Exhibit 10.1
 
EMPLOYMENT AGREEMENT
 
THIS AGREEMENT is entered into as of the 25th day of September, 2002 (the
“Effective Date”), by and between Paul S. Pressler (the “Executive”) and The
Gap, Inc., a Delaware corporation (the “Company”).
 
Section 1.    Term of Agreement
 
Unless earlier terminated as provided below, the term of this Agreement shall
begin on the Effective Date and shall conclude on the fifth anniversary of the
Effective Date (the “Term”).
 
Section 2.    Duties and Scope of Employment
 
(a)  Position.    The Company will employ Executive in the positions of Chief
Executive Officer and President (“CEO”) commencing on the Effective Date.
Executive shall be given such duties, responsibilities and authorities as are
appropriate to Executive’s position. The Chairman of the Company’s Board of
Directors (the “Board”) will recommend to the Board that Executive be made a
Director of the Board.
 
(b)  Obligations.    Executive shall devote Executive’s full business efforts
and time to the business and affairs of the Company as needed to carry out
Executive’s duties and responsibilities, reporting to the Board.
 
Section 3.    Base Compensation and Initial Bonus
 
(a)  Base Compensation.    The Company agrees to pay Executive a base salary at
an annual rate of $1,500,000 (“Base Compensation”). Such salary shall be payable
in accordance with the standard payroll procedures of the Company and shall be
subject to annual review beginning in April 2004.
 
(b)  Initial Bonus.    Within thirty (30) days after the Effective Date,
Executive shall receive a cash bonus of $885,000.00.
 
Section 4.    Incentive Compensation
 
Beginning with fiscal year 2003, Executive shall be eligible to participate in
the Company’s Executive Management Incentive Award Program (“MICAP”).
Executive’s eligibility will continue so long as Executive remains as an
executive of the Company. MICAP provides cash incentives as a reward for
achieving multiple company financial goals. Subject to any shareholder approval
required to make the awards eligible for the performance based compensation
exception to the deductibility limit under section 162(m) of the Internal
Revenue Code, the awards shall be based upon a target of 125% of the Base
Compensation and a maximum of 250% of Base Compensation. For fiscal year 2003,
the actual Incentive Compensation payment (payable in April 2004) shall be at
least $1,875,000.

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Section 5.    Equity Compensation
 
(a)  Stock Option Grant.    Executive will be granted options on the Effective
Date to purchase a total of 5,000,000 shares of the Company’s common stock with
the per share exercise prices indicated in the table below. All option grants
shall have a 10-year term and are subject to Executive’s continued employment by
the Company. Option grants A through E shall vest 20% on the first anniversary
of the Effective Date and 1/48th (2.083%) of the remaining balance each month
thereafter for the next 48 months. Option grant F shall vest 100% on the sixth
anniversary of the Effective Date. Option grant G shall vest 100% on the seventh
anniversary the Effective Date.
 

      
Number of Shares Subject to Option

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Per Share Exercise Price (as a Percentage of Fair Market Value at Grant)

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A
    
2,000,000
    
50%
B
    
500,000
    
100%
C
    
500,000
    
125%
D
    
500,000
    
150%
E
    
500,000
    
175%
F
    
500,000
    
100%
G
    
500,000
    
100%

 
Additional terms regarding all such grants shall be as set forth in the
Company’s standard stock option agreement generally applicable to senior
executives and in Section 8.
 
(b)  Annual Long-Term Incentives.    Beginning in April 2004, Executive shall be
eligible for additional stock option grants under the Company’s long-term
incentive program for senior executives.
 
(c)  Additional Terms.    All stock option grants are subject to Executive’s
continued employment by the Company. Subject to Sections 8(a) and 9(c) and the
option’s term, Executive shall have three months from the date Executive ceases
to be an employee in which to exercise any options.
 
Section 6.    Executive Benefits
 
(a)  In General.    Executive shall be eligible to participate in all the
Company’s benefit plans and compensation programs applicable to senior
executives, including (without limitation) deferred compensation plans,
incentive or other bonus plans, life, disability, health, accident and other
insurance programs, and similar plans or programs. The

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Company reserves the right to alter, amend or terminate any of its programs or
plans, in whole or in part, at any time and for any reason.
 
(b)  Paid Time Off.    Executive shall be entitled to paid time off
(encompassing vacation, sick leave and personal time) under the Company’s policy
for senior executives (currently eligibility is 30 business days per year).
 
