10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)
þ	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
	For the quarterly period ended October 30, 2004
OR
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
	For the transition period from           to

Commission file number 000-21250

The Gymboree Corporation

(Exact name of registrant as specified in its charter)

Delaware	94-2615258
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)
500 Howard Street, San Francisco, California	94105
(Address of principal executive offices)	(Zip code)

(415) 278-7000

(Registrant’s telephone number, including area code)

700 Airport Boulevard, Suite 200, Burlingame, California 94010-1912

(Former address, if changed since last report)

          Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes þ          No o

          Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).     Yes þ          No o

          As of November 27, 2004, 30,965,401 shares of the registrant’s common stock were outstanding.

TABLE OF CONTENTS

		Page
		Number
PART I FINANCIAL INFORMATION
Item 1.	Financial Statements
	Condensed Consolidated Balance Sheets		2
	Condensed Consolidated Statements of Income		3
	Condensed Consolidated Statements of Cash Flows		4
	Notes to Condensed Consolidated Financial Statements		5
	Report of Independent Registered Public Accounting Firm		10
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		11
Item 3.	Quantitative and Qualitative Disclosures about Market Risk		16
Item 4.	Controls and Procedures		16
PART II OTHER INFORMATION
Item 1.	Legal Proceedings		18
Item 6.	Exhibits		18
Signatures			19
Exhibit Index
EXHIBIT 10.58
EXHIBIT 10.59
EXHIBIT 10.60
EXHIBIT 10.61
EXHIBIT 15
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32.1
EXHIBIT 32.2

1

Part I — FINANCIAL INFORMATION

Item 1. Financial Statements

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

			October 30,			January 31,			November 1,
			2004			2004			2003
			(In thousands, except share data)
			(Unaudited)
ASSETS
Current Assets
	Cash and cash equivalents		$	64,608		$	89,553		$	56,463
	Accounts receivable			19,215			11,168			7,542
	Merchandise inventories			91,706			73,017			81,832
	Prepaid expenses			3,295			2,865			8,319
	Deferred taxes			293			1,126			2,030
	Current assets of discontinued operations			4,373			6,396			6,908
		Total current assets		183,490			184,125			163,094
Property and Equipment
	Land and buildings			10,375			10,375			10,371
	Leasehold improvements			141,648			105,185			103,141
	Furniture, fixtures and equipment			150,144			133,364			127,977
				302,167			248,924			241,489
	Less accumulated depreciation and amortization			(156,070	)		(140,026	)		(134,544	)
				146,097			108,898			106,945
Deferred Taxes				8,537			4,607			5,067
Lease Rights and Other Assets				1,522			1,253			712
	Total Assets		$	339,646		$	298,883		$	275,818
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
	Accounts payable		$	38,245		$	33,318		$	34,195
	Income tax payable			—			8,011			5,207
	Accrued liabilities			43,372			25,775			25,047
	Current liabilities of discontinued operations			5,127			1,714			2,554
		Total current liabilities		86,744			68,818			67,003
Long-Term Liabilities
	Deferred rent and other liabilities			30,412			26,317			20,814
	Total Liabilities			117,156			95,135			87,817
Stockholders’ Equity
	Common stock, including excess paid-in capital ($.001 par value: 100,000,000 shares authorized, 30,830,374, 30,203,149 and 29,801,652 shares outstanding at October 30, 2004, January 31, 2004 and November 1, 2003, respectively)			64,752			58,460			54,335
	Retained earnings			157,809			145,805			134,617
	Accumulated other comprehensive loss			(71	)		(517	)		(951	)
		Total stockholders’ equity		222,490			203,748			188,001
	Total Liabilities and Stockholders’ Equity		$	339,646		$	298,883		$	275,818

See notes to condensed consolidated financial statements.

2

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

			13 Weeks Ended						39 Weeks Ended
			October 30,			November 1,			October 30,			November 1,
			2004			2003			2004			2003
			(In thousands, except per share data)
			(Unaudited)
Net sales:
	Retail		$	152,619		$	140,864		$	410,466		$	373,635
	Play & Music and Other			2,989			2,894			8,241			9,002
		Total net sales		155,608			143,758			418,707			382,637
Cost of goods sold, including buying and occupancy expenses				(92,799	)		(83,355	)		(250,387	)		(225,808	)
		Gross profit		62,809			60,403			168,320			156,829
Selling, general and administrative expenses				(54,306	)		(46,730	)		(151,984	)		(133,181	)
	Operating income			8,503			13,673			16,336			23,648
Other income, net				69			19			451			354
	Income from continuing operations before income taxes			8,572			13,692			16,787			24,002
Income tax benefit (expense)				338			(5,203	)		(2,661	)		(9,121	)
	Income from continuing operations, net of income tax			8,910			8,489			14,126			14,881
Loss from discontinued operations, net of income tax				(3,419	)		(174	)		(3,350	)		(364	)
Income before cumulative effect of change in accounting principle				5,491			8,315			10,776			14,517
Cumulative effect of change in accounting principle, net of income tax				—			—			1,228			—
	Net income		$	5,491		$	8,315		$	12,004		$	14,517
Basic per share amounts:
Income from continuing operations, net of income tax			$	0.29		$	0.29			0.46		$	0.50
Loss from discontinued operations, net of income tax				(0.11	)		(0.01	)		(0.11	)		(0.01	)
Cumulative effect of change in accounting principle, net of income tax				—			—			0.04			—
Net income			$	0.18		$	0.28			0.39		$	0.49
Diluted per share amounts:
Income from continuing operations, net of income tax			$	0.28		$	0.28			0.45		$	0.48
Loss from discontinued operations, net of income tax				(0.11	)		(0.01	)		(0.11	)		(0.01	)
Cumulative effect of change in accounting principle, net of income tax				—			—			0.04			—
Net income			$	0.18		$	0.27			0.38		$	0.47
Weighted average shares outstanding:
	Basic			30,801			29,687			30,657			29,518
	Diluted			31,346			30,837			31,355			30,764

See notes to condensed consolidated financial statements.

3

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

				39 Weeks Ended
				October 30,			November 1,
				2004			2003
				(In thousands)
				(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income				$	12,004		$	14,517
Adjustments to reconcile net income to net cash provided by operating activities:
	Loss from discontinued operations, net of income tax				3,350			364
	Cumulative effect of change in accounting principle, net of income tax				(1,228	)		—
	Depreciation and amortization				20,368			19,097
	Deferred income tax benefit				(3,097	)		(230	)
	Loss on disposal of property and equipment				451			201
	Tax benefit from exercise of stock options				2,856			770
	Change in assets and liabilities:
		Accounts receivable			(5,429	)		(222	)
		Merchandise inventories			(20,189	)		(19,216	)
		Prepaid expenses and other assets			(815	)		(163	)
		Accounts payable			4,831			7,074
		Income tax payable			(9,639	)		(7,586	)
		Accrued liabilities			17,661			1,208
		Deferred and other liabilities			4,154			315
	Net cash provided by continuing operations				25,278			16,129
	Net cash provided by discontinued operations				4,552			1,518
			Total net cash provided by operating activities		29,830			17,647
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures					(58,040	)		(24,586	)
Proceeds from sale of assets and other					141			600
	Net cash used in investing activities				(57,899	)		(23,986	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of stock					3,436			3,495
	Net cash provided by financing activities				3,436			3,495
Effect of exchange rate fluctuations on cash					(312	)		(1,321	)
Net Decrease in Cash and Cash Equivalents					(24,945	)		(4,165	)
CASH AND CASH EQUIVALENTS:
Beginning of Period					89,553			60,628
End of Period				$	64,608		$	56,463
NON-CASH INVESTING ACTIVITIES:
Capital expenditures incurred, but not yet paid				$	4,495		$	3,395

See notes to condensed consolidated financial statements.

4

THE GYMBOREE CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Basis of Presentation

      The unaudited interim condensed consolidated financial statements, which include The Gymboree Corporation and its subsidiaries, all of which are wholly owned (“the Company”), have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted pursuant to such rules and regulations. These financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended January 31, 2004.

      The accompanying interim condensed consolidated financial statements reflect all adjustments which are, in the opinion of management, necessary to present fairly the results of operations, the financial position and cash flows for the periods presented. All such adjustments are of a normal and recurring nature.

      The results of operations for the thirty-nine weeks ended October 30, 2004 are not necessarily indicative of the operating results that may be expected for the fiscal year ending January 29, 2005 (“fiscal 2004”).

2. Change in Accounting Principle

      Effective February 1, 2004, the Company elected to change its accounting method for inventory valuation from the retail method to the lower of cost or market method, determined on a weighted average basis (the “cost method”). The Company believes the cost method is a preferable method for matching the cost of merchandise with the revenues generated. The cumulative effect of this accounting change, which was recorded in the first quarter of fiscal 2004, was income of $1.2 million, or $0.04 per diluted share, net of income taxes. It is not possible to determine the effect of this change on any other previously reported fiscal periods or on fiscal 2004.

3. Discontinued Operations

      On August 16, 2004, the Board of Directors authorized the Company to proceed with the closure of its United Kingdom and Ireland operations (22 stores and one distribution center), as a result of their continued poor financial performance. As of October 30, 2004, substantially all such operations had ceased, as virtually all of the inventories were sold and the distribution center and 5 of the 22 stores were closed (4 United Kingdom stores and 1 Ireland store). The remaining 17 stores were closed during the first two weeks of November. The results of the United Kingdom and Ireland operations have been presented as discontinued operations in the accompanying financial statements for all periods presented.

      Net sales and net loss from discontinued operations, which were comprised primarily of asset write-offs of $1.7 million, severance of $0.7 million, and lease disposition costs of $1.4 million, were as follows:

	13 Weeks Ended						39 Weeks Ended
	October 30,			November 1,			October 30,			November 1,
	2004			2003			2004			2003
	(In thousands)
Net retail sales	$	9,651		$	7,283		$	22,979		$	20,951
Loss from discontinued operations	$	(5,383	)	$	(281	)	$	(5,275	)	$	(587	)
Income tax benefit		1,964			107			1,925			223
Net loss from discontinued operations	$	(3,419	)	$	(174	)	$	(3,350	)	$	(364	)

5

THE GYMBOREE CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      The liability for lease disposition costs was as follows:

	13 Weeks Ended
	October 30,
	2004
Lease termination expense	$	1,411
Amounts paid		(212	)
Liability at October 30, 2004	$	1,199

      The Company estimates that the net loss from discontinued operations (comprised primarily of asset write-offs and lease disposition costs) will approximate $7.6 million, net of income tax benefit, in fiscal 2004 .

4. Stock Based Compensation

      The Company accounts for stock-based awards to employees using the intrinsic value method in accordance with Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees.” Had the Company recorded compensation expense for its stock option plans and purchase plan based on the fair value method consistent with the method of Statement of Financial Accounting Standards (“SFAS”) No. 123, “Accounting for Stock-Based Compensation,” as amended by SFAS No. 148, net income and net income per share would have been as follows:

		13 Weeks Ended						39 Weeks Ended
		October 30,			November 1,			October 30,			November 1,
		2004			2003			2004			2003
		(In thousands, except per share data)
Net income, as reported		$	5,491		$	8,315		$	12,004		$	14,517
Deduct: Total stock-based employee compensation expense determined under fair value based method, for awards granted or settled, net of related tax effects			(1,618	)		(836	)		(4,865	)		(2,461	)
	Pro forma net income	$	3,873		$	7,479		$	7,139		$	12,056
Basic income per share
	As reported	$	0.18		$	0.28		$	0.39		$	0.49
	Pro forma		0.13			0.25			0.23			0.41
Diluted income per share
	As reported	$	0.18		$	0.27		$	0.38		$	0.47
	Pro forma		0.12			0.24			0.23			0.39

      The fair value of option grants and shares issued under stock option plans and the purchase plan are estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions:

	Periods Ended
	October 30,			November 1,
	2004			2003
Expected dividend rate		0	%		0	%
Expected volatility		47.9	%		45.3	%
Risk-free interest rate		2.6	%		2.6	%
Expected lives (years)		4.0			4.0

6

THE GYMBOREE CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

5. Net Income Per Share

      Basic net income per share is calculated by dividing net income for the period by the weighted average common shares outstanding for that period. Diluted net income per share includes the effects of dilutive instruments, such as stock options, and uses the average share price for the period in determining the number of incremental shares that are to be added to the weighted average number of shares outstanding. The following summarizes the incremental shares from these potentially dilutive securities, calculated using the treasury stock method.

	13 Weeks Ended				39 Weeks Ended
	October 30,		November 1,		October 30,		November 1,
	2004		2003		2004		2003
	(In thousands)
Weighted average number of shares — basic		30,801		29,687		30,657		29,518
Add: effect of dilutive securities		545		1,150		698		1,246
Weighted average number of shares — diluted		31,346		30,837		31,355		30,764

      Anti-dilutive options to purchase 3,225,671 and 1,995,934 shares of common stock for the 13 weeks ended October 30, 2004 and November 1, 2003, respectively, and 2,919,005 and 1,730,262 shares of common stock for the 39 weeks ended October 30, 2004 and November 1, 2003, respectively, were excluded from the above computations of weighted average shares.

6. Comprehensive Income

      Comprehensive income, which includes net income, foreign currency translation adjustments and fluctuations in the fair market value of certain derivative financial instruments, is as follows:

		13 Weeks Ended				39 Weeks Ended
		October 30,		November 1,		October 30,		November 1,
		2004		2003		2004		2003
		(In thousands)
Net income		$	5,491	$	8,315	$	12,004	$	14,517
Other comprehensive income (loss)			159		301		446		(183	)
	Total comprehensive income	$	5,650	$	8,616	$	12,450	$	14,334

7. Segments

      The Company operates two reportable segments, retail stores and Play & Music. Corporate overhead and income taxes are included in the retail stores segment. The following table provides the summary financial data of each reportable segment, excluding discontinued operations (in thousands).

	13 Weeks Ended October 30, 2004						39 Weeks Ended October 30, 2004
	Retail		Play & Music				Retail		Play & Music
	Stores		and Other		Total		Stores		and Other		Total
Net sales	$	152,619	$	2,989	$	155,608	$	410,466	$	8,241	$	418,707
Depreciation and amortization		6,963		108		7,071		20,019		349		20,368
Operating income		8,268		235		8,503		15,295		1,041		16,336
Total assets		329,526		5,747		335,273		329,526		5,747		335,273
Capital expenditures		29,432		122		29,554		57,839		201		58,040

7

THE GYMBOREE CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

	13 Weeks Ended November 1, 2003						39 Weeks Ended November 1, 2003
	Retail		Play & Music				Retail		Play & Music
	Stores		and Other		Total		Stores		and Other		Total
Net sales	$	140,864	$	2,894	$	143,758	$	373,635	$	9,002	$	382,637
Depreciation and amortization		6,196		138		6,334		18,717		380		19,097
Operating income		13,236		437		13,673		22,467		1,181		23,648
Total assets		262,870		6,040		268,910		262,870		6,040		268,910
Capital expenditures		12,769		34		12,803		24,472		114		24,586

      Net sales from our Canadian operations amounted to $6.5 million and $6.6 million for the 13 weeks ended October 30, 2004 and November 1, 2003, respectively, and $16.8 million and $15.7 million for the 39 weeks ended October 30, 2004 and November 1, 2003, respectively. Long-lived assets held by our Canadian operations amounted to $3.2 million and $2.9 million as of October 30, 2004 and November 1, 2003, respectively.

8. Co-Branded Credit Card

      In late 2003, the Company entered into co-branded credit card agreements (the “Agreements”) with a third-party bank (the “Bank”) and Visa U.S.A. Inc. for the issuance of a Visa credit card bearing the Gymboree brand and administration of an associated incentive program for cardholders. The program, which was launched in April 2004, offers incentives to cardholders, including a 5% discount on in-store purchases using the Gymboree Visa card and annual rewards in the form of a Gymboree gift card equal to 1% of total non-Gymboree purchases. The Bank is the sole owner of the accounts issued under the program and will absorb all losses associated with non-payment by the cardholder and any fraudulent usage of the accounts by third parties. The Company is responsible for redeeming the incentives, including the issuance of any gift cards. The Bank pays fees to the Company based on the number of credit card accounts opened and card usage and makes certain guaranteed minimum annual payments. Visa U.S.A. Inc. also pays fees to the Company based on card usage. Cardholder incentives are funded from the fees paid by the Bank to the Company. The Company recognizes revenues related to these Agreements as follows:

•  New account fees will be recognized as other revenues on a straight-line basis over the estimated life of the credit card relationship, currently estimated to be 3 years.

•  Credit card usage fees will be recognized as other revenues as actual usage occurs.

•  Minimum guaranteed annual payments which exceed amounts earned based on the number of accounts opened and card usage, will be recognized as other revenues on a straight-line basis over the estimated life of the credit card relationship, currently estimated to be 3 years.

•  Annual rewards earned will be recorded as gift card liabilities and recognized as retail revenues when the gift cards are redeemed.

      As of October 30, 2004 and as of January 31, 2004, the Company has received $6.0 million in advance payments under these Agreements. During the 13 weeks and 39 weeks ended October 30, 2004, the Company recognized approximately $195,000 and $280,000 in new account and credit card usage fees, respectively, which are included in Play & Music and Other net sales in the respective condensed consolidated statements of income. As of October 30, 2004, $4.5 million in advance payments and $0.1 million in gift card liabilities are included in accrued liabilities and deferred revenue of $1.1 million is included in other long-term liabilities, in the condensed consolidated balance sheet.

