8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of

The Securities Exchange Act of 1934

Date of Report

(Date of earliest event reported)

January 24, 2005

THE GAP, INC.

(Exact name of registrant as specified in its charter)

Delaware	1-7562	94-1697231
(State of incorporation)	(Commission File Number)	(IRS Employer Identification No.)

Two Folsom Street San Francisco, California	94105
(Address of principal executive offices)	(Zip Code)

(650) 952-4400

(Registrant’s telephone number,

including area code)

N/A

(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 1.01. Entry into a Material Definitive Agreement

Adoption of the Executive Management Incentive Compensation Award Plan

On January 25, 2005, the Board of Directors, upon the recommendation of its Compensation and Management Development Committee (the “Compensation Committee”), adopted the Executive Management Incentive Compensation Award Plan (the “Executive MICAP”). The Executive MICAP amends and restates the Executive Management Incentive Cash Award Plan approved by the shareholders at the 2004 annual meeting of shareholders. Changes to the Executive MICAP include the addition of Earnings Per Share and other new performance goals that may be used in making awards and the designation of stock-based and stock denominated units as acceptable forms of tender with which awards may be paid. The Executive MICAP will be submitted to the shareholders for approval at the 2005 annual meeting of shareholders in order for awards granted under the Executive MICAP to qualify for tax deductibility pursuant to Section 162(m) of the Internal Revenue Code. A copy of the Executive MICAP is attached hereto as Exhibit 10.1.

Adoption of Performance Goals for Fiscal 2005 Cash and Performance Unit Awards

On January 24 and 25, 2005, the Compensation Committee named those executive officers set forth below as participants eligible to earn cash and performance unit awards under the Executive MICAP based on performance during the 2005 fiscal year and established performance goals and target award percentages for each participant.

Cash Awards. The cash award payable under Executive MICAP to the named participants will be based on the financial performance of Gap Inc. and/or a division of the company. The weighting between the Gap Inc. and division financial performance goals as well as the base target award percentage (as a percentage of base salary) for cash awards for each named participant is as set forth below. The financial performance of a division or Gap Inc., as applicable, shall be based on the achievement of the following objective performance goals (each as defined in the Executive MICAP): 70% depends on the Earnings of the division or Gap Inc.; 20% depends on the Economic Profit of the division or Gap Inc.; and 10% depends on the Free Cash Flow of the division or Gap Inc. Actual cash awards payable under the Executive MICAP can range from 0 to 150% (0 to 100% for Donald G. Fisher) of a participant’s base salary depending upon the extent to which the financial performance of a division and/or Gap Inc. meets, exceeds or is below target.

Performance Unit Awards. Awards payable in performance units, issued pursuant to the Company’s 1996 Stock Option and Award Plan, to the named participants under Executive MICAP will be based 100% on year-over-year growth in Earnings Per Share of Gap Inc. (as defined in the Executive MICAP). The base target award percentage (as a percentage of base salary) for performance unit awards for each named participant is as set forth below. Actual performance unit awards payable under the Executive MICAP can have a value that ranges from 0 to 60% of a participant’s base salary depending upon the extent to which the growth in Earnings Per Share for Gap Inc. meets, exceeds or is below target. In determining the number of performance units awarded to each participant, the value of each performance unit shall equal the

average of the high and low prices at which a share of the Company’s common stock traded on the date of award, rounded down to the nearest whole unit. Each performance unit award will be granted pursuant to the Gap Inc. Stock Award Agreement (as described below) and will be subject to vesting as determined by the Compensation Committee on the date of award.

	Cash Awards			Performance Unit Awards
Executive Officer	Base Target Percentage	Weight of Gap Inc. Financial Performance Goals	Weight of Divisional Financial Performance Goals	Base Target Percentage
Nick Cullen	75%	100%	0	30%
Donald G. Fisher	50%	100%	0	0
Anne Gust	75%	100%	0	30%
Jenny Ming	75%	30%	70% (Old Navy)	30%
Byron Pollitt	75%	100%	0	30%
Eva Sage-Gavin	75%	100%	0	30%

Gap Inc. Stock Award Agreement

On January 24, 2005, the Compensation Committee approved the form of the Gap Inc. Stock Award Agreement pursuant to which the Company shall grant performance units issued under the Company’s 1996 Stock Option and Award Plan. Under the agreement, the Company shall designate the applicable vesting date for each performance unit and will issue one share of common stock of the Company upon vesting of each performance unit. A copy of the form of the Gap Inc. Stock Award Agreement is attached hereto as Exhibit 10.2.

