<PAGE>
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a)
OF THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY (AS PERMITTED BY RULE 14a-
6(e)(2))
[X] Preliminary Proxy Statement
[_] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S)240.14a-11(c) or (S)240.14a-12
THE GAP, INC.
-----------------------------------------------------
(Name of Registrant as Specified In Its Charter)
-----------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
Notes:
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PRELIMINARY COPIES
[GAP LOGO]
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
APRIL 28, 1998
To Our Shareholders:
The Annual Meeting of Shareholders of The Gap, Inc. will be held at the
Town Hall of the Delancey Street Foundation, 600 The Embarcadero, San Francisco,
California, on Tuesday, April 28, 1998 at 1:30 P.M., for the following purposes:
1. To elect a Board of Directors;
2. To consider and act upon a proposal recommended by the Board
of Directors to amend the Company's Amended and Restated Certificate of
Incorporation to increase the Company's authorized number of shares of Common
Stock from 500,000,000 to 1,500,000,000;
3. To consider and act upon the selection by the Board of
Directors of Deloitte & Touche LLP as independent auditors for the Company for
the fiscal year ending on January 30, 1999; and
4. To transact such other business as may properly come before
the meeting.
The foregoing items of business are more fully described in the Proxy
Statement following this Notice.
Only shareholders of record at the close of business on March 9, 1998,
are entitled to notice of and to vote at the Annual Meeting and any adjournments
or postponements thereof. A complete list of shareholders of record as of the
close of business on March 9, 1998 will be available for inspection during
normal business hours ten days before the Annual Meeting at One Harrison Street,
San Francisco, California.
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, PLEASE COMPLETE,
DATE AND SIGN THE ENCLOSED PROXY CARD AND RETURN IT AS PROMPTLY AS POSSIBLE IN
THE ENCLOSED ENVELOPE.
A copy of the Company's annual report is being mailed with this proxy
statement to shareholders entitled to notice of this meeting.
By Order of the Board of Directors,
Anne B. Gust
Secretary
April 6, 1998
<PAGE>
PRELIMINARY COPIES
THE GAP, INC.
ONE HARRISON STREET
SAN FRANCISCO, CALIFORNIA 94105
PROXY STATEMENT
THIS PROXY STATEMENT IS FURNISHED IN CONNECTION WITH THE SOLICITATION OF
PROXIES BY THE BOARD OF DIRECTORS OF THE GAP, INC. (THE "COMPANY") FOR USE AT
THE ANNUAL MEETING OF SHAREHOLDERS OF THE COMPANY TO BE HELD ON APRIL 28, 1998
AT 1:30 P.M. at THE TOWN HALL OF THE DELANCEY STREET FOUNDATION, 600 THE
EMBARCADERO, IN SAN FRANCISCO, AND AT ANY ADJOURNMENT THEREOF. THIS STATEMENT
AND THE ENCLOSED FORM OF PROXY WERE FIRST SENT TO SHAREHOLDERS ON OR ABOUT APRIL
6, 1998.
THE PROXY
The persons named as proxyholders were selected by the Board of Directors of
the Company and are officers of the Company.
All proxies will be voted, or an abstention or withholding recorded, in
accordance with the directions on the proxy. If no contrary direction is given,
the shares will be voted:
FOR the election of directors nominated by the Board of Directors;
FOR the approval of the proposal to amend the Company's Amended and Restated
Certificate of Incorporation to increase the Company's authorized number of
shares of Common Stock from 500,000,000 to 1,500,000,000; and
FOR the approval of the selection by the Board of Directors of Deloitte &
Touche LLP as independent auditors for the Company for the fiscal year ending
January 30, 1999.
All expenses in connection with the solicitation of the enclosed proxy,
including the charges of brokerage houses and other custodians, nominees or
fiduciaries for forwarding documents to security owners, will be paid by the
Company. In addition to solicitation by mail, officers, directors and employees
of the Company, who will receive no extra compensation for their services, or a
proxy solicitation firm retained by the Company, may solicit proxies by
telephone, fax or in person.
A shareholder giving the enclosed proxy may revoke it at any time prior to its
exercise by a written revocation delivered to the Company, by a subsequent
proxy, or by attending the Annual Meeting and voting in person.
VOTING SECURITIES AND VOTING RIGHTS
The only outstanding voting securities of the Company are its shares of Common
Stock, of which [393,133,028] shares were outstanding at the close of business
on March 9, 1998. Only shareholders of record at the close of business on that
date are entitled to vote at the meeting. Each shareholder is entitled to one
vote per share on each matter submitted to the meeting. All share amounts in
this proxy statement have been restated to give effect to stock splits.
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The election inspector(s) appointed for the Annual Meeting will determine
whether or not a quorum is present and will tabulate votes cast by proxy or in
person at the Annual Meeting. The holders of a majority of the outstanding
shares of the Common Stock of the Company, present in person or by proxy, will
constitute a quorum for the transaction of business at the Annual Meeting or any
adjournment thereof. Election of directors by shareholders shall be determined
by a plurality of the votes cast by the shareholders present in person or by
proxy at the meeting and entitled to vote on the election of directors.
Approval of the proposal to amend the Company's Amended and Restated Certificate
of Incorporation requires the affirmative vote of a majority of the Company's
outstanding Common Stock. Approval of the selection by the Board of Directors of
Deloitte & Touche LLP as independent auditors for the Company requires the
affirmative vote of the holders of the majority of the shares present or
represented by proxy at the Annual Meeting.
Abstentions are included in the determination of shares present for quorum
purposes. Because abstentions represent shares entitled to vote, the effect of
an abstention will be the same as a vote against a proposal.
If you hold shares in "street name" through a broker or other nominee, your
broker or nominee may not be permitted to exercise voting discretion with
respect to certain matters to be acted upon. If you do not give your broker or
nominee specific instructions, your shares may not be voted on those matters and
will not be considered as present and entitled to vote with respect to those
matters. Shares represented by such "broker non-votes" will, however, be
counted in determining whether there is a quorum.
PROPOSAL NO. 1
ELECTION OF DIRECTORS
NOMINEES FOR ELECTION AS DIRECTORS
Directors will be elected at the Annual Meeting to serve until the next Annual
Meeting and until their successors are elected. The Board of Directors proposes
to nominate the persons whose names are set forth below, all of whom are current
directors. In the absence of instructions to the contrary, shares represented
by the proxy will be voted for the election of all these nominees to the Board
of Directors. The Board of Directors has no reason to believe that any of these
nominees will be unable to serve. However, if any nominee should for any reason
be unavailable to serve, the proxies will be voted for the election of such
other person to the office of director as the Board of Directors may recommend
in place of such nominee. Set forth below is certain information concerning the
nominees which is based on data furnished by them.