(c)  Relocation Benefits.    The Company shall pay for or reimburse Executive
for the reasonable expenses of Executive’s relocation to the San Francisco Bay
Area, with any necessary tax restoration payments. The Company shall pay the
reasonable costs of rental housing during Executive’s search for permanent
housing in the San Francisco Bay Area.
 
Section 7.    Business Expenses and Travel
 
Executive shall be authorized to incur and shall be reimbursed for all necessary
and reasonable travel, entertainment and other business expenses in connection
with Executive’s duties hereunder.
 
Section 8.    Termination Without Cause
 
In the event that Executive’s employment as CEO is terminated during the Term by
the Company due to a change in control or for any reason other than Cause as
defined in Section 9(a) (the “Termination Decision”), subject to the provisions
of Sections 8(b)-(e), Executive shall be entitled to receive the payments and
benefits described in Section 8(a).
 
(a)  Continuation Pay and Benefits.    Executive shall remain a non-executive
employee of the Company and shall receive the following during the twenty-four
(24) months following the date of the Termination Decision (the “Continuation
Period”):
 
(1)  Executive’s Base Compensation in effect on the date of the Termination
Decision;
 
(2)  The Incentive Compensation Executive would otherwise have received based on
the Company’s actual financial performance during the Continuation Period, up to
a maximum payment equal to 100% of Executive’s Base Compensation on the date of
the Termination Decision, payable if and when paid to other executives;
 
(3)  The vesting of those stock options granted to Executive in Section 5(a)
that would vest during the anticipated Continuation Period will accelerate to
the date of the Termination Decision and Executive will have three months from
the date of the Termination Decision in which to exercise such accelerated
options. All stock options with vesting dates two years beyond the date of the
Termination Decision will be cancelled immediately; and
 
(4)  Health insurance coverage as provided to other senior executives by the
Company.

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(b)  Release of Claims.    As a condition to the receipt of the payments and
benefits described in this Section, Executive shall be required to execute a
release of all claims arising out of Executive’s employment and the termination
of employment.
 
(c)  Conditions to Receipt of Payments and Benefits.    The obligation of the
Company to provide the payments and benefits described in this Section shall
cease, and all unvested stock options shall terminate in the event and at such
time as Executive breaches (unless immaterial) any of the provisions of this
Section 8 or of Section 10 or 11, or in the event that Executive’s employment is
terminated under any of the provisions contained in Section 9.
 
(d)  Other Employment.    In the event Executive accepts other employment with a
competitor of the Company (defined as another company primarily engaged in the
apparel design or apparel retail business or any retailer with apparel sales in
excess of $500 million annually) during the otherwise anticipated Continuation
Period, Executive will immediately cease to be an employee and shall forfeit all
unaccrued pay and benefits contemplated by this Section 8 (except as otherwise
contemplated by Section 8(a)(3)). In the event that Executive accepts any other
employment with a for-profit enterprise which is not a competitor of the Company
(“New Employment”) during the otherwise anticipated Continuation Period: (i)
Executive will immediately cease to be an employee of the Company as of the date
of such acceptance (“New Employment Date”); (ii) Executive will continue to
receive payments during the otherwise anticipated Continuation Period equal to
Executive’s Base Compensation as set forth in Section 8(a)(1), subject to the
provisions of Sections 8(b) and 8(c), and further provided that Company’s
obligations to make such payments to Executive under this Section will be
reduced by the amount of any cash compensation Executive receives for other
services during the otherwise anticipated Continuation Period; (iii) Executive
will cease to receive all other payments and benefits, including Incentive
Compensation and health insurance coverage under Sections 8(a)(2) and 8(a)(4)
and any other options not vested as of the New Employment Date; and (iv)
Executive agrees to notify the Company’s General Counsel in writing of his New
Employment and all related financial terms on or before the New Employment Date.
 
(e)  Other Compensation.    In the event that Executive accepts any other
compensation during the Continuation Period for other services (e.g. services
provided to a charitable organization or as a Director, consultant or
otherwise), Executive will continue to receive the Continuation Pay and Benefits
as a non-executive employee as set forth in Section 8(a), subject to the
provisions of Sections 8(b)-8(d), and provided that Company’s obligations to
make such payments will be reduced by the amount of any cash compensation
Executive receives for such other services and that Executive will promptly
notify the Company’s General Counsel in writing of the financial terms.
 
Section 9.    Other Employment Terminations
 
(a)  Termination for Cause.    If the Company terminates Executive’s employment
for Cause at any time, Executive shall receive no further compensation or
benefits of any kind as of the effective date of the termination.

