Document:

<PAGE>

                                                                   Exhibit 10.12

December 19, 2001

Mr. Phillip Friedman

Re:  Silver Diner Stock Options
     --------------------------

Dear Mr. Friedman:

         You are the holder of options (the "Existing Stock Options") to
purchase shares of common stock of Silver Diner, Inc. (the "Company") as set
forth in Exhibit A attached hereto. The exercise price or prices of your
Existing Stock Options are higher than the current market value of the Company's
common stock. To address this issue, the Company and you have agreed to the
following:

         1. You will surrender those of your Existing Stock Options as you shall
indicate by writing "yes" in the box(es) provided in the right hand column of
the table on Exhibit A attached hereto.

         2. In exchange for such cancellation, the Company agrees to grant to
you, on July 31, 2002, provided you are then associated with the Company, new
options to purchase the Company's common stock (the "New Stock Options"). The
New Stock Options will (i) be for the same number of shares of stock as Existing
Stock Options that you surrender for cancellation, (ii) vest on the same dates
as the Existing Stock Options that you surrender for cancellation, and (iii) be
exercisable at a price equal to the market value of the Company's common stock
on July 31, 2002.

         I am pleased that the Company has been able to work out this
arrangement with you. Please sign below to confirm our agreement.

                                          Sincerely,

                                          /s/ Robert T. Giaimo
                                          ------------------------------
                                          Robert T. Giaimo, President

                                      -51-

<PAGE>

         The undersigned hereby agrees that the Existing Stock Options held by
the undersigned, as indicated on Exhibit A by the undersigned, are hereby
surrendered for cancellation.

         The undersigned further agrees to accept the New Stock Options to be
granted on July 31, 2002, and to be bound by the terms of the New Stock Option
Agreement which the Company will sign and deliver to you promptly after July 31,
2002. The New Stock Option Agreement will be in the form attached hereto as
Exhibit B, with the blanks filled in for the date, the number of shares covered,
the exercise price, and the exercise dates.

         Please sign below and complete Exhibit A and return this letter
together with Exhibit A to Mr. Noland Montgomery via fax at 202-857-6395, with
the original to follow by mail to the address below, on or before December 28,
2001:

         Mr. Noland Montgomery
         C/o Arent Fox
         1050 Connecticut Avenue, N.W.
         Washington, D.C.  20036-5339

/s/ Phillip Friedman
-----------------------------------------------------
[SIGNATURE OF OPTION HOLDER]

Phillip Friedman
--------------------------------------------
[PRINT NAME OF OPTION HOLDER]

                                      -52-

<PAGE>

                                                                       Exhibit A
                                                                       ---------

                                 Philip Friedman

                             1996 Stock Option Plan

<TABLE>
<CAPTION>

-----------------------------------------------------------------------------------------------------------------------
                                                                                                      Write "yes" or
         Shares                                                                                       "no" in each
       subject to                                                                                     box to indicate
         option                                                                                       whether you
    (all options are                                                                                  wish to cancel
   non-qualified stock       Exercise             Vesting                              Expiration     the options
       options)(*)             Price             Schedule            Grant Date           Date        indicated
-----------------------------------------------------------------------------------------------------------------------

<S>                          <C>                  <C>                 <C>               <C>               <C>

10,000                       $0.84375              Vested              12/22/98         12/31/05          YES
-----------------------------------------------------------------------------------------------------------------------
5,000                        $1.00                 Vested              12/08/99         12/31/05          YES
-----------------------------------------------------------------------------------------------------------------------
</TABLE>

(*) Does not include option for 22,717 shares, exercisable at $.003 per share,
granted under the Second Amended and Restated 1991 Stock Option Plan.

