eligible Employee" shall mean an Employee of an Employer
who is employed at the level of "director" or higher and who has a Salary
greater than 150% of the Social Security taxable wage base. Eligible Employee
shall not include any Employee who is employed in a foreign country, unless he
or she has been temporarily transferred to employment with an Employer in a
foreign country and is a citizen or resident alien of the United States at the
time of the transfer. An Employee's eligibility for any Plan Year shall be
determined as of November 1 of the preceding Plan Year, based on the
Employee's position and salary and on the taxable wage base in effect on that
date; provided, however, that in the case of an Employee who first satisfies
the conditions for being an Eligible Employee on or before June 1 of any Plan
Year, eligibility shall be determined as of that June 1. If a Participant
ceases to be an Eligible Employee, no further Deferral Contributions shall be
made to the Plan on his or her behalf unless he or she is again determined to
be an Eligible Employee, but the balance credited to his or her Account shall
continue to be credited with earnings under the terms of the Plan, and shall
be distributed to him or her at the time and in the manner set forth in
Section 5.
1.12 "Employee" shall mean an individual who is employed by one
of the Employers as a common-law employee.
1.13 "Employer" shall mean the Company and each participating
Affiliates. At such times and under such conditions as the Board may direct,
one or more other Affiliates may become participating Affiliates or a
participating Affiliate may be withdrawn from the Plan.
1.14 "ERISA" shall mean the Employee Retirement Income Security
Act of 1974, as amended. Reference to a specific section of ERISA shall
include such section, any valid regulation promulgated thereunder, and any
comparable provision of any future legislation amending, supplementing or
superseding such section.
1.15 "Participant" shall mean an Eligible Employee who has
become a Participant in the Plan pursuant to Section 2.1 and has not ceased to
be a Participant pursuant to Section 2.4.
1.16 "Participant's Account" or "Account" shall mean as to any
Participant the separate account maintained on the books of the Company in
order to reflect his or her interest under the Plan.
1.16.1 "Bonus Deferral Account" shall be the subaccount
maintained to record the Bonus and ELCAPP Bonus Deferral Contributions made by
the Participant, and the earnings relating thereto. To the extent necessary
to reflect a Participant's distribution elections, a separate Bonus Deferral
Account may be maintained with respect to amounts credited to the
Participant's Bonus Deferral Account for any Plan Year.
1.16.2 "Salary Deferral Account" shall be the subaccount
maintained to record the Salary Deferral Contributions made by the
Participant, and the earnings relating thereto. To the extent necessary to
reflect a Participant's distribution elections, a separate Salary Deferral
Account may be maintained with respect to the amounts credited to the
Participant's Salary Deferral Account for any Plan Year.
1.16.3 "Company Contribution Deferral Account" shall be
the subaccount maintained to record any Company Contributions made by the
Company, and the earnings related thereto. To the extent necessary to reflect
a Participant's distribution elections, a separate Company Contribution
Deferral Account may be maintained with respect to amounts credited to the
Participant's Company Contribution Deferral Account for any Plan Year.
1.17 "Plan" shall mean The Gap, Inc. Executive Deferred
Compensation Plan, as set forth in this instrument and as hereafter amended
from time to time.
1.18 "Plan Year" shall mean the calendar year.
1.19 "Retirement" shall mean a Participant's termination of
employment with all Employers and all Affiliates at or after age 50.
1.20 "Salary" shall mean a Participant's basic yearly salary,
excluding bonuses and taxable and nontaxable fringe benefits; provided,
however, that Salary shall include Salary Deferral Contributions and all
amounts contributed by an Employer pursuant to a salary reduction agreement
which are not includable in the Employee's gross income under sections 125,
402(a)(8), or 402(b) of the Code.
1.21 "Termination Date" shall mean a Participant's termination
of employment with all Employers and Affiliates.
SECTION 2
PARTICIPATION
2.1 Participation. Each Eligible Employee's decision to become a
Participant shall be entirely voluntary.
2.2 Elections. An Eligible Employee may elect to become a
Participant (or to reinstate active participation) in this Plan by electing to
make Deferral Contributions under the Plan.
2.2.1 Salary Deferral Elections. An Eligible Employee may
elect to make Salary Deferral Contributions for any Plan Year no later than
December 31 of the preceding Plan Year. An election under this Section 2.2.1
to make Salary Deferral Contributions shall be effective for each succeeding
Plan Year, until changed by the Eligible Employee in accordance with such
procedures as the Committee (in its discretion) may specify from time to time.
2.2.2 Bonus and ELCAPP Bonus Deferral Elections. An
Eligible Employee may elect to make a Bonus Deferral Contribution with respect
to his or her Bonus (payable on April 1 of any Plan Year) no later than
June 30 of the preceding Plan Year.
In addition, an Eligible Employee may elect to make an ELCAPP
Bonus Deferral Contribution with respect to his or her ELCAPP Bonus (payable
as of April 1, immediately following the end of the Performance Cycle as
defined in ELCAPP) no later than June 30 of the second year of the applicable
Performance Cycle. For example:
Performance Cycle begins: February 4, 1996
Performance Cycle ends: January 30, 1999
Bonus payable: April 1, 1999
Bonus deferral election made by: June 30, 1997
An election to make Bonus and ELCAPP Bonus Deferral Contributions
shall be effective for each succeeding Plan Year, until changed by the
Eligible Employee in accordance with such procedures as the Committee (in its
discretion) may specify from time to time.
2.2.3 No Election Changes During Plan Year. A Participant
shall not be permitted to change or revoke his or her election for a Plan Year
after the beginning of such Plan Year, except that (a) to the limited extent
provided in Section 2.3, a Participant may change or revoke his or her
election, (b) if a Participant's job changes to a position which is ineligible
for the Plan, his or her deferrals under the Plan shall cease, and (c) if
permitted by the Committee, in its sole discretion, a Participant may revoke
his or her election for the remainder of the Plan Year.
2.2.4 Specific Timing and Method of Election.
Notwithstanding any contrary provision of this Section 2.2, the Committee, in
its sole discretion, shall determine the manner and deadlines for Participants
to make Compensation Deferral elections. The deadlines prescribed by the
Committee may be earlier than the deadlines specified in Sections 2.2.1 and
2.2.2, but shall not be later than the deadlines prescribed in such Sections.
2.3 Suspension of Participation. In the event that all or part of
the Participant's vested Account is paid to the Participant as an in-service
withdrawal pursuant to Section 5.7, the Committee, in its sole discretion, may
suspend the Participant's Deferral Contributions for a period of twelve months
following such payment. However, an election to make Deferral Contributions
under Section 2.2 shall be irrevocable as to amounts deferred as of the
effective date of any suspension in accordance with this Section 2.3.
2.4 Termination of Participation. An Eligible Employee who has
become a Participant shall remain a Participant until his or her entire vested
Account balance is distributed. However, an Eligible Employee who has become
a Participant may or may not be an active Participant making Deferral
Contributions for a particular Plan Year, depending upon whether he or she has
elected to make Deferral Contributions for such Plan Year.
SECTION 3
DEFERRAL CONTRIBUTIONS
3.1 Amount of Contributions. At the times and in the manner
prescribed in Section 2.2, each Eligible Employee may elect to defer up to (a)
75% of his or her Salary, and (b) 90% of his or her Bonus or ELCAPP Bonus for
a Plan Year and to have the amounts of such deferrals credited to his or her
Account under the Plan on the books of the Company. An Eligible Employee may
elect to defer an amount equal to any specific percentage (in whole percentage
increments) of the Participant's Compensation. Notwithstanding any contrary
provision of the Plan, the Committee may reduce a Participant's Deferral
Contributions to the extent necessary to satisfy applicable withholding tax
requirements and employee welfare plan contributions.
3.2 Crediting of Deferral Contributions. The amounts deferred
pursuant to Section 3.1 shall reduce the Participant's Compensation during the
Plan Year and shall be credited to the Participant's Account as a date no
later than fifteen business days after the date on which the amount (but for
the deferral) otherwise would have been paid to the Participant.
3.3 Company Contributions. From time to time, the Committee may
determine (in its sole discretion) that a Company Contribution shall be
credited to a Participant's Company Contribution Deferral Account, on such
terms and conditions as the Committee may specify in its sole discretion. The
Company Contribution (if any) made on behalf of a Participant shall be
credited to the Participant's Company Contribution Deferral Account as of the
date specified by the Committee. The exact dollar amount of a Company
Contribution credited to any Participant's Company Contribution Deferral
Account shall be determined by the Committee under such formulae as it shall
adopt from time to time.
3.4 Deemed Investment Returns and Deemed Interest on Accounts.
Although no assets will be segregated or otherwise set aside with respect to a
Participant's Account, the amount that is ultimately payable to the
Participant with respect to his or her Account shall be determined as if such
Account had been invested in accordance with the Participant's deemed
investment elections (provided that such elections must comply with the
procedures established by the Committee pursuant to this Section 3.4). The
Committee, in its sole discretion, shall adopt (and may modify from time to
time) such rules and procedures as it deems necessary or appropriate to
implement and/or restrict the deemed investment of the Participants' Accounts.
Such procedures generally shall provide that a Participant shall be entitled
to make deemed investment elections as to the deemed investment of his or her
Account, subject to any limitations determined by the Committee in its
discretion. Such procedures may differ among Participants or classes of
Participants, as determined by the Committee in its discretion.
Notwithstanding the foregoing, if any Company Contribution is credited to a
Participant's Company Contribution Deferral Account, such Contribution shall
be deemed to be invested as determined by the Committee in its sole
discretion.
SECTION 4
ACCOUNTING
4.1 Participants' Accounts. At the direction of the Committee,
there shall be established and maintained on the books of the Company for each
Participant:
(a) A Salary Deferral Account to which shall be credited all
Salary Deferral Contributions made by the Participant;
(b) A Bonus Deferral Account to which shall be credited all
Bonus and ELCAPP Bonus Deferral Contributions made by the Participant; and
(c) A Company Contribution Deferral Account to which shall
be credited all Company Contributions made by the Company (if any).
To the extent necessary to reflect a Participant's distribution elections, the
Committee may direct the establishment of a separate Salary Deferral Account,
Bonus Deferral Account and/or Company Contribution Deferral Account with
respect to amounts credited to a Participant's Account for any Plan Year.
Each Participant's Account shall also be credited at the end of each day that
the New York Stock Exchange is open for business with deemed earnings and
losses and/or deemed interest in accordance with Section 3.4.
