Gap (GPS)

13. Certain Definitions Relating to Termination.

(a) Disability Definition. “Disability” means a permanent and total disability within the meaning of section 22(e)(3) of the Internal Revenue Code (the “Code”), provided that the Committee in its discretion may determine whether a permanent and total disability exists in accordance with uniform and non-discriminatory standards adopted by the Committee from time to time. Notwithstanding the preceding sentence, under no circumstances shall you be considered to have a Disability for purposes of this Section 13(a) if you are not eligible for long-term disability coverage under a Company-sponsored long-term disability plan that provides substantially comparable salary continuation benefits as those provided under the Company’s long-term disability plan in effect on the Start Date.

(b) Good Reason Definition. “Good Reason” shall mean any of the following that occur without your consent: (1) relocation of your primary work location by more than fifty (50) miles from San Francisco, (2) any reduction in your base salary or target annual bonus percentage opportunity, (3) your ceasing to be Chief Executive Officer of the Company, (4) the Company’s material breach of this letter or (5) the failure by the Company, following your written request to the Company’s General Counsel, to procure and deliver to you reasonably satisfactory evidence of the assumption of this Agreement by any successor as required by Section 21. Before “Good Reason” has been deemed to have occurred, you must give the Company written notice detailing why you believe a Good Reason event has occurred and such notice

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must be provided to the Company within thirty days of your actual knowledge of the initial occurrence of such alleged Good Reason event. The Company shall then have thirty days after its receipt of written notice to cure the item cited in the written notice so that “Good Reason” will have not formally occurred with respect to the event in question.

(c) Change-in-Control Definition. “Change-in-Control” means the consummation of one or more of the following events: (i) any “person” (as such term is used in Section 13(d) of the Securities Exchange Act of 1934 (the “Exchange Act”)) is or becomes the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act) of shares representing more than 50% of the combined voting power of the then outstanding Voting Stock (as defined below in this Section 13(c)) of the Company; provided, however, that a “Change of Control” shall not be deemed to occur solely as the result of the acquisition by Donald G. Fisher, Doris F. Fisher, John J. Fisher, William Fisher and/or Robert R. Fisher (collectively, the “Fishers”) and the Permitted Designees (as defined below in this Section 13(c)) of shares representing in the aggregate more than 50% but less than 75% of the combined voting power of the then outstanding Voting Stock of the Company; (ii) the Company consolidates with or merges into any other corporation, any other corporation merges into the Company, or the Company effects a share exchange or the Company conveys, sells, transfers or leases all or substantially all (more than 75%) of its assets (other than to one or more of its wholly-owned subsidiaries), and, in the case of any such consolidation, merger or share exchange transaction, the outstanding Common Stock of the Company is reclassified into or exchanged for any other property or securities, unless the shareholders of the Company immediately before such transaction own, directly or indirectly immediately following such transaction, at least a majority of the combined voting power of the then outstanding Voting Stock of the entity resulting from such transaction in substantially the same proportion as their ownership of the Voting Stock of the Company immediately before such transaction, or unless such transaction is effected solely to change the jurisdiction of incorporation of the Company and results in a reclassification, conversion or exchange of outstanding shares of Common Stock solely into shares of Common Stock; (iii) the Company or the Company and its subsidiaries, taken as a whole, sells, assigns, conveys, transfers or leases all or substantially all (more than 75%) of the assets of the Company or of the Company and its subsidiaries, taken as a whole over a 12-month period, as applicable (other than to one or more wholly-owned subsidiaries of the Company); or (iv) any time the Continuing Directors (as defined below in this Section 13(c)) do not constitute a majority of the Board (or, if applicable, a successor entity to the Company).

For purposes of the above definition of Change-in-Control, “Continuing Directors” means, as of any date of determination, any member of the Board who (A) was a member of such Board on the Start Date (the “Original Directors”) or (B) was appointed, nominated for election, or elected to such Board with the approval of a majority of the Original Directors or Continuing Directors who were members of such Board at the time of such nomination or election.

