THE GAP, INC. NONEMPLOYEE DIRECTOR DEFERRED COMPENSATION PLAN
THE GAP, INC., hereby adopts The Gap, Inc. Nonemployee
Director Deferred Compensation Plan, as follows:
1 BACKGROUND, PURPOSE AND DURATION
1.1 Effective Date. The Plan is effective as of August 26,
1997.
1.2 Purpose of the Plan. The Plan is intended to increase
incentive and to encourage Share ownership on the part of
directors of the Company who are employees of neither the Company
nor of any Affiliate, and to provide such directors with the
opportunity to defer compensation on a pre-tax basis. The Plan
also is intended to further the growth and profitability of the
Company.
2 DEFINITIONS
The following words and phrases shall have the
following meanings unless a different meaning is plainly required
by the context:
2.1 "Affiliate" means any corporation or any other entity
(including, but not limited to, partnerships and joint ventures)
controlling, controlled by, or under common control with the
Company.
2.2 "Board" means the Board of Directors of the Company.
2.3 "Company" means The Gap, Inc., a Delaware corporation, or
any successor thereto.
2.4 "Compensation" means a Nonemployee Director's quarterly cash
retainer for serving as a Nonemployee Director. A Participant's
Compensation shall not include any other type of remuneration.
2.5 "Director" means any individual who is a member of the
Board.
2.6 "Disability" means the permanent and total disability of the
Participant, as determined by the Board in its discretion in
accordance with uniform and nondiscriminatory standards adopted
by the Board from time to time.
2.7 "Exercise Price" means the price at which a Share may be
purchased by a Participant pursuant to the exercise of an Option.
2.8 "Fair Market Value" means the arithmetic mean of the highest
and lowest quoted per Share selling prices for Shares on the
relevant date, as quoted in the New York Stock Exchange Composite
Transactions Index published in the Wall Street Journal, or if
there were no sales on such date, the arithmetic mean of the
highest and lowest quoted selling prices on the nearest day after
the relevant date, as determined by the Committee.
2.9 "Fiscal Quarter" means a fiscal quarter of the Company.
2.10 "Fiscal Year" means the fiscal year of the Company.
2.11 "Grant Date" means, with respect to an Option, the date
on which the Option was granted.
2.12 "Nonemployee Director" means a Director who is an
employee of neither the Company nor of any Affiliate.
2.13 "Option" means an option to purchase Shares granted
pursuant to Sections 5.2 and 5.3.
2.14 "Option Agreement" means the written agreement setting
forth the terms and provisions applicable to each Option granted
under the Plan.
2.15 "Participant" means a Nonemployee Director who has
elected to make Compensation deferrals under the Plan and to
receive an Option in lieu of such Compensation.
2.16 "Plan" means The Gap, Inc. Nonemployee Director
Deferred Compensation Plan, as set forth in this instrument and
as hereafter amended from time to time.
2.17 "Retirement" means termination of service on the Board
on account of retirement pursuant to The Gap, Inc. Nonemployee
Director Retirement Plan.
2.18 "Rule 16b-3" means Rule 16b-3 promulgated under the
Securities Exchange Act of 1934, as amended, and any future
regulation amending, supplementing or superseding such
regulation.
2.19 "Shares" means the shares of the Company's common
stock, $0.05 par value.
2.20 "Termination of Service" means a cessation of the
Participant's service on the Board for any reason.
3 ADMINISTRATION
3.1 Authority of the Board. The Plan shall be administered by
the Board. It shall be the duty of the Board to administer the
Plan in accordance with the Plan's provisions. The Board shall
have all powers and discretion necessary or appropriate to
administer the Plan and to control its operation, including, but
not limited to, the power to (a) interpret the Plan and the
Options, (b) adopt rules for the administration, interpretation
and application of the Plan as are consistent therewith, (c)
interpret, amend or revoke any such rules, and (d) adopt such
procedures and subplans as are necessary or appropriate to permit
participation in the Plan by Nonemployee Directors who are
foreign nationals or employed outside of the United States.