4.2 Participants Remain Unsecured Creditors. No funds shall be
set aside or earmarked for a Participant's Account, which shall be a purely
bookkeeping device. Instead, all amounts credited to a Participant's Account
under the Plan shall continue for all purposes to be a part of the general
assets of the Employer. Each Participant's interest in the Plan shall make
him or her only a general, unsecured creditor of the Employer.
4.3 Accounting Methods. The accounting methods or formulae to be
used under the Plan for the purpose of maintaining the Participants' Accounts,
including the calculation and crediting of deemed returns, gains and losses
and any deemed interest shall be determined by the Committee, in its sole
discretion. The accounting methods or formulae selected by the Committee may
be revised from time to time.
4.4 Reports. Each Participant shall be furnished with periodic
statements of his or her Account, reflecting the status of his or her interest
in the Plan, at least annually.
SECTION 5
DISTRIBUTIONS
5.1 Salary Deferral Account. Distribution of a Participant's
Salary Deferral Account shall be made only after his or her Termination Date.
Except as provided in Section 5.4, such distribution shall be made in a lump
sum as soon as practicable following that Termination Date. For purposes of
such distribution, the value of the Participant's Salary Deferral Account
shall be determined as of the last business day preceding the date that such
distribution is made.
5.2 Bonus Deferral Account. Except as provided in Section 5.4, a
Participant's Bonus Deferral Account shall be distributed in a lump sum as
soon as practicable following his or her Termination Date, unless the
Participant has elected an earlier in-service distribution date or dates for
all or a portion of such Account.
5.2.1 In-Service Distribution Election. A Participant's
election of an in-service distribution date must be made at the time of his or
her Bonus or ELCAPP Deferral Contribution election for a Plan Year, shall
apply only to amounts deferred pursuant to that election and shall be
irrevocable. A participant may elect an in-service distribution date with
respect to a Bonus or ELCAPP Deferral Contribution to be in a year permitted
by the Committee, in its sole discretion, for an in-service distribution,
provided that an in-service distribution date may not be earlier than the Plan
Year following the year in which the bonus would have been paid absent the
deferral.
5.2.2 In-Service Distribution Payments. Payments made
pursuant to an in-service distribution election shall be made on or before the
last working day of April of the Plan Year in which such payment was elected
to be made. For purposes of such payment the value of the Participant's Bonus
Deferral Account shall be determined as of the last business day preceding the
date that such distribution is made.
5.3 Company Contribution Deferral Account. Distribution of a
Participant's vested Company Contribution Deferral Account shall be made at
the same time and in the same manner as distribution of the Participant's
Salary Deferral Account.
5.4 Retirement Installment Distributions. A Participant may elect
to receive payments from his or her Salary Deferral Account and/or Bonus
Deferral Account that are made after his or her Retirement in annual
installments for 5, 10 or 15 years.
5.4.1 Installment Elections. A Participant's election of
installment distributions must be made at the time of his or her Salary and/or
Bonus Deferral Contribution election for a Plan Year and automatically shall
apply to amounts deferred with respect to each succeeding Plan Year, until
changed by the Participant in accordance with such procedures as the Committee
(in its discretion) may specify from time to time. No such election shall be
effective if the Participant's Termination Date occurs before he or she
attains age 50.
5.4.2 Installment Payments. The first installment payment
shall be made as soon as practicable following the Participant's Retirement
date and succeeding payments shall be made on or before the last working day
of April in each succeeding year. However, in no case shall a Participant
receive more than one installment payment in any calendar year. The amount to
be distributed in each installment payment shall be determined by dividing the
value of the Account as of the Valuation Date preceding the date of each
distribution by the number of installment payments remaining to be made. The
"Valuation Date" for any installment distribution shall be the last business
day immediately preceding the applicable distribution date.
5.5 Death Distributions. If a Participant dies before the entire
balance of his or her Account has been distributed, the remaining balance of
the Participant's Account shall be distributed to his or her Beneficiary in a
lump sum as soon as practicable.
5.6 Beneficiary Designations. Each Participant may designate, in
a signed writing delivered to the Committee on such form as it may prescribe,
one or more Beneficiaries to receive any distribution which may become payable
as the result of the Participant's death. Primary and secondary Beneficiaries
are permitted.
5.6.1 Changes. A Participant may designate different
Beneficiaries (or may revoke a prior Beneficiary designation) at any time by
delivering a new designation (or revocation of a prior designation) in like
manner. Any designation or revocation shall be effective only if it is
received by the Committee. However, when so received, the designation or
revocation shall be effective as of the date the notice is executed (whether
or not the Participant still is living), but without prejudice to the
Committee on account of any payment made before the change is recorded. The
last effective designation received by the Committee shall supersede all prior
designations.
5.6.2 Failed Designations. If a Participant dies without
having effectively designated a Beneficiary, or if no Beneficiary (primary or
secondary) survives the Participant, the Participant's Account shall be
payable to his or her surviving spouse, or, if the Participant is not survived
by his or her spouse, the Account shall be paid to his or her estate.
5.7 In-Service Withdrawals. The Committee, in its sole discretion
and notwithstanding any contrary provision of the Plan, may determine that all
or part of the Participant's vested Account shall be paid to him or her
immediately as an in-service withdrawal; provided, however, that an amount
equal to ten percent of the total amount of the in-service withdrawal shall be
withheld by the Company. Participants shall be limited to one in-service
withdrawal per Plan Year.
5.8 Payments to Incompetents. If any individual to whom a benefit
is payable under the Plan is a minor, or if the Committee determines that any
individual to whom a benefit is payable under the Plan is incompetent to
receive such payment or to give a valid release therefor, payment shall be
made to the guardian, committee or other representative of the estate of such
individual which has been duly appointed by a court of competent jurisdiction.
If no guardian, committee or other representative has been appointed, payment
may be made to any person as custodian for such individual under the
California Uniform Transfers to Minors Act or may be made to or applied to or
for the benefit of the minor or incompetent, the incompetent's spouse,
children or other dependents, the institution or persons maintaining the minor
or incompetent, or any of them, in such proportions as the Committee from time
to time shall determine; and the release of the person or institution
receiving the payment shall be a valid and complete discharge of any liability
of the Employers with respect to any benefit so paid.
5.9 Undistributable Accounts. Each Participant and (in the event
of death) his or her Beneficiary shall keep the Committee advised of his or
her current address. If the Committee is unable to locate the Participant or
Beneficiary to whom a Participant's Account is payable under this Section 5,
the Participant's Account shall be frozen as of the date on which distribution
would have been completed in accordance with this Section 5, and no further
deemed investment returns shall be credited thereto. If a Participant whose
Account was frozen (or his or her Beneficiary) files a claim for distribution
of the Account within seven years after the date that it was frozen, and if
the Committee determines that such claim is valid, then the frozen balance
shall be paid by the Company in a lump sum cash payment as soon as practicable
thereafter.
5.10 Committee Discretion. Within the specific time periods
described in this Section 5, the Committee shall have sole discretion to
determine the specific timing of the payment of any Account balance under the
Plan.
SECTION 6
PARTICIPANT'S INTEREST IN ACCOUNT
6.1 Deferral Contributions. Subject to Sections 6.2 (relating to
vesting in Company Contributions), 8.1 (relating to creditor status) and 9.2
(relating to amendment and/or termination of the Plan), a Participant's
interest in the balance credited to his or her Account at all times shall be
100% vested and nonforfeitable.
6.2 Vesting in Company Contributions. A Participant's interest in
his or her Company Contribution (if any) shall become 100% vested and
nonforfeitable on the date that is one year after the date such Company
Contribution was made, but only if the Participant remains an employee of the
Company or an Affiliate for such entire one year period. Upon the
Participant's Termination Date, the vested portion of his or her Company
Contribution Deferral Account shall be distributable to him or her in the
manner and at the time set forth in Section 5, and the unvested portion of
such Account shall be permanently forfeited.
SECTION 7
ADMINISTRATION OF THE PLAN
7.1 Plan Administrator. The Company is hereby designated as the
administrator of the Plan (within the meaning of section 3(16)(A) of ERISA).
On behalf of the Company, the Committee shall have the authority to control
and manage the operation and administration of the Plan. Any member of the
Committee may resign at any time by notice in writing mailed or delivered to
the Board, who may remove any member of the Committee at anytime and may fill
any vacancy that exists.
7.2 Actions by Committee. Each decision of a majority of the
members of the Committee then in office shall constitute the final and binding
act of the Committee. The Committee may act with or without a meeting being
called or held and shall keep minutes of all meetings held and a record of all
actions taken by written consent.
7.3 Powers of Committee. The Committee shall have all powers and
discretion necessary or appropriate to supervise the administration of the
Plan and to control its operation in accordance with its terms, including, but
not by way of limitation, the following discretionary powers:
(a) To interpret and determine the meaning and validity of
the provisions of the Plan and to determine any question arising under,
or in connection with, the administration, operation or validity of the
Plan or any amendment thereto;
(b) To determine any and all considerations affecting the
eligibility of any Employee to become a Participant or remain a
Participant in the Plan;
(c) To cause one or more separate Accounts to be maintained
for each Participant;
(d) To cause Deferral Contributions and Company
Contributions and deemed earnings or losses and/or deemed interest to be
credited to Participants' Accounts;
(e) To establish and revise an accounting method or formula
for the Plan, as provided in Section 4.3;
(f) To determine the manner and form in which any
distribution is to be made under the Plan;
(g) To determine the status and rights of Participants and
their spouses, Beneficiaries or estates;
(h) To employ such counsel, agents and advisers, and to
obtain such legal, clerical and other services, as it may deem necessary
or appropriate in carrying out the provisions of the Plan;
(i) To establish, from time to time, rules for the
performance of its powers and duties and for the administration of the
Plan;
(j) To arrange for annual distribution to each Participant
of a statement of benefits accrued under the Plan;
(k) To publish a claims and appeal procedure satisfying the
minimum standards of section 503 of ERISA pursuant to which individuals
or estates may claim Plan benefits and appeal denials of such claims;
(l) To delegate to any one or more of its members or to any
other person, severally or jointly, the authority to perform for and on
behalf of the Committee one or more of the functions of the Committee
under the Plan; and
(m) to decide all issues and questions regarding Account
balances, and the time, form, manner and amount of distributions to
Participants.
7.4 Decisions of Committee. All actions, interpretations, and
decisions of the Committee shall be conclusive and binding on all persons, and
shall be given the maximum possible deference allowed by law.