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Definition of Cause.    For all purposes under this Agreement, “Cause” shall
mean termination of Executive’s employment based on a good faith determination
by the Board that Executive’s employment be terminated for any of the following
reasons: (1) Executive’s participation in, indictment, conviction or admission
of any crime involving dishonesty or moral turpitude; (2) Executive’s
participation in any act of fraud or intentional malfeasance against the
Company; (3) Executive’s material violation of the Company’s Code of Business
Conduct; (4) Executive’s material breach of any provision of this Agreement; (5)
Executive’s use of alcohol or drugs which interferes with the performance of
Executive’s duties under this Agreement or which compromises the integrity and
reputation of the Company, its employees or products; or (6) Executive’s absence
from employment for a period of more than four (4) weeks in violation of Company
policies and without prior notice to the Board of Directors.
 
(b)  Voluntary Termination by Executive.    If Executive voluntarily terminates
Executive’s employment at any time, Executive shall receive no further
compensation or benefits of any kind after the effective date of the
termination.
 
(c)  Termination by Death or Disability.    In the event that Executive’s
employment with the Company is terminated due to death or disability (as
determined under the Company’s long term disability plan), Executive (or
Executive’s beneficiaries or estate) shall be entitled to the Company’s
applicable death and disability compensation and benefits payable under the
Company’s death and disability programs, including, but not limited to death or
disability insurance benefits and, in the event of death, the ability to
exercise outstanding, unvested stock options (which were granted at least one
year prior to death) until the earlier of one year after the date of death or
the fixed period provided by the applicable stock option agreement (so long as
such benefits are provided in the relevant stock option agreement).
 
Section 10.    Confidential Information
 
(a)  Acknowledgement.    The Company and Executive acknowledge that the services
to be performed by Executive under this Agreement are unique and extraordinary
and that, as a result of Executive’s employment, Executive will be in a
relationship of confidence and trust with the Company and will come into
possession of “Confidential Information” (1) owned or controlled by the Company,
(2) in the possession of the Company and belonging to third parties or (3)
conceived, originated, discovered or developed, in whole or in part, by
Executive. As used herein “Confidential Information” includes trade secrets and
other confidential or proprietary business, technical, personnel or financial
information, whether or not Executive’s work product, in written, graphic, oral
or other tangible or intangible forms, including but not limited to
specifications, samples, records, data, computer programs, drawings, diagrams,
models, vendor or customer names, ID’s, business or marketing plans, studies,
analyses, projections and reports, communications by or to attorneys (including
attorney-client privileged communications), memos and other materials prepared
by attorneys or under their direction (including attorney work product), and
software systems and processes. Any information that is not readily available to
the public shall be considered to be a trade secret and confidential and
proprietary, even if it is not specifically marked as such, unless the Company
advises

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Executive otherwise in writing. This Section shall apply indefinitely, both
during and after the Term.
 
(b)  Nondisclosure.    Executive agrees that Executive will not, without the
prior written consent of the Company’s General Counsel, directly or indirectly
use or disclose to any person any information which Executive knows or should
know is Confidential Information, during or after Executive’s employment, except
as may be necessary in the ordinary course of performing Executive’s duties.
Executive will keep the Confidential Information in strictest confidence and
trust. Executive shall execute and abide by the Company’s confidentiality
agreement. This Section shall apply indefinitely, both during and after the
Term.
 
(c)  Surrender Upon Termination.    Executive agrees that in the event of
termination of Executive’s employment as CEO for any reason, Executive will
immediately deliver to the Company all property belonging to the Company,
including all documents and materials of any nature pertaining to Executive’s
work with the Company, and will not take with Executive any documents, materials
or property of any description, or any reproduction thereof of any description,
containing or pertaining to any Confidential Information.
 
(d)  No Other Agreements.    Executive represents and warrants that: 1)
Executive does not have any other agreements, relationships or commitments to
any other person or entity that conflicts with this Agreement or with
Executive’s ability to perform his obligations under this Agreement; and (2)
Executive will not disclose to the Company, or use, or persuade any other
Company employee to use, any proprietary information or trade secrets of a prior
employer or other person or entity.
 
Section 11.    Other Responsibilities of Executive
 
(a)  No Other Employment.    While employed as an executive of the Company,
Executive will not, directly or indirectly, whether as principal, agent,
employee, employer, consultant, partner or otherwise, engage in, participate in,
or assist in the management of, any other business or services (other than for
Executive’s personal passive investments or for a charitable organization),
without prior written authorization from the Chairman of the Board. Executive
further agrees that in no event will he compete in any way, directly or
indirectly, with the Company’s business while an employee in any capacity.
 