Automatic Grants of Stock Options to Non-Employee Directors

On January 25, 2005, the Board of Directors, pursuant to the authority set forth in Section 9.1.3 of the Company’s 1996 Stock Option and Award Plan changed the annual automatic stock option grant made to Non-employee Directors pursuant to Section 9.1.2 from an option to purchase 3,750 shares to an option to purchase 7,500 shares.

Item 1.02. Termination of a Material Definitive Agreement

Please see Item 1.01.

Item 9.01. Financial Statements and Exhibits

10.1            Executive Management Incentive Compensation Award Plan

10.2           Stock Award Agreement

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

	THE GAP, INC.
	(Registrant)
Date: January 27, 2005	By:	/s/ Byron Pollitt
		Byron Pollitt
		Executive Vice President and     Chief Financial Officer

EXHIBIT INDEX

Exhibit Number	Description
10.1	Executive Management Incentive Compensation Award Plan
10.2	Stock Award Agreement

EX-10.1

Exhibit 10.1

THE GAP, INC.

EXECUTIVE MANAGEMENT INCENTIVE COMPENSATION AWARD PLAN

(January 25, 2005 Amendment and Restatement)

1. Purpose of the Plan

The purpose of the Executive Management Incentive Compensation Award Plan (the “Plan”) is to provide financial incentives for certain of the Company’s Officers to meet and exceed the Company’s annual financial and/or operational goals. Awards under the Plan are intended to qualify as “performance-based compensation” under Section 162(m) of the Code.

2. Definitions

2.1 “Affiliated Company” means any company controlling, controlled by, or under common control with the Company.

2.2 “Award” means an award pursuant to the provisions of the Plan.

2.3 “Base Salary” means, as to a Performance Period, a Participant’s average actual annual salary rate during the Performance Period, based on the number of days at each actual salary rate. Such salary shall be before (1) deductions for taxes and benefits, and (2) deferrals of compensation pursuant to Company-sponsored plans.

2.4 “Board of Directors” means the board of directors of the Company.

2.5 “Capital Charge Rate” means the current long-term approximation of the Company’s weighted average cost of capital (WACC), which represents the weighted average of the Company’s cost of debt and the cost of equity. The weighting is determined by comparing the balance of the Company’s debt (acquired debt plus capitalized leases) to the balance of the Company’s equity based upon market value (rather than book value).

2.6 “Code” means the Internal Revenue Code of 1986, as amended. Reference to a specific section of the Code shall include such section, any valid regulation promulgated thereunder, and any comparable provision of any future legislation or regulation amending, supplementing or superseding such section or regulation.

2.7 “Committee” means the Compensation and Management Development Committee of the Board of Directors, or any other Committee appointed by the Board of Directors pursuant to Section 3 of the Plan.

2.8 “Company” means The Gap, Inc., a Delaware corporation.

2.9 “Comparable Store Sales Growth” means the Company’s or a division’s same store net sales growth for the Performance Period in excess of the prior year.

2.10 “Determination Date” means, as to a Performance Period, the latest date possible which will not jeopardize the Plan’s qualification as “performance-based compensation” under Section 162(m) of the Code.

2.11 “Earnings” shall mean income before or after interest, taxes, depreciation, amortization and/or selected expenses allocated among divisions as determined by the Committee.

2.12 “Earnings Per Share” means as to any Performance Period, the fully diluted earnings per share amount or percentage growth of such amount.

2.13 “Economic Profit” shall mean Net Operating Profit After Tax (NOPAT) for a given Performance Period less Capital Charges. Total Company or divisional NOPAT shall mean Earnings plus interest on Lease Investment less income taxes. Capital Charges means the Company’s or a division’s Capital Balances multiplied by the Capital Charge Rate. Divisional Capital Balances include certain division specific assets and liabilities, the present value of operating leases, and also may include an allocation for shared assets and shared liabilities. Total Company Capital Balances may include an aggregation of divisional capital balances in addition to certain shared assets and liabilities and the present value of operating leases.

