S-1

As filed with the Securities and Exchange Commission on March 24, 2004

Registration No. 333–          

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM S–1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

DESIGN WITHIN REACH, INC.

(Exact name of registrant as specified in its charter)

Delaware	4421	94-3314374
(State or Other Jurisdiction of Incorporation or Organization)	(Primary Standard Industrial Classification Code Number)	(I.R.S. Employer Identification Number)

225 Bush Street, 20^th Floor

San Francisco, CA 94104

(415) 676-6500

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

Wayne Badovinus

President and Chief Executive Officer

Design Within Reach, Inc.

225 Bush Street, 20^th Floor

San Francisco, CA 94104

(415) 676-6500

(Name, address, including zip code, and telephone number, including area code, of agent for service)

Copies to:

David A. Hahn, Esq. Latham & Watkins LLP 600 W. Broadway, Suite 1800 San Diego, CA 92101 (619) 236-1234 William B. Brentani, Esq. Simpson Thacher & Bartlett LLP 3330 Hillview Avenue Palo Alto, CA 94304 (650) 251-5000

Approximate date of commencement of proposed sale to the public:

As soon as practicable after the effective date of this Registration Statement.

If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.  ¨

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box.  ¨

CALCULATION OF REGISTRATION FEE

Title of Each Class of Securities to be Registered	Proposed Maximum Aggregate Offering Price (1)(2)	Amount of Registration Fee
Common stock, par value $0.001 per share	$57,500,000	$7,286

(1) Estimated solely for the purpose of computing the registration fee in accordance with Rule 457(o) under the Securities Act of 1933.

(2) Includes shares of common stock which may be purchased by the underwriters to cover over-allotments, if any.

The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the SEC, acting pursuant to Section 8(a), may determine.

Subject to Completion, Dated March 24, 2004

The information contained in this prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

Shares

Common Stock

$     per share

This is an initial public offering of common stock of Design Within Reach, Inc. Design Within Reach is offering              shares and the selling stockholders identified in this prospectus are offering              shares.

We expect that the price to the public in the offering will be between $         and $         per share. The market price of the shares after the offering may be higher or lower than the offering price.

We have applied to include the common stock on the Nasdaq National Market under the symbol “DWRI.”

Investing in the common stock involves risks. See “ Risk Factors” beginning on page 7.

	Per Share	Total
Price to the public	$	$
Underwriting discount
Proceeds to Design Within Reach, Inc.
Proceeds to the selling stockholders

We and the selling stockholders have granted an over-allotment option to the underwriters. Under this option, the underwriters may elect to purchase a maximum of             additional shares (              from us and              from the selling stockholders) within 30 days following the date of this prospectus to cover over-allotments.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

CIBC World Markets

William Blair & Company

SG Cowen

The date of this prospectus is                         , 2004

Table of Contents

	Page
Prospectus Summary	1
Risk Factors	7
Special Note Regarding Forward-Looking Statements	21
Use of Proceeds	21
Dividend Policy	21
Capitalization	22
Dilution	23
Selected Financial Data	25
Management’s Discussion and Analysis of Financial Condition and Results of Operations	27
Business	39
Management	53
Related Party Transactions	62
Principal and Selling Stockholders	65
Description of Capital Stock	67
Shares Eligible for Future Sale	70
Underwriting	72
Legal Matters	74
Experts	74
Where You Can Find More Information	75
Index to Financial Statements	F-1

You should rely only on the information contained in this prospectus. We and the selling stockholders have not authorized anyone to provide you with information different from that contained in this prospectus. We and the selling stockholders are offering to sell shares of common stock and seeking offers to buy shares of common stock only in jurisdictions where offers and sales are permitted. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of the common stock.

“Design Within Reach” is a registered trademark of Design Within Reach, Inc. All rights are reserved. All other trademarks, service marks or trade names referred to in this prospectus are the property of their respective owners.

i

Prospectus Summary

This summary highlights information contained elsewhere in this prospectus. Because this is only a summary, it does not contain all the information that you should consider before buying shares in this offering. You should read the entire prospectus carefully, especially “Risk Factors” and our financial statements and related notes included elsewhere in this prospectus, before deciding to invest in shares of our common stock. In this prospectus, “Design Within Reach,” “DWR,” “we,” “us” and “our” refer to Design Within Reach, Inc.

Design Within Reach, Inc.

DWR is an integrated multi-channel provider of distinctive modern design furnishings and accessories. We market and sell our products to both residential and commercial customers through four integrated sales channels, consisting of our catalog, studios, website and direct sales force. We offer a distinctive assortment of modern design merchandise that we believe shares an aesthetic appeal, superior quality and authenticity. We offer products in numerous categories, including chairs, tables, workspace and outdoor furniture, lighting, floor coverings, beds and related accessories, bathroom fixtures, fans and other home and office accessories. Our products include items created by such notable designers as Ludwig Mies van der Rohe, Charles and Ray Eames, George Nelson and Philippe Starck, among others. Our business strategy has enabled us to develop a national presence in modern design furnishings, achieve rapid growth, and build a brand which we believe is recognized for design excellence by our customers and the design community. In fiscal year 2003, we had net sales of $81.1 million, an increase of 41.7% from fiscal year 2002. In fiscal year 2003, we had net earnings of $3.0 million.

We believe that we have created a differentiated business model based on multiple, integrated sales channels and a single common inventory. Our business model improves customer convenience, reinforces brand awareness, enhances customer knowledge of our products, and produces operational benefits that drive market penetration and higher returns on capital. Seamless channel integration is crucial to our success because a substantial portion of both our residential and commercial customers purchase our products after having had contact with two, three or sometimes all four of our sales channels. For example, customers may research products online and make purchases in our studios or through our catalog. We ship substantially all customer orders, regardless of the sales channel in which they are placed, from our centralized Hebron, Kentucky fulfillment center. Our studios carry inventory solely for customers to view and evaluate, but not for carry-out upon purchase. Our policy of having products “in stock and ready to ship” is a departure from the approach taken by traditional furnishings retailers, which typically requires customers to wait weeks or months to receive their products. We ship substantially all in stock product by the next business day after an order has been processed. Our common inventory and shared information systems provide a level of scalability to facilitate future growth. This integration further improves customer service by speeding delivery times and providing real-time inventory information across all sales channels.

The modern design furnishings market is a sub-sector of the residential and commercial furnishings market. Modern design is a twentieth century movement dating back to the 1920s, the purpose of which is to utilize current technologies and production methods to create more useful products for a broad audience. We believe that the philosophy of modern design may be summarized as “form follows function.” Characteristics of modern design furnishings are simplicity, originality, intelligent use of materials, quality, longevity and the avoidance of superfluous ornamentation or period styling. Importantly, we operate in the upscale segment of the modern furnishings industry, which typically has large average order values that, in turn, help improve the economics of this segment. In fiscal year 2003, we had an average order value of $917. We believe that the upscale furnishings segment will continue to benefit from several long-term trends, including an increasing interest in design among both individuals and businesses, middle-market consumers’ willingness to trade up for premium products, favorable demographic trends in our core audience and consumers’ heightened focus on the home as a place of comfort and refuge. Consumers’ expanding focus on design and the increasing popularity of home-related design products have been featured in several new television programs, such as Bravo Network’s Queer Eye for the Straight Guy, which has featured some of our products, and The Learning Channel’s Trading Spaces.

1

Competitive Advantages

We believe our competitive advantages position us to be a leading provider of modern design furnishings in the United States. These advantages create the foundation of our distinct business model and we believe they have enabled us to grow rapidly, while achieving attractive gross margins, inventory turns and returns on capital, and to better serve the fragmented modern design furnishings marketplace. Our competitive advantages include:

Strong Brand Authority.    We believe that we have developed strong recognition of the Design Within Reach brand within the modern design community and among residential and commercial consumers. To build our brand, we have cultivated relationships with leading and emerging designers, highlighted designers and classic design products, and carefully sourced products that embody what we believe are the principles of enduring design, performance and authenticity. Our catalog and online publications have broad consumer reach. We mail on average over 800,000 catalogs each month and more than 240,000 people receive our weekly electronic newsletter, “Design Notes.” This brand recognition drives awareness and demand for our products.

Multiple, Integrated Sales Channels.    We believe that our integrated multi-channel strategy allows us to better serve consumers who may prefer shopping for products in different ways and to obtain greater exposure for our merchandise and brand. Each channel provides specific benefits which contribute to our overall success. Our catalog and website allow us to obtain rapid feedback as to customers’ needs and permit us to cost effectively prospect for new customers. Our studios enable us to provide the touch and feel of our merchandise to customers and provide a local presence to enhance our market penetration. We maintain consistent pricing across all of our sales channels for all customers. We support our sales channels with a common inventory and centralized information system, which enable us to improve product availability, facilitate inventory turns and utilize information from each channel to benefit the others.

