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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports, and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes þ No o

As of September 26, 2004, there were outstanding 25,839,881 shares of the registrant’s Common Stock.

As of September 26, 2004, P.F. Chang’s China Bistro, Inc. owned and operated 108 full service restaurants throughout the United States under the name of “P.F. Chang’s China Bistro.” The Company also owned and operated 47 limited service restaurants under the name of “Pei Wei Asian Diner.”

The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and nine month periods ended September 26, 2004 are not necessarily indicative of the results that may be expected for the year ending January 2, 2005.

The consolidated balance sheet at December 28, 2003 has been derived from the audited consolidated financial statements at that date but does not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. For further information, refer to the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended December 28, 2003.

Certain prior year amounts have been reclassified to conform to current period presentation.

In response to recent changes concerning the accounting for certain partnership arrangements at companies that have partnership programs similar to P.F. Chang’s, the Company requested the staff of the U.S. Securities and Exchange Commission (the “Staff”) to review its accounting for the Company’s partnership structure. As a result of its discussions with the Staff, the Company restated its Consolidated Financial Statements for years ended prior to December 28, 2003 and the three quarters ended September 28, 2003. These restatements result in a portion of the Company’s partnership program being accounted for under a compensatory accounting model.

The Company will now (i) reclassify a portion of its minority interest expense to compensation expense for an employee/partner imputed bonus and (ii) record an expense for the difference between a partner’s cash capital contribution and the imputed fair value of that interest. As of December 28, 2003, the Company wrote off all intangible asset balances previously recorded on the consolidated balance sheet on a retrospective basis to reflect the fact that the Company had the option to repurchase partners’ interests at their capital account balances rather than at fair value. As described in “Modification” below, the Company has amended previous partnership agreements to indicate repurchases shall be at fair value in all circumstances, and new agreements will contain that same provision. Accordingly, the Company expects to record a charge for the excess of estimated fair value over the amount received from partners in future investments in its partnerships as such partnership investments occur.

As of September 26, 2004, the Company has reclassified certain of its restaurant operating costs relating to complimentary and employee meals from operating expenses to contra-revenue accounts. This reclassification has no effect on net income. The total amount reclassified is reflected as a reduction of operating expenses and a corresponding reduction of revenues in the same amount in each period affected. For the three and nine months ended September 28, 2003 the reclassification totaled $4,803,000 and $14,145,000, respectively. For the three and nine months ended September 26, 2004, the reclassification totaled $5,678,000 and $17,149,000, respectively.

The effects of the Company’s restatement and reclassification on previously reported Consolidated Financial Statements for periods prior to December 28, 2003 are summarized below.

The following table reflects the effect of the restatement and reclassification on the Consolidated Statements of Income (in thousands):

The following table reflects the effect of the restatement on the Consolidated Statements of Cash Flows (in thousands):


*	Also includes reclassification of loss on disposal of fixed assets from Interest and other income (expense), net to Depreciation and amortization for three and nine month periods ending September 28, 2003 to conform to current period presentation.

P.F. Chang’s employs a partnership management structure in connection with which it has entered into a series of partnership agreements with our regional managers, certain of our general managers, and certain of our executive chefs. Effective March 28, 2004, the Company executed a modification to all of its partnership agreements that had contained a provision permitting the Company to repurchase the partner’s interest at the capital account balance in certain circumstances. The modification changes the repurchase portion of the partnership agreements to indicate that fair value is to be used for all repurchases regardless of circumstance.

In accordance with FIN 44 this results in a modification of the original arrangement for accounting purposes. As a result of this modification, all existing unearned compensation is immediately expensed. This resulted in a first quarter charge of $12.5 million which consisted of the unamortized portion of the $11.5 million of unearned compensation existing at December 28, 2003 and the unamortized portion of unearned compensation generated in the first quarter of 2004 for partners investing in our new stores prior to the modification. This charge is included in Partner Investment Expense along with the amortization of previously existing unearned compensation prior to the date of the modification.

In addition, under FIN 44 the estimated fair value of each partnership interest modified will have to be determined at the date of the modification and the Company has completed this valuation. To the extent the fair value at the date of modification is greater than that partner’s related minority interest obligation in our consolidated financial statements, that incremental value could be charged to expense in a future period if a buy-out occurs prior to the 5-year date at which the partner would have otherwise earned the right to have their investment interest purchased at fair value.

The Company grants stock options for a fixed number of shares to certain employees and directors with an exercise price equal to or greater than the fair value of the shares at the date of grant. The Company accounts for stock option grants using the intrinsic value method, and, accordingly, recognizes no compensation expense for the stock option grants.

The following table represents the effect on net income and earnings per share if the Company had applied the fair-value based method and recognition provisions to stock-based employee compensation:

The effects of applying the fair value method for providing pro forma disclosures may not be representative of the effects on reported net income for future periods until all options outstanding are included in the pro forma disclosures. For purposes of pro forma disclosures, the estimated fair value of stock-based compensation plans and other options is amortized to expense primarily over the vesting period of such options.

Net income per share is computed in accordance with SFAS No. 128, “Earnings per Share.” Basic net income per share is computed based on the weighted average of common shares outstanding during the period. Diluted net income per share is computed based on the weighted average number of common shares and common stock equivalents, which includes options outstanding under our stock option plans and outstanding warrants. For the three months ended September 28, 2003, 19,000 of the Company’s shares were excluded from the calculation due to their anti-dilutive effect. For the three months ended September 26, 2004, there were 831,623 of the Company’s shares excluded from the calculation due to their anti-dilutive effect. For the nine months ended September 28, 2003, 98,000 of the Company’s shares were excluded from the calculation due to their anti-dilutive effect. For the nine months ended September 26, 2004, there were 104,286 of the Company’s shares excluded from the calculation due to their anti-dilutive effect. In addition to the potentially dilutive shares of the Company’s stock addressed above, there is also a potentially dilutive effect of unexercised Pei Wei stock options should the fair value of such stock increase above the grant price and Pei Wei have a positive net worth and profitability.

In December of 2002, the Company entered into a senior secured revolving credit facility with a commercial lending institution. The credit facility allows for borrowings up to $20 million at an interest rate ranging from 125 to 200 basis points over the applicable London Interbank Offered Rate (LIBOR). At any time, but only one time, the Company has the right to increase the credit facility up to the maximum aggregate principal amount of $50 million, provided the Company is in compliance with the terms of the facility. The revolving credit facility expires on December 20, 2005 and contains certain restrictions and conditions which require the Company to: maintain a certain minimum tangible net worth, an adjusted leverage ratio at a maximum of 3.50:1 and a minimum fixed-charge coverage ratio no less than 1.25:1. The Company was in compliance with these restrictions and conditions as of September 26, 2004. Shares of the Company’s subsidiary, Pei Wei Asian Diner, Inc. serve as collateral for the credit facility. The Company had no borrowings outstanding under the credit facility as of September 26, 2004, although $4.7 million is committed for the issuance of a letter of credit which is required by insurance companies for the Company’s workers compensation and general liability insurance claims.

The Company operates exclusively in the food-service industry and has determined that its reportable segments are those that are based on the Company’s methods of internal reporting and management structure. The Company’s reportable segments are Bistro and Pei Wei. There were no material amounts of revenues or transfers between reportable segments.

At September 26, 2004, P.F. Chang’s took advantage of additional tax deductions available relating to the exercise of non-qualified stock options and disqualifying dispositions of incentive stock options. Accordingly, for the nine months ended September 26, 2004, P.F. Chang’s recorded a $3.5 million increase to equity with a corresponding $3.5 million reduction to income tax liability. Quarterly adjustments for the exercise of non-qualified stock options and disqualifying dispositions of incentive stock options may vary as they relate to the actions of the option holder or shareholder.

The Company is engaged in various legal actions, which arise in the ordinary course of its business. Although there can be no assurance as to the ultimate disposition of these matters, it is the opinion of the Company’s management, based upon the information available at this time, that the expected outcome of these matters, individually or in the aggregate, will not have a material adverse effect on the results of operations or financial condition of the Company.

This information should be read in conjunction with the consolidated financial statements and notes thereto included in Item 1 of Part I of this Quarterly Report and the audited consolidated financial statements and notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations for the year ended December 28, 2003 contained in our 2003 Annual Report on Form 10-K.

The following section contains forward-looking statements concerning P.F. Chang’s which involve risks and uncertainties. These forward-looking statements include those regarding anticipated restaurant openings, anticipated costs and sizes of future restaurants and the adequacy of anticipated sources of cash to fund our future capital requirements. P.F. Chang’s actual results may differ materially from those discussed in the forward-looking statements. Factors that might cause actual events or results to differ materially from those indicated by such forward-looking statements may include matters noted elsewhere in this Form 10-Q, such as development and construction risks, potential labor shortages, fluctuations in operating results, including the impact of partnership investment expense on those results, and changes in food costs. Words such as “believes,” “anticipates,” “expects,” “intends,” “plans” and similar expressions are intended to identify forward-looking statements, but are not the exclusive means of identifying such statements.

As of September 26, 2004, we owned and operated 108 full service restaurants, or Bistros, that feature a blend of high-quality, traditional Chinese cuisine with attentive service and a high-energy, contemporary bistro setting. P.F. Chang’s was formed in early 1996 with the acquisition of the four original P.F. Chang’s restaurants and the hiring of an experienced management team. Utilizing a partnership management philosophy, we embarked on a strategic expansion of the concept targeted at major metropolitan areas throughout the United States.

We also owned and operated 47 limited service, or Pei Wei, restaurants as of September 26, 2004. Pei Wei Asian Diner offers a modest menu of freshly prepared Asian cuisine served in a relaxed, warm environment offering attentive counter service and take-out flexibility. Pei Wei opened its first unit in July 2000 in the Phoenix, Arizona area, and has expanded significantly since then.

We intend to open 17 new Bistros by the end of 2004, eleven of which were open by the end of the third quarter of 2004. Approximately half of the Bistros that we intend to develop in 2004 are located in new markets across the United States. We have signed lease agreements for all of our development planned for fiscal 2004. We intend to continue to develop Bistros that typically range in size from 6,000 square feet to 7,000 square feet, and that require, on average, a total cash investment of approximately $2.7 million and total invested capital of approximately $3.7 million per restaurant. This total capitalized investment includes the capitalized lease value of the property, which can vary greatly depending on the specific trade area. See “Risk Factors — Development and Construction Risks.” Preopening expenses are expected to average approximately $375,000 per restaurant.

We also intend to open 20 new Pei Wei restaurants by the end of 2004, fourteen of which were open by the end of the third quarter of 2004. We will continue our development in existing markets and are entering six new markets in 2004. We have signed leases for all of our development planned for fiscal 2004. Our Pei Wei restaurants are generally 3,000 to 3,200 square feet in size and require an average total cash investment of approximately $750,000 and total invested capital of approximately $1.3 million per restaurant. Preopening expenses at Pei Wei are expected to total approximately $110,000 per restaurant.

The following tables set forth certain unaudited quarterly information for the three months ended September 28, 2003 and September 26, 2004 and for the nine months ended September 28, 2003 and September 26, 2004, expressed as a percentage of revenues, except for revenues, which are expressed in thousands. Comparisons to reported amounts for 2003 are based upon restated results as discussed in Note 1 of the Notes to the Consolidated Financial Statements. Additionally, due to the reclassification of certain

operating costs relating to complimentary and employee meals discussed in Note 1, the following tables reflect revised revenues and percentages accordingly. This quarterly information has been prepared on a basis consistent with the audited financial statements and, in the opinion of management, includes all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the information for the periods presented. P.F. Chang’s quarterly operating results may fluctuate significantly as a result of a variety of factors, and operating results for any quarter are not necessarily indicative of results for a full fiscal year.

Historically, we have experienced variability in the amount and percentage of revenues attributable to preopening expenses. We typically incur the most significant portion of preopening expenses associated with a given restaurant within the two months immediately preceding and the month of the opening of the restaurant. In addition, our experience to date has been that labor and operating costs associated with a newly opened restaurant (for approximately its first four to six months of operation) are materially greater than what can be expected after that time, both in aggregate dollars and as a percentage of revenues. Accordingly, the volume and timing of new restaurant openings has had, and is expected to continue to have, a meaningful impact on preopening expenses, labor and operating costs until such time as a larger base of restaurants in operation mitigates such impact.

Results for the Three Months Ended September 28, 2003 and September 26, 2004

P.F. Chang’s revenues are derived entirely from food and beverage sales. Consolidated revenues increased by $39.1 million, or 29.0%, to $174.0 million in the three months ended September 26, 2004 from $134.9 million in the three months ended September 28, 2003. Each segment contributed as follows:


	Bistro: Revenues increased by $28.6 million at our Bistro restaurants. This increase was attributable to revenues of $11.1 million generated by new restaurants opened in 2004, a $8.9 million increase in revenues in 2004 for restaurants that opened subsequent to September 28, 2003 and a $8.6 million increase in revenues for restaurants that opened before September 28, 2003. Customer traffic growth as well as a price increase of approximately 1.0% implemented at the beginning of the second quarter of 2004 produced comparable restaurant sales gains of 3.6% in the three months ended September 26, 2004. Restaurants are included in this comparable restaurant measure once they reach their eighteenth month of operation.

	Pei Wei: Revenues increased by $10.5 million at our Pei Wei restaurants. The increase was attributable to revenues of $6.9 million generated by new restaurants opened in 2004, a $2.9 million increase in revenues in 2004 for restaurants that opened subsequent to September 28, 2003 and a $0.7 million increase in revenues for restaurants that opened before September 28, 2003. A price increase of approximately 1.5% implemented during the second quarter of 2004 produced comparable restaurant sales gains of 1.0% in the three months ended September 26, 2004.

Cost of Sales. Cost of sales is composed of the cost of food and beverages. Consolidated cost of sales increased by $10.4 million, or 27.0%, to $48.9 million in the three months ended September 26, 2004 from $38.5 million in the three months ended September 28, 2003. Cost of sales decreased as a percentage of revenues to 28.1% in the three months ended September 26, 2004 from 28.5% in the three months ended September 28, 2003. Each segment contributed as follows:


	Bistro: Cost of sales at the Bistro decreased as a percentage of revenues to 27.9% in the three months ended September 26, 2004 from 28.3% in the three months ended September 28, 2003. This decrease was primarily the result of lower seafood, poultry, and produce prices partially offset by higher meat, rice, and oil prices.

	Pei Wei: Cost of sales at Pei Wei decreased as a percentage of revenues to 28.9% in the three months ended September 26, 2004 from 29.9% in the three months ended September 28, 2003. This decrease was primarily attributable to improved purchasing efficiencies associated with a more mature store base as well as a decrease in seafood, poultry, and produce prices, partially offset by higher meat, rice and oil prices.

Labor. Labor expenses consist of restaurant management salaries, hourly staff payroll costs and other payroll-related items. Consolidated labor expenses increased by $12.5 million, or 28.6%, to $56.2 million in the three months ended September 26, 2004 from $43.7 million in the three months ended September 28, 2003. Labor expenses decreased nominally as a percentage of revenues to 32.3% in the three months ended September 26, 2004 from 32.4% in the three months ended September 28, 2003. Each segment contributed as follows:


	Bistro: As a percentage of revenues, labor expenses at the Bistro decreased nominally to 32.1% in the three months ended September 26, 2004 from 32.3% in the three months ended September 28, 2003. This decrease was primarily due to improvements in hourly and salaried labor management, partially offset by higher insurance costs.

	Pei Wei: As a percentage of revenues, labor expenses increased nominally as a percentage of sales at Pei Wei to 33.4% in the three months ended September 26, 2004 from 33.3% in the three months ended September 28, 2003 as a result of higher insurance costs, offset by better labor management from a more mature store base.

Partner Bonus Expense. Imputed partner bonus expense consists of a charge for the portion of our partners’ allocated profits (minority interest) which our partners would have earned under our management bonus plan had those partners not chosen to become equity owners in their restaurants. Consolidated partner bonus expense, imputed increased by $106,000 or 30.3%, to $456,000 in the three months ended September 26, 2004 from $350,000 in the three months ended September 28, 2003. Partner bonus expense, imputed as a percentage of revenues was 0.3% in the three months ended September 26, 2004 and in the three months ended September 28, 2003. Each segment contributed as follows:


	Bistro: Partner bonus expense, imputed at the Bistro increased to $427,000 in the three months ended September 26, 2004 from $327,000 in the three months ended September 28, 2003. The increase was due primarily to an increase in the number of partners for which this imputed bonus is applicable, as well as a slight increase in operating profit percentage, which is the basis for the bonus calculation.

	Pei Wei: At Pei Wei, partner bonus expense, imputed increased nominally to $29,000 in the three months ended September 26, 2004 from $23,000 in the three months ended September 28, 2003. The increase was due to an increase in the number of partners for which this imputed bonus is applicable, partially offset by a slight decrease in operating profit percentage, which is the basis for the bonus calculation.

Operating. Operating expenses consist primarily of various restaurant-level costs, which are generally variable and are expected to fluctuate with revenues. Our experience to date has been that operating costs associated with a newly opened restaurant, for approximately its first four to six months of operation, are materially greater than what can be expected after that time, both in aggregate dollars and as a percentage of revenues. Consolidated operating expenses increased by $6.3 million, or 34.1%, to $24.8 million in the three months ended September 26, 2004 from $18.5 million in the three months ended September 28, 2003. Operating expenses increased as a percentage of revenues to 14.2% in the three months ended September 26, 2004 from 13.7% in the three months ended September 28, 2003. Each segment contributed as follows:


	Bistro: Operating expenses as a percentage of revenues increased at our Bistro restaurants to 14.0% in the three months ended September 26, 2004 from 13.6% in the three months ended September 28, 2003 due primarily to higher utility costs.

	Pei Wei: Operating expenses as a percentage of revenues increased at our Pei Wei restaurants to 15.8% for the three months ended September 26, 2004 from 14.3% in the three months ended September 28, 2003. This increase was primarily attributable to slightly higher utility costs and higher repairs and maintenance expenses.

Occupancy. Occupancy costs include both fixed and variable portions of rent, common area maintenance charges, property insurance and property taxes. Consolidated occupancy costs increased by $2.2 million, or 28.6%, to $9.9 million in the three months ended September 26, 2004 from $7.7 million in the three months ended September 28, 2003. Occupancy costs as a percentage of revenues was 5.7% in the three months ended September 26, 2004 and in the three months ended September 28, 2003. Each segment contributed as follows:


	Bistro: Occupancy costs at the Bistro as a percentage of revenues was 5.6% for the three months ended September 26, 2004 and for the three months ended September 28, 2003.

	Pei Wei: Occupancy costs at Pei Wei as a percentage of revenues was 6.7% for the three months ended September 26, 2004 and for the three months ended September 28, 2003.

General and Administrative. General and administrative expenses are composed of expenses associated with corporate and administrative functions that support development and restaurant operations and provide infrastructure to support future growth, including management and staff salaries, employee benefits, travel, legal and professional fees, technology and market research. Consolidated general and administrative expenses increased to $8.9 million in the three months ended September 26, 2004 from $6.9 million in the three months ended September 28, 2003. Consolidated general and administrative expenses as a percentage of revenues was

5.1% in the three months ended September 26, 2004 and in the three months ended September 28, 2003. Each segment contributed as follows:


	Bistro: General and administrative expenses at the Bistro increased by $1.5 million to $7.4 million in the three months ended September 26, 2004 from $5.9 million in the three months ended September 28, 2003. This increase was due to the addition of corporate management personnel and increased incentive accruals, which resulted in approximately $1.2 million of additional compensation expense, increased costs related to Sarbanes-Oxley 404 consulting and accounting services, and occupancy costs relating to our additional corporate office space. These increases were partially offset by lower health insurance costs due to changes in our health insurance plan, primarily resulting from higher contribution levels for our salaried employees.

	Pei Wei: General and administrative expenses at Pei Wei increased by $0.5 million to $1.5 million in the three months ended September 26, 2004 from $1.0 million in the three months ended September 28, 2003. This increase was due primarily to the addition of corporate management personnel, which resulted in approximately $320,000 of additional compensation expense, and higher health insurance costs due to changes in our health insurance plan, primarily resulting from lower contribution levels for our salaried employees. Pei Wei also incurred additional legal fees and travel expenses associated with new store openings and development.

Depreciation and Amortization. Depreciation and amortization expenses include the depreciation of property and equipment and losses on disposals of property and equipment. Consolidated depreciation and amortization increased by 32.7%, to $6.5 million in the three months ended September 26, 2004 from $4.9 million in the three months September 28, 2003. Depreciation and amortization increased as a percentage of revenues to 3.8% in the three months ended September 26, 2004 from 3.7% in the three months ended September 28, 2003. Each segment contributed as follows:


	Bistro: At our Bistro restaurants, depreciation and amortization increased to $5.5 million for the three months ended September 26, 2004 from $4.4 million for the three months ended September 28, 2003 and increased as a percentage of revenues to 3.7% in the three months ended September 26, 2004 from 3.6% in the three months ended September 28, 2003. The increase of $1.1 million was related to depreciation and amortization on restaurants opened subsequent to September 28, 2003, as well as a full quarter’s depreciation and amortization on property and equipment in restaurants opened during the third quarter of 2003.

	Pei Wei: At our Pei Wei restaurants, depreciation and amortization increased by $0.5 million to $1.0 million for the three months ended September 26, 2004 from $0.5 million for the three months ended September 28, 2003. This increase was primarily due to depreciation and amortization on restaurants opened subsequent to September 28, 2003 totaling $0.4 million for the three months ended September 26, 2004; as well as a full quarter’s depreciation and amortization on property and equipment in restaurants opened during the third quarter of 2003.

Preopening Expense. Preopening costs, which are expensed as incurred, consist of expenses incurred prior to opening a new restaurant and are comprised principally of manager salaries and relocation, employee payroll and related training costs. Consolidated preopening expenses in the three months ended September 26, 2004 decreased to $2.0 million from $2.6 million in the three months ended September 28, 2003. Preopening expenses decreased as a percentage of revenues to 1.2% in the three months ended September 26, 2004 from 1.9% in the three months ended September 28, 2003. Each segment contributed as follows:


	Bistro: Preopening expenses decreased by $0.5 million to $1.5 million for the three months ended September 26, 2004 from $2.0 million for the three months ended September 28, 2003. The decrease in preopening costs is primarily a result of the opening of three stores in the third quarter 2004 as compared to the opening of five stores in the third quarter of 2003.

	Pei Wei: Preopening expenses decreased by $0.1 million to $0.5 million for the three months ended September 26, 2004 from $0.6 million for the three months ended September 28, 2003. This decrease was


	primarily due to the opening of three new Pei Weis in the third quarter of 2004 as compared to opening four new Pei Weis in the third quarter of 2003.

Partner Investment Expense. Prior to the date of modification of our operating agreements which occurred on March 28, 2004, partner investment expense consisted of two components: (i) unearned compensation calculated as the difference between the imputed fair value of our partners’ ownership interests at the time the partners invest in their restaurants and our partners’ cash contributions for those ownership interests, recognized over a five-year period and (ii) the excess, if any, of the purchase price at the time we repurchase a partner’s interest over the imputed fair value of that interest. As of the date of modification, we have expensed all remaining unearned compensation, which totaled $12.5 million. Consolidated partner investment expense in the three months ended September 26, 2004 was $1.7 million, up slightly from $1.6 million in the three months ended September 28, 2003. Partner investment expense decreased as a percentage of revenues to 1.0% in the three months ended September 26, 2004 from 1.2% in the three months ended September 28, 2003. Each segment contributed as follows:


	Bistro: Partner investment expense at the Bistro decreased by $0.2 million to $1.4 million for the three months ended September 26, 2004 from $1.6 million for the three months ended September 28, 2003. This decrease was due to the absence of amortization of unearned compensation, offset by the impact on investment expense of five stores’ partnerships being effective in the third quarter of 2004.

	Pei Wei: Partner investment expense at Pei Wei increased by $0.2 million to $0.3 million as of the three months ended September 26, 2004 from $0.1 million as of the three months ended September 28, 2003. This increase was in part due to the impact on investment expense of five stores’ partnerships being effective in the third quarter of 2004, offset by the absence of amortization of unearned compensation.