2.14 “Fiscal Year” means any fiscal year of the Company.

2.15 “Gross Margin” means sales minus cost of goods sold including rent occupancy and depreciation.

2.16 “Inventory Performance” means inventory levels or inventory turn.

2.17 “Lease Investment” means the present value of minimum expected lease payments.

2.18 “MICAP Free Cash Flow” means the Company’s or a division’s Net Earnings for a given Performance Period adjusted for Non-Cash Charges and changes in certain balance sheet accounts, which may result in an increase and/or a decrease to Net Earnings. Non-Cash Charges may include, but are not limited to, depreciation and amortization. Divisional balance sheet changes may include activities in certain division specific operating assets and liabilities, and may also include an allocation for shared assets and shared liabilities. Total Company balance sheet changes may include an aggregation of divisional balance sheet changes in addition to changes in certain shared assets and liabilities.

2

2.19 “Net Earnings” means the Earnings for a given Performance Period less certain allocated or shared expenses (e.g., headquarters, distribution centers, etc.), as determined by the Committee, after interest and taxes.

2.20 “Officer” means an officer (whether or not a member of the Board of Directors) employed by the Company or any Affiliated Company.

2.21 “Operating Margin” means earnings before interest and taxes divided by sales.

2.22 “Participant” means as to any Performance Period, an Officer who has been selected by the Committee for participation in the Plan for such Performance Period.

2.23 “Performance Goals” means an objective goal or goals established by the Committee (in its sole discretion) for a Performance Period against which a Participant’s actual performance will be measured.

2.24 “Performance Period” means any Fiscal Year of the Company or any portion thereof as determined by the Committee with respect to which an Award may be granted.

2.25 “Return on Equity” means the Company’s or a division’s Earnings for the Performance Period expressed as a percentage of the Company’s or a division’s average shareholders’ equity over the Performance Period.

2.26 “Return on Net Assets” means Earnings for the Performance Period expressed as a percentage of the average balance of selected assets over the Performance Period.

2.27 “Sales Volume” means the total sales volume per store of the Company or one of its divisions for the Performance Period.

2.28 “Termination of Employment” means the time when the employee-employer relationship between the Participant and the Company and its Affiliated Companies is terminated for any reason, including, but not limited to, a termination by resignation, discharge, death, permanent disability, retirement, or the disaffiliation of an Affiliated Company, but excluding any such termination where there is a simultaneous reemployment by either the Company or one of its Affiliated Companies.

3

2.29 “Total Sales” means the Company’s or a division’s net sales for the Performance Period.

2.30 “Total Shareholder Return” means, as to any Performance Period, the change in price plus dividend yield of a share of the Company’s common stock.

3. Administration of the Plan

3.1 The Plan shall be administered by the Committee, which shall consist of no fewer than two members of the Board of Directors, who shall be appointed and serve at the pleasure of the Board of Directors. Only members of the Board of Directors who are “outside directors” under Section 162(m) of the Code shall serve on the Committee.

3.2 Subject to the provisions of the Plan, the Committee shall have exclusive authority to select the Participants, and to determine the target Award levels, the applicable Performance Period, the times when Awards will be granted, and the Performance Goals which must be achieved prior to payment of any Awards. For each Performance Period, all actions by the Committee shall be taken by the Determination Date.

3.3 The Committee shall have all discretion and authority necessary or appropriate to administer the Plan, including, but not limited to, the power to interpret the Plan, to prescribe, amend and rescind rules and regulations relating to it, and to make all other determinations necessary or advisable in the administration of the Plan, and such determination shall be final and binding upon all persons having an interest in the Plan.

3.4 A majority of the Committee shall constitute a quorum, and the acts of a majority of the members present at a meeting at which a quorum is present or any action taken without a meeting by a writing executed by a majority of the Committee shall constitute the act of the Committee.

3.5 All expenses and liabilities incurred by the Committee in the administration of the Plan shall be borne by the Company. The Committee may employ attorneys, consultants, accountants, or other persons. The Committee and the Company and its officers and directors shall be entitled to rely upon the advice, opinion, or valuations of any such persons. No member of the Committee shall be personally liable for any action, determination, or interpretation taken or made with respect to the Plan, unless such action, determination, or interpretation constitutes criminal misconduct or willful negligence or demonstrates bad faith, and all members of the Committee shall be fully protected by the Company in respect of any such action, determination or interpretation.