Distinctive Merchandising.    We seek to be a leader in identifying and selling products that are innovative and not widely available from other retailers. We take a selective approach to product sourcing, and now offer over 725 products in numerous categories. Working with our selected designers and manufacturers, we ensure that products meet our stringent standards for design, quality and authenticity before they are included in our product assortment. We complement our merchandise mix by providing the customer with authoritative educational information regarding the designers of our products and other design topics.

Strategic Designer, Manufacturer and Distributor Relationships.    Our credibility and reputation among residential and commercial consumers for high quality, innovative modern design products are enhanced by our relationships with over 200 select designers, manufacturers and distributors in Europe and North America. These include small businesses, as well as larger, more prominent vendors, such as Herman Miller, Inc.^®, Vitra Inc. and Kartell US Inc. We purchase products from our vendors frequently and in large volumes, and in many cases we are a vendor’s largest customer. As a result, we are able to develop long-lasting relationships with most of our vendors and often become the de facto sole provider of their products in the United States.

Superior Customer Service.    We focus on providing superior customer service in each of our sales channels. Key elements of our customer service include: high product availability and rapid delivery; well-designed and attractive catalogs; knowledgeable sales personnel; our easy-to-use website for around-the-clock purchases; a liberal product return policy; extensive product information; and insightful design-oriented commentary. In fiscal year 2003, we had an initial fulfillment rate, meaning the product was in stock and ready to ship at the time of order, of approximately 87%.

Experienced Management Team.    We were founded in 1998 by Robert Forbes, Jr., who continues to be our leading influence in modern design and our principal contact with the design community. Since May 2000, our management team has been led by our Chief Executive Officer Wayne Badovinus. Mr. Badovinus was formerly the President of Williams-Sonoma, Inc. and Chief Executive Officer of Eddie Bauer, Inc. Mr. Badovinus has assembled what we believe to be a first-class management team, who have on average approximately 20 years of experience with leading companies in the retail and consumer products industries.

2

Growth Strategy

Our goal is to strengthen our position as a leading provider of modern design furnishings and accessories. We believe that as a truly integrated multi-channel business, we must measure ourselves by total market penetration, or sales across all of our channels. We believe we can maximize our market penetration with the following growth strategies:

Open Additional Studios.    We believe our studio concept has broad consumer appeal, offers attractive financial returns and can be implemented successfully in many additional markets across the United States. We intend to expand our studio presence from 16 at the end of 2003 by opening 13 to 16 new studios in each of 2004 and 2005. As of March 15, 2004, we had opened one of these new studios and had signed leases for nine additional studios. In fiscal year 2003, studios open the entire fiscal year had an average annual sales volume of $2.0 million and an average annual studio operating margin of 22.9%. Our average initial investment per studio opened in fiscal year 2003 was approximately $500,000, including net build-out and pre-opening expenses and the cost of product floor samples.

Expand and Edit Product Offerings.    We believe there are substantial opportunities in the near-term to expand our product offerings in existing categories and enter into new, complementary categories. We continually evaluate and edit our merchandise assortment based upon product performance and compatibility. In recent years, we have introduced several new product categories, such as bedroom furnishings and mattresses, which is currently our fastest growing product category, as well as bathroom fixtures and accessories, floor coverings and lighting. Products introduced since January 1, 2002 accounted for 49.4% of our net sales for fiscal year 2003. Additionally, we intend to focus on and expand the product offerings for which we believe we are the sole supplier in the United States.

Increase Marketing Within and Across Our Sales Channels.    We believe that opportunities exist to expand net sales with marketing initiatives focused within and across each of our sales channels. We have recently expanded the number of catalogs in circulation by introducing new, targeted catalogs that vary in size, merchandise selection and frequency of delivery, in order to enable us to more cost-effectively reach new customers. For example, we recently began to mail smaller catalogs containing our most popular products to prospective customers in markets where we have studios and in other select markets. We intend to promote our studio locations and new studio openings in our catalogs and on our website and utilize customer data to target studio openings. We provide in-studio computers allowing customers online access to www.dwr.com, and we encourage studio personnel to promote online usage and distribute our catalogs. To drive online sales, we intend to implement additional third-party marketing agreements with selected search engines and affiliate programs. We also intend to continue to add new business development executives to further grow our commercial business.

Expand Market Awareness and Appreciation for Design Products.    We seek to expand our addressable market by continuing to promote innovative design products and to educate both residential and commercial consumers on the principles of modern design. We intend to achieve this through our weekly electronic newsletter, catalogs and other publications, periodic design seminars, conferences, studio events and design contests. Recently, we received over 350 entries to our online contest in which we asked customers to create chairs made from the corks and wire cages of champagne bottles. We often host events featuring leading industry speakers and promote studios by hosting in-studio activities such as wine tastings for consumers and neighboring galleries. We believe that these activities enhance consumers’ appreciation of modern design and expand the market for our products.

Corporate Information

We were incorporated in California in November 1998, and we reincorporated in Delaware in March 2004. In April 1999, we received funding from a group of investors led by Jesse.Hansen&Co., a San Francisco-based private equity investment firm. Our principal executive offices are located at 225 Bush Street, 20^th Floor, San Francisco, California 94104, and our telephone number is (415) 676-6500. Our website address is www.dwr.com. Information contained in, or accessible through, our website, and information contained in our catalogs, does not constitute part of this prospectus.

3

The Offering

Common stock offered by Design Within Reach, Inc.	shares
Common stock offered by the selling stockholders	shares
Common stock to be outstanding after the offering	shares
Use of proceeds	We estimate that the net proceeds to us from the sale of shares of common stock that we are offering will be approximately $         million. We intend to use the net proceeds from the offering of shares of common stock by us to finance the opening of additional studios, to repay all of the indebtedness outstanding under our bank credit facility, and for other general corporate purposes, including working capital. We will not receive any of the proceeds from the sale of shares of common stock offered by the selling stockholders.
Proposed Nasdaq National Market symbol	DWRI

The number of shares of common stock to be outstanding after this offering is based upon 3,352,309 shares outstanding as of March 15, 2004 and excludes, as of that date:

Ÿ 2,348,841 shares of our common stock subject to outstanding options at a weighted average exercise price of $1.85 per share;

Ÿ 700,000 shares of our common stock subject to outstanding warrants at an exercise price of $1.50 per share; and

Ÿ 879,850 shares of our common stock available for future grant or issuance under our 1999 stock plan, 2004 stock incentive plan and employee stock purchase plan.

Unless otherwise stated, information in this prospectus assumes:

Ÿ the automatic conversion of all our outstanding shares of preferred stock into 5,398,660 shares of our common stock upon the closing of this offering;

Ÿ the exercise of warrants to purchase 261,172 shares of our Series B preferred stock at an exercise price of $2.55 per share, which will convert automatically into 261,172 shares of common stock effective upon the closing of this offering;

Ÿ the filing of our amended and restated certificate of incorporation immediately preceding the closing of this offering; and

Ÿ no exercise of the underwriters’ over-allotment option.

4

Summary Financial and Operating Data

The following tables provide our summary financial data and additional operating data as of and for each of the fiscal years in the three year period ended December 27, 2003. The pro forma information contained in the balance sheet data gives effect to the automatic conversion of all our outstanding shares of preferred stock into shares of our common stock upon the closing of this offering and the exercise of warrants to purchase 261,172 shares of our Series B preferred stock at an exercise price of $2.55 per share, which will convert automatically into 261,172 shares of common stock upon the closing of this offering. The pro forma as adjusted balance sheet data reflects the pro forma balance sheet data at December 27, 2003 adjusted for the sale of          shares of our common stock by us in this offering at an assumed initial offering price to the public of $          per share (which is the midpoint of the range given on the cover page of this prospectus), after deducting $          in underwriting discounts and commissions and estimated offering expenses payable by us. This summary information should be read in conjunction with, and is qualified in its entirety by reference to, “Selected Financial Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and related notes included elsewhere in this prospectus.

	Fiscal Year Ended (1)
	December 29, 2001		December 28, 2002		December 27, 2003
	(in thousands, except per share amounts and additional operating data)
Statements of Earnings Data:
Net sales	$	40,299	$	57,254	$	81,138
Cost of sales		22,291		30,241		43,298
Gross margin		18,008		27,013		37,840
Selling, general and administrative expenses		17,334		24,028		33,046
Depreciation and amortization		540		855		2,098
Facility relocation costs (2)		—		—		559
Earnings from operations		134		2,130		2,137
Net interest income (expense)		166		74		(29	)
Income tax expense (benefit) (3)		4		1		(852	)
Net earnings		296		2,203		2,960
Deemed preferred stock dividend (4)		—		—		(1,765	)
Net earnings available to common stockholders	$	296	$	2,203	$	1,195
Net earnings per share (5):
Basic	$	0.10	$	0.75	$	0.37
Diluted	$	0.03	$	0.21	$	0.11
Weighted average shares used to compute net earnings per share:
Basic		2,833		2,951		3,261
Diluted		10,029		10,663		11,294
Additional Operating Data:
Number of studios open at end of fiscal year		1		7		16
Number of catalogs circulated		5,794,609		7,934,725		9,761,324
Number of online sessions		889,088		1,725,791		2,570,594
Average order value	$	785	$	762	$	917

(footnotes on following page)

5

	As of December 27, 2003 (1)
	Actual		Pro Forma		Pro Forma As Adjusted
	(in thousands)
Balance Sheet Data:
Cash and cash equivalents	$	44	$	710
Working capital		1,646		2,312
Total assets		23,843		24,509
Bank credit facility		3,325		3,325	—
Convertible preferred stock (6)		12,084		—	—
Total stockholders’ equity		9,838		10,504

(1) We operate on a 52- or 53-week fiscal year, which ends on the Saturday closest to December 31. Each fiscal year consists of four 13-week quarters, with an extra week added onto the fourth quarter every five to six years.