7.5 Administrative Expenses. All expenses incurred in the
administration of the Plan by the Committee, or otherwise, including legal
fees and expenses, shall be paid and borne by the Employers.
7.6 Eligibility to Participate. No member of the Committee who is
also an employee of an Employer shall be excluded from participating in the
Plan if otherwise eligible, but he or she shall not be entitled, as a member
of the Committee, to act or pass upon any matters pertaining specifically to
his or her own Account under the Plan.
7.7 Indemnification. Each of the Employers shall, and hereby
does, indemnify and hold harmless the members of the Committee, from and
against any and all losses, claims, damages or liabilities (including
attorneys' fees and amounts paid, with the approval of an authorized officer
of the Company, in settlement of any claim) arising out of or resulting from
the implementation of a duty, act or decision with respect to the Plan, so
long as such duty, act or decision does not involve gross negligence or
willful misconduct on the part of any such individual.
SECTION 8
FUNDING
8.1 Unfunded Plan. All amounts credited to a Participant's
Account under the Plan shall continue for all purposes to be a part of the
general assets of the Company. The interest of the Participant in his or her
Account, including his or her right to distribution thereof, shall be an
unsecured claim against the general assets of the Company. Although the
Company may choose to invest a portion of its general assets for purposes of
enabling it to make payments under the Plan, nothing contained in the Plan
shall give any Participant or beneficiary any interest in or claim against any
specific assets of the Company.
SECTION 9
MODIFICATION OR TERMINATION OF PLAN
9.1 Employers' Obligations Limited. The Plan is voluntary on the
part of the Employers, and the Employers do not guarantee to continue the
Plan. The Company at any time may, by amendment of the Plan, suspend Deferral
Contributions or Company Contributions or may discontinue Deferral
Contributions or Company Contributions, with or without cause. Complete
discontinuance of all Deferral Contributions or Company Contributions shall be
deemed a termination of the Plan.
9.2 Right to Amend or Terminate. The Board reserves the right to
alter, amend or terminate the Plan, or any part thereof, in such manner as it
may determine, for any reason whatsoever. Any alteration, amendment or
termination shall take effect upon the date indicated in the document
embodying such alteration, amendment or termination, provided that no such
alteration or amendment shall divest any amount already credited to a
Participant's Account under the Plan. The Company may (but shall have no
obligation to) seek a private letter ruling from the Internal Revenue Service
regarding the tax consequences of participation in the Plan. If such private
letter ruling is sought, the Committee shall have the right to adopt such
amendments to the Plan (whether retroactive or prospective) that the Internal
Revenue Service may require as a condition to the issuance of such ruling.
9.3 Effect of Termination. If the Plan is terminated pursuant to
this Section 9, the balances credited to the Accounts of the affected
Participants shall be distributed to them at the time and in the manner set
forth in Section 5; provided, however, that the Committee, in its sole
discretion, may authorize accelerated distribution of Participants' Accounts
as of any earlier date.
SECTION 10
GENERAL PROVISIONS
10.1 Inalienability. In no event may either a Participant, a
former Participant or his or her Beneficiary, spouse or estate sell, transfer,
anticipate, assign, hypothecate, or otherwise dispose of any right or interest
under the Plan; and such rights and interests shall not at any time be subject
to the claims of creditors nor be liable to attachment, execution or other
legal process. Accordingly, for example, a Participant's interest in the Plan
is not transferable pursuant to a domestic relations order.
10.2 Rights and Duties. Neither the Employers nor the Committee
shall be subject to any liability or duty under the Plan except as expressly
provided in the Plan, or for any action taken, omitted or suffered in good
faith.
10.3 No Enlargement of Employment Rights. Neither the
establishment or maintenance of the Plan, the making of any Deferral
Contributions or Company Contributions nor any action of any Employer or the
Committee, shall be held or construed to confer upon any individual any right
to be continued as an Employee nor, upon dismissal, any right or interest in
any specific assets of the Employers other than as provided in the Plan. Each
Employer expressly reserves the right to discharge any Employee at any time.
10.4 Apportionment of Costs and Duties. All acts required of the
Employers under the Plan may be performed by the Company for itself and its
Affiliates, and the costs of the Plan may be equitably apportioned by the
Committee among the Company and the other Employers. Whenever an Employer is
permitted or required under the terms of the Plan to do or perform any act,
matter or thing, it shall be done and performed by any officer or employee of
the Employer who is thereunto duly authorized by the board of directors of the
Employer.
10.5 Applicable Law. The provisions of the Plan shall be
construed, administered and enforced in accordance with ERISA, and to the
extent not preempted by ERISA, with the laws of the State of California.
10.6 Severability. If any provision of the Plan is held invalid
or unenforceable, its invalidity or unenforceability shall not affect any
other provisions of the Plan, and in lieu of each provision which is held
invalid or unenforceable, there shall be added as part of the Plan a provision
that shall be as similar in terms to such invalid or unenforceable provision
as may be possible and be valid, legal, and enforceable.
10.7 Captions. The captions contained in and the table of
contents prefixed to the Plan are inserted only as a matter of convenience and
for reference and in no way define, limit, enlarge or describe the scope or
intent of the Plan nor in any way shall affect the construction of any
provision of the Plan.
EXECUTION
IN WITNESS WHEREOF, the Company, by its duly authorized officer,
has executed this Plan on the date indicated below.
THE GAP, INC.
Dated: _______________, 1998 By ________________________________
Title:
Grant No. _________
THE GAP, INC.
NON-QUALIFIED STOCK OPTION AGREEMENT (CONSULTANT)
The Gap, Inc. (the "Company") hereby grants to
___________________ ("Consultant"), a stock option under The Gap, Inc. 1996
Stock Option and Award Plan (the "Plan"), to purchase shares of common stock
of the Company, $0.05 par value ("Shares"). This option is subject to all of
the terms and conditions contained in this Agreement, including the terms and
conditions contained in the attached Appendix A. The date of this Agreement
is ___________________. Subject to the provisions of Appendix A and of the
Plan, the principal features of this option are as follows:
Number of Shares
Purchasable with this Option: ________
Price per Share: ________
Date Option was Granted: ________
Date Option is
Scheduled to become Exercisable: ________
Latest Date Option Expires: ________
As provided in the Plan and in this Agreement, this option may
terminate before the date written above, including before the option becomes
exercisable or is exercised. For example, if Consultant's service
relationship ends before the date this option becomes exercisable, this option
will terminate at the same time as Consultant's service relationship
terminates. See paragraphs 5, 6 and 7 of Appendix A for further information
concerning how changes in service relationship affect termination of this
option. PLEASE BE SURE TO READ ALL OF APPENDIX A, WHICH CONTAINS THE SPECIFIC
TERMS AND CONDITIONS OF THIS OPTION.
Consultant is an independent contractor and not an employee of
the Company. See paragraph 21 of Appendix A for further information
concerning consultant's independent contractor status.
IN WITNESS WHEREOF, the Company and Consultan
t have executed this Agreement, in duplicate, to be effective as of the date
first above written.
THE GAP, INC.
Dated: ________ _________________________________________
Millard S. Drexler
President and Chief Executive Officer
My signature below indicates that I understand that this option
is subject to all of the terms and conditions of this Agreement (including the
attached Appendix A) and of the Plan.
CONSULTANT
Dated: _______________________
______________________________________________________
Address:
_____________________________________________
_____________________________________________
_____________________________________________
Social Insurance No.:
________________________
APPENDIX A
TERMS AND CONDITIONS OF NON-QUALIFIED STOCK OPTION (CONSULTANT)
1. Grant of Option. The Company hereby grants to
Consultant under the Plan, as a separate incentive in connection with his or
her service relationship and not in lieu of any salary or other compensation
for his or her services, a non-qualified stock option to purchase, on the terms
and conditions set forth in this Agreement and the Plan, all or any part of the
number of Shares set forth on page 1 of this Agreement. The option granted
hereby is not intended to be an Incentive Stock Option within the meaning of
Section 422 of the Code.
2. Exercise Price. The purchase price per Share (the
"Option Price") shall be equal to the price set forth on page 1 of this
Agreement. The Option Price shall be payable in the legal tender of the United
States.
3. Number of Shares. The number and class of Shares
specified in paragraph 1 above, and/or the Option Price, are subject to
appropriate adjustment in the event of changes in the capital stock of the
Company by reason of stock dividends, split-ups or combinations of shares,
reclassifications, mergers, consolidations, reorganizations or liquidations.
Subject to any required action of the stockholders of the Company, if the
Company shall be the surviving corporation in any merger or consolidation, the
option granted hereunder (to the extent that it is still outstanding) shall
pertain to and apply to the securities to which a holder of the same number of
Shares that are then subject to the option would have been entitled. To the
extent that the foregoing adjustments relate to stock or securities of the
Company, such adjustments shall be made by the Compensation and Stock Option
Committee of the Company's Board of Directors (the "Committee"), whose
determination in that respect shall be final, binding and conclusive.
4. Commencement of Exercisability. Except as otherwise
provided in this Agreement, the right to exercise the option awarded by this
Agreement shall accrue as set forth on page 1 of this Agreement, assuming that
Consultant is still engaged by the Company or an Affiliate on such date(s). If
Consultant is not in a service relationship with the Company on such date(s),
the option shall terminate, as set out in paragraph 7.
5. Postponement of Exercisability. Notwithstanding
paragraph 4 or any other provision of this Agreement, prior to the date this
option is scheduled to become exercisable, the Committee, in its sole
discretion, may determine that the right to exercise the option awarded by this
Agreement shall accrue on a date later than such date. The Committee shall
exercise its power to postpone the commencement of exercisability only if the
Committee, in its sole discretion, determines that Consultant has taken a
personal leave of absence (as defined from time to time by the Committee) since
the date of this Agreement. The duration of the period of postponement shall
equal the duration of the personal leave of absence. If Consultant does not
return from the personal leave of absence, the option shall terminate as set
out in paragraph 7.
6. Elimination of Exercisability. Notwithstanding
paragraph 4 or any other provision of this Agreement, prior to the date this
option is scheduled to become exercisable, the Committee, in its sole
discretion, may determine that the right to exercise the option awarded by this
Agreement shall never accrue as to all or part of the Shares specified in
paragraph 1 (and as adjusted pursuant to paragraph 3, if appropriate), in which
case the option shall terminate as to such Shares. The Committee shall
exercise such power only if the Committee, in its sole discretion, determines
that Consultant's service relationship with the Company or an Affiliate has
been reduced to less than the number of hours which was the subject of the
service relationship as of the date of this Agreement.