8

THE GYMBOREE CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

9. New Corporate Office Lease

      In March 2004, the Company signed a lease agreement (the “Lease”) for a new corporate office building in San Francisco, California. The Lease, which expires on April 14, 2018, requires base rent payments of approximately $4.7 million annually, subject to market value adjustments after 11 years. The Lease requires the Company to provide a $2.4 million standby letter of credit, which the Company may elect to reduce on each anniversary of the Lease commencement. As part of the Lease, the Company’s new landlord assumed the Company’s lease obligations for its Burlingame, California headquarters through the 2006 expiration of such lease. On November 15, 2004, the Company moved into its new corporate headquarters in San Francisco and ceased use of the Burlingame headquarters. As a result, the Company will record a non-cash charge, before income tax, of approximately $4.0 to $4.5 million in the fourth quarter of fiscal 2004. At the same time, the same amount will be recorded as a deferred lease incentive from the new landlord, which will be amortized over the life of the Lease as a reduction of rent expense. The Company remains the guarantor on lease agreements for the Burlingame, California offices through the 2006 expiration date.

10. Income Tax Benefit

      Income from continuing operations in the current quarter included an income tax benefit of $3.4 million or $0.11 per diluted share due to the reversal of a tax reserve, which was largely attributable to the favorable resolution of a Canadian income tax audit.

9

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To The Board of Directors and Stockholders of The Gymboree Corporation:

      We have reviewed the accompanying condensed consolidated balance sheets of The Gymboree Corporation and subsidiaries (the “Company”) as of October 30, 2004 and November 1, 2003, and the related condensed consolidated statements of income for the three-month and nine-month periods then ended, and cash flows for the nine-month periods then ended. These condensed consolidated financial statements are the responsibility of the Company’s management.

      We conducted our reviews in accordance with standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures to financial data and of making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

      Based on our reviews, we are not aware of any material modifications that should be made to such condensed consolidated financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.

      As discussed in Note 2 to the condensed consolidated financial statements, effective February 1, 2004, the Company changed its accounting method for inventory valuation from the retail method to the lower of cost or market method, determined on a weighted average basis.

      We have previously audited, in accordance with standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of The Gymboree Corporation as of January 31, 2004, and the related consolidated statements of income, stockholders’ equity, and cash flows for the year then ended (not presented herein); and in our report dated April 14, 2004, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of January 31, 2004, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

/s/ DELOITTE & TOUCHE LLP

San Francisco, California

December 8, 2004

10

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

      You should read the following discussion and analysis in conjunction with our consolidated financial statements and related notes thereto included elsewhere in this Quarterly Report on Form 10-Q. The discussion in this report contains forward-looking statements that involve risks and uncertainties, including statements regarding planned capital expenditures, planned store openings, expansions and renovations, systems infrastructure development, future cash generated from operations, future cash needs and the wind down of our United Kingdom and Ireland operations. Inaccurate assumptions and known and unknown risks and uncertainties can affect the accuracy of forward-looking statements, and our actual results could differ materially from results that may be anticipated by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, customer reactions to new merchandise, concepts and marketing activity, gross margin achievement, our ability to manage inventory levels appropriately, general economic conditions, success in meeting delivery targets, competitive market conditions, trade restrictions, unexpected complications with the wind down of our United Kingdom and Ireland operations, instability in countries where our merchandise is manufactured and the other factors described in this document. When used in this document, the words “believes,” “expects,” “estimates,” “anticipates” and similar expressions are intended to identify certain of these forward-looking statements. In addition, any statements that refer to expectations, projections or other characterizations of future events or circumstances are forward-looking statements. The cautionary statements made in this document should be read as being applicable to all related forward-looking statements wherever they appear in this document. Readers are cautioned not to place undue reliance on these forward-looking statements, which are based on information available as of the date of this report. We do not intend to revise any forward-looking statements in order to reflect events or circumstances that may subsequently arise. Readers are urged to carefully review and consider the various disclosures made in this report, in our Annual Report on Form 10-K for fiscal year 2003 and our other reports filed with the Securities and Exchange Commission that attempt to advise interested parties of the risks and factors that may affect our business, prospects and results of operations.

General

      The Gymboree Corporation is a specialty retailer operating stores selling high quality apparel and accessories for women and children under the GYMBOREE®, JANIE AND JACK®, and JANEVILLE^TM brands, as well as play programs for children under the GYMBOREE PLAY & MUSIC^TM brand. As of October 30, 2004, the Company conducted its business through four divisions: Gymboree, Janie and Jack, Janeville and Gymboree Play & Music. As of October 30, 2004, we had 643 stores, including 615 stores in the United States (including all 51 Janie and Jack shops and all 12 Janeville stores) and 28 stores in Canada. The Company also operates two on-line stores at www.gymboree.com and www.janieandjack.com.

      Our plan for the remainder of fiscal 2004 is to continue to grow our domestic store base for Gymboree, Janie and Jack and Janeville, bringing the total number of store openings for fiscal 2004 to approximately 24, 23 and 14 new stores, respectively.

      On August 16, 2004, the Board of Directors authorized the Company to proceed with the closure of its United Kingdom and Ireland operations (22 stores and one distribution center), as a result of their continued poor financial performance. As of October 30, 2004, substantially all such operations had ceased, as virtually all of the inventories were sold and the distribution center and 5 of the 22 stores were closed (4 United Kingdom stores and 1 Ireland store). The remaining 17 stores were closed during the first two weeks of November. The results of the United Kingdom and Ireland operations have been presented as discontinued operations in the accompanying financial statements for all periods presented.

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Results of Operations

Thirteen weeks ended October 30, 2004 compared to thirteen weeks ended November 1, 2003

Net Sales from Continuing Operations

      Net retail sales in the thirteen weeks ended October 30, 2004 increased to $152.6 million from $140.9 million in the same period last year, an increase of $11.7 million or 8.3%. Comparable store sales increased 2% or $3.5 million over the same period last year. This increase was primarily due to an increase in the average transaction value. Strong product performance in our baby boy, kid girl, and baby girl departments was slightly offset by weakness in our accessories and kid boy departments. Non-comparable store sales increased $9.5 million due to net store and square footage growth of 55 stores and 130,000 square feet, respectively. The increase was also due to a $304,000 increase in shipping income related to our web business. These increases were offset by a decrease of $505,000 in sales to off-price retailers as a result of our seasonal clearance strategy whereby markdown merchandise is primarily sold at our retail stores, as well as an increase of $1.0 million in sales returns and Gymbucks promotional discounts. The number of stores open at the end of the quarter was 643 compared to 588 at the end of the same period last year (excluding stores in the United Kingdom and Ireland).

      Play & Music and Other net sales in the third quarter of fiscal 2004 increased to $3.0 million from $2.9 million in the same period last year, an increase of $0.1 million or 3.4%. The increase was primarily due to revenues associated with our Gymboree Visa Card program, partially offset by lower sales from our Play & Music business due to the sale and closure of 8 corporate owned sites as part of our ongoing restructuring of that division.

Gross Profit

      Gross profit for the third quarter of fiscal 2004 increased to $62.8 million from $60.4 million in the same period last year. As a percentage of net sales, gross profit decreased 1.6 percentage points to 40.4% in the third quarter of fiscal 2004 from 42.0% in the same period last year. The decrease in our gross profit margin was primarily due to increased product costs resulting from further investments in product quality, novelty items, and fashion embellishments. Due to cautious consumer sentiment and a highly promotional competitive environment, average retail sales per unit sold did not increase enough to offset these higher costs, which resulted in lower product margins. In addition, buying costs and store occupancy costs increased as a percentage of sales due in part to the deleveraging impact of our new concepts, Janie and Jack and Janeville. Gross profit in fiscal 2004 was calculated using the cost method compared to the retail method in fiscal 2003. The impact of this change cannot be determined.

Selling, General and Administrative Expenses

      Selling, general and administrative (“SG&A”) expenses, which principally consist of non-occupancy store expenses, corporate overhead and distribution expenses, increased to $54.3 million in the third quarter of fiscal 2004 from $46.7 million in the same period last year. As a percentage of net sales, SG&A expenses increased 2.4 percentage points to 34.9% in the third quarter of fiscal 2004 from 32.5% in the same period last year. The increase in SG&A was largely attributable to higher store expenses related to increases in our store base. In addition, SG&A for the quarter was impacted by marketing expenses related to the Gymboree re-branding campaign, consulting expenses related to the implementation of our new merchandising system, and professional fees related to Sarbanes-Oxley compliance.

Other Income, Net

      Other income increased to $69,000 in the third quarter of fiscal 2004 from $19,000 in the same period last year primarily due to foreign exchange gains. These gains resulted from foreign currency fluctuations on inter-company transactions between our United States operations and foreign subsidiaries. The amount of foreign exchange gains or losses is dependent on both monthly currency fluctuations and balances held in those

12

associated currencies. These gains included an increase of $26,000 in interest income due to higher cash and cash equivalent balances on a quarter-over-quarter basis.

Income Taxes

      During the third quarter of fiscal 2004, we recorded an income tax benefit of $0.3 million due to the reversal of a $3.4 million tax reserve, which was largely attributable to the favorable resolution of a Canadian income tax audit. Without the effect of this tax benefit, our effective tax rate for the quarter would have been 36.0%. Our effective tax rate for the third quarter of fiscal 2003 was 38.0%.

Discontinued Operations

      The loss reported for the discontinued United Kingdom and Ireland operations includes operating results, as well as charges related to asset write-offs, severance, and lease disposition costs in the third quarter of fiscal 2004.

Thirty-nine weeks ended October 30, 2004 compared to thirty-nine weeks ended November 1, 2003

Net Sales from Continuing Operations

      Net retail sales for the thirty-nine weeks ended October 30, 2004 increased to $410.5 million from $373.6 million in the same period last year, an increase of $36.9 million or 9.9%. Comparable store sales increased 4% or $16.5 million over the same 39-week period last year. This increase was primarily due to an increase in the number of transactions, as well as an increase in average transaction value, driven by higher average retail sales per unit sold. Non-comparable store sales increased $23.2 million due to net store and square footage growth of 55 stores and 130,000 square feet, respectively. The increase was also due to a $673,000 increase in shipping income related to our web business. These increases were offset by a decrease of $2.6 million in sales to off-price retailers as a result of our seasonal clearance strategy whereby markdown merchandise is primarily sold at our retail stores, as well as an increase of $1.0 million in sales returns and Gymbucks promotional discounts.

      Play & Music and Other net sales for the thirty-nine weeks ended October 30, 2004 decreased to $8.2 million from $9.0 million in the same period last year, a decrease of $0.8 million or 8.9%. The decrease was primarily due to lower Play & Music sales resulting from the sale and closure of a total of 15 corporate owned sites as part of our ongoing restructuring of the Play & Music business.

Gross Profit

      Gross profit for the thirty-nine weeks ended October 30, 2004 increased to $168.3 million from $156.8 million in the same period last year, an increase of $11.5 million. As a percentage of net sales, gross profit decreased 0.8 percentage points to 40.2% in the thirty-nine weeks ended October 30, 2004 from 41.0% in the same period last year. Although product margins were pressured by higher product costs and a promotional competitive environment in the third quarter of fiscal 2004, product margins for the thirty-nine weeks ended October 30, 2004 were higher than the prior year due largely to the impact of markdown optimization, whereby markdowns are targeted to maximize SKU level sales and margins. This effect was offset by increased buying costs related to our new concepts, Janie and Jack and Janeville, as well as higher occupancy costs as a percentage of net sales. Gross profit in fiscal 2004 was calculated using the cost method compared to the retail method in fiscal 2003. The impact of this change cannot be determined.

Selling, General and Administrative Expenses

      SG&A expenses increased to $152.0 million in the thirty-nine weeks ended October 30, 2004 from $133.2 million in the same period last year. As a percentage of net sales, SG&A expenses increased 1.5 percentage points to 36.3% in the thirty-nine weeks ended October 30, 2004 from 34.8% in the same period last year. The increase in SG&A was attributable to both higher store costs resulting from increases in our store base, and higher corporate expenses largely related to increased marketing, compensation, and benefits

13

expenses. Marketing expenses increased as a result of more extensive in-store marketing campaigns for Gymboree, as well as the Gymboree re-branding campaign. Compensation increased primarily due to the increased headcount needed to support our new concepts, Janie and Jack and Janeville. Benefits increased due to increased headcount, higher medical insurance premiums and expanded employee benefits.

Other Income, Net

      Other income increased to $451,000 in the thirty-nine weeks ended October 30, 2004 from $354,000 in the same period last year primarily due to interest income, partially offset by foreign exchange losses. Interest income increased by $273,000 due to higher cash and cash equivalent balances compared to the same period last year. Foreign exchange losses resulted from foreign currency fluctuations on inter-company transactions between our United States operations and foreign subsidiaries. The amount of foreign exchange gains or losses is dependent on both monthly currency fluctuations and balances held in those associated currencies.

Income Taxes

      During the thirty-nine weeks ended October 30, 2004, our effective tax rate for continuing operations was reduced from 36.5% to 15.9% due to the reversal of a $3.4 million tax reserve, which was largely attributable to the favorable resolution of a Canadian income tax audit. Without the effect of this one-time tax benefit, our effective tax rate for the 39 weeks ended October 30, 2004 would have been 36.2%. Our effective tax rate for the 39 weeks ended November 1, 2003 was 38.0%.

Discontinued Operations

      The loss reported for the discontinued United Kingdom and Ireland operations includes operating results, as well as charges related to asset write-offs, severance, and lease disposition costs.

Seasonality

      Our business is impacted by the general seasonal trends characteristic of the apparel and retail industries. Sales from retail operations have historically been highest during the fourth fiscal quarter, somewhat lower during the first and third fiscal quarters and lowest during the second fiscal quarter. Consequently, the results for any fiscal quarter are not necessarily indicative of results for the full year.

Financial Condition

Liquidity and Capital Resources

      Net cash provided by operating activities for the thirty-nine weeks ended October 30, 2004 was $29.8 million compared to $17.6 million in the same period last year. This increase was primarily due to changes in working capital items and cash provided by discontinued operations.

      Net cash used in investing activities for the thirty-nine weeks ended October 30, 2004 was $57.9 million and consisted primarily of capital expenditures for the opening of 50 new stores, relocation and/or expansion of 16 existing stores, expenditures related to store openings and relocations currently in progress, and information technology improvements. The Company estimates that capital expenditures will be approximately $50 to $55 million during fiscal 2004, net of allowances of approximately $16.0 million, and will primarily be used to relocate 16 Gymboree stores, re-brand 200 existing Gymboree stores, open 24 new Gymboree stores, 23 new Janie and Jack shops and 14 new Janeville stores (approximately $30 million for all stores), build-out our new corporate headquarters (approximately $9 million), continue our systems infrastructure replacement (approximately $9 million), and further invest in our web and distribution infrastructure (approximately $4 million).

      Net cash provided by financing activities for the thirty-nine weeks ended October 30, 2004 totaled $3.4 million compared to $3.5 million in the same period last year. This decrease was due to a decrease in proceeds from stock option exercises.

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      Because of the seasonal nature of our business, our cash needs vary throughout the year. In the third quarter, our cash and cash equivalents and working capital typically decrease. Cash and cash equivalents were $64.6 million at October 30, 2004, a decrease of $24.9 million from January 31, 2004. Working capital as of October 30, 2004 was $96.7 million compared to $115.3 million as of January 31, 2004.

      The Company has an unsecured revolving credit facility for borrowings of up to $70 million (increased from $60 million in August 2004). This credit facility has a three-year term expiring in August 2006, and may be used for working capital and capital expenditure needs, as well as the issuance of documentary and standby letters of credit. This credit facility requires the Company to meet financial covenants on a quarterly basis and limits annual capital expenditures. During the quarter ended October 30, 2004, the Company’s capital expenditures exceeded the annual limit for fiscal 2004 due to the amount of capital expenditures for the Company’s new offices and the Company announced plans to close its European operations. The bank subsequently provided the Company with a waiver and amendment to the credit facility to increase the capital expenditures limit for fiscal 2004 and to allow for the closure and winddown of the United Kingdom and Ireland operations. As of October 30, 2004, $48.5 million of documentary and standby letters of credit were outstanding under this facility. The increase in documentary and standby letters of credit outstanding is primarily due to the increased merchandise requirements related to our new concepts, Janie and Jack and Janeville.

      In late 2003, the Company entered into co-branded credit card agreements (the “Agreements”) with a third-party bank (the “Bank”) and Visa U.S.A. Inc. for the issuance of a Visa credit card bearing the Gymboree brand and administration of an associated incentive program for cardholders. The program, which was launched in April 2004, offers incentives to cardholders, including a 5% discount on in-store purchases using the Gymboree Visa card and annual rewards in the form of a Gymboree gift card equal to 1% of total non-Gymboree purchases. The Bank is the sole owner of the accounts issued under the program and will absorb all losses associated with non-payment by the cardholder and any fraudulent usage of the accounts by third parties. The Company is responsible for redeeming the incentives, including the issuance of any gift cards. The Bank pays fees to the Company based on the number of credit card accounts opened and card usage and makes certain guaranteed minimum annual payments. Visa U.S.A. Inc. also pays fees to the Company based on card usage. Cardholder incentives are funded from the fees paid by the Bank to the Company. The Company recognizes revenues related to these Agreements as follows:

•  New account fees will be recognized as other revenues on a straight-line basis over the estimated life of the credit card relationship, currently estimated to be 3 years.

•  Credit card usage fees will be recognized as other revenues as actual usage occurs.