4. Eligibility and Participation

The Plan is designed for Officers whose responsibilities significantly influence Company results. Participants shall be selected by the Committee prior to or on the Determination Date. Participation in the Plan is on a Performance Period basis and in the sole discretion of the Committee. Thus, an Officer who is selected for participation in a given Performance Period is in no way guaranteed to be selected for participation in any subsequent Performance Period or Performance Periods.

4

5. Establishment of Performance Goals

5.1 For each Performance Period, on or before the applicable Determination Date, the Committee shall establish and set forth in writing the Performance Goals, and any particulars, components and adjustments relating thereto, applicable to each Participant. The Performance Goals will be objectively measurable and will be based upon the achievement of a specified percentage or level in one or more of the following performance criteria:

(a) Comparable Store Sales Growth;

(b) Earnings;

(c) Earnings Per Share;

(d) Economic Profit;

(e) MICAP Free Cash Flow;

(f) Return on Equity;

(g) Return on Net Assets;

(h) Sales Volume;

(i) Total Sales;

(j) Total Shareholder Return;

(k) the attainment of a share of the Company’s common stock of a specified fair market value for a specified period of time;

(l) Gross Margin;

5

(m) Operating Margin;

(n) market share;

(o) Inventory Performance;

(p) cost reduction measures based on specified goals;

(q) customer satisfaction based on specified goals, such as customer survey results or loyalty measures;

(r) employee measures based on specified goals, such as turnover or satisfaction surveys;

(s) productivity measures based on specified goals, such as head count measures, sales per square foot or sales per employee; and

(t) any combination of the above.

5.2 As determined in the discretion of the Committee, the Performance Goals for any Performance Period may (a) differ from Participant to Participant; (b) be based on the performance of the Company as a whole or the performance of a specific Participant or a subsidiary, division, department, region, store, function or business unit of the Company; and (c) be measured on an absolute basis or in relation to the Company’s peers or an index.

5.3 The Committee may determine at the time the Performance Goals are established that any one or more of the following shall be taken into account, in whole or in part and in any manner specified by the Committee, when determining whether a Performance Goal has been attained:

(a) the gain, loss, income or expense resulting from changes in generally accepted accounting principles that become effective during the Performance Period or any previous period;

(b) the gain, loss, income or expense reported publicly by the Company that are extraordinary in nature;

(c) the impact of other specified nonrecurring events;

6

(d) the gain or loss resulting from, and the direct expenses incurred in connection with, the disposition of a business, in whole or in part, the sale of investments or non-core assets or discontinued operations, categories or segments;

(e) the gain or loss from claims and/or litigation and insurance recoveries relating to claims or litigation;

(f) the impact of impairment of tangible or intangible assets;

(g) the impact of restructuring or business recharacterization activities, including, without limitation, reductions in force, that are reported publicly by the Company;

(h) the impact of investments or acquisitions made during the Performance Period, or to the extent provided by the Committee, any prior period;

(i) the loss from political and legal changes that impact the operations of the Company, including, without limitation, war, insurrection, riot, terrorism, confiscation, expropriation, nationalization, deprivation, seizure, business interruption and regulatory requirements;

(j) retained and uninsured losses from natural catastrophes;

(k) currency fluctuations;

(l) the expense relating to the issuance of stock options and/or other stock based compensation;

(m) the expense relating to the early retirement of debt; and

(n) the impact of the conversion of convertible debt securities.

Each of the adjustments described above shall relate to the Company as a whole or any part of the Company’s business or operations, as applicable given the specified Performance Goal. The adjustments are to be determined in accordance with generally accepted accounting principles and standards, unless another objective method of measurement is designated by the Committee. In addition, the Committee shall adjust any performance criteria, Performance Goal or other feature of an Award that relates to or is wholly or partially based on the number of, or the value of, any stock of the Company, to reflect any stock dividend or split, repurchase, recapitalization, combination or exchange of shares or other similar changes in such stock.