<TABLE>
<CAPTION>
SERVED AS
DIRECTOR
NAME, AGE, PRINCIPAL OCCUPATION DURING PAST FIVE YEARS AND OTHER INFORMATION SINCE
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<S> <C>
ADRIAN D. P. BELLAMY, 56 [DIAMOND] * ............................................................... 1995
Chairman of Gucci Group, NV, luxury accessories and apparel manufacturer and retailer; Director of
The Body Shop International, P.L.C., personal care retailer; Director of Paragon Trade Brands,
Inc., manufacturer of store brand diapers; Director of Shaman Pharmaceuticals Inc.,
pharmaceutical research company; and Director of Williams-Sonoma, Inc. specialty retailer.
Chairman and Chief Executive Officer of DFS Group Limited, specialty retailer, 1983-95.
JOHN G. BOWES, 69 [DIAMOND] * ....................................................................... 1974
Chairman of Yakima Products, Inc. since 1994 and FasTrak, Inc. since 1995. Chairman of Kransco
Group Companies, manufacturer of recreational products, 1962-94.
</TABLE>
2
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<TABLE>
<S> <C>
MILLARD S. DREXLER, 53 .............................................................................. 1983
Chief Executive Officer of the Company since 1995, President of the Company since 1987 and Chief
Executive Officer of the Gap Division since 1987. Chief Operating Officer of the Company
1993-95; Chief Executive Officer of Banana Republic, Inc. 1988-97. Director of Williams-Sonoma,
Inc., specialty retailer.
DONALD G. FISHER, 69 * + ............................................................................ 1969
Chairman of the Company. Chief Executive Officer of the Company, 1969-95. Director of The
Charles Schwab Corporation, discount securities brokerage; and Director of AirTouch
Communications, telecommunications company.
DORIS F. FISHER, 66 + ............................................................................... 1969
Merchandising consultant to the Company.
ROBERT J. FISHER, 43 ++ ............................................................................. 1990
Executive Vice President of the Company since 1992. President, Gap Division since 1997. Chief
Operating Officer from 1992-93 and 1995-97; Chief Financial Officer of the Company, 1993-95.
Director of Sun Microsystems, Inc., manufacturer of computer systems.
JOHN M. LILLIE, 61 [DIAMOND] * ...................................................................... 1992
Chairman, The Epic Team, bicycle and accessory products, since 1996. Chairman and Chief Executive
Officer of American President Companies, Ltd., transportation company, 1992-1995. Director of
Consolidated Freightways, Ltd., transportation company; Director of Circle International Group,
Inc., international freight logistics and services company; and Director of Walker Interactive
Systems, Inc., software company.
CHARLES R. SCHWAB, 60 [SOLID BOX] * ................................................................. 1986
Chairman and Co-Chief Executive Officer of The Charles Schwab Corporation, discount securities
brokerage, since 1986. Director of Transamerica Corporation, insurance and financial services
company; Director of AirTouch Communications, telecommunications company; and Director of Siebel
Systems, Inc., software company.
BROOKS WALKER, JR., 70 [SOLID BOX] * ................................................................ 1972
General Partner, Walker Investors, venture capital investment partnership, since 1979. Director
of Pope & Talbot, Inc., manufacturer of wood products.
SERGIO S. ZYMAN, 52 * ............................................................................... 1997
Senior Vice President and Chief Marketing Officer of The Coca-Cola Company since 1993. President
of Sergio Zyman & Company, consulting company, from 1986 to 1993.
</TABLE>
____________________
[SOLID BOX] Member of the Audit and Finance Committee.
[DIAMOND] Member of the Compensation and Stock Option Committee.
* Member of the Corporate Governance Committee.
+ Donald G. Fisher and Doris F. Fisher are husband and wife.
++ Robert J. Fisher is the son of Donald G. and Doris F. Fisher.
Lucie J. Fjeldstad and William A. Hasler are not standing for re-election.
Fewer nominees are named (ten) than the number fixed by the Board pursuant to
the Company's Bylaws (twelve) because the Company has not yet determined whether
to fill those positions and, if so, who will be invited to join the Board.
Proxies cannot be voted for a greater number of persons than the number of
nominees named.
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Information concerning executive officers of the Company who are not also
directors is set forth in the Company's annual report on Form 10-K for the
fiscal year ended January 31, 1998.
INFORMATION ABOUT THE BOARD OF DIRECTORS AND COMMITTEES OF THE BOARD
The Board of Directors has three standing committees: the Audit and Finance
Committee, and the Compensation and Stock Option Committee, both of which are
composed of directors who are not employees of the Company, and the Corporate
Governance Committee, which is made up of the non-employee directors and one
employee director.
The functions of the Audit and Finance Committee are (i) to recommend the
engagement of the Company's independent auditors and review with them the plan,
scope and results of their audit for each year, (ii) to review with the
Company's Consulting and Auditing Services department the plan, scope and
results of their operations, and (iii) to consider and review other matters
relating to the financial and accounting affairs of the Company. This committee
is composed exclusively of directors who are, in the opinion of the Board of
Directors, free from any relationship that will interfere with the exercise of
independent judgment as a committee member. The present members of the Audit
and Finance Committee are Messrs. Hasler, Schwab and Walker (who is Chairman).
The functions of the Compensation and Stock Option Committee are to review and
approve salaries and other forms of compensation for all corporate and
divisional officers, to approve the guaranteeing or granting of loans to certain
corporate and divisional officers under the Company's Relocation Loan Plan, to
grant stock and options to purchase stock to selected employees under the
Company's stock plan, and to make awards under the Company's annual and long-
term incentive plans to key employees. This committee is composed exclusively
of directors who have not been eligible to receive stock options or awards under
the Company's stock plan (except for predetermined, formula-based awards, as
described below) for a period of at least one year prior to membership on the
committee. The present members of the Compensation and Stock Option Committee
are Messrs. Bellamy, Bowes, and Lillie (who is Chairman), and Ms. Fjeldstad.
The functions of the Corporate Governance Committee are to make
recommendations to the Board on all matters concerning corporate governance and
directorship practices, including the qualifications of officers, directors,
candidates for election as directors, the size, composition, compensation and
function of the Board of Directors, the functions and duties of the committees
of the Board, the effectiveness and procedures of the Board, and succession
planning for important Company functions. The present members of the Corporate
Governance Committee are Messrs. Bellamy, Bowes, Donald Fisher, Hasler (who is
Chairman), Lillie, Schwab, Walker, and Zyman and Ms. Fjeldstad.
During the last fiscal year, the Board of Directors held seven meetings, the
Compensation and Stock Option Committee held four meetings, the Audit and
Finance Committee held two meetings and the Corporate Governance Committee held
no meetings. Mr. Schwab attended fewer than 75% of the aggregate of (i) the
total number of meetings of the Board of Directors held, and (ii) the total
number of meetings held by all Committees of the Board on which he was a member.