Consolidated net interest and other income decreased to $91,000 in the three months ended September 26, 2004 as compared to $151,000 in the three months ended September 28, 2003, and remained the same as a percentage of revenues at 0.1% in the third quarter of 2003 and the third quarter of 2004.

Minority interest represents the portion of our net earnings which are attributable to the collective ownership interests of our minority investors. P.F. Chang’s employs a partnership management structure in connection with which we have entered into a series of partnership agreements with our regional managers, certain of our general managers, and certain of our executive chefs. We also have minority shareholders in our Pei Wei Asian Diner, Inc. subsidiary. Consolidated minority interest for the three months ended September 26, 2004 increased to $2.6 million from $2.0 million for the three months ended September 28, 2003, and also increased as a percentage of revenues to 1.5% of revenues for the three months ended September 26, 2004 from 1.4% for the three months ended September 28, 2003. Each segment contributed as follows:


	Bistro: Minority interest at the Bistro increased slightly as a percentage of revenues to 1.6% for the three months ended September 26, 2004 from 1.5% for the three months ended September 28, 2003 due to an increase in operating profit on a year over year basis.

	Pei Wei: Minority interest at Pei Wei decreased as a percentage of revenues to 0.8% for the three months ended September 26, 2004 from 1.0% for the three months ended September 28, 2003 due to a decrease in operating profit on a year over year basis.

Our effective tax rate for the three months ended September 26, 2004 was 31.5%. For the three months September 28, 2003, the effective tax rate was 34.0%. The income tax rates for the three months ended September 26, 2004 and September 28, 2003 differ from the expected provision for income taxes, which is derived by applying the statutory income tax rate, primarily as a result of FICA tip credits.

Consolidated revenues increased by $113.9 million, or 28.9%, to $507.7 million in the nine months ended September 26, 2004 from $393.8 million in the nine months ended September 28, 2003. Each segment contributed as follows:


	Bistro: Revenues increased by $85.0 million at our Bistro restaurants. This increase was attributable to revenues of $23.9 million generated by new restaurants opened in 2004, $26.5 million of revenues in 2004 for restaurants that opened subsequent to September 28, 2003 and a $34.6 million increase in revenues for restaurants that opened before September 28, 2003. Customer traffic growth as well as a price increase of approximately 1.0% implemented at the beginning of the second quarter of 2004 produced comparable restaurant sales gains of 3.4% in the nine months ended September 26, 2004. Restaurants are included in this comparable restaurant measure once they reach their eighteenth month of operation.

	Pei Wei: Revenues increased by $28.9 million at our Pei Wei restaurants. The increase was attributable to revenues of $12.9 million generated by new restaurants opened in 2004, $8.6 million of revenues in 2004 for restaurants that opened subsequent to September 28, 2003 and a $7.4 million increase in revenues for restaurants that opened before September 28, 2003. A price increase of


	approximately 1.5% implemented during the second quarter of 2004 produced comparable restaurant sales gains of 1.2% in the nine months ended September 26, 2004.

Cost of Sales. Consolidated cost of sales increased by $32.7 million, or 29.5%, to $143.6 million in the nine months ended September 26, 2004 from $110.9 million in the nine months ended September 28, 2003. Cost of sales increased as a percentage of revenues to 28.3% in the nine months ended September 26, 2004 from 28.2% in the nine months ended September 28, 2003. Each segment contributed as follows:


	Bistro: Cost of sales at the Bistro increased as a percentage of revenues to 28.2% in the nine months ended September 26, 2004 from 28.0% in the nine months ended September 28, 2003. This increase was primarily the result of higher meat, rice and oil prices, partially offset by lower seafood prices.

	Pei Wei: Cost of sales at Pei Wei decreased as a percentage of revenues to 29.0% in the nine months ended September 26, 2004 from 29.7% in the nine months ended September 28, 2003. This decrease was primarily attributable to improved purchasing efficiencies associated with a more mature store base as well as a decrease in seafood and produce prices, partially offset by higher meat, rice and oil prices.

Labor. Consolidated labor expenses increased by $39.1 million, or 30.5%, to $167.3 million in the nine months ended September 26, 2004 from $128.2 million in the nine months ended September 28, 2003. Labor expenses increased as a percentage of revenues to 33.0% in the nine months ended September 26, 2004 from 32.5% in the nine months ended September 28, 2003. Each segment contributed as follows:


	Bistro: As a percentage of revenues, labor expenses for our Bistro restaurants increased to 32.9% in the nine months ended September 26, 2004 from 32.5% in the nine months ended September 28, 2003. This increase was primarily due to higher health insurance costs.

	Pei Wei: As a percentage of revenues, labor expenses at Pei Wei decreased to 33.2% in the nine months ended September 26, 2004 from 33.3% in the nine months ended September 28, 2003. This decrease was a result of improvement in efficiencies given a more mature restaurant base, partially offset by higher health insurance costs as a result of changes to our health insurance plan.

Partner Bonus Expense. Imputed partner bonus expense consists of a charge for the portion of our partners’ allocated profits (minority interest) which our partners would have earned under our management bonus plan had those partners not chosen to become equity owners in their restaurants. Consolidated partner bonus expense, imputed increased by $0.1 million, or 16.9%, to $1.2 million in the nine months ended September 26, 2004 from $1.1 million in the nine months ended September 28, 2003. Partner bonus expense, imputed as a percentage of revenues decreased nominally to 0.2% in the nine months ended September 26, 2004 from 0.3% in the nine months ended September 28, 2003. Each segment contributed as follows:


	Bistro: Partner bonus expense, imputed at the Bistro increased to $1.2 million in the nine months ended September 26, 2004 from $1.0 in the nine months ended September 28, 2003. The increase was due primarily to an increase in the number of partners for which this imputed bonus is applicable, offset by a decrease in operating profit percentage which is the basis for the bonus calculation.

	Pei Wei: At Pei Wei, partner bonus expense, imputed increased to $84,000 in the nine months ended September 26, 2004 from $63,000 in the nine months ended September 28, 2003. The increase was due to an increase in the number of partners for which this imputed bonus is applicable, offset by a slight decrease in operating profit percentage which is the basis for the bonus calculation.

Operating. Consolidated operating expenses increased by $17.5 million, or 32.6%, to $71.1 million in the nine months ended September 26, 2004 from $53.6 million in the nine months ended September 28, 2003.

Operating expenses as a percentage of revenues increased to 14.0% in the nine months ended September 26, 2004 from 13.6% in the nine months ended September 28, 2003. Each segment contributed as follows:


	Bistro: Operating expenses as a percentage of revenues at our Bistro restaurants increased to 13.8% in the nine months ended September 26, 2004 from 13.5% in the nine months ended September 28, 2003 due to slightly higher utility costs and repairs and maintenance expenses.

	Pei Wei: Operating expenses as a percentage of revenues increased at our Pei Wei restaurants to 15.2% in the nine months ended September 26, 2004 from 14.2% in the nine months ended September 28, 2003. This increase was primarily attributable to higher menu and printing costs associated with a new menu roll-out and changes to menu displays at certain locations, as well as slightly higher utility costs.

Occupancy. Consolidated occupancy costs increased by $5.9 million, or 26.0%, to $28.6 million in the nine months ended September 26, 2004 from $22.7 million in the nine months ended September 28, 2003. Occupancy costs decreased as a percentage of revenues to 5.6% in the nine months ended September 26, 2004 from 5.8% in the nine months ended September 28, 2003. Each segment contributed as follows:


	Bistro: Occupancy costs at the Bistro decreased as a percentage of revenues to 5.5% for the nine months ended September 26, 2004 from 5.7% for the nine months ended September 28, 2003. This decrease in occupancy was primarily the result of more favorable lease terms associated with new restaurants.

	Pei Wei: Occupancy costs at Pei Wei decreased as a percentage of revenues to 6.6% for the nine months ended September 26, 2004 from 6.7% for the nine months ended September 28, 2003. This decrease in occupancy was the result of sales leverage achieved on those occupancy costs that are fixed in nature.

General and Administrative. Consolidated general and administrative expenses increased by $5.0 million to $26.0 million in the nine months ended September 26, 2004 from $21.0 million in the nine months ended September 28, 2003. Consolidated general and administrative expenses decreased as a percentage of revenues to 5.1% for the nine months ended September 26, 2004 from 5.3% for the nine months ended September 28, 2003. Each segment contributed as follows:


	Bistro: General and administrative expenses at the Bistro increased by $3.2 million to $21.4 million in the nine months ended September 26, 2004 from $18.2 million in the nine months ended September 28, 2003. This increase was due primarily to $750,000 in legal fees associated with the settlement of our California litigation and the addition of corporate management personnel and increased incentive accruals, which resulted in approximately $1.4 million of additional compensation expense. These increases were partially offset by lower health insurance costs due to changes in our health insurance plan, primarily resulting from higher contribution levels for our salaried employees. Consulting, office and equipment lease expenses also increased, primarily as a result of growth of our restaurant base and infrastructure. We also incurred an additional $285,000 in accounting and legal costs related to our voluntary SEC review and related restatement, as well as additional professional fees relating to Sarbanes-Oxley 404 during the nine months ended September 26, 2004.

	Pei Wei: General and administrative expenses at Pei Wei increased by $1.8 million to $4.6 million in the nine months ended September 26, 2004 from $2.8 million in the nine months ended September 28, 2003. This increase was due primarily to the addition of corporate management personnel, which resulted in approximately $1.0 million of additional compensation and higher health insurance costs due to changes in our health insurance plan, primarily resulting from lower contribution levels for our salaried employees. Pei Wei also experienced increases in general and administrative expenses in the following areas: travel expenses associated with new store openings and development, consulting fees and franchise taxes.

Depreciation and Amortization. Consolidated depreciation and amortization increased by $4.6 million, or 33.1%, to $18.5 million in the nine months ended September 28, 2004 from $13.9 million in the nine

months ended September 28, 2003. Consolidated depreciation and amortization increased as a percentage of revenues to 3.7% in the nine months ended September 26, 2004 from 3.5% in the nine months ended September 28, 2003. Each segment contributed as follows:


	Bistro: At our Bistro restaurants, depreciation and amortization increased by $3.3 million to $15.8 million for the nine months ended September 26, 2004 from $12.5 million for the nine months ended September 28, 2003 and increased as a percentage of revenues to 3.6% in the three months ended September 26, 2004 from 3.5% in the three months ended September 28, 2003. This increase was primarily due to depreciation and amortization on restaurants opened subsequent to September 28, 2003 totaling $2.1 million for the nine months ended September 26, 2004; as well as a full nine months of depreciation and amortization on fixed assets in restaurants opened during the first three quarters of 2003.

	Pei Wei: At our Pei Wei restaurants, depreciation and amortization increased by $1.3 million to $2.7 million for the nine months ended September 26, 2004 from $1.4 million for the nine months ended September 28, 2003. This increase was primarily due to depreciation and amortization on restaurants opened subsequent to September 28, 2003 totaling $0.9 million for the nine months ended September 26, 2004; as well as a full nine months of depreciation and amortization on fixed assets in restaurants opened during the first three quarters of 2003.

Preopening Expense. Consolidated preopening expenses in the nine months ended September 26, 2004 decreased by $100,000 to $5.7 million from $5.8 million in the nine months ended September 28, 2003. Consolidated preopening expenses decreased as a percentage of revenues to 1.1% in the nine months ended September 26, 2004 from 1.5% in the nine months ended September 28, 2003. Each segment contributed as follows:


	Bistro: Preopening expenses decreased as a percentage of revenues to 0.9% for the nine months ended September 26, 2004 from 1.3% in the nine months ended September 28, 2003. This decrease was attributed to the opening of 11 stores in the first three quarters of 2004 compared to the opening of 12 stores in the first three quarters of 2003 along with lower average preopening costs for our 2004 openings thus far as compared to 2003 openings.

	Pei Wei: Preopening expenses decreased as a percentage of revenues to 2.4% for the nine months ended September 26, 2004 from 3.3% in the nine months ended September 28, 2003. This decrease was primarily due to the sales leverage achieved for the first three quarters of 2004 as compared to the first three quarters of 2003, offset by the opening of 14 Pei Weis thus far in 2004 versus 11 in 2003.

Partner Investment Expense. Prior to the date of modification of our operating agreements which occurred on March 28, 2004, partner investment expense consisted of two components: (i) unearned compensation calculated as the difference between the imputed fair value of our partners’ ownership interests at the time the partners invest in their restaurants and our partners’ cash contributions for those ownership interests, recognized over a five year period and (ii) the excess, if any, of the purchase price at the time we repurchase a partner’s interest over the imputed fair value of that interest. As of the date of modification, we have expensed all remaining unearned compensation, which totaled $12.5 million. Consequently, consolidated partner investment expense in the nine months ended September 26, 2004 increased by $12.8 million to $16.1 million from $3.3 million in the nine months ended September 28, 2003. Partner investment expense increased as a percentage of revenues to 3.2% in the nine months ended September 26, 2004 from 0.8% in the nine months ended September 28, 2003. Each segment contributed as follows:


	Bistro: Partner investment expense at the Bistro increased by $10.6 million to $13.7 million for the nine months ended September 26, 2004 from $3.1 million for the nine months ended September 28, 2003. This increase was primarily the result of the recognition of $10.9 million investment expense relating to the remaining unamortized portion of the unearned compensation recognized as of the date of modification of our operating agreements, as well as the impact on investment expense of 13 stores’ partnerships being effective in the first three quarters of 2004.

	Pei Wei: Partner investment expense at Pei Wei increased by $2.2 million to $2.4 million for the nine months ended September 26, 2004 from $0.2 million for the nine months ended September 28, 2003.


	This increase was primarily due to the recognition of $1.6 million of investment expense relating to the remaining unamortized portion of the unearned compensation recognized as of the date of modification of our operating agreements, as well as the impact on investment expense of 16 stores’ partnerships being effective in the first three quarters of 2004.

Consolidated net interest and other income decreased from $390,000 in the nine months ended September 28, 2003 to $238,000 in the nine months ended September 26, 2004, and also decreased as a percentage of revenues to 0.0% in the nine months ended September 26, 2004 from 0.1% in the nine months ended September 28, 2003.

Consolidated minority interest for the nine months ended September 26, 2004 increased by $1.3 million to $7.2 million from $5.9 million for the nine months ended September 28, 2003. As a percentage of revenues, consolidated minority interest decreased nominally to 1.4% of revenues for the nine months ended September 26, 2004 from 1.5% of revenues for the nine months ended September 28, 2003. Each segment contributed as follows:


	Bistro: Minority interest at the Bistro as a percentage of revenues was 1.5% for the nine months ended September 26, 2004 and September 28, 2003.

	Pei Wei: Minority interest at Pei Wei decreased as a percentage of revenues to 0.9% for the nine months ended September 26, 2004 from 1.1% for the nine months ended September 28, 2003 due to a decrease in operating profit on a year over year basis.

In accordance with APB 28 Interim Financial Reporting, we are to estimate our effective tax rate for the entire year and apply it to our interim operating results. When significant unusual charges occur, such as the $12.5 million charge during the first quarter of 2004 relating to the modification of our partnership agreements and the $750,000 charge relating to a legal settlement, the income tax effect for such charges is to be computed separately and not included in the estimated annual effective tax rate. The unusual relationship for the nine months ended September 26, 2004 resulted from applying our estimated effective tax rate of 31.5% to operating results exclusive of the charges relating to the modification and legal settlement, and applying a rate of 38.5% to the charges relating to the modification and legal settlement. Absent any significant unusual charges during the remainder of 2004, we continue to expect that our effective tax rate will be 31.5%. For the nine months ended September 28, 2003, the effective tax rate was 34%. The income tax rates for the nine months ended September 26, 2004 and September 28, 2003 differ from the expected provision for income taxes, which is derived by applying the statutory income tax rate, primarily as a result of FICA tip credits.

P.F. Chang’s has funded its capital requirements since its inception through sales of equity securities, debt financing and cash flows from operations. Net cash provided by operating activities was $62.5 million and $53.4 million for the nine months ended September 26, 2004 and September 28, 2003, respectively. Net cash provided by operating activities exceeded net income for the nine months ended September 26, 2004 due principally to the effect of partner investment expense, minority interest and depreciation and amortization partially offset by increases in unearned revenue and deferred income tax assets. Net cash provided by operating activities exceeded net income for the nine months ended September 28, 2003 due principally to the effect of partner investment expense, minority interest, depreciation and amortization and an increase in operating liabilities, along with an increase in income tax liability that was satisfied by the tax benefit of stock option exercises recorded in equity.

We use cash primarily to fund the development and construction of new restaurants. Net cash used in investing activities for the nine months ended September 26, 2004 and September 28, 2003 was $57.0 million and $47.3 million, respectively. Investing activities primarily related to capital expenditures in both periods. In the nine months ended September 26, 2004, investing activities also included the purchase for $9.2 million of land and a building in Scottsdale, Arizona. The building will house our corporate offices beginning in the summer of 2005, at which point our current office lease obligation will end. We intend to open 17 new Bistros in 2004, eleven of which were open as of September 26, 2004. We also intend to open 20 new Pei Wei restaurants in 2004, fourteen of which were open as of September 26, 2004. We expect that our planned future Bistro restaurants will require, on average, a total cash investment per restaurant of approximately $2.7 million. Preopening expenses are expected to average approximately $375,000 per Bistro restaurant. We anticipate that each Pei Wei restaurant will require, on average, a total cash investment of $750,000 and will incur preopening costs of approximately $110,000. Any unexpected delays in construction, labor shortages, or other factors could result in higher than anticipated preopening costs.

Net cash used in financing activities for the nine months ended September 26, 2004 was $3.9 million compared to net cash used in financing activities for the nine months ended September 28, 2003 of $2.7 million. Financing activities in the first nine months of 2004 and the first nine months of 2003 both consisted principally of distributions to minority partners as well as the repayment of debt, offset by proceeds from stock options exercised and employee stock purchases.

In December of 2002, we entered into a senior secured revolving credit facility with a commercial lending institution. The credit facility allows for borrowings up to $20.0 million at an interest rate ranging from 125 to 200 basis points over the applicable London Interbank Offered Rate (LIBOR). At any time, but only one time, P.F. Chang’s has the right to increase the credit facility up to the maximum aggregate principal amount of $50.0 million provided we are in compliance with the terms of the facility. The revolving credit facility expires on December 20, 2005 and contains certain restrictions and conditions which require us to: maintain a certain minimum tangible net worth, an adjusted leverage ratio at a maximum of 3.50:1 and a minimum fixed-charge coverage ratio no less than 1.25:1. We were in compliance with these restrictions and conditions as of September 26, 2004. Shares of our subsidiary, Pei Wei Asian Diner, Inc. serve as collateral for the credit facility. We had no borrowings outstanding under the credit facility as of September 26, 2004, although $4.7 million is committed for the issuance of letters of credit which are required by insurance companies for our workers compensation and general liability insurance claims.

Our capital requirements, including development costs related to the opening of additional restaurants, have been and will continue to be significant. Our future capital requirements and the adequacy of its available funds will depend on many factors, including the pace of expansion, real estate markets, site locations and the nature of the arrangements negotiated with landlords. We believe that our cash flow from operations together with our current cash reserves will be sufficient to fund our projected capital requirements throughout the remainder of 2004 and 2005. In the event that additional capital is required, we will first access our existing credit facility. In the unlikely event that additional capital is required, we may seek to raise such capital through public or private equity or debt financings. Future capital funding transactions may result in dilution to current stockholders. We cannot assure you that such capital will be available on favorable terms, if at all.

As of September 26, 2004, there were 191 partners within the P.F. Chang’s China Bistro, Inc. system. During the nine months ended September 26, 2004, we did not purchase any of the minority partners’ interests that had reached their five-year threshold period and were available for purchase. During 2004, we will have the opportunity to purchase 23 additional partners’ interests. If all of these interests are purchased in their entirety in the fourth quarter, the total purchase price would approximate $8.0 million to $11.0 million based upon the estimated fair value of the respective interests at September 26, 2004. Such amounts are subject to change based upon changes in the estimated fair value of the respective interests from September 26, 2004 through the date of purchase. If we purchase all of these interests in the fourth quarter of 2004, the estimated financial impact would be an additional $0.01 of earnings per share.

Our most critical accounting policies, which are those that require significant judgment include: partnership structure, impairment of long-lived assets and self-insurance. A more in-depth description of these can be found in our most recent Form 10-K, filed on March 15, 2004.

We operated 108 full service, or Bistro, restaurants and 47 limited service, or Pei Wei, restaurants, as of September 26, 2004, 38 of which have been opened within the last twelve months. The results achieved by these restaurants may not be indicative of longer term performance or the potential market acceptance of restaurants in other locations. We cannot assure you that any new restaurant which we open will have similar operating results to those of prior restaurants. Our new restaurants commonly take several months to reach planned operating levels due to inefficiencies typically associated with new restaurants, including lack of market awareness, inability to hire sufficient staff and other factors. The failure of our existing or new restaurants to perform as predicted could negatively impact our revenues and results of operations.

Our profitability is dependent in part on our ability to anticipate and react to changes in food costs. Other than for a portion of our produce, which is purchased locally by each restaurant, we rely on Distribution Market Advantage as the primary distributor of our ingredients. Distribution Market Advantage is a cooperative of multiple food distributors located throughout the nation. We have a non-exclusive contract with Distribution Market Advantage on terms and conditions which we believe are consistent with those made available to similarly situated restaurant companies. Although we believe that alternative distribution sources are available, any increase in distribution prices or failure to perform by the Distribution Market Advantage could cause our food costs to fluctuate. Additional factors beyond our control, including adverse weather conditions and governmental regulation, may affect our food costs. We may not be able to anticipate and react to changing food costs through our purchasing practices and menu price adjustments in the future, and failure to do so could negatively impact our revenues and results of operations.

The cost of insurance (workers compensation insurance, general liability insurance, health insurance and directors and officers liability insurance) has risen significantly over the past few years and is expected to continue to increase in 2004. These increases, as well as potential state legislation requirements for employers to provide health insurance to employees, could have a negative impact on our profitability if we are not able to negate the effect of such increases by continuing to improve our operating efficiencies. We self-insure a substantial portion of our workers compensation, general liability and health care costs and unfavorable changes in trends could also have a negative impact on our profitability.

Critical to our future success is our ability to successfully expand our operations. We have expanded from seven restaurants at the end of 1996 to 155 restaurants as of September 26, 2004. We expect to open 17 Bistros and 20 Pei Wei restaurants in fiscal 2004 and 16 to 18 new Bistros and 26 to 28 new Pei Wei restaurants in fiscal 2005. Our ability to expand successfully will depend on a number of factors, including:


	•	identification and availability of suitable locations;

	•	competition for restaurant sites;

	•	negotiation of favorable lease arrangements;

	•	timely development of commercial, residential, street or highway construction near our restaurants;


	•	management of the costs of construction and development of new restaurants;

	•	securing required governmental approvals and permits;

	•	recruitment of qualified operating personnel, particularly managers and chefs;

	•	weather conditions;

	•	competition in new markets; and

	•	general economic conditions.

The opening of additional restaurants in the future will depend in part upon our ability to generate sufficient funds from operations or to obtain sufficient equity or debt financing on favorable terms to support our expansion. We may not be able to open our planned new operations on a timely basis, if at all, and, if opened, these restaurants may not be operated profitably. We have experienced, and expect to continue to experience, delays in restaurant openings from time to time. Delays or failures in opening planned new restaurants could have an adverse effect on our business, financial condition, results of operations or cash flows.

Our growth strategy may strain our management, financial and other resources. We must maintain a high level of quality and service at our existing and future restaurants, continue to enhance our operational, financial and management capabilities and locate, hire, train and retain experienced and dedicated operating personnel, particularly managers and chefs. We may not be able to effectively manage these and other factors necessary to permit us to achieve our expansion objectives, and any failure to do so could negatively impact our competitive position.