7

5.4 Notwithstanding anything to the contrary contained herein, for each Performance Period, after the Determination Date, the Committee may amend or adjust the performance measures or other terms and conditions of an outstanding Award in recognition of unusual or nonrecurring events affecting the Company or its financial statements or changes in law or accounting, but only to the extent such adjustment would not cause any portion of the award upon payment to be nondeductible pursuant to Section 162(m) of the Code.

6. Determination of Awards

6.1 Prior to or on the Determination Date, the Committee, in its sole discretion, shall assign each Participant a target Award expressed as a percentage of Base Salary. The maximum percentage of Base Salary that may be assigned to any Participant is such percentage, which when added to the aggregate percentage used for such Participant for all other Performance Periods within a given Fiscal Year under this Section 6.1, that does not exceed 200%.

6.2 On or prior to the Determination Date, the Committee, in its sole discretion, shall establish a payout table or formula for purposes of determining the Award (if any) payable to each Participant. Each payout formula or table shall (a) be in writing; (b) be based on a comparison of actual performance to the Performance Goals; (c) provide for the payment of a Participant’s target Award if the Performance Goals for the Performance Period are achieved; and (d) provide for an actual Award greater than or less than the Participant’s target Award, depending upon the extent to which actual performance exceeds or falls below the Performance Goals.

6.3 After the end of each Performance Period, the Committee shall certify in writing the extent to which the Performance Goals applicable to each Participant for the Performance Period were achieved or exceeded. The actual Award for each Participant shall be determined by applying the formula established pursuant to Section 6.2 of the Plan to the level of actual performance that has been certified by the Committee. However, each Participant’s actual Award (if any) shall be subject to the maximum provided in Section 7.

6.4 No Awards shall be paid to a Participant for a Performance Period unless at least the minimum actual performance for the Performance Period specified by the Committee pursuant to Section 6.2 of the Plan is achieved.

6.5 The Committee, in its sole discretion, may eliminate any Participant’s Award, or reduce it below that which otherwise would be payable in accordance with the Plan.

8

7. Maximum Award Payable

The maximum aggregate Award(s) payable to any Participant under the Plan with respect to all Performance Periods of a given Fiscal Year shall be $10,000,000, including the fair market value as of the date of grant of any stock, restricted stock, stock options or other stock-based or stock denominated units awarded to the Participant. For purposes of determining the maximum award payable, the fair market value of restricted stock or other stock-based or stock denominated units with restrictions shall equal the fair market value of unrestricted stock or other stock-based or stock denominated units without restrictions, respectively. In addition, the fair market value of stock options and stock appreciation rights shall be calculated based on the assumptions used to calculate the per share value reported in the Company’s most recent Form 10-K or 10-Q.

8. Payment of Award

8.1 Awards may be paid in cash, or its equivalent, stock, restricted stock, stock options, other stock-based or stock denominated units, or any other form of consideration or any combination thereof, as determined by the Committee. Subject to the terms set forth in Section 8.2 below, payment or grant of Awards (if any) for a Performance Period will be made not later than two and one-half (2 ½) months from the end of the Fiscal Year in which the Performance Period ends. Equity or equity based awards granted as payment for an Award shall be issued pursuant to the Company’s equity compensation plans in existence at the time of grant. The number of shares or units awarded shall be determined based on the fair market value of the Company’s common stock on the award grant date. For the avoidance of doubt, the fair market value of restricted stock, other stock-based or stock denominated units with restrictions, stock options and stock appreciation rights shall be as set forth in Section 7 above.

8.2 Unless otherwise specifically determined by the Committee, a Participant will only be entitled to payment of an Award if the Participant is an Officer on the date of payment. Notwithstanding the foregoing, if, after the completion of a Performance Period, a Participant incurs a Termination of Employment due to death or permanent disability, the Participant may still be entitled to the payment of an Award for such Performance Period (subject to Section 6.5 above). In the event an Award is payable to a Participant subsequent to the Participant’s death, such payment shall be made in cash to the Participant’s estate.

8.3 The Company shall withhold all applicable income and other taxes from any Award payment to any Participant, including any federal, FICA, state and local taxes.

8.4 Each Award shall be payable solely from the general assets of the Company. Each Participant’s right to payment of an Award (if any) shall be solely as an unsecured general creditor of the Company.