•  Minimum guaranteed annual payments which exceed amounts earned based on the number of accounts opened and card usage, will be recognized as other revenues on a straight-line basis over the estimated life of the credit card relationship, currently estimated to be 3 years.

•  Annual rewards earned will be recorded as gift card liabilities and recognized as retail revenues when the gift cards are redeemed.

      As of October 30, 2004 and as of January 31, 2004, the Company has received $6.0 million in advance payments under these Agreements. During the 13 weeks and 39 weeks ended October 30, 2004, the Company recognized approximately $195,000 and $280,000 in new account and credit card usage fees, respectively, which are included in Play & Music and Other net sales in the respective condensed consolidated statements of income. As of October 30, 2004, $4.5 million in advance payments and $0.1 million in gift card liabilities are included in accrued liabilities and deferred revenue of $1.1 million is included in other long-term liabilities, in the condensed consolidated balance sheet.

      In March 2004, the Company signed a lease agreement (the “Lease”) for a new corporate office building in San Francisco, California. The Lease, which expires on April 14, 2018, requires base rent payments of approximately $4.7 million annually, subject to market value adjustments after 11 years. The Lease requires the Company to provide a $2.4 million standby letter of credit, which the Company may elect to reduce on each anniversary of the Lease commencement. As part of the Lease, the Company’s new landlord assumed

15

the Company’s lease obligations for its Burlingame, California headquarters through the 2006 expiration of such lease. On November 15, 2004, the Company moved into its new corporate headquarters in San Francisco and ceased use of the Burlingame headquarters. As a result, the Company will record a non-cash charge, before income tax, of approximately $4.0 to $4.5 million in the fourth quarter of fiscal 2004. At the same time, the same amount will be recorded as a deferred lease incentive from the new landlord, which will be amortized over the life of the Lease as a reduction of rent expense. The Company remains the guarantor on lease agreements for the Burlingame, California offices through the 2006 expiration date.

      There have been no material changes to the Company’s contractual obligations since its Annual Report on Form 10-K for the year ended January 31, 2004, except for the lease obligations related to the Company’s new corporate offices described above.

      The Company is liable on lease agreements for 3 Play & Music sites sold to franchisees. However, the Company does not believe that payment by the Company of its maximum potential amount of future payments under the Play & Music lease agreements would have a material current or future effect on its liquidity or capital resources.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

      The Company enters into forward foreign exchange contracts to hedge certain inter-company loans and inventory purchases. The term of the forward exchange contracts is generally less than one year. The purpose of our foreign currency hedging activities is to protect us from the risk that the eventual dollar net cash inflow resulting from the repayment of certain inter-company loans from our foreign subsidiaries and dollar margins resulting from inventory purchases will be adversely affected by changes in exchange rates.

      The tables below summarize by major currency the notional amounts and fair values of our forward foreign exchange contracts in U.S. dollars as of October 30, 2004 and November 1, 2003.

	October 30, 2004
	Notional		Fair Value			Weighted
	Amount		Gain/(Loss)			Average Rate
	(In thousands, except weighted
	average rate data)
British pounds sterling	$	1,358	$	(19	)	$	1.83
Canadian dollars		5,070		(262	)		0.82
Euro		1,238		(41	)		1.28
Total	$	7,666	$	(322	)

	November 1, 2003
	Notional		Fair Value			Weighted
	Amount		Loss			Average Rate
	(In thousands, except weighted
	average rate data)
British pounds sterling	$	6,842	$	(325	)	$	1.68
Canadian dollars		6,775		(462	)		0.75
Euro		685		2			1.16
Total	$	14,302	$	(785	)

Item 4. Controls and Procedures

      We maintain a set of disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), designed to ensure that information required to be disclosed in our filings under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Management, with the participation of our chief executive officer and chief financial officer, has evaluated the

16

effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report, and has determined that such disclosure controls and procedures are effective.

      We also maintain a system of internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act). No changes in our internal control over financial reporting occurred during the quarter ended October 30, 2004 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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Part II — OTHER INFORMATION

Item 1. Legal Proceedings

      The Company is subject to various legal proceedings and claims arising in the ordinary course of business. Our management does not expect that the results in any of these legal proceedings, either individually or in the aggregate, would have a material adverse effect on our financial position, results of operations or cash flow.

Item 6. Exhibits

10	.58	2004 Equity Incentive Plan
10	.59	Form of Stock Option Grant for 2004 Equity Incentive Plan
10	.60	Waiver and First Amendment to Credit Agreement
10	.61	Terms of Compensation Agreement
15		Letter re: Unaudited Interim Financial Information
31	.1	Certification of Lisa Harper Pursuant to §302 of the Sarbanes-Oxley Act of 2002.
31	.2	Certification of Myles McCormick Pursuant to §302 of the Sarbanes-Oxley Act of 2002.
32	.1	Certification of Lisa Harper Pursuant to 18 U.S.C.§1350, as Adopted Pursuant to §906 of the Sarbanes-Oxley Act of 2002.
32	.2	Certification of Myles McCormick Pursuant to 18 U.S.C.§1350, as Adopted Pursuant to §906 of the Sarbanes-Oxley Act of 2002.

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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 thereunto duly authorized.

	THE GYMBOREE CORPORATION (Registrant)
December 8, 2004 Date	By: /s/ MYLES MCCORMICK Myles McCormick Chief Financial Officer and Principal Financial and Accounting Officer

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EXHIBIT INDEX

Exhibit
Number			Description
	10	.58	2004 Equity Incentive Plan
	10	.59	Form of Stock Option Grant for 2004 Equity Incentive Plan
	10	.60	Waiver and First Amendment to Credit Agreement
	10	.61	Terms of Compensation Agreement
	15		Letter re: Unaudited Interim Financial Information
	31	.1	Certification of Lisa Harper Pursuant to §302 of the Sarbanes-Oxley Act of 2002
	31	.2	Certification of Myles McCormick Pursuant to §302 of the Sarbanes-Oxley Act of 2002
	32	.1	Certification of Lisa Harper Pursuant to 18 U.S.C.§1350, as Adopted Pursuant to §906 of the Sarbanes-Oxley Act of 2002
	32	.2	Certification of Myles McCormick Pursuant to 18 U.S.C.§1350, as Adopted Pursuant to §906 of the Sarbanes-Oxley Act of 2002.

EX-10.58

                                                                   EXHIBIT 10.58

                            THE GYMBOREE CORPORATION

                           2004 EQUITY INCENTIVE PLAN

                               SECTION 1. PURPOSE

The purpose of The Gymboree Corporation 2004 Equity Incentive Plan is to
attract, retain and motivate employees, officers, directors, consultants,
agents, advisors and independent contractors of the Company and its Related
Companies by providing them the opportunity to acquire a proprietary interest in
the Company and to align their interests and efforts to the long-term interests
of the Company's stockholders.

                             SECTION 2. DEFINITIONS

Certain capitalized terms used in the Plan have the meanings set forth in
Appendix A.

                            SECTION 3. ADMINISTRATION

3.1   ADMINISTRATION OF THE PLAN

The Plan shall be administered by the Board or the Compensation Committee, which
shall be composed of two or more directors, each of whom is a "non-employee
director" within the meaning of Rule 16b-3(b)(3) promulgated under the Exchange
Act, or any successor definition adopted by the Securities and Exchange
Commission, and an "outside director" within the meaning of Section 162(m) of
the Code, or any successor provision thereto. Notwithstanding the foregoing, the
Board may delegate responsibility for administering the Plan with respect to
designated classes of Eligible Persons to different committees consisting of one
or more members of the Board, subject to such limitations as the Board deems
appropriate, except with respect to Awards to Participants who are subject to
Section 16 of the Exchange Act or Awards granted pursuant to Section 16 of the
Plan. Members of any committee shall serve for such term as the Board may
determine, subject to removal by the Board at any time. To the extent consistent
with applicable law, the Board or the Compensation Committee may authorize one
or more officers of the Company to grant Options to designated classes of
Eligible Persons, within limits specifically prescribed by the Board or the
Compensation Committee; provided, however, that no such officer shall have or
obtain authority to grant Options to himself or herself or to any person subject
to Section 16 of the Exchange Act. All references in the Plan to the "Committee"
shall be, as applicable, to the Compensation Committee or any other committee or
any officer to whom the Board or the Compensation Committee has delegated
authority to administer the Plan.

3.2   ADMINISTRATION AND INTERPRETATION BY COMMITTEE

(a)   Except for the terms and conditions explicitly set forth in the Plan and
to the extent permitted by applicable law, the Committee shall have full power
and exclusive authority,



subject to such orders or resolutions not inconsistent with the provisions of
the Plan as may from time to time be adopted by the Board or a Committee
composed of members of the Board, to (i) select the Eligible Persons to whom
Awards may from time to time be granted under the Plan; (ii) determine the type
or types of Award to be granted to each Participant under the Plan; (iii)
determine the number of shares of Common Stock to be covered by each Award
granted under the Plan; (iv) determine the terms and conditions of any Award
granted under the Plan; (v) approve the forms of notice or agreement for use
under the Plan; (vi) determine whether, to what extent and under what
circumstances Awards may be settled in cash, shares of Common Stock or other
property or canceled or suspended; (vii) determine whether, to what extent and
under what circumstances cash, shares of Common Stock, other property and other
amounts payable with respect to an Award shall be deferred either automatically
or at the election of the Participant; (viii) interpret and administer the Plan
and any instrument evidencing an Award, notice or agreement executed or entered
into under the Plan; (ix) establish such rules and regulations as it shall deem
appropriate for the proper administration of the Plan; (x) delegate ministerial
duties to such of the Company's employees as it so determines; and (xi) make any
other determination and take any other action that the Committee deems necessary
or desirable for administration of the Plan.

(b)   In no event, however, shall the Committee have the right, without
stockholder approval, to (i) cancel or amend outstanding Options or SARs for the
purpose of repricing, replacing or regranting such Options or SARs with Options
or SARs that have a purchase or grant price that is less than the purchase or
grant price for the original Options or SARs except in connection with
adjustments provided in Section 15, or (ii) issue an Option or amend an
outstanding Option to provide for the grant or issuance of a new Option on
exercise of the original Option.

(c)   The effect on the vesting of an Award of a Company-approved leave of
absence or a Participant's working less than full-time shall be determined by
the Company's chief human resources officer or other person performing that
function or, with respect to directors or executive officers, by the
Compensation Committee, whose determination shall be final.

(d)   Decisions of the Committee shall be final, conclusive and binding on all
persons, including the Company, any Participant, any stockholder and any
Eligible Person. A majority of the members of the Committee may determine its
actions.

                      SECTION 4. SHARES SUBJECT TO THE PLAN

4.1   AUTHORIZED NUMBER OF SHARES

Subject to adjustment from time to time as provided in Section 15.1, the number
of shares of Common Stock available for issuance under the Plan shall be:

(a)   1,690,000 shares; plus

(b)   any authorized shares (i) not issued or subject to outstanding options
under the Company's 2002 Amended and Restated Stock Incentive Plan and the
Company's Amended

                                      -2-



and Restated 1993 Stock Option Plan (the "PRIOR PLANS") on the Effective Date
and (ii) any shares subject to outstanding options under the Prior Plans on the
Effective Date that cease to be subject to such options (other than by reason of
exercise or settlement of the options to the extent they are exercised for or
settled in shares), up to an aggregate maximum of 5,268,841 shares, subject to
adjustment from time to time as provided in Section 15.1, which shares shall
cease, as of the Effective Date, to be available for grant and issuance under
the Prior Plans, but shall be available for issuance under the Plan.

Shares issued under the Plan shall be drawn from authorized and unissued shares
or shares now held or subsequently acquired by the Company as treasury shares.

4.2   SHARE USAGE

(a)   Shares of Common Stock covered by an Award shall not be counted as used
unless and until they are actually issued and delivered to a Participant. If any
Award lapses, expires, terminates or is canceled prior to the issuance of shares
thereunder or if shares of Common Stock are issued under the Plan to a
Participant and thereafter are forfeited to or otherwise reacquired by the
Company, the shares subject to such Awards and the forfeited or reacquired
shares shall again be available for issuance under the Plan. Any shares of
Common Stock (i) tendered by a Participant or retained by the Company as full or
partial payment to the Company for the purchase price of an Award or to satisfy
tax withholding obligations in connection with an Award, or (ii) covered by an
Award that is settled in cash, or in a manner such that some or all of the
shares of Common Stock covered by the Award are not issued, shall be available
for Awards under the Plan. The number of shares of Common Stock available for
issuance under the Plan shall not be reduced to reflect any dividends or
dividend equivalents that are reinvested into additional shares of Common Stock
or credited as additional shares of Common Stock subject or paid with respect to
an Award.

(b)   The Committee shall also, without limitation, have the authority to grant
Awards as an alternative to or as the form of payment for grants or rights
earned or due under other compensation plans or arrangements of the Company.

(c)   Notwithstanding anything in the Plan to the contrary, the Committee may
grant Substitute Awards under the Plan. Substitute Awards shall not reduce the
number of shares authorized for issuance under the Plan. In the event that an
Acquired Entity has shares available for awards or grants under one or more
preexisting plans not adopted in contemplation of such acquisition or
combination, then, to the extent determined by the Board or the Compensation
Committee, the shares available for grant pursuant to the terms of such
preexisting plan (as adjusted, to the extent appropriate, using the exchange
ratio or other adjustment or valuation ratio or formula used in such acquisition
or combination to determine the consideration payable to holders of common stock
of the entities that are parties to such acquisition or combination) may be used
for Awards under the Plan and shall not reduce the number of shares of Common
Stock authorized for issuance under the Plan; provided, however, that Awards
using such available shares shall not be made after the date awards or grants
could have been made under the terms of such preexisting plans, absent the

                                      -3-



acquisition or combination, and shall only be made to individuals who were not
employees or directors of the Company or a Related Company prior to such
acquisition or combination. In the event that a written agreement between the
Company and an Acquired Entity pursuant to which a merger or consolidation is
completed is approved by the Board and said agreement sets forth the terms and
conditions of the substitution for or assumption of outstanding awards of the
Acquired Entity, said terms and conditions shall be deemed to be the action of
the Committee without any further action by the Committee, except as may be
required for compliance with Rule 16b-3 under the Exchange Act, and the persons
holding such awards shall be deemed to be Participants.

(d)   Notwithstanding the other provisions in this Section 4.2, the maximum
number of shares that may be issued upon the exercise of Incentive Stock Options
shall equal the aggregate share number stated in Section 4.1, subject to
adjustment as provided in Section 15.1.

4.3   LIMITATIONS

(a)   Subject to adjustment as provided in Section 15.1, the aggregate number of
shares that may be issued pursuant to Awards granted under the Plan, other than
Awards of Options or Stock Appreciation Rights, that are not (i) subject to
restrictions based on the satisfaction of specified performance goals or (ii)
granted in lieu of the payment of performance-based cash incentive awards shall
not exceed 50% of the aggregate maximum number of shares specified in Section
4.1.

(b)   Subject to adjustment as provided in Section 15.1, the aggregate number of
shares that may be issued pursuant to Awards granted under the Plan, other than
Awards of Options or Stock Appreciation Rights, that contain no restrictions or
restrictions based solely on continuous employment or services for less than
three years (except where Termination of Service occurs by reason of death or
Disability) shall not exceed 50% of the aggregate maximum number of shares
specified in Section 4.1.

                             SECTION 5. ELIGIBILITY

An Award may be granted to any employee, officer or director of the Company or a
Related Company whom the Committee from time to time selects. An Award may also
be granted to any consultant, agent, advisor or independent contractor for bona
fide services rendered to the Company or any Related Company that (a) are not in
connection with the offer and sale of the Company's securities in a
capital-raising transaction and (b) do not directly or indirectly promote or
maintain a market for the Company's securities.

                                SECTION 6. AWARDS

6.1   FORM, GRANT AND SETTLEMENT OF AWARDS

The Committee shall have the authority, in its sole discretion, to determine the
type or types of Awards to be granted under the Plan. Such Awards may be granted
either alone or in

                                      -4-


addition to or in tandem with any other type of Award. Any Award settlement may
be subject to such conditions, restrictions and contingencies as the Committee
shall determine.

6.2   EVIDENCE OF AWARDS

Awards granted under the Plan shall be evidenced by a written, including an
electronic, notice or agreement that shall contain such terms, conditions,
limitations and restrictions as the Committee shall deem advisable and that are
not inconsistent with the Plan.

6.3   DEFERRALS

The Committee may permit or require a Participant to defer receipt of the
payment of any Award. If any such deferral election is permitted or required,
the Committee, in its sole discretion, shall establish rules and procedures for
such payment deferrals, which may include the grant of additional Awards or
provisions for the payment or crediting of interest or dividend equivalents,
including converting such credits to deferred stock unit equivalents.

6.4   DIVIDENDS AND DISTRIBUTIONS

Participants may, if the Committee so determines, be credited with dividends
paid with respect to shares of Common Stock underlying an Award in a manner
determined by the Committee in its sole discretion. The Committee may apply any
restrictions to the dividends or dividend equivalents that the Committee deems
appropriate. The Committee, in its sole discretion, may determine the form of
payment of dividends or dividend equivalents, including cash, shares of Common
Stock, Restricted Stock or Stock Units.

                               SECTION 7. OPTIONS

7.1   GRANT OF OPTIONS

The Committee may grant Options designated as Incentive Stock Options or
Nonqualified Stock Options.