3.2 Delegation by the Board. The Board, in its sole discretion
and on such terms and conditions as it may provide, may delegate
all or any part of its authority and powers under the Plan to one
or more Directors or officers of the Company; provided, however,
that the Board may not delegate its authority and powers in any
way which would jeopardize the Plan's qualification under Rule
16b-3.
3.3 Decisions Binding. All determinations and decisions made by
the Board, and any delegate of the Board pursuant to the
provisions of the Plan shall be final, conclusive, and binding on
all persons, and shall be given the maximum deference permitted
by law.
4 SHARES SUBJECT TO THE PLAN
4.1 Number of Shares. Subject to adjustment as provided in
Section 4.3, the total number of Shares available for grant under
the Plan shall not exceed 200,000. Shares issued under the Plan
shall be treasury Shares only.
4.2 Lapsed Options. If an Option terminates, expires, or lapses
for any reason, any Shares subject to such Option again shall be
available to be the subject of an Option.
4.3 Adjustments in Options and Authorized Shares. In the event
of any merger, reorganization, consolidation, recapitalization,
separation, liquidation, stock dividend, split-up, Share
combination, or other change in the corporate structure of the
Company affecting the Shares, the Board shall adjust the number
and class of Shares which may be delivered under the Plan, and
the number, class, and Exercise Price of Shares subject to
outstanding Options, as the Board (in its sole discretion) shall
determine to be appropriate to prevent the dilution or diminution
of such Options. Notwithstanding the preceding, the number of
Shares subject to any Option always shall be a whole number.
5 COMPENSATION DEFERRALS AND OPTIONS
5.1 Elections by Nonemployee Directors. Each Nonemployee
Director's decision to become a Participant shall be entirely
voluntary.
5.1.1 Current Nonemployee Directors. A Nonemployee Director
who is such on August 26, 1997, may elect to become a Participant
in the Plan by electing, no later than October 31, 1997, to defer
receipt of all of his or her Compensation in exchange for an
Option. An election under this Section 5.1.1 to make
Compensation deferrals shall be effective for the remainder of
the 1997 Fiscal Year (beginning with the quarterly payment that
would be made for and in the fourth quarter ending January 31,
1998) and for each succeeding Fiscal Year, until changed by the
Nonemployee Director in accordance with such procedures as the
Board (in its discretion) may specify from time to time.
5.1.2 New Nonemployee Directors. A Nonemployee Director who
first becomes such after August 26, 1997, may elect to become a
Participant in the Plan by electing, within thirty (30) days of
the date on which he or she first becomes a Nonemployee Director,
to defer receipt of all of his or her Compensation in exchange
for an Option. An election under this Section 5.1.2 to make
Compensation deferrals shall be effective for the remainder of
the Fiscal Year in which the election is made and for each
succeeding Fiscal Year, until changed by the Nonemployee Director
in accordance with such procedures as the Board (in its
discretion) may specify from time to time.
5.1.3 Timing and Form of Elections. Notwithstanding any
contrary provision of the Plan, the Board (in its sole
discretion) shall determine the manner and deadlines for
Participants to make elections under the Plan.
5.2 Terms of Options.
5.2.1 Grant Date of Options. Each Option shall be granted on
the last business day of the Fiscal Quarter in which the
Compensation deferred by the Nonemployee Director otherwise would
have been paid to him or her.
5.2.2 Option Agreement. Each Option shall be evidenced by a
written stock option agreement which shall be executed by the
Participant and the Company.
5.2.3 Exercisability. Each Option shall be fully exercisable
on its Grant Date.
5.2.4 Not Incentive Stock Options. Options granted under the
Plan are not incentive stock options intended to meet the
requirements of section 422 of the Internal Revenue Code of 1986,
as amended.