(2) Costs associated with the relocation of our fulfillment center operations from Union City, California to Hebron, Kentucky.

(3) In fiscal year 2003, we recorded a net income tax benefit of $852 principally as a result of the reversal of a valuation allowance on our California state and federal net operating loss carryforwards.

(4) In May 2003, we repurchased 1,961 shares of our Series B preferred stock at a price of $3.45 per share, for aggregate consideration of $6,765. The excess of the repurchase price over the carrying value of the repurchased shares is reported as a deemed preferred stock dividend of $1,765 and subtracted from net earnings to arrive at net earnings available to common stockholders. The deemed preferred stock dividend in fiscal year 2003 reduced basic earnings per share by $0.54 to $0.37 and diluted earnings per share by $0.15 to $0.11.

(5) For more information regarding the calculation of net earnings per share, see Note 1 of our financial statements included elsewhere in this prospectus.

(6) All 5,399 outstanding shares of convertible preferred stock will convert automatically into 5,399 shares of common stock upon the closing of this offering.

6

Risk Factors

Any investment in shares of our common stock involves a high degree of risk. You should consider carefully the following information about these risks, together with the other information contained in this prospectus, before you decide to buy our common stock. If any of the following risks actually occurs, our business, financial condition, results of operations and future growth prospects would likely be materially and adversely affected. In these circumstances, the market price of our common stock could decline, and you may lose all or part of the money you paid to buy our common stock.

Risks Relating to Design Within Reach

Our limited operating history makes evaluation of our business difficult.

We were originally incorporated in November 1998 and began selling products in July 1999. As an early stage company with limited operating history, we face risks and difficulties, such as challenges in accurate financial planning and forecasting as a result of limited historical data and the uncertainties resulting from having had a relatively limited time period in which to implement and evaluate our business strategies as compared to older companies with longer operating histories. These difficulties are particularly evident with respect to the evaluation and prediction of the operating results and expenses of our studios, as we opened our first studio in November 2000 and have expanded from one studio at the end of 2001 to 16 studios at the end of 2003. Further, our limited operating history will make it difficult for investors and securities analysts to evaluate our business, strategy and prospects. Our failure to address these risks and difficulties successfully would seriously harm our business.

If we fail to offer merchandise that our customers find attractive, the demand for our products may be limited.

In order for our business to be successful, our product offerings must be distinctive in design, useful to the customer, well made, affordable and generally not widely available from other retailers. We cannot predict with certainty that we will successfully offer products that meet these requirements in the future. If our products become less popular with our customers, if other retailers, especially department stores or discount retailers, offer the same products or products similar to those we sell, or if demand generally for design products such as ours decreases or fails to grow, our sales may decline or we may be required to offer our products at lower prices. If customers buy fewer of our products or if we have to reduce our prices, our net sales and earnings will decline, our business will be harmed and the price of our common stock would be affected adversely.

We believe that our future growth will be substantially dependent on the continued increase in sales growth of existing core products, such as the Aeron^® Chair and the Eames^® Lounge Chair and Ottoman manufactured by Herman Miller, Inc. and other design classics and new products, while at the same time maintaining or increasing our current gross margin rates. We cannot predict whether we will be able to increase the growth of existing core and new products or successfully introduce new products or maintain or increase our gross margin rate in future periods. Failure to do so may adversely affect our business.

Moreover, in order to meet our strategic goals, we must successfully identify, obtain supplies of, and offer to our customers new, innovative and high quality design products on a continuous basis. These products must appeal to a wide range of residential and commercial customers whose preferences we cannot predict with certainty and may change in the future. If we misjudge either the market for our products or our customers’ purchasing habits, we may be faced with significant excess inventories for some products and missed opportunities for products we chose not to stock. In addition, our sales may decline or we may be required to sell our products at lower prices. This would have a negative effect on our business.

7

We do not have long-term vendor contracts and as a result we may not have continued or exclusive access to popular products that we sell.

Many of our products are unique designs manufactured by third-party suppliers that are not widely available from other retailers. We do not typically enter into formal exclusive supply agreements for these products and, therefore, have no contractual rights to exclusively market and sell them. Since we do not have arrangements with any vendor or distributor that would guarantee the availability or exclusivity of these products from year to year, we do not have a predictable or guaranteed supply of these products in the future. If we are unable to provide our customers with continued access to popular, exclusive design products, our operating results could be harmed.

Our business depends, in part, on factors affecting consumer spending that are not within our control.

Our business depends on consumer demand for our products and, consequently, is sensitive to a number of factors that influence consumer spending, including general economic conditions, disposable consumer income, recession and fears of recession, stock market volatility, war and fears of war, acts of terrorism, inclement weather, consumer debt, interest rates, sales tax rates and rate increases, inflation, consumer confidence in future economic conditions and political conditions, and consumer perceptions of personal well-being and security generally. Adverse changes in factors affecting discretionary consumer spending could reduce consumer demand for our products, thus reducing our sales and harming our business and operating results.

Our business will be harmed if we are unable to implement our growth strategy successfully.

Our growth strategy primarily includes the following components:

Ÿ open additional studios;

Ÿ expand and edit product offerings;

Ÿ increase marketing within and across our sales channels; and

Ÿ expand market awareness and appreciation for design products.

Any failure on our part to implement any or all of our growth strategies successfully would likely have a material adverse effect on our financial condition, results of operations and cash flows. We believe our past growth has been attributable in large part to our success in meeting the merchandise, timing and service demands of an expanding customer base, but there is no assurance that we will be able to continue to have such success.

We must successfully manage the complexities associated with a multi-channel business.

During the past few years, with the launch of our website and the launch and expansion of our studios, our overall business has become substantially more complex. The changes in our business have forced us to develop new expertise and face new challenges, risks and uncertainties. We cannot assure you that, if our studio business continues to grow, it will not take away a significant portion of our catalog and online sales.

The expansion of our studio operations could result in increased expenses with no guarantee of increased earnings.

We plan to open between 13 and 16 new studios in each of 2004 and 2005. We may not be able to attain our target number of new studio openings, and any of the new studios that we open may not be profitable, either of which could have an adverse impact on our financial results. Our ability to expand by opening new studios will depend in part on the following factors:

Ÿ the availability of attractive studio locations;

Ÿ our ability to negotiate favorable lease terms;

Ÿ our ability to identify customer demand in different geographic areas;

Ÿ general economic conditions; and

Ÿ availability of sufficient funds for expansion.

8

Even though we plan to continue to expand the number of geographic areas in which our studios are located, our studio operations will remain concentrated in limited geographic areas. This concentration could increase our exposure to fluctuating customer demand, adverse weather conditions, competition, distribution problems and poor economic conditions in these regions. In addition, our catalog sales, online sales or existing studio sales in a specific region may decrease as a result of new studio openings in that region.

In order to continue our expansion of studios, we will need to hire additional management and staff for our corporate offices and employees for each new studio. We must also expand our management information systems and distribution systems to serve these new studios. If we are unable to hire necessary personnel or grow our existing systems, our expansion efforts may not succeed and our operating results may suffer.

Some of our expenses will increase with the opening of new studios, such as headcount and lease occupancy expenses. Moreover, as we increase inventory levels to provide studios with product samples and support the incremental sales generated from additional studios, our inventory expenses will increase. We may not be able to manage this increased inventory without decreasing our earnings. If studio sales are inadequate to support these new costs, our earnings will decrease. In addition, if we were to close any studio, whether because a studio is unprofitable or otherwise, we likely would be unable to recover our investment in leasehold improvements and equipment at that studio and would be liable for remaining lease obligations.

We rely on our catalog operations, which could have significant cost increases and could have unpredictable results.

Our success depends in part on our ability to market and advertise our products effectively through the Design Within Reach catalog. We believe that the success of our catalog operations depends on the following factors:

Ÿ our ability to continue to offer a merchandise mix that is attractive to our customers;

Ÿ our ability to achieve adequate response rates to our mailings;

Ÿ our ability to add new customers in a cost-effective manner;

Ÿ our ability to design, produce and deliver appealing catalogs in a cost-effective manner; and

Ÿ timely delivery of catalog mailings to our customers.

