Exhibit
10.3


 


RESTORATION
HARDWARE, INC.

NOTICE OF GRANT OF STOCK OPTION


 


Notice is hereby given of
the following option grant (the “Option”) to purchase shares of Common Stock of
Restoration Hardware, Inc. (the “Corporation”):


 


	
  Optionee:

  	
  Gary G. Friedman

  
	
   

  	
   

  
	
  Grant Date:

  	
  February 5, 2004

  
	
   

  	
   

  
	
  Vesting Commencement
  Date:

  	
  February 5, 2004

  
	
   

  	
   

  
	
  Exercise Price:

  	
  $4.50

  
	
   

  	
   

  
	
  Number of Option
  Shares:

  	
  411,112

  
	
   

  	
   

  
	
  Expiration Date:

  	
  February 4, 2014

  
	
   

  	
   

  
	
  Type of Option:

  	
  Non Statutory Option

  



 


Exercise Schedule:  The Option shall become exercisable for
twenty-five percent (25%) of the Option Shares upon Optionee’s completion of
each of the four (4) years of Service measured from and after the Vesting
Commencement Date, with the first such installment to become exercisable on the
first anniversary of the Vesting Commencement Date.  In no event shall the Option become exercisable for any
additional Option Shares after Optionee’s cessation of Service.


 


Optionee understands and
agrees that the Option is granted subject to and in accordance with the terms
of the Restoration Hardware, Inc. 1998 Stock Incentive Plan Amended and
Restated on October 9, 2002 (the “Plan”). 
Optionee further agrees to be bound by the terms of the Plan and the terms
of the Option as set forth in the Stock Option Agreement attached hereto as Exhibit A.  A copy of the Plan is available upon request
made to the Secretary of the Corporation at the Corporation’s principal
offices.


 


No Employment or
Service Contract. 
Nothing in this notice or in the attached Stock Option Agreement or in
the Plan shall confer upon Optionee any right to continue in Service for any
period of specific duration or interfere with or otherwise restrict in any way
the rights of the Corporation (or any Parent or Subsidiary employing or retaining
Optionee) or of Optionee, which rights are hereby expressly reserved by each,
to terminate Optionee’s Service at any time for any reason, with or without
cause.


 

















 


Definitions.  All capitalized terms in this notice shall
have the meaning assigned to them in this notice or in the attached Stock
Option Agreement.


 


DATED:
                                                ,
2004


 


	
   

  	
  RESTORATION HARDWARE, INC.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Patricia McKay

  	
   

  
	
   

  	
   

  
	
   

  	
  Title:

  	
    CFO

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  /s/ Gary G. Friedman

  	
   

  
	
   

  	
  Gary G. Friedman, Optionee

  
	
   

  	
   

  
	
   

  	
  Address:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
							



 


 


ATTACHMENTS


Exhibit A - Stock Option Agreement


 

















 


RESTORATION
HARDWARE, INC.

STOCK OPTION AGREEMENT


 


RECITALS


 


A.    The Board
has adopted the Plan for the purpose of retaining the services of selected
Employees, non-employee members of the Board or of the board of directors of
any Parent or Subsidiary and consultants and other independent advisors who
provide services to the Corporation (or any Parent or Subsidiary).


 


B.    Optionee is
to render valuable services to the Corporation (or a Parent or Subsidiary), and
this Agreement is executed pursuant to, and is intended to carry out the
purposes of, the Plan in connection with the Corporation’s grant of an option
to Optionee.


 


C.    All
capitalized terms in this Agreement shall have the meaning assigned to them in
the attached Appendix.


 


NOW, THEREFORE, it
is hereby agreed as follows:


 


1.     Grant of
Option.  The Corporation
hereby grants to Optionee, as of the Grant Date, an option to purchase up to
the number of Option Shares specified in the Grant Notice.  The Option Shares shall be purchasable from
time to time during the option term specified in Paragraph 2 below at the
Exercise Price.


