Gap (GPS)

Grant Practices

It has been our practice to grant long-term incentives to executives on an annual basis, usually in the first quarter of each fiscal year. This timing was selected because it follows the release of our annual financial results and completion of annual performance reviews. We also grant long-term incentives on other dates to newly hired executives and periodically in connection with promotions or for special recognition and retention. We do not time equity grants in connection with the release of material non-public information. Grants are typically approved by the Committee at a meeting and are effective on the meeting date or, if approved by unanimous written consent, the date of the last signature on the consent. However, the effective date for new hires is no earlier than the first day of employment. Grants to employees below the Vice President level are approved by the CEO or Committee Chair on a monthly basis using authority delegated from the Committee, typically for new employees hired in the prior month.

All stock options granted to employees during fiscal 2008 had an exercise price equal to the closing price of our stock on the date of grant.

Stock options typically vest based on continued service at a rate of 25% annually beginning one year from the grant date, which we have determined helps meet our retention objectives. We have used other vesting schedules to align with timing of compensation being forfeited at a prior employer or to align with critical retention periods. Executives must be employed on the vesting date to exercise stock options. Stock options are typically granted for a maximum term of ten years and vested options are exercisable for three months following employment termination. Vesting is generally accelerated upon death or retirement if the stock options are held for at least one year.

Stock units that are granted to executives have in most cases been scheduled to vest over three years, but the schedule may differ based on critical retention or performance periods, or the vesting of compensation being forfeited at a prior employer. Executives must be employed on the vesting date or awards are forfeited. Vesting is generally accelerated upon death or retirement if the awards are held for at least one year and any performance conditions have been previously satisfied.

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Grant Practices

It has been our practice to grant long-term incentives to executives on an annual basis, usually in the first quarter of each fiscal year. This timing was selected because it follows the release of our annual financial results and completion of annual performance reviews. We also grant stock options and other equity awards on other dates to newly hired executives and periodically in connection with promotions or to ensure retention. We do not time equity grants in connection with the release of material non-public information. Grants are typically approved by the Committee at a scheduled meeting with an effective date equal to the meeting date or, if in the future, the hire date in the case of new employees. Rarely, grants are approved by unanimous written consent with an effective date equal to the later of the date of the last signature on the consent or the first day of employment if in the future. Grants to employees below the Vice President level are also approved by the CEO or Committee Chair on a monthly basis using authority delegated from the Committee, typically for newly hired employees in the prior month.

All stock options granted to employees during fiscal 2007 (other than premium-priced options granted to our CEO) had an exercise price equal to the closing price of our stock on the date of grant.

Stock options typically vest based on continued service at a rate of 25% annually beginning one year from the grant date, which we have determined is appropriate and helps meet our retention objectives. We have used other vesting schedules to align with vesting of compensation being forfeited at a prior employer or to align with critical retention periods. Executives must be employed on the vesting date to exercise stock options. Stock options are typically granted for a maximum term of ten years and vested options are exercisable for three months following employment termination. Vesting is generally accelerated upon death or retirement if the stock options are held for at least one year.

Stock units that are granted to executives have in most cases been scheduled to vest over three years, but the schedule may differ based on critical retention or performance periods, or the vesting of compensation being forfeited at a prior employer. Executives must be employed on the vesting date or awards are forfeited. Vesting is generally accelerated upon death or retirement if the awards are held for at least one year and any performance conditions have been previously satisfied.

Grant Practices

It has been our practice to grant stock options to executives on an annual basis, usually in the first quarter of each fiscal year. Performance stock awards are also granted in this timeframe. This timing was selected because it follows the release of our annual financial results and completion of our annual performance review process. Stock options granted as part of the annual performance review process during fiscal year 2006 had the same effective date as those granted to other employees. We also grant stock options and performance units on dates outside of the first quarter to newly hired executives and, from time to time, in connection with promotions or to ensure retention. Grants typically are approved under one of these scenarios:

We do not time stock option or performance unit grants in connection with the release of material non-public information.

Stock options granted during fiscal 2006 had an exercise price equal to the fair market value of our stock on the effective date of the grant. The fair market value was determined by the average of the high and low sales prices on the effective date of the grant. Beginning in fiscal 2007, the fair market value is determined using the closing price of the Company’s stock on the effective date of the grant to simplify the Company’s disclosure process.

Stock options typically are scheduled to vest based on continued service at a rate of 25% per year beginning one year from the date of grant, which we have determined is a common competitive practice. We have from time to time used other vesting schedules to align vesting of stock options with vesting of compensation being forfeited at a prior employer in the case of new executives, or to align with critical retention periods. Executives generally must be employed by the Company at the time of vesting to exercise their stock options. In general, stock options are granted for a maximum term of ten years and are subject to earlier cancellation three months following termination of employment. Vesting

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of all stock options is generally accelerated upon death or retirement if the stock options are held for at least one year.

The vesting schedule for performance units that are granted to executives for retention or to promote achievement of performance objectives have in most cases been scheduled to vest 50% two years from the grant date and 50% three years from the grant date, but are evaluated in each case based on critical retention or performance periods, or the vesting of compensation being forfeited at a prior employer. Executives generally must be employed by the Company on the vesting date or awards are forfeited. Vesting of performance units is generally accelerated upon death or retirement if the performance units are held for at least one year and any performance conditions have been previously satisfied.