For purposes of the above definition of Change-in-Control, “Permitted Designees” means (i) a spouse or lineal descendent by blood or adoption of any of the Fishers; (ii) trusts solely for the benefit of any of the Fishers, one or more charitable foundations, institutions or entities or any of the individuals referred to in clause (i); (iii) in the event of the death of a Fisher, his or her estate, heirs, executor, administrator, committee or other personal representative; or (iv) any Person (as defined below in this Section 13(c)) so long as any of the Fishers or any of the individuals referred to in clause (i) are the sole beneficial owners of more than 50% of the Voting Stock of such Person and constitute a majority of the board of directors of such Person, in the case of a corporation, or of the individuals exercising similar functions, in the case of an entity other than a corporation.

For purposes of the above definition of Change-in-Control, “Person” means any individual, corporation, partnership, joint venture, trust, estate, unincorporated organization, limited liability company or government or any agency or political subdivision thereof.

For purposes of the above definition of Change-in-Control, “Voting Stock” means all classes of capital stock (shares, interests, rights to purchase, warrants, options, participations or other equivalents of or interests in (however designated) equity of the applicable entity, but excluding any debt securities convertible into such equity) of the applicable Person then outstanding and normally entitled to vote in the election of directors.

(d) Material Diminution of Responsibilities Definition. “Material Diminution of Responsibilities” means the occurrence of any of the following without your consent (i) you cease to report directly to the Board of the ultimate parent entity, (ii) one or more of your direct reports is required by the Board to report directly and solely to the Board instead of to you, (iii) you are required by the Board to report to another officer, (iv) you are no longer the CEO of the ultimate parent entity, (v) you remain the CEO of the ultimate parent entity but you are not the sole highest ranking officer of such entity in terms of responsibility and authority, or (vi) following a Change-in-Control as a result of which the Company ceases to be publicly traded on the New York Stock Exchange, Nasdaq or otherwise, you suffer a

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material adverse change in your authority as compared to your authority immediately prior to such Change-in-Control. In the event the Company ceases to be publicly traded on the New York Stock Exchange, Nasdaq or otherwise, the term “ultimate parent entity” used in this Section 13(d) shall not include any direct or indirect shareholders of the Company that are not publicly traded (other than parent entities that are both (i) operating companies whose primary purpose is not investment related and (ii) not directly or indirectly owned by a company whose primary purpose is investment related). A Material Diminution of Responsibilities shall not be deemed to have occurred solely by reason of the Company’s sale of one or more of its businesses or by an action taken in good faith to comply with applicable law, generally accepted accounting principles, regulatory guidance, or other similar guidance. Before “Material Diminution of Responsibilities” has been deemed to have occurred, you must give the Company written notice detailing why you believe a Material Diminution of Responsibilities event has occurred and such notice must be provided to the Company within thirty days of your actual knowledge of the initial occurrence of such alleged Material Diminution of Responsibilities event. The Company shall then have thirty days after its receipt of written notice to cure the item cited in the written notice so that “Material Diminution of Responsibilities” will have not formally occurred with respect to the event in question.

14. Internal Revenue Code Section 409A. Notwithstanding anything contained in this letter to the contrary, if you are deemed by the Company at the time of your “separation from service” with the Company to be a “specified employee,” each within the meaning of Section 409A of the Code (“409A”), any compensation or benefits to which you become entitled under this letter (or any agreement or plan referenced in this letter) in connection with such separation shall not be made or commence until the date which is six (6) months after your “separation from service” (or, if earlier, your death). Such deferral shall only be effected to the extent required to avoid adverse tax treatment to you, including (without limitation) the additional twenty percent (20%) tax for which you would otherwise be liable under Section 409A(a)(1)(B) of the Code in the absence of such deferral. Upon the expiration of the applicable deferral period, any compensation or benefits which would have otherwise been paid during that period (whether in a single sum or in installments) in the absence of this Section shall be paid to you or your beneficiary in one lump sum. Any taxable reimbursements made to you pursuant to Section 6, 7 or Section 31 shall be made on or before the last day of the calendar year following the calendar year in which the applicable expense was incurred. With respect to any such taxable reimbursements, the amount of expenses eligible for reimbursement during a calendar year shall not affect the expenses eligible for reimbursement in any other calendar year. Any tax restoration payments made to you pursuant to Section 7 shall be made by the end of the calendar year following the calendar year in which you remit the related taxes.