 


2.     Option
Term.  This option shall
have a maximum term of ten (10) years measured from the Grant Date and
shall accordingly expire at the close of business on the Expiration Date,
unless sooner terminated in accordance with Paragraph 5 or 6 below.


 


3.     Limited
Transferability.  This
option shall be neither transferable nor assignable by Optionee other than by
will or by the laws of descent and distribution following Optionee’s death and
may be exercised, during Optionee’s lifetime, only by Optionee.  However, if this option is designated a
Non-Statutory Option in the Grant Notice, then this option may, in connection
with the Optionee’s estate plan, be assigned in whole or in part during
Optionee’s lifetime to one or more members of the Optionee’s immediate family
or to a trust established for the exclusive benefit of the Optionee and/or one
or more such family members.  The
assigned portion shall be exercisable only by the person or persons who acquire
a proprietary interest in the option pursuant to such assignment.  The terms applicable to the assigned portion
shall be the same as those in effect for this option immediately prior to such
assignment.


 


4.     Date of
Exercise.  This option
shall become exercisable for the Option Shares in one or more installments as
specified in the Grant Notice.  As the
option becomes exercisable for such installments, those installments shall
accumulate and the option shall remain exercisable for the accumulated
installments until the Expiration Date or sooner termination of the option term
under Paragraph 5 or 6 below.


 

















 


5.     Cessation
of Service.  The option
term specified in Paragraph 2 above shall terminate (and this option shall
cease to be outstanding) prior to the Expiration Date should any of the
following provisions become applicable:


 


(a)   Should
Optionee cease to remain in Service for any reason (other than death,
Disability or Cause) while this option is outstanding, then the period for
exercising this option shall be reduced to a three (3)-month period
commencing with the date of such cessation of Service, but in no event shall
this option be exercisable at any time after the Expiration Date.


 


(b)   Should
Optionee die while holding this option, then the personal representative of
Optionee’s estate or the person or persons to whom the option is transferred
pursuant to Optionee’s will or in accordance with the laws of inheritance shall
have the right to exercise this option. 
Such right shall lapse, and this option shall cease to be outstanding,
upon the earlier of (i) the expiration of the
twelve (12)-month period measured from the date of Optionee’s death or
(ii) the Expiration Date.


 


(c)   Should
Optionee cease Service by reason of Disability while this option is
outstanding, then the period for exercising this option shall be reduced to a
twelve (12)-month period commencing with the date of such cessation of
Service, but in no event shall this option be exercisable at any time after the
Expiration Date.


 


(d)   During the
limited period of post-Service exercisability, this option may not be exercised
in the aggregate for more than the number of vested Option Shares for which the
option is exercisable at the time of Optionee’s cessation of Service.  Upon the expiration of such limited exercise
period or (if earlier) upon the Expiration Date, this option shall terminate
and cease to be outstanding for any otherwise exercisable Option Shares for
which the option has not been exercised. 
However, this option shall, immediately upon Optionee’s cessation of
Service for any reason, terminate and cease to be outstanding with respect to
any Option Shares for which this option is not otherwise at that time
exercisable.


 


(e)   Should
Optionee’s Service be terminated for Cause, then this option shall terminate
immediately and cease to remain outstanding.


 


6.     Special
Acceleration of Option.


 


(a)   Change
in Control.


 


(i)            This
option to the extent outstanding at the time of a Change in Control transaction
but not otherwise fully exercisable, shall automatically accelerate so that
this option shall, immediately prior to the effective date of such Change in
Control, become exercisable for all of the Option Shares at the time subject to
this option and may be exercised for any or all of those Option Shares as fully
vested shares of Common Stock.


 


2

















 


(ii)           Immediately
following the Change in Control, this option shall terminate and cease to be
outstanding, except to the extent assumed by the successor corporation (or
parent thereof) or otherwise continued in full force and effect pursuant to the
terms of the Change in Control transaction.