Each of our Bistro and Pei Wei restaurants is distinctively designed to accommodate particular characteristics of each location and to blend local or regional design themes with our principal trade dress and other common design elements. This presents each location with its own development and construction risks. Many factors may affect the costs associated with the development and construction of our restaurants, including:


	•	labor disputes;

	•	shortages of materials and skilled labor;

	•	weather interference;

	•	unforeseen engineering problems;

	•	environmental problems;

	•	construction or zoning problems;

	•	local government regulations;

	•	modifications in design to the size and scope of the projects; and

	•	other unanticipated increases in costs, any of which could give rise to delays or cost overruns.

If we are not able to develop additional Bistro and Pei Wei restaurants within anticipated budgets or time periods, our business, financial condition, results of operations or cash flows will be adversely affected.

Our success will continue to be dependent on our ability to attract and retain a sufficient number of qualified employees, including kitchen staff and waitstaff, to keep pace with our expansion schedule. Qualified individuals needed to fill these positions are in short supply in certain areas. Our inability to recruit and retain qualified individuals may delay the planned openings of new restaurants while high employee turnover in existing restaurants may negatively impact customer service and customer relations, resulting in an adverse effect on our revenues or results of operations.

Our country’s economic condition affects our customers’ levels of discretionary spending. A decrease in discretionary spending could impact the frequency with which our customers choose to dine out or the amount they spend on meals while dining out, thereby decreasing our revenues. Additionally, the continued military responses to terrorist attacks on the United States and possible future terrorist attacks may lead to weakening in the economy. Adverse economic conditions and any related decrease in discretionary spending by our customers could have an adverse effect on our revenues and operating results.

Our operating results may fluctuate significantly as a result of a variety of factors, including:


	•	general economic conditions;

	•	consumer confidence in the economy;

	•	changes in consumer preferences;

	•	competitive factors, including the performance of restaurant stocks;

	•	weather conditions;

	•	timing of new restaurant openings and related expenses;

	•	revenues contributed by new restaurants; and

	•	increases or decreases in comparable restaurant revenues.

Historically, we have experienced variability in the amount and percentage of revenues attributable to preopening expenses. We typically incur the most significant portion of preopening expenses associated with a given restaurant within the two months immediately preceding and the month of the opening of the restaurant. Our experience to date has been that labor and operating costs associated with a newly opened restaurant for the first several months of operation are materially greater than what can be expected after that time, both in aggregate dollars and as a percentage of revenues. Accordingly, the volume and timing of new restaurant openings has had, and is expected to continue to have, a meaningful impact on preopening expenses as well as labor and operating costs.

Our financial results may also fluctuate significantly as a result of recent changes in how we account for certain aspects of our partnership program.

As is more fully described in our 10-K filed on March 15, 2004, we have recently revised our accounting method for certain aspects of our partnership program. The most significant change that will affect prospective operating results relates to non-cash charges to expense for the excess of the imputed fair value of partner investments over the amount paid by our partners. These amounts are now recorded as the partnership interests are effective, which is typically when new stores open. The timing and volume of restaurant openings, the extent of eligible persons electing to invest and the effective dates of their partnerships, and the determination of the related fair value for the investment will create fluctuations in our operating results.

For reasons noted above, results for any one quarter are not necessarily indicative of results to be expected for any other quarter or for a full fiscal year, and, from time to time in the future, our results of operations may be below our expectations of public market analysts and investors. This discrepancy could cause the market price of our common stock to decline. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

The restaurant industry is intensely competitive with respect to food quality, price-value relationships, ambiance, service and location, and many restaurants compete with us at each of our locations. Our competitors at the Bistro concept include mid-price, full service casual dining restaurants. For Pei Wei, our main competitors are other value-priced, quick-service concepts as well as locally owned and operated Chinese restaurants. There are a number of well-established competitors with substantially greater financial, marketing, personnel and other resources than ours, and many of our competitors are well established in the markets where we have restaurants, or in which we intend to locate restaurants. Additionally, other companies may develop restaurants that operate with similar concepts.

Any inability to successfully compete with the other restaurants in our markets will prevent us from increasing or sustaining our revenues and profitability and result in a material adverse effect on our business, financial condition, results of operations or cash flows. We may also need to modify or refine elements of our restaurant system to evolve our concept in order to compete with popular new restaurant formats or concepts that develop from time to time. We cannot assure you that we will be successful in implementing these modifications or that these modifications will not reduce our profitability.

A number of our employees are subject to various minimum wage requirements. The federal minimum wage has remained at $5.15 per hour since September 1, 1997. However, many of our employees work in restaurants located in California and receive compensation equal to the California minimum wage, which rose from $6.25 per hour effective January 1, 2001 to $6.75 per hour effective January 1, 2002. There may be similar increases implemented in other jurisdictions in which we operate or seek to operate. The possibility exists that the federal minimum wage will be increased in the near future. These minimum wage increases may have a material adverse effect on our business, financial condition, results of operations or cash flows.

Our success will continue to be highly dependent on our key operating officers and employees. We must continue to attract, retain and motivate a sufficient number of qualified management and operating personnel, including regional managers, general managers and executive chefs, to keep pace with an aggressive expansion schedule. Individuals of this caliber are historically in short supply and this shortage may limit our ability to effectively penetrate new market areas. Additionally, the ability of these key personnel to maintain consistency in the quality and atmosphere of our restaurants is a critical factor in our success. Any failure to do so may harm our reputation and result in a loss of business.

We are subject to regulation by federal agencies and to licensing and regulation by state and local health, sanitation, building, zoning, safety, fire and other departments relating to the development and operation of restaurants. These regulations include matters relating to:


	•	the preparation and sale of food and alcoholic beverages; and

	•	employment.

Our facilities are licensed and subject to regulation under state and local fire, health and safety codes. The development and construction of additional restaurants will be subject to compliance with applicable zoning, land use and environmental regulations. We may not be able to obtain necessary licenses or other approvals on a cost-effective and timely basis in order to construct and develop restaurants in the future. Various federal and state labor laws govern our operations and our relationship with our employees, including minimum wage, overtime, working conditions, fringe benefit and citizenship requirements. In particular, we are subject to the regulations of the Bureau of Citizenship and Immigration Services (“BCIS”). Given the location of many of our restaurants, even if we operate those restaurants in strict compliance with BCIS requirements, our employees may not all meet federal citizenship or residency requirements, which could lead to disruptions in our work force.

Approximately 16% of our revenues at the Bistro and 2% at Pei Wei are attributable to the sale of alcoholic beverages. We are required to comply with the alcohol licensing requirements of the federal government, states and municipalities where our restaurants are located. Alcoholic beverage control regulations require applications to state authorities and, in certain locations, county and municipal authorities for a license and permit to sell alcoholic beverages. Typically, licenses must be renewed annually and may be revoked or suspended for cause at any time. Alcoholic beverage control regulations relate to numerous aspects of the daily operations of the restaurants, including minimum age of guests and employees, hours of operation, advertising, wholesale purchasing, inventory control and handling, storage and dispensing of alcoholic beverages. If we fail to comply with federal, state or local regulations our licenses may be revoked and we may be forced to terminate the sale of alcoholic beverages at one or more of our restaurants.

The federal Americans with Disabilities Act prohibits discrimination on the basis of disability in public accommodations and employment. We are required to comply with the Americans with Disabilities Act and regulations relating to accommodating the needs of the disabled in connection with the construction of new facilities and with significant renovations of existing facilities.

Failure to comply with these regulations could negatively impact our business and our reputation.

We are from time to time the subject of complaints or litigation from guests alleging food borne illness, injury or other food quality, health or operational concerns. We may be adversely affected by publicity resulting from such allegations, regardless of whether such allegations are valid or whether we are liable. We are also subject to complaints or allegations from former or prospective employees from time to time. A lawsuit or claim could result in an adverse decision against us that could have a materially adverse effect on our business. Additionally, the costs and expense of defending ourselves against lawsuits or claims, regardless of merit, could have an adverse impact on our profitability.

We are subject to state “dram shop” laws and regulations, which generally provide that a person injured by an intoxicated person may seek to recover damages from an establishment that wrongfully served alcoholic beverages to such person. While we carry liquor liability coverage as part of our existing comprehensive general liability insurance, we may still be subject to a judgment in excess of our insurance coverage and we may not be able to obtain or continue to maintain such insurance coverage at reasonable costs, or at all.

Keeping abreast of, and in compliance with, changing laws, regulations and standards relating to corporate governance and public disclosure, including the Sarbanes-Oxley Act of 2002, new SEC regulations and Nasdaq Stock Market rules, has required an increased amount of management attention and external resources. We remain committed to maintaining high standards of corporate governance and public disclosure. As a result, we intend to invest all reasonably necessary resources to comply with evolving standards, and this

investment may result in increased general and administrative expenses and a diversion of management time and attention from revenue-generating activities to compliance activities.

A change in accounting standards can have a significant effect on our reported results and may affect our reporting of transactions completed before the change is effective. As an example, any changes requiring that we record compensation expense in the statement of operations for employee stock options using the fair value method could have a significant negative effect on our reported results. New pronouncements and varying interpretations of pronouncements have occurred and may occur in the future. Changes to existing rules or differing interpretations with respect to our current practices may adversely affect our reported financial results.

We believe that the market risk associated with our market risk sensitive instruments as of September 26, 2004 is not material, and therefore, disclosure is not required.

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based on this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.

In connection with the review of our unaudited consolidated financial statements for the three and nine months ended September 26, 2004, our independent auditors, Ernst & Young LLP, notified us that we had improperly classified restaurant operating costs relating to complimentary meals and employee meals as operating expenses and that these costs are more appropriately classified as a reduction of revenue. As more fully discussed in Note 1 to our unaudited consolidated financial statements, we have reclassified these costs accordingly for the three and nine month periods ended September 28, 2003 and the three and nine month periods ended September 26, 2004 and have modified our internal controls to address this issue.

Other than as stated above, there have been no significant changes in our internal controls or in other factors that could significantly affect these controls subsequent to the date of the evaluation reference in the first paragraph of this Item 4.


(1)	Incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q dated April 25, 2002.

(2)	Incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q dated October 24, 2001.

(3)	Incorporated by reference to the Registrant’s Registration Statement on Form S-1 (File No. 333-59749).

(4)	Incorporated by reference to the Registrant’s Form 10-K dated March 3, 2000.

(5)	Incorporated by reference to the Registrant’s Annual Report on Form 10-K dated March 6, 2001.

(6)	Incorporated by reference to the Registrant’s Annual Report on Form 10-K dated February 19, 2002.

(7)	Incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q dated October 23, 2002.

(8)	Incorporated by reference to the Registrant’s Annual Report on Form 10-K dated February 12, 2003.

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


	By:	/s/ RICHARD L. FEDERICO



	Richard L. Federico
	Chairman and Chief Executive Officer
	Principal Executive Officer


	By:	/s/ KRISTINA K. CASHMAN



	Kristina K. Cashman
	Chief Financial Officer and Secretary
	Principal Financial and Accounting Officer


(1)	Incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q dated April 25, 2002.

(2)	Incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q dated October 24, 2001.

(3)	Incorporated by reference to the Registrant’s Registration Statement on Form S-1 (File No. 333-59749).

(4)	Incorporated by reference to the Registrant’s Form 10-K dated March 3, 2000.

(5)	Incorporated by reference to the Registrant’s Annual Report on Form 10-K dated March 6, 2001.

(6)	Incorporated by reference to the Registrant’s Annual Report on Form 10-K dated February 19, 2002.

(7)	Incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q dated October 23, 2002.

(8)	Incorporated by reference to the Registrant’s Annual Report on Form 10-K dated February 12, 2003.

