Exhibit 10.3


 


Clayton Holdings, Inc.


2 Corporate Drive


Shelton, Connecticut 06484


 


December 21, 2007


 


Frederick C. Herbst


Chief Financial Officer


c/o
Clayton Holdings, Inc.


2
Corporate Drive


Shelton, Connecticut 06484


 


Re:          Restricted
Stock Award


 


Dear Mr. Herbst:


 


The compensation committee of Clayton Holdings, Inc.
(“Clayton”) wishes to award you (the “Executive”) 189,724 shares of Clayton’s common stock, par
value $0.01 per share (“Common Stock”),
subject to time-based vesting criteria (the “Restricted
Shares”).  However, Clayton’s
compensation committee has determined that the quantity of shares of Common
Stock currently reserved under its 2006 Stock Option and Incentive Plan (the “2006 Plan”) renders it not in Clayton’s best interest to
award you the Restricted Shares today.


 


Clayton will ask its stockholders to approve an
increase to the number of shares of Common Stock reserved under the 2006 Plan
(the “Proposal”) at the annual meeting of its
stockholders in 2008 (the “2008 Annual Meeting”).  If the Proposal is approved at the 2008
Annual Meeting and you remain employed by Clayton as of such date, Clayton will
issue you the Restricted Shares pursuant to the terms of its form restricted
stock award agreement, a completed copy of which is attached hereto as Exhibit A
(the “Agreement”), on the date of the 2008
Annual Meeting.


 


As indicated in the attached Agreement, the
Restricted Shares, when issued, shall vest and no longer be subject to the
restrictions and conditions in Paragraph 2 of the Agreement on the Vesting
Dates specified in the following schedule so long as you remain an employee of
Clayton on such Vesting Dates.


 


	
  Number of

  	
   

  	
   

  
	
  Shares Vested

  	
   

  	
  Vesting Date

  
	
   

  	
   

  	
   

  
	
  47,431

  	
  (25)%

  	
   

  	
  June 15, 2008

  
	
   

  	
   

  	
   

  	
   

  
	
  47,431

  	
  (25)%

  	
   

  	
  December 15, 2008

  
	
   

  	
   

  	
   

  	
   

  
	
  47,431

  	
  (25)%

  	
   

  	
  June 15, 2009

  
	
   

  	
   

  	
   

  	
   

  
	
  47,431

  	
  (25)%

  	
   

  	
  December 15, 2009

  



 


If the Proposal is not
approved at the 2008 Annual Meeting, then as soon as practicable following each
Vesting Date, Clayton will pay you cash in lieu of the Restricted Shares in an
amount equal to the value of the aggregate number of Restricted Shares that
would have vested pursuant to the Agreement (as if the Restricted Shares had
been granted) on such Vesting Date, based on the closing price of a share of
common stock of Clayton on such Vesting Date. 
Alternatively, at the sole discretion of Clayton, to the 


 

















 


extent there are sufficient shares of Common Stock
available under the 2006 Plan, Clayton may issue a combination of Restricted
Shares and cash in lieu to satisfy its obligations under this Letter.


 


If a Sale Event (as such
term is defined in the 2006 Plan) closes prior to the 2008 Annual Meeting,
Clayton will pay you upon such closing, cash in lieu of all of the Restricted
Shares, at a per share price equal to the per share value of the consideration
paid in such Sale Event.  If the Proposal
is not approved at the 2008 Annual Meeting, and a Sale Event closes prior to
the cash in lieu payment being made in respect of the final Vesting Date,
Clayton will pay you upon such closing, cash in lieu of the aggregate number of
Restricted Shares for which cash in lieu payments have not been made in respect
of any earlier Vesting Dates, at a per share price equal to the per share value
of the consideration paid in such Sale Event.


 


If your employment with Clayton
is terminated prior to the issuance of the Restricted Shares either by Clayton
for any reason other than for Cause (as such term is defined in the Agreement)
or by you for Good Reason (as such term is defined in the Agreement), Clayton
will pay you cash in lieu of the Restricted Shares in an amount equal to the
value of the aggregate number of Restricted Shares that would have vested
pursuant to the Agreement (as if the Restricted Shares had been granted) on the
next two (2) Vesting Dates, based on the closing price of a share of
common stock of Clayton on such date of termination.


 


You shall, not later than
the date as of which the receipt of the Restricted Shares or cash in lieu
payments becomes a taxable event for Federal income tax purposes, pay to Clayton
or make arrangements satisfactory to Clayton for payment of any Federal, state,
and local taxes required by law to be withheld on account of such taxable
event.


 


Any consideration due to
Clayton on the issuance of the Restricted Shares has been deemed to be
satisfied by past services rendered by you to Clayton.  Clayton is not obligated by or as a result of
the 2006 Plan or this Letter to continue you in employment and neither the 2006
Plan nor this Letter shall interfere in any way with the right of Clayton to
terminate your employment at any time.


 


If the Restricted Shares are
granted to you pursuant to this Letter, the Agreement shall supersede this
Letter and this Letter shall terminate and be of no further force or effect.


 


	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  Regards,

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  /s/ Steven L. Cohen

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  Steven L. Cohen

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  Senior V.P. and General
  Counsel

  
										



 


The foregoing Letter is hereby accepted and the
terms and conditions thereof hereby agreed to by the undersigned.


 


	
  Dated: December 27,
  2007

  	
  Executive’s Signature

  
	
   

  	
   

  
	
   

  	
  /s/ Frederick C. Herbst

  	
   

  
	
   

  	
   

  
	
   

  	
  Executive’s name and
  address:

  
	
   

  	
            

  	
   

  
	
   

  	
            

  	
   

  
				



 


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