COMPENSATION OF DIRECTORS
The Company does not pay director fees to directors who are employees of the
Company or any affiliated company. Directors who are not employees of or
consultants to the Company ("non-employee directors") do not receive any form of
direct remuneration other than as described below. In addition, travel expenses
to attend meetings of the Board of Directors are reimbursed by the Company. All
directors are eligible to receive discounts on Company merchandise.
Each non-employee director of the Company receives director fees in the form
of an annual retainer of $36,000 per year, payable quarterly, which is
diminished by $2,500 for each Board and/or Committee meeting day missed.
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Under the Company's Non-Employee Director Deferred Compensation Plan, each
non-employee director may elect to forego receipt of his or her annual retainer
on a quarterly basis in exchange for an option to purchase 937 shares of Company
Common Stock. Any such option will have an exercise price which is discounted
to reflect the amount of the foregone retainer, will be exercisable immediately,
and will have a maximum term of seven years. Shares issued under the plan will
come from treasury shares. Each non-employee director elected to participate in
the plan for the fourth quarter of fiscal 1997 and for fiscal 1998.
Under the Company's 1996 Stock Option and Award Plan, non-employee directors
are eligible to receive stock options according to a pre-determined formula, as
follows: (i) each new non-employee director automatically receives an option to
purchase 15,000 shares at the then-current fair market value; and (ii) each
continuing non-employee director automatically receives an option to purchase
3,750 shares at the then-current fair market value. All initial options to new
non-employee directors are granted on the date of appointment to the Board. All
continuing non-employee director options are granted on the first business day
after each annual meeting of shareholders. The options normally become
exercisable three years after the date of grant. In addition, the Compensation
and Stock Option Committee is authorized to grant discretionary options to non-
employee directors using treasury shares. In January 1998, Mr. Zyman was granted
a discretionary option to purchase 7,500 shares at a discounted exercise price
of $19.50 per share. The option is exercisable in five equal annual
installments.
The Non-Employee Director Retirement Plan is an unfunded deferred compensation
plan which sets mandatory retirement from service on the Board at age 72 and
provides for annual benefits if a non-employee director has served on the Board
for five consecutive years and is still a director at age 72. The annual
benefit payable to an eligible retired director is equal to 75% of the annual
retainer fee in effect at the time of the director's retirement. The duration
of these annual payments equals the number of years that the director served on
the Board. If the director dies before the maximum payment period expires,
payments will continue for the life of his or her surviving spouse, or until the
end of the maximum payment period, whichever is sooner. In fiscal 1996, the
Board of Directors elected to discontinue this plan for future directors.
Current participants will continue to be eligible for plan benefits, assuming
they meet the requirements of the plan; however, the benefit payable will be
capped at the current level (i.e., 75% of $36,000).
In fiscal 1997, Doris Fisher received $24,600 for merchandising services
rendered in the course of her employment with the Company. As a Company
employee, Mrs. Fisher participates in all benefits which the Company makes
available to its employees generally, except for stock-based compensation and
bonus programs.
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PROPOSAL NO. 2
PROPOSED AMENDMENT TO THE
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
TO INCREASE AUTHORIZED SHARES OF COMMON STOCK
At the Annual Meeting there will be submitted to shareholders a proposal to
increase the number of shares of Common Stock the Company is authorized to
issue. The Board of Directors recommends adoption of the proposal.
The Company presently is authorized to issue 500,000,000 shares of Common
Stock having a par value of $0.05 per share. As of [January 31,] 1998,
approximately 439.9 million shares of Common Stock were issued and approximately
393.1 million shares were outstanding (net of approximately 46.8 million
treasury shares). Of the remaining authorized but unissued shares,
approximately 60.1 million shares were reserved for issuance under the Company's
stock option and restricted stock plans. Based upon the foregoing, the Company
has virtually no shares remaining available for other purposes.
From time to time, the Company has issued additional shares of common stock
in payment of stock dividends or stock splits or for other purposes. During
fiscal year 1997, the Company issued approximately 146.5 million shares in
connection with a three-for-two stock split in the form of a stock dividend.
Also during fiscal 1997, the Company issued approximately 2.8 million shares
upon exercise of employee stock options and 53,250 shares under the restricted
stock portion of the 1996 Stock Option and Award Plan.
In February 1998, the Board approved a resolution, subject to shareholder
approval at the Annual Meeting on April 28, 1998, amending Article Fifth of the
Company's Amended and Restated Certificate of Incorporation ("Certificate of
Incorporation") to increase the authorized number of shares of Common Stock
from 500,000,000 to 1,500,000,000. The pertinent provisions of the amendment to
the Certificate of Incorporation are set forth in Exhibit A to this Proxy
Statement. The affirmative vote of a majority of the outstanding shares of
Common Stock is required to adopt the proposed amendment. The amendment, if
approved by the shareholders, will take effect upon filing with the Delaware
Secretary of State, which is expected to occur on or about April 29, 1998.
The Board of Directors believes that it is in the Company's best interests
to increase the number of authorized shares of Common Stock which may be made
available for future stock dividends or splits, financing and acquisition
transactions, employee benefit plans and other general corporate purposes. If
the amendment is approved, the Company generally also will have greater
flexibility in the future to issue shares in excess of those presently
authorized, without the expense and delay of a special shareholders' meeting.
Except in connection with its stock option and restricted stock plans, the
Board of Directors currently has no immediate plans, understandings, agreements,
arrangements, or commitments for the issuance of additional shares of Common
Stock and, as set forth in the Company's Certificate of Incorporation, no holder
of Common Stock has any preemptive right with respect to the Common Stock.
Thus, should the Board of Directors elect to issue additional shares of Common
Stock, existing shareholders would not have any preferential rights to purchase
such shares. If the Board of Directors deems it to be in the best interests of
the Company and the shareholders to issue additional shares of Common Stock in
the future, the Board of Directors generally would not seek further
authorization by vote of the shareholders, unless such authorization is
otherwise required by applicable law or stock exchange regulations.
The proposed amendment to increase the authorized number of shares of
Common Stock could, under certain circumstances, have an anti-takeover effect,
although this is not the intention of this proposal. For example, in the event
of a hostile attempt to take over control of the Company, it may be possible for
the Company to endeavor to impede the attempt by issuing shares of the Common
Stock, thereby diluting the voting power of the other outstanding shares and
increasing the potential cost to acquire control of the Company. The amendment
therefore may have the effect of discouraging unsolicited takeover attempts. By
potentially discouraging initiation of any such unsolicited takeover attempt,
the proposed amendment may limit the opportunity for the Company's shareholders
to dispose of their shares at the higher price generally available in takeover
attempts or that may be available under a merger proposal. The proposed
amendment may have the effect of permitting the Company's current management,
including the current Board of Directors, to retain its position, and place it
in a better position to resist changes that shareholders may wish to
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make if they are dissatisfied with the conduct of the Company's business.
