Document:

<PAGE>

                                                                    Exhibit 10.4

December 19, 2001

Mr. Mark Russell
Silver Diner
11806 Rockville Pike
Rockville, Maryland 20852

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

Dear Mr. Russell:

         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

                                      -19-

<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/ Mark Russell
--------------------------------------------
[SIGNATURE OF OPTION HOLDER]

Mark Russell
-----------------------------------------------------
[PRINT NAME OF OPTION HOLDER]

                                      -20-

<PAGE>

                                                                       Exhibit A

                                  Mark Russell

                             1996 Stock Option Plan

<TABLE>
<CAPTION>

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

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

50,000                         $0.906       100% at 12/31/05 /2/      09/23/99          09/22/09          YES

-----------------------------------------------------------------------------------------------------------------------
</TABLE>

--------------------------------

/2/ Option vests earlier if certain performance goals are met, as set forth in
    Stock Option Plan Agreement.

                                      -21-

<PAGE>

                                                                       Exhibit B

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

                                      -22-<PAGE>

                                                                    Exhibit 10.5

December 19, 2001

Mr. Michael Snow
Silver Diner
11806 Rockville Pike
Rockville, Maryland 20852

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

Dear Mr. Snow:

         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

                                      -23-

<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/ Michael Snow
--------------------------------------------
[SIGNATURE OF OPTION HOLDER]

Michael Snow
-----------------------------------------------------
[PRINT NAME OF OPTION HOLDER]

                                      -24-

<PAGE>

                                                                       Exhibit A
                                                                       ---------

                                  Michael Snow

                             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
     incentive stock         Exercise           Vesting                              Expiration         the options
       options)(*)             Price            Schedule            Grant Date           Date           indicated
-----------------------------------------------------------------------------------------------------------------------
<S>                       <C>             <C>                     <C>              <C>              <C>
5,000                      $0.938         20% per year, with the   12/14/00         12/13/10
                                          first 20% vesting at                                        YES
                                          12/31/01
-----------------------------------------------------------------------------------------------------------------------
10,000                     $0.938         20% per year, with the   As of 09/01/00   08/31/10
                                          first 20% vesting at                                        YES
                                          12/31/00
-----------------------------------------------------------------------------------------------------------------------
</TABLE>

(*)  Does not include option for 15,000 shares granted on December 13, 2001,
     exercisable at $.27 per share.

                                      -25-

<PAGE>

                                                                       Exhibit B

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

                                      -26-

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