32 EX-10.2 2 p69558exv10w2.txt EXHIBIT 10.2 EXHIBIT 10.2 P.F. CHANG'S CHINA BISTRO, INC. AMENDED AND RESTATED 1998 STOCK OPTION PLAN 1. ESTABLISHMENT, PURPOSE AND TERM OF PLAN. 1.1 ESTABLISHMENT. The P.F. Chang's China Bistro, Inc. 1998 Stock Option Plan (the "PLAN") originally established effective as of the effective date of the initial registration by the Company of its Stock under Section 12 of the Exchange Act (the "EFFECTIVE DATE"), is hereby amended and restated effective as of October 5, 2004. 1.2 PURPOSE. The purpose of the Plan is to advance the interests of the Participating Company Group and its stockholders by providing an incentive to attract, retain and reward persons performing services for the Participating Company Group and by motivating such persons to contribute to the growth and profitability of the Participating Company Group. 1.3 TERM OF PLAN. The Plan shall continue in effect until the earlier of its termination by the Board or the date on which all of the shares of Stock available for issuance under the Plan have been issued and all restrictions on such shares under the terms of the Plan and the agreements evidencing Options granted under the Plan have lapsed. However, all Incentive Stock Options shall be granted, if at all, within ten (10) years from the earlier of the date the Plan is adopted by the Board or the date the Plan is duly approved by the stockholders of the Company. 2. DEFINITIONS AND CONSTRUCTION. 2.1 DEFINITIONS. Whenever used herein, the following terms shall have their respective meanings set forth below: (a) "BOARD" means the Board of Directors of the Company. If one or more Committees have been appointed by the Board to administer the Plan, "BOARD" also means such Committee(s). (b) "CODE" means the Internal Revenue Code of 1986, as amended, and any applicable regulations promulgated thereunder. (c) "COMMITTEE" means the Compensation Committee or other committee of the Board duly appointed to administer the Plan and having such powers as shall be specified by the Board. Unless the powers of the Committee have been specifically limited, the Committee shall have all of the powers of the Board granted herein, including, without limitation, the power to amend or terminate the Plan at any time, subject to the terms of the Plan and any applicable limitations imposed by law. 1 (d) "COMPANY" means P.F. Chang's China Bistro, Inc., a Delaware corporation, or any successor corporation thereto. (e) "CONSULTANT" means any person, including an advisor, engaged by a Participating Company to render services other than as an Employee or a Director. (f) "DIRECTOR" means a member of the Board or of the board of directors of any other Participating Company. (g) "DISABILITY" means the permanent and total disability of the Optionee within the meaning of Section 22(e)(3) of the Code. (h) "EMPLOYEE" means any person treated as an employee (including an Officer or a Director who is also treated as an employee) in the records of a Participating Company and, with respect to any Incentive Stock Option granted to such person, who is an employee for purposes of Section 422 of the Code; provided, however, that neither service as a Director nor payment of a director's fee shall be sufficient to constitute employment for purposes of the Plan. The Company shall determine in good faith and in the exercise of its discretion whether an individual has become or has ceased to be an Employee and the effective date of such individual's employment or termination of employment, as the case may be. For purposes of an individual's rights, if any, under the Plan as of the time of the Company's determination, all such determinations by the Company shall be final, binding and conclusive, notwithstanding that the Company or any governmental agency subsequently makes a contrary determination. (i) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended. (j) "FAIR MARKET VALUE" means, as of any date, the value of a share of Stock or other property as determined by the Board, in its sole discretion, or by the Company, in its sole discretion, if such determination is expressly allocated to the Company herein, subject to the following: (i) If, on such date, there is a public market for the Stock, the Fair Market Value of a share of Stock shall be the closing price of a share of Stock (or the mean of the closing bid and asked prices of a share of Stock if the Stock is so quoted instead) as quoted on the Nasdaq National Market, the Nasdaq Small-Cap Market or such other national or regional securities exchange or market system constituting the primary market for the Stock, as reported in the Wall Street Journal or such other source as the Company deems reliable. If the relevant date does not fall on a day on which the Stock has traded on such securities exchange or market system, the date on which the Fair Market Value shall be established shall be the last day on which the Stock was so traded prior to the relevant date, or such other appropriate day as shall be determined by the Board, in its sole discretion. 2 (ii) If, on such date, there is no public market for the Stock, the Fair Market Value of a share of Stock shall be as determined by the Board without regard to any restriction other than a restriction which, by its terms, will never lapse. (k) "INCENTIVE STOCK OPTION" means an Option intended to be (as set forth in the Option Agreement) and which qualifies as an incentive stock option within the meaning of Section 422(b) of the Code. (l) "INSIDER" means an Officer or a Director of the Company or any other person whose transactions in Stock are subject to Section 16 of the Exchange Act. (m) "NONEMPLOYEE DIRECTOR" means a Director of the Company who is not an Employee. (n) "NONEMPLOYEE DIRECTOR OPTION" means a right to purchase Stock (subject to adjustment as provided in Section 4.2) granted to a Nonemployee Director pursuant to the terms and conditions of the Plan. Nonemployee Director Options shall be Nonstatutory Stock Options and shall be either an Initial Option or an Annual Option as described in Section 7. 0 (o) "NONSTATUTORY STOCK OPTION" means an Option not intended to be (as set forth in the Option Agreement) or which does not qualify as an Incentive Stock Option. (p) "OFFICER" means any person designated by the Board as an officer of the Company. (q) "OPTION" means a right to purchase Stock (subject to adjustment as provided in Section 4.2) pursuant to the terms and conditions of the Plan, including a Nonemployee Director Option. An Option may be either an Incentive Stock Option or a Nonstatutory Stock Option. (r) "OPTION AGREEMENT" means a written agreement between the Company and an Optionee setting forth the terms, conditions and restrictions of the Option granted to the Optionee and any shares acquired upon the exercise thereof. (s) "OPTIONEE" means a person who has been granted one or more Options. (t) "PARENT CORPORATION" means any present or future "parent corporation" of the Company, as defined in Section 424(e) of the Code. (u) "PARTICIPATING COMPANY" means the Company or any Parent Corporation or Subsidiary Corporation. (v) "PARTICIPATING COMPANY GROUP" means, at any point in time, all corporations collectively which are then Participating Companies. 3 (w) "PRIOR PLANS" means the Company's 1996 Stock Option Plan and 1997 Restaurant Management Stock Option Plan. (x) "RULE 16b-3" means Rule 16b-3 under the Exchange Act, as amended from time to time, or any successor rule or regulation. (y) "SECTION 162(m)" means Section 162(m) of the Code. (z) "SECURITIES ACT" means the Securities Act of 1933, as amended. (aa) "SERVICE" means an Optionee's employment or service with the Participating Company Group, whether in the capacity of an Employee, a Director or a Consultant. An Optionee's Service shall not be deemed to have terminated merely because of a change in the capacity in which the Optionee renders Service to the Participating Company Group or a change in the Participating Company for which the Optionee renders such Service, provided that there is no interruption or termination of the Optionee's Service. Furthermore, an Optionee's Service with the Participating Company Group shall not be deemed to have terminated if the Optionee takes any military leave, sick leave, or other bona fide leave of absence approved by the Company; provided, however, that if any such leave exceeds ninety (90) days, on the ninety-first (91st) day of such leave any Incentive Stock Option held by the Optionee shall cease to be treated as an Incentive Stock Option and instead shall be treated thereafter as a Nonstatutory Stock Option unless the Optionee's right to return to Service with the Participating Company Group is guaranteed by statute or contract. Notwithstanding the foregoing, unless otherwise designated by the Company or required by law, a leave of absence shall not be treated as Service for purposes of determining vesting under the Optionee's Option Agreement. An Optionee's Service shall be deemed to have terminated either upon an actual termination of Service or upon the corporation for which the Optionee performs Service ceasing to be a Participating Company. Subject to the foregoing, the Company, in its sole discretion, shall determine whether an Optionee's Service has terminated and the effective date of such termination. (bb) "STOCK" means the common stock of the Company, as adjusted from time to time in accordance with Section 4.2. (cc) "SUBSIDIARY CORPORATION" means any present or future "subsidiary corporation" of the Company, as defined in Section 424(f) of the Code. (dd) "TEN PERCENT OWNER OPTIONEE" means an Optionee who, at the time an Option is granted to the Optionee, owns stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of a Participating Company within the meaning of Section 422(b)(6) of the Code. 2.2 CONSTRUCTION. Captions and titles contained herein are for convenience only and shall not affect the meaning or interpretation of any provision of the Plan. Except when 4 otherwise indicated by the context, the singular shall include the plural and the plural shall include the singular. Use of the term "or" is not intended to be exclusive, unless the context clearly requires otherwise. 3. ADMINISTRATION. 3.1 ADMINISTRATION BY THE BOARD. The Plan shall be administered by the Board. All questions of interpretation of the Plan or of any Option shall be determined by the Board, and such determinations shall be final and binding upon all persons having an interest in the Plan or such Option. Any Officer of a Participating Company shall have the authority to act on behalf of the Company with respect to any matter, right, obligation, determination or election which is the responsibility of or which is allocated to the Company herein, provided the Officer has apparent authority with respect to such matter, right, obligation, determination or election. 3.2 ADMINISTRATION WITH RESPECT TO INSIDERS. With respect to participation by Insiders in the Plan, at any time that any class of equity security of the Company is registered pursuant to Section 12 of the Exchange Act, the Plan shall be administered in compliance with the requirements, if any, of Rule 16b-3. 3.3 COMMITTEE COMPLYING WITH SECTION 162(m). If a Participating Company is a "publicly held corporation" within the meaning of Section 162(m), the Board may establish a Committee of "outside directors" within the meaning of Section 162(m) to approve the grant of any Option which might reasonably be anticipated to result in the payment of employee remuneration that would otherwise exceed the limit on employee remuneration deductible for income tax purposes pursuant to Section 162(m). 3.4 POWERS OF THE BOARD. In addition to any other powers set forth in the Plan and subject to the provisions of the Plan, the Board shall have the full and final power and authority, in its sole discretion: (a) to determine the persons to whom, and the time or times at which, Options shall be granted and the number of shares of Stock to be subject to each Option; (b) to designate Options as Incentive Stock Options or Nonstatutory Stock Options; (c) to determine the Fair Market Value of shares of Stock or other property; (d) to determine the terms, conditions and restrictions applicable to each Option (which need not be identical) and any shares acquired upon the exercise thereof, including, without limitation, (i) the exercise price of the Option, (ii) the method of payment for shares purchased upon the exercise of the Option, (iii) the method for satisfaction of any tax withholding obligation arising in connection with the Option or such shares, including by the withholding or delivery of shares of stock, (iv) the timing, terms and conditions of the 5 exercisability of the Option or the vesting of any shares acquired upon the exercise thereof, (v) the time of the expiration of the Option, (vi) the effect of the Optionee's termination of Service with the Participating Company Group on any of the foregoing, and (vii) all other terms, conditions and restrictions applicable to the Option or such shares not inconsistent with the terms of the Plan; (e) to approve one or more forms of Option Agreement; (f) to amend, modify, extend, cancel, renew, or grant a new Option in substitution for, any Option or to waive any restrictions or conditions applicable to any Option or any shares acquired upon the exercise thereof, provided, however, that the Board shall not have the power to amend the exercise price of an Option or grant a new Option in substitution for any Option solely to change the exercise price of the original Option without the approval of a majority of the Company's stockholders; (g) to accelerate, continue, extend or defer the exercisability of any Option or the vesting of any shares acquired upon the exercise thereof, including with respect to the period following an Optionee's termination of Service with the Participating Company Group; (h) to prescribe, amend or rescind rules, guidelines and policies relating to the Plan, or to adopt supplements to, or alternative versions of, the Plan, including, without limitation, as the Board deems necessary or desirable to comply with the laws of, or to accommodate the tax policy or custom of, foreign jurisdictions whose citizens may be granted Options; and (i) to correct any defect, supply any omission or reconcile any inconsistency in the Plan or any Option Agreement and to make all other determinations and take such other actions with respect to the Plan or any Option as the Board may deem advisable to the extent consistent with the Plan and applicable law. 4. SHARES SUBJECT TO PLAN. 4.1 MAXIMUM NUMBER OF SHARES ISSUABLE. Subject to adjustment as provided in Section 4.2, the maximum aggregate number of shares of Stock that may be issued under the Plan shall be Three Million Three Hundred Sixty Thousand (3,360,000). The share reserve shall consist of authorized but unissued or reacquired shares of Stock or any combination thereof. Notwithstanding the foregoing, the share reserve, determined at any time, shall be reduced by the number of shares subject to outstanding options granted pursuant to the Prior Plans (the "PRIOR PLAN OPTIONS"). If an outstanding Option for any reason expires or is terminated or canceled, or if shares of Stock acquired, subject to repurchase, upon the exercise of an Option are repurchased by the Company, the shares of Stock allocable to the unexercised portion of such Option or such repurchased shares of Stock shall again be available for issuance under the Plan. 6 4.2 ADJUSTMENTS FOR CHANGES IN CAPITAL STRUCTURE. In the event of any stock dividend, stock split, reverse stock split, recapitalization, combination, reclassification or similar change in the capital structure of the Company, appropriate adjustments shall be made in the number and class of shares subject to the Plan and to any outstanding Options, in the share limit set forth in Section 3.4(h), in the Section 162(m) Grant Limit set forth in Section 5.4, to the automatic Nonemployee Director Option grant provisions set forth in Section 7.1 and in the exercise price per share of any outstanding Options. If a majority of the shares which are of the same class as the shares that are subject to outstanding Options are exchanged for, converted into, or otherwise become (whether or not pursuant to an Ownership Change Event, as defined in Section 9.1) shares of another corporation (the "NEW SHARES"), the Board may unilaterally amend the outstanding Options to provide that such Options are exercisable for New Shares. In the event of any such amendment, the number of shares subject to, and the exercise price per share of, the outstanding Options shall be adjusted in a fair and equitable manner as determined by the Board, in its sole discretion. Notwithstanding the foregoing, any fractional share resulting from an adjustment pursuant to this Section 4.2 shall be rounded up or down to the nearest whole number, as determined by the Board, and in no event may the exercise price of any Option be decreased to an amount less than the par value, if any, of the stock subject to the Option. The adjustments determined by the Board pursuant to this Section 4.2 shall be final, binding and conclusive. 5. ELIGIBILITY AND OPTION LIMITATIONS. 5.1 PERSONS ELIGIBLE FOR OPTIONS. Options may be granted only to Employees, Consultants and Directors. For purposes of the foregoing sentence, "Employees", "Consultants" and "Directors" shall include prospective Employees, prospective Consultants and prospective Directors to whom Options are granted in connection with written offers of employment or other service relationship with the Participating Company Group. Eligible persons may be granted more than one (1) Option. 5.2 OPTION GRANT RESTRICTIONS. Any person who is not an Employee on the effective date of the grant of an Option to such person may be granted only a Nonstatutory Stock Option. An Incentive Stock Option granted to a prospective Employee upon the condition that such person become an Employee shall be deemed granted effective on the date such person commences Service as an Employee with a Participating Company, with an exercise price determined as of such date in accordance with Section 6.1. A Nonemployee Director Option may be granted only to a person who at the time of grant is a Nonemployee Director. 5.3 FAIR MARKET VALUE LIMITATION. To the extent that options designated as Incentive Stock Options (granted under all stock option plans of the Participating Company Group, including the Plan) become exercisable by an Optionee for the first time during any calendar year for stock having an aggregate Fair Market Value greater than One Hundred Thousand Dollars ($100,000), the portion of such options which exceeds such amount shall be treated as Nonstatutory Stock Options. For purposes of this Section 5.3, options designated as Incentive Stock Options shall be taken into account in the order in which they were granted, and the Fair Market Value of stock shall be determined as of the time the option with respect to such 7 stock is granted. If the Code is amended to provide for a different limitation from that set forth in this Section 5.3, such different limitation shall be deemed incorporated herein effective as of the date and with respect to such Options as required or permitted by such amendment to the Code. If an Option is treated as an Incentive Stock Option in part and as a Nonstatutory Stock Option in part by reason of the limitation set forth in this Section 5.3, the Optionee may designate which portion of such Option the Optionee is exercising. In the absence of such designation, the Optionee shall be deemed to have exercised the Incentive Stock Option portion of the Option first. Separate certificates representing each such portion shall be issued upon the exercise of the Option. 5.4 SECTION 162(m) GRANT LIMIT. Subject to adjustment as provided in Section 4.2, at any such time as a Participating Company is a "publicly held corporation" within the meaning of Section 162(m), no Employee shall be granted one or more Options within any fiscal year of the Company which in the aggregate are for the purchase of more than One Hundred Fifty Thousand (150,000) shares of Stock (the "SECTION 162(m) GRANT LIMIT"). An Option which is canceled in the same fiscal year of the Company in which it was granted shall continue to be counted against the Section 162(m) Grant Limit for such period. 6. TERMS AND CONDITIONS OF OPTIONS. Options shall be evidenced by Option Agreements specifying the number of shares of Stock covered thereby, in such form as the Board shall from time to time establish. No Option or purported Option shall be a valid and binding obligation of the Company unless evidenced by a fully executed Option Agreement. Option Agreements may incorporate all or any of the terms of the Plan by reference and, except as otherwise set forth in Section 7 with respect to Nonemployee Director Options, shall comply with and be subject to the following terms and conditions: 6.1 EXERCISE PRICE. The exercise price for each Option shall be established in the sole discretion of the Board; provided, however, that (a) the exercise price per share for an Incentive Stock Option or a Nonstatutory Stock Option shall be not less than the Fair Market Value of a share of stock on the effective date of grant of the Option, and (b) no Incentive Stock Option granted to a Ten Percent Owner Optionee shall have an exercise price per share less than one hundred ten percent (110%) of the Fair Market Value of a share of Stock on the effective date of grant of the Option. Notwithstanding the foregoing, an Option (whether an Incentive Stock Option or a Nonstatutory Stock Option) may be granted with an exercise price lower than the minimum exercise price set forth above if such Option is granted pursuant to an assumption or substitution for another option in a manner qualifying under the provisions of Section 424(a) of the Code. 6.2 EXERCISE PERIOD. Options shall be exercisable at such time or times, or upon such event or events, and subject to such terms, conditions, performance criteria, and restrictions as shall be determined by the Board and set forth in the Option Agreement evidencing such Option; provided, however, that (a) no Incentive Stock Option shall be exercisable after the expiration of ten (10) years after the effective date of grant of such Option, 8 (b) no Incentive Stock Option granted to a Ten Percent Owner Optionee shall be exercisable after the expiration of five (5) years after the effective date of grant of such Option, and (c) no Option granted to a prospective Employee, prospective Consultant or prospective Director may become exercisable prior to the date on which such person commences Service with a Participating Company. Subject to the foregoing, unless otherwise specified by the Board in the grant of an Option, any Option granted hereunder shall have a term of ten (10) years from the effective date of the grant of the Option. 6.3 PAYMENT OF EXERCISE PRICE. (a) FORMS OF CONSIDERATION AUTHORIZED. Except as otherwise provided below, payment of the exercise price for the number of shares of Stock being purchased pursuant to any Option shall be made (i) in cash, by check, or cash equivalent, (ii) by tender to the Company of shares of Stock owned by the Optionee having a Fair Market Value (as determined by the Company without regard to any restrictions on transferability applicable to such stock by reason of federal or state securities laws or agreements with an underwriter for the Company) not less than the exercise price, (iii) by the assignment of the proceeds of a sale or loan with respect to some or all of the shares being acquired upon the exercise of the Option (including, without limitation, through an exercise complying with the provisions of Regulation T as promulgated from time to time by the Board of Governors of the Federal Reserve System) (a "CASHLESS EXERCISE"), (iv) provided that the Optionee is an Employee, an not an Officer (unless otherwise not prohibited by law, including without limitation, any regulation promulgated by the Board of Governors of the Federal Reserve System) and in the Company's sole and absolute discretion at the time the Option is exercised, by delivery of the Optionee's promissory note in a form approved by the Company for the aggregate exercise price, provided that, if the Company is incorporated in the State of Delaware, the Participant shall pay in cash that portion of the aggregate exercise price not less than the par value of the shares being acquired, (v) by such other consideration as may be approved by the Board from time to time to the extent permitted by applicable law, or (vi) by any combination thereof. The Board may at any time or from time to time, by adoption of or by amendment to the standard forms of Option Agreement described in Section 8, or by other means, grant Options which do not permit all of the foregoing forms of consideration to be used in payment of the exercise price or which otherwise restrict one or more forms of consideration. (b) TENDER OF STOCK. Notwithstanding the foregoing, an Option may not be exercised by tender to the Company of shares of Stock to the extent such tender of Stock would constitute a violation of the provisions of any law, regulation or agreement restricting the redemption of the Company's stock. Unless otherwise provided by the Board, an Option may not be exercised by tender to the Company of shares of Stock unless such shares either have been owned by the Optionee for more than six (6) months or were not acquired, directly or indirectly, from the Company. (c) CASHLESS EXERCISE. The Company reserves, at any and all times, the right, in the Company's sole and absolute discretion, to establish, decline to approve or 9 terminate any program or procedures for the exercise of Options by means of a Cashless Exercise. (d) PAYMENT BY PROMISSORY NOTE. No promissory note shall be permitted if the exercise of an Option using a promissory note would be a violation of any law. Any permitted promissory note shall be on such terms as the Board shall determine at the time the Option is granted. The Board shall have the authority to permit or require the Optionee to secure any promissory note used to exercise an Option with the shares of Stock acquired upon the exercise of the Option or with other collateral acceptable to the Company. Unless otherwise provided by the Board, if the Company at any time is subject to the regulations promulgated by the Board of Governors of the Federal Reserve System or any other governmental entity affecting the extension of credit in connection with the Company's securities, any promissory note shall comply with such applicable regulations, and the Optionee shall pay the unpaid principal and accrued interest, if any, to the extent necessary to comply with such applicable regulations. 6.4 TAX WITHHOLDING. The Company shall have the right, but not the obligation, to deduct from the shares of Stock issuable upon the exercise of an Option, or to accept from the Optionee the tender of, a number of whole shares of Stock having a Fair Market Value, as determined by the Company, equal to all or any part of the federal, state, local and foreign taxes, if any, required by law to be withheld by the Participating Company Group with respect to such Option or the shares acquired upon the exercise thereof. Alternatively or in addition, in its sole discretion, the Company shall have the right to require the Optionee, through payroll withholding, cash payment or otherwise, including by means of a Cashless Exercise, to make adequate provision for any such tax withholding obligations of the Participating Company Group arising in connection with the Option or the shares acquired upon the exercise thereof. The Company shall have no obligation to deliver shares of Stock until the Participating Company Group's tax withholding obligations have been satisfied by the Optionee. 6.5 EFFECT OF TERMINATION OF SERVICE. (a) OPTION EXERCISABILITY. Subject to earlier termination of the Option as otherwise provided herein, an Option shall be exercisable after an Optionee's termination of Service as follows: (i) DISABILITY. If the Optionee's Service with the Participating Company Group is terminated because of the Disability of the Optionee, the Option, to the extent unexercised and exercisable on the date on which the Optionee's Service terminated, may be exercised by the Optionee (or the Optionee's guardian or legal representative) at any time prior to the expiration of twelve (12) months (or such longer or shorter period of time as determined by the Board, in its sole discretion) after the date on which the Optionee's Service terminated, but in any event no later than the date of expiration of the Option's term as set forth in the Option Agreement evidencing such Option (the "OPTION EXPIRATION DATE"). (ii) DEATH. If the Optionee's Service with the Participating Company Group is terminated because of the death of the Optionee, the Option, to the extent 10 unexercised and exercisable on the date on which the Optionee's Service terminated, may be exercised by the Optionee's legal representative or other person who acquired the right to exercise the Option by reason of the Optionee's death at any time prior to the expiration of twelve (12) months (or such longer or shorter period of time as determined by the Board, in its sole discretion) after the date on which the Optionee's Service terminated, but in any event no later than the Option Expiration Date. The Optionee's Service shall be deemed to have terminated on account of death if the Optionee dies within three (3) months after the Optionee's termination of Service. (iii) OTHER TERMINATION OF SERVICE. If the Optionee's Service with the Participating Company Group terminates for any reason, except Disability, death or Cause, as provided in Section 6.5(d) below, the Option, to the extent unexercised and exercisable by the Optionee on the date on which the Optionee's Service terminated, may be exercised by the Optionee within three (3) months (or such longer or shorter period of time as determined by the Board, in its sole discretion) after the date on which the Optionee's Service terminated, but in any event no later than the Option Expiration Date. (b) EXTENSION IF EXERCISE PREVENTED BY LAW. Notwithstanding the foregoing, if the exercise of an Option within the applicable time periods set forth in Section 6.5(a) is prevented by the provisions of Section 12 below, the Option shall remain exercisable until three (3) months after the date the Optionee is notified by the Company that the Option is exercisable, but in any event no later than the Option Expiration Date. (c) EXTENSION IF OPTIONEE SUBJECT TO SECTION 16(b). Notwithstanding the foregoing, if a sale within the applicable time periods set forth in Section 6.5(a) of shares acquired upon the exercise of the Option would subject the Optionee to suit under Section 16(b) of the Exchange Act, the Option shall remain exercisable until the earliest to occur of (i) the tenth (10th) day following the date on which a sale of such shares by the Optionee would no longer be subject to such suit, (ii) the one hundred and ninetieth (190th) day after the Optionee's termination of Service, or (iii) the Option Expiration Date. (d) TERMINATION FOR CAUSE. Except as otherwise provided in a contract of employment or service between a Participating Company and an Optionee, and notwithstanding any other provision of the Plan to the contrary, if the Optionee's Service with the Participating Company Group is terminated for Cause as defined below, the Option shall terminate and cease to be exercisable immediately upon such termination of Service. For purposes of this Section 6.5(d), "CAUSE" shall mean any of the following: (1) the Optionee's theft, dishonesty, or falsification of any Participating Company documents or records; (2) the Optionee's improper use or disclosure of a Participating Company's confidential or proprietary information; (3) any action by the Optionee which has a detrimental effect on a Participating Company's reputation or business; (4) the Optionee's failure or inability to perform any reasonable assigned duties after written notice from the Participating Company Group of, and a reasonable opportunity to cure, such failure or inability; (5) any material breach by the Optionee of any agreement of employment or service between the Optionee and the Participating Company Group, which breach is not cured pursuant to the terms of such agreement; or (6) the Optionee's 11 conviction (including any plea of guilty or nolo contendere) of any criminal act which impairs the Optionee's ability to perform his or her duties with the Participating Company Group. A determination by the Board that the Optionee was terminated for Cause shall be final and binding upon the Optionee for all purposes and shall not be subject to review by any governmental agency or court of law. 12 7. TERMS AND CONDITIONS OF NONEMPLOYEE DIRECTOR OPTIONS. Nonemployee Director Options shall be evidenced by Option Agreements specifying the number of shares of Stock covered thereby, in such form as the Board shall from time to time establish. Such Option Agreements may incorporate all or any of the terms of the Plan by reference and shall comply with and be subject to the following terms and conditions: 7.1 AUTOMATIC GRANT. Subject to the execution by a Nonemployee Director of an appropriate Option Agreement, Nonemployee Director Options shall be granted automatically and without further action of the Board, as follows: (a) INITIAL OPTION. Each person who first becomes a Nonemployee Director on or after the Effective Date shall be granted on the date such person first becomes a Nonemployee Director a Nonemployee Director Option to purchase thirty thousand (30,000) shares of Stock (an "INITIAL OPTION"); provided, however, that an Initial Option shall not be granted to a Director who previously did not qualify as a Nonemployee Director but subsequently becomes a Nonemployee Director as a result of the termination of his or her status as an Employee. (b) ANNUAL OPTION. Each Nonemployee Director (including any Director who previously did not qualify as a Nonemployee Director but who subsequently becomes a Nonemployee Director) shall be granted on the date immediately following each annual meeting of the stockholders of the Company which occurs on or after the Effective Date (an "ANNUAL MEETING") a Nonemployee Director Option to purchase fifteen thousand (15,000) shares of Stock (an "ANNUAL OPTION"); provided, however, that a Nonemployee Director granted an Initial Option on the date of an Annual Meeting shall not be granted an Annual Option pursuant to this Section on the date immediately following the same Annual Meeting. (c) RIGHT TO DECLINE NONEMPLOYEE DIRECTOR OPTION. Notwithstanding the foregoing, any person may elect not to receive a Nonemployee Director Option by delivering written notice of such election to the Board no later than the day prior to the date such Nonemployee Director Option would otherwise be granted. A person so declining a Nonemployee Director Option shall receive no payment or other consideration in lieu of such declined Nonemployee Director Option. A person who has declined a Nonemployee Director Option may revoke such election by delivering written notice of such revocation to the Board no later than the day prior to the date such Nonemployee Director Option would be granted pursuant to Section 7.1(a) or (b), as the case may be. 7.2 EXERCISE PRICE. The exercise price per share of Stock subject to a Nonemployee Director Option shall be the Fair Market Value of a share of Stock on the date the Nonemployee Director Option is granted. 7.3 EXERCISE PERIOD. Each Nonemployee Director Option shall terminate and cease to be exercisable on the date ten (10) years after the date of grant of the Nonemployee 13 Director Option unless earlier terminated pursuant to the terms of the Plan or the Option Agreement. 7.4 RIGHT TO EXERCISE NONEMPLOYEE DIRECTOR OPTIONS. Except as otherwise provided in an Option Agreement: (a) INITIAL OPTION. One-fifth (1/5) of the shares subject to an Initial Option shall become vested and exercisable on the first anniversary of the date on which such Initial Option was granted, and the remaining shares shall vest in equal monthly installments over the following 48 months, provided that the Optionee's Service has not terminated prior to the relevant date. (b) ANNUAL OPTION. One hundred percent (100%) of the shares subject to an Annual Option shall be vested and exercisable on the date on which such Annual Option was granted. 7.5 EFFECT OF TERMINATION OF SERVICE ON NONEMPLOYEE DIRECTOR OPTIONS. (a) OPTION EXERCISABILITY. Subject to earlier termination of the Nonemployee Director Option as otherwise provided herein, a Nonemployee Director Option shall be exercisable after an Optionee's termination of Service as follows: (i) DISABILITY. If the Optionee's Service with the Participating Company Group is terminated because of the Disability of the Optionee, the Nonemployee Director Option, to the extent unexercised and exercisable on the date on which the Optionee's Service terminated, may be exercised by the Optionee (or the Optionee's guardian or legal representative) at any time prior to the expiration of twelve (12) months after the date on which the Optionee's Service terminated, but in any event no later than the date of expiration of the Option Expiration Date. (ii) DEATH. If the Optionee's Service with the Participating Company Group is terminated because of the death of the Optionee, the Nonemployee Director Option, to the extent unexercised and exercisable on the date on which the Optionee's Service terminated, may be exercised by the Optionee's legal representative or other person who acquired the right to exercise the Nonemployee Director Option by reason of the Optionee's death at any time prior to the expiration of twelve (12) months after the date on which the Optionee's Service terminated, but in any event no later than the Option Expiration Date. The Optionee's Service shall be deemed to have terminated on account of death if the Optionee dies within six (6) months after the Optionee's termination of Service. (iii) OTHER TERMINATION OF SERVICE. If the Optionee's Service with the Participating Company Group terminates for any reason, except Disability or death, the Nonemployee Director Option, to the extent unexercised and exercisable by the Optionee on the date on which the Optionee's Service terminated, may be exercised by the Optionee within six 14 (6) months after the date on which the Optionee's Service terminated, but in any event no later than the Option Expiration Date. (b) EXTENSION IF EXERCISE PREVENTED BY LAW. Notwithstanding the foregoing, if the exercise of a Nonemployee Director Option within the applicable time periods set forth in Section 7.5(a) is prevented by the provisions of Section 12 below, the Nonemployee Director Option shall remain exercisable until three (3) months after the date the Optionee is notified by the Company that the Nonemployee Director Option is exercisable, but in any event no later than the Option Expiration Date. (c) EXTENSION IF OPTIONEE SUBJECT TO SECTION 16(b). Notwithstanding the foregoing, if a sale within the applicable time periods set forth in Section 7.5(a) of shares acquired upon the exercise of the Nonemployee Director Option would subject the Optionee to suit under Section 16(b) of the Exchange Act, the Nonemployee Director Option shall remain exercisable until the earliest to occur of (i) the tenth (10th) day following the date on which a sale of such shares by the Optionee would no longer be subject to such suit, (ii) the one hundred and ninetieth (190th) day after the Optionee's termination of Service, or (iii) the Option Expiration Date. 8. STANDARD FORMS OF OPTION AGREEMENT. 8.1 INCENTIVE STOCK OPTIONS. Unless otherwise provided by the Board at the time the Option is granted, an Option designated as an "Incentive Stock Option" shall comply with and be subject to the terms and conditions set forth in the appropriate form of Incentive Stock Option Agreement adopted by the Board concurrently with its adoption of the Plan and as amended from time to time. 8.2 NONSTATUTORY STOCK OPTIONS (OTHER THAN NONEMPLOYEE DIRECTOR OPTION). Unless otherwise provided by the Board at the time the Option is granted, an Option designated as a "Nonstatutory Stock Option" (other than a Nonemployee Director Option) shall comply with and be subject to the terms and conditions set forth in the appropriate form of Nonstatutory Stock Option Agreement adopted by the Board concurrently with its adoption of the Plan and as amended from time to time. 8.3 NONEMPLOYEE DIRECTOR OPTION. Each Nonemployee Director Option shall comply with and be subject to the terms and conditions set forth in the appropriate form of Nonstatutory Stock Option Agreement (Nonemployee Director Option) adopted by the Board concurrently with its adoption of the Plan and as amended from time to time. 8.4 AUTHORITY TO VARY TERMS. The Board shall have the authority from time to time to vary the terms of any of the standard forms of Option Agreement described in this Section 8 either in connection with the grant or amendment of an individual Option or in connection with the authorization of a new standard form or forms; provided, however, that the terms and conditions of any such new, revised or amended standard form or forms of Option Agreement are not inconsistent with the terms of the Plan. 15 9. CHANGE IN CONTROL. 9.1 DEFINITIONS. Except as otherwise determined by the Board and set forth in an Option Agreement, the following terms shall have their respective meanings set forth below: (a) An "OWNERSHIP CHANGE EVENT" shall be deemed to have occurred if any of the following occurs with respect to the Company: (i) the direct or indirect sale or exchange in a single or series of related transactions by the stockholders of the Company of more than fifty percent (50%) of the voting stock of the Company; (ii) a merger or consolidation in which the Company is a party; (iii) the sale, exchange, or transfer of all or substantially all of the assets of the Company; or (iv) a liquidation or dissolution of the Company. (b) A "CHANGE IN CONTROL" shall mean an Ownership Change Event or a series of related Ownership Change Events (collectively, the "TRANSACTION") wherein the stockholders of the Company immediately before the Transaction do not retain immediately after the Transaction, in substantially the same proportions as their ownership of shares of the Company's voting stock immediately before the Transaction, direct or indirect beneficial ownership of more than fifty percent (50%) of the total combined voting power of the outstanding voting stock of the Company or the corporation or corporations to which the assets of the Company were transferred (the "TRANSFEREE CORPORATION(S)"), as the case may be. For purposes of the preceding sentence, indirect beneficial ownership shall include, without limitation, an interest resulting from ownership of the voting stock of one or more corporations which, as a result of the Transaction, own the Company or the Transferee Corporation(s), as the case may be, either directly or through one or more subsidiary corporations. The Board shall have the right to determine whether multiple sales or exchanges of the voting stock of the Company or multiple Ownership Change Events are related, and its determination shall be final, binding and conclusive. 9.2 EFFECT OF CHANGE IN CONTROL ON OPTIONS. In the event of a Change in Control, each holder of an unexercisable or unvested outstanding Option shall be credited with an additional two (2) years of Service as of the date ten (10) days prior to the date of the Change in Control, solely for the purpose of determining the number of exercisable and vested shares of Stock subject to the Option. The exercise or vesting of any Option that was permissible solely by reason of this Section shall be conditioned upon the consummation of the Change in Control. In addition, the surviving, continuing, successor, or purchasing corporation or parent corporation thereof, as the case may be (the "ACQUIRING CORPORATION"), may either assume the Company's rights and obligations under outstanding Options or substitute for outstanding Options 16 substantially equivalent options for the Acquiring Corporation's stock. For purposes of this Section 9.2, an Option shall be deemed assumed if, following the Change in Control, the Option confers the right to purchase in accordance with its terms and conditions, for each share of Stock subject to the Option immediately prior to the Change in Control, the consideration (whether stock, cash or other securities or property) to which a holder of a share of Stock on the effective date of the Change in Control was entitled. Any Options which are neither assumed or substituted for by the Acquiring Corporation in connection with the Change in Control nor exercised as of the date of the Change in Control shall terminate and cease to be outstanding effective as of the date of the Change in Control. Notwithstanding the foregoing, if the corporation the stock of which is subject to the outstanding Options immediately prior to an Ownership Change Event described in Section 9.1(a)(i) constituting a Change in Control is the surviving or continuing corporation and immediately after such Ownership Change Event less than fifty percent (50%) of the total combined voting power of its voting stock is held by another corporation or by other corporations that are members of an affiliated group within the meaning of Section 1504(a) of the Code without regard to the provisions of Section 1504(b) of the Code, the outstanding Options shall not terminate unless the Board otherwise provides in its sole discretion. 9.3 NOTICE. The Company shall provide notice of a Change in Control to all holders of outstanding Options at least ten (10) days prior to the consummation of the Change in Control. The Company's notice shall summarize the principal terms of the Change in Control, including, without limitation, whether the Acquiring Corporation is assuming the outstanding Options or substituting equivalent options therefor. 10. PROVISION OF INFORMATION. Each Optionee shall be given access to information concerning the Company equivalent to that information generally made available to the Company's common stockholders. 11. TRANSFERABILITY OF OPTIONS. During the lifetime of the Optionee, an Option shall be exercisable only by the Optionee or the Optionee's guardian or legal representative. No Option shall be assignable or transferable by the Optionee, except by will or by the laws of descent and distribution. Notwithstanding the foregoing, a Nonstatutory Stock Option shall be assignable or transferable to the extent permitted by the Board and set forth in the Option Agreement evidencing such Option. 12. COMPLIANCE WITH SECURITIES LAW. The grant of Options and the issuance of shares of Stock upon exercise of Options shall be subject to compliance with all applicable requirements of federal, state or foreign law with respect to such securities. Options may not be exercised if the issuance of shares of Stock upon exercise would constitute a violation of any applicable federal, state or foreign securities laws or other law or regulations or the requirements of any stock exchange or market system upon which the Stock may then be listed. In addition, no Option may be exercised unless (a) a 17 registration statement under the Securities Act shall at the time of exercise of the Option be in effect with respect to the shares issuable upon exercise of the Option or (b) in the opinion of legal counsel to the Company, the shares issuable upon exercise of the Option may be issued in accordance with the terms of an applicable exemption from the registration requirements of the Securities Act. The inability of the Company to obtain from any regulatory body having jurisdiction the authority, if any, deemed by the Company's legal counsel to be necessary to the lawful issuance and sale of any shares hereunder shall relieve the Company of any liability in respect of the failure to issue or sell such shares as to which such requisite authority shall not have been obtained. As a condition to the exercise of any Option, the Company may require the Optionee to satisfy any qualifications that may be necessary or appropriate, to evidence compliance with any applicable law or regulation and to make any representation or warranty with respect thereto as may be requested by the Company. 13. INDEMNIFICATION. In addition to such other rights of indemnification as they may have as members of the Board or Officers or Employees of the Participating Company Group, members of the Board and any Officers or Employees of the Participating Company Group to whom authority to act for the Board or the Company is delegated shall be indemnified by the Company against all reasonable expenses, including attorneys' fees, actually and necessarily incurred in connection with the defense of any action, suit or proceeding, or in connection with any appeal therein, to which they or any of them may be a party by reason of any action taken or failure to act under or in connection with the Plan, or any right granted hereunder, and against all amounts paid by them in settlement thereof (provided such settlement is approved by independent legal counsel selected by the Company) or paid by them in satisfaction of a judgment in any such action, suit or proceeding, except in relation to matters as to which it shall be adjudged in such action, suit or proceeding that such person is liable for gross negligence, bad faith or intentional misconduct in duties; provided, however, that within sixty (60) days after the institution of such action, suit or proceeding, such person shall offer to the Company, in writing, the opportunity at its own expense to handle and defend the same. 14. TERMINATION OR AMENDMENT OF PLAN. The Board may terminate or amend the Plan at any time. However, subject to changes in applicable law, regulations or rules that would permit otherwise, without the approval of the Company's stockholders, there shall be (a) no increase in the maximum aggregate number of shares of Stock that may be issued under the Plan (except by operation of the provisions of Section 4.2), (b) no change in the class of persons eligible to receive Incentive Stock Options, and (c) no other amendment of the Plan that would require approval of the Company's stockholders under any applicable law, regulation or rule. In any event, no termination or amendment of the Plan may adversely affect any then outstanding Option or any unexercised portion thereof, without the consent of the Optionee, unless such termination or amendment is required to enable an Option designated as an Incentive Stock Option to qualify as an Incentive Stock Option or is necessary to comply with any applicable law, regulation or rule. 18 IN WITNESS WHEREOF, the undersigned Secretary of the Company certifies that the foregoing P.F. Chang's China Bistro, Inc. Amended and Restated 1998 Stock Option Plan was duly adopted by the Board on __________, 2004. /s/ Kristina C. Cashman ------------------------- Kristina C. Cashman 19 SHARE RESERVE HISTORY December 3, 1998 Board and stockholders approve Plan, with an initial reserve of 280,000 (post-split) shares. March 24, 2000 Board approves amendment to Plan to increase share reserve by 400,000, from 280,000 to 680,000 April 26, 2000 Stockholders approve amendment to Plan to increase share reserve by 400,000, from 280,000 to 680,000 December 12, 2001 Board approves amendment to Plan to increase share reserve by 500,000, from 680,000 to 1,180,000 April 3, 2002 Stockholders approve amendment to Plan to increase share reserve by 500,000, from 680,000 to 1,180,000 May 1, 2002 Board declares a 1:1 dividend which has the effect of doubling the share reserve, from 1,180,000 to 2,360,000 March 26, 2004 Board approves amendment to Plan to increase share reserve by 1,000,000, from 2,360,000 to 3,360,000 April 23, 2004 Stockholders approve amendment to Plan to increase share reserve by 1,000,000, from 2,360,000 to 3,360,000 October 5, 2004 Board approves amendment to Plan to restrict the use promissory notes when exercising stock options to non-officer employees 20 P.F. CHANG'S CHINA BISTRO, INC. NONSTATUTORY STOCK OPTION AGREEMENT (NONEMPLOYEE DIRECTOR) THIS NONSTATUTORY STOCK OPTION AGREEMENT (the "OPTION AGREEMENT") is made and entered into as of the Date of Option Grant by and between P.F. Chang's China Bistro, Inc. and ___________________________ (the "OPTIONEE"). The Company has granted to the Optionee pursuant to the P.F. Chang's China Bistro, Inc. 1998 Stock Option Plan (the "PLAN") an option to purchase certain shares of Stock, upon the terms and conditions set forth in this Option Agreement (the "OPTION"). 1. DEFINITIONS AND CONSTRUCTION. 1.1. DEFINITIONS. Whenever used herein, the following terms shall have their respective meanings set forth below: (a) "DATE OF OPTION GRANT" means ___________________ , 199 __ .. (b) "NUMBER OF OPTION SHARES" means __________________ shares of Stock, as adjusted from time to time pursuant to Section 9. (c) "EXERCISE PRICE" means $ ______________ per share of Stock, as adjusted from time to time pursuant to Section 9. (d) "OPTION EXPIRATION DATE" means the date ten (10) years after the Date of Option Grant. (e) "VESTED RATIO" means, on any relevant date, the ratio determined as follows:

1 (f) "BOARD" means the Board of Directors of the Company. If one or more Committees have been appointed by the Board to administer the Plan, "Board" shall also mean such Committee(s). (g) "CODE" means the Internal Revenue Code of 1986, as amended, and any applicable regulations promulgated thereunder. (h) "COMMITTEE" means the Compensation Committee or other committee of the Board duly appointed to administer the Plan and having such powers as shall be specified by the Board. Unless the powers of the Committee have been specifically limited, the Committee shall have all of the powers of the Board granted in the Plan, including, without limitation, the power to amend or terminate the Plan at any time, subject to the terms of the Plan and any applicable limitations imposed by law. (i) "COMPANY" means P.F. Chang's China Bistro, Inc., a Delaware corporation, or any successor corporation thereto. (j) "CONSULTANT" means any person, including an advisor, engaged by a Participating Company to render services other than as an Employee or a Director. (k) "DIRECTOR" means a member of the Board or of the board of directors of any other Participating Company. (l) "DISABILITY" means the permanent and total disability of the Optionee within the meaning of Section 22(e)(3) of the Code. (m) "EMPLOYEE" means any person treated as an employee (including an officer or a Director who is also treated as an employee) in the records of a Participating Company and who is an employee for purposes of Section 422 of the Code; provided, however, that neither service as a Director nor payment of a director's fee shall be sufficient to constitute employment for this purpose. The Company shall determine in good faith and in the exercise of its discretion whether an individual has become or has ceased to be an Employee and the effective date of such individual's employment or termination of employment, as the case may be. For purposes of an individual's rights, if any, under the Plan as of the time of the Company's determination, all such determinations by the Company shall be final, binding and conclusive, notwithstanding that the Company or any governmental agency subsequently makes a contrary determination. (n) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended. (o) "FAIR MARKET VALUE" means, as of any date, the value of a share of stock or other property as determined by the Board, in its sole discretion, or by the Company, in its sole discretion, if such determination is expressly allocated to the Company herein, subject to the following: 2 (i) If, on such date, there is a public market for the Stock, the Fair Market Value of a share of Stock shall be the closing price of a share of Stock (or the mean of the closing bid and asked prices of a share of Stock if the Stock is so quoted instead) as quoted on the Nasdaq National Market, the Nasdaq Small-Cap Market or such other national or regional securities exchange or market system constituting the primary market for the Stock, as reported in the Wall Street Journal or such other source as the Company deems reliable. If the relevant date does not fall on a day on which the Stock has traded on such securities exchange or market system, the date on which the Fair Market Value shall be established shall be the last day on which the Stock was so traded prior to the relevant date, or such other appropriate day as shall be determined by the Board, in its sole discretion. (ii) If, on such date, there is no public market for the Stock, the Fair Market Value of a share of Stock shall be as determined by the Board without regard to any restriction other than a restriction which, by its terms, will never lapse. (p) "PARENT CORPORATION" means any present or future "parent corporation" of the Company, as defined in Section 424(e) of the Code. (q) "PARTICIPATING COMPANY" means the Company or any Parent Corporation or Subsidiary Corporation. (r) "PARTICIPATING COMPANY GROUP" means, at any point in time, all corporations collectively which are then Participating Companies. (s) "SECURITIES ACT" means the Securities Act of 1933, as amended. (t) "SERVICE" means the Optionee's employment or service with the Participating Company Group, whether in the capacity of an Employee, a Director or a Consultant. The Optionee's Service shall not be deemed to have terminated merely because of a change in the capacity in which the Optionee renders Service to the Participating Company Group or a change in the Participating Company for which the Optionee renders such Service, provided that there is no interruption or termination of the Optionee's Service. Notwithstanding the foregoing, unless otherwise designated by the Company or required by law, a leave of absence shall not be treated as Service for purposes of determining the Vested Ratio. The Optionee's Service shall be deemed to have terminated either upon an actual termination of Service or upon the corporation for which the Optionee performs Service ceasing to be a Participating Company. Subject to the foregoing, the Company, in its sole discretion, shall determine whether the Optionee's Service has terminated and the effective date of such termination. (u) "STOCK" means the common stock of the Company, as adjusted from time to time in accordance with Section 9. (v) "SUBSIDIARY CORPORATION" means any present or future "subsidiary corporation" of the Company, as defined in Section 424(f) of the Code. 3 1.2. CONSTRUCTION. Captions and titles contained herein are for convenience only and shall not affect the meaning or interpretation of any provision of this Option Agreement. Except when otherwise indicated by the context, the singular shall include the plural and the plural shall include the singular. Use of the term "or" is not intended to be exclusive, unless the context clearly requires otherwise. 2. TAX STATUS OF OPTION. This Option is intended to be a nonstatutory stock option and shall not be treated as an incentive stock option within the meaning of Section 422(b) of the Code. 3. ADMINISTRATION. All questions of interpretation concerning this Option Agreement shall be determined by the Board. All determinations by the Board shall be final and binding upon all persons having an interest in the Option. Any officer of a Participating Company shall have the authority to act on behalf of the Company with respect to any matter, right, obligation, or election which is the responsibility of or which is allocated to the Company herein, provided the officer has apparent authority with respect to such matter, right, obligation, or election. 4. EXERCISE OF THE OPTION. 4.1. RIGHT TO EXERCISE. Except as otherwise provided herein, the Option shall be exercisable on and after the Date of Option Grant and prior to the termination of the Option (as provided in Section 6) in an amount not to exceed the Number of Option Shares multiplied by the Vested Ratio less the number of shares previously acquired upon exercise of the Option. In no event shall the Option be exercisable for more shares than the Number of Option Shares. 4.2. METHOD OF EXERCISE. Exercise of the Option shall be by written notice to the Company which must state the election to exercise the Option, the number of whole shares of Stock for which the Option is being exercised and such other representations and agreements as to the Optionee's investment intent with respect to such shares as may be required pursuant to the provisions of this Option Agreement. The written notice must be signed by the Optionee and must be delivered to the Chief Financial Officer of the Company, or other authorized representative of the Participating Company Group, prior to the termination of the Option as set forth in Section 6, accompanied by full payment of the aggregate Exercise Price for the number of shares of Stock being purchased and the tax withholding obligations, if any, as provided in Section 4.4. The Option shall be deemed to be exercised upon receipt by the Company of such written notice, the aggregate Exercise Price, and tax withholding obligations, if any. 4.3. PAYMENT OF EXERCISE PRICE. (a) FORMS OF CONSIDERATION AUTHORIZED. Except as otherwise provided below, payment of the aggregate Exercise Price for the number of shares of Stock for which the Option is being exercised shall be made (i) in cash or cash equivalent, (ii) by tender to the Company of whole shares of Stock owned by the Optionee having a Fair Market Value (as determined by the Company without regard to any restrictions on transferability applicable to 4 such stock by reason of federal or state securities laws or agreements with an underwriter for the Company) not less than the aggregate Exercise Price, (iii) by means of a Cashless Exercise, as defined in Section 4.3(c), or (iv) by any combination of the foregoing. (b) TENDER OF STOCK. Notwithstanding the foregoing, the Option may not be exercised by tender to the Company of shares of Stock to the extent such tender of Stock would constitute a violation of the provisions of any law, regulation or agreement restricting the redemption of the Company's stock. The Option may not be exercised by tender to the Company of shares of Stock unless such shares either have been owned by the Optionee for more than six (6) months or were not acquired, directly or indirectly, from the Company. (c) CASHLESS EXERCISE. A "CASHLESS EXERCISE" means the assignment in a form acceptable to the Company of the proceeds of a sale or loan with respect to some or all of the shares of Stock acquired upon the exercise of the Option pursuant to a program or procedure approved by the Company (including, without limitation, through an exercise complying with the provisions of Regulation T as promulgated from time to time by the Board of Governors of the Federal Reserve System). The Company reserves, at any and all times, the right, in the Company's sole and absolute discretion, to decline to approve or terminate any such program or procedure. 4.4. TAX WITHHOLDING. At the time the Option is exercised, in whole or in part, or at any time thereafter as requested by the Company, the Optionee hereby authorizes withholding from payroll and any other amounts payable to the Optionee, and otherwise agrees to make adequate provision for (including by means of a Cashless Exercise to the extent permitted by the Company), any sums required to satisfy the federal, state, local and foreign tax withholding obligations of the Participating Company Group, if any, which arise in connection with the Option, including, without limitation, obligations arising upon (i) the exercise, in whole or in part, of the Option, (ii) the transfer, in whole or in part, of any shares acquired upon exercise of the Option, (iii) the operation of any law or regulation providing for the imputation of interest, or (iv) the lapsing of any restriction with respect to any shares acquired upon exercise of the Option. The Optionee is cautioned that the Option is not exercisable unless the tax withholding obligations of the Participating Company Group are satisfied. Accordingly, the Optionee may not be able to exercise the Option when desired even though the Option is vested, and the Company shall have no obligation to issue a certificate for such shares. 4.5. CERTIFICATE REGISTRATION. Except in the event the Exercise Price is paid by means of a Cashless Exercise, the certificate for the shares as to which the Option is exercised shall be registered in the name of the Optionee, or, if applicable, in the names of the heirs of the Optionee. 4.6. RESTRICTIONS ON GRANT OF THE OPTION AND ISSUANCE OF SHARES. The grant of the Option and the issuance of shares of Stock upon exercise of the Option shall be subject to compliance with all applicable requirements of federal, state or foreign law with respect to such securities. The Option may not be exercised if the issuance of shares of Stock upon exercise would constitute a violation of any applicable federal, state or foreign securities laws or other law or regulations or the requirements of any stock exchange or market system upon which the Stock 5 may then be listed. In addition, the Option may not be exercised unless (i) a registration statement under the Securities Act shall at the time of exercise of the Option be in effect with respect to the shares issuable upon exercise of the Option or (ii) in the opinion of legal counsel to the Company, the shares issuable upon exercise of the Option may be issued in accordance with the terms of an applicable exemption from the registration requirements of the Securities Act. THE OPTIONEE IS CAUTIONED THAT THE OPTION MAY NOT BE EXERCISED UNLESS THE FOREGOING CONDITIONS ARE SATISFIED. ACCORDINGLY, THE OPTIONEE MAY NOT BE ABLE TO EXERCISE THE OPTION WHEN DESIRED EVEN THOUGH THE OPTION IS VESTED. Questions concerning this restriction should be directed to the Chief Financial Officer of the Company. The inability of the Company to obtain from any regulatory body having jurisdiction the authority, if any, deemed by the Company's legal counsel to be necessary to the lawful issuance and sale of any shares subject to the Option shall relieve the Company of any liability in respect of the failure to issue or sell such shares as to which such requisite authority shall not have been obtained. As a condition to the exercise of the Option, the Company may require the Optionee to satisfy any qualifications that may be necessary or appropriate, to evidence compliance with any applicable law or regulation and to make any representation or warranty with respect thereto as may be requested by the Company. 4.7. FRACTIONAL SHARES. The Company shall not be required to issue fractional shares upon the exercise of the Option. 5. NONTRANSFERABILITY OF THE OPTION. The Option may be exercised during the lifetime of the Optionee only by the Optionee or the Optionee's guardian or legal representative and may not be assigned or transferred in any manner except by will or by the laws of descent and distribution. Following the death of the Optionee, the Option, to the extent provided in Section 7, may be exercised by the Optionee's legal representative or by any person empowered to do so under the deceased Optionee's will or under the then applicable laws of descent and distribution. 6. TERMINATION OF THE OPTION. The Option shall terminate and may no longer be exercised on the first to occur of (a) the Option Expiration Date, (b) the last date for exercising the Option following termination of the Optionee's Service as described in Section 7, or (c) a Change in Control to the extent provided in Section 8. 6 7. EFFECT OF TERMINATION OF SERVICE. 7.1. OPTION EXERCISABILITY. (a) DISABILITY. If the Optionee's Service with the Participating Company Group is terminated because of the Disability of the Optionee, the Option, to the extent unexercised and exercisable on the date on which the Optionee's Service terminated, may be exercised by the Optionee (or the Optionee's guardian or legal representative) at any time prior to the expiration of twelve (12) months after the date on which the Optionee's Service terminated, but in any event no later than the Option Expiration Date. (b) DEATH. If the Optionee's Service with the Participating Company Group is terminated because of the death of the Optionee, the Option, to the extent unexercised and exercisable on the date on which the Optionee's Service terminated, may be exercised by the Optionee's legal representative or other person who acquired the right to exercise the Option by reason of the Optionee's death at any time prior to the expiration of twelve (12) months after the date on which the Optionee's Service terminated, but in any event no later than the Option Expiration Date. The Optionee's Service shall be deemed to have terminated on account of death if the Optionee dies within six (6) months after the Optionee's termination of Service. (c) OTHER TERMINATION OF SERVICE. If the Optionee's Service with the Participating Company Group terminates for any reason, except Disability or death, the Option, to the extent unexercised and exercisable by the Optionee on the date on which the Optionee's Service terminated, may be exercised by the Optionee within six (6) months (or such other longer period of time as determined by the Board, in its sole discretion) after the date on which the Optionee's Service terminated, but in any event no later than the Option Expiration Date. 7.2. EXTENSION IF EXERCISE PREVENTED BY LAW. Notwithstanding the foregoing, if the exercise of the Option within the applicable time periods set forth in Section 7.1 is prevented by the provisions of Section 4.6, the Option shall remain exercisable until three (3) months after the date the Optionee is notified by the Company that the Option is exercisable, but in any event no later than the Option Expiration Date. 7.3. EXTENSION IF OPTIONEE SUBJECT TO SECTION 16(b). Notwithstanding the foregoing, if a sale within the applicable time periods set forth in Section 7.1 of shares acquired upon the exercise of the Option would subject the Optionee to suit under Section 16(b) of the Exchange Act, the Option shall remain exercisable until the earliest to occur of (i) the tenth (10th) day following the date on which a sale of such shares by the Optionee would no longer be subject to such suit, (ii) the one hundred and ninetieth (190th) day after the Optionee's termination of Service, or (iii) the Option Expiration Date. 8. CHANGE IN CONTROL. 8.1. DEFINITIONS. (a) An "OWNERSHIP CHANGE EVENT" shall be deemed to have occurred if any of the following occurs with respect to the Company: 7 (i) the direct or indirect sale or exchange in a single or series of related transactions by the stockholders of the Company of more than fifty percent (50%) of the voting stock of the Company; (ii) a merger or consolidation in which the Company is a party; (iii) the sale, exchange, or transfer of all or substantially all of the assets of the Company; or (iv) a liquidation or dissolution of the Company. (b) A "CHANGE IN CONTROL" shall mean an Ownership Change Event or a series of related Ownership Change Events (collectively, the "TRANSACTION") wherein the stockholders of the Company immediately before the Transaction do not retain immediately after the Transaction, in substantially the same proportions as their ownership of shares of the Company's voting stock immediately before the Transaction, direct or indirect beneficial ownership of more than fifty percent (50%) of the total combined voting power of the outstanding voting stock of the Company or the corporation or corporations to which the assets of the Company were transferred (the "TRANSFEREE CORPORATION(S)"), as the case may be. For purposes of the preceding sentence, indirect beneficial ownership shall include, without limitation, an interest resulting from ownership of the voting stock of one or more corporations which, as a result of the Transaction, own the Company or the Transferee Corporation(s), as the case may be, either directly or through one or more subsidiary corporations. The Board shall have the right to determine whether multiple sales or exchanges of the voting stock of the Company or multiple Ownership Change Events are related, and its determination shall be final, binding and conclusive. 8.2. EFFECT OF CHANGE IN CONTROL ON OPTION. In the event of a Change in Control, the Optionee shall be credited with an additional two (2) years of Service as of the date ten (10) days prior to the date of the Change in Control, solely for purposes of determining the Vested Ratio. Any exercise or vesting of the Option that was permissible solely by reason of this Section 8.2 shall be conditioned upon the consummation of the Change in Control. In addition, the surviving, continuing, successor, or purchasing corporation or parent corporation thereof, as the case may be (the "ACQUIRING CORPORATION"), may either assume the Company's rights and obligations under the Option or substitute for the Option a substantially equivalent option for the Acquiring Corporation's stock. For purposes of this Section 8.2, the Option shall be deemed assumed if, following the Change in Control, the Option confers the right to purchase in accordance with its terms and conditions, for each share of Stock subject to the Option immediately prior to the Change in Control, the consideration (whether stock, cash or other securities or property) to which a holder of a share of Stock on the effective date of the Change in Control was entitled. The Option shall terminate and cease to be outstanding effective as of the date of the Change in Control to the extent that the Option is neither assumed or substituted for by the Acquiring Corporation in connection with the Change in Control nor exercised as of the date of the Change in Control. Notwithstanding the foregoing, if the corporation the stock of which is subject to the Option immediately prior to an Ownership Change Event described in Section 8.1(a)(i) constituting a Change in Control is the surviving or continuing corporation and 8 immediately after any such event less than fifty percent (50%) of the total combined voting power of its voting stock is held by another corporation or by other corporations that are members of an affiliated group within the meaning of Section 1504(a) of the Code without regard to the provisions of Section 1504(b) of the Code, the Option shall not terminate unless the Board otherwise provides in its sole discretion. 8.3. NOTICE. The Company shall provide notice of a Change in Control to the Optionee at least ten (10) days prior to the consummation of a Change in Control. The Company's notice shall summarize the principal terms of the Change in Control, including, without limitation, whether the Acquiring Corporation is assuming the Option or substituting an equivalent option therefor. 9. ADJUSTMENTS FOR CHANGES IN CAPITAL STRUCTURE. In the event of any stock dividend, stock split, reverse stock split, recapitalization, combination, reclassification, or similar change in the capital structure of the Company, appropriate adjustments shall be made in the number, Exercise Price and class of shares of stock subject to the Option. If a majority of the shares which are of the same class as the shares that are subject to the Option are exchanged for, converted into, or otherwise become (whether or not pursuant to an Ownership Change Event) shares of another corporation (the "NEW SHARES"), the Board may unilaterally amend the Option to provide that the Option is exercisable for New Shares. In the event of any such amendment, the Number of Option Shares and the Exercise Price shall be adjusted in a fair and equitable manner, as determined by the Board, in its sole discretion. Notwithstanding the foregoing, any fractional share resulting from an adjustment pursuant to this Section 9 shall be rounded up or down to the nearest whole number, as determined by the Board, and in no event may the Exercise Price be decreased to an amount less than the par value, if any, of the stock subject to the Option. The adjustments determined by the Board pursuant to this Section 9 shall be final, binding and conclusive. 10. RIGHTS AS A STOCKHOLDER. The Optionee shall have no rights as a stockholder with respect to any shares covered by the Option until the date of the issuance of a certificate for the shares for which the Option has been exercised (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company). No adjustment shall be made for dividends, distributions or other rights for which the record date is prior to the date such certificate is issued, except as provided in Section 9. 9 11. LEGENDS. The Company may at any time place legends referencing any applicable federal, state or foreign securities law restrictions on all certificates representing shares of stock subject to the provisions of this Option Agreement. The Optionee shall, at the request of the Company, promptly present to the Company any and all certificates representing shares acquired pursuant to the Option in the possession of the Optionee in order to carry out the provisions of this Section. 12. BINDING EFFECT. Subject to the restrictions on transfer set forth herein, this Option Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective heirs, executors, administrators, successors and assigns. 13. TERMINATION OR AMENDMENT. The Board may terminate or amend the Plan or the Option at any time; provided, however, that except as provided in Section 8.2 in connection with a Change in Control, no such termination or amendment may adversely affect the Option or any unexercised portion hereof without the consent of the Optionee unless such termination or amendment is necessary to comply with any applicable law or government regulation. No amendment or addition to this Option Agreement shall be effective unless in writing. 14. NOTICES. Any notice required or permitted hereunder shall be given in writing and shall be deemed effectively given (except to the extent that this Option Agreement provides for effectiveness only upon actual receipt of such notice) upon personal delivery or upon deposit in the United States Post Office, by registered or certified mail, with postage and fees prepaid, addressed to the other party at the address of such party as set forth below that party's signature or at such other address as such party may designate in writing from time to time to the other party. 10 15. INTEGRATED AGREEMENT. This Option Agreement constitutes the entire understanding and agreement of the Optionee and the Participating Company Group with respect to the subject matter contained herein, and there are no agreements, understandings, restrictions, representations, or warranties among the Optionee and the Participating Company Group with respect to such subject matter other than those as set forth or provided for herein. To the extent contemplated herein, the provisions of this Option Agreement shall survive any exercise of the Option and shall remain in full force and effect. 16. APPLICABLE LAW. This Option Agreement shall be governed by the laws of the State of Delaware as such laws are applied to agreements between Delaware residents entered into and to be performed entirely within the State of Delaware. P.F. CHANG'S CHINA BISTRO, INC. By: ________________________________ Title: _____________________________ Address: ___________________________ ___________________________ The Optionee represents that the Optionee is familiar with the terms and provisions of this Option Agreement, and hereby accepts the Option subject to all of the terms and provisions thereof. The Optionee hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Board upon any questions arising under this Option Agreement. OPTIONEE Date:_____________________________ ____________________________________ Optionee Address: ____________________________________ ____________________________________ 11 P.F. CHANG'S CHINA BISTRO, INC. NONSTATUTORY STOCK OPTION AGREEMENT THIS NONSTATUTORY STOCK OPTION AGREEMENT (the "OPTION AGREEMENT") is made and entered into as of the Date of Option Grant by and between P.F. Chang's China Bistro, Inc. and ___________________________ (the "OPTIONEE"). The Company has granted to the Optionee pursuant to the P.F. Chang's China Bistro, Inc. 1998 Stock Option Plan (the "PLAN") an option to purchase certain shares of Stock, upon the terms and conditions set forth in this Option Agreement (the "OPTION"). 1. DEFINITIONS AND CONSTRUCTION. 1.1. DEFINITIONS. Whenever used herein, the following terms shall have their respective meanings set forth below: (a) "DATE OF OPTION GRANT" means ___________________ , 199 __ . (b) "NUMBER OF OPTION SHARES" means __________________ shares of Stock, as adjusted from time to time pursuant to Section 9. (c) "EXERCISE PRICE" means $ ______________ per share of Stock, as adjusted from time to time pursuant to Section 9. (d) "OPTION EXPIRATION DATE" means the date ten (10) years after the Date of Option Grant. (e) "VESTED RATIO" means, on any relevant date, the ratio determined as follows:

1 (f) "BOARD" means the Board of Directors of the Company. If one or more Committees have been appointed by the Board to administer the Plan, "Board" shall also mean such Committee(s). (g) "CAUSE" means any of the following: (i) the Optionee's theft, dishonesty, or falsification of any Participating Company documents or records; (ii) the Optionee's improper use or disclosure of a Participating Company's confidential or proprietary information; (iii) any action by the Optionee which has a detrimental effect on a Participating Company's reputation or business; (iv) the Optionee's failure or inability to perform any reasonable assigned duties after written notice from the Participating Company Group of, and a reasonable opportunity to cure, such failure or inability; (v) any material breach by the Optionee of any agreement of employment or service between the Optionee and the Participating Company Group, which breach is not cured pursuant to the terms of such agreement; or (vi) the Optionee's conviction (including any plea of guilty or nolo contendere) of any criminal act which impairs the Optionee's ability to perform his or her duties with the Participating Company Group. A determination by the Board that the Optionee was terminated for Cause shall be final and binding upon the Optionee for all purposes and shall not be subject to review by any governmental agency or court of law. (h) "CODE" means the Internal Revenue Code of 1986, as amended, and any applicable regulations promulgated thereunder. (i) "COMMITTEE" means the Compensation Committee or other committee of the Board duly appointed to administer the Plan and having such powers as shall be specified by the Board. Unless the powers of the Committee have been specifically limited, the Committee shall have all of the powers of the Board granted in the Plan, including, without limitation, the power to amend or terminate the Plan at any time, subject to the terms of the Plan and any applicable limitations imposed by law. (j) "COMPANY" means P.F. Chang's China Bistro, Inc., a Delaware corporation, or any successor corporation thereto. (k) "CONSULTANT" means any person, including an advisor, engaged by a Participating Company to render services other than as an Employee or a Director. (l) "DIRECTOR" means a member of the Board or of the board of directors of any other Participating Company. (m) "DISABILITY" means the permanent and total disability of the Optionee within the meaning of Section 22(e)(3) of the Code. (n) "EMPLOYEE" means any person treated as an employee (including an officer or a Director who is also treated as an employee) in the records of a Participating Company and who is an employee for purposes of Section 422 of the Code; provided, however, that neither service as a Director nor payment of a director's fee shall be sufficient to constitute employment for this purpose. The Company shall determine in good faith and in the exercise of its discretion whether an individual has become or has ceased to be an Employee and the 2 effective date of such individual's employment or termination of employment, as the case may be. For purposes of an individual's rights, if any, under the Plan as of the time of the Company's determination, all such determinations by the Company shall be final, binding and conclusive, notwithstanding that the Company or any governmental agency subsequently makes a contrary determination. (o) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended. (p) "FAIR MARKET VALUE" means, as of any date, the value of a share of stock or other property as determined by the Board, in its sole discretion, or by the Company, in its sole discretion, if such determination is expressly allocated to the Company herein, subject to the following: (i) If, on such date, there is a public market for the Stock, the Fair Market Value of a share of Stock shall be the closing price of a share of Stock (or the mean of the closing bid and asked prices of a share of Stock if the Stock is so quoted instead) as quoted on the Nasdaq National Market, the Nasdaq Small-Cap Market or such other national or regional securities exchange or market system constituting the primary market for the Stock, as reported in the Wall Street Journal or such other source as the Company deems reliable. If the relevant date does not fall on a day on which the Stock has traded on such securities exchange or market system, the date on which the Fair Market Value shall be established shall be the last day on which the Stock was so traded prior to the relevant date, or such other appropriate day as shall be determined by the Board, in its sole discretion. (ii) If, on such date, there is no public market for the Stock, the Fair Market Value of a share of Stock shall be as determined by the Board without regard to any restriction other than a restriction which, by its terms, will never lapse. (q) "PARENT CORPORATION" means any present or future "parent corporation" of the Company, as defined in Section 424(e) of the Code. (r) "PARTICIPATING COMPANY" means the Company or any Parent Corporation or Subsidiary Corporation. (s) "PARTICIPATING COMPANY GROUP" means, at any point in time, all corporations collectively which are then Participating Companies. (t) "SECURITIES ACT" means the Securities Act of 1933, as amended. (u) "SERVICE" means the Optionee's employment or service with the Participating Company Group, whether in the capacity of an Employee, a Director or a Consultant. The Optionee's Service shall not be deemed to have terminated merely because of a change in the capacity in which the Optionee renders Service to the Participating Company Group or a change in the Participating Company for which the Optionee renders such Service, provided that there is no interruption or termination of the Optionee's Service. Notwithstanding the foregoing, unless otherwise designated by the Company or required by law, a leave of 3 absence shall not be treated as Service for purposes of determining the Vested Ratio. The Optionee's Service shall be deemed to have terminated either upon an actual termination of Service or upon the corporation for which the Optionee performs Service ceasing to be a Participating Company. Subject to the foregoing, the Company, in its sole discretion, shall determine whether the Optionee's Service has terminated and the effective date of such termination. (v) "STOCK" means the common stock of the Company, as adjusted from time to time in accordance with Section 9. (w) "SUBSIDIARY CORPORATION" means any present or future "subsidiary corporation" of the Company, as defined in Section 424(f) of the Code. 1.2. CONSTRUCTION. Captions and titles contained herein are for convenience only and shall not affect the meaning or interpretation of any provision of this Option Agreement. Except when otherwise indicated by the context, the singular shall include the plural and the plural shall include the singular. Use of the term "or" is not intended to be exclusive, unless the context clearly requires otherwise. 2. TAX STATUS OF OPTION. This Option is intended to be a nonstatutory stock option and shall not be treated as an incentive stock option within the meaning of Section 422(b) of the Code. 3. ADMINISTRATION. All questions of interpretation concerning this Option Agreement shall be determined by the Board. All determinations by the Board shall be final and binding upon all persons having an interest in the Option. Any officer of a Participating Company shall have the authority to act on behalf of the Company with respect to any matter, right, obligation, or election which is the responsibility of or which is allocated to the Company herein, provided the officer has apparent authority with respect to such matter, right, obligation, or election. 4. EXERCISE OF THE OPTION. 4.1. RIGHT TO EXERCISE. Except as otherwise provided herein, the Option shall be exercisable on and after the Date of Option Grant and prior to the termination of the Option (as provided in Section 6) in an amount not to exceed the Number of Option Shares multiplied by the Vested Ratio less the number of shares previously acquired upon exercise of the Option. In no event shall the Option be exercisable for more shares than the Number of Option Shares. 4.2. METHOD OF EXERCISE. Exercise of the Option shall be by written notice to the Company which must state the election to exercise the Option, the number of whole shares of Stock for which the Option is being exercised and such other representations and agreements as to the Optionee's investment intent with respect to such shares as may be required pursuant to the provisions of this Option Agreement. The written notice must be signed by the Optionee and must be delivered to the Chief Financial Officer of the Company, or other authorized 4 representative of the Participating Company Group, prior to the termination of the Option as set forth in Section 6, accompanied by full payment of the aggregate Exercise Price for the number of shares of Stock being purchased and the tax withholding obligations, if any, as provided in Section 4.4. The Option shall be deemed to be exercised upon receipt by the Company of such written notice, the aggregate Exercise Price, and tax withholding obligations, if any. 4.3. PAYMENT OF EXERCISE PRICE. (a) FORMS OF CONSIDERATION AUTHORIZED. Except as otherwise provided below, payment of the aggregate Exercise Price for the number of shares of Stock for which the Option is being exercised shall be made (i) in cash or cash equivalent, (ii) by tender to the Company of whole shares of Stock owned by the Optionee having a Fair Market Value (as determined by the Company without regard to any restrictions on transferability applicable to such stock by reason of federal or state securities laws or agreements with an underwriter for the Company) not less than the aggregate Exercise Price, (iii) by means of a Cashless Exercise, as defined in Section 4.3(c), or (iv) by any combination of the foregoing. (b) TENDER OF STOCK. Notwithstanding the foregoing, the Option may not be exercised by tender to the Company of shares of Stock to the extent such tender of Stock would constitute a violation of the provisions of any law, regulation or agreement restricting the redemption of the Company's stock. The Option may not be exercised by tender to the Company of shares of Stock unless such shares either have been owned by the Optionee for more than six (6) months or were not acquired, directly or indirectly, from the Company. (c) CASHLESS EXERCISE. A "CASHLESS EXERCISE" means the assignment in a form acceptable to the Company of the proceeds of a sale or loan with respect to some or all of the shares of Stock acquired upon the exercise of the Option pursuant to a program or procedure approved by the Company (including, without limitation, through an exercise complying with the provisions of Regulation T as promulgated from time to time by the Board of Governors of the Federal Reserve System). The Company reserves, at any and all times, the right, in the Company's sole and absolute discretion, to decline to approve or terminate any such program or procedure. 4.4. TAX WITHHOLDING. At the time the Option is exercised, in whole or in part, or at any time thereafter as requested by the Company, the Optionee hereby authorizes withholding from payroll and any other amounts payable to the Optionee, and otherwise agrees to make adequate provision for (including by means of a Cashless Exercise to the extent permitted by the Company), any sums required to satisfy the federal, state, local and foreign tax withholding obligations of the Participating Company Group, if any, which arise in connection with the Option, including, without limitation, obligations arising upon (i) the exercise, in whole or in part, of the Option, (ii) the transfer, in whole or in part, of any shares acquired upon exercise of the Option, (iii) the operation of any law or regulation providing for the imputation of interest, or (iv) the lapsing of any restriction with respect to any shares acquired upon exercise of the Option. The Optionee is cautioned that the Option is not exercisable unless the tax withholding obligations of the Participating Company Group are satisfied. Accordingly, the 5 Optionee may not be able to exercise the Option when desired even though the Option is vested, and the Company shall have no obligation to issue a certificate for such shares. 4.5. CERTIFICATE REGISTRATION. Except in the event the Exercise Price is paid by means of a Cashless Exercise, the certificate for the shares as to which the Option is exercised shall be registered in the name of the Optionee, or, if applicable, in the names of the heirs of the Optionee. 4.6. RESTRICTIONS ON GRANT OF THE OPTION AND ISSUANCE OF SHARES. The grant of the Option and the issuance of shares of Stock upon exercise of the Option shall be subject to compliance with all applicable requirements of federal, state or foreign law with respect to such securities. The Option may not be exercised if the issuance of shares of Stock upon exercise would constitute a violation of any applicable federal, state or foreign securities laws or other law or regulations or the requirements of any stock exchange or market system upon which the Stock may then be listed. In addition, the Option may not be exercised unless (i) a registration statement under the Securities Act shall at the time of exercise of the Option be in effect with respect to the shares issuable upon exercise of the Option or (ii) in the opinion of legal counsel to the Company, the shares issuable upon exercise of the Option may be issued in accordance with the terms of an applicable exemption from the registration requirements of the Securities Act. THE OPTIONEE IS CAUTIONED THAT THE OPTION MAY NOT BE EXERCISED UNLESS THE FOREGOING CONDITIONS ARE SATISFIED. ACCORDINGLY, THE OPTIONEE MAY NOT BE ABLE TO EXERCISE THE OPTION WHEN DESIRED EVEN THOUGH THE OPTION IS VESTED. Questions concerning this restriction should be directed to the Chief Financial Officer of the Company. The inability of the Company to obtain from any regulatory body having jurisdiction the authority, if any, deemed by the Company's legal counsel to be necessary to the lawful issuance and sale of any shares subject to the Option shall relieve the Company of any liability in respect of the failure to issue or sell such shares as to which such requisite authority shall not have been obtained. As a condition to the exercise of the Option, the Company may require the Optionee to satisfy any qualifications that may be necessary or appropriate, to evidence compliance with any applicable law or regulation and to make any representation or warranty with respect thereto as may be requested by the Company. 4.7. FRACTIONAL SHARES. The Company shall not be required to issue fractional shares upon the exercise of the Option. 5. NONTRANSFERABILITY OF THE OPTION. The Option may be exercised during the lifetime of the Optionee only by the Optionee or the Optionee's guardian or legal representative and may not be assigned or transferred in any manner except by will or by the laws of descent and distribution. Following the death of the Optionee, the Option, to the extent provided in Section 7, may be exercised by the Optionee's legal representative or by any person empowered to do so under the deceased Optionee's will or under the then applicable laws of descent and distribution. 6. TERMINATION OF THE OPTION. 6 The Option shall terminate and may no longer be exercised on the first to occur of (a) the Option Expiration Date, (b) the last date for exercising the Option following termination of the Optionee's Service as described in Section 7, or (c) a Change in Control to the extent provided in Section 8. 7. EFFECT OF TERMINATION OF SERVICE. 7.1. OPTION EXERCISABILITY. (a) DISABILITY. If the Optionee's Service with the Participating Company Group is terminated because of the Disability of the Optionee, the Option, to the extent unexercised and exercisable on the date on which the Optionee's Service terminated, may be exercised by the Optionee (or the Optionee's guardian or legal representative) at any time prior to the expiration of twelve (12) months after the date on which the Optionee's Service terminated, but in any event no later than the Option Expiration Date. (b) DEATH. If the Optionee's Service with the Participating Company Group is terminated because of the death of the Optionee, the Option, to the extent unexercised and exercisable on the date on which the Optionee's Service terminated, may be exercised by the Optionee's legal representative or other person who acquired the right to exercise the Option by reason of the Optionee's death at any time prior to the expiration of twelve (12) months after the date on which the Optionee's Service terminated, but in any event no later than the Option Expiration Date. The Optionee's Service shall be deemed to have terminated on account of death if the Optionee dies within three (3) months after the Optionee's termination of Service. (c) OTHER TERMINATION OF SERVICE. If the Optionee's Service with the Participating Company Group terminates for any reason, except Disability, death, or Cause, the Option, to the extent unexercised and exercisable by the Optionee on the date on which the Optionee's Service terminated, may be exercised by the Optionee within three (3) months (or such other longer period of time as determined by the Board, in its sole discretion) after the date on which the Optionee's Service terminated, but in any event no later than the Option Expiration Date. 7.2. EXTENSION IF EXERCISE PREVENTED BY LAW. Notwithstanding the foregoing, if the exercise of the Option within the applicable time periods set forth in Section 7.1 is prevented by the provisions of Section 4.6, the Option shall remain exercisable until three (3) months after the date the Optionee is notified by the Company that the Option is exercisable, but in any event no later than the Option Expiration Date. 7.3. EXTENSION IF OPTIONEE SUBJECT TO SECTION 16(b). Notwithstanding the foregoing, if a sale within the applicable time periods set forth in Section 7.1 of shares acquired upon the exercise of the Option would subject the Optionee to suit under Section 16(b) of the Exchange Act, the Option shall remain exercisable until the earliest to occur of (i) the tenth (10th) day following the date on which a sale of such shares by the Optionee would no longer be subject to such suit, (ii) the one hundred and ninetieth (190th) day after the Optionee's termination of Service, or (iii) the Option Expiration Date. 7 7.4. TERMINATION FOR CAUSE. Except as otherwise provided in a contract of employment or service between a Participating Company and the Optionee, and notwithstanding any other provision of this Option Agreement to the contrary, if the Optionee's Service with the Participating Company Group is terminated for Cause, the Option shall terminate and cease to be exercisable immediately upon such termination of Service. 8. CHANGE IN CONTROL. 8.1. DEFINITIONS. (a) An "OWNERSHIP CHANGE EVENT" shall be deemed to have occurred if any of the following occurs with respect to the Company: (i) the direct or indirect sale or exchange in a single or series of related transactions by the stockholders of the Company of more than fifty percent (50%) of the voting stock of the Company; (ii) a merger or consolidation in which the Company is a party; (iii) the sale, exchange, or transfer of all or substantially all of the assets of the Company; or (iv) a liquidation or dissolution of the Company. (b) A "CHANGE IN CONTROL" shall mean an Ownership Change Event or a series of related Ownership Change Events (collectively, the "TRANSACTION") wherein the stockholders of the Company immediately before the Transaction do not retain immediately after the Transaction, in substantially the same proportions as their ownership of shares of the Company's voting stock immediately before the Transaction, direct or indirect beneficial ownership of more than fifty percent (50%) of the total combined voting power of the outstanding voting stock of the Company or the corporation or corporations to which the assets of the Company were transferred (the "TRANSFEREE CORPORATION(S)"), as the case may be. For purposes of the preceding sentence, indirect beneficial ownership shall include, without limitation, an interest resulting from ownership of the voting stock of one or more corporations which, as a result of the Transaction, own the Company or the Transferee Corporation(s), as the case may be, either directly or through one or more subsidiary corporations. The Board shall have the right to determine whether multiple sales or exchanges of the voting stock of the Company or multiple Ownership Change Events are related, and its determination shall be final, binding and conclusive. 8.2. EFFECT OF CHANGE IN CONTROL ON OPTION. In the event of a Change in Control, the Optionee shall be credited with an additional two (2) years of Service as of the date ten (10) days prior to the date of the Change in Control, solely for purposes of determining the Vested Ratio. Any exercise or vesting of the Option that was permissible solely by reason of this Section 8.2 shall be conditioned upon the consummation of the Change in Control. In addition, the surviving, continuing, successor, or purchasing corporation or parent corporation thereof, as the case may be (the "ACQUIRING CORPORATION"), may either assume the Company's rights and 8 obligations under the Option or substitute for the Option a substantially equivalent option for the Acquiring Corporation's stock. For purposes of this Section 8.2, the Option shall be deemed assumed if, following the Change in Control, the Option confers the right to purchase in accordance with its terms and conditions, for each share of Stock subject to the Option immediately prior to the Change in Control, the consideration (whether stock, cash or other securities or property) to which a holder of a share of Stock on the effective date of the Change in Control was entitled. The Option shall terminate and cease to be outstanding effective as of the date of the Change in Control to the extent that the Option is neither assumed or substituted for by the Acquiring Corporation in connection with the Change in Control nor exercised as of the date of the Change in Control. Notwithstanding the foregoing, if the corporation the stock of which is subject to the Option immediately prior to an Ownership Change Event described in Section 8.1(a)(i) constituting a Change in Control is the surviving or continuing corporation and immediately after any such event less than fifty percent (50%) of the total combined voting power of its voting stock is held by another corporation or by other corporations that are members of an affiliated group within the meaning of Section 1504(a) of the Code without regard to the provisions of Section 1504(b) of the Code, the Option shall not terminate unless the Board otherwise provides in its sole discretion. 8.3. NOTICE. The Company shall provide notice of a Change in Control to the Optionee at least ten (10) days prior to the consummation of a Change in Control. The Company's notice shall summarize the principal terms of the Change in Control, including, without limitation, whether the Acquiring Corporation is assuming the Option or substituting an equivalent option therefor. 9. ADJUSTMENTS FOR CHANGES IN CAPITAL STRUCTURE. In the event of any stock dividend, stock split, reverse stock split, recapitalization, combination, reclassification, or similar change in the capital structure of the Company, appropriate adjustments shall be made in the number, Exercise Price and class of shares of stock subject to the Option. If a majority of the shares which are of the same class as the shares that are subject to the Option are exchanged for, converted into, or otherwise become (whether or not pursuant to an Ownership Change Event) shares of another corporation (the "NEW SHARES"), the Board may unilaterally amend the Option to provide that the Option is exercisable for New Shares. In the event of any such amendment, the Number of Option Shares and the Exercise Price shall be adjusted in a fair and equitable manner, as determined by the Board, in its sole discretion. Notwithstanding the foregoing, any fractional share resulting from an adjustment pursuant to this Section 9 shall be rounded up or down to the nearest whole number, as determined by the Board, and in no event may the Exercise Price be decreased to an amount less than the par value, if any, of the stock subject to the Option. The adjustments determined by the Board pursuant to this Section 9 shall be final, binding and conclusive. 10. RIGHTS AS A STOCKHOLDER, EMPLOYEE OR CONSULTANT. The Optionee shall have no rights as a stockholder with respect to any shares covered by the Option until the date of the issuance of a certificate for the shares for which the Option has been exercised (as evidenced by the appropriate entry on the books of the Company or of a duly 9 authorized transfer agent of the Company). No adjustment shall be made for dividends, distributions or other rights for which the record date is prior to the date such certificate is issued, except as provided in Section 9. If the Optionee is an Employee, the Optionee understands and acknowledges that, except as otherwise provided in a separate, written employment agreement between a Participating Company and the Optionee, the Optionee's employment is "at will" and is for no specified term. Nothing in this Option Agreement shall confer upon the Optionee, whether an Employee or Consultant, any right to continue in the Service of a Participating Company or interfere in any way with any right of the Participating Company Group to terminate the Optionee's Service as an Employee or Consultant, as the case may be, at any time. 11. LEGENDS. The Company may at any time place legends referencing any applicable federal, state or foreign securities law restrictions on all certificates representing shares of stock subject to the provisions of this Option Agreement. The Optionee shall, at the request of the Company, promptly present to the Company any and all certificates representing shares acquired pursuant to the Option in the possession of the Optionee in order to carry out the provisions of this Section. 12. BINDING EFFECT. Subject to the restrictions on transfer set forth herein, this Option Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective heirs, executors, administrators, successors and assigns. 13. TERMINATION OR AMENDMENT. The Board may terminate or amend the Plan or the Option at any time; provided, however, that except as provided in Section 8.2 in connection with a Change in Control, no such termination or amendment may adversely affect the Option or any unexercised portion hereof without the consent of the Optionee unless such termination or amendment is necessary to comply with any applicable law or government regulation. No amendment or addition to this Option Agreement shall be effective unless in writing. 14. NOTICES. Any notice required or permitted hereunder shall be given in writing and shall be deemed effectively given (except to the extent that this Option Agreement provides for effectiveness only upon actual receipt of such notice) upon personal delivery or upon deposit in the United States Post Office, by registered or certified mail, with postage and fees prepaid, addressed to the other party at the address of such party as set forth below that party's signature or at such other address as such party may designate in writing from time to time to the other party. 15. INTEGRATED AGREEMENT. This Option Agreement constitutes the entire understanding and agreement of the Optionee and the Participating Company Group with respect to the subject matter contained 10 herein, and there are no agreements, understandings, restrictions, representations, or warranties among the Optionee and the Participating Company Group with respect to such subject matter other than those as set forth or provided for herein. To the extent contemplated herein, the provisions of this Option Agreement shall survive any exercise of the Option and shall remain in full force and effect. 16. APPLICABLE LAW. This Option Agreement shall be governed by the laws of the State of Delaware as such laws are applied to agreements between Delaware residents entered into and to be performed entirely within the State of Delaware. P.F. CHANG'S CHINA BISTRO, INC. By: ________________________________ Title: _____________________________ Address: ___________________________ ___________________________ The Optionee represents that the Optionee is familiar with the terms and provisions of this Option Agreement, and hereby accepts the Option subject to all of the terms and provisions thereof. The Optionee hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Board upon any questions arising under this Option Agreement. OPTIONEE Date:_____________________________ ____________________________________ Optionee Address: ____________________________________ ____________________________________ 11 P.F. CHANG'S CHINA BISTRO, INC. INCENTIVE STOCK OPTION AGREEMENT THIS INCENTIVE STOCK OPTION AGREEMENT (the "OPTION AGREEMENT") is made and entered into as of the Date of Option Grant by and between P.F. Chang's China Bistro, Inc. and ___________________________ (the "OPTIONEE"). The Company has granted to the Optionee pursuant to the P.F. Chang's China Bistro, Inc. 1998 Stock Option Plan (the "PLAN") an option to purchase certain shares of Stock, upon the terms and conditions set forth in this Option Agreement (the "OPTION"). 1. DEFINITIONS AND CONSTRUCTION. 1.1. DEFINITIONS. Whenever used herein, the following terms shall have their respective meanings set forth below: (a) "DATE OF OPTION GRANT" means ___________________ , 199 __ . (b) "NUMBER OF OPTION SHARES" means __________________ shares of Stock, as adjusted from time to time pursuant to Section 9. (c) "EXERCISE PRICE" means $ ______________ per share of Stock, as adjusted from time to time pursuant to Section 9. (d) "OPTION EXPIRATION DATE" means the date ten (10) years after the Date of Option Grant. (e) "VESTED RATIO" means, on any relevant date, the ratio determined as follows:

1 (f) "BOARD" means the Board of Directors of the Company. If one or more Committees have been appointed by the Board to administer the Plan, "Board" shall also mean such Committee(s). (g) "CAUSE" means any of the following: (i) the Optionee's theft, dishonesty, or falsification of any Participating Company documents or records; (ii) the Optionee's improper use or disclosure of a Participating Company's confidential or proprietary information; (iii) any action by the Optionee which has a detrimental effect on a Participating Company's reputation or business; (iv) the Optionee's failure or inability to perform any reasonable assigned duties after written notice from the Participating Company Group of, and a reasonable opportunity to cure, such failure or inability; (v) any material breach by the Optionee of any agreement of employment or service between the Optionee and the Participating Company Group, which breach is not cured pursuant to the terms of such agreement; or (vi) the Optionee's conviction (including any plea of guilty or nolo contendere) of any criminal act which impairs the Optionee's ability to perform his or her duties with the Participating Company Group. A determination by the Board that the Optionee was terminated for Cause shall be final and binding upon the Optionee for all purposes and shall not be subject to review by any governmental agency or court of law. (h) "CODE" means the Internal Revenue Code of 1986, as amended, and any applicable regulations promulgated thereunder. (i) "COMMITTEE" means the Compensation Committee or other committee of the Board duly appointed to administer the Plan and having such powers as shall be specified by the Board. Unless the powers of the Committee have been specifically limited, the Committee shall have all of the powers of the Board granted in the Plan, including, without limitation, the power to amend or terminate the Plan at any time, subject to the terms of the Plan and any applicable limitations imposed by law. (j) "COMPANY" means P.F. Chang's China Bistro, Inc., a Delaware corporation, or any successor corporation thereto. (k) "CONSULTANT" means any person, including an advisor, engaged by a Participating Company to render services other than as an Employee or a Director. (l) "DIRECTOR" means a member of the Board or of the board of directors of any other Participating Company. (m) "DISABILITY" means the permanent and total disability of the Optionee within the meaning of Section 22(e)(3) of the Code. (n) "EMPLOYEE" means any person treated as an employee (including an officer or a Director who is also treated as an employee) in the records of a Participating Company and who is an employee for purposes of Section 422 of the Code; provided, however, that neither service as a Director nor payment of a director's fee shall be sufficient to constitute employment for this purpose. The Company shall determine in good faith and in the exercise of its discretion whether an individual has become or has ceased to be an Employee and the 2 effective date of such individual's employment or termination of employment, as the case may be. For purposes of an individual's rights, if any, under the Plan as of the time of the Company's determination, all such determinations by the Company shall be final, binding and conclusive, notwithstanding that the Company or any governmental agency subsequently makes a contrary determination. (o) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended. (p) "FAIR MARKET VALUE" means, as of any date, the value of a share of stock or other property as determined by the Board, in its sole discretion, or by the Company, in its sole discretion, if such determination is expressly allocated to the Company herein, subject to the following: (i) If, on such date, there is a public market for the Stock, the Fair Market Value of a share of Stock shall be the closing price of a share of Stock (or the mean of the closing bid and asked prices of a share of Stock if the Stock is so quoted instead) as quoted on the Nasdaq National Market, the Nasdaq Small-Cap Market or such other national or regional securities exchange or market system constituting the primary market for the Stock, as reported in the Wall Street Journal or such other source as the Company deems reliable. If the relevant date does not fall on a day on which the Stock has traded on such securities exchange or market system, the date on which the Fair Market Value shall be established shall be the last day on which the Stock was so traded prior to the relevant date, or such other appropriate day as shall be determined by the Board, in its sole discretion. (ii) If, on such date, there is no public market for the Stock, the Fair Market Value of a share of Stock shall be as determined by the Board without regard to any restriction other than a restriction which, by its terms, will never lapse. (q) "INCENTIVE STOCK OPTION" means an Option intended to be (to the extent set forth in this Option Agreement) and which qualifies as an incentive stock option within the meaning of Section 422(b) of the Code. (r) "NONSTATUTORY STOCK OPTION" means an Option which does not qualify as an Incentive Stock Option. (s) "PARENT CORPORATION" means any present or future "parent corporation" of the Company, as defined in Section 424(e) of the Code. (t) "PARTICIPATING COMPANY" means the Company or any Parent Corporation or Subsidiary Corporation. (u) "PARTICIPATING COMPANY GROUP" means, at any point in time, all corporations collectively which are then Participating Companies. (v) "SECURITIES ACT" means the Securities Act of 1933, as amended. 3 (w) "SERVICE" means the Optionee's employment or service with the Participating Company Group, whether in the capacity of an Employee, a Director or a Consultant. The Optionee's Service shall not be deemed to have terminated merely because of a change in the capacity in which the Optionee renders Service to the Participating Company Group or a change in the Participating Company for which the Optionee renders such Service, provided that there is no interruption or termination of the Optionee's Service. Furthermore, the Optionee's Service with the Participating Company Group shall not be deemed to have terminated if the Optionee takes any military leave, sick leave, or other bona fide leave of absence approved by the Company; provided, however, that if any such leave exceeds ninety (90) days, on the ninety-first (91st) day of such leave any Incentive Stock Option held by the Optionee shall cease to be treated as an Incentive Stock Option and instead shall be treated thereafter as a Nonstatutory Stock Option unless the Optionee's right to return to Service with the Participating Company Group is guaranteed by statute or contract. Notwithstanding the foregoing, unless otherwise designated by the Company or required by law, a leave of absence shall not be treated as Service for purposes of determining the Vested Ratio. The Optionee's Service shall be deemed to have terminated either upon an actual termination of Service or upon the corporation for which the Optionee performs Service ceasing to be a Participating Company. Subject to the foregoing, the Company, in its sole discretion, shall determine whether the Optionee's Service has terminated and the effective date of such termination. (NOTE: If the Option is exercised more than three (3) months after the date on which the Optionee ceased to be an Employee (other than by reason of death or Disability), the Option will be treated as a Nonstatutory Stock Option and not as an incentive stock option to the extent required by Section 422 of the Code.) (x) "STOCK" means the common stock of the Company, as adjusted from time to time in accordance with Section 9. (y) "SUBSIDIARY CORPORATION" means any present or future "subsidiary corporation" of the Company, as defined in Section 424(f) of the Code. 1.2. CONSTRUCTION. Captions and titles contained herein are for convenience only and shall not affect the meaning or interpretation of any provision of this Option Agreement. Except when otherwise indicated by the context, the singular shall include the plural and the plural shall include the singular. Use of the term "or" is not intended to be exclusive, unless the context clearly requires otherwise. 2. TAX STATUS OF OPTION. This Option is intended to be an Incentive Stock Option, but the Company does not represent or warrant that this Option qualifies as such. The Optionee should consult with the Optionee's own tax advisor regarding the tax effects of this Option and the requirements necessary to obtain favorable income tax treatment under Section 422 of the Code, including, but not limited to, holding period requirements. (NOTE: If the aggregate Exercise Price of the Option (that is, the Exercise Price multiplied by the Number of Option Shares) plus the aggregate exercise price of any other Incentive Stock Options held by the Optionee (whether granted pursuant to the Plan or any other stock option plan of the Participating Company Group) is 4 greater than One Hundred Thousand Dollars ($100,000), the Optionee should contact the Chief Financial Officer of the Company to ascertain whether the entire Option qualifies as an Incentive Stock Option.) 3. ADMINISTRATION. All questions of interpretation concerning this Option Agreement shall be determined by the Board. All determinations by the Board shall be final and binding upon all persons having an interest in the Option. Any officer of a Participating Company shall have the authority to act on behalf of the Company with respect to any matter, right, obligation, or election which is the responsibility of or which is allocated to the Company herein, provided the officer has apparent authority with respect to such matter, right, obligation, or election. 4. EXERCISE OF THE OPTION. 4.1. RIGHT TO EXERCISE. Except as otherwise provided herein, the Option shall be exercisable on and after the Date of Option Grant and prior to the termination of the Option (as provided in Section 6) in an amount not to exceed the Number of Option Shares multiplied by the Vested Ratio less the number of shares previously acquired upon exercise of the Option. In no event shall the Option be exercisable for more shares than the Number of Option Shares. 4.2. METHOD OF EXERCISE. Exercise of the Option shall be by written notice to the Company which must state the election to exercise the Option, the number of whole shares of Stock for which the Option is being exercised and such other representations and agreements as to the Optionee's investment intent with respect to such shares as may be required pursuant to the provisions of this Option Agreement. The written notice must be signed by the Optionee and must be delivered to the Chief Financial Officer of the Company, or other authorized representative of the Participating Company Group, prior to the termination of the Option as set forth in Section 6, accompanied by full payment of the aggregate Exercise Price for the number of shares of Stock being purchased and the tax withholding obligations, if any, as provided in Section 4.4. The Option shall be deemed to be exercised upon receipt by the Company of such written notice, the aggregate Exercise Price, and tax withholding obligations, if any. 4.3. PAYMENT OF EXERCISE PRICE. (a) FORMS OF CONSIDERATION AUTHORIZED. Except as otherwise provided below, payment of the aggregate Exercise Price for the number of shares of Stock for which the Option is being exercised shall be made (i) in cash or cash equivalent, (ii) by tender to the Company of whole shares of Stock owned by the Optionee having a Fair Market Value (as determined by the Company without regard to any restrictions on transferability applicable to such stock by reason of federal or state securities laws or agreements with an underwriter for the Company) not less than the aggregate Exercise Price, (iii) by means of a Cashless Exercise, as defined in Section 4.3(c), or (iv) by any combination of the foregoing. (b) TENDER OF STOCK. Notwithstanding the foregoing, the Option may not be exercised by tender to the Company of shares of Stock to the extent such tender of Stock would constitute a violation of the provisions of any law, regulation or agreement restricting the 5 redemption of the Company's stock. The Option may not be exercised by tender to the Company of shares of Stock unless such shares either have been owned by the Optionee for more than six (6) months or were not acquired, directly or indirectly, from the Company. (c) CASHLESS EXERCISE. A "CASHLESS EXERCISE" means the assignment in a form acceptable to the Company of the proceeds of a sale or loan with respect to some or all of the shares of Stock acquired upon the exercise of the Option pursuant to a program or procedure approved by the Company (including, without limitation, through an exercise complying with the provisions of Regulation T as promulgated from time to time by the Board of Governors of the Federal Reserve System). The Company reserves, at any and all times, the right, in the Company's sole and absolute discretion, to decline to approve or terminate any such program or procedure. 4.4. TAX WITHHOLDING. At the time the Option is exercised, in whole or in part, or at any time thereafter as requested by the Company, the Optionee hereby authorizes withholding from payroll and any other amounts payable to the Optionee, and otherwise agrees to make adequate provision for (including by means of a Cashless Exercise to the extent permitted by the Company), any sums required to satisfy the federal, state, local and foreign tax withholding obligations of the Participating Company Group, if any, which arise in connection with the Option, including, without limitation, obligations arising upon (i) the exercise, in whole or in part, of the Option, (ii) the transfer, in whole or in part, of any shares acquired upon exercise of the Option, (iii) the operation of any law or regulation providing for the imputation of interest, or (iv) the lapsing of any restriction with respect to any shares acquired upon exercise of the Option. The Optionee is cautioned that the Option is not exercisable unless the tax withholding obligations of the Participating Company Group are satisfied. Accordingly, the Optionee may not be able to exercise the Option when desired even though the Option is vested, and the Company shall have no obligation to issue a certificate for such shares. 4.5. CERTIFICATE REGISTRATION. Except in the event the Exercise Price is paid by means of a Cashless Exercise, the certificate for the shares as to which the Option is exercised shall be registered in the name of the Optionee, or, if applicable, in the names of the heirs of the Optionee. 4.6. RESTRICTIONS ON GRANT OF THE OPTION AND ISSUANCE OF SHARES. The grant of the Option and the issuance of shares of Stock upon exercise of the Option shall be subject to compliance with all applicable requirements of federal, state or foreign law with respect to such securities. The Option may not be exercised if the issuance of shares of Stock upon exercise would constitute a violation of any applicable federal, state or foreign securities laws or other law or regulations or the requirements of any stock exchange or market system upon which the Stock may then be listed. In addition, the Option may not be exercised unless (i) a registration statement under the Securities Act shall at the time of exercise of the Option be in effect with respect to the shares issuable upon exercise of the Option or (ii) in the opinion of legal counsel to the Company, the shares issuable upon exercise of the Option may be issued in accordance with the terms of an applicable exemption from the registration requirements of the Securities Act. THE OPTIONEE IS CAUTIONED THAT THE OPTION MAY NOT BE EXERCISED UNLESS THE FOREGOING CONDITIONS ARE SATISFIED. ACCORDINGLY, THE 6 OPTIONEE MAY NOT BE ABLE TO EXERCISE THE OPTION WHEN DESIRED EVEN THOUGH THE OPTION IS VESTED. Questions concerning this restriction should be directed to the Chief Financial Officer of the Company. The inability of the Company to obtain from any regulatory body having jurisdiction the authority, if any, deemed by the Company's legal counsel to be necessary to the lawful issuance and sale of any shares subject to the Option shall relieve the Company of any liability in respect of the failure to issue or sell such shares as to which such requisite authority shall not have been obtained. As a condition to the exercise of the Option, the Company may require the Optionee to satisfy any qualifications that may be necessary or appropriate, to evidence compliance with any applicable law or regulation and to make any representation or warranty with respect thereto as may be requested by the Company. 4.7. FRACTIONAL SHARES. The Company shall not be required to issue fractional shares upon the exercise of the Option. 5. NONTRANSFERABILITY OF THE OPTION. The Option may be exercised during the lifetime of the Optionee only by the Optionee or the Optionee's guardian or legal representative and may not be assigned or transferred in any manner except by will or by the laws of descent and distribution. Following the death of the Optionee, the Option, to the extent provided in Section 7, may be exercised by the Optionee's legal representative or by any person empowered to do so under the deceased Optionee's will or under the then applicable laws of descent and distribution. 6. TERMINATION OF THE OPTION. The Option shall terminate and may no longer be exercised on the first to occur of (a) the Option Expiration Date, (b) the last date for exercising the Option following termination of the Optionee's Service as described in Section 7, or (c) a Change in Control to the extent provided in Section 8. 7. EFFECT OF TERMINATION OF SERVICE. 7.1. OPTION EXERCISABILITY. (a) DISABILITY. If the Optionee's Service with the Participating Company Group is terminated because of the Disability of the Optionee, the Option, to the extent unexercised and exercisable on the date on which the Optionee's Service terminated, may be exercised by the Optionee (or the Optionee's guardian or legal representative) at any time prior to the expiration of twelve (12) months after the date on which the Optionee's Service terminated, but in any event no later than the Option Expiration Date. (b) DEATH. If the Optionee's Service with the Participating Company Group is terminated because of the death of the Optionee, the Option, to the extent unexercised and exercisable on the date on which the Optionee's Service terminated, may be exercised by the Optionee's legal representative or other person who acquired the right to exercise the Option by reason of the Optionee's death at any time prior to the expiration of twelve (12) months after the date on which the Optionee's Service terminated, but in any event no later than the Option 7 Expiration Date. The Optionee's Service shall be deemed to have terminated on account of death if the Optionee dies within three (3) months after the Optionee's termination of Service. (c) OTHER TERMINATION OF SERVICE. If the Optionee's Service with the Participating Company Group terminates for any reason, except Disability, death, or Cause, the Option, to the extent unexercised and exercisable by the Optionee on the date on which the Optionee's Service terminated, may be exercised by the Optionee within three (3) months (or such other longer period of time as determined by the Board, in its sole discretion) after the date on which the Optionee's Service terminated, but in any event no later than the Option Expiration Date. 7.2. EXTENSION IF EXERCISE PREVENTED BY LAW. Notwithstanding the foregoing, if the exercise of the Option within the applicable time periods set forth in Section 7.1 is prevented by the provisions of Section 4.6, the Option shall remain exercisable until three (3) months after the date the Optionee is notified by the Company that the Option is exercisable, but in any event no later than the Option Expiration Date. The Company makes no representation as to the tax consequences of any such delayed exercise. The Optionee should consult with the Optionee's own tax advisor as to the tax consequences to the Optionee of any such delayed exercise. 7.3. EXTENSION IF OPTIONEE SUBJECT TO SECTION 16(b). Notwithstanding the foregoing, if a sale within the applicable time periods set forth in Section 7.1 of shares acquired upon the exercise of the Option would subject the Optionee to suit under Section 16(b) of the Exchange Act, the Option shall remain exercisable until the earliest to occur of (i) the tenth (10th) day following the date on which a sale of such shares by the Optionee would no longer be subject to such suit, (ii) the one hundred and ninetieth (190th) day after the Optionee's termination of Service, or (iii) the Option Expiration Date. The Company makes no representation as to the tax consequences of any such delayed exercise. The Optionee should consult with the Optionee's own tax advisors as to the tax consequences to the Optionee of any such delayed exercise. 7.4. TERMINATION FOR CAUSE. Except as otherwise provided in a contract of employment or service between a Participating Company and the Optionee, and notwithstanding any other provision of this Option Agreement to the contrary, if the Optionee's Service with the Participating Company Group is terminated for Cause, the Option shall terminate and cease to be exercisable immediately upon such termination of Service. 8. CHANGE IN CONTROL. 8.1. DEFINITIONS. (a) An "OWNERSHIP CHANGE EVENT" shall be deemed to have occurred if any of the following occurs with respect to the Company: (i) the direct or indirect sale or exchange in a single or series of related transactions by the stockholders of the Company of more than fifty percent (50%) of the voting stock of the Company; 8 (ii) a merger or consolidation in which the Company is a party; (iii) the sale, exchange, or transfer of all or substantially all of the assets of the Company; or (iv) a liquidation or dissolution of the Company. (b) A "CHANGE IN CONTROL" shall mean an Ownership Change Event or a series of related Ownership Change Events (collectively, the "TRANSACTION") wherein the stockholders of the Company immediately before the Transaction do not retain immediately after the Transaction, in substantially the same proportions as their ownership of shares of the Company's voting stock immediately before the Transaction, direct or indirect beneficial ownership of more than fifty percent (50%) of the total combined voting power of the outstanding voting stock of the Company or the corporation or corporations to which the assets of the Company were transferred (the "TRANSFEREE CORPORATION(S)"), as the case may be. For purposes of the preceding sentence, indirect beneficial ownership shall include, without limitation, an interest resulting from ownership of the voting stock of one or more corporations which, as a result of the Transaction, own the Company or the Transferee Corporation(s), as the case may be, either directly or through one or more subsidiary corporations. The Board shall have the right to determine whether multiple sales or exchanges of the voting stock of the Company or multiple Ownership Change Events are related, and its determination shall be final, binding and conclusive. 8.2. EFFECT OF CHANGE IN CONTROL ON OPTION. In the event of a Change in Control, the Optionee shall be credited with an additional two (2) years of Service as of the date ten (10) days prior to the date of the Change in Control, solely for purposes of determining the Vested Ratio. Any exercise or vesting of the Option that was permissible solely by reason of this Section 8.2 shall be conditioned upon the consummation of the Change in Control. In addition, the surviving, continuing, successor, or purchasing corporation or parent corporation thereof, as the case may be (the "ACQUIRING CORPORATION"), may either assume the Company's rights and obligations under the Option or substitute for the Option a substantially equivalent option for the Acquiring Corporation's stock. For purposes of this Section 8.2, the Option shall be deemed assumed if, following the Change in Control, the Option confers the right to purchase in accordance with its terms and conditions, for each share of Stock subject to the Option immediately prior to the Change in Control, the consideration (whether stock, cash or other securities or property) to which a holder of a share of Stock on the effective date of the Change in Control was entitled. The Option shall terminate and cease to be outstanding effective as of the date of the Change in Control to the extent that the Option is neither assumed or substituted for by the Acquiring Corporation in connection with the Change in Control nor exercised as of the date of the Change in Control. Notwithstanding the foregoing, if the corporation the stock of which is subject to the Option immediately prior to an Ownership Change Event described in Section 8.1(a)(i) constituting a Change in Control is the surviving or continuing corporation and immediately after any such event less than fifty percent (50%) of the total combined voting power of its voting stock is held by another corporation or by other corporations that are members of an affiliated group within the meaning of Section 1504(a) of the Code without 9 regard to the provisions of Section 1504(b) of the Code, the Option shall not terminate unless the Board otherwise provides in its sole discretion. 8.3. NOTICE. The Company shall provide notice of a Change in Control to the Optionee at least ten (10) days prior to the consummation of a Change in Control. The Company's notice shall summarize the principal terms of the Change in Control, including, without limitation, whether the Acquiring Corporation is assuming the Option or substituting an equivalent option therefor. 8.4. FAIR MARKET VALUE LIMITATION. Should the exercisability of this Option be accelerated in connection with a Change in Control in accordance with Section 8.2, then to the extent that the aggregate Fair Market Value of the shares of Stock with respect to which the Optionee may exercise the Option for the first time during the calendar year of such acceleration, when added to the aggregate Fair Market Value of the shares subject to any other options designated as Incentive Stock Options granted to the Optionee under all stock option plans of the Participating Company Group prior to the Date of Option Grant with respect to which such options are exercisable for the first time during the same calendar year, exceeds One Hundred Thousand Dollars ($100,000) (or such other limit, if any, imposed by Section 422 of the Code), the portion of the Option which exceeds such amount shall be treated as a Nonstatutory Stock Option. For purposes of the preceding sentence, options designated as Incentive Stock Options shall be taken into account in the order in which they were granted, and the Fair Market Value of shares of stock shall be determined as of the time the option with respect to such shares is granted. 9. ADJUSTMENTS FOR CHANGES IN CAPITAL STRUCTURE. In the event of any stock dividend, stock split, reverse stock split, recapitalization, combination, reclassification, or similar change in the capital structure of the Company, appropriate adjustments shall be made in the number, Exercise Price and class of shares of stock subject to the Option. If a majority of the shares which are of the same class as the shares that are subject to the Option are exchanged for, converted into, or otherwise become (whether or not pursuant to an Ownership Change Event) shares of another corporation (the "NEW SHARES"), the Board may unilaterally amend the Option to provide that the Option is exercisable for New Shares. In the event of any such amendment, the Number of Option Shares and the Exercise Price shall be adjusted in a fair and equitable manner, as determined by the Board, in its sole discretion. Notwithstanding the foregoing, any fractional share resulting from an adjustment pursuant to this Section 9 shall be rounded up or down to the nearest whole number, as determined by the Board, and in no event may the Exercise Price be decreased to an amount less than the par value, if any, of the stock subject to the Option. The adjustments determined by the Board pursuant to this Section 9 shall be final, binding and conclusive. 10. RIGHTS AS A STOCKHOLDER, EMPLOYEE OR CONSULTANT. The Optionee shall have no rights as a stockholder with respect to any shares covered by the Option until the date of the issuance of a certificate for the shares for which the Option has been exercised (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company). No adjustment shall be made for dividends, 10 distributions or other rights for which the record date is prior to the date such certificate is issued, except as provided in Section 9. If the Optionee is an Employee, the Optionee understands and acknowledges that, except as otherwise provided in a separate, written employment agreement between a Participating Company and the Optionee, the Optionee's employment is "at will" and is for no specified term. Nothing in this Option Agreement shall confer upon the Optionee, whether an Employee or Consultant, any right to continue in the Service of a Participating Company or interfere in any way with any right of the Participating Company Group to terminate the Optionee's Service as an Employee or Consultant, as the case may be, at any time. 11. NOTICE OF SALES UPON DISQUALIFYING DISPOSITION. The Optionee shall dispose of the shares acquired pursuant to the Option only in accordance with the provisions of this Option Agreement. In addition, the Optionee shall promptly notify the Chief Financial Officer of the Company if the Optionee disposes of any of the shares acquired pursuant to the Option within one (1) year after the date the Optionee exercises all or part of the Option or within two (2) years after the Date of Option Grant and shall provide the Company with a description of the terms and circumstances of such disposition. Until such time as the Optionee disposes of such shares in a manner consistent with the provisions of this Option Agreement, unless otherwise expressly authorized by the Company, the Optionee shall hold all shares acquired pursuant to the Option in the Optionee's name (and not in the name of any nominee) for the one-year period immediately after the exercise of the Option and the two-year period immediately after Date of Option Grant. At any time during the one-year or two-year periods set forth above, the Company may place a legend on any certificate representing shares acquired pursuant to the Option requesting the transfer agent for the Company's stock to notify the Company of any such transfers. The obligation of the Optionee to notify the Company of any such transfer shall continue notwithstanding that a legend has been placed on the certificate pursuant to the preceding sentence. 12. LEGENDS. The Company may at any time place legends referencing any applicable federal, state or foreign securities law restrictions on all certificates representing shares of stock subject to the provisions of this Option Agreement. The Optionee shall, at the request of the Company, promptly present to the Company any and all certificates representing shares acquired pursuant to the Option in the possession of the Optionee in order to carry out the provisions of this Section. 13. BINDING EFFECT. Subject to the restrictions on transfer set forth herein, this Option Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective heirs, executors, administrators, successors and assigns. 14. TERMINATION OR AMENDMENT. The Board may terminate or amend the Plan or the Option at any time; provided, however, that except as provided in Section 8.2 in connection with a Change in Control, no such 11 termination or amendment may adversely affect the Option or any unexercised portion hereof without the consent of the Optionee unless such termination or amendment is necessary to comply with any applicable law or government regulation or is required to enable the Option to qualify as an Incentive Stock Option. No amendment or addition to this Option Agreement shall be effective unless in writing. 15. NOTICES. Any notice required or permitted hereunder shall be given in writing and shall be deemed effectively given (except to the extent that this Option Agreement provides for effectiveness only upon actual receipt of such notice) upon personal delivery or upon deposit in the United States Post Office, by registered or certified mail, with postage and fees prepaid, addressed to the other party at the address of such party as set forth below that party's signature or at such other address as such party may designate in writing from time to time to the other party. 16. INTEGRATED AGREEMENT. This Option Agreement constitutes the entire understanding and agreement of the Optionee and the Participating Company Group with respect to the subject matter contained herein, and there are no agreements, understandings, restrictions, representations, or warranties among the Optionee and the Participating Company Group with respect to such subject matter other than those as set forth or provided for herein. To the extent contemplated herein, the provisions of this Option Agreement shall survive any exercise of the Option and shall remain in full force and effect. 17. APPLICABLE LAW. This Option Agreement shall be governed by the laws of the State of Delaware as such laws are applied to agreements between Delaware residents entered into and to be performed entirely within the State of Delaware. P.F. CHANG'S CHINA BISTRO, INC. By: ________________________________ Title: _____________________________ Address: ___________________________ ___________________________ 12 The Optionee represents that the Optionee is familiar with the terms and provisions of this Option Agreement, and hereby accepts the Option subject to all of the terms and provisions thereof. The Optionee hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Board upon any questions arising under this Option Agreement. OPTIONEE Date:______________________________ ____________________________________ Optionee Address: ____________________________________ ____________________________________ 13 EX-31.1 3 p69558exv31w1.htm EXHIBIT 31.1 exv31w1

