Gap (GPS)

Employee Stock Purchase Plan

Prior to December 1, 2006, under our Employee Stock Purchase Plan (“ESPP”), eligible U.S. employees could purchase our common stock at 85 percent of the lower of the closing price on the New York Stock Exchange on the first or last day of a six-month purchase period (“Option Feature”). After December 1, 2006, eligible U.S. employees are able to purchase our common stock at 85 percent of the closing price on the New York Stock Exchange on the

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last day of the three-month purchase period. Accordingly, compensation cost is equal to the 15 percent discount and the Black-Scholes-Merton option-pricing model is no longer used to estimate the fair value of the ESPP Option Feature after December 1, 2006. Employees pay for their stock purchases through payroll deductions at a rate equal to any whole percentage from 1 percent to 15 percent. There were 1,543,827, 1,485,699, and 1,613,116 shares issued under the ESPP during fiscal 2008, 2007, and 2006, respectively. All shares for ESPP purchases are issued from treasury stock. At January 31, 2009, there were 10,259,290 shares reserved for future issuances.

Employee Stock Purchase Plan

Prior to December 1, 2006,
under our Employee Stock Purchase Plan (“ESPP”), eligible U.S. employees could purchase our common stock at 85 percent of the lower of the closing price on the New York Stock Exchange on the first or last day of a six-month purchase period
(“Option Feature”). After December 1, 2006, eligible U.S. employees are able to purchase our common stock at 85 percent of the closing price on the New York Stock Exchange on the

57

Table of Contents

last day of the three-month purchase period. Accordingly, compensation cost is equal to the 15 percent discount and the Black-Scholes-Merton option-pricing model is no
longer used to estimate the fair value of the ESPP Option Feature after December 1, 2006. Employees pay for their stock purchases through payroll deductions at a rate equal to any whole percentage from 1 percent to 15 percent. There were
1,543,827, 1,485,699, and 1,613,116 shares issued under the ESPP during fiscal 2008, 2007, and 2006, respectively. All shares for ESPP purchases are issued from treasury stock. At January 31, 2009, there were 10,259,290 shares reserved for
future issuances.

EMPLOYEE STOCK PURCHASE PLAN

(Conformed Copy of the Plan through its proposed First Amendment on June 2, 2008)

Employee Stock Purchase Plan

Prior to December 1, 2006, under our Employee Stock Purchase Plan (“ESPP”), eligible U.S. employees could purchase our common stock at 85 percent of the lower of the closing price on the New York Stock Exchange on the first or last day of the six-month purchase period (“Option Feature”). After December 1, 2006, eligible U.S. employees are able to purchase our common stock at 85 percent of the closing price on the New York Stock

58  Gap Inc. Form 10-K

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Exchange on the last day of the three-month purchase period. Accordingly, compensation cost is equal to the 15 percent discount and the Black-Scholes-Merton option-pricing model is no longer used to estimate the fair value of the ESPP Option Feature after December 1, 2006. Employees pay for their stock purchases through payroll deductions at a rate equal to any whole percentage from 1 percent to 15 percent. There were 1,485,699, 1,613,116, and 1,700,444 shares issued under the ESPP during fiscal 2007, 2006, and 2005, respectively. All shares for ESPP purchases are issued from treasury stock. At February 2, 2008, there were 3,803,143 shares reserved for future issuances.

The fair value of the ESPP Option Feature was estimated using the Black-Scholes-Merton option-pricing model for fiscal 2006 and 2005 with the following assumptions:

The average discounted price of ESPP purchases in fiscal 2007 was $16.34 per share. The weighted-average fair value of ESPP shares for fiscal 2006 was $3.99, which included a weighted average fair value of $2.65 for compensation cost associated with the purchase discount in accordance with SFAS 123(R). The weighted-average fair value of ESPP shares for fiscal 2005 was $1.38, which was not recorded as additional compensation cost during the period in accordance with APB 25.

Employee Stock Purchase Plan

Prior to December 1, 2006, under our Employee Stock Purchase Plan (“ESPP”), eligible U.S. employees could purchase our common stock at 85 percent of the lower of the closing price on the New York Stock Exchange on the first or last day of the six-month purchase period. After December 1, 2006, eligible U.S. employees are able to purchase our common stock at 85 percent of the closing price on the New York Stock Exchange on the last day of the three-month purchase period. Employees pay for their stock purchases through payroll deductions at a rate equal to any whole percentage from 1 percent to 15 percent. There were 1.6 million, 1.7 million, and 1.4 million shares issued under the plan during fiscal 2006, 2005, and 2004, respectively. All shares were issued from treasury stock. At February 3, 2007, there were 5 million shares reserved for future issuances.