However, the Board of Directors is not aware of any attempt to take control of
the Company and the Board of Directors has not presented this proposal with the
intent that it be utilized as a type of anti-takeover device.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" THE
APPROVAL OF THE AMENDMENT TO THE COMPANY'S CERTIFICATE OF INCORPORATION TO
INCREASE THE AUTHORIZED NUMBER OF SHARES OF COMMON STOCK FROM 500,000,000 TO
1,500,000,000. Unless a contrary choice is specified, proxies solicited by the
Board of Directors will be voted FOR approval of the amendment.
PROPOSAL NO. 3
SELECTION OF INDEPENDENT AUDITORS
The Board of Directors has selected Deloitte & Touche LLP as independent
auditors for the Company for the fiscal year ending January 30, 1999. Deloitte
& Touche LLP has acted as auditors for the Company since 1972. Although action
by the shareholders is not required by law, the Board of Directors has
determined that it is desirable to request approval of this selection by the
shareholders of the Company. If the shareholders fail to approve the selection
of such auditors, the Board of Directors will reconsider the selection.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" THE
APPROVAL OF THE SELECTION OF DELOITTE & TOUCHE LLP AS INDEPENDENT AUDITORS.
Representatives of Deloitte & Touche LLP are expected to be present at the
Annual Meeting of Shareholders and available to make statements to, and respond
to appropriate questions of, shareholders.
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BENEFICIAL OWNERSHIP OF SHARES
The following table sets forth certain information as of [February 24,] 1998,
to indicate beneficial ownership of the Common Stock of the Company by (i) each
person known by the Company to be the beneficial owner of more than 5% of the
outstanding shares of the Company's Common Stock, (ii) each director and nominee
and each executive officer named in the Summary Compensation Table, and (iii)
all directors and executive officers of the Company as a group. Unless
otherwise indicated, beneficial ownership is direct and the person indicated has
sole voting and investment power.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
AMOUNT
BENEFICIALLY PERCENT
NAME OF BENEFICIAL OWNER OWNED (1) OF CLASS
- ------------------------ ------------ --------
DIRECTORS AND EXECUTIVE OFFICERS
- --------------------------------
<S> <C> <C> <C>
Adrian D. P. Bellamy........................................................ 30,337 *
John G. Bowes............................................................... 565,537 *
Millard S. Drexler.......................................................... 7,048,050 (2) 1.8%
Donald G. Fisher and (3) (3)
Doris F. Fisher............................................................. 94,625,861 (3) 24.1%(3)
Robert J. Fisher............................................................ 14,534,020 (2)(4) 3.7%
Lucie J. Fjeldstad.......................................................... 19,139 *
William A. Hasler........................................................... 10,687 *
Warren R. Hashagen.......................................................... 240,366 (2) *
John M. Lillie.............................................................. 24,937 (5) *
Charles R. Schwab........................................................... 29,561 (6) *
Brooks Walker, Jr........................................................... 214,837 (7) *
John B. Wilson.............................................................. 53,410 *
Sergio S. Zyman............................................................. 1,041 (8) *
All directors and executive officers as a group (15 persons)................ 117,471,851 (9) 29.8%
CERTAIN OTHER BENEFICIAL OWNERS
-------------------------------
FMR Corp., Edward C. Johnson 3d, and Abigail P. Johnson..................... 20,977,094 (10) 5.3%
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
____________________
* Indicates ownership of less than 1% of the outstanding shares of the
Company's Common Stock.
(1) Shares issuable upon exercise of options to acquire Common Stock that are
exerciseable within 60 days after March 9, 1998 are treated as beneficially
owned as follows: Mr. Bellamy, 15,937; Mr. Bowes, 21,937; Mr. Drexler,
449,550; Mr. Robert Fisher, 272,700; Ms. Fjeldstad, 15,937; Mr. Hasler,
6,937; Mr. Hashagen; 79,500; Mr. Lillie, 21,937; Mr. Schwab, 21,937; Mr.
Walker, 21,937; Mr. Wilson, 53,410; Mr. Zyman, 937; and all directors and
executive officers as a group, 1,031,556.
(2) Includes shares as to which restrictions have not lapsed which were granted
under the Company's Management Incentive Restricted Stock Plan and/or the
1996 Stock Option and Award Plan.
(3) Donald G. Fisher and Doris F. Fisher, who are husband and wife, are the
founders of the Company, directors, and, respectively, the Chairman of, and
a merchandising consultant to, the Company. Their address is the same as
that shown for the Company on the first page of this Proxy Statement. In
the table shown above, the 94,625,861 shares beneficially owned by Donald
G. Fisher and Doris F. Fisher are beneficially owned by each of them. Of
the shares shown, 74,182,790 shares are held as community property. The
remainder of the shares are held by the Fishers as trustees for various
foundations and trusts. Amounts shown include 109,519 shares held by the
Donald and Doris Fisher Family Foundation Trust, of which the Fishers
constitute a minority of the trustees, beneficial ownership of which is
disclaimed, and exclude shares held directly or indirectly by the Fishers'
three adult sons, beneficial ownership of which is disclaimed.
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(4) Includes 563,400 shares held jointly by Robert Fisher and his spouse,
47,442 shares owned by his spouse, 72,825 shares held by Robert Fisher as
trustee for his nieces and nephews, and 6,666,460 shares held by Robert
Fisher as trustee for certain other trusts.
(5) Includes 3,000 shares held under the Lillie Family Living Trust, over which
Mr. Lillie and his wife share voting and investment power.
(6) Includes 1,500 shares owned by Mr. Schwab's spouse.
(7) Includes 90,000 shares owned by the Brooks Walker, Jr. Charitable Remainder
Trust, of which Mr. Walker is the trustee and over which he has sole voting
and investment power.
(8) Includes 104 shares held by Mr. Zyman's minor children.
(9) Reflects the information in the footnotes set forth above.
(10) The address of FMR Corp., Edward C. Johnson 3d, and Abigail P. Johnson is
82 Devonshire Street, Boston, Massachusetts 02109. FMR Corp. indicates
that it has sole power to vote or direct the vote of only 954,669 of these
shares and sole power to dispose of or direct the disposition of all of
these shares. Edward C. Johnson 3d and Abigail P. Johnson each indicate
that they have no power to vote or direct the vote of these shares and have
sole power to dispose of or direct the disposition of all these shares.
This disclosure is based on information contained in a report as of
December 31, 1997 on Schedule 13G filed with the Securities and Exchange
Commission pursuant to Rule 13d-1(b) or 13d-2(b) of the Securities Exchange
Act of 1934, as amended.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
As required by the Securities Exchange Act of 1934, the Company notes that
(i) Mr. Bellamy reported on a Form 4 filed late one transaction involving the
purchase of Common Stock in an open market transaction in October 1997 and (ii)
Mr. Walker reported on a Form 5 filed in March 1998 a transaction involving the
gifting by him of Common Stock in June 1996.