7. Termination of Option. In the event that Consultant's
service relationship with the Company or an Affiliate terminates for any reason
other than death, this option shall immediately thereupon terminate. In the
event that Consultant shall die while engaged by the Company or an Affiliate,
any unexercised portion of the option (whether or not exercisable) may be
exercised by Consultant's beneficiary or transferee, as hereinafter provided,
for a period of one (1) year after the date of Consultant's death or within ten
(10) years from the date of this Agreement, whichever shall first occur.
Notwithstanding the preceding two sentences, in the event that within one year
of the date of this Agreement, Consultant dies, this option shall immediately
thereupon terminate.
8. Persons Eligible to Exercise. The option shall be
exercisable during Consultant's lifetime only by Consultant. The option shall
be non-transferable by Consultant other than by a beneficiary designation made
in a form and manner acceptable to the Committee, or by will or the applicable
laws of descent and distribution.
9. Death of Consultant. To the extent exercisable after
Consultant's death, the option shall be exercised only by Consultant's
designated beneficiary or beneficiaries, or if no beneficiary survives
Consultant, by the person or persons entitled to the option under Consultant's
will, or if Consultant shall fail to make testamentary disposition of the
option, his or her legal representative. Any transferee exercising the option
must furnish the Company (a) written notice of his or her status as transferee,
(b) evidence satisfactory to the Company to establish the validity of the
transfer of the option and compliance with any laws or regulations pertaining
to said transfer, and (c) written acceptance of the terms and conditions of the
option as prescribed in this Agreement.
10. Exercise of Option. The option may be exercised by the
person then entitled to do so as to any Shares which may then be purchased
(a) by giving written notice of exercise to the Company, specifying the number
of full Shares to be purchased and accompanied by full payment of the purchase
price thereof (and the amount of any income tax the Company determines is
required to be withheld by reason of such exercise), and (b) by giving
satisfactory assurances in writing if requested by the Company, signed by the
person exercising the option, that the Shares to be purchased upon such
exercise are being purchased for investment and not with a view to the
distribution thereof.
11. No Rights of Stockholder. Neither Consultant nor any
person claiming under or through said Consultant shall be or have any of the
rights or privileges of a stockholder of the Company in respect of any of the
Shares issuable upon the exercise of the option, 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 Consultant.
12. No Right to Continuation of Service Relationship.
Consultant understands and agrees that this Agreement does not impact in any
way the right of the Company, or the Affiliate engaging Consultant, as the case
may be, to terminate or change the terms of the service relationship of
Consultant at any time for any reason whatsoever, with or without good cause.
Consultant's service relationship may be terminated by either the Company or
Consultant.
13. Addresses for Notices. Any notice to be given to the
Company under the terms of this Agreement shall be addressed to the Company, in
care of its Law Department, at The Gap, Inc., One Harrison, San Francisco,
California 94105, or at such other address as the Company may hereafter
designate in writing. Any notice to be given to Consultant shall be addressed
to Consultant at the address set forth beneath Consultant's signature hereto,
or at such other address as Consultant may hereafter designate in writing. Any
such notice shall be deemed to have been duly given if and when enclosed in a
properly sealed envelope, addressed as aforesaid, registered or certified and
deposited, postage and registry fee prepaid, in a United States post office.
14. Non-Transferability of Option. Except as otherwise
herein provided, the option herein granted and the rights and privileges
conferred hereby shall not be transferred, assigned, pledged or hypothecated in
any way (whether by operation of law or otherwise) and shall not be subject to
sale under execution, attachment or similar process. Upon any attempt to
transfer, assign, pledge, hypothecate or otherwise dispose of said option, or
of any right or privilege conferred hereby, contrary to the provisions hereof,
or upon any attempted sale under any execution, attachment or similar process
upon the rights and privileges conferred hereby, said option and the rights and
privileges conferred hereby shall immediately become null and void.
15. Maximum Term of Option. Notwithstanding any other
provision of this Agreement, this option is not exercisable after the
expiration of ten (10) years from the date of this Agreement.
16. Binding Agreement. Subject to the limitation on the
transferability of the option contained herein, this Agreement shall be binding
upon and inure to the benefit of the heirs, legatees, legal representatives,
successors and assigns of the parties hereto.
17. Plan Governs. This Agreement is subject to all terms
and provisions of the Plan. In the event of a conflict between one or more
provisions of this Agreement and one or more provisions of the Plan, the
provisions of the Plan shall govern. Terms used and not defined in this
Agreement shall have the meaning set forth in the Plan.
18. Committee Authority. The Committee shall have the
power to interpret the Plan and this Agreement and to adopt such rules for the
administration, interpretation and application of the Plan as are consistent
therewith and to interpret or revoke any such rules. All actions taken and all
interpretations and determinations made by the Committee in good faith shall be
final and binding upon Consultant, the Company and all other interested
persons. No member of the Committee shall be personally liable for any action,
determination or interpretation made in good faith with respect to the Plan or
this Agreement.
19. Captions. Captions provided herein are for convenience
only and are not to serve as a basis for interpretation or construction of this
Agreement.
20. Agreement Severable. In the event that any provision
in this Agreement shall be held invalid or unenforceable, such provision shall
be severable from, and such invalidity or unenforceability shall not be
construed to have any effect on, the remaining provisions of this Agreement.
21. Independent Contractor. Consultant acknowledges that
he or she will act at all times as an independent contractor and not as an
employee of the Company or its Affiliates. Accordingly, Consultant understands
that (unless expressly required by the laws of a foreign jurisdiction to which
Consultant is subject) the Company will not pay, or withhold from Consultant,
under this Agreement any F.I.C.A. (social security), state unemployment or
disability insurance premiums, state or federal income taxes, or other taxes,
and that Consultant is responsible for paying any applicable federal self-
employment tax (in lieu of F.I.C.A.), state and federal income taxes (including
estimated tax payments) and other applicable taxes. Consultant waives all
rights to any benefits available to employees of the Company not otherwise set
forth in a written agreement between Consultant and the Company or its
Affiliates and signed by an authorized officer. Consultant further agrees that
he or she will indemnify the Company and its Affiliates against any claim
asserted against the Company and its Affiliates for Consultant's failure to
comply with his or her obligations under this paragraph.
Grant No. __________
THE GAP, INC.
NON-QUALIFIED STOCK OPTION AGREEMENT1
The Gap, Inc. (the "Company") hereby grants
to_________________________ (the "Employee"), a stock option under The Gap,
Inc. 1996 Stock Option and Award Plan (the "Plan"), to purchase shares of
common stock of the Company, $0.05 par value ("Shares"). This option is
subject to all of the terms and conditions contained in this Agreement,
including the terms and conditions contained in the attached Appendix A. The
date of this Agreement is ______________. Subject to the provisions of
Appendix A, Appendix B and of the Plan, the principal features of this option
are as follows:
Number of Shares
Purchasable with this Option: ________
Price per Share: ________
Date Option was Granted: ________
Date Option is
Scheduled to become Exercisable: ________
Latest Date Option Expires: ________
As provided in the Plan and in this Agreement, this option may
terminate before the date written above, including before the option becomes
exercisable or is exercised. For example, if Employee's employment ends
before the date this option becomes exercisable, this option will terminate at
the same time as Employee's employment terminates. See paragraphs 5, 6 and 7
of Appendix A for further information concerning how changes in employment
affect termination of this option. PLEASE BE SURE TO READ ALL OF APPENDIX A
and APPENDIX B, WHICH CONTAINS THE SPECIFIC TERMS AND CONDITIONS OF THIS
OPTION.
IN WITNESS WHEREOF, the Company and the Employee have executed
this Agreement, in duplicate, to be effective as of the date first above
written.
THE GAP, INC.
Dated: ________
______________________________________________________
Millard S. Drexler
President and Chief Executive Officer
My signature below indicates that I understand that this option
is subject to all of the terms and conditions of this Agreement (including the
attached Appendix A and Appendix B) and of the Plan.
EMPLOYEE
Dated: _______________________ __________________________________
Address: _________________________
___________________________________
___________________________________
Social Security No.:
__________________________
1STOCK OPTIONS GRANTED BY THE GAP, INC. ARE GOVERNED SOLELY BY THE LAWS OF THE
STATE OF CALIFORNIA AND THE UNITED STATES OF AMERICA.
APPENDIX A
TERMS AND CONDITIONS OF NON-QUALIFIED STOCK OPTION
1. Grant of Option. The Company hereby grants to Employee
under the Plan, as a separate incentive in connection with his or her
employment and not in lieu of any salary or other compensation for his or her
services, a non-qualified stock option to purchase, on the terms and conditions
set forth in this Agreement and the Plan, all or any part of the number of
Shares set forth on page 1 of this Agreement. The option granted hereby is not
intended to be an Incentive Stock Option within the meaning of Section 422 of
the Code.
2. Exercise Price. The purchase price per Share (the
"Option Price") shall be equal to the price set forth on page 1 of this
Agreement. The Option Price shall be payable in the legal tender of the United
States.
3. Number of Shares. The number and class of Shares
specified in paragraph 1 above, and/or the Option Price, are subject to
appropriate adjustment in the event of changes in the capital stock of the
Company by reason of stock dividends, split-ups or combinations of shares,
reclassifications, mergers, consolidations, reorganizations or liquidations.
Subject to any required action of the stockholders of the Company, if the
Company shall be the surviving corporation in any merger or consolidation, the
option granted hereunder (to the extent that it is still outstanding) shall
pertain to and apply to the securities to which a holder of the same number of
Shares that are then subject to the option would have been entitled. To the
extent that the foregoing adjustments relate to stock or securities of the
Company, such adjustments shall be made by the Compensation and Stock Option
Committee of the Company's Board of Directors (the "Committee"), whose
determination in that respect shall be final, binding and conclusive.
4. Commencement of Exercisability. Except as otherwise
provided in this Agreement, the right to exercise the option awarded by this
Agreement shall accrue as set forth on page 1 of this Agreement, assuming that
Employee is still employed with the Company or an Affiliate on such date(s).
If Employee is not employed on such date(s), the option shall terminate, as set
out in paragraph 7.