Employee Stock Purchase Plan

Prior to December 1, 2006, under our Employee Stock Purchase Plan (“ESPP”), eligible U.S. employees could purchase our common stock at 85 percent of the lower of the closing price on the New York Stock Exchange on the first or last day of the six-month purchase period. After December 1, 2006, eligible U.S. employees will be able to purchase our common stock at 85 percent of the closing price on New York Stock Exchange on the last day of three-month purchase periods. Employees pay for their stock purchases through payroll deductions at a rate equal to any whole percentage from 1 percent to 15 percent. There were 0.9 million and 0.8 million shares issued under the plan during the thirty-nine weeks ended October 28, 2006 and October 29, 2005, respectively. At October 28, 2006, there were 6 million shares reserved for future issuances.

Employee Stock Purchase Plan

We have an Employee Stock Purchase Plan (“ESPP”) under which eligible U.S. employees may purchase our common stock at 85 percent of the lower of the closing price on the New York Stock Exchange on the first or last day of the six-month purchase period. Employees pay for their stock purchases through payroll deductions at a rate equal to any whole percentage from 1 percent to 15 percent. There were 860,183 and 801,404 shares issued under the plan during the first half of fiscal 2006 and 2005, respectively. At July 29, 2006, there were 6,041,776 shares reserved for future issuances.

Employee Stock Purchase Plan

We have an Employee Stock Purchase Plan (“ESPP”) under which eligible U.S. employees may purchase our common stock at 85 percent of the lower of the closing price on the New York Stock Exchange on the first or last day of the six-month purchase period. Employees pay for their stock purchases through payroll deductions at a rate equal to any whole percentage from 1 percent to 15 percent. There were no shares issued under the plan during the first thirteen weeks of fiscal 2006. At April 29, 2006, there were 6,901,958 shares reserved for future issuances.

Employee Stock Purchase Plan

We have an Employee Stock Purchase Plan under which eligible U.S. employees may purchase our common stock at 85 percent of the lower of the closing price on the New York Stock Exchange on the first or last day of the six-month purchase period. Employees pay for their stock purchases through payroll deductions at a rate equal to any whole percentage from 1 percent to 15 percent. There were 1,700,466, 1,422,059, and 1,626,393 shares issued under the plan during fiscal 2005, 2004 and 2003, respectively. All shares were issued from treasury stock. At January 28, 2006, there were 6,901,958 shares reserved for future issuances.

During fiscal 2000, we established an Employee Stock Purchase Plan for employees in the United Kingdom. Under the plan, all eligible employees may purchase our common stock at the lower of the closing price on the New York Stock Exchange on the first or last day of the six-month purchase period. We provide a match of one share for every seven shares purchased. Employees pay for their stock purchases through payroll deductions from £10 to £125 per month, not to exceed the lesser of either £750 per each six-month purchase period or 10 percent of gross annual base salary per tax year. At January 28, 2006, £1 was equivalent to $1.77. There were 14,136, 16,597, and 23,371 shares issued under the plan during fiscal 2005, 2004 and 2003, respectively. All shares were issued from treasury stock. At January 28, 2006, there were 891,120 shares reserved for future issuances.

Employee Stock Purchase Plan

We have an Employee Stock Purchase Plan under which eligible U.S. employees may purchase our common stock at 85 percent of the lower of the closing price on the New York Stock Exchange on the first or last day of the six-month purchase period. Employees pay for their stock purchases through payroll deductions at a rate equal to any whole percentage from 1 percent to 15 percent. There were 1,422,059, 1,626,393 and 2,159,217 shares issued under the plan during fiscal 2004, 2003 and 2002, respectively. All shares were issued from treasury stock. At January 29, 2005, there were 8,602,424 shares reserved for future issuances.

During fiscal 2000, we established an Employee Stock Purchase Plan for employees in the United Kingdom. Under the plan, all eligible employees may purchase our common stock at the lower of the closing price on the New York Stock Exchange on the first or last day of the six-month purchase period. We provide a match of one share for every seven shares purchased. Employees pay for their stock purchases through payroll deductions from £10 to £125 per month, not to exceed the lesser of either £750 per each six-month purchase period or 10 percent of gross annual base salary per tax year. At January 29, 2005, £1 was equivalent to $1.89. There were 16,597, 23,371 and 29,740 shares issued under the plan during fiscal 2004, 2003 and 2002, respectively. All shares were issued from treasury stock. At January 29, 2005, there were 905,256 shares reserved for future issuances.