                                      -53-

<PAGE>

                                                                       Exhibit B

     (Exhibit B omitted from this Exhibit -- see Exhibit B to Exhibit 10.1 for
form of Stock Option Plan Agreement)

                                      -54-<PAGE>

                                                                   Exhibit 10.14

December 19, 2001

Mr. George P. Mavrikes

Re: Silver Diner Stock Options
    --------------------------

Dear Mr. Mavrikes:

         You are the holder of options (the "Existing Stock Options") to
purchase shares of common stock of Silver Diner, Inc. (the "Company") as set
forth in Exhibit A attached hereto. The exercise price or prices of your
Existing Stock Options are higher than the current market value of the Company's
common stock. To address this issue, the Company and you have agreed to the
following:

         1. You will surrender those of your Existing Stock Options as you shall
indicate by writing "yes" in the box(es) provided in the right hand column of
the table on Exhibit A attached hereto.

         2. In exchange for such cancellation, the Company agrees to grant to
you, on July 31, 2002, provided you are then associated with the Company, new
options to purchase the Company's common stock (the "New Stock Options"). The
New Stock Options will (i) be for the same number of shares of stock as Existing
Stock Options that you surrender for cancellation, (ii) vest on the same dates
as the Existing Stock Options that you surrender for cancellation, and (iii) be
exercisable at a price equal to the market value of the Company's common stock
on July 31, 2002.

         I am pleased that the Company has been able to work out this
arrangement with you. Please sign below to confirm our agreement.

                                             Sincerely,

                                             /s/ Robert T. Giaimo
                                             -----------------------------------
                                             Robert T. Giaimo, President

                                      -59-

<PAGE>

         The undersigned hereby agrees that the Existing Stock Options held by
the undersigned, as indicated on Exhibit A by the undersigned, are hereby
surrendered for cancellation.

         The undersigned further agrees to accept the New Stock Options to be
granted on July 31, 2002, and to be bound by the terms of the New Stock Option
Agreement which the Company will sign and deliver to you promptly after July 31,
2002. The New Stock Option Agreement will be in the form attached hereto as
Exhibit B, with the blanks filled in for the date, the number of shares covered,
the exercise price, and the exercise dates.

         Please sign below and complete Exhibit A and return this letter
together with Exhibit A to Mr. Noland Montgomery via fax at 202-857-6395, with
the original to follow by mail to the address below, on or before December 28,
2001:

         Mr. Noland Montgomery
         C/o Arent Fox
         1050 Connecticut Avenue, N.W.
         Washington, D.C.  20036-5339

/s/ George P. Mavrikes
--------------------------------------------
[SIGNATURE OF OPTION HOLDER]

George P. Mavrikes
-----------------------------------------------------
[PRINT NAME OF OPTION HOLDER]

                                      -60-

<PAGE>

                                                                       Exhibit A
                                                                       ---------

                               George P. Mavrikes

               Second Amended and Restated 1991 Stock Option Plan
<TABLE>
<CAPTION>

-----------------------------------------------------------------------------------------------------------------------
                                                                                                      Write "yes" or
         Shares                                                                                       "no" in each box
       subject to                                                                                     to indicate
         option                                                                                       whether you wish
    (all options are non-     Exercise            Vesting                              Expiration     to cancel the
 qualified stock options)(*)   Price             Schedule            Grant Date           Date        options indicated
-----------------------------------------------------------------------------------------------------------------------

<S>                           <C>                <C>                 <C>               <C>            <C>
8,334                         $2.25              Vested              02/08/94          02/07/04       YES
-----------------------------------------------------------------------------------------------------------------------
8,334                         $4.05              Vested              08/21/95          08/20/05       YES
-----------------------------------------------------------------------------------------------------------------------
8,334                         $4.05              Vested              12/31/95          12/30/05       YES
-----------------------------------------------------------------------------------------------------------------------
</TABLE>

(*) Any new options would be granted under the Silver Diner, Inc. 1996 Stock
Option Plan.

                                      -61-

<PAGE>

                                                                       Exhibit B

            (Exhibit B omitted from this Exhibit -- see Exhibit B to Exhibit
10.1 for form of Stock Option Plan Agreement)

                                      -62-

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