I, Richard L. Federico, Chief Executive Officer of P.F. Chang’s China Bistro Inc., certify that:

1. I have reviewed this quarterly report on Form 10-Q of P.F. Chang’s China Bistro, Inc.;

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have:


	a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

	b) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report; and

	c) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of the internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors:


	a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

	b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting;

I, Kristina K. Cashman, Chief Financial Officer of P.F. Chang’s China Bistro, Inc., certify that:

1. I have reviewed this quarterly report on Form 10-Q of P.F. Chang’s China Bistro, Inc.;


	a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

	b) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report; and

	c) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors:


	a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

	b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting;

I, Richard L. Federico, Chief Executive Officer of P.F. Chang’s China Bistro, Inc. (the “Registrant”), do hereby certify in accordance with 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, based on my knowledge:


	(1) the Quarterly Report on Form 10-Q of the Registrant, to which this certification is attached as an exhibit (the “Report”), fully complies with the requirements of section 13(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78m); and

	(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.


	/s/ RICHARD L. FEDERICO

	Richard L. Federico
	Chairman & Chief Executive Officer

A signed original of this written statement required by Section 906, or other documented authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to P.F. Chang’s China Bistro and will be retained by P.F. Chang’s China Bistro and furnished to the Securities and Exchange Commission or its staff upon request. EX-32.2 6 p69558exv32w2.htm EXHIBIT 32.2 exv32w2

I, Kristina Cashman, Chief Financial Officer of P.F. Chang’s China Bistro, Inc. (the “Registrant”), do hereby certify in accordance with 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, based on my knowledge:


	(1) the Quarterly Report on Form 10-Q of the Registrant, to which this certification is attached as an exhibit (the “Report”), fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78m); and

	(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.


þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the quarterly period ended September 26, 2004
		or

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the transition period from to .


Delaware		86-0815086
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)


			December 28,		September 26,
			2003		2004

			(Note 1)		(Unaudited)

			(In thousands)
ASSETS
Current assets:
	Cash and cash equivalents		$	45,478	$	47,025
	Short-term investments			5,000		5,000
	Inventories			2,911		3,236
	Prepaids and other current assets			6,313		4,404

		Total current assets		59,702		59,665
Construction-in-progress				16,445		29,514
Property and equipment, net				181,846		204,137
Deferred income tax assets				2,695		5,867
Goodwill				6,819		6,819
Other assets				5,570		5,960

		Total assets	$	273,077	$	311,962


LIABILITIES AND COMMON STOCKHOLDERS’ EQUITY
Current liabilities:
	Accounts payable		$	8,367	$	8,614
	Construction payable			6,459		3,332
	Accrued expenses			29,222		33,636
	Unearned revenue			9,851		6,825
	Current portion of long-term debt due to related parties			1,454		136

		Total current liabilities		55,353		52,543
Long-term debt to related parties				136		—
Minority interests				11,877		28,758
Commitments and contingencies
Common stockholders’ equity:
	Common stock, $0.001 par value, 40,000,000 shares authorized: 25,518,039 shares issued and outstanding at December 28, 2003 and 25,839,881 at September 26, 2004			26		26
	Additional paid-in capital			139,639		148,320
	Retained earnings			66,046		82,315

		Total common stockholders’ equity		205,711		230,661

		Total liabilities and common stockholders’ equity	$	273,077	$	311,962



				Three Months Ended						Nine Months Ended

				September 28,			September 26,			September 28,			September 26,
				2003			2004			2003			2004

				(Restated)						(Restated)

				(Unaudited)

				(In thousands, except per share)
Revenues				$	134,926		$	174,013		$	393,785		$	507,671
Costs and expenses:
	Restaurant operating costs:
		Cost of sales			38,460			48,853			110,916			143,579
		Labor			43,726			56,225			128,170			167,340
		Partner bonus expense, imputed			350			456			1,062			1,242
		Operating			18,513			24,769			53,552			71,098
		Occupancy			7,711			9,944			22,747			28,613

			Total restaurant operating costs		108,760			140,247			316,447			411,872
	General and administrative				6,897			8,909			21,024			25,952
	Depreciation and amortization				4,944			6,526			13,869			18,541
	Preopening expense				2,627			2,015			5,787			5,667
	Partner investment expense				1,634			1,675			3,290			16,056

Income from operations					10,064			14,641			33,368			29,583
Interest and other income, net					151			91			390			238

Income before minority interest and provision for income taxes					10,215			14,732			33,758			29,821
Minority interest					(1,954	)		(2,575	)		(5,922	)		(7,247	)

Income before provision for income taxes					8,261			12,157			27,836			22,574
Provision for income taxes					(2,725	)		(3,829	)		(9,315	)		(6,305	)

Net income				$	5,536		$	8,328		$	18,521		$	16,269

Net income per share:
	Basic			$	0.22		$	0.32		$	0.73		$	0.63

	Diluted			$	0.21		$	0.31		$	0.71		$	0.61

Weighted average shares used in computation:
	Basic				25,414			25,768			25,296			25,644

	Diluted				26,331			26,589			26,199			26,505



			Nine Months Ended

			September 28,			September 26,
			2003			2004

			(Restated)			(Unaudited)

			(In thousands)
Operating Activities:
Net income			$	18,521		$	16,269
Adjustments to reconcile net income to net cash provided by operating activities:
	Depreciation and amortization			13,869			18,541
	Partner investment expense			3,290			16,056
	Partner bonus expense, imputed			1,062			1,242
	Deferred income taxes			(2,042	)		(3,172	)
	Tax benefit from disqualifying stock option dispositions credited to equity			4,408			3,490
	Minority interest			5,922			7,247
	Changes in operating assets and liabilities:
		Inventories		(332	)		(325	)
		Prepaids and other current assets		2,139			1,909
		Other assets		(1,073	)		(390	)
		Accounts payable		(1,173	)		247
		Accrued expenses		10,601			4,414
		Unearned revenue		(1,775	)		(3,026	)

Net cash provided by operating activities				53,417			62,502
Investing Activities:
Capital expenditures				(46,457	)		(57,028	)
Purchase of minority interests				(863	)		—

Net cash used in investing activities				(47,320	)		(57,028	)
Financing Activities:
Repayments of long-term debt due to related parties				(1,692	)		(1,454	)
Proceeds from stock options exercised and employee stock purchases				5,265			5,191
Proceeds from minority investors’ contributions				750			885
Distributions to minority members and partners				(6,985	)		(8,549	)

Net cash used in financing activities				(2,662	)		(3,927	)

Net increase in cash and cash equivalents				3,435			1,547
Cash and cash equivalents at the beginning of the period				39,089			45,478

Cash and cash equivalents at the end of the period			$	42,524		$	47,025

Supplemental disclosure of cash flow information:
Cash paid for interest				138			76
Cash paid for income taxes				1,565			8,202
Purchase of minority interests through issuance of long-term-debt and conversion to members’ capital				370			—

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15210 N. Scottsdale Rd., Ste. 300, Scottsdale, Arizona		85254 (Zip Code)
(Address of principal executive offices)


Item		Page

PART I FINANCIAL INFORMATION
1.	Unaudited Consolidated Financial Statements		2
	Consolidated Balance Sheets as of December 28, 2003 and September 26, 2004		2
	Consolidated Statements of Income for the Three and Nine Months Ended September 28, 2003, as restated, and September 26, 2004		3
	Consolidated Statements of Cash Flows for the Nine Months Ended September 28, 2003, as restated, and September 26, 2004		4
	Notes to Unaudited Consolidated Financial Statements		5
2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		11
3.	Quantitative and Qualitative Disclosures About Market Risk		28
4.	Controls and Procedures		28
PART II OTHER INFORMATION
1.	Legal Proceedings		29
2.	Unregistered Sales of Equity Securities and Use of Proceeds		29
3.	Defaults Upon Senior Securities		29
4.	Submission of Matters to a Vote of Security Holders		29
5.	Other Information		29
6.	Exhibits		29
Exhibit 10.2
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32.1
EXHIBIT 32.2



	Three Months Ended,						Nine Months Ended,
	September 28, 2003						September 28, 2003

	As						As
	Previously			As			Previously			As
	Reported			Restated			Reported			Restated

Selected Statement of Income Data:
Partner bonus expense, imputed	$	—		$	350		$	—		$	1,062
Total restaurant operating costs		113,213			108,760			329,529			316,447
Depreciation and amortization*		4,827			4,944			13,761			13,869
Partner investment expense		—			1,634			—			3,290
Income from operations*		12,165			10,064			37,828			33,368
Interest and other income (expense), net*		(69	)		151			(31	)		390
Income before minority interest and provision for income taxes		12,096			10,215			37,797			33,758
Minority interest		(2,305	)		(1,954	)		(6,985	)		(5,922	)
Income before provision for income taxes		9,791			8,261			30,812			27,836
Provision for income taxes		(3,314	)		(2,725	)		(10,461	)		(9,315	)
Net income		6,477			5,536			20,351			18,521
Basic net income per share		0.25			0.22			0.80			0.73
Diluted net income per share		0.25			0.21			0.78			0.71


		Total		Bistro		Pei Wei


		(In thousands)
As of and for the Three Months Ended September 26, 2004:
	Revenues	$	174,013	$	149,764	$	24,249
	Income before provision for income taxes		12,157		12,033		124
	Capital expenditures		27,875		23,705		4,170
	Total assets		311,962		277,349		34,613
As of and for the Three Months Ended September 28, 2003:
	Revenues	$	134,926	$	121,166	$	13,760
	Income (loss) before provision for income taxes, as restated		8,261		8,489		(228	)
	Capital expenditures		22,116		17,997		4,119
	Total assets, as restated		247,711		226,396		21,315
As of and for the Nine Months Ended September 26, 2004:
	Revenues	$	507,671	$	441,774	$	65,897
	Income (loss) before provision for income taxes		22,574		23,998		(1,424	)
	Capital expenditures		57,028		45,514		11,514
	Total assets		311,962		277,349		34,613
As of and for the Nine Months Ended September 28, 2003:
	Revenues	$	393,785	$	356,825	$	36,960
	Income (loss) before provision for income taxes, as restated		27,836		27,905		(69	)
	Capital expenditures		46,457		37,448		9,009
	Total assets, as restated		247,711		226,396		21,315


Item 2.	*Management’s Discussion and Analysis of Financial Condition and Results of Operations*



				Three Months Ended


				September 28, 2003, As Restated									September 26, 2004

				Consolidated			Bistro			Pei Wei			Consolidated			Bistro			Pei Wei

Statements of Income Data:
Revenues (in thousands)				$	134,926		$	121,166		$	13,760		$	174,013		$	149,764		$	24,249
	Costs and expenses:
	Restaurant operating costs:
		Cost of sales			28.5	%		28.3	%		29.9	%		28.1	%		27.9	%		28.9	%
		Labor			32.4			32.3			33.3			32.3			32.1			33.4
		Partner bonus expense, imputed			0.3			0.3			0.2			0.3			0.3			0.1
		Operating			13.7			13.6			14.3			14.2			14.0			15.8
		Occupancy			5.7			5.6			6.7			5.7			5.6			6.7

			Total restaurant operating costs		80.6			80.2			84.4			80.6			79.9			85.0
	General and administrative				5.1			4.8			7.5			5.1			4.9			6.2
	Depreciation and amortization				3.7			3.6			4.0			3.8			3.7			4.2
	Preopening expense				1.9			1.7			4.3			1.2			1.0			2.0
	Partner investment expense				1.2			1.3			0.5			1.0			0.9			1.2

Income (loss) from operations					7.5			8.4			(0.7	)		8.4			9.6			1.4
Interest and other income, net					0.1			0.1			0.0			0.1			0.1			0.0
Minority interest					(1.4	)		(1.5	)		(1.0	)		(1.5	)		(1.6	)		(0.8	)

Income (loss) before provision for income taxes					6.1			7.0	%		(1.7	)%		7.0			8.0	%		0.5	%

Provision for income taxes					(2.0	)								(2.2	)

Net income					4.1	%								4.8	%


	*Failure of our existing or new restaurants to achieve predicted results could have a negative impact on our revenues and performance results.*


	*Changes in food costs could negatively impact our revenues and results of operations.*


	*Rising insurance costs could negatively impact profitability.*


	*If we do not expand our restaurant operations, our operating revenue could decline.*


Item 1.	*Unaudited Financial Statements*


1.	Basis of Presentation


	*Restatement*


	*Reclassification*


	*Implementing our growth strategy may strain our management resources and negatively impact our competitive position.*


	*The inability to develop and construct our restaurants within projected budgets and time periods will adversely affect our business and financial condition.*


	*Potential labor shortages may delay planned openings or damage customer relations.*


	*Changes in general economic and political conditions affect consumer spending and may harm our revenues and operating results.*


	*Fluctuations in operating results may cause profitability to decline.*


	*Intense competition in the restaurant industry could prevent us from increasing or sustaining our revenues and profitability.*


	*Increases in the minimum wage may have a material adverse effect on our business and financial results.*


	*Our inability to retain key personnel could negatively impact our business.*


	*Failure to comply with governmental regulations could harm our business and our reputation.*


	•	environmental;

	•	building construction;

	•	zoning requirements;


	*Litigation could have a material adverse effect on our business.*


	*Compliance with changing regulation of corporate governance and public disclosure may result in additional expenses.*


	*Future changes in financial accounting standards may cause adverse unexpected operating results and affect our reported results of operations.*


Item 3.	*Quantitative and Qualitative Disclosures About Market Risk*


Item 2.	*Unregistered Sales of Equity Securities and Use of Proceeds*


Item 4.	*Submission of Matters to a Vote of Security Holders*


Exhibit
Number			Description Document

	3	.1(1)	Amended and Restated Certificate of Incorporation.
	3	.1(2)	Amended and Restated By-laws.
	4	.1(3)	Specimen Common Stock Certificate.
	4	.2(3)	Amended and Restated Registration Rights Agreement dated May 1, 1997.
	†10	.1(3)	Form of Indemnification Agreement for directors and executive officers.
	†10	.2	Amended and Restated 1998 Stock Option Plan and forms of agreement thereunder.
	†10	.3(3)	1997 Restaurant Manager Stock Option Plan and forms of Agreement thereunder.
	†10	.4(3)	1996 Stock Option Plan and forms of Agreement thereunder.
	†10	.5(3)	1998 Employee Stock Purchase Plan.
	10	.11(4)	Office Lease between the Company and PHXAZ-Kierland Commons, LLC, dated September 17, 1999.
	†10	.13(5)	1999 Nonstatutory Stock Option Plan.
	10	.15(6)	First Amendment to Office Lease between the Company and PHXAZ-Kierland Commons, LLC, dated August 22, 2001.
	†10	.17(6)	Pei Wei Asian Diner, Inc. 2001 Stock Option Plan.
	†10	.18(7)	Employment Agreement between Richard L. Federico and the Company dated August 3, 2002.
	†10	.19(7)	Employment Agreement between Robert T. Vivian and the Company dated August 2, 2002.


	/s/ KRISTINA CASHMAN

	Kristina Cashman
	Chief Financial Officer