9
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY OF EXECUTIVE COMPENSATION
The following table sets forth compensation paid to, earned by or awarded to
the Chief Executive Officer and the four other most highly compensated executive
officers of the Company for the periods presented. The footnotes to the table
provide additional information concerning the Company's compensation and benefit
programs.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
LONG-TERM
---------
ANNUAL COMPENSATION COMPENSATION AWARDS
------------------------------------ ------------------------
OTHER
ANNUAL RESTRICTED SECURITIES ALL OTHER
COMPENS- STOCK UNDERLYING COMPENS-
NAME AND FISCAL ATION AWARDS OPTIONS ATION
PRINCIPAL POSITION YEAR SALARY($) BONUS($) ($) (1) ($) (2) (#) (3) ($) (4)
- ------------------ ------ --------- --------- -------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Millard S. Drexler, 1997 1,882,928 1,615,000 238,520 0 180,000 6,192
President and Chief 1996 1,780,385 1,350,000 135,367 0 180,000 6,037
Executive Officer 1995 1,588,616 314,100 108,831 0 6,093,750 10,100
Donald G. Fisher, 1997 499,274 425,000 486,109 N/A N/A 6,169
Chairman 1996 1,058,047 787,313 273,219 N/A N/A 4,886
1995 1,508,777 299,100 155,812 N/A N/A 10,008
Robert J. Fisher, 1997 848,548 650,250 263,391 0 150,000 6,400
Executive Vice President 1996 840,940 637,500 86,742 0 150,000 6,485
and President, Gap Division 1995 694,162 137,500 1,399 840,625 1,551,000 9,782
John B. Wilson, 1997 626,794 531,250 16,592 0 600,000 8,323
Executive Vice President, 1996 188,094 1,006,750 27,268 597,581 555,000 0
Chief Administrative 1995 0 0 0 0 0 0
Officer (5)
Warren R. Hashagen 1997 328,100 197,540 2,803 0 51,000 6,451
Senior Vice President - 1996 311,660 175,000 822 0 36,000 5,450
Chief Financial Officer 1995 275,192 40,000 0 127,750 90,000 8,468
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
____________________
(1) While the named executive officers enjoy certain perquisites, for fiscal
years 1995, 1996 and 1997 these did not exceed the lesser of $50,000 or 10%
of each officer's salary and bonus. Except as set forth below, the amounts
listed for the named executive officers, if any, represent above-market
earnings on deferred compensation payable during the fiscal year but
deferred at their election under the Company's Executive Capital
Accumulation Plan, Executive Deferred Compensation Plan and/or Supplemental
Executive Retirement Plan. The amount listed for Mr. Wilson in 1997
includes the difference between fair value interest less interest charged
in a low interest loan ($16,115). See "Other Reportable Transactions."
The amount listed for Mr. Wilson in 1996 includes relocation expenses
reimbursed ($12,602), tax gross-up payments in connection with the
reimbursement ($11,812), and below-market interest on a relocation loan
($2,854).
(2) Donald Fisher does not participate in the Company's restricted stock plan.
As of the end of fiscal 1997, the aggregate restricted stock holdings for
the named executive officers consisted of 3,159,000 shares worth
$124,188,187 at the then-current market value (as represented by the
closing price of the Company's Common Stock of $39.3125 on January 30,
1998), without giving effect to the diminution of value attributable to the
restrictions on such stock. Such amount included $117,937,500 for Mr.
Drexler (3,000,000 shares), $5,307,187 for Robert Fisher (135,000 shares),
and $943,500 for Mr. Hashagen (24,000 shares). Dividends are paid on the
restricted shares to the extent payable on the Company's Common Stock
generally.
10
<PAGE>
The restricted stock award of 30,450 shares for Mr. Wilson in 1996 had a
vesting date of less than three years and was canceled in 1997 pursuant to
a prior arrangement with Mr. Wilson. See "Employment Contracts and
Termination of Employment Arrangements." No other shares granted to the
named executive officers vest in less than three years from the date of
grant.
(3) Donald Fisher does not participate in the Company's stock option plan. Of
the securities underlying options for Mr. Wilson in 1996, 9,590 were
canceled in 1997 pursuant to a prior arrangement with Mr. Wilson. See
"Employment Contracts and Termination of Employment Arrangements."
(4) These amounts represent the Company's contributions to the Company's
GapShare Plan for fiscal years 1997, 1996 and 1995.
(5) Mr. Wilson joined the Company in October 1996.
STOCK OPTIONS
The following two tables set forth certain information regarding stock
options granted to, exercised by and held by the executive officers named in the
foregoing Summary Compensation Table. All stock option awards in the following
tables and elsewhere in this Proxy Statement have been adjusted to reflect stock
splits.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
INDIVIDUAL GRANTS
-----------------
NUMBER OF PERCENT OF
SECURITIES TOTAL OPTIONS MARKET
UNDERLYING GRANTED TO EXERCISE OR PRICE ON GRANT DATE
OPTIONS GRANTED EMPLOYEES IN BASE PRICE GRANT DATE EXPIRATION PRESENT
NAME (#)(1) FISCAL YEAR ($/SH) ($/SH)(2) DATE (3) VALUE ($)(4)
- ---- --------------- ------------- ------------ ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Millard S. Drexler 180,000 1.6% $20.8750 $20.8750 4/14/07 $1,501,542
Donald G. Fisher N/A N/A N/A N/A N/A N/A
Robert J. Fisher 150,000 1.3% 20.8750 20.8750 4/14/07 1,046,535
John B. Wilson 150,000 1.3% 20.8750 20.8750 4/14/07 1,046,535
300,000 2.6% 29.5208 29.5208 8/26/07 3,279,300
150,000 1.3% 14.7604 29.5208 8/26/07 2,739,210
Warren R. Hashagen 36,000 0.3% 20.8750 20.8750 4/14/07 251,168
15,000 0.1% 10.4375 20.8750 4/14/07 193,698
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
____________________
(1) Except as noted below, all options granted to the named executive officers
during fiscal 1997 will become exercisable in two equal installments three
and four years from the date of grant. The second and third option grants
to Mr. Wilson will become exercisable in two equal installments four and
five years from the date of grant and the second option grant to Mr.
Hashagen will become exercisable in five years from the date of grant.
Under the terms of the Company's 1996 Stock Option and Award Plan, the
Compensation and Stock Option Committee retains discretion, subject to plan
limits, to modify the terms of outstanding options. Donald Fisher does not
participate in the Company's stock option plan.
(2) Average of high and low stock prices for the Company's Common Stock as
reported in the Western edition of The Wall Street Journal at date of
grant.
(3) All options granted in fiscal 1997 were granted for a term of ten years,
subject to termination 90 days following termination of employment in
certain events.