Catalog production and mailings entail substantial paper, postage, merchandise acquisition and human resource costs, including costs associated with catalog development and increased inventories. We incur nearly all of these costs prior to the mailing of each catalog. As a result, we are not able to adjust the costs incurred in connection with a particular mailing to reflect the actual performance of the catalog. Increases in costs of mailing, paper or printing would increase our costs and would adversely impact our earnings as we would be unable to pass such increases directly on to our customers or offset such increases by raising prices. If we were to experience a significant shortfall in anticipated sales from a particular mailing, and thereby not recover the costs associated with that mailing, our future results would be adversely affected. In addition, response rates to our mailings and, as a result, sales generated by each mailing, are affected by factors such as consumer preferences, economic conditions, the timing of catalog mailings, the product mix in a particular catalog, the timely delivery by the postal system of our catalog mailings and changes in our merchandise mix, several of which may be outside our control. Furthermore, we have historically experienced fluctuations in the response rates to our catalog mailings. Customer response to our catalogs is dependent on merchandise assortment, merchandise availability and creative presentation, as well as the size and timing of delivery of the catalogs. If we are unable to achieve adequate response rates, we could experience lower sales, significant markdowns or write-offs of inventory and lower margins, which would adversely affect our future operating results.

We must manage our online business successfully or our business will be adversely affected.

The success of our online business depends, in part, on factors over which we have limited control. In addition to changing consumer preferences and buying trends relating to Internet usage, we are vulnerable to additional risks and uncertainties associated with the Internet. These risks include changes in required technology interfaces, website downtime or slowdowns and other technical failures or human errors, changes in applicable federal and

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state regulation, security breaches, and consumer privacy concerns. Our failure to respond successfully to these risks and uncertainties might adversely affect the sales through our online business, as well as damage our reputation and increase our selling, general and administrative expenses.

If we do not manage our inventory levels successfully, our operating results will be adversely affected.

We must maintain sufficient inventory levels to operate our business successfully. However, we also must guard against the risk of accumulating excess inventory as we seek to fulfill our “in stock and ready to ship” philosophy. Our success depends upon our ability to anticipate and respond to changing merchandise trends and customer demands in a timely manner. If we misjudge market trends, we may overstock unpopular products and be forced to take significant inventory markdowns, which would have a negative impact on our operating results. Conversely, shortages of popular items could result in loss of sales and have a material adverse effect on our operating results.

We cannot predict consumer preferences with certainty, and these preferences may change between the time we order a product and the time it is available for sale. We base our product selection on our projections of consumer preferences in a future period, and we cannot guarantee that these projections will be accurate. As a result, we are vulnerable to consumer demands and trends, to misjudgments in the selection and timing of our merchandise purchases and fluctuations in the U.S. economy. Additionally, much of our inventory is sourced from vendors located outside the United States that often require lengthy advance notice of our requirements in order to be able to produce products in the quantities we request. This usually requires us to order merchandise, and enter into purchase order contracts for the purchase and manufacture of such merchandise, well in advance of the time such products will be offered for sale, which makes us vulnerable to changes in consumer demands and trends. If we do not accurately predict our customers’ preferences and acceptance levels of our products, our inventory levels will not be appropriate and our business, financial condition and operating results may be negatively impacted.

We source many of our products from manufacturers and suppliers located in Europe, many of which close for vacation during the month of August each year. Accordingly, during September and in many cases for several weeks thereafter as manufacturing resumes and products are shipped to the United States, we are often unable to receive product shipments from these suppliers. As a result, we are required to make projections regarding customer demand for these products for the third and fourth quarters of each year and order sufficient product quantities for delivery in advance of the August shutdown. If we misjudge demand for any of these items, our inventory levels may be too high or low. If we have a shortage of a particular item affected by the August shutdown, we may not be able to procure additional quantities for some weeks or months, which could result in loss of sales and have a material adverse effect on our operating results.

We depend on domestic and foreign vendors, some of which are our competitors, for timely and effective sourcing of our merchandise, and we are subject to various risks and uncertainties that might affect our ability to procure quality merchandise.

Our performance depends on our ability to purchase our merchandise in sufficient quantities at competitive prices. We purchase our merchandise from over 200 foreign and domestic designers, manufacturers and distributors. We have no long-term purchase contracts with any of our suppliers and, therefore, have no contractual assurances of continued supply, pricing or access to products, and any vendor could discontinue selling to us at any time. Some of our principal suppliers, including Herman Miller, Inc., Vitra Inc. and Kartell US Inc., compete directly with us in both residential and commercial markets and may in the future choose not to supply products to us. Additionally, some of our smaller vendors have limited resources, production capacities and operating histories, which means that they may not be able to timely produce sufficient quantities of certain products demanded by our customers. There can be no assurance that we will be able to acquire desired merchandise in sufficient quantities on terms acceptable to us in the future. Any inability to acquire suitable merchandise or the loss of one or more key vendors could have a negative effect on our business and operating results because we would be missing products from our merchandise mix unless and until alternative supply arrangements are made. We may not be able to develop relationships with new vendors, and products from alternative sources, if any, may be of a lesser quality or more expensive than those we currently purchase.

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In addition, our vendors are subject to certain risks, including availability of raw materials, labor disputes, union organizing activity, inclement weather, natural disasters, and general economic and political conditions, that might limit their ability to provide us with quality merchandise on a timely basis. For these or other reasons, one or more of our vendors might not adhere to our quality control standards, and we might not identify the deficiency before merchandise ships to us or our customers. Our vendors’ failure to manufacture or import quality merchandise in a timely and effective manner could reduce our sales, damage our reputation and have an adverse effect on our business, results of operations and financial condition.

A substantial portion of our sales during any given period of time may be generated by a particular product or line of products obtained from a small number of vendors, and if sales of those products or line of products decrease, our common stock price may be adversely affected.

During fiscal year 2003, our sales of products supplied by Herman Miller, Inc., the manufacturer of, among other items, the Aeron Chair, the Eames Lounge Chair and Ottoman, the Eames^® Aluminum Management Chair and the Noguchi Table, constituted approximately 10.4% of our total net sales. Sales of products supplied by our top five vendors constituted approximately 31.8% of our total net sales for fiscal year 2003. Although we have no formal supply agreements with any of these vendors, we believe that sales of products we obtain from these vendors will continue to constitute a substantial portion of our sales in the future. However, we cannot assure you that sales of products from these vendors will continue to increase or will continue at this level. If sales of products from these vendors decrease, our sales will decrease and the price of our common stock may be adversely affected.

Declines in the value of the U.S. dollar relative to foreign currencies could adversely affect our operating results.

We procure supplies of our products from manufacturers in eleven countries outside the United States. In fiscal year 2003, approximately 59% of our merchandise purchases were sourced from outside the United States, primarily from Europe. Our dependence on foreign vendors means, in part, that we may be affected by declines in the relative value of the U.S. dollar to other foreign currencies, particularly the euro. Specifically, as the value of the U.S. dollar declines relative to other currencies, such as the euro, our effective cost of supplies of product increases. As a result, continued declines in the value of the U.S. dollar relative to the euro and other foreign currencies would increase our cost of goods sold and decrease our gross margin.

We rely on foreign sources of production, which subjects us to various risks.

We also are subject to other risks and uncertainties associated with changing economic and political conditions in foreign countries. These risks and uncertainties include import duties and quotas, work stoppages, economic uncertainties including inflation, foreign government regulations, wars and fears of war, acts of terrorism, political unrest and trade restrictions. We cannot predict whether any of the countries in which our products are currently manufactured or may be manufactured in the future will be subject to trade restrictions imposed by the United States or foreign governments or the likelihood, type or effect of any such restrictions. Any event causing a disruption or delay of imports from foreign vendors, including the imposition of additional import restrictions, restrictions on the transfer of funds or increased tariffs or quotas, or both could increase the cost or reduce the supply of merchandise available to us and adversely affect our business, financial condition and operating results.

There is also a risk that one or more of our foreign vendors will not adhere to fair labor standards and may engage in child labor practices. If this happens, we could lose customer goodwill and favorable brand recognition, which could negatively affect our business and operating results.

If we fail to timely and effectively obtain shipments of product from our vendors and deliver merchandise to our customers, our operating results will be adversely affected.

We cannot control all of the various factors that might affect our timely and effective procurement of supplies of product from our vendors and delivery of merchandise to our customers. All products that we purchase, domestically or overseas, must be shipped to our fulfillment center in Hebron, Kentucky by third-party freight carriers, except for those products that are shipped directly to our customers from the manufacturer. Our

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dependence on foreign imports also makes us vulnerable to risks associated with products manufactured abroad, including, among other things, risks of damage, destruction or confiscation of products while in transit to our fulfillment center, work stoppages including as a result of events such as longshoremen strikes, transportation and other delays in shipments including as a result of heightened security screening and inspection processes or other port-of-entry limitations or restrictions in the United States, lack of freight availability and freight cost increases. In addition, if we experience a shortage of a popular item, we may be required to arrange for additional quantities of the item, if available, to be delivered to us through airfreight, which is significantly more expensive than standard shipping by sea. As a result, we cannot assure you that we will be able to obtain sufficient freight capacity on a timely basis or at favorable shipping rates and, therefore, we may not be able to timely receive merchandise from our vendors or deliver our products to our customers.