7.2   OPTION EXERCISE PRICE

The exercise price for shares purchased under an Option shall be as determined
by the Committee, but shall not be less than 100% of the Fair Market Value on
the Grant Date, except in the case of Substitute Awards. Notwithstanding the
foregoing, the Committee, in its sole discretion, may establish an exercise
price that is equal to the average of 100% of the Fair Market Value over a
period of trading days not to exceed 30 days from the Grant Date.

7.3   TERM OF OPTIONS

Subject to earlier termination in accordance with the terms of the Plan and the
instrument evidencing the Option, the maximum term of a Nonqualified Stock
Option shall be as established for that Option by the Committee or, if not so
established, shall be ten years from the Grant Date.

                                      -5-


7.4   EXERCISE OF OPTIONS

The Committee shall establish and set forth in each instrument that evidences an
Option the time at which, or the installments in which, the Option shall vest
and become exercisable, any of which provisions may be waived or modified by the
Committee at any time. If not so established in the instrument evidencing the
Option, the Option shall vest and become exercisable according to the following
schedule, which may be waived or modified by the Committee at any time:

   PERIOD OF PARTICIPANT'S CONTINUOUS
   EMPLOYMENT OR SERVICE WITH THE COMPANY
   OR ITS RELATED COMPANIES FROM THE VESTING   PORTION OF TOTAL OPTION
   COMMENCEMENT DATE                           THAT IS VESTED AND EXERCISABLE

   After 1 year                                1/4th

   Each additional one-month period of         An additional 1/48th
   continuous service completed thereafter

   After 4 years                               100%

To the extent an Option has vested and become exercisable, the Option may be
exercised in whole or from time to time in part by delivery to or as directed or
approved by the Company of a properly executed stock option exercise agreement
or notice, in a form and in accordance with procedures established by the
Committee, setting forth the number of shares with respect to which the Option
is being exercised, the restrictions imposed on the shares purchased under such
exercise agreement, if any, and such representations and agreements as may be
required by the Committee, accompanied by payment in full as described in
Sections 7.5 and 13. An Option may be exercised only for whole shares and may
not be exercised for less than a reasonable number of shares at any one time, as
determined by the Committee.

7.5   PAYMENT OF EXERCISE PRICE

The exercise price for shares purchased under an Option shall be paid in full to
the Company by delivery of consideration equal to the product of the Option
exercise price and the number of shares purchased. Such consideration must be
paid before the Company will issue the shares being purchased and must be in a
form or a combination of forms acceptable to the Committee for that purchase,
which forms may include:

(a)   cash, check or wire transfer;

(b)   tendering (either actually or, so long as the Common Stock is registered
under Section 12(b) or 12(g) of the Exchange Act, by attestation) shares of
Common Stock that on the day prior to the exercise date have an aggregate Fair
Market Value equal to the aggregate exercise price of the shares being purchased
under the Option owned by the Participant for at

                                      -6-


least six months (or any shorter period necessary to avoid a charge to the
Company's earnings for financial reporting purposes);

(c)   so long as the Common Stock is registered under Section 12(b) or 12(g) of
the Exchange Act, and to the extent permitted by law, delivery of a properly
executed exercise notice, together with irrevocable instructions to a brokerage
firm designated or approved by the Company to deliver promptly to the Company
the aggregate amount of proceeds to pay the Option exercise price and any
withholding tax obligations that may arise in connection with the exercise, all
in accordance with the regulations of the Federal Reserve Board; or

(d)   such other consideration as the Committee may permit.

7.6   EFFECT OF TERMINATION OF SERVICE

The Committee shall establish and set forth in each instrument that evidences an
Option whether the Option shall continue to be exercisable, and the terms and
conditions of such exercise, after a Termination of Service, any of which
provisions may be waived or modified by the Committee at any time. If not so
established in the instrument evidencing the Option, the Option shall be
exercisable according to the following terms and conditions, which may be waived
or modified by the Committee at any time:

(a)   Any portion of an Option that is not vested and exercisable on the date of
a Participant's Termination of Service shall expire on such date.

(b)   Any portion of an Option that is vested and exercisable on the date of a
Participant's Termination of Service shall expire on the earliest to occur of:

(i)   if the Participant's Termination of Service occurs for reasons other than
Cause, Disability or death, the date that is three months after such Termination
of Service;

(ii)  if the Participant's Termination of Service occurs by reason of Disability
or death, the one-year anniversary of such Termination of Service; and

(iii) the last day of the maximum term of the Option (the "OPTION EXPIRATION
DATE").

Notwithstanding the foregoing, if a Participant dies after his or her
Termination of Service but while an Option is otherwise exercisable, the portion
of the Option that is vested and exercisable on the date of such Termination of
Service shall expire upon the earlier to occur of (y) the Option Expiration Date
and (z) the one-year anniversary of the date of death, unless the Committee
determines otherwise.

Also notwithstanding the foregoing, in case a Participant's Termination of
Service occurs for Cause, all Options granted to the Participant shall
automatically expire upon first notification to the Participant of such
termination, unless the Committee determines otherwise. If a Participant's
employment or service relationship with the Company is suspended pending an
investigation of whether the Participant shall be terminated for Cause, all the
Participant's

                                      -7-


rights under any Option shall likewise be suspended during the period of
investigation. If any facts that would constitute termination for Cause are
discovered after a Participant's Termination of Service, any Option then held by
the Participant may be immediately terminated by the Committee, in its sole
discretion.

(c)   A Participant's change in status from an employee to a consultant, advisor
or independent contractor, or a change in status from a consultant, advisor or
independent contractor to an employee, shall not be considered a Termination of
Service for purposes of this Section 7.6.

                  SECTION 8. INCENTIVE STOCK OPTION LIMITATIONS

Notwithstanding any other provisions of the Plan, the terms and conditions of
any Incentive Stock Options shall in addition comply in all respects with
Section 422 of the Code, or any successor provision, and any applicable
regulations thereunder, including, to the extent required thereunder, the
following:

8.1   DOLLAR LIMITATION

To the extent the aggregate Fair Market Value (determined as of the Grant Date)
of Common Stock with respect to which a Participant's Incentive Stock Options
become exercisable for the first time during any calendar year (under the Plan
and all other stock option plans of the Company and its parent and subsidiary
corporations) exceeds $100,000, such portion in excess of $100,000 shall be
treated as a Nonqualified Stock Option. In the event the Participant holds two
or more such Options that become exercisable for the first time in the same
calendar year, such limitation shall be applied on the basis of the order in
which such Options are granted.

8.2   ELIGIBLE EMPLOYEES

Individuals who are not employees of the Company or one of its parent or
subsidiary corporations may not be granted Incentive Stock Options.

8.3   EXERCISE PRICE

The exercise price of an Incentive Stock Option shall be at least 100% of the
Fair Market Value of the Common Stock on the Grant Date, and in the case of an
Incentive Stock Option granted to a Participant who owns more than 10% of the
total combined voting power of all classes of the stock of the Company or of its
parent or subsidiary corporations (a "TEN PERCENT STOCKHOLDER"), shall not be
less than 110% of the Fair Market Value of the Common Stock on the Grant Date.
The determination of more than 10% ownership shall be made in accordance with
Section 422 of the Code.

                                      -8-


8.4   OPTION TERM

Subject to earlier termination in accordance with the terms of the Plan and the
instrument evidencing the Option, the maximum term of an Incentive Stock Option
shall not exceed ten years, and in the case of an Incentive Stock Option granted
to a Ten Percent Stockholder, shall not exceed five years.

8.5   EXERCISABILITY

An Option designated as an Incentive Stock Option shall cease to qualify for
favorable tax treatment as an Incentive Stock Option to the extent it is
exercised (if permitted by the terms of the Option) (a) more than three months
after the date of a Participant's Termination of Service if termination was for
reasons other than death or disability, (b) more than one year after the date of
a Participant's Termination of Service if termination was by reason of
disability, or (c) after the Participant has been on leave of absence for more
than 90 days, unless the Participant's reemployment rights are guaranteed by
statute or contract.

8.6   TAXATION OF INCENTIVE STOCK OPTIONS

In order to obtain certain tax benefits afforded to Incentive Stock Options
under Section 422 of the Code, the Participant must hold the shares acquired
upon the exercise of an Incentive Stock Option for two years after the Grant
Date and one year after the date of exercise.

A Participant may be subject to the alternative minimum tax at the time of
exercise of an Incentive Stock Option. The Participant shall give the Company
prompt notice of any disposition of shares acquired on the exercise of an
Incentive Stock Option prior to the expiration of such holding periods.

8.7   CODE DEFINITIONS

For the purposes of this Section 8 "disability," "parent corporation" and
"subsidiary corporation" shall have the meanings attributed to those terms for
purposes of Section 422 of the Code.

                      SECTION 9. STOCK APPRECIATION RIGHTS

9.1   GRANT OF STOCK APPRECIATION RIGHTS

The Committee may grant Stock Appreciation Rights to Participants at any time on
such terms and conditions as the Committee shall determine in its sole
discretion. An SAR may be granted in tandem with an Option or alone
("freestanding"). The grant price of a tandem SAR shall be equal to the exercise
price of the related Option. The grant price of a freestanding SAR shall be
established in accordance with procedures for Options set forth in Section 7.2.
An SAR may be exercised upon such terms and conditions and for the term as the
Committee determines in its sole discretion; provided, however, that, subject to
earlier termination in accordance with the terms of the Plan and the instrument
evidencing the SAR,

                                      -9-


the term of a freestanding SAR shall be as established for that SAR by the
Committee or, if not so established, shall be ten years, and in the case of a
tandem SAR, (a) the term shall not exceed the term of the related Option and (b)
the tandem SAR may be exercised for all or part of the shares subject to the
related Option upon the surrender of the right to exercise the equivalent
portion of the related Option, except that the tandem SAR may be exercised only
with respect to the shares for which its related Option is then exercisable.

9.2   PAYMENT OF SAR AMOUNT

Upon the exercise of an SAR, a Participant shall be entitled to receive payment
in an amount determined by multiplying: (a) the difference between the Fair
Market Value of the Common Stock for the date of exercise over the grant price
of the SAR by (b) the number of shares with respect to which the SAR is
exercised. At the discretion of the Committee as set forth in the instrument
evidencing the Award, the payment upon exercise of an SAR may be in cash, in
shares, in some combination thereof or in any other manner approved by the
Committee in its sole discretion.

                 SECTION 10. STOCK AWARDS, RESTRICTED STOCK AND
                                  STOCK UNITS

10.1  GRANT OF STOCK AWARDS, RESTRICTED STOCK AND STOCK UNITS

The Committee may grant Stock Awards, Restricted Stock and Stock Units on such
terms and conditions and subject to such repurchase or forfeiture restrictions,
if any, which may be based on continuous service with the Company or a Related
Company or the achievement of any performance goals, as the Committee shall
determine in its sole discretion, which terms, conditions and restrictions shall
be set forth in the instrument evidencing the Award.

10.2  VESTING OF RESTRICTED STOCK AND STOCK UNITS

Upon the satisfaction of any terms, conditions and restrictions prescribed with
respect to Restricted Stock or Stock Units, or upon a Participant's release from
any terms, conditions and restrictions of Restricted Stock or Stock Units, as
determined by the Committee, and subject to the provisions of Section 13, (a)
the shares of Restricted Stock covered by each Award of Restricted Stock shall
become freely transferable by the Participant, and (b) Stock Units shall be paid
in shares of Common Stock or, if set forth in the instrument evidencing the
Awards, in cash or a combination of cash and shares of Common Stock. Any
fractional shares subject to such Awards shall be paid to the Participant in
cash.

10.3  WAIVER OF RESTRICTIONS

Notwithstanding any other provisions of the Plan, the Committee, in its sole
discretion, may waive the repurchase or forfeiture period and any other terms,
conditions or restrictions on any Restricted Stock or Stock Unit under such
circumstances and subject to such terms and conditions as the Committee shall
deem appropriate.

                                      -10-


                         SECTION 11. PERFORMANCE AWARDS

11.1  PERFORMANCE SHARES

The Committee may grant Awards of Performance Shares, designate the Participants
to whom Performance Shares are to be awarded and determine the number of
Performance Shares and the terms and conditions of each such Award. Performance
Shares shall consist of a unit valued by reference to a designated number of
shares of Common Stock, the value of which may be paid to the Participant by
delivery of shares of Common Stock or, if set forth in the instrument evidencing
the Award, of such property as the Committee shall determine, including, without
limitation, cash, shares of Common Stock, other property, or any combination
thereof, upon the attainment of performance goals, as established by the
Committee, and other terms and conditions specified by the Committee.
Notwithstanding the foregoing, the amount to be paid under an Award of
Performance Shares may be adjusted on the basis of such further consideration as
the Committee shall determine in its sole discretion.

11.2  PERFORMANCE UNITS

The Committee may grant Awards of Performance Units, designate the Participants
to whom Performance Units are to be awarded and determine the number of
Performance Units and the terms and conditions of each such Award. Performance
Units shall consist of a unit valued by reference to a designated amount of
property other than shares of Common Stock, which value may be paid to the
Participant by delivery of such property as the Committee shall determine,
including, without limitation, cash, shares of Common Stock, other property, or
any combination thereof, upon the attainment of performance goals, as
established by the Committee, and other terms and conditions specified by the
Committee. Notwithstanding the foregoing, the amount to be paid under an Award
of Performance Units may be adjusted on the basis of such further consideration
as the Committee shall determine in its sole discretion.

                  SECTION 12. OTHER STOCK OR CASH-BASED AWARDS

Subject to the terms of the Plan and such other terms and conditions as the
Committee deems appropriate, the Committee may grant other incentives payable in
cash or in shares of Common Stock under the Plan.

                             SECTION 13. WITHHOLDING

The Company may require the Participant to pay to the Company the amount of (a)
any taxes that the Company is required by applicable federal, state, local or
foreign law to withhold with respect to the grant, vesting or exercise of an
Award ("tax withholding obligations") and (b) any amounts due from the
Participant to the Company or to any Related Company ("other obligations"). The
Company shall not be required to issue any shares of Common Stock or otherwise
settle an Award under the Plan until such tax withholding obligations and other
obligations are satisfied.

                                      -11-


The Committee may permit or require a Participant to satisfy all or part of the
Participant's tax withholding obligations and other obligations by (a) paying
cash to the Company, (b) having the Company withhold an amount from any cash
amounts otherwise due or to become due from the Company to the Participant, (c)
having the Company withhold a number of shares of Common Stock that would
otherwise be issued to the Participant (or become vested, in the case of
Restricted Stock) having a Fair Market Value equal to the tax withholding
obligations and other obligations, or (d) surrendering a number of shares of
Common Stock the Participant already owns having a value equal to the tax
withholding obligations and other obligations. The value of the shares so
withheld may not exceed the employer's minimum required tax withholding rate,
and the value of the shares so tendered may not exceed such rate to the extent
the Participant has owned the tendered shares for less than six months if such
limitations are necessary to avoid a charge to the Company for financial
reporting purposes.

                            SECTION 14. ASSIGNABILITY

No Award or interest in an Award may be sold, assigned, pledged (as collateral
for a loan or as security for the performance of an obligation or for any other
purpose) or transferred by a Participant or made subject to attachment or
similar proceedings otherwise than by will or by the applicable laws of descent
and distribution, except to the extent the Participant designates one or more
beneficiaries on a Company-approved form who may exercise the Award or receive
payment under the Award after the Participant's death. During a Participant's
lifetime, an Award may be exercised only by the Participant. Notwithstanding the
foregoing and to the extent permitted by Section 422 of the Code, the Committee,
in its sole discretion, may permit a Participant to assign or transfer an Award
subject to such terms and conditions as the Committee shall specify.

                             SECTION 15. ADJUSTMENTS

15.1  ADJUSTMENT OF SHARES

In the event, at any time or from time to time, a stock dividend, stock split,
spin-off, combination or exchange of shares, recapitalization, merger,
consolidation, distribution to stockholders other than a normal cash dividend,
or other change in the Company's corporate or capital structure results in (a)
the outstanding shares of Common Stock, or any securities exchanged therefor or
received in their place, being exchanged for a different number or kind of
securities of the Company or (b) new, different or additional securities of the
Company or any other company being received by the holders of shares of Common
Stock, then the Committee shall make proportional adjustments in (i) the maximum
number and kind of securities available for issuance under the Plan; (ii) the
maximum number and kind of securities issuable as Incentive Stock Options as set
forth in Section 4.2; and (iii) the number and kind of securities that are
subject to any outstanding Award and the per share price of such securities,
without any change in the aggregate price to be paid therefor. The determination
by the Committee as to the terms of any of the foregoing adjustments shall be
conclusive and binding.

                                      -12-


Notwithstanding the foregoing, the issuance by the Company of shares of stock of
any class, or securities convertible into shares of stock of any class, for cash
or property, or for labor or services rendered, either upon direct sale or upon
the exercise of rights or warrants to subscribe therefor, or upon conversion of
shares or obligations of the Company convertible into such shares or other
securities, shall not affect, and no adjustment by reason thereof shall be made
with respect to, outstanding Awards. Also notwithstanding the foregoing, a
dissolution or liquidation of the Company or a Company Transaction shall not be
governed by this Section 15.1 but shall be governed by Sections 15.2 and 15.3,
respectively.

15.2   DISSOLUTION OR LIQUIDATION

To the extent not previously exercised or settled, and unless otherwise
determined by the Committee in its sole discretion, Awards shall terminate
immediately prior to the dissolution or liquidation of the Company. To the
extent a vesting condition, forfeiture provision or repurchase right applicable
to an Award has not been waived by the Committee, the Award shall be forfeited
immediately prior to the consummation of the dissolution or liquidation.