(4) This column represents the present value of the options on the grant date
using the Black-Scholes option pricing model for the Common Stock,
utilizing the following assumptions: five-year stock price volatility of
31%; dividend yield of 0.73%; 4.17 to 5.75-year expected option terms; 5.75
to 6.89% risk-free interest rate; and no adjustment for non-transferability
or forfeiture. The actual value, if any, that an executive officer may
realize will depend on the excess of the market price over the exercise
price on the date the option is exercised so that there is no assurance
that the value realized by an executive will be at or near the value
estimated by
11
<PAGE>
the Black-Scholes model, which is based on arbitrary assumptions as to the
variables of stock price volatility, future dividend yield and interest
rate. For an estimate of the impact of all stock option grants on the
Company's financial results using the Black-Scholes valuation method, see
note G to the Consolidated Financial Statements in the Company's Annual
Report to Shareholders for the fiscal year ended January 31, 1998.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
NUMBER OF VALUE OF
SECURITIES UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
SHARES ACQUIRED OPTIONS AT FY-END (#) OPTIONS AT FY-END ($)
NAME ON EXERCISE (#) VALUE REALIZED ($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE (1)
---- ---------------- ------------------ ------------------------- -----------------------------
<S> <C> <C> <C> <C> <C> <C>
Millard S. Drexler 0 0 355,800 6,453,750 10,731,806 166,814,998
Donald G. Fisher (2) N/A N/A N/A N/A N/A N/A
Robert J. Fisher 0 0 221,700 1,851,000 6,580,891 47,673,250
John B. Wilson 0 0 0 1,145,410 0 21,059,907
Warren R. Hashagen 47,400 1,187,500 60,000 177,000 1,699,125 4,130,600
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
____________________
(1) Represents the difference between the closing price of the company's Common
Stock on January 30, 1998 ($39.3125) and the exercise price of the options.
(2) Donald Fisher does not participate in the Company's stock option plan.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During all of fiscal year 1997, the Compensation and Stock Option Committee
of the Board of Directors consisted of Ms. Fjeldstad and Messrs. Bellamy, Bowes,
and Lillie, all of whom are non-employee directors.
REPORT OF COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
The Compensation and Stock Option Committee of the Board of Directors is
responsible for reviewing and approving the Company's compensation policies and
the compensation paid to executive officers. The Committee currently is
comprised of the members named below, all of whom are non-employee Directors.
COMPENSATION PHILOSOPHY
The general philosophy of the Company's compensation program, which has
been reviewed and approved by the Committee, is to provide a competitive
advantage and rewards based both on the Company's performance and on the
individual's contribution to the Company. Corporate and divisional performance
are evaluated by reviewing the extent to which financial and strategic goals are
met, including such factors as profitability and sales growth. These
performance criteria are reviewed each year to ensure that they are consistent
with the Company's mission and strategies. Officers are also given annual goals
and their individual performance is evaluated by reviewing progress against
these objectives.
The Company's compensation policies are intended to motivate and reward
highly qualified executives for long-term strategic management and the
enhancement of shareholder value, to support a performance-oriented environment
that rewards achievement of specific internal Company and individual goals, and
to attract and retain executives whose abilities are critical to the long-term
success and competitiveness of the Company. The program is
12
<PAGE>
heavily oriented toward incentive compensation tied to the annual and longer-
term financial performance of the Company and to the longer-term return realized
by the Company's shareholders.
There are three main components in the Company's executive compensation
program:
. Base Salary
. Annual Incentives
. Long-Term Incentives
BASE SALARY
Executive officers' salaries have been targeted above the average rates
paid by competitors to enable the Company to attract and retain highly skilled
executives. The Committee believes that the historical growth in the Company's
revenues, stores and profitability has made the Company a target for other
companies seeking employees and that, therefore, these rates are necessary to
retain key officers. The Committee reviews the performance of and approves
salaries for the Chief Executive Officer and the executive officers on an annual
basis, generally in the first quarter.
The Committee believes that the market for retailing executives, and thus
the relevant competitive data, includes a broader group of companies than that
shown in the stock price performance graph presented in this proxy statement
under the heading "Performance Graph." Thus, in reviewing the 1997 salaries for
executive officers, the Committee examined market data and salary increase
surveys for specialty retail, consumer/branded goods, and general industry
groups which were prepared by national consulting companies. Salaries were
adjusted based on actual individual job performance and/or changes in a person's
duties and responsibilities.
Mr. Drexler's base salary for fiscal year 1997 was $1,900,000, representing
an increase of 6% over the prior year. In setting the Chief Executive Officer's
1997 salary, the Committee considered the Company's 1996 results, future
objectives and challenges, and Mr. Drexler's individual performance and
contributions. The Company's 1996 performance was judged by the Committee to be
significantly above expectations and very good compared to industry/competitor
results. The Committee reviewed in detail Mr. Drexler's achievement of his 1996
goals and his individual contributions to the Company. The Committee concluded
that he had achieved his 1996 goals and had provided a leadership role in
achieving the Company's three strategic priorities for 1996: growing earnings
and improving the return on investments, developing our people and strengthening
the Brand. The Committee also considered Mr. Drexler's decisive management of
operational and strategic issues, his drive to reinforce a culture of innovation
and his ability and dedication to enhance the long-term value of the Company for
the shareholders. The Committee believes that Mr. Drexler has continued to
provide the leadership and vision that he has provided throughout his 15-year
tenure as a Company executive, during which, on a compound annual growth basis,
the Company's net earnings increased by 25%, net sales by 20% and total
shareholder return by 32%. In making its salary decisions with respect to Mr.
Drexler, the Committee exercised its discretion and judgment based on the above
factors, and no specific formula was applied to determine the weight of each
factor.
ANNUAL INCENTIVE BONUS
Annual incentive bonuses for executive officers are intended to reflect the
Committee's belief that a significant portion of the annual compensation of each
executive officer should be contingent upon the performance of the Company.
To carry out this philosophy, the Company has implemented a performance-
based Executive Management Incentive Cash Award Plan (Executive MICAP), in which
executive officers are measured solely on Company performance targets. As a
pay-for-performance plan, the Executive MICAP is intended to motivate and reward
executive officers by directly linking the amount of any cash bonus to specific
corporate and/or divisional financial goals. Specific measurements are chosen
each year among earnings, sales growth and volume, return on assets, and/or
return on equity; and threshold, target and maximum payout levels are
established to reflect the Company's objectives. These goals and the potential
bonuses are reviewed and approved by the Committee in the first quarter of each
fiscal
13
<PAGE>
year. Under the 1997 guidelines adopted by the Committee, executive officers
were eligible to receive between 17.5% and 100% of their salary as a bonus,
depending on actual earnings performance compared to target earnings goals set
for each division. Actual bonus amounts are calculated within this range
pursuant to a set formula which takes into account the extent to which earnings
goals were achieved and the grade level of the officer.