9

9. Employment Rights

Nothing in the Plan shall confer upon any Participant the right to continue in the employ of the Company or its Affiliated Companies or shall interfere with or restrict in any way the rights of the Participant’s employer to discharge or change the terms of employment of any Participant at any time for any reason whatsoever, with or without cause.

10. Effect on Other Plans

The adoption of the Plan shall not affect any other equity or other compensation or incentive plan in effect for the Company or any Affiliated Company, and the Plan shall not preclude the Board of Directors from establishing any other forms of incentive compensation for Officers.

11. Amendment, Suspension or Termination of the Plan

The Board of Directors, in its sole discretion, may alter, amend, or terminate the Plan or any part thereof at any time and for any reason; provided, however, that if and to the extent required to ensure the Plan’s qualification under Section 162(m) of the Code as “performance-based compensation”, any such amendment shall be subject to stockholder approval.

12. Effective Date

The Plan originally was effective as of March 21, 1995. The Plan was amended and restated effective as of March 23, 2004 and approved by a majority of the shares of the common stock of the Company that were present in person or by proxy and entitled to vote at the 2004 Annual Meeting of Shareholders. This amended and restated Plan is effective as of January 25, 2005.

10

EX-10.2

Exhibit 10.2

Award No.             

THE GAP, INC.

STOCK AWARD AGREEMENT¹

The Gap, Inc. (the “Company”) hereby grants to                      (the “Employee”), an award (the “Award”) of Performance Units (each Performance Unit shall be referred to as a “Stock Award”) which represent the right to receive shares of the Company’s common stock, $0.05 par value (the “Shares”) subject to the fulfillment of the vesting conditions and other conditions set forth in the attached Appendix A. This Award is granted pursuant to The Gap, Inc. 1996 Stock Option and Award Plan (the “Plan”) and is subject to all of the terms and conditions contained in this Stock Award Agreement (the “Agreement”), including the terms and conditions contained in the attached Appendix A. The date of this Agreement is                     . Subject to the provisions of Appendix A and of the Plan, the principal features of this Award are as follows:

Number of Stock Awards:	____
Date of Grant:	____
Date(s) Stock Awards
Scheduled to Vest:	#,### Stock Awards on [month/day/year]
	#,### Stock Awards on [month/day/year]
	#,### Stock Awards on [month/day/year]
	#,### Stock Awards on [month/day/year]

As provided in the Plan and in this Agreement, this Award may terminate before the scheduled vest date(s) of the Stock Awards. Important additional information on vesting and forfeiture of the Stock Awards covered by this Award is contained in paragraphs 3 through 5 of Appendix A.

IN WITNESS WHEREOF, the Company and the Employee have executed this Agreement, in duplicate, to be effective as of the date first above written.

	THE GAP, INC.
Dated:
	Paul Pressler
	President and Chief Executive Officer

My signature below indicates that I understand that this Award is 1) subject to all of the terms and conditions of this Agreement (including the attached Appendix A) and of the Plan, 2) not considered salary, nor is it a promise for future grants of Stock Awards, 3) not a term or condition of my employment with the Company, and 4) made at the sole discretion of the Company.

	EMPLOYEE
Dated:
		Social Security or Tax ID #:

¹ STOCK AWARDS GRANTED BY THE GAP, INC. ARE GOVERNED SOLELY BY THE LAWS OF THE STATE OF CALIFORNIA AND THE UNITED STATES OF AMERICA.

APPENDIX A

TERMS AND CONDITIONS OF STOCK AWARD

1. Grant of Stock Awards. The Company hereby grants to the Employee for past services and as a separate incentive in connection with his or her employment and not in lieu of any salary or other compensation for his or her services, an Award with respect to the number of Stock Awards set forth on page 1 of this Agreement, subject to all the terms and conditions in this Agreement and the Plan. Employee understands and agrees that this Award does not guarantee any future Stock Award grants and that grants are made at the sole discretion of the Company.

2. Company’s Obligation to Pay. On any date, a Stock Award has a value equal to the Fair Market Value of one Share. Unless and until a Stock Award has vested in accordance with the vesting schedule set forth on the first page of this Agreement, the Employee will have no right to payment of a Share with respect to the Stock Award. Prior to actual payment of any Shares pursuant to vested Stock Awards, each Stock Award represents an unsecured obligation of the Company, payable (if at all) only from the general assets of the Company.