We rely upon land-based carriers for merchandise shipments from U.S. ports to our facility in Hebron, Kentucky and from this facility to our customers. Accordingly, we are subject to the risks, including labor disputes, union organizing activity, inclement weather and increased fuel costs, associated with such carriers’ ability to provide delivery services to meet our inbound and outbound shipping needs. Failure to procure and deliver merchandise either to us or to our customers in a timely and effective manner could damage our reputation and adversely affect our business and operating results. In addition, any increase in fulfillment costs and expenses could adversely affect our business and operating results.

All of our fulfillment operations are located in our facility in Hebron, Kentucky, and any significant disruption of this center’s operations would hurt our ability to make timely delivery of our products.

We conduct all of our fulfillment operations from our facility in Hebron, Kentucky. Our fulfillment center houses all of our product inventory and is the location from which all of our products are shipped to customers, except for those products that are shipped directly to our customers from the manufacturer. A natural disaster or other catastrophic event, such as an earthquake, fire, flood, severe storm, break-in, terrorist attack or other comparable event would cause interruptions or delays in our business and loss of inventory and could render us unable to accept or fulfill customer orders in a timely manner, or at all. Further, we have no formal disaster recovery plan and our business interruption insurance may not adequately compensate us for losses that may occur. In the event that a fire, natural disaster or other catastrophic event were to destroy a significant part of our Hebron, Kentucky facility or interrupt our operations for any extended period of time, or if harsh weather conditions prevent us from delivering products in a timely manner, our business, financial condition and operating results would be harmed.

Our computer and communications hardware and software systems are vulnerable to damage and interruption, which could harm our business.

Our ability to receive and fulfill orders successfully is critical to our success and largely depends upon the efficient and uninterrupted operation of our computer and communications hardware and software systems. Our systems and operations are vulnerable to damage or interruption from power outages, computer and telecommunications failures, computer viruses, security breaches, catastrophic events, and errors in usage by our employees and customers. Further, our servers are located at the facilities of, and hosted by, a third-party service provider in Santa Clara, California. In the event that this service provider experiences any interruption in its operations or ceases operations for any reason or if we are unable to agree on satisfactory terms for a continued hosting relationship, we would be forced to enter into a relationship with another service provider or take over hosting responsibilities ourselves. We cannot assure you that, in the event it became necessary to switch hosting facilities, we would be successful in finding an alternative service provider on acceptable terms or in hosting the computer servers ourselves. Any significant interruption in the availability or functionality of our website or our sales processing, distribution or communications systems, for any reason, could seriously harm our business, financial condition and operating results.

We are planning certain systems changes that might disrupt our supply chain operations.

Our success depends on our ability to source merchandise efficiently through appropriate systems and procedures. We are in the process of substantially modifying our information technology systems supporting our

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product sourcing, merchandise planning, forecasting, inventory management, product distribution and transportation and price management. Modifications will involve updating or replacing legacy systems with successor systems during the course of fiscal year 2004. There are inherent risks associated with replacing our core systems, including supply chain disruptions that affect our ability to deliver products to our customers. There can be no assurance that we will successfully launch these new systems or that the launch will occur without supply chain disruptions. Any resulting supply chain disruptions could have a material adverse effect on our business and operating results.

If we are unable to provide satisfactory customer service, we could lose customers and our reputation could be harmed.

Our ability to provide satisfactory levels of customer service depends, to a large degree, on the efficient and uninterrupted operation of our customer call center. Any material disruption or slowdown in our order processing systems resulting from labor disputes, telephone or Internet failures, power or service outages, natural disasters or other events could make it difficult or impossible to provide adequate customer service and support. Further, we may be unable to attract and retain adequate numbers of competent customer service representatives, who are essential in creating a favorable, interactive customer experience. In addition, we cannot assure you that e-mail and telephone call volumes will not exceed our present system’s capacities. If this occurs, we could experience delays in taking orders, responding to customer inquiries and addressing customer concerns, which would have an adverse effect on customer satisfaction and our reputation.

We also are dependent on third-party shipping companies for delivery of products to customers. If these companies do not deliver goods in a timely manner or damage products in transit, our customers may be unsatisfied. Because our success depends in large part on keeping our customers satisfied, any failure to provide high levels of customer service would likely impair our reputation and have an adverse effect on our business.

We face intense competition and if we are unable to compete effectively, we may not be able to maintain profitability.

The specialty retail furnishings market is highly fragmented but highly competitive. We compete with other companies that market lines of merchandise similar to, or in some cases the same as, ours, such as large retailers with a national or multinational presence, regional operators with niche assortments and catalog and Internet companies. Many of our competitors are larger companies with greater financial resources, a wider selection of merchandise and greater inventory availability. We expect that as demand for high quality design products grows, many new competitors will enter the market and competition from established companies will increase.

Moreover, increased competition may result in potential or actual litigation between us and our competitors relating to such activities as competitive sales practices, relationships with key suppliers and manufacturers and other matters. As a result, increased competition may adversely affect our future financial performance.

The competitive challenges facing us include:

Ÿ anticipating and quickly responding to changing consumer demands better than our competitors;

Ÿ maintaining favorable brand recognition and achieving customer perception of value;

Ÿ effectively marketing and competitively pricing our products to consumers in several diverse market segments; and

Ÿ offering products that are distinctive in design, useful to the customer, well made and affordable, in a manner that favorably distinguishes us from our competitors.

The U.S. retail industry, the specialty retail industry in particular, and the e-commerce sector are constantly evolving and have undergone significant changes over the past several years. Our ability to anticipate and successfully respond to continuing challenges is critical to our long-term growth, and we cannot assure you that we will anticipate and successfully respond to changes in the retail industry and e-commerce sector.

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In light of the many competitive challenges facing us, there can be no assurance that we will be able to compete successfully. Increased competition could adversely affect our sales, operating results and business.

We maintain a liberal merchandise return policy, which allows customers to return most merchandise and, as a result, excessive merchandise returns could harm our business.

We maintain a liberal merchandise return policy that allows customers to return most merchandise received from us if they are dissatisfied with those items. We make allowances for returns in our financial statements based on historical return rates. We cannot assure you that actual merchandise returns will not exceed our allowances. In addition, because our allowances are based on historical return rates, we cannot assure you that the introduction of new products, the opening of new studios, the introduction of new catalogs, increased sales online, changes in our merchandise mix or other factors will not cause actual returns to exceed return allowances. Any significant increase in merchandise returns that exceed our allowances could have a material adverse effect on our future operating results.

The loss of key personnel would have a material adverse effect on our business, financial condition and operating results.

Our success depends to a significant extent upon the abilities of our senior management, particularly Robert Forbes, our founder, and Wayne Badovinus, our President and Chief Executive Officer. We do not have long-term employment agreements with any of our key personnel. The loss of the services of Mr. Forbes or Mr. Badovinus or any of the other members of our senior management team or of other key employees could have a material adverse effect on our business, financial condition and operating results. Additionally, our future performance will depend upon our ability to attract and retain qualified management, merchandising and sales personnel. If members of our existing management team are not able to manage our company or our growth, or if we are unable to attract and hire additional qualified personnel as needed in the future, our business, financial condition and operating results will be negatively impacted.

We have grown quickly and if we fail to manage our growth, our business will suffer.

We have rapidly and significantly expanded our operations, and anticipate that further significant expansion will be required to address potential growth in our customer base and market opportunities. This expansion has placed, and is expected to continue to place, a significant strain on our management and operational resources. Some of our officers or senior management personnel have no prior senior management experience at public companies. Additionally, we need to properly implement and maintain our financial and managerial controls, reporting systems and procedures, including disclosure controls and procedures and internal controls over financial reporting. Moreover, if we are presented with appropriate opportunities, we may in the future make investments in, or possibly acquire, assets or businesses that we believe are complementary to ours. Any such investment or acquisition may further strain our financial and managerial controls and reporting systems and procedures. These difficulties could disrupt our business, distract our management and employees and increase our costs. If we are unable to manage growth effectively or successfully integrate any assets or businesses that we may acquire, our business, financial condition and results of operations would be adversely affected.

If the protection of our trademarks and proprietary rights is inadequate, our brand and reputation could be impaired and we could lose customers.