 


(iii)          If
this option is assumed in connection with a Change in Control (or otherwise
continued in full force and effect), then this option shall be appropriately
adjusted, immediately after such Change in Control, to apply to the number and
class of securities or other property which would have been issuable to
Optionee in consummation of such Change in Control had the option been
exercised immediately prior to such Change in Control, and appropriate
adjustments shall also be made to the Exercise Price, provided the
aggregate Exercise Price shall remain the same.


 


(b)   Termination
of Service Not for Cause.  In the
event the Optionee’s Service is terminated (i) by the Corporation Not for
Cause or (ii) by the Optionee for Good Reason at any time prior to a
Change in Control, this option automatically shall become vested and
exercisable immediately prior to such termination of Service for all of the
Option Shares at the time represented by this option.


 


(c)   This
Agreement shall not in any way affect the right of the Corporation 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.


 


7.     Adjustment
in Option Shares.


 


Should any change be made
to Common Stock by reason of any stock split, stock dividend, recapitalization,
combination of shares, exchange of shares or other change affecting the
outstanding Common Stock as a class without the Corporation’s receipt of
consideration, appropriate adjustments shall be made to (i) the total
number and/or class of securities subject to this option and (ii) the
Exercise Price in order to reflect such change and thereby preclude a dilution
or enlargement of benefits hereunder.


 


8.     Stockholder
Rights.  The holder of
this option shall not have any stockholder rights with respect to the Option
Shares until such person shall have exercised the option, paid the Exercise
Price and become a holder of record of the purchased shares.


 


9.     Manner of
Exercising Option.


 


(a)   In order to
exercise this option with respect to all or any part of the Option Shares for
which this option is at the time exercisable, Optionee (or any other person or
persons exercising the option) must take the following actions:


 


(i)            Execute
and deliver to the Corporation a Notice of Exercise for the Option Shares for
which the option is exercised;


 


3

















 


(ii)           Pay
the aggregate Exercise Price for the purchased shares in one or more of the
following forms, subject to Applicable Laws:


 


(A)  Cash or
check made payable to the Corporation; or


 


(B)   Shares of
Common Stock held by Optionee (or any other person or persons exercising the
option) for the requisite period necessary to avoid a charge to the Corporation’s
earnings for financial reporting purposes and valued at their Fair Market Value
on the Exercise Date; or


 


(C)   Through a
special sale and remittance procedure pursuant to which Optionee (or any other
person or persons exercising the option) shall concurrently provide irrevocable
instructions (I) to a Corporation-designated brokerage firm to effect the
immediate sale of the purchased shares and remit to the Corporation, out of the
sale proceeds available on the settlement date, sufficient funds to cover the
aggregate Exercise Price payable for the purchased shares plus all applicable
federal, state and local income and employment taxes required to be withheld by
the Corporation by reason of such exercise and (II) to the Corporation to
deliver the certificates for the purchased shares directly to such brokerage
firm in order to complete the sale.


 


Except to the extent the
sale and remittance procedure is utilized in connection with the option
exercise, payment of the Exercise Price must accompany the Notice of Exercise
delivered to the Corporation in connection with the option exercise;


 


(iii)          Furnish
to the Corporation appropriate documentation that the person or persons
exercising the option (if other than Optionee) have the right to exercise this
option; and


 


(iv)          Make
appropriate arrangements with the Corporation (or Parent or Subsidiary
employing or retaining Optionee) for the satisfaction of all federal, state and
local income and employment tax withholding requirements applicable to the
option exercise.


 


(b)   As soon as
practical after the Exercise Date, the Corporation shall issue to or on behalf
of Optionee (or any other person or persons exercising this option) a
certificate for the purchased Option Shares, with the appropriate legends, if
any, affixed thereto.


 


(c)   In no event
may this option be exercised for any fractional shares of Common Stock.