5. Postponement of Exercisability. Notwithstanding
paragraph 4 or any other provision of this Agreement, prior to the date this
option is scheduled to become exercisable, the Committee, in its sole
discretion, may determine that the right to exercise the option awarded by this
Agreement shall accrue on a date later than such date. The Committee shall
exercise its power to postpone the commencement of exercisability only if the
Committee, in its sole discretion, determines that Employee has taken a
personal leave of absence (as defined from time to time by the Committee) since
the date of this Agreement. The duration of the period of postponement shall
equal the duration of the personal leave of absence. If Employee does not
return from the personal leave of absence, the option shall terminate as set
out in paragraph 7.
6. Elimination of Exercisability. Notwithstanding
paragraph 4 or any other provision of this Agreement, prior to the date this
option is scheduled to become exercisable, the Committee, in its sole
discretion, may determine that the right to exercise the option awarded by this
Agreement shall never accrue as to all or part of the Shares specified in
paragraph 1 (and as adjusted pursuant to paragraph 3, if appropriate), in which
case the option shall terminate as to such Shares. The Committee shall
exercise such power only if the Committee, in its sole discretion, determines
that Employee has transferred to a position which, under the Committee's then
existing policy, normally would not qualify Employee to be granted options
under the Plan or to be granted the number of options granted under this
Agreement.
7. Termination of Option. In the event that Employee's
employment with the Company or an Affiliate terminates for any reason other
than Retirement (as defined in the Plan) or death, this option shall
immediately thereupon terminate. In the event of Employee's Retirement,
Employee may, within one (1) year after the date of such Retirement, or within
ten (10) years from the date of this Agreement, whichever shall first occur,
exercise any unexercised portion of the option (whether or not exercisable).
In the event that Employee shall die while in the employ of the Company or an
Affiliate, any unexercised portion of the option (whether or not exercisable)
may be exercised by Employee's beneficiary or transferee, as hereinafter
provided, for a period of one (1) year after the date of Employee's death or
within ten (10) years from the date of this Agreement, whichever shall first
occur. Notwithstanding the preceding two sentences, in the event that within
one year of the date of this Agreement, Employee dies or terminates employment
due to Retirement, this option shall immediately thereupon terminate.
8. Persons Eligible to Exercise. The option shall be
exercisable during Employee's lifetime only by Employee. The option shall be
non-transferable by Employee other than by a beneficiary designation made in a
form and manner acceptable to the Committee, or by will or the applicable laws
of descent and distribution.
9. Death of Employee. To the extent exercisable after
Employee's death, the option shall be exercised only by Employee's designated
beneficiary or beneficiaries, or if no beneficiary survives Employee, by the
person or persons entitled to the option under Employee's will, or if Employee
shall fail to make testamentary disposition of the option, his or her legal
representative. Any transferee exercising the option must furnish the Company
(a) written notice of his or her status as transferee, (b) evidence
satisfactory to the Company to establish the validity of the transfer of the
option and compliance with any laws or regulations pertaining to said transfer,
and (c) written acceptance of the terms and conditions of the option as
prescribed in this Agreement.
10. Exercise of Option. The option may be exercised by the
person then entitled to do so as to any Shares which may then be purchased
(a) by giving written notice of exercise to the Company, specifying the number
of full Shares to be purchased and accompanied by full payment of the purchase
price thereof (and the amount of any income tax the Company determines is
required to be withheld by reason of such exercise), and (b) by giving
satisfactory assurances in writing if requested by the Company, signed by the
person exercising the option, that the Shares to be purchased upon such
exercise are being purchased for investment and not with a view to the
distribution thereof.
11. No Rights of Stockholder. Neither Employee nor any
person claiming under or through said Employee shall be or have any of the
rights or privileges of a stockholder of the Company in respect of any of the
Shares issuable upon the exercise of the option, 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 Employee.
12. No Right to Continued Employment. The granting of
stock options to Employee does not in any way impact the right of the Company
to terminate Employee's employment in accordance with applicable law.
13. Addresses for Notices. Any notice to be given to the
Company under the terms of this Agreement shall be addressed to the Company, in
care of its Law Department, at The Gap, Inc., One Harrison, San Francisco,
California 94105, or at such other address as the Company may hereafter
designate in writing. Any notice to be given to Employee shall be addressed to
Employee at the address set forth beneath Employee's signature hereto, or at
such other address as Employee may hereafter designate in writing. Any such
notice shall be deemed to have been duly given if and when enclosed in a
properly sealed envelope, addressed as aforesaid, registered or certified and
deposited, postage and registry fee prepaid, in a United States post office.
14. Non-Transferability of Option. Except as otherwise
herein provided, the option herein granted and the rights and privileges
conferred hereby shall not be transferred, assigned, pledged or hypothecated in
any way (whether by operation of law or otherwise) and shall not be subject to
sale under execution, attachment or similar process. Upon any attempt to
transfer, assign, pledge, hypothecate or otherwise dispose of said option, or
of any right or privilege conferred hereby, contrary to the provisions hereof,
or upon any attempted sale under any execution, attachment or similar process
upon the rights and privileges conferred hereby, said option and the rights and
privileges conferred hereby shall immediately become null and void.
15. Maximum Term of Option. Notwithstanding any other
provision of this Agreement, this option is not exercisable after the
expiration of ten (10) years from the date of this Agreement.
16. Binding Agreement. Subject to the limitation on the
transferability of the option contained herein, this Agreement shall be binding
upon and inure to the benefit of the heirs, legatees, legal representatives,
successors and assigns of the parties hereto.
17. Plan Governs. This Agreement is subject to all terms
and provisions of the Plan. In the event of a conflict between one or more
provisions of this Agreement and one or more provisions of the Plan, the
provisions of the Plan shall govern. Terms used and not defined in this
Agreement shall have the meaning set forth in the Plan.
18. Committee Authority. The Committee shall have the
power to interpret the Plan and this Agreement and to adopt such rules for the
administration, interpretation and application of the Plan as are consistent
therewith and to interpret or revoke any such rules. All actions taken and all
interpretations and determinations made by the Committee in good faith shall be
final and binding upon Employee, the Company and all other interested persons.
No member of the Committee shall be personally liable for any action,
determination or interpretation made in good faith with respect to the Plan or
this Agreement.
19. Captions. Captions provided herein are for convenience
only and are not to serve as a basis for interpretation or construction of this
Agreement.
20. Agreement Severable. In the event that any provision
in this Agreement shall be held invalid or unenforceable, such provision shall
be severable from, and such invalidity or unenforceability shall not be
construed to have any effect on, the remaining provisions of this Agreement.
APPENDIX B
ADDITIONAL TERMS AND CONDITIONS OF NON-QUALIFIED STOCK OPTION
GRANT NUMBER [________]
For Grant Number [number], an option granted to [employee name], under The
Gap, Inc. 1996 Stock Option and Award Plan, the following terms apply in
addition to those listed on Appendix A:
21. Sale of Shares. Employee shall not sell Shares issued under the
Agreement before the expiration of a period of five years from the date of
grant. Employee undertakes all stock price market risk once this option is
exercised. The market value of the shares could decrease.
22. Escrow Account. During the period from the date this option becomes
exercisable to the date five years from the date of grant, Employee may
purchase exercisable shares in accordance with the Agreement only if Employee
deposits the Shares acquired upon exercise in a brokerage account with the
firm of Donaldson, Lufkin & Jenrette Securities Corporation in care of Mr.
Jonathan L. White (or such other broker as determined by the Secretary of the
Company in her sole discretion) (the "broker") and retains those Shares in
that account for such entire period.
23. Terms of Escrow Account. In the event of any disrespect of any
obligation of Employee under this Agreement or under the Plan, Employee shall
pay to The Gap, Inc. and/or Gap (France) SAS damages including all fees,
costs, charges and payments incurred by The Gap, Inc. and/or Gap (France) SAS
as a result of Employee's breach. Such damages shall be withheld at the
source by the broker and deducted from the transfer price of the relevant
shares. Employee agrees that this Agreement shall serve as sufficient
authorization and direction to the broker to honor requests from The Gap, Inc.
to withhold funds and disperse such funds to The Gap, Inc. and/or Gap (France)
SAS. If such a withholding is not feasible, Employee shall reimburse to The
Gap, Inc. and/or Gap (France) SAS all fees, costs, charges and payments
incurred by The Gap, Inc. and/or Gap (France) SAS as a result of Employee's
breach.
THE GAP, INC.
Dated: [grant date]
Anne B. Gust
Executive Vice President and Secretary
EMPLOYEE
Dated:
[employee name]
social insurance number
Grant No. __________
THE GAP, INC.
NON-QUALIFIED STOCK OPTION AGREEMENT1
The Gap, Inc. (the "Company") hereby grants
to_________________________ (the "Employee"), a stock option under The Gap,
Inc. 1996 Stock Option and Award Plan (the "Plan"), to purchase shares of
common stock of the Company, $0.05 par value ("Shares"). This option is
subject to all of the terms and conditions contained in this Agreement,
including the terms and conditions contained in the attached Appendix A. The
date of this Agreement is ______________. Subject to the provisions of
Appendix A and of the Plan, the principal features of this option are as
follows:
Number of Shares
Purchasable with this Option: ________
Price per Share: ________
Date Option was Granted: ________
Date Option is
Scheduled to become Exercisable: ________
Latest Date Option Expires: ________
As provided in the Plan and in this Agreement, this option may
terminate before the date written above, including before the option becomes
exercisable or is exercised. For example, if Employee's employment ends
before the date this option becomes exercisable, this option will terminate at
the same time as Employee's employment terminates. See paragraphs 5, 6 and 7
of Appendix A for further information concerning how changes in employment
affect termination of this option. PLEASE BE SURE TO READ ALL OF APPENDIX A,
WHICH CONTAINS THE SPECIFIC TERMS AND CONDITIONS OF THIS OPTION.
IN WITNESS WHEREOF, the Company and the Employee have executed
this Agreement, in duplicate, to be effective as of the date first above
written.
THE GAP, INC.
Dated: ________ ____________________________________________
Millard S. Drexler
President and Chief Executive Officer
My signature below indicates that I understand that this option
is subject to all of the terms and conditions of this Agreement (including the
attached Appendix A) and of the Plan.
EMPLOYEE
Dated: _______________________ _________________________________
Address: _________________________________
__________________________________
___________________________________
Social Security No.: ______________
1STOCK OPTIONS GRANTED BY THE GAP, INC. ARE GOVERNED SOLELY BY THE LAWS OF THE
STATE OF CALIFORNIA AND THE UNITED STATES OF AMERICA.