15.3   COMPANY TRANSACTION; CHANGE IN CONTROL

15.3.1 EFFECT OF A COMPANY TRANSACTION THAT IS NOT A CHANGE IN CONTROL OR A
       RELATED PARTY TRANSACTION

Notwithstanding any other provision of the Plan to the contrary, unless the
Committee shall determine otherwise at the time of grant with respect to a
particular Award, in the event of a Company Transaction that is not (a) a Change
in Control or (b) a Related Party Transaction:

(i)   All outstanding Awards, other than Performance Shares and Performance
Units, shall become fully and immediately exercisable, and all applicable
deferral and restriction limitations or forfeiture provisions shall lapse,
immediately prior to the Company Transaction and shall terminate effective at
the effective time of the Company Transaction, unless such Awards are converted,
assumed or replaced by the Successor Company. Notwithstanding the foregoing,
with respect to Options or Stock Appreciation Rights, the Committee, in its sole
discretion, may instead provide that a Participant's outstanding Options shall
terminate upon consummation of such Company Transaction and that each such
Participant shall receive, in exchange therefor, a cash payment equal to the
amount (if any) by which (x) the Acquisition Price multiplied by the number of
shares of Common Stock subject to such outstanding Options or SARs (whether or
not then exercisable) exceeds (y) the respective aggregate exercise price for
such Options or grant price for such SARs.

For the purposes of this Section 15.3.1, an Award shall be considered assumed or
substituted for if following the Company Transaction the option or right confers
the right to purchase or receive, for each share of Common Stock subject to the
Award immediately prior to the Company Transaction, the consideration (whether
stock, cash or other securities or property) received in the Company Transaction
by holders of Common Stock for each share held on the effective date of the
transaction (and if holders were offered a choice of consideration, the type of
consideration chosen by the holders of a majority of the outstanding shares);

                                      -13-


provided, however, that if such consideration received in the Company
Transaction is not solely common stock of the Successor Company, the Committee
may, with the consent of the Successor Company, provide for the consideration to
be received upon the exercise of the Option, for each share of Common Stock
subject thereto, to be solely common stock of the Successor Company
substantially equal in fair market value to the per share consideration received
by holders of Common Stock in the Company Transaction. The determination of such
substantial equality of value of consideration shall be made by the Committee,
and its determination shall be conclusive and binding.

(ii)  All Performance Shares or Performance Units earned and outstanding as of
the date the Company Transaction is determined to have occurred shall be payable
in full at the target level in accordance with the payout schedule pursuant to
the Award agreement. Any remaining Performance Shares or Performance Units
(including any applicable performance period) for which the payout level has not
been determined shall be prorated at the target payout level up to and including
the date of such Company Transaction and shall be payable in full at the target
level in accordance with the payout schedule pursuant to the Award agreement.
Any existing deferrals or other restrictions not waived by the Committee in its
sole discretion shall remain in effect.

15.3.2 EFFECT OF A CHANGE IN CONTROL

Notwithstanding any other provision of the Plan to the contrary, unless the
Committee shall determine otherwise at the time of grant with respect to a
particular Award, in the event of a Change in Control:

(a)   any Options and Stock Appreciation Rights outstanding as of the date such
Change in Control is determined to have occurred, and which are not then
exercisable and vested, shall become fully exercisable and vested to the full
extent of the original grant;

(b)   any restrictions and deferral limitations applicable to any Restricted
Stock or Stock Units shall lapse, and such Restricted Stock or Stock Units shall
become free of all restrictions and limitations and become fully vested and
transferable to the full extent of the original grant;

(c)   all Performance Shares and Performance Units shall be considered to be
earned at the target level and payable in full, any deferral or other
restriction shall lapse and such Performance Shares and Performance Units shall
be immediately settled or distributed; and

(d)   any restrictions and deferral limitations and other conditions applicable
to any other Awards shall lapse, and such other Awards shall become free of all
restrictions, limitations or conditions and become fully vested and transferable
to the full extent of the original grant.

15.3.3 CHANGE IN CONTROL CASH-OUT

Notwithstanding any other provision of the Plan, during the 60-day period from
and after a Change in Control (the "CHANGE IN CONTROL EXERCISE PERIOD"), if the
Committee shall so

                                      -14-


determine at, or at any time after, the time of grant, a Participant holding an
Option, SAR, Restricted Stock Unit or Performance Share, shall have the right,
whether or not the Award is fully vested and/or exercisable and without regard
to any deferral or other restriction and in lieu of the payment of the purchase
price for the shares of Common Stock being purchased under an Option, to elect
by giving notice to the Company within the Change in Control Exercise Period to
surrender all or part of the Award to the Company and to receive cash, within 30
days of such notice:

(a)   for an Option or SAR, in an amount equal to the amount by which the
Acquisition Price per share of Common Stock on the date of such election shall
exceed the exercise price per share of Common Stock under the Option, or the
grant price per share of Common Stock under the SAR; and

(b)   for a Restricted Stock Unit or Performance Share, in an amount equal to
the Acquisition Price per share of Common Stock under the Restricted Stock or
Performance Share,

multiplied by the number of shares of Common Stock granted under the Award as to
which the right granted under this Section 15.3.3 shall have been exercised.

15.4  FURTHER ADJUSTMENT OF AWARDS

Subject to Sections 15.2 and 15.3, the Committee shall have the discretion,
exercisable at any time before a sale, merger, consolidation, reorganization,
liquidation, dissolution or change in control of the Company, as defined by the
Committee, to take such further action as it determines to be necessary or
advisable with respect to Awards. Such authorized action may include (but shall
not be limited to) establishing, amending or waiving the type, terms, conditions
or duration of, or restrictions on, Awards so as to provide for earlier, later,
extended or additional time for exercise, lifting restrictions and
modifications, and the Committee may take such actions with respect to all
Participants, to certain categories of Participants or only to individual
Participants. The Committee may take such action before or after granting Awards
to which the action relates and before or after any public announcement with
respect to such sale, merger, consolidation, reorganization, liquidation,
dissolution or change in control that is the reason for such action.

15.5  NO LIMITATIONS

The grant of Awards shall in no way affect the Company's right to adjust,
reclassify, reorganize or otherwise change its capital or business structure or
to merge, consolidate, dissolve, liquidate or sell or transfer all or any part
of its business or assets.

15.6  FRACTIONAL SHARES

In the event of any adjustment in the number of shares covered by any Award,
each such Award shall cover only the number of full shares resulting from such
adjustment.

                                      -15-


                   SECTION 16. CODE SECTION 162(m) PROVISIONS

Notwithstanding any other provision of the Plan, if the Committee determines, at
the time Awards are granted to a Participant who is, or is likely to be as of
the end of the tax year in which the Company would claim a tax deduction in
connection with such Award, a Covered Employee, then the Committee may provide
that this Section 16 is applicable to such Award.

16.1  PERFORMANCE CRITERIA

If an Award is subject to this Section 16, then the lapsing of restrictions
thereon and the distribution of cash, shares of Common Stock or other property
pursuant thereto, as applicable, shall be subject to the achievement of one or
more objective performance goals established by the Committee, which shall be
based on the attainment of specified levels of one of or any combination of the
following "performance criteria" for the Company as a whole or any business unit
of the Company, as reported or calculated by the Company: cash flows (including,
but not limited to, operating cash flow, free cash flow or cash flow return on
capital); working capital; earnings per share; book value per share; operating
income (including or excluding depreciation, amortization, extraordinary items,
restructuring charges or other expenses); revenues; operating margins; return on
assets; inventory turns; return on equity; debt; debt plus equity; market or
economic value added; stock price appreciation; total stockholder return; cost
control; strategic initiatives; store openings; growth and development of new
concepts; market share; net income (including or excluding extraordinary items,
restructuring charges or other expenses); return on invested capital;
improvements in capital structure; or customer satisfaction, employee
satisfaction, services performance, cash management or asset management metrics
(together, the "PERFORMANCE CRITERIA"). Such performance goals also may be based
on the achievement of specified levels of Company performance (or performance of
an applicable affiliate, division or business unit of the Company) under one or
more of the Performance Criteria described above relative to the performance of
other corporations. Such performance goals shall be set by the Committee within
the time period prescribed by, and shall otherwise comply with the requirements
of, Section 162(m) of the Code, or any successor provision thereto, and the
regulations thereunder.

16.2  ADJUSTMENT OF AWARDS

Notwithstanding any provision of the Plan other than Section 15, with respect to
any Award that is subject to this Section 16, the Committee may adjust
downwards, but not upwards, the amount payable pursuant to such Award, and the
Committee may not waive the achievement of the applicable performance goals
except in the case of the death or disability of the Covered Employee.

16.3  LIMITATIONS

Subject to adjustment from time to time as provided in Section 15.1, no Covered
Employee may be granted Awards other than Performance Units subject to this
Section 16 in any calendar year period with respect to more than 400,000 shares
of Common Stock for such

                                      -16-


Award, except that the Company may make additional one time grants of such
Awards for up to 400,000 shares to newly hired individuals, and the maximum
dollar value payable with respect to Performance Units subject to this Section
16 granted to any Covered Employee in any one calendar year is $10,000,000.

The Committee shall have the power to impose such other restrictions on Awards
subject to this Section 16 as it may deem necessary or appropriate to ensure
that such Awards satisfy all requirements for "performance-based compensation"
within the meaning of Section 162(m)(4)(C) of the Code, or any successor
provision thereto.

                      SECTION 17. AMENDMENT AND TERMINATION

17.1  AMENDMENT, SUSPENSION OR TERMINATION

The Board or the Compensation Committee may amend, suspend or terminate the Plan
or any portion of the Plan at any time and in such respects as it shall deem
advisable; provided, however, that, to the extent required by applicable law,
regulation or stock exchange rule, stockholder approval shall be required for
any amendment to the Plan; and provided, further, that any amendment that
requires stockholder approval may be made only by the Board. Subject to Section
17.3, the Committee may amend the terms of any outstanding Award, prospectively
or retroactively.

17.2  TERM OF THE PLAN

Unless sooner terminated as provided herein, the Plan shall terminate ten years
from the Effective Date. After the Plan is terminated, no future Awards may be
granted, but Awards previously granted shall remain outstanding in accordance
with their applicable terms and conditions and the Plan's terms and conditions.
Notwithstanding the foregoing, no Incentive Stock Options may be granted more
than ten years after the later of (a) the Effective Date and (b) the approval by
the stockholders of any amendment to the Plan that constitutes the adoption of a
new plan for purposes of Section 422 of the Code.

17.3  CONSENT OF PARTICIPANT

The amendment, suspension or termination of the Plan or a portion thereof or the
amendment of an outstanding Award shall not, without the Participant's consent,
materially adversely affect any rights under any Award theretofore granted to
the Participant under the Plan. Any change or adjustment to an outstanding
Incentive Stock Option shall not, without the consent of the Participant, be
made in a manner so as to constitute a "modification" that would cause such
Incentive Stock Option to fail to continue to qualify as an Incentive Stock
Option. Notwithstanding the foregoing, any adjustments made pursuant to Section
15 shall not be subject to these restrictions.

                                      -17-


                               SECTION 18. GENERAL

18.1  NO INDIVIDUAL RIGHTS

No individual or Participant shall have any claim to be granted any Award under
the Plan, and the Company has no obligation for uniformity of treatment of
Participants under the Plan.

Furthermore, nothing in the Plan or any Award granted under the Plan shall be
deemed to constitute an employment contract or confer or be deemed to confer on
any Participant any right to continue in the employ of, or to continue any other
relationship with, the Company or any Related Company or limit in any way the
right of the Company or any Related Company to terminate a Participant's
employment or other relationship at any time, with or without cause.

18.2  ISSUANCE OF SHARES

Notwithstanding any other provision of the Plan, the Company shall have no
obligation to issue or deliver any shares of Common Stock under the Plan or make
any other distribution of benefits under the Plan unless, in the opinion of the
Company's counsel, such issuance, delivery or distribution would comply with all
applicable laws (including, without limitation, the requirements of the
Securities Act or the laws of any state or foreign jurisdiction) and the
applicable requirements of any securities exchange or similar entity.

The Company shall be under no obligation to any Participant to register for
offering or resale or to qualify for exemption under the Securities Act, or to
register or qualify under the laws of any state or foreign jurisdiction, any
shares of Common Stock, security or interest in a security paid or issued under,
or created by, the Plan, or to continue in effect any such registrations or
qualifications if made.

As a condition to the exercise of an Option or any other receipt of Common Stock
pursuant to an Award under the Plan, the Company may require (a) the Participant
to represent and warrant at the time of any such exercise or receipt that such
shares are being purchased or received only for the Participant's own account
and without any present intention to sell or distribute such shares and (b) such
other action or agreement by the Participant as may from time to time be
necessary to comply with the federal, state and foreign securities laws. At the
option of the Company, a stop-transfer order against any such shares may be
placed on the official stock books and records of the Company, and a legend
indicating that such shares may not be pledged, sold or otherwise transferred,
unless an opinion of counsel is provided (concurred in by counsel for the
Company) stating that such transfer is not in violation of any applicable law or
regulation, may be stamped on stock certificates to ensure exemption from
registration. The Committee may also require the Participant to execute and
deliver to the Company a purchase agreement or such other agreement as may be in
use by the Company at such time that describes certain terms and conditions
applicable to the shares.

                                      -18-


To the extent the Plan or any instrument evidencing an Award provides for
issuance of stock certificates to reflect the issuance of shares of Common
Stock, the issuance may be effected on a noncertificated basis, to the extent
not prohibited by applicable law or the applicable rules of any stock exchange.

18.3  INDEMNIFICATION

Each person who is or shall have been a member of the Board, or a committee
appointed by the Board, or an officer of the Company to whom authority was
delegated in accordance with Section 3, shall be indemnified and held harmless
by the Company against and from any loss, cost, liability or expense that may be
imposed upon or reasonably incurred by such person in connection with or
resulting from any claim, action, suit or proceeding to which such person may be
a party or in which such person may be involved by reason of any action taken or
failure to act under the Plan and against and from any and all amounts paid by
such person in settlement thereof, with the Company's approval, or paid by such
person in satisfaction of any judgment in any such claim, action, suit or
proceeding against such person; provided, however, that such person shall give
the Company an opportunity, at its own expense, to handle and defend the same
before such person undertakes to handle and defend it on such person's own
behalf, unless such loss, cost, liability or expense is a result of such
person's own willful misconduct or except as expressly provided by statute.

The foregoing right of indemnification shall not be exclusive of any other
rights of indemnification to which such person may be entitled under the
Company's certificate of incorporation or bylaws, as a matter of law, or
otherwise, or of any power that the Company may have to indemnify or hold
harmless.

18.4  NO RIGHTS AS A STOCKHOLDER

Unless otherwise provided by the Committee or in the instrument evidencing the
Award or in a written employment, services or other agreement, no Award, other
than a Stock Award, shall entitle the Participant to any cash dividend, voting
or other right of a stockholder unless and until the date of issuance under the
Plan of the shares that are the subject of such Award.

18.5  COMPLIANCE WITH LAWS AND REGULATIONS

In interpreting and applying the provisions of the Plan, any Option granted as
an Incentive Stock Option pursuant to the Plan shall, to the extent permitted by
law, be construed as an "incentive stock option" within the meaning of Section
422 of the Code.

18.6  PARTICIPANTS IN OTHER COUNTRIES OR JURISDICTIONS

Without amending the Plan, the Committee may grant Awards to Eligible Persons
who are foreign nationals on such terms and conditions different from those
specified in this Plan as may, in the judgement of the Committee, be necessary
or desirable to foster and promote achievement of the purposes of the Plan and
shall have the authority to adopt such modifications, procedures, subplans and
the like as may be necessary or desirable to comply

                                      -19-


with provisions of the laws or regulations of other countries or jurisdictions
in which the Company or any Related Company may operate or have employees to
ensure the viability of the benefits from Awards granted to Participants
employed in such countries or jurisdictions, meet the requirements that permit
the Plan to operate in a qualified or tax-efficient manner, comply with
applicable foreign laws or regulations and meet the objectives of the Plan.

18.7  NO TRUST OR FUND

The Plan is intended to constitute an "unfunded" plan. Nothing contained herein
shall require the Company to segregate any monies or other property, or shares
of Common Stock, or to create any trusts, or to make any special deposits for
any immediate or deferred amounts payable to any Participant, and no Participant
shall have any rights that are greater than those of a general unsecured
creditor of the Company.

18.8  SUCCESSORS

All obligations of the Company under the Plan with respect to Awards 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 the business and/or assets of the
Company.

18.9  SEVERABILITY

If any provision of the Plan or any Award is determined to be invalid, illegal
or unenforceable in any jurisdiction, or as to any person, or would disqualify
the Plan or any Award under any law deemed applicable by the Committee, such
provision shall be construed or deemed amended to conform to applicable laws,
or, if it cannot be so construed or deemed amended without, in the Committee's
determination, materially altering the intent of the Plan or the Award, such
provision shall be stricken as to such jurisdiction, person or Award, and the
remainder of the Plan and any such Award shall remain in full force and effect.

18.10 CHOICE OF LAW

The Plan, all Awards granted thereunder and all determinations made and actions
taken pursuant hereto, to the extent not otherwise governed by the laws of the
United States, shall be governed by the laws of the State of California without
giving effect to principles of conflicts of law.

18.11 LEGAL REQUIREMENTS

The granting of Awards and the issuance of shares of Common Stock under the Plan
are subject to all applicable laws, rules and regulations and to such approvals
by any governmental agencies or national securities exchanges as may be
required.

