Gap (GPS)

Our IT services agreement with IBM could cause disruptions in our operations and have an adverse effect on our financial results.

We have entered into the fourth year of a ten-year non-exclusive services agreement with IBM under which IBM operates certain significant aspects of our information technology infrastructure. Under the original agreement, this included supporting our mainframe, server, network and data center, and store operations, as well as help desk, end user support, and some disaster recovery. The agreement was amended effective March 2, 2009 to return to us certain services originally performed by IBM under the agreement. These returned services include services related to management of our server and data center environment, along with disaster recovery. All other

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services remain with IBM per the original agreement. Our ability to realize the expected benefits of this arrangement is subject to various risks, some of which are not within our complete control. These risks include, but are not limited to, disruption in services, and the failure to protect the security and integrity of the Company’s data under the terms of the agreement. We are unable to provide assurances that some or all of these risks will not occur. Failure to effectively mitigate these risks if they occur could have a material adverse effect on our operations and financial results.

Our IT services agreement with IBM could cause disruptions in our operations and an adverse effect on our financial results.

We have entered into the third year of a ten-year non-exclusive services agreement with IBM under which IBM operates certain significant aspects of our information technology infrastructure, including supporting our mainframe, server, network and data center, and store operations, as well as help desk, end user support, and some disaster recovery. Under this agreement, we expect to continue to enhance the capabilities of and level of service realized from our technology infrastructure, while reducing the costs associated with these functions over

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time. However, our ability to realize the expected benefits of this arrangement is subject to various risks, some of which are not within our complete control. These risks include disruption in services, the inability to quickly respond to changes in technology, and the failure to protect the security and integrity of the Company’s data under the terms of the agreement. We are unable to provide assurances that some or all of these risks will not occur. Failure to effectively mitigate these risks if they occur could have a material adverse effect on our operations and financial results. However, we are actively managing the framework of the agreement to align it with our evolving business needs, which include financial benchmarking, in-sourcing, and adjusting service levels as appropriate.

Our IT services agreement with IBM could cause disruptions in our operations and an adverse effect on our financial results.

Our IT services agreement with IBM could cause disruptions in our operations and an adverse effect on our financial results.

In January 2006, we entered into a non-exclusive services agreement with International Business Machines Corporation (“IBM”) under which IBM operates certain significant aspects of our information technology infrastructure that historically were operated by us, including technology services supporting our mainframe, server, network and data center, and store operations, as well as help desk, end user support, and some disaster recovery services. We started transitioning these services to IBM in March 2006 and completed the transition in late July 2006. In the period immediately following the completion of transition we experienced some delayed response to normal technology operation issues. As a result, process and procedural changes were made, which resulted in stable technology operations environment and no disruption during the peak holiday period, but there is no guarantee that we will not experience additional disruptions in the future as a result of this transition. Under this agreement, we expect to continue to enhance the capabilities of and level of service realized from our technology infrastructure, while reducing the costs associated with these functions over time. However, our ability to realize the expected benefits of this arrangement is subject to various risks, some of which are not within our complete control. These risks include the risk that IBM will not be able to provide the anticipated levels of service on an ongoing basis or as our business changes over time, and the risk that IBM will be unable to maintain the security and integrity of the Company’s data under the terms of the agreement. In addition, although there are certain pricing protections built into the services agreement, there is a risk that our costs under this arrangement, including the amounts that we are obligated to pay IBM, will exceed the costs that we would have incurred if we had not entered into this arrangement. We are unable to provide assurances that some or all of these risks will not occur, in particular, because we do not have experience outsourcing these aspects of our technology infrastructure. Failure to effectively mitigate these risks if they occur could have a material adverse effect on our operations and financial results.

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