15. Section 280G. In the event that it is determined that any payment or distribution of any type to you or for your benefit made by the Company, by any of its affiliates, by any person who acquires ownership or effective control or ownership of a substantial portion of the Company’s assets (within the meaning of Code Section 280G and the regulations thereunder) or by any affiliate of such person, whether paid or payable or distributed or distributable pursuant to the terms of this letter or otherwise, would be subject to the excise tax imposed by Code Section 4999 or any interest or penalties with respect to such excise tax (such excise tax, together with any such interest or penalties, are collectively referred to as the “Excise Tax”), then such payments or distributions or benefits shall be payable either: (i) in full or (ii) as to such lesser amount which would result in no portion of such payments or distributions or benefits being subject to the Excise Tax. You shall determine whether to receive the amounts provided in (i) or (ii). If you select to reduce payments pursuant to (ii), then the payments will be reduced in accordance with the following order of priority: (x) first, Full Credit Payments (as defined below) will be reduced in reverse chronological order such that the payment owed on the latest date following the occurrence of the event triggering the Excise Tax will be the first payment to be reduced until such payment is reduced to zero, and then the payment owed on the next latest date following occurrence of the event triggering the Excise Tax will be the second payment to be reduced until such payment is equal to zero, and so forth, until all such Full Credit Payments have been reduced to zero, and (y) second, Partial Credit Payments (as defined below) will be reduced in a manner such as to obtain the best economic benefit for you so that after giving effect to such reduction, you retain the greatest economic value of such Partial Credit Payments. “Full Credit Payment” means a payment, distribution or benefit, whether paid or payable or distributed or distributable pursuant to the terms of this letter or otherwise, that if reduced in value by one dollar reduces the amount of the parachute payment (as defined in Section 280G) by one dollar. “Partial Credit Payment” means a payment, distribution or benefit, whether paid or payable or distributed or distributable pursuant to the terms of this letter or otherwise, that if reduced in value by one dollar reduces the amount of the parachute payment (as defined in Section 280G) by an amount that is less than one dollar. For clarification purposes only, a “Partial Credit Payment” would include a stock option as to which vesting is accelerated upon an event that triggers the Excise Tax, where the in the money value of the option exceeds the value of the option accleration that is added to the parachute payment. You and the Company shall furnish such documentation and documents as may be necessary for the Company’s independent external accountants to perform the requisite Code Section 280G computations and analysis.

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16. No Conflicts with this Offer/Representations. You represent and warrant that you do not have any agreements, obligations, relationships or commitments to any other person or entity that conflict or would conflict with accepting this offer or fully performing your duties and obligations of this position, including, without limitation any ongoing obligations you may have to your former employer. You further represent that the credentials and information you provided to Company (or its agents) related to your qualifications and ability to perform this position are true and correct.

17. Abide by Company Policies. You agree to abide by all applicable Company policies including, but not limited to, policies contained in the Code of Business Conduct and the Securities Law Compliance Manual. You also agree to execute and abide by the attached Confidentiality, Non-Solicitation & Non-Disparagement Agreement before, during and after your employment with Company.

18. Recoupment Policy. You hereby agree and understand that you will be subject to the Company’s recoupment policy in effect from time to time. Under the current policy applicable to the Company’s senior executives, subject to the discretion and approval of the Board, the Company will, to the extent permitted by governing law, in all appropriate cases as determined by the Board, require reimbursement and/or cancellation of any bonus or other incentive compensation, including stock-based compensation, awarded to an executive officer or other member of the Company’s executive leadership team where all of the following factors are present: (a) the award was predicated upon the achievement of certain financial results that were subsequently the subject of a restatement, (b) in the Board’s view, the executive engaged in fraud or intentional misconduct that was a substantial contributing cause to the need for the restatement, and (c) a lower award would have been made to the executive based upon the restated financial results. In each such instance, the Company will seek to recover the individual executive’s entire annual bonus or award for the relevant period, plus a reasonable rate of interest.