                                      -20-


                           SECTION 19. EFFECTIVE DATE

The effective date (the "EFFECTIVE DATE") is the date on which the Plan is
approved by the stockholders of the Company. If the stockholders of the Company
do not approve the Plan within 12 months after the Board's adoption of the Plan,
any Incentive Stock Options granted under the Plan will be treated as
Nonqualified Stock Options.

                                      -21-


                                   APPENDIX A

                                   DEFINITIONS

As used in the Plan,

"ACQUIRED ENTITY" means any entity acquired by the Company or a Related Company
or with which the Company or a Related Company merges or combines.

"ACQUISITION PRICE" means the higher of (a) the highest reported sales price,
regular way, of a share of Common Stock in any transaction reported on the New
York Stock Exchange or other national exchange on which the Common Stock is
listed or on the Nasdaq National Market during the 60-day period prior to and
including the date of a Company Transaction or Change in Control or (b) if the
Company Transaction or Change in Control is the result of a tender or exchange
offer or a negotiated acquisition of the Company's Common Stock, the highest
price per share of Common Stock paid in such tender or exchange offer or
acquisition. To the extent that the consideration paid in any such transaction
described above consists all or in part of securities or other noncash
consideration, the value of such other securities or other noncash consideration
shall be determined by the Board in its sole discretion.

"AWARD" means any Option, Stock Appreciation Right, Stock Award, Restricted
Stock, Stock Unit, Performance Share, Performance Unit, cash-based award or
other incentive payable in cash or in shares of Common Stock as may be
designated by the Committee from time to time.

"BOARD" means the Board of Directors of the Company.

"CAUSE," unless otherwise defined in the instrument evidencing an Award or in a
written employment, services or other agreement between the Participant and the
Company or a Related Company, means dishonesty, fraud, serious or willful
misconduct, unauthorized use or disclosure of confidential information or trade
secrets, or conduct prohibited by law (except minor violations), in each case as
determined by the Company's chief human resources officer or other person
performing that function or, in the case of directors and executive officers,
the Compensation Committee, whose determination shall be conclusive and binding.

"CHANGE IN CONTROL," unless the Committee determines otherwise with respect to
an Award at the time the Award is granted, means the happening of any of the
following events:

(a)   an acquisition by any Entity of beneficial ownership (within the meaning
of Rule 13d-3 promulgated under the Exchange Act) of 50% or more of either (1)
the then outstanding shares of common stock of the Company (the "OUTSTANDING
COMPANY COMMON STOCK") or (2) the combined voting power of the then outstanding
voting securities of the Company entitled to vote generally in the election of
directors (the "OUTSTANDING

                                      A-1


COMPANY VOTING SECURITIES"), excluding, however, the following (i) any
acquisition directly from the Company, other than an acquisition by virtue of
the exercise of a conversion privilege where the security being so converted was
not acquired directly from the Company by the party exercising the conversion
privilege, (ii) any acquisition by the Company, (iii) any acquisition by any
employee benefit plan (or related trust) sponsored or maintained by the Company
or any Related Company, or (iv) a Related Party Transaction; or

(b)   a change in the composition of the Board during any two-year period such
that the individuals who, as of the beginning of such two-year period,
constitute the Board (the "INCUMBENT BOARD") cease for any reason to constitute
at least a majority of the Board; provided, however, that for purposes of this
definition, any individual who becomes a member of the Board subsequent to the
beginning of the two-year period, whose election, or nomination for election by
the Company's stockholders, was approved by a vote of more than half of those
individuals who are members of the Board and who were also members of the
Incumbent Board (or deemed to be such pursuant to this proviso) shall be
considered as though such individual were a member of the Incumbent Board; and
provided further, however, that any such individual whose initial assumption of
office occurs as a result of or in connection with an actual or threatened
solicitation of proxies or consents by or on behalf of an Entity other than the
Board shall not be considered a member of the Incumbent Board.

"CHANGE IN CONTROL EXERCISE PERIOD" has the meaning set forth in Section 15.3.3.

"CODE" means the Internal Revenue Code of 1986, as amended from time to time.

"COMMITTEE" has the meaning set forth in Section 3.1.

"COMMON STOCK" means the common stock, par value $0.001 per share, of the
Company.

"COMPANY" means The Gymboree Corporation, a Delaware corporation.

"COMPANY TRANSACTION," unless otherwise defined in the instrument evidencing the
Award or in a written employment, services or other agreement between the
Participant and the Company or a Related Company, means consummation of:

(a)   a merger or consolidation of the Company with or into any other company or
other entity;

(b)   a sale in one transaction or a series of transactions undertaken with a
common purpose of more than 50% of the Company's outstanding voting securities;
or

(c)   a sale, lease, exchange or other transfer in one transaction or a series
of related transactions undertaken with a common purpose of all or substantially
all of the Company's assets.

                                      A-2


Where a series of transactions undertaken with a common purpose is deemed to be
a Company Transaction, the date of such Company Transaction shall be the date on
which the last of such transactions is consummated.

"COMPENSATION COMMITTEE" means the Compensation Committee of the Board.

"COVERED EMPLOYEE" means a "covered employee" as that term is defined for
purposes of Section 162(m)(3) of the Code or any successor provision.

"DISABILITY," unless otherwise defined by the Committee or in the instrument
evidencing the Award or in a written employment, services or other agreement
between the Participant and the Company or a Related Company, means a mental or
physical impairment of the Participant that is expected to result in death or
that has lasted or is expected to last for a continuous period of 12 months or
more and that causes the Participant to be unable to perform his or her material
duties for the Company or a Related Company and to be engaged in any substantial
gainful activity, in each case as determined by the Company's chief human
resources officer or other person performing that function or, in the case of
directors and executive officers, the Compensation Committee, whose
determination shall be conclusive and binding.

"EFFECTIVE DATE" has the meaning set forth in Section 19.

"ELIGIBLE PERSON" means any person eligible to receive an Award as set forth in
Section 5.

"ENTITY" means any individual, entity or group (within the meaning of Section
13(d)(3) of the Exchange Act).

"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended from time
to time.

"FAIR MARKET VALUE" means the average of the high and low trading prices for the
Common Stock on any given date during regular trading, or if not trading on that
date, such price on the last preceding date on which the Common Stock was
traded, unless determined otherwise by the Committee using such methods or
procedures as it may establish.

"GRANT DATE" means the later of (a) the date on which the Committee completes
the corporate action authorizing the grant of an Award or such later date
specified by the Committee or (b) the date on which all conditions precedent to
an Award have been satisfied, provided that conditions to the exercisability or
vesting of Awards shall not defer the Grant Date.

"INCENTIVE STOCK OPTION" means an Option granted with the intention that it
qualify as an "incentive stock option" as that term is defined for purposes of
Section 422 of the Code or any successor provision.

"NONQUALIFIED STOCK OPTION" means an Option other than an Incentive Stock
Option.

                                      A-3


"OPTION" means a right to purchase Common Stock granted under Section 7.

"PARENT COMPANY" means a company or other entity which as a result of a Company
Transaction owns the Company or all or substantially all of the Company's assets
either directly or through one or more subsidiaries.

"PARTICIPANT" means any Eligible Person to whom an Award is granted.

"PERFORMANCE AWARD" means an Award of Performance Shares or Performance Units
granted under Section 11.

"PERFORMANCE CRITERIA" has the meaning set forth in Section 16.1.

"PERFORMANCE SHARE" means an Award of units denominated in shares of Common
Stock granted under Section 11.1.

"PERFORMANCE UNIT" means an Award of units denominated in cash or property other
than shares of Common Stock granted under Section 11.2.

"PLAN" means The Gymboree Corporation 2004 Equity Incentive Plan.

"RELATED COMPANY" means any entity that is directly or indirectly controlled by,
in control of or under common control with the Company.

"RELATED PARTY TRANSACTION" means a Company Transaction pursuant to which:

(a)   the Entities who are the beneficial owners of the Outstanding Company
Common Stock and Outstanding Company Voting Securities immediately prior to such
Company Transaction will beneficially own, directly or indirectly, at least 50%
of the outstanding shares of common stock, and the combined voting power of the
then outstanding voting securities entitled to vote generally in the election of
directors of the Successor Company in substantially the same proportions as
their ownership, immediately prior to such Company Transaction, of the
Outstanding Company Common Stock and Outstanding Company Voting Securities;

(b)   no Entity (other than the Company, any employee benefit plan (or related
trust) of the Company or a Related Company, the Successor Company or, if
reference was made to equity ownership of any Parent Company for purposes of
determining whether clause (a) above is satisfied in connection with the
applicable Company Transaction, such Parent Company) will beneficially own,
directly or indirectly, 50% or more of, respectively, the outstanding shares of
common stock of the Successor Company or the combined voting power of the
outstanding voting securities of the Successor Company entitled to vote
generally in the election of directors unless such ownership resulted solely
from ownership of securities of the Company prior to the Company Transaction;
and

                                      A-4


(c)   individuals who were members of the Incumbent Board will immediately after
the consummation of the Company Transaction constitute at least a majority of
the members of the board of directors of the Successor Company (or, if reference
was made to equity ownership of any Parent Company for purposes of determining
whether clause (a) above is satisfied in connection with the applicable Company
Transaction, of the Parent Company).

"RESTRICTED STOCK" means an Award of shares of Common Stock granted under
Section 10, the rights of ownership of which are subject to restrictions
prescribed by the Committee.

"SECURITIES ACT" means the Securities Act of 1933, as amended from time to time.

"STOCK APPRECIATION RIGHT" or "SAR" means a right granted under Section 9.1 to
receive the excess of the Fair Market Value of a specified number of shares of
Common Stock over the grant price.

"STOCK AWARD" means an Award of shares of Common Stock granted under Section 10,
the rights of ownership of which are not subject to restrictions prescribed by
the Committee.

"STOCK UNIT" means an Award denominated in units of Common Stock granted under
Section 10.

"SUBSTITUTE AWARDS" means Awards granted or shares of Common Stock issued by the
Company in substitution or exchange for awards previously granted by an Acquired
Entity.

"SUCCESSOR COMPANY" means the surviving company, the successor company or Parent
Company, as applicable, in connection with a Company Transaction.

"TERMINATION OF SERVICE" means a termination of employment or service
relationship with the Company or a Related Company for any reason, whether
voluntary or involuntary, including by reason of death or Disability. Any
question as to whether and when there has been a Termination of Service for the
purposes of an Award and the cause of such Termination of Service shall be
determined by the Company's chief human resources officer or other person
performing that function or, with respect to directors and executive officers,
by the Compensation Committee, whose determination shall be conclusive and
binding. Transfer of a Participant's employment or service relationship between
the Company and any Related Company shall not be considered a Termination of
Service for purposes of an Award. Unless the Compensation Committee determines
otherwise, a Termination of Service shall be deemed to occur if the
Participant's employment or service relationship is with an entity that has
ceased to be a Related Company.

"VESTING COMMENCEMENT DATE" means the Grant Date or such other date selected by
the Committee as the date from which an Award begins to vest.

                                      A-5


                    PLAN ADOPTION AND AMENDMENTS/ADJUSTMENTS
                                  SUMMARY PAGE



 DATE OF BOARD                                        SECTION/EFFECT      DATE OF STOCKHOLDER
   ACTION                  ACTION                     OF AMENDMENT              APPROVAL
                                                                 
April 27, 2004             Initial Plan Adoption                            June 16, 2004
                           (effective on receipt
                           of stockholder
                           approval)

EX-10.59

                                                                   EXHIBIT 10.59

                            THE GYMBOREE CORPORATION
                            STOCK OPTION GRANT NOTICE
                           2004 EQUITY INCENTIVE PLAN

      The Gymboree Corporation (the "Company") hereby grants to Participant an
Option (the "Option") to purchase shares of the Company's Common Stock. The
Option is subject to all the terms and conditions set forth in this Stock Option
Grant Notice (this "Grant Notice") and in the Stock Option Agreement and the
Company's 2004 Equity Incentive Plan (the "Plan"), which are attached to and
incorporated into this Grant Notice in their entirety.

PARTICIPANT:                            <><>

GRANT DATE:                             <>

VESTING COMMENCEMENT DATE:              <>

NUMBER OF SHARES SUBJECT TO OPTION:     <>

EXERCISE PRICE (PER SHARE):             <>

OPTION EXPIRATION DATE:                 <> (subject to earlier
                                        termination in accordance with the terms
                                        of the Plan and the Stock Option
                                        Agreement)

TYPE OF OPTION:                         [ ] Incentive Stock Option*
                                        [ ] Nonqualified Stock Option

VESTING AND EXERCISABILITY SCHEDULE:

ADDITIONAL TERMS/ACKNOWLEDGEMENT: By accepting this Option online, the
undersigned Participant acknowledges receipt of, and understands and agrees to,
this Grant Notice, the Stock Option Agreement, the Plan Summary and the Plan.
Participant further acknowledges that as of the Grant Date, this Grant Notice,
the Stock Option Agreement and the Plan set forth the entire understanding
between Participant and the Company regarding the Option and supersede all prior
oral and written agreements on the subject.

THE GYMBOREE CORPORATION

By: /s/ LISA M. HARPER

Title: Chief Executive Officer / Chairman

Taxpayer ID:  94-2615258

ATTACHMENTS:

1. Stock Option Agreement

2. 2004 Equity Incentive Plan

3. Plan Summary

- ---------------------------

      * See Sections 3 and 4 of the Stock Option Agreement.



                            THE GYMBOREE CORPORATION
                           2004 EQUITY INCENTIVE PLAN
                             STOCK OPTION AGREEMENT

      Pursuant to your Stock Option Grant Notice (the "Grant Notice") and this
Stock Option Agreement, The Gymboree Corporation has granted you an Option under
its 2004 Equity Incentive Plan (the "Plan") to purchase the number of shares of
the Company's Common Stock indicated in your Grant Notice (the "Shares") at the
exercise price indicated in your Grant Notice. Capitalized terms not explicitly
defined in this Stock Option Agreement but defined in the Plan shall have the
same definitions as in the Plan.

      The details of the Option are as follows:

      1.    VESTING AND EXERCISABILITY. Subject to the limitations contained
herein, the Option will vest and become exercisable as provided in your Grant
Notice, provided that vesting will cease upon a termination of your employment
or service relationship with the Company or a Related Company for any reason,
whether voluntary or involuntary, including by reason of death or Disability
("Termination of Service") and the unvested portion of the Option will
terminate.

      2.    SECURITIES LAW COMPLIANCE. At the present time, the Company has an
effective registration statement with respect to the Shares. The Company intends
to maintain this registration but has no obligation to do so. Notwithstanding
any other provision of this Agreement, in the event that such registration
ceases to be effective, you will not be able to exercise the Option unless the
Company has determined that such exercise and issuance would be exempt from the
registration requirements of the Securities Act. The exercise of the Option must
also comply with other applicable laws and regulations governing the Option, and
you may not exercise the Option if the Company determines that such exercise
would not be in material compliance with such laws and regulations.

      3.    INCENTIVE STOCK OPTION QUALIFICATION. If so designated in your Grant
Notice, all or a portion of the Option is intended to qualify as an Incentive
Stock Option under federal income tax law, but the Company does not represent or
guarantee that the Option qualifies as such.

      If the Option has been designated as an Incentive Stock Option and the
aggregate Fair Market Value (determined as of the grant date) of the shares of
Common Stock subject to the portions of the Option and all other Incentive Stock
Options you hold that first become exercisable during any calendar year exceeds
$100,000, any excess portion will be treated as a Nonqualified Stock Option,
unless the Internal Revenue Service changes the rules and regulations governing
the $100,000 limit for Incentive Stock Options. A portion of the Option may be
treated as a Nonqualified Stock Option if certain events cause exercisability of
the Option to accelerate.



      4.    NOTICE OF DISQUALIFYING DISPOSITION. To the extent the Option has
been designated as an Incentive Stock Option, to obtain certain tax benefits
afforded to Incentive Stock Options, you must hold the Shares issued upon the
exercise of the Option for two years after the Grant Date and one year after the
date of exercise. You may be subject to the alternative minimum tax at the time
of exercise. You should obtain tax advice when exercising the Option and prior
to the disposition of the Shares. By accepting the Option, you agree to promptly
notify the Company if you dispose of any of the Shares within one year from the
date you exercise all or part of the Option or within two years from the Grant
Date.

      5.    METHOD OF EXERCISE. You may exercise the Option by giving written
notice to the Company (or a brokerage firm designated or approved by the Company
as specified below), in form and substance satisfactory to the Company, which
will state your election to exercise the Option and the number of Shares for
which you are exercising the Option. The written notice must be accompanied by
full payment of the exercise price for the number of Shares you are purchasing.
You may make this payment in any combination of the following: (a) cash, check
or wire transfer; (b) tendering shares of Common Stock that have a Fair Market
Value equal to the aggregate exercise price of the Shares being purchased and
that you have owned for at least six months (or any shorter period necessary to
avoid a charge to the Company earnings for financial reporting purposes); (c) so
long as the Common Stock is registered under the Exchange Act, and to the extent
permitted by law, delivery of an executed exercise notice and irrevocable
instructions to a brokerage firm designated or approved by the Company to
deliver promptly to the Company the aggregate amount of proceeds to pay the
Option exercise price and any withholding tax obligations that may arise in
connection with the exercise, all in accordance with the regulations of the
Federal Reserve Board, or (d) any other method permitted by the Committee.