APPENDIX A
TERMS AND CONDITIONS OF NON-QUALIFIED STOCK OPTION
1. Grant of Option. The Company hereby grants to Employee
under the Plan, as a separate incentive in connection with his or her
employment and not in lieu of any salary or other compensation for his or her
services, a non-qualified stock option to purchase, on the terms and conditions
set forth in this Agreement and the Plan, all or any part of the number of
Shares set forth on page 1 of this Agreement. The option granted hereby is not
intended to be an Incentive Stock Option within the meaning of Section 422 of
the Code.
2. Exercise Price. The purchase price per Share (the
"Option Price") shall be equal to the price set forth on page 1 of this
Agreement. The Option Price shall be payable in the legal tender of the United
States.
3. Number of Shares. The number and class of Shares
specified in paragraph 1 above, and/or the Option Price, are subject to
appropriate adjustment in the event of changes in the capital stock of the
Company by reason of stock dividends, split-ups or combinations of shares,
reclassifications, mergers, consolidations, reorganizations or liquidations.
Subject to any required action of the stockholders of the Company, if the
Company shall be the surviving corporation in any merger or consolidation, the
option granted hereunder (to the extent that it is still outstanding) shall
pertain to and apply to the securities to which a holder of the same number of
Shares that are then subject to the option would have been entitled. To the
extent that the foregoing adjustments relate to stock or securities of the
Company, such adjustments shall be made by the Compensation and Stock Option
Committee of the Company's Board of Directors (the "Committee"), whose
determination in that respect shall be final, binding and conclusive.
4. Commencement of Exercisability. Except as otherwise
provided in this Agreement, the right to exercise the option awarded by this
Agreement shall accrue as set forth on page 1 of this Agreement, assuming that
Employee is still employed with the Company or an Affiliate on such date(s).
If Employee is not employed on such date(s), the option shall terminate, as set
out in paragraph 7.
5. Postponement of Exercisability. Notwithstanding
paragraph 4 or any other provision of this Agreement, prior to the date this
option is scheduled to become exercisable, the Committee, in its sole
discretion, may determine that the right to exercise the option awarded by this
Agreement shall accrue on a date later than such date. The Committee shall
exercise its power to postpone the commencement of exercisability only if the
Committee, in its sole discretion, determines that Employee has taken a
personal leave of absence (as defined from time to time by the Committee) since
the date of this Agreement. The duration of the period of postponement shall
equal the duration of the personal leave of absence. If Employee does not
return from the personal leave of absence, the option shall terminate as set
out in paragraph 7.
6. Elimination of Exercisability. Notwithstanding
paragraph 4 or any other provision of this Agreement, prior to the date this
option is scheduled to become exercisable, the Committee, in its sole
discretion, may determine that the right to exercise the option awarded by this
Agreement shall never accrue as to all or part of the Shares specified in
paragraph 1 (and as adjusted pursuant to paragraph 3, if appropriate), in which
case the option shall terminate as to such Shares. The Committee shall
exercise such power only if the Committee, in its sole discretion, determines
that Employee has transferred to a position which, under the Committee's then
existing policy, normally would not qualify Employee to be granted options
under the Plan or to be granted the number of options granted under this
Agreement.
7. Termination of Option. In the event that Employee's
employment with the Company or an Affiliate terminates for any reason other
than Retirement (as defined in the Plan) or death, this option shall
immediately thereupon terminate. In the event of Employee's Retirement,
Employee may, within one (1) year after the date of such Retirement, or within
ten (10) years from the date of this Agreement, whichever shall first occur,
exercise any unexercised portion of the option (whether or not exercisable).
In the event that Employee shall die while in the employ of the Company or an
Affiliate, any unexercised portion of the option (whether or not exercisable)
may be exercised by Employee's beneficiary or transferee, as hereinafter
provided, for a period of one (1) year after the date of Employee's death or
within ten (10) years from the date of this Agreement, whichever shall first
occur. Notwithstanding the preceding two sentences, in the event that within
one year of the date of this Agreement, Employee dies or terminates employment
due to Retirement, this option shall immediately thereupon terminate.
8. Persons Eligible to Exercise. The option shall be
exercisable during Employee's lifetime only by Employee. The option shall be
non-transferable by Employee other than by a beneficiary designation made in a
form and manner acceptable to the Committee, or by will or the applicable laws
of descent and distribution.
9. Death of Employee. To the extent exercisable after
Employee's death, the option shall be exercised only by Employee's designated
beneficiary or beneficiaries, or if no beneficiary survives Employee, by the
person or persons entitled to the option under Employee's will, or if Employee
shall fail to make testamentary disposition of the option, his or her legal
representative. Any transferee exercising the option must furnish the Company
(a) written notice of his or her status as transferee, (b) evidence
satisfactory to the Company to establish the validity of the transfer of the
option and compliance with any laws or regulations pertaining to said transfer,
and (c) written acceptance of the terms and conditions of the option as
prescribed in this Agreement.
10. Exercise of Option. The option may be exercised by the
person then entitled to do so as to any Shares which may then be purchased
(a) by giving written notice of exercise to the Company, specifying the number
of full Shares to be purchased and accompanied by full payment of the purchase
price thereof (and the amount of any income tax the Company determines is
required to be withheld by reason of such exercise), and (b) by giving
satisfactory assurances in writing if requested by the Company, signed by the
person exercising the option, that the Shares to be purchased upon such
exercise are being purchased for investment and not with a view to the
distribution thereof.
11. No Rights of Stockholder. Neither Employee nor any
person claiming under or through said Employee shall be or have any of the
rights or privileges of a stockholder of the Company in respect of any of the
Shares issuable upon the exercise of the option, 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 Employee.
12. No Right to Continued Employment. The granting of
stock options to Employee does not in any way impact the right of the Company
to terminate Employee's employment in accordance with applicable law.
13. Addresses for Notices. Any notice to be given to the
Company under the terms of this Agreement shall be addressed to the Company, in
care of its Law Department, at The Gap, Inc., One Harrison, San Francisco,
California 94105, or at such other address as the Company may hereafter
designate in writing. Any notice to be given to Employee shall be addressed to
Employee at the address set forth beneath Employee's signature hereto, or at
such other address as Employee may hereafter designate in writing. Any such
notice shall be deemed to have been duly given if and when enclosed in a
properly sealed envelope, addressed as aforesaid, registered or certified and
deposited, postage and registry fee prepaid, in a United States post office.
14. Non-Transferability of Option. Except as otherwise
herein provided, the option herein granted and the rights and privileges
conferred hereby shall not be transferred, assigned, pledged or hypothecated in
any way (whether by operation of law or otherwise) and shall not be subject to
sale under execution, attachment or similar process. Upon any attempt to
transfer, assign, pledge, hypothecate or otherwise dispose of said option, or
of any right or privilege conferred hereby, contrary to the provisions hereof,
or upon any attempted sale under any execution, attachment or similar process
upon the rights and privileges conferred hereby, said option and the rights and
privileges conferred hereby shall immediately become null and void.
15. Maximum Term of Option. Notwithstanding any other
provision of this Agreement, this option is not exercisable after the
expiration of ten (10) years from the date of this Agreement.
16. Binding Agreement. Subject to the limitation on the
transferability of the option contained herein, this Agreement shall be binding
upon and inure to the benefit of the heirs, legatees, legal representatives,
successors and assigns of the parties hereto.
17. Plan Governs. This Agreement is subject to all terms
and provisions of the Plan. In the event of a conflict between one or more
provisions of this Agreement and one or more provisions of the Plan, the
provisions of the Plan shall govern. Terms used and not defined in this
Agreement shall have the meaning set forth in the Plan.
18. Committee Authority. The Committee shall have the
power to interpret the Plan and this Agreement and to adopt such rules for the
administration, interpretation and application of the Plan as are consistent
therewith and to interpret or revoke any such rules. All actions taken and all
interpretations and determinations made by the Committee in good faith shall be
final and binding upon Employee, the Company and all other interested persons.
No member of the Committee shall be personally liable for any action,
determination or interpretation made in good faith with respect to the Plan or
this Agreement.
19. Captions. Captions provided herein are for convenience
only and are not to serve as a basis for interpretation or construction of this
Agreement.
20. Agreement Severable. In the event that any provision
in this Agreement shall be held invalid or unenforceable, such provision shall
be severable from, and such invalidity or unenforceability shall not be
construed to have any effect on, the remaining provisions of this Agreement.
* * *
Grant No. _________
THE GAP, INC
NON-QUALIFIED STOCK OPTION AGREEMENT1
The Gap, Inc. (the "Company") hereby grants to
____________________ (the "Employee"), a stock option under The Gap, Inc. 1996
Stock Option and Award Plan (the "Plan"), to purchase shares of common stock
of the Company, $0.05 par value ("Shares"). This option is subject to all of
the terms and conditions contained in this Agreement, including the terms and
conditions contained in the attached Appendix A. The date of this Agreement
is ____________. Subject to the provisions of Appendix A and of the Plan, the
principal features of this option are as follows:
Number of Shares
Purchasable with this Option: _________
Price per Share: _________
Date Option was Granted: _________
Date Option is
Scheduled to become Exercisable: _________
Latest Date Option Expires: _________
Shares issued upon the exercise of this option will be Treasury
Shares.
As provided in the Plan and in this Agreement, this option may
terminate before the date written above, including before the option becomes
exercisable or is exercised. For example, if Employee's employment ends
before the date this option becomes exercisable, this option will terminate at
the same time as Employee's employment terminates. See paragraphs 5, 6 and 7
of Appendix A for further information concerning how changes in employment
affect termination of this option. PLEASE BE SURE TO READ ALL OF APPENDIX A,
WHICH CONTAINS THE SPECIFIC TERMS AND CONDITIONS OF THIS OPTION.
IN WITNESS WHEREOF, the Company and the Employee have executed
this Agreement, in duplicate, to be effective as of the date first above
written.
THE GAP, INC.
Dated: __________ ________________________________________
Millard S. Drexler
President and Chief Executive Officer
My signature below indicates that I understand that this option
is subject to all of the terms and conditions of this Agreement (including the
attached Appendix A) and of the Plan.
I understand that for purposes of Japanese law, this award is
not considered salary, nor is it a promise for a reoccurring grant of stock
options.
EMPLOYEE
Dated: _______________________ __________________________________
Address: __________________________________
__________________________________
__________________________________
Social Security No.: ______________
1 STOCK OPTIONS GRANTED BY THE GAP, INC. ARE GOVERNED SOLELY BY THE LAWS OF
THE STATE OF CALIFORNIA AND THE UNITED STATES OF AMERICA.