(b)  Agreement Not to Solicit.    While an employee of the Company and for one
year thereafter, Executive will not directly or indirectly through any other
entity or person, hire or attempt to hire, call upon or solicit or attempt to
call upon or solicit, any officer, director, executive, or employee at the
Manager level or above of the Company or any of its affiliates.
 
(c)  Abide by Company Policies.    Executive agrees to abide by and comply with
all applicable Company policies including, but not limited to, those contained
in the Code of Business Conduct.

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Section 12.    Remedies
 
It is specifically understood and agreed that any breach of the provisions of
Section 10 or 11 of this Agreement is likely to result in irreparable injury to
the Company and that the remedy at law alone will be an inadequate remedy for
such breach, and that in addition to any other remedy it may have, the Company
shall be entitled to enforce the specific performance of this Agreement by
Executive and to obtain both temporary and permanent injunctive relief without
the necessity of proving actual damages.
 
Section 13.    Severable Provisions
 
The provisions of this Agreement are severable and the invalidity of any one or
more provisions shall not affect the validity of any other provision. In the
event that a court of competent jurisdiction shall determine that any provision
of this Agreement or the application thereof is unenforceable in whole or in
part because of the duration or scope, the parties agree that the court in
making such determination shall have the power to reduce the duration and scope
of such provision to the extent necessary to make it enforceable and that the
Agreement in its reduced form shall be valid and enforceable to the full extent
permitted by law.
 
Section 14.    Miscellaneous Provisions
 
(a)  Waiver.    No provision of this Agreement shall be modified, waived or
discharged unless the modification, waiver or discharge is agreed to in writing
and signed by Executive and by the Chairman of the Board or his or her designee.
No waiver by either party of any breach of, or of compliance with, any condition
or provision of this Agreement by the other party shall be considered a waiver
of any other condition or provision or of the same condition or provision at
another time.
 
(b)  Whole Agreement.    No agreements, representations or understandings
(whether oral or written and whether express or implied) that are not expressly
set forth in this Agreement have been made or entered into by either party.
Executive acknowledges and agrees that this Agreement supersedes in its entirety
any other proposal or agreement regarding Executive’s employment by the Company.
 
(c)  Notice.    Notices and all other communications contemplated by this
Agreement shall be in writing and shall be deemed to have been duly given when
personally delivered or when mailed by U.S. registered or certified mail, return
receipt requested and postage prepaid. In the case of Executive, mailed notices
shall be addressed to Executive at the home address that Executive most recently
communicated to the Company in writing. In the case of the Company, mailed
notices shall be addressed to its corporate headquarters, and all notices shall
be directed to the attention of the Company’s General Counsel.
 
(d)  Choice of Law.    The laws of the State of California, irrespective of
California’s choice-of-law principles, shall govern the validity,
interpretation, construction and performance of this Agreement.
 
(e)  No Assignment of Benefits.    The rights of any person to payments or
benefits under this Agreement shall not be made subject to option or assignment,
either by voluntary or involuntary assignment or by operation of law, including
(without limitation) bankruptcy,

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garnishment, attachment or other creditor’s process, and any action in violation
of this Section 14(e) shall be void.
 
(f)  Limitation of Remedies.    If Executive’s employment terminates for any
reason, Executive shall not be entitled to any payments, benefits, damages,
awards or compensation of any kind other than as provided by this Agreement.
 
(g)  Employment Taxes.    All payments made pursuant to this Agreement shall be
subject to withholding of applicable taxes.
 
(h)  Discharge of Responsibility.    The payments under this Agreement, when
made in accordance with the terms of this Agreement, shall fully discharge all
responsibilities of the Company to Executive that existed at the time of
termination of Executive’s employment.
 
(i)  Attorney and Consultant Fees.    The Company will reimburse Executive for
all reasonable fees incurred in the negotiation and preparation of this
Agreement, up to $25,000.00.
 
IN WITNESS WHEREOF, each of the parties has executed this Agreement, in the case
of the Company by the Chairman of the Board, as of the day and year above
written. Executive has consulted (or has had the opportunity to consult) with
Executive’s own counsel (who is other than the Company’s counsel) prior to
execution of this Agreement.
 
EXECUTIVE
/S/    PAUL S. PRESSLER

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Paul S. Pressler
THE GAP, INC.
/S/ DONALD G. FISHER

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Chairman of the Board