3. Vesting of Stock Awards and Issuance of Shares. Except as provided in paragraph 4, and subject to paragraph 5, the Stock Awards subject to this Agreement will vest as to the number of Stock Awards, and on the dates shown, on the first page of this Agreement (each a “Vesting Date”), but in each case, only if the Employee has been continuously employed by the Company or by one of its Affiliates from the date of this Award until the applicable Vesting Date of the Stock Awards. Upon each Vesting Date, one Share shall be issuable for each Stock Award that vests on such Vesting Date, subject to the terms and provisions of the Plan and this Agreement. Thereafter, the Company will transfer such Shares to the Employee upon satisfaction of any required tax withholding obligations. No fractional Shares shall be issued under this Agreement.

4. Death, Retirement, Committee Discretion. In the event of the Employee’s death or Retirement (as defined in the Plan), the remaining Stock Awards shall become fully vested on the date of death or Retirement, as applicable. In addition, the Committee, in its discretion, may accelerate the vesting of all or a portion of the Stock Award at any time, subject to the terms of the Plan. If so accelerated by the Committee, such Stock Award will be considered as having been vested as of the date specified by the Committee.

5. Termination of Service. Notwithstanding any contrary provision of this Agreement, the balance of the Stock Awards that have not vested pursuant to paragraph 3 or 4 will be forfeited and cancelled automatically at the time of the Employee’s Termination of Service.

6. Withholding Taxes. On each Vesting Date, the Employee agrees that the Company will withhold a portion of the Shares scheduled to be issued pursuant to vested Stock Awards that have an aggregate market value, sufficient to pay the federal, state and local income, employment and any other applicable taxes required to be withheld by the Company or its designated Affiliate. The Company will only withhold whole Shares and therefore the Employee also authorizes any such deduction without notice from salary or other amounts payable to the Employee, cash having a value sufficient to satisfy any fractional amount necessary to satisfy such taxes required to be withheld by the Company. Notwithstanding the previous sentence, the Employee, if the Company in its sole discretion so agrees, may elect to furnish to the Company written notice, no more than 30 days and no less than 5 days in advance of a scheduled Vesting Date, his or her intent to satisfy the tax withholding requirement by remitting the full amount of the tax withholding to the Company on the scheduled Vesting Date.

7. Beneficiary Designation. Any distribution or delivery to be made to the Employee under this Agreement will, if the Employee is then deceased, be made to the Employee’s designated beneficiary, or if no such beneficiary survives the Employee, the person or persons entitled to such distribution or delivery under the Employee’s will or, if the Employee should fail to make testamentary disposition of such property, the executor of his or her estate. In order to be effective, a beneficiary designation must be made by the Employee in a form and manner acceptable to the Company. Any transferee must furnish the Company with (a) written notice of his or her status as transferee, and (b) evidence satisfactory to the Company to establish the validity of the transfer and compliance with any laws or regulations pertaining to said transfer.

8. Conditions to Issuance of Shares. The Shares deliverable to the Employee on the Vesting Date(s) may be either previously authorized but unissued Shares or issued Shares that have been reacquired by the Company. The Company shall not be required to issue any Shares hereunder prior to fulfillment of all of the following conditions: (a) The admission of such Shares to listing on all stock exchanges on which such class of stock is then listed; (b) The completion of any registration or other qualification of such Shares under any State or Federal law or under the rulings or regulations of the Securities and Exchange Commission or any other governmental regulatory body, which the Company shall, in its absolute discretion, deem necessary or advisable; (c) The obtaining of any approval or other clearance from any State or Federal governmental agency, which the Company would, in its absolute discretion, determine to be necessary or advisable; and (d) The lapse of such reasonable period of time following the date of Stock Award as the Company may establish from time to time for reasons of administrative convenience. Notwithstanding any other provision of this Agreement, an Employee shall not have a legally binding right to receive the Shares until the satisfaction of all conditions of this paragraph 8.