We regard our copyrights, service marks, trademarks, trade dress, trade secrets and similar intellectual property as critical to our success. We rely on trademark and copyright law, trade secret protection and confidentiality agreements with our employees, consultants, suppliers, and others to protect our proprietary rights. Nevertheless, the steps we take to protect our proprietary rights may be inadequate. In addition, the relationship between regulations governing domain names and laws protecting trademarks and similar proprietary rights is unclear. Therefore, we may be unable to prevent third parties from acquiring domain names that are similar to, infringe upon or otherwise decrease the value of our trademarks and other proprietary rights. If we are unable to protect or preserve the value of our trademarks, copyrights, trade secrets or other proprietary rights for any reason, our business would be harmed.

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We also rely on technologies that we license from third parties. These licenses may not continue to be available to us on commercially reasonable terms, or at all, in the future. As a result, we may be required to obtain substitute technology of lower quality or at greater cost, which could materially adversely affect our business, operating results and financial condition.

Intellectual property claims against us could be costly and could impair our business.

Third parties may assert claims against us alleging infringement, misappropriation or other violations of patent, trademark or other proprietary rights held by them, whether or not such claims have merit. We cannot predict whether third parties will assert such claims against us, or whether any such claim would prevent us from offering any of our products or operating our business as planned. If we are forced to defend against third-party infringement claims, whether they are with or without merit or are determined in our favor, we could face expensive and time-consuming litigation, which could divert management personnel, or result in product shipment delays. If an infringement claim is determined against us, we may be required to pay monetary damages or ongoing royalties, or to cease selling the infringing product, which may have a significant impact on our sales volume. Further, as a result of infringement claims either against us or against those who license rights to us, we may be required to enter into costly royalty or licensing agreements. Such royalty or licensing agreements, if required, may be unavailable on terms that are acceptable to us, or at all. If a third party successfully asserts an infringement claim against us and we are required to pay monetary damages or royalties or we are unable to obtain suitable non-infringing alternatives or license the infringed or similar intellectual property on reasonable terms on a timely basis, it could significantly harm our business.

We may face product liability claims or product recalls that are costly and create adverse publicity.

The products we sell may from time to time contain defects which could subject us to product liability claims and product recalls. Any such product liability claim or product recall may result in adverse publicity regarding us and the products we sell, which may harm our reputation. If we are found liable under product liability claims, we could be required to pay substantial monetary damages. Further, even if we successfully defend ourselves against this type of claim, we could be forced to spend a substantial amount of money in litigation expenses, our management could be required to spend valuable time in the defense against these claims and our reputation could suffer, any of which could harm our business. In addition, although we maintain limited product liability insurance, if any successful product liability claim or product recall is not covered by or exceeds our insurance coverage, our business, results of operations and financial condition would be harmed.

The security risks of online commerce, including credit card fraud, may discourage customers from purchasing products from us online.

For our online sales channel to continue to succeed, we and our customers must be able to transmit confidential information, including credit card information, securely over public networks. Third parties may have the technology or know-how to breach the security of customer transaction data. Any breach could cause customers to lose confidence in the security of our website and choose not to purchase from us. Although we take the security of our systems very seriously, we cannot guarantee that our security measures will effectively prohibit others from obtaining improper access to our information. If a person is able to circumvent our security measures, he or she could destroy or steal valuable information or disrupt our operations. Any security breach could expose us to risks of data loss, litigation and liability and could seriously disrupt our operations and harm our reputation.

We do not carry insurance against the risk of credit card fraud, so the failure to prevent fraudulent credit card transactions could adversely affect our operating results. In addition, we may in the future suffer losses as a result of orders placed with fraudulent credit card data even though the associated financial institution approved payment of the orders. Under current credit card practices, we may be liable for fraudulent credit card transactions because we do not obtain a cardholder’s signature when we sell our products by telephone or online. If we are unable to detect or control credit card fraud, our liability for these transactions could harm our business, operating results and financial condition.

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Existing or future government regulation could harm our business.

We are subject to the same federal, state and local laws as other companies conducting business online, including consumer protection laws, user privacy laws and regulations prohibiting unfair and deceptive trade practices. In particular, under federal and state financial privacy laws and regulations, we must provide notice to our customers of our policies on sharing non-public information with third parties, must provide advance notice of any changes to our privacy policies and, with limited exceptions, must give consumers the right to prevent sharing of their non-public personal information with unaffiliated third parties. Further, the growth of online commerce could result in more stringent consumer protection laws that impose additional compliance burdens on us. Today there are an increasing number of laws specifically directed at the conduct of business on the Internet. Moreover, due to the increasing use of the Internet, many additional laws and regulations relating to the Internet are being debated at the state and federal levels. These laws and regulations could cover issues such as freedom of expression, pricing, user privacy, fraud, quality of products and services, taxation, advertising, intellectual property rights and information security. Applicability of existing laws to the Internet relating to issues such as property ownership, copyrights and other intellectual property issues, taxation, libel, obscenity and personal privacy could also harm our business. For example, U.S. and international laws regulate our ability to use customer information and to develop, buy and sell mailing lists. Many of these laws were adopted prior to the advent of the Internet, and do not contemplate or address the unique issues raised by the Internet. The applicability and reach of those laws that do reference the Internet, such as the Digital Millennium Copyright Act, are uncertain. The restrictions imposed by, and costs of complying with, current and possible future laws and regulations related to our business could harm our business, operating results and financial condition.

Tax authorities in a number of states, as well as a Congressional advisory commission, are currently reviewing the appropriate tax treatment of companies engaged in online commerce, and new state tax regulations may subject us to additional state sales and income taxes, which could have an adverse effect on our cash flows and results of operations. Further, there is a possibility that we may be subject to significant fines or other payments for any past failures to comply with these requirements.

The State of California recently enacted a law that requires any company that does business in California and possesses computerized data, in unencrypted form, containing certain personal information about California residents to provide prompt notice to such residents if that personal information was, or is reasonably believed to have been, obtained by an unauthorized person such as a computer hacker. The law defines personal information as an individual’s name together with one or more of that individual’s social security number, driver’s license number, California identification card number, credit card number, debit card number, or bank account information, including any necessary passwords or access codes. As our customers, including California residents, generally provide information to us that is covered by this definition of personal information in connection with their purchases via our website, our business will be affected by this new law. As a result, we will need to ensure that all computerized data containing the previously-described personal information is sufficiently encrypted or that we have implemented appropriate measures to detect unauthorized access to our data. We cannot be certain that these measures will be sufficient to prevent unauthorized access to the previously described personal information. In the event of an unauthorized access, we are required to notify our California customers of any such access to the extent it involves their personal information. Such measures will likely increase the costs of doing business and, if we fail to detect and provide prompt notice of unauthorized access as required by the new law, we could be subject to potential claims for damages and other remedies available to California residents whose information was improperly accessed or, under certain circumstances, the State of California could seek to enjoin our online operations until appropriate corrective actions have been taken. While we intend to comply fully with this new law, we cannot assure you that we will be successful in avoiding all potential liability or disruption of business resulting from this law. If we were required to pay any significant amount of money in satisfaction of claims under this new law, or any similar law enacted by another jurisdiction, or if we were forced to cease our business operations for any length of time as a result of our inability to comply fully with any such law, our business, operating results and financial condition could be adversely affected. Further, complying with the applicable notice requirements in the event of a security breach could result in significant costs.

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In addition, because our website is accessible over the Internet in multiple states and other countries, we may be subject to their laws and regulations or may be required to qualify to do business in those locations. Our failure to qualify in a state or country where we are required to do so could subject us to taxes and penalties and we could be subject to legal actions and liability in those jurisdictions. The restrictions or penalties imposed by, and costs of complying with, these laws and regulations could harm our business, operating results and financial condition. Our ability to enforce contracts and other obligations in states and countries in which we are not qualified to do business could be hampered, which could have a material adverse effect on our business.

Laws or regulations relating to privacy and data protection may adversely affect the growth of our online business or our marketing efforts.

We are subject to increasing regulation relating to privacy and the use of personal user information. For example, we are subject to various telemarketing laws that regulate the manner in which we may solicit future customers. Such regulations, along with increased governmental or private enforcement, may increase the cost of growing our business. In addition, several states have proposed legislation that would limit the uses of personal, user information gathered online or require online services to establish privacy policies. The Federal Trade Commission has adopted regulations regarding the collection and use of personal identifying information obtained from children under 13 years of age. Bills proposed in Congress would extend online privacy protections to adults. Moreover, proposed legislation in the United States and existing laws in other countries require companies to establish procedures to notify users of privacy and security policies, obtain consent from users for collection and use of personal information, and/or provide users with the ability to access, correct and delete personal information stored by companies. These data protection regulations and enforcement efforts may restrict our ability to collect demographic and personal information from users, which could be costly or harm our marketing efforts. Further, any violation of privacy or data protection laws and regulations may subject us to fines, penalties and damages and may otherwise have material adverse effect on our business, results of operations and financial condition.

We may be subject to liability for the content that we publish.

As a publisher of catalogs and online content, we face potential liability for defamation, negligence, intellectual property infringement, or other claims based on the information and other content contained in our catalogs and website. In the past, parties have brought these types of claims and sometimes successfully litigated them against online services. If we incur liability for our catalog or online content, our financial condition could be affected adversely and our reputation could suffer.