      6.    TREATMENT UPON TERMINATION OF SERVICE. The unvested portion of the
Option will terminate automatically and without further notice immediately upon
your Termination of Service. You may exercise the vested portion of the Option
as follows:

            (a)   General Rule. You must exercise the vested portion of the
Option on or before the earlier of (i) three months after your Termination of
Service and (ii) the Option Expiration Date;

            (b)   Disability. If your Termination of Service is due to
Disability, you must exercise the vested portion of the Option on or before the
earlier of (i) one year after your Termination of Service and (ii) the Option
Expiration Date;

            (c)   Death. If your Termination of Service is due to your death,
the vested portion of the Option must be exercised on or before the earlier of
(i) one year after your Termination of Service and (ii) the Option Expiration
Date. If you die after your Termination of Service but while the Option is still
exercisable, the vested portion of the Option may be exercised until the earlier
of (x) one year after the date of death and (y) the Option Expiration Date; and

                                      -2-


            (d)   Cause. The vested portion of the Option will automatically
expire at the time the Company first notifies you of your Termination of Service
for Cause, unless the Committee determines otherwise. If your employment or
service relationship is suspending pending an investigation of whether you will
be terminated for Cause, all your rights under the Option likewise will be
suspended during the period of investigation. If any facts that would constitute
termination for Cause are discovered after your Termination of Service, any
Option you then hold may be immediately terminated by the Committee in its sole
discretion.

      The Option must be exercised within three months after your Termination of
Service for reasons other than death or Disability and one year after your
Termination of Service due to Disability to qualify for the beneficial tax
treatment afforded Incentive Stock Options.

      IT IS YOUR RESPONSIBILITY TO BE AWARE OF THE DATE THE OPTION TERMINATES.

      7.    LIMITED TRANSFERABILITY. During your lifetime only you can exercise
the Option. The Option is not transferable except by will or by the applicable
laws of descent and distribution. The Plan provides for exercise of the Option
by a beneficiary designated on a Company-approved form or the personal
representative of your estate. Notwithstanding the foregoing and to the extent
permitted by Section 422 of the Internal Revenue Code of 1986, the Committee, in
its sole discretion, may permit you to assign or transfer the Option, subject to
such terms and conditions as specified by the Committee.

      8.    WITHHOLDING TAXES. As a condition to the exercise of any portion of
the Option, you must make such arrangements as the Company may require for the
satisfaction of any federal, state, local or foreign withholding tax obligations
that may arise in connection with such exercise.

      9.    OPTION NOT AN EMPLOYMENT OR SERVICE CONTRACT. Nothing in the Plan or
any Award granted under the Plan will be deemed to constitute an employment
contract or confer or be deemed to confer any right for you to continue in the
employ of, or to continue any other relationship with, the Company or any
Related Company or limit in any way the right of the Company or any Related
Company to terminate your employment or other relationship at any time, with or
without Cause.

      10.   NO RIGHT TO DAMAGES. You will have no right to bring a claim or to
receive damages if you are required to exercise the vested portion of the Option
within three months (one year in the case of Disability or death) of your
Termination of Service or if any portion of the Option is cancelled or expires
unexercised. The loss of existing or potential profit in an Award will not
constitute an element of damages in the event of your Termination of Service for
any reason even if the termination is in violation of an obligation of the
Company or a Related Company to you.

                                      -3-


      11.   BINDING EFFECT. This Agreement will inure to the benefit of the
successors and assigns of the Company and be binding upon you and your heirs,
executors, administrators, successors and assigns.

                                      -4-

EX-10.60

                                                                   EXHIBIT 10.60

                 WAIVER AND FIRST AMENDMENT TO CREDIT AGREEMENT

      This WAIVER AND FIRST AMENDMENT TO CREDIT AGREEMENT (this "Waiver and
Amendment"), dated as of December 3, 2004, is entered into by and among THE
GYMBOREE CORPORATION, a Delaware corporation (the "Company"), each other
Borrower named in the signature pages hereof (together with the Company, each a
"Borrower" and, collectively, the "Borrowers") and Bank of America, N.A. (the
"Lender").

                                    RECITALS

      A.    The Borrowers and the Lender are parties to a Credit Agreement,
dated as of August 11, 2003 (as amended, restated, extended, supplemented or
otherwise modified from time to time, the "Credit Agreement"), pursuant to which
the Lender has extended certain credit facilities to the Borrowers.

      B     The Borrowers have requested that the Lender agree to certain
amendments to the Credit Agreement and provide certain waivers in connection
with the Credit Agreement, and the Lender has agreed to such request, subject to
the terms and conditions of this Waiver and Amendment.

      NOW, THEREFORE, for valuable consideration, the receipt and adequacy of
which are hereby acknowledged, the parties hereto hereby agree as follows:

      1.    Defined Terms. Unless otherwise defined herein, capitalized terms
used herein shall have the meanings, if any, assigned to such terms in the
Credit Agreement (as amended hereby). As used herein, "Amendment Documents"
means this Waiver and Amendment, the Credit Agreement (as amended by this Waiver
and Amendment), and each certificate and other document executed and delivered
by the Borrowers pursuant to Section 5 hereof.

      2.    Interpretation. The rules of interpretation set forth in Sections
1.02, 1.03, 1.04, 1.05, and 1.06 of the Credit Agreement shall be applicable to
this Waiver and Amendment and are incorporated herein by this reference.

      3.    Defaults and Waiver.

            (a)   For purposes of this Amendment, the "Potential Existing
Defaults" shall mean:

                  (i)   any Event of Default that may exist on the date hereof
      under Section 8.01(b) of the Credit Agreement solely as a result of any
      failure by the Borrowers to notify the Lender promptly of the occurrence
      of the potential Events of Default specified in subsections (ii), (iii),
      (iv) and (v) below in accordance with Section 6.03(a) of the Credit
      Agreement (it being acknowledged that the Borrowers do not hereby
      acknowledge that any such failure occurred or that any such Event of
      Default exists);

                  (ii)  any Event of Default that may exist on the date hereof
      under Section 8.01(b) of the Credit Agreement solely as a result of any
      Disposition of all or



      substantially all of the assets of one or more Excluded Subsidiaries,
      which Disposition may have breached Section 7.04 of the Credit Agreement
      (it being acknowledged that the Borrowers do not hereby acknowledge that
      any such breach occurred or that any such Event of Default exists);

                  (iii) any Event of Default that may exist on the date hereof
      under Section 8.01(b) of the Credit Agreement solely as a result of any
      breach of the covenant set forth in Section 7.05(g) of the Credit
      Agreement due to the UK Dispositions (it being acknowledged that the
      Borrowers do not hereby acknowledge that any such breach occurred or that
      any such Event of Default exists);

                  (iv)  any Event of Default that may exist on the date hereof
      under Section 8.01(b) of the Credit Agreement, which Event of Default may
      have arisen as a result of the Borrowers having made capital expenditures
      during the fiscal year of the Company ending on or about January 31, 2005
      in an aggregate amount which exceeds the amount permitted by the covenant
      set forth in Section 7.12 of the Credit Agreement (it being acknowledged
      that the Borrowers do not hereby acknowledge that any such prohibited
      capital expenditures were made or that any such Event of Default exists);
      and

                  (v)   any Event of Default that may exist on the date hereof
      under Section 8.01(f) of the Credit Agreement solely as a result of one or
      more Excluded Subsidiaries having suspended their respective businesses
      for a period of more than three Business Days during a 30-day period (it
      being acknowledged that the Borrowers do not hereby acknowledge that any
      such business suspension occurred or that any such Event of Default
      exists).

            (b)   Subject to and upon the terms and conditions hereof, and to
the extent that any such Potential Existing Defaults actually exist on the date
hereof, the Lender hereby waives the Potential Existing Defaults.

            (c)   Subject to and upon the terms and conditions hereof, the
Lender hereby (i) consents to the liquidation and dissolution in accordance with
applicable law of each Excluded Subsidiary and (ii) waives any Events of Default
that would otherwise arise under Sections 6.05, 7.04, 7.05(g) or 8.01(f) of the
Credit Agreement after the date hereof solely as a result of the liquidation and
dissolution of any such Excluded Subsidiary.

            (d)   Subject to subsection (c) above, nothing contained herein
shall be deemed a waiver of (or otherwise affect the Lender's ability to
enforce) any other Default under any of the Loan Documents, including without
limitation, (i) any Default as may now or hereafter exist and arise from or
otherwise be related to any of the Potential Existing Defaults (including
without limitation any cross-default arising under the Credit Agreement by
virtue of any matters resulting from any Potential Existing Default), and (ii)
any Default arising at any time after the Effective Date and which is the same
as or similar to any of the Potential Existing Defaults.

      4.    Amendments to Credit Agreement. Subject to the terms and conditions
hereof, and with effect from and after the Effective Date, the Credit Agreement
shall be amended as follows:

                                       2


            (a)   Section 1.01 of the Credit Agreement shall be amended at the
definition of "Consolidated Net Income" by amending and restating such
definition in its entirety as follows:

                  "Consolidated Net Income" means, for any period, for the
            Company and its Subsidiaries on a consolidated basis, the net income
            of the Company and its Subsidiaries (excluding extraordinary gains
            and extraordinary losses and losses resulting solely from the UK
            Dispositions) for such period.

            (b)   Section 1.01 of the Credit Agreement shall be further amended
by adding the following definition in the appropriate alphabetical order:

                  "Excluded Subsidiaries" means Gymboree Industries Limited, an
            Irish corporation, Gymboree of Ireland, Limited, an Irish
            corporation, and Gymboree U.K. Leasing Limited, a company
            incorporated under the laws of England and Wales.

            (c)   Section 1.01 of the Credit Agreement shall be further amended
at the definition of "Inoperative Subsidiary" by amending and restating such
definition in its entirety as follows:

                  "Inoperative Subsidiary" means each of (a) Gymboree Japan
            K.K., a Japanese corporation, (b) Gymboree Industries Holdings
            Limited, an Irish corporation, (c) GOF196 Limited, an Irish
            corporation, (d) Gymboree U.K. Limited, a company incorporated under
            the laws of England and Wales, and (e) the Excluded Subsidiaries.

            (d)   Section 1.01 of the Credit Agreement shall be further amended
by adding the following definition in the appropriate alphabetical order:

                  "UK Dispositions" has the meaning specified in Section
            7.05(g).

            (e)   Section 7.05(g) of the Credit Agreement shall be amended by
amending and restating such subsection to read in its entirety as follows:

            (g)   Dispositions by any Borrower and its Subsidiaries not
otherwise permitted under this Section 7.05; provided that (i) at the time of
any such Disposition, no Default shall exist or would result from such
Disposition and (ii) the aggregate book value of all property Disposed of in
reliance on this clause (g) in any fiscal year (other than Dispositions of stock
or assets directly related to the Borrowers' United Kingdom and Ireland
operations made by the Borrowers and their Subsidiaries during the fiscal
quarter of the Company ended October 30, 2004; the "UK Dispositions") shall not
exceed $5,000,000.

            (f)   Section 7.12 of the Credit Agreement shall be amended by
amending and restating such Section to read in its entirety as follows:

            7.12  CAPITAL EXPENDITURES. Make or become legally obligated to make
            any expenditure in respect of the purchase or other acquisition of
            any fixed or capital

                                       3


            asset (excluding normal replacements and maintenance which are
            properly charged to current operations), except for capital
            expenditures in the ordinary course of business not exceeding, in
            the aggregate for the Company and its Subsidiaries during each
            fiscal year set forth below, the amount set forth opposite such
            fiscal year:



FISCAL YEAR ENDING NEAREST                AMOUNT ($)
- ----------------------------------------------------
                                      
     January 31, 2004                    $40,000,000
     January 31, 2005                    $75,000,000
     January 31, 2006                    $60,000,000


            (g)   Section 7.13 of the Credit Agreement shall be amended by
amending and restating such Section to read in its entirety as follows:

            7.13  INOPERATIVE SUBSIDIARIES. From and after the Closing Date, (a)
            transfer any assets or properties to any Inoperative Subsidiary, (b)
            suffer or permit any Inoperative Subsidiary to otherwise have or
            acquire assets or properties exceeding the Specified Level in value
            or amount, or (c) suffer or permit any Inoperative Subsidiary to
            carry on any business or other operation of any kind; provided that
            from and after October 30, 2004, provided there exists no Default,
            the Company may contribute cash to any Excluded Subsidiary so long
            as (x) any such cash contribution shall be made solely for the
            purpose of satisfying the claims of creditors directly in connection
            with the dissolution of any such Excluded Subsidiary, and (y) the
            aggregate amount of all such cash contributions made in respect of
            all such Excluded Subsidiaries shall not exceed $15,000,000.

            (h)   Schedule 2 to the form of Compliance Certificate set forth as
Exhibit C to the Credit Agreement shall be amended and restated in the form
attached hereto as Exhibit A.

      5.    Representations and Warranties. Each Borrower hereby represents and
warrants to the Lender as follows:

            (a)   No Default, other than the possible occurrence of the
Potential Existing Defaults, has occurred and is continuing (or would result
from the amendment to the Credit Agreement contemplated hereby).

            (b)   The execution, delivery and performance by the Borrowers of
this Waiver and Amendment have been duly authorized by all necessary corporate
and other action and do not and will not require any registration with, consent
or approval of, or notice to or action by, any Person (including any
Governmental Authority) in order to be effective and enforceable.

            (c)   The Amendment Documents constitute the legal, valid and
binding obligations of the Borrowers party thereto, enforceable against each
such Borrower in accordance with their respective terms, without defense,
counterclaim or offset.

            (d)   After giving effect to the waiver of the Potential Existing
Defaults set forth in Section 3, all representations and warranties of the
Borrowers contained in Article V of

                                       4


the Credit Agreement are true and correct on and as of the Effective Date,
except to the extent that any such representation and warranty specifically
relates to an earlier date, in which case they are true and correct as of such
earlier date.

            (e)   Each Borrower is entering into this Waiver and Amendment on
the basis of its own investigation and for its own reasons, without reliance
upon the Lender or any other Person.

            (f)   There has occurred since January 31, 2004 no event or
circumstance that has resulted or could reasonably be expected to result in a
Material Adverse Effect.

            (g)   The Obligations of each Borrower under the Credit Agreement
and each other Loan Document are not subject to any defense, counterclaim,
set-off, right of recoupment, abatement or other claim.

      6.    Effective Date. (a) This Waiver and Amendment will become effective
when each of the conditions precedent set forth in this Section 6 has been
satisfied (the "Effective Date"):

                  (i)   The Lender shall have received from each Borrower a duly
      executed original (or, if elected by the Lender, an executed facsimile
      copy) counterpart to this Waiver and Amendment.

                  (ii)  The Lender shall have received from the Company a
      certificate signed by the assistant secretary of each Borrower, dated the
      Effective Date, in form and substance satisfactory to the Lender, and
      certifying evidence of the authorization of the execution, delivery and
      performance by each Borrower of the Amendment Documents to which it is
      party.

                  (iii) The Borrowers shall have paid all Attorney Costs of the
      Lender to the extent invoiced prior to the Effective Date (including any
      previously invoiced and outstanding Attorney Costs that relate to services
      previously provided), plus such additional amounts of Attorney Costs as
      shall constitute the Lender's reasonable estimate of Attorney Costs
      incurred or to be incurred by it through the closing proceedings related
      to this Waiver and Amendment (provided that such estimate shall not
      thereafter preclude a final settling of accounts between the Borrowers and
      the Lender).

                  (iv)  The Lender shall have received, in form and substance
      satisfactory to it, such additional approvals, consents, opinions,
      documents and other information as the Lender shall request.

            (b)   From and after the Effective Date, the Credit Agreement is
amended as set forth herein. Except as expressly amended pursuant hereto, the
Credit Agreement shall remain unchanged and in full force and effect and is
hereby ratified and confirmed in all respects.

      7.    Reservation of Rights. Each Borrower acknowledges and agrees that
neither the execution nor the delivery by the Lender of this Waiver and
Amendment shall (a) be deemed to create a course of dealing or otherwise
obligate the Lender to execute similar amendments under

                                       5


the same or similar circumstances in the future or (b) be deemed to create any
implied waiver of any right or remedy of the Lender with respect to any term or
provision of any Loan Document (including any term or provision relating to the
occurrence of a Material Adverse Effect).

      8.    Miscellaneous.

            (a)   Except as herein expressly amended, all terms, covenants and
provisions of the Credit Agreement are and shall remain in full force and effect
and all references therein to such Credit Agreement shall henceforth refer to
the Credit Agreement as amended by this Waiver and Amendment. This Waiver and
Amendment shall be deemed incorporated into, and a part of, the Credit
Agreement.

            (b)   This Waiver and Amendment shall be binding upon and inure to
the benefit of the parties hereto and thereto and their respective successors
and assigns. No third party beneficiaries are intended in connection with this
Waiver and Amendment.

            (c)   THIS WAIVER AND AMENDMENT IS SUBJECT TO THE PROVISIONS OF
SECTIONS 9.19 AND 9.20 OF THE CREDIT AGREEMENT RELATING TO GOVERNING LAW, VENUE
AND WAIVER OF RIGHT TO TRIAL BY JURY, THE PROVISIONS OF WHICH ARE BY THIS
REFERENCE INCORPORATED HEREIN IN FULL.

            (d)   This Waiver and Amendment may be executed in any number of
counterparts, each of which shall be deemed an original, but all such
counterparts together shall constitute but one and the same instrument. Each of
the parties hereto understands and agrees that this document (and any other
document required herein) may be delivered by any party hereto or thereto either
in the form of an executed original or an executed original sent by facsimile
transmission to be followed promptly by mailing of a hard copy original, and the
receipt by the Lender of a facsimile transmitted document purportedly bearing
the signature of a Borrower shall bind such Borrower with the same force and
effect as the delivery of a hard copy original. Any failure by the Lender to
receive the hard copy executed original of such document shall not diminish the
binding effect of receipt of the facsimile transmitted executed original of such
document of the party whose hard copy page was not received by the Lender.