5.2.5 Exercise. Options shall be exercised by the
Participant's delivery of a written notice of exercise to the
Secretary of the Company (or its designee), setting forth the
number of Shares with respect to which the Option is to be
exercised, accompanied by full payment for the Shares. Upon the
exercise of any Option, the Exercise Price shall be payable to
the Company in full in cash or its equivalent. The Board, in its
sole discretion, also may permit exercise (a) by tendering
previously acquired Shares having an aggregate Fair Market Value
at the time of exercise equal to the total Exercise Price, or (b)
by any other means which the Board, in its sole discretion,
determines to both provide legal consideration for the Shares,
and to be consistent with the purposes of the Plan. As soon as
administratively practicable after receipt of a written
notification of exercise and full payment for the Shares
purchased, the Company shall deliver to the Participant (or the
Participant's designated broker), Share certificates (which may
be in book entry form) representing such Shares.
5.3 Additional Terms of Options.
5.3.1 Number of Shares. The number of Shares subject to each
Option shall be 625.
5.3.2 Exercise Price. The per Share Exercise Price for the
Shares subject to each Option shall equal (a) minus (b), divided
by (c). For purposes of this Section 5.3.2, (a) shall equal the
Fair Market Value of such Shares on the applicable Grant Date,
(b) shall equal the amount of the Participant's Compensation
deferrals for the Fiscal Quarter which includes the Grant Date,
and (c) shall equal 625. For example, if the Fair Market Value
of the Shares covered by an Option is $27,500 and the
Participant's Compensation deferrals for the Fiscal Quarter are
$9,000, the Exercise Price per Share will equal $29.60 (i.e.,
$27,500 minus $9,000, divided by 625).
5.3.3 Expiration of Options. Each Option shall terminate upon
the first to occur of the following events:
(a) The expiration of seven (7) years from the Grant
Date; or
(b) The expiration of three (3) months from the date
of the Participant's Termination of Service for a reason other
than death, Disability or Retirement; or
(c) The expiration of one (1) year from the date of
the Participant's Termination of Service by reason of Disability
or Retirement.
5.3.4 Death of Participant. Notwithstanding Section 5.3.3, if
a Director dies prior to the expiration of his or her Option
pursuant to Section 5.3.3, such Option shall terminate one (1)
year after the date of his or her death.
6 MISCELLANEOUS
6.1 No Effect on Service. Neither the establishment or
maintenance of the Plan, nor any action of the Company or the
Board, shall be held or construed to confer upon any individual
any right to continue as a member of the Board.
6.2 Indemnification. Each person who is or shall have been a
member of the Board shall be indemnified and held harmless by the
Company against and from (a) any loss, cost, liability, or
expense that may be imposed upon or reasonably incurred by him or
her in connection with or resulting from any claim, action, suit,
or proceeding to which he or she may be a party or in which he or
she may be involved by reason of any action taken or failure to
act under the Plan or any Option Agreement, and (b) from any and
all amounts paid by him or her in settlement thereof, with the
Company's approval, or paid by him or her in satisfaction of any
judgment in any such claim, action, suit, or proceeding against
him or her, provided he or she shall give the Company an
opportunity, at its own expense, to handle and defend the same
before he or she undertakes to handle and defend it on his or her
own behalf. The foregoing right of indemnification shall not be
exclusive of any other rights of indemnification to which such
persons may be entitled under the Company's Certificate of
Incorporation or Bylaws, by contract, as a matter of law, or
otherwise, or under any power that the Company may have to
indemnify them or hold them harmless.
6.3 Successors. All obligations of the Company under the Plan,
with respect to Options granted hereunder, shall be binding on
any successor to the Company, whether the existence of such
successor is the result of a direct or indirect purchase, merger,
consolidation, or otherwise, of all or substantially all of the
business or assets of the Company.
6.4 Beneficiary Designations. If permitted by the Board, a
Participant under the Plan may name a beneficiary or
beneficiaries to whom any vested Option shall be paid in the
event of the Participant's death. Each such designation shall
revoke all prior designations by the Participant and shall be
effective only if given in a form and manner acceptable to the
Board. In the absence of any such designation, any vested Option
remaining unexercised and unexpired at the Participant's death
shall be paid to the Participant's estate and, subject to the
terms of the Plan and of the Option Agreement, any unexercised
vested Option may be exercised by the administrator or executor
of the Participant's estate.