We may need additional financing and may not be able to obtain additional financing on favorable terms or at all, which could increase our costs, limit our ability to grow and dilute the ownership interests of existing stockholders.

We may need to raise additional capital in the future to facilitate long-term expansion, to respond to competitive pressures or to respond to unanticipated financial requirements. We cannot be certain that we will be able to obtain additional financing on commercially reasonable terms or at all. A failure to obtain additional financing or an inability to obtain financing on acceptable terms could require us to incur indebtedness that has high rates of interest or substantial restrictive covenants, issue equity securities that will dilute the ownership interests of existing stockholders, or scale back, or fail to address opportunities for expansion or enhancement of, our operations.

Our inability to obtain commercial insurance at acceptable prices might have a negative impact on our business.

During fiscal year 2003, we experienced a substantial increase in the costs of insurance. We believe that extensive commercial insurance coverage is prudent for risk management and anticipate that our insurance costs may continue to increase substantially. However, for certain types or levels of risk (e.g., risks associated with earthquakes or terrorist attacks), we might determine that we cannot obtain commercial insurance at acceptable

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prices. Therefore, we might choose to forego or limit our purchase of relevant commercial insurance, choosing instead to self-insure one or more types or levels of risks. If we suffer a substantial loss that is not covered by commercial insurance, the loss and attendant expenses could have a material adverse effect on our business and operating results.

Anti-takeover provisions in our organizational documents and Delaware law make any change in control more difficult. This could affect our stock price adversely.

Our amended and restated certificate of incorporation and bylaws will contain provisions that may delay or prevent a change in control, discourage bids at a premium over the market price of our common stock and affect adversely the market price of our common stock and the voting and other rights of the holders of our common stock. These provisions will include:

Ÿ the division of our board of directors into three classes serving staggered three-year terms;

Ÿ prohibiting our stockholders from calling a special meeting of stockholders;

Ÿ our ability to issue additional shares of our common stock or preferred stock without stockholder approval;

Ÿ prohibiting our stockholders from making certain changes to our amended and restated certificate of incorporation or bylaws except with two-thirds stockholder approval; and

Ÿ advance notice requirements for raising matters of business or making nominations at stockholders’ meetings.

We are also subject to provisions of the Delaware corporation law that, in general, prohibit any business combination with a beneficial owner of 15% or more of our common stock for five years unless the holder’s acquisition of our common stock was approved in advance by our board of directors.

Risks Relating to this Offering of Common Stock

Our stock price may be volatile and you may lose all or a part of your investment.

Prior to this offering, there has been no public market for our common stock, and an active market for these shares may not develop or be sustained after this offering. The initial public offering price for our common stock will be determined by negotiations between us and the underwriters of this offering and may not be representative of the price that will prevail in the open market. The market price of our common stock may be subject to significant fluctuations after our initial public offering. It is possible that in some future periods our results of operations may be below the expectations of securities analysts and investors. If this occurs, our stock price may decline. Factors that could affect our stock price include the following:

Ÿ actual or anticipated fluctuations in our operating results;

Ÿ changes in securities analysts’ recommendations or estimates of our financial performance;

Ÿ publication of research reports by analysts;

Ÿ changes in market valuations of similar companies;

Ÿ announcements by us, our competitors or other retailers;

Ÿ additions or departures of key personnel;

Ÿ the trading volume of our common stock in the public market;

Ÿ general economic conditions;

Ÿ financial market conditions;

Ÿ acts of terrorism; and

Ÿ war or threats of war.

In addition, the stock markets have experienced significant price and trading volume fluctuations, and the market prices of retail companies in particular have been extremely volatile and have recently experienced sharp share

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price and trading volume changes. These broad market fluctuations may adversely affect the trading price of our common stock. In the past, following periods of volatility in the market price of a public company’s securities, securities class action litigation has often been instituted against that company. Such litigation could result in substantial costs to us and a likely diversion of our management’s attention which could adversely affect our business. We cannot assure that you will receive a positive return on your investment when you sell your shares or that you will not lose the entire amount of your investment.

We will have broad discretion in how we use the proceeds of this offering, and we may not use these proceeds effectively.

We will have considerable discretion in the application of the net proceeds of this offering, and you will not have the opportunity, as part of your investment decision, to assess whether we will use the proceeds effectively. We currently intend to use the net proceeds to finance the opening of additional studios, to repay all of the indebtedness outstanding under our bank credit facility, and for other general corporate purposes, including working capital. We have not finalized yet the amount of net proceeds that we will use specifically for each of these purposes. We may use the net proceeds for corporate purposes that do not yield a significant return or any return at all for our stockholders.

As a new investor, you will incur substantial dilution as a result of this offering and future equity issuances, and as a result, our stock price could decline.

The initial public offering price will be substantially higher than the pro forma net tangible book value per share of our outstanding common stock. As a result, investors purchasing common stock in this offering will incur immediate dilution of $          per share in pro forma net tangible book value, assuming an offering price of $          per share. This dilution is due in large part to earlier investors in our company having paid substantially less than the initial public offering price when they purchased their shares, and also reflects the deduction of the $          in underwriting discounts and commissions and estimated offering expenses payable by us. The exercise of outstanding options and warrants and future equity issuances, including any additional shares issued in connection with acquisitions, will result in further dilution to investors.

Securities analysts may not initiate coverage of our common stock or may issue negative reports, and this may have a negative impact on our common stock’s market price.

There is no guarantee that securities analysts will cover our common stock after the completion of this offering. If securities analysts do not cover our common stock after the completion of this offering, the lack of research coverage may adversely affect our common stock’s market price. The trading market for our common stock will rely in part on the research and reports that industry or financial analysts publish about us or our business. If one or more of the analysts who cover us downgrades our common stock, our common stock price would likely decline rapidly. If one or more of these analysts ceases coverage of our company, we could lose visibility in the market, which in turn could cause our common stock price to decline. In addition, recently-adopted rules mandated by the Sarbanes-Oxley Act of 2002, and a global settlement reached between the Securities and Exchange Commission, or the SEC, other regulatory analysts and a number of investment banks in April 2003 will lead to a number of fundamental changes in how analysts are reviewed and compensated. In particular, many investment banking firms will now be required to contract with independent financial analysts for their stock research. It may be difficult for companies with smaller market capitalizations, such as our company, to attract independent financial analysts that will cover our common stock, which could have a negative effect on the market price of our common stock.

Our directors, executive officers and significant stockholders will continue to hold a substantial portion of our common stock after this offering, which may lead to conflicts with other stockholders over corporate transactions and other corporate matters.

Following the completion of this offering, our directors, executive officers and current beneficial holders of 5% or more of our outstanding common stock will beneficially own approximately     % of our outstanding common

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stock, including warrants and options to purchase shares of our common stock that are exercisable within 60 days after                     , 2004. These stockholders, acting together, will be able to influence significantly all matters requiring stockholder approval, including the election of directors and significant corporate transactions such as mergers or other business combinations. This control may delay, deter or prevent a third party from acquiring or merging with us, which could adversely affect the market price of our common stock.

There may be sales of substantial amounts of our common stock after this offering, which could cause our stock price to fall.

Our current stockholders hold a substantial number of shares, which they will be able to sell in the public market in the near future. Upon the closing of this offering,                     shares of common stock will be outstanding. In addition, as of March 15, 2004: 2,348,841 shares of our common stock were subject to outstanding stock options; 700,000 shares of our common stock were subject to outstanding warrants; and 261,172 shares of our common stock were issuable upon the exercise of warrants to purchase shares of our Series B preferred stock, which will convert automatically into shares of our common stock upon the closing of this offering. All of the shares sold in this offering will be freely tradable, except for shares held by holders who are subject to lock-up agreements entered into in connection with this offering, or by any of our “affiliates,” as that term is defined in Rule 144 promulgated under the Securities Act of 1933, as amended, or the Securities Act, which generally includes officers, directors and 10% or greater stockholders. A significant portion of the shares of our common stock outstanding after this offering will continue to be restricted as a result of securities laws or lock-up agreements with the underwriters, represented by CIBC World Markets Corp. The lock-up agreements restrict holders’ ability to transfer their stock for 180 days after the date of this prospectus. Of the outstanding restricted shares,             will be available for sale in the public market on the date of this offering,             will be available for sale in the public market 90 days after the date of this prospectus,                      will be available for sale in the public market 180 days after the date of this prospectus, and the remaining              shares will be available for sale in the public market from time to time after the date of this prospectus upon expiration of their applicable Rule 144 holding periods. CIBC World Markets Corp., as representative of the underwriters may, however, waive the lock-up period at any time for any stockholder. Sales of a substantial number of shares of our common stock within a short period of time after this offering, or after the expiration of applicable lock-up periods, could cause our stock price to fall. In addition, the sale of these shares could impair our ability to raise capital through the sale of additional stock.

We do not intend to pay dividends on our common stock.