 


10.   Compliance
with Laws and Regulations.


 


(a)   The
exercise of this option and the issuance of the Option Shares upon such
exercise shall be subject to compliance by the Corporation and Optionee with
all applicable requirements of law relating thereto and with all applicable 


 


4

















 


regulations
of any stock exchange (or the Nasdaq National Market, if applicable) on which
Common Stock may be listed for trading at the time of such exercise and
issuance.


 


(b)   The
inability of the Corporation to obtain approval from any regulatory body having
authority deemed by the Corporation to be necessary to the lawful issuance and
sale of any Common Stock pursuant to this option shall relieve the Corporation
of any liability with respect to the non-issuance or sale of Common Stock as to
which such approval shall not have been obtained.  The Corporation, however, shall use its best efforts to obtain
all such approvals.


 


11.   Successors
and Assigns.  Except to
the extent otherwise provided in Paragraphs 3 and 6 above, the provisions
of this Agreement shall inure to the benefit of, and be binding upon, the
Corporation and its successors and assigns and Optionee, Optionee’s assigns and
the legal representatives, heirs and legatees of Optionee’s estate.


 


12.   Notices.  Any notice required to be given or delivered
to the Corporation under the terms of this Agreement shall be in writing and
addressed to the Corporation at its principal corporate offices.  Any notice required to be given or delivered
to Optionee shall be in writing and addressed to Optionee at the address
indicated below Optionee’s signature line on the Grant Notice.  All notices shall be deemed effective upon
personal delivery or upon deposit in the U.S. mail, postage prepaid and
properly addressed to the party to be notified.


 


13.   Construction.  This Agreement and the option evidenced
hereby are made and granted pursuant to the Plan and are in all respects
limited by and subject to the terms of the Plan.  All decisions of the Plan Administrator with respect to any
question or issue arising under the Plan or this Agreement shall be conclusive
and binding on all persons having an interest in this option.  For purposes of this Agreement, whenever the
context requires, the singular number shall include the plural, and vice versa.


 


14.   Governing
Law.  The interpretation,
performance and enforcement of this Agreement shall be governed by the laws of
the State of California without resort to that State’s conflict-of-laws rules.


 


15.   Excess
Shares.  If the Option
Shares covered by this Agreement exceed, as of the Grant Date, the number of
shares of Common Stock which may without stockholder approval be issued under
the Plan, then this option shall be void with respect to those excess shares,
unless stockholder approval of an amendment sufficiently increasing the number
of shares of Common Stock issuable under the Plan is obtained in accordance
with the provisions of the Plan.


 


5

















 


EXHIBIT
I

NOTICE OF EXERCISE


 


I hereby notify
Restoration Hardware, Inc. (the “Corporation”) that I elect to purchase
                        
shares of the Corporation’s common stock (the “Purchased Shares”) at the option
exercise price of
$                      
per share (the “Exercise Price”) pursuant to that certain option (the “Option”)
granted to me on February 5, 2004 under the Corporation’s 1998 Stock
Incentive Plan Amended and Restated on October 9, 2002.


 


Concurrently with the
delivery of this Exercise Notice to the Corporation, I shall hereby pay to the
Corporation the Exercise Price for the Purchased Shares in accordance with the
provisions of my agreement with the Corporation (or other documents) evidencing
the Option and shall deliver whatever additional documents may be required by
such agreement as a condition for exercise. 
Alternatively, I may utilize the special broker-dealer sale and remittance
procedure specified in my agreement to effect payment of the Exercise Price.


 


 


                                          ,
20    


Date


 


	
   

  	
   

  	
   

  
	
   

  	
  Optionee

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Address:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Print name in exact
  manner

  it is to appear on the

  stock certificate:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Address to which
  certificate

  is to be sent, if different

  from address above:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Social Security Number:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Employee Number:

  	
   

  	
   

  
				



 

















 


APPENDIX


 


The following definitions
shall be in effect under the Agreement:


 


A.            Agreement shall mean this Stock Option
Agreement.


 


B.            Applicable Laws shall mean the legal
requirements relating to the administration of stock option plans, if any,
under applicable provisions of federal securities laws, state corporate and
securities laws, the Code, the rules of any applicable stock exchange or
national market system, and the rules of any foreign jurisdiction applicable to
the granting of stock options and the issuance of shares of Common Stock to
residents therein.