9. Rights as Stockholder. Neither the Employee nor any person claiming under or through the Employee will have any of the rights or privileges of a stockholder of the Company in respect of any Stock Award unless and until Shares have been issued in accordance with paragraph 3, recorded on the records of the Company or its transfer agents or registrars, and delivered to the Employee. Except as provided in paragraph 10, after such issuance, recordation, and delivery, the Employee will have all the rights of a stockholder of the Company with respect to voting such Shares and receipt of dividends and distributions on such Shares.

10. Changes in Stock. 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 Committee shall adjust the Stock Awards subject to the Award, in such manner as the Committee (in its sole discretion) shall determine to be appropriate.

2 of 3

11. Plan Governs. This Agreement is subject to all the terms and provisions of the Plan. In the event of a conflict between one or more provisions of this Agreement and one or more provisions of the Plan, the provisions of the Plan will govern. Terms used in this Agreement that are not defined in this Agreement will have the meaning set forth in the Plan.

12. Committee Authority. The Committee will have the power to interpret the Plan and this Agreement and to adopt such rules for the administration, interpretation and application of the Plan as are consistent therewith and to interpret or revoke any such rules (including, but not limited to, the determination of whether or not any portion of the Stock Award has vested). All actions taken and all interpretations and determinations made by the Committee in good faith will be final and binding upon the Employee, the Company and all other interested persons. No member of the Committee will be personally liable for any action, determination or interpretation made in good faith with respect to the Plan or this Agreement.

13. No Modification of At-Will Status. The Employee understands and agrees that this Agreement does not impact in any way the right of the Company, or the Affiliate employing the Employee, as the case may be, to terminate or change the terms of the employment of the Employee at any time for any reason whatsoever, with or without good cause. The Employee understands and agrees that his or her employment is “at-will” and that either the Company or the Employee may terminate the Employee’s employment at any time and for any reason. The Employee also understands and agrees that his or her “at-will” status can only be changed by an express written contract signed by an authorized officer of the Company and the Employee.

14. Non-Transferability of Award. Except as otherwise herein provided, the Stock Awards herein granted and the rights and privileges conferred hereby will not be transferred, assigned, pledged or hypothecated in any way (whether by operation of law or otherwise) and will not be subject to sale under execution, attachment or similar process. Upon any attempt to transfer, assign, pledge, hypothecate or otherwise dispose of such Stock Award, or of any right or privilege conferred hereby, contrary to the provisions hereof, or upon any attempted sale under any execution, attachment or similar process upon the rights and privileges conferred hereby, such Stock Award and the rights and privileges conferred hereby will immediately become null and void.

15. Binding Agreement. Subject to the limitation on the transferability of the Stock Award contained herein, this Agreement shall be binding upon and inure to the benefit of the heirs, legatees, legal representatives, successors and assigns of the Employee and the Company.

16. Addresses for Notices. Any notice to be given to the Company under the terms of this Agreement will be addressed to the Company, in care of its Legal Department, at The Gap, Inc., Two Folsom, San Francisco, California 94105, or at such other address as the Company may hereafter designate in writing. Any notice to be given to the Employee will be addressed to the Employee at the address set forth on the records of the Company. Any such notice will be deemed to have been duly given if and when enclosed in a properly sealed envelope, addressed as aforesaid, and deposited, postage prepaid, in a United States post office.

17. Captions. Captions provided herein are for convenience only and are not to serve as a basis for interpretation or construction of this Agreement.

18. Agreement Severable. In the event that any provision in this Agreement will be held invalid or unenforceable, such provision will be severable from, and such invalidity or unenforceability will not be construed to have any effect on, the remaining provisions of this Agreement.

19. Modifications to the Agreement. This Agreement constitutes the entire understanding of the parties on the subjects covered. The Employee expressly warrants that he or she is not accepting this Agreement in reliance on any promises, representations, or inducements other than those contained herein. Modifications to this Agreement or the Plan can be made only in an express written agreement executed by a duly authorized officer of the Company.

20. Amendment, Suspension or Termination of the Plan. By accepting this Award, the Employee expressly warrants that he or she has received a right to an equity based award under the Plan, and has received, read, and understood a description of the Plan. The Employee understands that the Plan is discretionary in nature and may be modified, suspended, or terminated by the Company at any time.

* * *

3 of 3