The Company's 1997 performance was judged by the Committee to be
significantly above expectations. The Company achieved record earnings and
surpassed its financial goals for the year. The Chief Executive Officer was
eligible to receive between 25% and 100% of his base salary as a bonus under the
1997 guidelines adopted by the Committee. Because the Company exceeded its
goals and achieved superior results, the actual bonus received by Mr. Drexler
was 85% of his base pay.
The Committee believes that the Executive MICAP program provides an
excellent link between annual results and the incentives paid to executives.
LONG-TERM INCENTIVES
Long-term incentives represent over half the total income opportunity for
executive officers. These incentives create a direct linkage between executive
rewards and increased shareholder value by delivering a significant portion of
total compensation opportunity through both stock options and through a cash
performance plan with three-year overlapping performance cycles. This
compensation program is designed to focus on Company performance.
The Committee believes that executive officers and other key employees
should have significant ownership of the Company's stock. Notably, all
executive officers as a group beneficially own approximately 29.6% of the
outstanding shares of Common Stock. In particular, Mr. Donald Fisher, the
Company's founder and Chairman, beneficially owns jointly with his wife Doris
Fisher approximately 24.1% of the outstanding shares.
Long-Term Performance Plan
In order to emphasize its compensation philosophy oriented to longer-term
results, the Company has an Executive Long-Term Cash Performance Plan (ELCAPP),
in which officers are measured and compensated on Company and/or business unit
performance targets. A three-year performance cycle is established each year,
with participants receiving a cash payout if certain minimum, target or maximum
predetermined performance goals are achieved at the end of the cycle. As a pay-
for-performance plan, ELCAPP is intended to motivate and reward executive
officers by directly linking the amount of any cash bonus to specific corporate
and/or divisional long-term financial goals. Specific measurements are chosen
each year for each successive three-year cycle. The type of measurements
considered include earnings, return on equity, return on net assets, return on
invested capital, sales volume and total sales. Threshold, target and maximum
payout levels are established to reflect the Company's objectives. These goals
and the potential amounts of executive officer bonuses are reviewed and approved
by the Committee in the first quarter of each fiscal year. Under the 1997 and
1998 guidelines adopted by the Committee, executive officers will be eligible to
receive between 15% and 150% of their three-year average salary as a bonus,
depending on actual performance compared to target goals set for each division.
Actual bonus amounts are calculated within this range pursuant to a set formula
which takes into account the extent to which goals were achieved and the grade
level of the officer. Because the ELCAPP was established in 1996, no payouts
have yet been made under the plan for the 1996-98 cycle.
Stock Option and Award Plan
The Committee has the power to grant both stock options and restricted
stock under the Company's 1996 Stock Option and Award Plan. With respect to
executive officers, it has been the Committee's practice to grant stock options
on an annual basis, usually in the first quarter of each fiscal year.
Generally, the options vest in three years or more from date of grant and
executives must be employed by the Company at the time of vesting in order to
exercise the options. The Committee has discretion to grant discounted stock
options and it has done so when it felt it was necessary to attract and/or
retain key executives. The Committee believes that stock option grants provide
an incentive that focuses the executives' attention on managing the Company from
the perspective of an owner with an equity stake
14
<PAGE>
in the business. The Company's stock options are tied to the future performance
of the Company's stock and will provide value to the recipient only when the
price of the Company's stock increases above the option grant price.
In order to determine the appropriate number of options to be granted to
its executive officers, in 1997 the Company relied on competitive practices for
a wide array of companies in a large number of industries. The calculations
underlying these guidelines are based on the grant value of the option (i.e.,
number of shares times the exercise price) in relation to the employee's salary
and performance level. The Company's actual 1997 option grants to executive
officers were in line with those ranges. The size of each grant was based on a
range of potential shares (high, medium, low) for each eligible employee's
salary level. Actual shares awarded were based on the score obtained by
eligible employees on their yearly individual performance evaluation. No
consideration was given to the amount of shares previously granted to executive
officers.
In 1997, Mr. Drexler was granted options to purchase 180,000 shares at
market value at the date of grant. The shares become exercisable in two equal
installments three and four years from date of grant. This grant is consistent
with the Committee's philosophy that at-risk compensation should comprise a
significant part of an executive's overall compensation.
IMPACT OF SECTION 162(m) OF THE INTERNAL REVENUE CODE
The Committee has considered the potential impact of Section 162(m) of the
Internal Revenue Code on its compensation plans and has determined that it is
the Company's preference to qualify to the maximum extent possible its
executives' compensation for deductibility under applicable tax laws. The
Company's compensation plans have been designed to permit the Committee to grant
awards (other than restricted stock and discounted options) which qualify for
deductibility under Section 162(m).
In addition, to allow for full deductibility of base salaries, those named
executive officers whose base salaries exceed the $1,000,000 limit have in the
past deferred that portion of their compensation above the limit under either or
both of the Company's nonqualified deferred compensation plans, the Executive
Capital Accumulation Plan and the Executive Deferred Compensation Plan.
John M. Lillie (Chairman)
Adrian D. P. Bellamy
John G. Bowes
Lucie J. Fjeldstad
15
<PAGE>
PERFORMANCE GRAPH
The graph below compares the percentage changes in the Company's cumulative
total shareholder return* on its Common Stock for the five-year period ended
January 31, 1998, with the cumulative total return of the S&P 500 Index and the
Dow Jones Retailers - All Specialty Index.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN ANALYSIS
1/29/93 1/28/94 1/28/95 2/3/96 2/1/97 1/31/98
<S> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------------
THE GAP, INC. $ 100 $ 125 $ 97 $ 143 $ 175 $ 359
- --------------------------------------------------------------------------------------------------------------------------------
S&P 500 $ 100 $ 113 $ 113 $ 157 $ 198 $ 250
- --------------------------------------------------------------------------------------------------------------------------------
DJ RETAILERS ALL SPECIALTY INDEX $ 100 $ 95 $ 99 $ 105 $ 124 $ 189
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Source: Carl Thompson Associates www.ctaonline.com (303) 494-5472.
____________________
* Total return assumes quarterly reinvestment of dividends.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT ARRANGEMENTS
When John B. Wilson joined the Company in October 1996, the Company entered
into an arrangement with him providing for the grant of 30,450 shares of
restricted stock and options to purchase 555,000 shares (105,000 at a discount).
Mr. Wilson received the restricted stock and a portion of the options to
compensate him for the loss of certain unvested options to purchase stock of his
prior employer. Mr. Wilson agreed with the Company that if he received any
acceleration of those stock options ("Accelerated Stock"), then his grant of
restricted stock and stock options was to be reduced by his pre-tax gain on the
Accelerated Stock. For this purpose, Mr. Wilson's pre-tax gain on the
Accelerated Stock was to be calculated as of the market value on the accelerated
vesting date ("Vesting Date"). Fifty percent of the gain (up to a maximum of
$1.15 million) was to be used to reduce the value of his restricted stock and
option grant from the Company by first reducing the number of shares of
restricted stock (calculated at their market value on the Vesting Date) and then
reducing the number of discounted option shares, until the $1.15 million maximum
16
<PAGE>
is recaptured by the Company. In 1997, the Company recaptured a $1.15 million
gain by canceling 23,755 shares of restricted stock in August and 6,695 shares
of restricted stock and options to purchase 9,590 shares in September. In
addition, in the event that Mr. Wilson is involuntarily terminated for any
reason other than cause within the first 24 months of employment, the Company
will provide him with one year of severance pay at his then-effective base rate,
payments to cease as soon as new employment is effective.