 


C.            Board shall mean the Corporation’s
Board of Directors.


 


D.            Cause shall mean a termination of
Service if the Optionee has been convicted of a felony involving fraud,
dishonesty, or physical harm to any person, or the termination is evidenced by
a resolution adopted in good faith by two-thirds of the Board to the effect
that the Optionee (i) intentionally and continually failed substantially to
perform the Optionee’s reasonably assigned duties with the Corporation (other
than a failure resulting from the Optionee’s incapacity due to physical or mental
illness or from the Optionee’s assignment of duties that would constitute Good
Reason (as defined below)), which failure continued for a period of at least
thirty (30) days after a written notice of demand for substantial performance
has been delivered to the Optionee specifying the manner in which the Optionee
has failed substantially to perform, or (ii) intentionally engaged in conduct
which is demonstrably and materially injurious to the Corporation; provided,
that no termination of the Optionee’s employment shall be for Cause as set
forth in clause (ii) above until (a) there shall have been delivered to the
Optionee a copy of a written notice setting forth that the Optionee was guilty
of the conduct set forth in clause (ii) and specifying the particulars thereof
in detail, and (b) the Optionee shall have been provided an opportunity to be
heard in person by the Board (with the assistance of the Optionee’s counsel if
the Optionee so desires). No act, nor failure to act, on the Optionee’s part
shall be considered “intentional” unless the Optionee has acted, or failed to
act, with a lack of good faith and with a lack of reasonable belief that the
Optionee’s action or failure to act was in the best interest of the
Corporation.


 


E. Change in Control
shall mean any of the following:


 


(a) An acquisition (other
than directly from the Corporation) of any voting securities of the Corporation
(the “Voting Securities”) by any Person (as the term “person” is used for
purposes of Section 13 or 14 of 1934 Act) immediately after which such Person
has Beneficial Ownership (as the term “beneficial ownership” is defined under
Rule 13d-3 promulgated under the 1934 Act) of fifty percent (50%) or more of
the combined voting power of the Corporation’s then outstanding Voting Securities;
provided, that in determining whether a Change in Control has occurred, Voting
Securities which are acquired in a Non-Control Acquisition (as hereinafter
defined) shall


 


A-1

















 


not constitute an acquisition which would cause a Change in Control. A
“Non-Control Acquisition” shall mean an acquisition by (i) an employee benefit
plan (or a trust forming a part thereof) maintained by (1) the Corporation or
(2) any corporation or other Person of which a majority of its voting power or
its equity securities or equity interest is owned directly or indirectly by the
Corporation (a “Non-Change Subsidiary”), (ii) the Corporation or any Non-Change
Subsidiary, or (iii) any Person in connection with a Non-Control Transaction
(as hereinafter defined);


 


(b) The individuals who,
as of February 5, 2004, are members of the Board (the “Incumbent Board”),
cease for any reason to constitute at least a majority of the Board; provided,
that if the appointment, election or nomination for election by the
Corporation’s stockholders of any new director was approved by a vote of at
least two-thirds of the Incumbent Board, such new director shall, for purposes
of this Agreement, be considered a member of the Incumbent Board; and provided,
further, that no individual shall be considered a member of the Incumbent Board
if such individual initially assumed office as a result of either an actual or
threatened “election contest” (involving a solicitation subject to Rule 14a-1
to Rule 14a-10 under the 1934 Act by any person or group of persons for the
purpose of opposing a solicitation subject to Rule 14a-1 to Rule 14a-10 with
respect to the election or removal of directors at any annual or special
meeting of security holders) or other actual or threatened solicitation of
proxies or consents by or on behalf of a Person other than the Board (a “Proxy
Contest”) including by reason of any agreement intended to avoid or settle any
Election Contest or Proxy Contest;