6.5 Nontransferability of Options. No Option granted under the
Plan may be sold, transferred, pledged, assigned, or otherwise
alienated or hypothecated, other than by will, by the laws of
descent and distribution, or to the limited extent provided in
Section 6.4. All rights with respect to an Option granted to a
Participant shall be available during his or her lifetime only to
the Participant.
6.6 No Rights as Stockholder. Except to the limited extent
provided in Sections 6.4 and 6.5, no Participant (nor any
beneficiary) shall have any of the rights or privileges of a
stockholder of the Company with respect to any Shares issuable
pursuant to an 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 the Participant (or beneficiary).
6.7 Withholding Requirements. Prior to the delivery of any
Shares or cash pursuant to an Option (or exercise thereof), the
Company shall have the power and the right to deduct or withhold,
or require a Participant to remit to the Company, an amount
sufficient to satisfy Federal, state, and local taxes (including
the Participant's FUTA obligation) required to be withheld with
respect to such Option (or exercise thereof).
6.8 Withholding Arrangements. The Board, in its sole discretion
and pursuant to such procedures as it may specify from time to
time, may permit or require a Participant to satisfy all or part
of the tax withholding obligations in connection with an Option
by (a) having the Company withhold otherwise deliverable Shares,
or (b) delivering to the Company already-owned Shares having a
Fair Market Value equal to the amount required to be withheld.
The amount of the withholding requirement shall be deemed to
include any amount which the Board determines, not to exceed the
amount determined by using the maximum federal, state or local
marginal income tax rates applicable to the Participant with
respect to the Option on the date that the amount of tax to be
withheld is to be determined. The Fair Market Value of the
Shares to be withheld or delivered shall be determined as of the
date that the taxes are required to be withheld.
7 AMENDMENT, TERMINATION, AND DURATION
7.1 Amendment, Suspension, or Termination. The Board, in its
sole discretion, may amend or terminate the Plan, at any time and
for any reason. The amendment or termination of the Plan shall
not, without the consent of the Participant, alter or impair any
rights or obligations under any Option theretofore granted to
such Participant.
7.2 Duration of the Plan. The Plan shall commence on the date
specified herein, and subject to Section 7.1 (regarding the
Board's right to amend or terminate the Plan), shall remain in
effect thereafter.
8 LEGAL CONSTRUCTION
8.1 Gender and Number. Except where otherwise indicated by the
context, any masculine term used herein also shall include the
feminine; the plural shall include the singular and the singular
shall include the plural.
8.2 Severability. In the event any provision of the Plan shall
be held illegal or invalid for any reason, the illegality or
invalidity shall not affect the remaining parts of the Plan, and
the Plan shall be construed and enforced as if the illegal or
invalid provision had not been included.
8.3 Requirements of Law. The granting of Options and the
issuance of Shares pursuant to the exercise of Options shall be
subject to all applicable laws, rules, and regulations, and to
such approvals by any governmental agencies or national
securities exchanges as may be required.
8.4 Compliance with Rule 16b-3. All transactions under this
Plan are intended to comply with all applicable conditions of
Rule 16b-3. To the extent any provision of the Plan, an Option
Agreement or action by the Board fails to so comply, it shall be
deemed null and void, to the extent deemed advisable by the
Board. Notwithstanding any contrary provision of the Plan, if
the Board specifically determines that compliance with Rule 16b-3
no longer is required, all references in the Plan to Rule 16b-3
shall be null and void.
8.5 Governing Law. The Plan and all Option Agreements shall be
construed in accordance with and governed by the laws of the
State of California.
8.6 Captions. Captions are provided herein for convenience
only, and shall not serve as a basis for interpretation or
construction of the Plan.
EXECUTION
IN WITNESS WHEREOF, The Gap, Inc., by its duly
authorized officer, has executed the Plan on the date indicated
below.
THE GAP, INC.
Dated: August 26, 1997 By /s/ Anne B. Gust
Title: Senior Vice President
and General Counsel