OTHER REPORTABLE TRANSACTIONS
The Company has an agreement with Fisher Development, Inc. ("FDI"), which
is wholly owned by Robert S. Fisher, the brother of Donald G. Fisher, the
Chairman and a principal shareholder of the Company. The agreement, which is
reviewed annually by the Audit and Finance Committee of the Board of Directors,
sets forth the terms under which FDI may act as general contractor in connection
with the Company's construction activities. During the 1997 fiscal year, FDI
supervised the construction of new store leasehold improvements for 266 stores
and certain headquarters facilities, expansions of 97 stores, and remodels of
existing stores and headquarters facilities. The total cost of such
construction was approximately $215 million, including profit and overhead costs
of approximately $17.2 million paid by the Company to FDI relating to this
construction.
Robert J. Fisher and William S. Fisher, adult sons of Donald G. and Doris
F. Fisher, are employed as Executive Vice President of the Company and
President, Gap Division of the Company; and President, International Division of
the Company, respectively. Robert J. Fisher is also a director of the Company.
William S. Fisher was paid a salary and bonus of $983,066 during the 1997 fiscal
year; Company contributions to his account under GapShare for fiscal year 1997
amounted to $6,481.
Comparable transactions with the persons described above are expected to
continue during the current fiscal year, except that William S. Fisher is
expected to take an unpaid leave of absence from July 1, 1998 through the
remainder of 1998.
Pursuant to the Company's Relocation Loan Plan, on November 30, 1996, the
Company made a $550,000 loan to Mr. Wilson at the interest rate of 3% per year,
secured by a second mortgage on his home and by the stock granted to him under
the Company's 1996 Stock Option and Award Plan. The loan is payable in full on
November 25, 2001, or earlier upon termination of employment. Mr. Wilson is
also required to apply 50% of any after-tax (withholding) gain on the sale of
stock acquired upon exercise of stock options to decrease the amount of this
loan. Interest on the loan is payable via bi-weekly payroll deductions. The
amount outstanding on February 28, 1998 with respect to this loan was $550,000.
OTHER BUSINESS
The Company's management is not aware of any other matters to come before
the meeting. If any matter not mentioned herein is properly brought before the
meeting, the persons named in the enclosed proxy will have discretionary
authority to vote all proxies with respect thereto in accordance with their
judgment.
17
<PAGE>
PROPOSALS OF SHAREHOLDERS
Proposals of shareholders intended to be presented at the 1999 annual
meeting must be received by the Company for inclusion in the Company's proxy
statement and form of proxy relating to that meeting on or before December 7,
1998. Proposals should be addressed to the Company's Secretary at One Harrison
Street, San Francisco, California 94105.
By Order of the Board of Directors,
Anne B. Gust
Secretary
18
<PAGE>
Exhibit A
---------
AMENDED AND RESTATED AMENDMENT TO
CERTIFICATE OF INCORPORATION
OF
THE GAP, INC.
Section 1 of Article FIFTH of the Company's Amended and Restated Certificate
of Incorporation shall be amended to read as follows:
FIFTH: Section 1. Classes and Number of Shares.
----------------------------
The total number of shares of all classes of stock which this corporation
shall have authority to issue is 1,590,000,000 shares. The classes and the
aggregate number of shares of stock of each class which this corporation shall
have authority to issue are as follows:
(i) 1,500,000,000 shares of Common Stock, $0.05 par value per share
(hereinafter the "Common Stock");
(ii) 60,000,000 shares of Class B Common Stock, $0.05 par value per share
(hereinafter the "Class B Stock"); and
(iii) 30,000,000 shares of Preferred Stock, $0.05 par value per share, with
such rights, privileges, restrictions and preferences as the Board of
Directors may authorize from time to time (hereinafter the "Preferred
Stock").
<PAGE>
PRELIMINARY COPIES
THE GAP, INC.
ANNUAL MEETING OF SHAREHOLDERS - APRIL 28, 1998
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Donald G. Fisher, Warren R. Hashagen and Anne B.
Gust, or any of them, each with full power of substitution, as proxies to vote,
in accordance with the instructions set forth in this Proxy, all shares of
common stock of The Gap, Inc. which the undersigned is entitled to vote at the
Annual Meeting of Shareholders to be held on April 28, 1998, and any
postponements and adjournments thereof. The proxies are authorized in their
discretion to vote upon such other business as may properly come before the
meeting.
IMPORTANT - THIS PROXY MUST BE SIGNED AND DATED ON THE REVERSE SIDE.
THE SHARES COVERED BY THIS PROXY WILL BE VOTED IN ACCORDANCE WITH THE
SPECIFICATIONS MADE ON THE REVERSE SIDE. IF NO CHOICES ARE INDICATED, THE
SHARES COVERED BY THIS PROXY WILL BE VOTED FOR ALL NOMINEES LISTED ON THE
---
REVERSE SIDE, FOR PROPOSAL 2, FOR PROPOSAL 3, AND, WITH RESPECT TO ANY OTHER
--- ---
MATTERS AS MAY PROPERLY COME BEFORE THE MEETING, IN ACCORDANCE WITH THE
DISCRETION OF THE PROXIES.
THE GAP, INC.
PLEASE MARK IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY
1. Election of Directors, Nominees: FOR WITHHOLD FOR ALL
Adrian D. P. Bellamy, John G. Bowes, ALL ALL (EXCEPT NOMINEES
Millard S. Drexler, Donald G. Fisher, WRITTEN BELOW)
Doris F. Fisher, Robert J. Fisher,
John M. Lillie, Charles R. Schwab,
Brooks Walker, Jr., Sergio Zyman
---------------------------------
2. Proposal to amend Amended and Restated Articles of FOR AGAINST ABSTAIN
Incorporation to increase the number of authorized
shares of Common Stock of The Gap, Inc. from
500,000,000 to 1,500,000,000.
3. Ratify the appointment of Deloitte & Touche LLP as FOR AGAINST ABSTAIN
independent auditors.
Date: _______________________________________________, 1998
___________________________________________________________
(Signature)
___________________________________________________________
(Signature)
NOTE: Please sign exactly as name appears hereon. Joint owners should each
sign. When signing as attorney, executor, administrator, trustee or guardian,
please give full title as such. If a corporation, please sign in full corporate
name by President or other authorized officer. If a partnership, please sign in
partnership name by authorized person.