 


(c) A merger,
consolidation or reorganization involving the Corporation, unless such merger,
consolidation or reorganization satisfies the conditions set forth in clauses
(1) and (2) below (any transaction(s) meeting the requirements of clauses (1)
and (2) below being referred to herein as “Non-Control Transactions”):


 


(1) the stockholders of
the Corporation immediately before such merger, consolidation or reorganization
own, directly or indirectly, immediately following such merger, consolidation
or reorganization, at least fifty percent (50%) of the combined voting power of
the outstanding voting securities of the corporation resulting from such
merger, consolidation or reorganization (the “Surviving Corporation”) in
substantially the same proportion as their ownership of the Voting Securities
immediately before such merger, consolidation or reorganization; and


 


(2) the individuals who
were members of the Incumbent Board immediately prior to the execution of the
agreement providing for such merger, consolidation or reorganization constitute
at least a majority of the members of the board of directors of the Surviving
Corporation;


 


(d) A complete
liquidation or dissolution of the Corporation; or


 


A-2

















 


(e) An agreement for the
sale or other disposition of all or substantially all of the assets of the
Corporation to any Person (other than a transfer to a Non-Change Subsidiary);
and


 


(f) Any other event that
at least two-thirds of the Incumbent Board in its sole discretion shall
determine constitutes a Change in Control.


 


Notwithstanding the
foregoing, a Change in Control shall not be deemed to occur solely because any
Person (the “Subject Person”) acquired Beneficial Ownership of more than the
permitted amount of the outstanding Voting Securities as a result of the
acquisition of Voting Securities by the Corporation which, by reducing the
number of Voting Securities outstanding, increases the proportional number of
shares Beneficially Owned by the Subject Person; provided, that if a Change in
Control would occur (but for the operation of this sentence) as a result of the
acquisition of Voting Securities by the Corporation, and after such share
acquisition by the Corporation the Subject Person becomes the Beneficial Owner
of any additional Voting Securities which increases the percentage of the then
outstanding Voting Securities Beneficially Owned by the Subject Person, then a
Change in Control shall occur; provided further that no Change in Control shall
be deemed to have occurred under (a) or (c) above merely because individuals
and entities who, individually, as of the date of February 5, 2004 have
Beneficial Ownership of at least 5% of the Voting Securities have, immediately
after the transaction described in (a) or (c) above, Beneficial Ownership, in
the aggregate, of more than 50% of the Voting Securities of the Corporation or
successor or parent thereof if both (i) no one such individual or entity has,
immediately after such a transaction, Beneficial Ownership of more than 50% and
(ii) the transaction does not result in the Corporation or successor or parent
thereof becoming a private company.


 


Notwithstanding anything to the contrary in the Agreement, if the
Optionee’s Service is terminated prior to a Change in Control and the Board
determines that such termination (i) was at the request of a third party who
has indicated an intention or taken steps reasonably calculated to effect a
Change in Control and who subsequently effectuates a Change in Control or (ii)
otherwise occurred in connection with, or in anticipation of, a Change in
Control which actually occurs, then, for all purposes of the Agreement, the
date of a Change in Control with respect to the Optionee shall mean the date
immediately prior to the date of such termination of the Optionee’s Service.


 


F.             Code shall mean the Internal Revenue
Code of 1986, as amended.


 


G.            Common Stock shall mean shares of the
Corporation’s common stock.


 


H.            Compensation and Severance Agreement
shall mean the compensation and severance agreement entered into between the
Optionee and the Corporation, as amended and restated effective as of
February 5, 2004.


 


A-3

















 


I.              Corporation shall mean Restoration
Hardware, Inc., a Delaware corporation.


 


J.             Disability shall mean as defined in the
Compensation and Severance Agreement as of February 5, 2004 without regard
to any subsequent amendment of the Compensation and Severance Agreement.