APPENDIX A
TERMS AND CONDITIONS OF NON-QUALIFIED STOCK OPTION
1. Grant of Option. The Company hereby grants to Employee
under the Plan, as a separate incentive in connection with his or her
employment and not in lieu of any salary or other compensation for his or her
services, a non-qualified stock option to purchase, on the terms and conditions
set forth in this Agreement and the Plan, all or any part of the number of
Shares set forth on page 1 of this Agreement. The option granted hereby is not
intended to be an Incentive Stock Option within the meaning of Section 422 of
the Code.
2. Exercise Price. The purchase price per Share (the
"Option Price") shall be equal to the price set forth on page 1 of this
Agreement. The Option Price shall be payable in the legal tender of the United
States.
3. Number of Shares. The number and class of Shares
specified in paragraph 1 above, and/or the Option Price, are subject to
appropriate adjustment in the event of changes in the capital stock of the
Company by reason of stock dividends, split-ups or combinations of shares,
reclassifications, mergers, consolidations, reorganizations or liquidations.
Subject to any required action of the stockholders of the Company, if the
Company shall be the surviving corporation in any merger or consolidation, the
option granted hereunder (to the extent that it is still outstanding) shall
pertain to and apply to the securities to which a holder of the same number of
Shares that are then subject to the option would have been entitled. To the
extent that the foregoing adjustments relate to stock or securities of the
Company, such adjustments shall be made by the Compensation and Stock Option
Committee of the Company's Board of Directors (the "Committee"), whose
determination in that respect shall be final, binding and conclusive.
4. Commencement of Exercisability. Except as otherwise
provided in this Agreement, the right to exercise the option awarded by this
Agreement shall accrue as set forth on page 1 of this Agreement, assuming that
Employee is still employed with the Company or an Affiliate on such date(s).
If Employee is not employed on such date(s), the option shall terminate, as set
out in paragraph 7.
5. Postponement of Exercisability. Notwithstanding
paragraph 4 or any other provision of this Agreement, prior to the date this
option is scheduled to become exercisable, the Committee, in its sole
discretion, may determine that the right to exercise the option awarded by this
Agreement shall accrue on a date later than such date. The Committee shall
exercise its power to postpone the commencement of exercisability only if the
Committee, in its sole discretion, determines that Employee has taken a
personal leave of absence (as defined from time to time by the Committee) since
the date of this Agreement. The duration of the period of postponement shall
equal the duration of the personal leave of absence. If Employee does not
return from the personal leave of absence, the option shall terminate as set
out in paragraph 7.
6. Elimination of Exercisability. Notwithstanding
paragraph 4 or any other provision of this Agreement, prior to the date this
option is scheduled to become exercisable, the Committee, in its sole
discretion, may determine that the right to exercise the option awarded by this
Agreement shall never accrue as to all or part of the Shares specified in
paragraph 1 (and as adjusted pursuant to paragraph 3, if appropriate), in which
case the option shall terminate as to such Shares. The Committee shall
exercise such power only if the Committee, in its sole discretion, determines
that Employee has transferred to a position which, under the Committee's then
existing policy, normally would not qualify Employee to be granted options
under the Plan or to be granted the number of options granted under this
Agreement.
7. Termination of Option. In the event that Employee's
employment with the Company or an Affiliate terminates for any reason other
than Retirement (as defined in the Plan) or death, this option shall
immediately thereupon terminate. In the event of Employee's Retirement,
Employee may, within one (1) year after the date of such Retirement, or within
ten (10) years from the date of this Agreement, whichever shall first occur,
exercise any unexercised portion of the option (whether or not exercisable).
In the event that Employee shall die while in the employ of the Company or an
Affiliate, any unexercised portion of the option (whether or not exercisable)
may be exercised by Employee's beneficiary or transferee, as hereinafter
provided, for a period of one (1) year after the date of Employee's death or
within ten (10) years from the date of this Agreement, whichever shall first
occur. Notwithstanding the preceding two sentences, in the event that within
one year of the date of this Agreement, Employee dies or terminates employment
due to Retirement, this option shall immediately thereupon terminate.
8. Persons Eligible to Exercise. The option shall be
exercisable during Employee's lifetime only by Employee. The option shall be
non-transferable by Employee other than by a beneficiary designation made in a
form and manner acceptable to the Committee, or by will or the applicable laws
of descent and distribution.
9. Death of Employee. To the extent exercisable after
Employee's death, the option shall be exercised only by Employee's designated
beneficiary or beneficiaries, or if no beneficiary survives Employee, by the
person or persons entitled to the option under Employee's will, or if Employee
shall fail to make testamentary disposition of the option, his or her legal
representative. Any transferee exercising the option must furnish the Company
(a) written notice of his or her status as transferee, (b) evidence
satisfactory to the Company to establish the validity of the transfer of the
option and compliance with any laws or regulations pertaining to said transfer,
and (c) written acceptance of the terms and conditions of the option as
prescribed in this Agreement.
10. Exercise of Option. The option may be exercised by the
person then entitled to do so as to any Shares which may then be purchased
(a) by giving written notice of exercise to the Company, specifying the number
of full Shares to be purchased and accompanied by full payment of the purchase
price thereof (and the amount of any income tax the Company determines is
required to be withheld by reason of such exercise), and (b) by giving
satisfactory assurances in writing if requested by the Company, signed by the
person exercising the option, that the Shares to be purchased upon such
exercise are being purchased for investment and not with a view to the
distribution thereof.
11. No Rights of Stockholder. Neither Employee nor any
person claiming under or through said Employee shall be or have any of the
rights or privileges of a stockholder of the Company in respect of any of the
Shares issuable upon the exercise of the option, 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 Employee.
12. No Right to Continued Employment. The granting of
stock options to Employee does not in any way impact the right of the Company
to terminate Employee's employment in accordance with applicable law.
13. Addresses for Notices. Any notice to be given to the
Company under the terms of this Agreement shall be addressed to the Company, in
care of its Law Department, at The Gap, Inc., One Harrison, San Francisco,
California 94105, or at such other address as the Company may hereafter
designate in writing. Any notice to be given to Employee shall be addressed to
Employee at the address set forth beneath Employee's signature hereto, or at
such other address as Employee may hereafter designate in writing. Any such
notice shall be deemed to have been duly given if and when enclosed in a
properly sealed envelope, addressed as aforesaid, registered or certified and
deposited, postage and registry fee prepaid, in a United States post office.
14. Non-Transferability of Option. Except as otherwise
herein provided, the option herein granted and the rights and privileges
conferred hereby shall not be transferred, assigned, pledged or hypothecated in
any way (whether by operation of law or otherwise) and shall not be subject to
sale under execution, attachment or similar process. Upon any attempt to
transfer, assign, pledge, hypothecate or otherwise dispose of said option, or
of any right or privilege conferred hereby, contrary to the provisions hereof,
or upon any attempted sale under any execution, attachment or similar process
upon the rights and privileges conferred hereby, said option and the rights and
privileges conferred hereby shall immediately become null and void.
15. Maximum Term of Option. Notwithstanding any other
provision of this Agreement, this option is not exercisable after the
expiration of ten (10) years from the date of this Agreement.
16. Binding Agreement. Subject to the limitation on the
transferability of the option contained herein, this Agreement shall be binding
upon and inure to the benefit of the heirs, legatees, legal representatives,
successors and assigns of the parties hereto.
17. Plan Governs. This Agreement is subject to all terms
and provisions of the Plan. In the event of a conflict between one or more
provisions of this Agreement and one or more provisions of the Plan, the
provisions of the Plan shall govern. Terms used and not defined in this
Agreement shall have the meaning set forth in the Plan.
18. Committee Authority. The Committee shall have the
power to interpret the Plan and this Agreement and to adopt such rules for the
administration, interpretation and application of the Plan as are consistent
therewith and to interpret or revoke any such rules. All actions taken and all
interpretations and determinations made by the Committee in good faith shall be
final and binding upon Employee, the Company and all other interested persons.
No member of the Committee shall be personally liable for any action,
determination or interpretation made in good faith with respect to the Plan or
this Agreement.
19. Captions. Captions provided herein are for convenience
only and are not to serve as a basis for interpretation or construction of this
Agreement.
20. Agreement Severable. In the event that any provision
in this Agreement shall be held invalid or unenforceable, such provision shall
be severable from, and such invalidity or unenforceability shall not be
construed to have any effect on, the remaining provisions of this Agreement.
Exhibit 10.8
Grant No. ___________
THE GAP, INC.
UK SUB-PLAN TO THE US STOCK OPTION AND AWARD PLAN
The Gap, Inc. (the "Company") hereby grants to ______________________
(the "Employee"), a stock option under The Gap, Inc. UK Sup-plan to the 1996
Stock Option and Award Plan (the "Sub-plan"), to purchase shares of common
stock of the Company, $0.05 par value ("Shares"). This option is subject to
all of the terms and conditions contained in this Agreement, including the
terms and conditions contained in the attached Appendix A. The date of this
Agreement is __________. Subject to the provisions of Appendix A and of the
Sub-plan, the principal features of this option are as follows:
Number of Shares
Purchasable with this Option: ________
Price per Share: ________
Date Option was Granted: ________
Date Option is
Scheduled to become Exercisable: ________
Latest Date Option Expires: ________
As provided in the Sub-plan and in this Agreement, this option may
terminate before the date written above, including before the option becomes
exercisable or is exercised. For example, if Employee's employment ends
before the date this option becomes exercisable, this option will terminate at
the same time as Employee's employment terminates. See paragraphs 5, 6 and 7
of Appendix A for further information concerning how changes in employment
affect termination of this option.
As provided in the Sub-plan and in this Agreement, the exercise of this
option must be:
made at a time when the Scheme retains Inland Revenue approval,
not earlier than 3 or later than 10 years after the Option was granted,
and
not earlier than 3 years following the latest previous exercise by the
participant of an Option (obtained under this or any other Option Scheme
approved by the Inland Revenue) which enjoyed relief from income tax.
It is not transferable, and will lapse upon the occasion of an
assignment, charge, disposal or other dealing with the rights conveyed by it
in any other circumstances. PLEASE BE SURE TO READ ALL OF APPENDIX A, WHICH
CONTAINS THE SPECIFIC TERMS AND CONDITIONS OF THIS OPTION.