            (e)   This Waiver and Amendment, together with the Credit Agreement,
contains the entire and exclusive agreement of the parties hereto with reference
to the matters discussed herein and therein. This Waiver and Amendment
supersedes all prior drafts and communications with respect thereto. This Waiver
and Amendment may not be amended except in accordance with the provisions of
Section 9.01 of the Credit Agreement.

            (f)   If any term or provision of this Waiver and Amendment shall be
deemed prohibited by or invalid under any applicable law, such provision shall
be invalidated without affecting the remaining provisions of this Waiver and
Amendment or the Credit Agreement, respectively.

            (g)   Each Borrower covenants to pay to or reimburse the Lender,
upon demand, for all costs and expenses (including allocated costs of in-house
counsel) incurred in

                                       6


connection with the development, preparation, negotiation, execution and
delivery of this Waiver and Amendment.

            (h)   This Waiver and Amendment shall constitute a "Loan Document"
under and as defined in the Credit Agreement.

                [Remainder of this page intentionally left blank]

                                      * * *

                                       7


      IN WITNESS WHEREOF, the parties hereto have caused this Waiver and
Amendment to be duly executed as of the date first above written.

                                   THE GYMBOREE CORPORATION, as a Borrower

                                   By: /s/ Myles McCormick
                                       ----------------------------------
                                   Name: Myles McCormick
                                   Title: Chief Financial Officer

                                   GYMBOREE MANUFACTURING, INC., as a Borrower

                                   By: /s/ Myles McCormick
                                       ----------------------------------
                                   Name: Myles McCormick
                                   Title: Chief Financial Officer

                                   GYM-MARK, INC., as a Borrower

                                   By: /s/ Myles McCormick
                                       ----------------------------------
                                   Name: Myles McCormick
                                   Title: Chief Financial Officer

                                   GYMBOREE RETAIL STORES, INC., as a Borrower

                                   By: /s/ Myles McCormick
                                       ----------------------------------
                                   Name: Myles McCormick
                                   Title: Chief Financial Officer

       Signature Page 1 to Waiver and First Amendment to Credit Agreement



                                   THE GYMBOREE STORES, INC., as a Borrower

                                   By: /s/ Myles McCormick
                                       ----------------------------------
                                   Name: Myles McCormick
                                   Title: Chief Financial Officer

                                   GYMBOREE LOGISTICS PARTNERSHIP, as a Borrower

                                   By: GYMBOREE RETAIL STORES, INC. as General
                                       Partner

                                   By: /s/ Myles McCormick
                                       ----------------------------------
                                   Name: Myles McCormick
                                   Title: Chief Financial Officer

                                   GYMBOREE PLAY PROGRAMS, INC., as a Borrower

                                   By: /s/ Myles McCormick
                                       ----------------------------------
                                   Name: Myles McCormick
                                   Title: Chief Financial Officer

                                   GYMBOREE OPERATIONS, INC., as a Borrower

                                   By: /s/ Myles McCormick
                                       ----------------------------------
                                   Name: Myles McCormick
                                   Title: Chief Financial Officer

       Signature Page 2 to Waiver and First Amendment to Credit Agreement


                                   GYMBOREE, INC. (CANADA), as a Borrower

                                   By: /s/ Myles McCormick
                                       ----------------------------------

                                   Name: Myles McCormick
                                   Title: Chief Financial Officer

                                   GYMBOREE INDUSTRIES LIMITED, as a Borrower

                                   By: /s/ Myles McCormick
                                       ----------------------------------
                                   Name: Myles McCormick
                                   Title: Chief Financial Officer

                                   GYMBOREE U.K. LEASING LIMITED, as a Borrower

                                   By: /s/ Myles McCormick
                                       ----------------------------------
                                   Name: Myles McCormick
                                   Title: Chief Financial Officer

                                   GYMBOREE OF IRELAND, LIMITED, as a Borrower

                                   By: /s/ Myles McCormick
                                       ----------------------------------
                                   Name: Myles McCormick
                                   Title: Chief Financial Officer

       Signature Page 3 to Waiver and First Amendment to Credit Agreement


                                   BANK OF AMERICA, N.A., as the Lender

                                   By: /s/ Ronald Drobny
                                       ----------------------------------
                                   Name: Ronald Drobny
                                   Title: Senior Vice President

       Signature Page 4 to Waiver and First Amendment to Credit Agreement


                                    EXHIBIT A

   (Please see attached amended and restated Schedule 2 to form of Compliance
                                  Certificate)

                Exhibit A to Waiver and First Amendment Agreement



                       For the Quarter/Year ended ___________ ("Statement Date")

                                   SCHEDULE 2
                          to the Compliance Certificate
                                  ($ in 000's)

                                                                                     
I.    SECTION 7.11(a) -- CONSOLIDATED TANGIBLE NET WORTH.

      A.    85% Consolidated Tangible Net Worth at Benchmark Date:                      $____________

      B.    75% of Consolidated Net Income for each full fiscal quarter ending
            after Benchmark Date (no reduction for losses):                             $____________

      C.    100% of increases in Shareholders' Equity after Benchmark Date from
            issuance and sale of capital stock or other equity interests
            (including from conversion of debt securities):                             $____________

      D.    Minimum required Consolidated Tangible Net Worth (Lines I.A + I.B +
            I.C):                                                                       $____________

      E.    Actual Consolidated Tangible Net Worth at Statement Date:

            1.    Shareholders' Equity:                                                 $____________

            2.    Intangible Assets:                                                    $____________

            3.    Consolidated Tangible Net Worth (I.E.1 less I.E.2):                   $____________

      F.    Excess (deficient) for covenant compliance (Line I.E.3 less I.D):           $____________

II.   SECTION 7.11 (b) -- CONSOLIDATED ASSET COVERAGE RATIO

      A.    Current Assets determined as of Statement Date:

            1.    Cash:                                                                 $____________

            2.    Marketable Securities:                                                $____________

            3.    Trade Accounts Receivable:                                            $____________

            4.    Inventory:                                                            $____________

            5.    Current Assets (II.A.1 + 2 + 3 + 4):                                  $____________

      B.    Current Liabilities as of Statement Date                                    $____________

      C.    Outstanding Amounts as of Statement Date (without duplication to
            II.B):                                                                      $____________

      D.    Consolidated Asset Coverage Ratio (II.A.5 / (II.B + II.C):                  ______to 1.00

            Minimum Required: 1.00:1.00



                                       C-4


                                                                                     
III.  SECTION 7.11(c)/APPLICABLE RATE -- CONSOLIDATED ADJUSTED LEVERAGE RATIO.

      A.    Consolidated EBITDA for four consecutive fiscal quarters ending on
            above date ("Subject Period"):

            1.    Consolidated Net Income for Subject Period:                           $____________

            2.    Consolidated Interest Charges for Subject Period:                     $____________

            3.    Provision for income taxes payable during Subject Period:             $____________

            4.    Depreciation expense for Subject Period:                              $____________

            5.    Amortization expense for Subject Period:                              $____________

            6.    Losses during the Subject Period resulting solely from the UK
                  Dispositions and included in the calculation of Consolidated
                  Net Income in Line III.A.1:                                           $____________

            7.    Consolidated EBITDA (III.A.1 + 2 + 3 + 4 + 5 + 6):                    $____________

      B.    1.    Lease Expenses for Subject Period:                                    $____________

            2.    Consolidated Adjusted EBITDAR (III.A.7 + III.B.1):                    $____________

      C.    Consolidated Funded Indebtedness at Statement Date:                         $____________

      D.    Lease Expenses for Subject Period:                                          $____________

      E.    6 x III.D:                                                                  $____________

      F.    Consolidated Leverage Ratio ((III.C+III.E) / III.B.2):                      _____ to 1.00

            Maximum permitted. 3.00:1.00

IV.   SECTION 7.12 -- CAPITAL EXPENDITURES.

      A.    Capital expenditures made during fiscal year to date:                       $____________

      B.    Maximum permitted capital expenditures for fiscal year:                     $____________

      C.    Excess (deficient) for covenant compliance (Line IV.B less IV.A):           $____________



                                       C-5

EX-10.61

                                                                               .
                                                                               .
                                                                               .
                                                                   EXHIBIT 10.61

                        TERMS OF COMPENSATION ARRANGEMENT
                           
NAME:                         Blair Lambert

EXPECTED DATE OF HIRE:        January 18, 2005

TITLE:                        Chief Operating Officer

BASE SALARY:                  $385,000

BONUS PLAN:                   Discretionary, target payout at 75% of base salary

STOCK OPTIONS:                100,000 shares with an exercise price = fair
                              market value on grant date, vesting 1/4 on the
                              first anniversary of the grant date and an
                              additional 1/48 monthly thereafter

RESTRICTED STOCK AWARD:       50,000 shares, vesting 1/2 on the second
                              anniversary of the grant date and an additional
                              1/48 monthly thereafter

HEALTH BENEFITS:              medical, dental & vision insurance

401K:                         3% match, eligible after 6 months.

MANAGEMENT CHANGE             If involuntary termination following change of
OF CONTROL PLAN:              control, eligible for payment = three times annual
                              salary, pro-rated bonus, paid out in a single lump
                              sum, less applicable taxes, and 18 months of
                              health benefits coverage.

MANAGEMENT                    Eligible for 50% severance payment of gross base
SEVERANCE PLAN:               salary if involuntarily terminated other than for
                              death, disability or cause, to be paid in equal
                              monthly payments over a 12-month period.

EX-15

                                                                      EXHIBIT 15

December 8, 2004

The Gymboree Corporation:

We have made reviews, in accordance with standards established by the Public
Company Oversight Board (United States), of the unaudited interim financial
information of The Gymboree Corporation and subsidiaries for the three and nine
month periods ended October 30, 2004 and November 1, 2003 as indicated in our
report dated December 8, 2004 (which report includes an explanatory paragraph
regarding a change in accounting principle); because we did not perform an
audit, we expressed no opinion on that information.

We are aware that our report referred to above, which is included in your
Quarterly Report on Form 10-Q for the quarter ended October 30, 2004, is
incorporated by reference in Registration Statement Nos. 33-90452, 33-94594,
333-10811, 333-74269, 333-89962, 333-107564 and 333-116785 of The Gymboree
Corporation and subsidiaries each on Form S-8.

We also are aware that the aforementioned report, pursuant to Rule 436(c) under
the Securities Act of 1933, is not considered a part of the Registration
Statement prepared or certified by an accountant or a report prepared or
certified by an accountant within the meaning of Sections 7 and 11 of that Act.

Yours truly,
/s/ Deloitte & Touche LLP
San Francisco, California

EX-31.1

                                                                    EXHIBIT 31.1

CERTIFICATION

I, Lisa Harper, certify that:

1.    I have reviewed this quarterly report on Form 10-Q of The Gymboree
      Corporation;

2.    Based on my knowledge, this report does not contain any untrue statement
      of a material fact or omit to state a material fact necessary to make the
      statements made, in light of the circumstances under which such statements
      were made, not misleading with respect to the period covered by this
      quarterly report;

3.    Based on my knowledge, the financial statements, and other financial
      information included in this quarterly report, fairly present in all
      material respects the financial condition, results of operations and cash
      flows of the registrant as of, and for, the periods presented in this
      quarterly report;

4.    The registrant's other certifying officer(s) and I are responsible for
      establishing and maintaining disclosure controls and procedures (as
      defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant
      and have:

            (a)   Designed such disclosure controls and procedures, or caused
                  such disclosure controls and procedures to be designed under
                  our supervision, to ensure that material information relating
                  to the registrant, including its consolidated subsidiaries, is
                  made known to us by others within those entities, particularly
                  during the period in which this report is being prepared;

            (b)   Evaluated the effectiveness of the registrant's disclosure
                  controls and procedures and presented in this report our
                  conclusions about the effectiveness of the disclosure controls
                  and procedures, as of the end of the period covered by this
                  report based on such evaluation; and

            (c)   Disclosed in this report any change in the registrant's
                  internal control over financial reporting that occurred during
                  the registrant's most recent fiscal quarter (the registrant's
                  fourth fiscal quarter in the case of an annual report) that
                  has materially affected, or is reasonably likely to materially
                  affect, the registrant's internal control over financial
                  reporting; and

5.    The registrant's other certifying officer(s) and I have disclosed, based
      on our most recent evaluation of internal control over financial
      reporting, to the registrant's auditors and the audit committee of the
      registrant's board of directors (or persons performing the equivalent
      functions):

            (a)   All significant deficiencies and material weaknesses in the
                  design or operation of internal control over financial
                  reporting which are reasonably likely to adversely affect the
                  registrant's ability to record, process, summarize and report
                  financial information; and

            (b)   Any fraud, whether or not material, that involves management
                  or other employees who have a significant role in the
                  registrant's internal control over financial reporting.

December 8, 2004                                By: /s/ Lisa Harper
- --------------------------                      --------------------------------
Date                                            Lisa Harper
                                                Chief Executive Officer and
                                                Chairman of the Board

EX-31.2

                                                                    EXHIBIT 31.2

CERTIFICATION

I, Myles McCormick, certify that:

1.    I have reviewed this quarterly report on Form 10-Q of The Gymboree
      Corporation;

2.    Based on my knowledge, this report does not contain any untrue statement
      of a material fact or omit to state a material fact necessary to make the
      statements made, in light of the circumstances under which such statements
      were made, not misleading with respect to the period covered by this
      quarterly report;

3.    Based on my knowledge, the financial statements, and other financial
      information included in this quarterly report, fairly present in all
      material respects the financial condition, results of operations and cash
      flows of the registrant as of, and for, the periods presented in this
      quarterly report;

4.    The registrant's other certifying officer(s) and I are responsible for
      establishing and maintaining disclosure controls and procedures (as
      defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant
      and have:

            (a)   Designed such disclosure controls and procedures, or caused
                  such disclosure controls and procedures to be designed under
                  our supervision, to ensure that material information relating
                  to the registrant, including its consolidated subsidiaries, is
                  made known to us by others within those entities, particularly
                  during the period in which this report is being prepared;

            (b)   Evaluated the effectiveness of the registrant's disclosure
                  controls and procedures and presented in this report our
                  conclusions about the effectiveness of the disclosure controls
                  and procedures, as of the end of the period covered by this
                  report based on such evaluation; and

            (c)   Disclosed in this report any change in the registrant's
                  internal control over financial reporting that occurred during
                  the registrant's most recent fiscal quarter (the registrant's
                  fourth fiscal quarter in the case of an annual report) that
                  has materially affected, or is reasonably likely to materially
                  affect, the registrant's internal control over financial
                  reporting; and

5.    The registrant's other certifying officer(s) and I have disclosed, based
      on our most recent evaluation of internal control over financial
      reporting, to the registrant's auditors and the audit committee of the
      registrant's board of directors (or persons performing the equivalent
      functions):

            (a)   All significant deficiencies and material weaknesses in the
                  design or operation of internal control over financial
                  reporting which are reasonably likely to adversely affect the
                  registrant's ability to record, process, summarize and report
                  financial information; and

            (b)   Any fraud, whether or not material, that involves management
                  or other employees who have a significant role in the
                  registrant's internal control over financial reporting.

December 8, 2004                      By: /s/ Myles McCormick
- --------------------------            ------------------------------------------
Date                                  Myles McCormick
                                      Chief Financial Officer and
                                      Principal Financial and Accounting Officer

EX-32.1

                                                                    EXHIBIT 32.1

                            CERTIFICATION PURSUANT TO
                             18 U.S.C. SECTION 1350,
                       AS ADOPTED PURSUANT TO SECTION 906
                        OF THE SARBANES-OXLEY ACT OF 2002

      In connection with the Quarterly Report of The Gymboree Corporation (the
"Company") on Form 10-Q for the period ended October 30, 2004 as filed with the
Securities and Exchange Commission on the date hereof (the "Form 10-Q"), I, Lisa
Harper, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, that to my knowledge:

      (1)   The Form 10-Q fully complies with the requirements of Section 13(a)
            or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or
            78o(d)); and

      (2)   The information contained in the Form 10-Q fairly presents, in all
            material respects, the financial condition and results of operations
            of the Company.

December 8, 2004                               By: /s/ Lisa Harper
- ----------------                     -------------------------------------------
     Date                                          Lisa Harper
                                     Chief Executive Officer and Chairman of the
                                                      Board

EX-32.2

                                                                    EXHIBIT 32.2

                            CERTIFICATION PURSUANT TO
                             18 U.S.C. SECTION 1350,
                       AS ADOPTED PURSUANT TO SECTION 906
                        OF THE SARBANES-OXLEY ACT OF 2002

      In connection with the Quarterly Report of The Gymboree Corporation (the
"Company") on Form 10-Q for the period ended October 30, 2004 as filed with the
Securities and Exchange Commission on the date hereof (the "Form 10-Q"), I,
Myles McCormick, Chief Financial Officer of the Company, certify, pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, that to my knowledge:

      (1) The Form 10-Q fully complies with the requirements of Section 13(a) or
          15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or
          78o(d)); and

      (2) The information contained in the Form 10-Q fairly presents, in all
          material respects, the financial condition and results of operations
          of the Company.

December 8, 2004                          By: /s/ Myles McCormick
- ----------------             ---------------------------------------------------
     Date                                     Myles McCormick
                             Chief Financial Officer and Principal Financial and
                                              Accounting Officer