 


K.            Employee shall mean an individual who
is in the employ of the Corporation (or any Parent or Subsidiary), subject to
the control and direction of the employer entity as to both the work to be
performed and the manner and method of performance.


 


L.             Exercise Date shall mean the date on
which the option shall have been exercised in accordance with Paragraph 9
of the Agreement.


 


M.           Exercise Price shall mean the exercise
price per Option Share as specified in the Grant Notice.


 


N.            Expiration Date shall mean the date on
which the option expires as specified in the Grant Notice.


 


O.            Fair Market Value per share of Common
Stock on any relevant date shall be determined in accordance with the following
provisions:


 


(a)           If Common Stock is at the time traded
on the Nasdaq National Market, then the Fair Market Value shall be deemed equal
to the closing selling price per share of Common Stock on the date in question,
as the price is reported by the National Association of Securities Dealers on
the Nasdaq National Market.  If there is
no closing selling price for Common Stock on the date in question, then the
Fair Market Value shall be the closing selling price on the last preceding date
for which a closing selling price is reported; or


 


(b)           If Common Stock is at the time listed
on any Stock Exchange, then the Fair Market Value shall be deemed equal to the
closing selling price per share of Common Stock on the date in question on the
Stock Exchange determined by the Plan Administrator to be the primary market
for Common Stock, as such price is officially quoted in the composite tape of
transactions on such exchange.  If there
is no closing selling price for Common Stock on the date in question, then the
Fair Market Value shall be the closing selling price on the last preceding date
for which such quotation exists.


 


P.             Good Reason shall mean as defined in the
Compensation and Severance Agreement as of February 5, 2004 without regard
to any subsequent amendment Compensation and Severance Agreement.


 


Q.            Grant
Date shall mean the date of grant of the option as specified in
the Grant Notice.


 


A-4

















 


R.            Grant Notice shall mean the Notice of
Grant of Stock Option accompanying the Agreement, pursuant to which Optionee
has been informed of the basic terms of the option evidenced hereby.


 


S.             1934 Act shall mean the Securities
Exchange Act of 1934, as amended.


 


T.            Non-Statutory Option shall mean an
option not intended to satisfy the requirements of Section 422 of the
Code.


 


U.            Not for Cause shall mean termination of
the Optionee’s Service by the Corporation for reasons other than for Cause.


 


V.            Notice of Exercise shall mean the
notice of exercise in the form attached hereto as Exhibit I.


 


W.           Option Shares shall mean the number of
shares of Common Stock subject to the option as specified in the Grant Notice.


 


X.            Optionee shall mean the person to whom
the option is granted as specified in the Grant Notice.


 


Y.            Parent shall mean any corporation
(other than the Corporation) in an unbroken chain of corporations ending with
the Corporation, provided each corporation in the unbroken chain (other than
the Corporation) owns, at the time of the determination, stock possessing fifty
percent (50%) or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain.


 


Z.            Plan shall mean the Corporation’s 1998
Stock Incentive Plan Amended and Restated on October 9, 2002.


 


AA.        Plan Administrator shall mean either
the Board or a committee of the Board acting in its capacity as administrator
of the Plan.


 


BB.          Service shall mean the Optionee’s
performance of services for the Corporation (or any Parent or Subsidiary) in
the capacity of an Employee, a non-employee member of the board of directors or
a consultant or independent advisor.


 


CC.          Stock Exchange shall mean the American
Stock Exchange or the New York Stock Exchange.


 


DD.         Subsidiary shall mean any corporation
(other than the Corporation) in an unbroken chain of corporations beginning
with the Corporation, provided each corporation (other than the last
corporation) in the unbroken chain owns, at the time of the determination,
stock possessing fifty percent (50%) or more of the total combined voting power
of all classes of stock in one of the other corporations in such chain.


 


A-5