IN WITNESS WHEREOF, the Company and the Employee have executed this
Agreement, in duplicate, to be effective as of the date first above written.
THE GAP, INC.
Dated: ________
______________________________________________________
Millard S. Drexler
President and Chief Executive Officer
My signature below indicates that I understand that this option is
subject to all of the terms and conditions of this Agreement (including the
attached Appendix A) and of the Sub-plan.
EMPLOYEE
Dated: _______________________
Address:
National Insurance No:
APPENDIX A
TERMS AND CONDITIONS OF GAP INC UK SUB-PLAN TO THE US STOCK OPTION AND
AWARD PLAN
1. Grant of Option. The Company hereby grants to Employee
under the Sub-plan, as a separate incentive in connection with his or her
employment and not in lieu of any salary or other compensation for his or her
services, an approved stock option to purchase, on the terms and conditions set
forth in this Agreement and the Sub-plan, all or any part of the number of
Shares set forth on page 1 of this Agreement. The option granted hereby is not
intended to be an Incentive Stock Option within the meaning of Section 422 of
the Code.
2. Exercise Price. The purchase price per Share (the
"Option Price") shall be equal to the price set forth on page 1 of this
Agreement, which is the fair market value per Share as defined in the Sub-plan
Rules as the average of the middle market quotation (as derived from the Wall
Street Journal) on the date of this Agreement.
3. Number of Shares. The number and class of Shares
specified in paragraph 1 above, and/or the Option Price, are subject to
appropriate adjustment in the event of changes constituting a variation in
capital within the meaning of paragraph 29 of Schedule 9 to the United Kingdom
Income and Corporation Taxes Act 1988, and any such adjustment will be subject
to Inland Revenue approval before it takes effect. To the extent that the
foregoing adjustments relate to stock or securities of the Company, such
adjustments shall be made by the Compensation and Stock Option Committee of the
Company's Board of Directors (the "Committee"), whose determination in that
respect shall be final, binding and conclusive.
4. Commencement of Exercisability. Except as otherwise
provided in this Agreement, the right to exercise the option awarded by this
Agreement shall accrue as to 100% of the Shares subject to such option on the
third anniversary date of the date of this Agreement, and expire on the tenth
anniversary date of this agreement, assuming that Employee is still employed
with the Company or an Affiliate on such date. If Employee is not employed on
such date, the option shall terminate, as set out in paragraph 7.
5. Postponement of Exercisability. Notwithstanding
paragraph 4 or any other provision of this Agreement, prior to the third
anniversary of the date of this Agreement, the Committee, in its sole
discretion, with the approval of the Inland Revenue, may determine that the
right to exercise the option awarded by this Agreement shall accrue on a date
later than the third anniversary of this Agreement. The Committee shall
exercise its power to postpone the commencement of exercisability only if the
Committee, in its sole discretion, determines that Employee has taken a
personal leave of absence (as defined from time to time by the Committee) since
the date of this Agreement. The duration of the period of postponement shall
equal the duration of the personal leave of absence. If Employee does not
return from the personal leave of absence, the option shall terminate as set
out in paragraph 7.
6. Elimination of Exercisability. Notwithstanding
paragraph 4 or any other provision of this Agreement, prior to the third
anniversary of the date of this Agreement, the Committee, in its sole
discretion, with the approval of the Inland Revenue, may determine that the
right to exercise the option awarded by this Agreement shall never accrue as to
all or part of the Shares specified in paragraph 1 (and as adjusted pursuant to
paragraph 3, if appropriate). The Committee shall exercise such power only if
the Committee, in its sole discretion, determines that Employee has transferred
to a position which, under the Committee's then existing policy, normally would
not qualify Employee to be granted options under the Sub-plan.
7. Termination of Option. In the event that Employee's
employment with the Company or an Affiliate terminates for any reason other
than Retirement (as defined in the Sub-plan) or death, this option shall
immediately thereupon terminate. In the event of Employee's Retirement,
Employee may, within one (1) year after the date of such Retirement, or within
ten (10) years from the date of this Agreement, whichever shall first occur,
exercise any unexercised portion of the option. In the event that Employee
shall die while in the employ of the Company or an Affiliate, any unexercised
portion of the option may be exercised by Employee's beneficiary or transferee,
as hereinafter provided, for a period of one (1) year after the date of
Employee's death or within ten (10) years from the date of this Agreement,
whichever shall first occur. Notwithstanding the preceding two sentences, in
the event that within one year of the date of this Agreement, Employee dies or
terminates employment due to Retirement, this option shall immediately
thereupon terminate.
8. Persons Eligible to Exercise. The option shall be
exercisable during Employee's lifetime only by Employee. The option is
personal to Employee and is not capable of being transferred, assigned or
charged by Employee, except by will or the applicable laws of descent and
distribution.
9. Death of Employee. To the extent exercisable after
Employee's death, the option shall be exercised only by person or persons
entitled to the option under Employee's will, or if Employee shall fail to make
testamentary disposition of the option, his or her legal representative. Any
transferee exercising the option must furnish the Company (a) written notice of
his or her status as transferee, (b) evidence satisfactory to the Company to
establish the validity of the transfer of the option and compliance with any
laws or regulations pertaining to said transfer, and (c) written acceptance of
the terms and conditions of the option as prescribed in this Agreement.
10. Exercise of Option. The option may be exercised by the
person then entitled to do so as to any Shares which may then be purchased (a)
by giving written notice of exercise to the Company, specifying the number of
full Shares to be purchased and accompanied by full payment of the purchase
prices thereof (and the amount of any income tax the Company determines is
required to be withheld by reason of such exercise), and (b) by giving
satisfactory assurances in writing if requested by the Company, signed by the
person exercising the option, that the Shares to be purchased upon such
exercise are being purchased for investment and not with a view to the
distribution thereof.
11. No Rights of Stockholder. Neither Employee nor any
person claiming under or through said Employee shall be or have any of the
rights or privileges of a stockholder of the Company in respect of any of the
Shares issuable upon the exercise of the option, 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 Employee. The
Company undertakes to issue such Share certificates within thirty days of
employee exercising the option.
12. No Right to Continued Employment. The granting of stock
options to Employee does not in any way impact the right of the Company to
terminate Employee's employment in accordance with applicable law.
13. Addresses for Notices. Any notice to be given to the
Company under the terms of this Agreement shall be addressed to the Company, in
care of its Law Department, at The Gap, Inc., One Harrison, San Francisco,
California 94105, or at such other address as the Company may hereafter
designate in writing. Any notice to be given to Employee shall be addressed to
Employee at the address set forth beneath Employee's signature hereto, or at
such other address as Employee may hereafter designate in writing. Any such
notice shall be deemed to have been duly given if and when enclosed in a
properly sealed envelope addressed as aforesaid, registered or certified and
deposited, postage and registry fee prepaid, in a United States post office.
14. Non-Transferability of Option. Except as otherwise
herein provided, the option herein granted and the rights and privileges
conferred hereby shall not be transferred, assigned, pledged or hypothecated in
any way (whether by operation of law or otherwise) and shall not be subject to
sale under execution, attachment or similar process. Upon any attempt to
transfer, assign, pledge, hypothecate or otherwise dispose of said option, or
of any right or privilege conferred hereby, contrary to the provisions hereof,
or upon any attempted sale under any execution, attachment or similar process
upon the rights and privileges conferred hereby, said option and the rights and
privileges conferred hereby shall immediately become null and void.
15. Maximum Term of Option. Notwithstanding any other
provision of this Agreement, this option is not exercisable after the
expiration of ten (10) years from the date of this Agreement.
16. Binding Agreement. Subject to the limitation on the
transferability of the option contained herein, this Agreement shall be binding
upon and inure to the benefit of the heirs, legatees, legal representatives,
successors and assigns of the parties hereto.
17. Sub-plan Governs. This Agreement is subject to all
terms and provisions of the Sub-plan. In the event of a conflict between one
or more provisions of this Agreement and one or more provisions of the Sub-
plan, the provisions of the Sub-plan shall govern. Terms used and not defined
in this Agreement shall have the meaning set forth in the Sub-plan.
18. Committee Authority. The Committee shall have the
power to interpret the Sub-plan and this Agreement and to adopt such rules for
the administration, interpretation and application of the Sub-plan as are
consistent therewith, and to interpret or revoke any such rules, subject to the
approval of the Inland Revenue. All actions taken and all interpretations and
determinations made by the Committee in good faith shall be final and binding
upon Employee, the Company and all other interested persons. No member of the
Committee shall be personally liable for any action, determination or
interpretation made in good faith with respect to the Sub-plan or this
Agreement.
19. Captions. Captions provided herein are for convenience
only and are not to serve as a basis for interpretation or construction of this
Agreement.
20. Agreement Severable. In the event that any provision
in this Agreement shall be held invalid or unenforceable, such provision shall
be severable from, and such invalidity or unenforceability shall not be
construed to have any effect on, the remaining provisions of this Agreement.
Deloitte &
Touche LLP
50 Fremont Street Telephone: (415) 247-4000
San Francisco, California 94105-2230 Facsimile: (415) 247-4329
To the Board of Directors and Stockholders of
The Gap, Inc.:
We have made reviews, in accordance with standards established by the American
Institute of Certified Public Accountants, of the unaudited interim condensed
consolidated financial statements of The Gap, Inc. and subsidiaries for the
thirty-nine week periods ended October 31, 1998 and November 1, 1997, as
indicated in our report dated November 10, 1998; because we did not perform an
audit, we expressed no opinion on that information.
We are aware that our report referred to above, which is included in your
Quarterly Report on Form 10-Q for the quarter ended October 31, 1998, is
incorporated by reference in Post Effective Amendment No. 1 to Registration
Statement No. 2-72586, Registration Statement No. 2-60029, Registration
Statement No. 33-39089, Registration Statement No. 33-40505, Registration
Statement No. 33-54686, Registration Statement No. 33-54688, Registration
Statement No. 33-54690, Registration Statement No. 33-56021, Registration
Statement No. 333-00417, Registration Statement No. 333-12337, Registration
Statement No. 333-36265, and Registration Statement No. 333-68285.
We also are aware that the aforementioned report, pursuant to Rule 436(c)
under the Securities Act of 1933, is not considered a part of the Registration
Statements prepared or certified by an accountant or a report prepared or
certified by an accountant within the meaning of Sections 7 and 11 of that
Act.
/s/ Deloitte & Touche LLP
December 10, 1998
Deloitte Touche
Tohmatsu
International
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