We have never declared or paid any cash dividends on our common stock and do not intend to pay dividends on our common stock for the foreseeable future. We intend to invest our future earnings, if any, to fund our growth. Therefore, you are not likely to receive any dividends from us on our common stock for the foreseeable future.

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Special Note Regarding Forward-Looking Statements

We have made forward-looking statements in this prospectus, including in the sections entitled “Prospectus Summary,” “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business.” All statements other than statements of historical facts contained in this prospectus, including statements regarding our future financial position, business strategy and plans and objectives of management for future operations, are forward-looking statements. The words “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “expect” and similar expressions, as they relate to us, are intended to identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs. These forward-looking statements are subject to a number of risks, uncertainties and assumptions described in the section entitled “Risk Factors” and elsewhere in this prospectus.

Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified, you should not rely upon forward-looking statements as predictions of future events. We cannot assure you that the events and circumstances reflected in the forward-looking statements will be achieved or occur and actual results could differ materially from those projected in the forward-looking statements. Except as required by applicable law, including the securities laws of the United States, and the rules and regulations of the SEC, we do not plan to publicly update or revise any forward-looking statements after we distribute this prospectus, whether as a result of any new information, future events or otherwise.

Use of Proceeds

We estimate that the net proceeds to us from the sale of              shares of common stock that we are offering will be approximately $              million or $              million if the underwriters exercise their over-allotment option in full, assuming an offering price of $              per share and after deducting underwriting discounts and commissions and estimated offering expenses. We will not receive any of the proceeds from the sale of shares of common stock offered by the selling stockholders.

We intend to use the estimated net proceeds from this offering as follows:

Ÿ to finance the opening of additional studios;

Ÿ to repay all of the indebtedness outstanding under our bank credit facility; and

Ÿ the remaining net proceeds for other general corporate purposes, including working capital.

Our bank credit facility provides for an operating line of credit and an equipment line of credit. Amounts borrowed under the operating line of credit of our bank credit facility bear interest at the rate of the greater of 4.25% or the prime lending rate plus 0.25% and mature on July 31, 2004. As of March 15, 2004, the outstanding balance under the operating line of credit was $1.2 million and the effective rate of interest was 4.25%. Amounts borrowed under the equipment line of credit bear interest at the rate of 4.50% and mature on July 31, 2004. As of March 15, 2004, the outstanding balance under the equipment line of credit was $1.7 million. During fiscal year 2003, we used amounts borrowed under the credit facility for working capital purposes, including for the acquisition of inventory, property and equipment.

We will retain broad discretion in the allocation and use of the net proceeds of this offering. We also may use a portion of the net proceeds for the acquisition of complementary businesses or products. We have no current agreements or commitments with respect to any acquisition. Pending application of the net proceeds, we will invest the net proceeds in short-term, investment-grade, interest-bearing securities.

Dividend Policy

We have not declared or paid any dividends on our common stock since our inception and do not intend to pay any dividends on our common stock in the foreseeable future. We currently intend to retain our future earnings, if any, to finance our business and for general corporate purposes. Our board of directors has the authority to declare and pay dividends on our common stock, in its discretion, as long as there are funds legally available to do so.

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Capitalization

The following table sets forth our cash and cash equivalents, indebtedness under our bank credit facility and our capitalization as of December 27, 2003:

Ÿ on an actual basis;

Ÿ on a pro forma basis to give effect to the automatic conversion of all of our outstanding shares of preferred stock into 5,398,660 shares of common stock upon the closing of this offering and the exercise of warrants to purchase 261,172 shares of our Series B preferred stock at an exercise price of $2.55 per share, which will convert automatically into 261,172 shares of common stock upon the closing of this offering; and

Ÿ on a pro forma basis as adjusted to give effect to the sale by us of shares of common stock in this offering and the receipt of the estimated net proceeds therefrom, after deducting underwriting discounts and commissions and estimated offering expenses payable by us, and the repayment of all of the outstanding indebtedness under our bank credit facility.

	As of December 27, 2003
	Actual			Pro Forma			Pro Forma As Adjusted
	(in thousands, except share and per share amounts)
Cash and cash equivalents	$	44		$	710		$
Indebtedness under bank credit facility	$	3,325		$	3,325		$	—
Capital lease obligation (including current portion)		350			350			350
Stockholders’ equity:
Convertible preferred stock:
Series A preferred stock, $1.00 par value, 2,040,000 shares authorized, issued and outstanding actual; none authorized, issued or outstanding pro forma and pro forma as adjusted		2,040			—			—
Series B preferred stock, $1.00 par value, 6,000,000 shares authorized and 3,358,660 shares issued and outstanding actual; none authorized, issued or outstanding pro forma and pro forma as adjusted		10,044			—			—
Common stock, no par value, 13,000,000 shares authorized and 3,321,658 shares issued and outstanding actual; par value $0.001 per share, 30,000,000 shares authorized and 8,981,490 shares issued and outstanding pro forma; par value $0.001 per share, 30,000,000 shares authorized and              shares issued and outstanding pro forma as adjusted (1)		240			9
Additional paid-in capital		—			12,981
Accumulated deficit		(2,486	)		(2,486	)		(2,486	)
Total stockholders’ equity		9,838			10,504
Total capitalization	$	10,188		$	10,854		$

(1) Due to our reincorporation in Delaware in March 2004, our common stock has a par value of $0.001 per share.

The table above excludes the following shares:

Ÿ 1,902,076 shares of our common stock subject to outstanding options as of December 27, 2003 with a weighted average exercise price of $0.67 share;

Ÿ 700,000 shares of our common stock subject to outstanding warrants as of December 27, 2003 with an exercise price of $1.50 per share; and

Ÿ 557,000 shares of our common stock available for future grant or issuance under our 1999 stock plan as of December 27, 2003.

Please read the above information in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and related notes contained elsewhere in this prospectus.

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Dilution

Our net tangible book value on December 27, 2003 was $9.8 million, or $2.96 per share of common stock. “Net tangible book value” is total assets minus the sum of liabilities and intangible assets. “Net tangible book value per share of common stock” is net tangible book value divided by the total number of shares of common stock outstanding.

After giving effect to adjustments relating to this offering, our pro forma net tangible book value on December 27, 2003 would have been $              or $          per share of common stock. The adjustments made to determine pro forma net tangible book value per share are the following:

Ÿ the automatic conversion of all of our outstanding shares of preferred stock into 5,398,660 shares of our common stock effective upon the closing of this offering;

Ÿ the exercise of warrants to purchase 261,172 shares of our Series B preferred stock, which will convert automatically into 261,172 shares of common stock effective upon the closing of this offering;

Ÿ an increase in total assets to reflect the net proceeds of the offering as described under “Use of Proceeds” (assuming that the public offering price will be $              per share); and

Ÿ the addition of the number of shares offered by us in this prospectus to the number of shares outstanding.

The following table illustrates the pro forma increase in net tangible book value of $          per share of common stock and the dilution (the difference between the offering price per share and net tangible book value per share) to new investors:

Assumed public offering price per share of common stock			$
Net tangible book value per share of common stock as of December 27, 2003	$	2.96
Increase in net tangible book value per share of common stock attributable to this offering
Pro forma net tangible book value per share of common stock as of December 27, 2003 after giving effect to this offering
Dilution per share of common stock to new investors in this offering			$

The following table summarizes, on a pro forma basis as of December 27, 2003, the differences between our existing stockholders and new investors with respect to the number of shares of common stock issued by us, the total consideration paid and the average price per share paid. The table assumes that the public offering price will be $          per share of common stock.

	Shares Purchased			Total Consideration				Average Price Per Share
	Number	Percent		Amount		Percent
Existing stockholders (1)(2)	8,720,318	%		$	12,090,863	%		$	1.39
New investors (2)
Total		100.0	%	$		100.0	%

(1) Includes 5,398,660 shares of our preferred stock, which will convert automatically into 5,398,660 shares of common stock effective upon the closing of this offering.

(2) If the underwriters exercise their over-allotment option in full: (a) the number of shares of common stock held by existing stockholders will decrease to approximately             % of the total number of shares of common stock outstanding; and (b) the number of newly issued shares of common stock held by new investors will increase to             , or approximately             % of the total number of shares of our common stock outstanding after this offering. It does not give effect to sales of shares by the selling stockholders in this offering.

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As of December 27, 2003, there was an aggregate of (1) 1,902,076 shares of our common stock subject to outstanding options at a weighted average exercise price of $0.67 per share, (2) 700,000 shares of our common stock subject to outstanding warrants at an exercise price of $1.50 per share, and (3) 261,172 shares of our Series B preferred stock subject to outstanding warrants at an exercise price of $2.55 per share, which we have assumed will convert automatically into 261,172 shares of common stock effective upon the closing of this offering. The following table adjusts the information set forth in the table above to reflect the assumed exercise of options and warrants, in each case outstanding as of December 27, 2003, that are described in the preceding sentence:

	Shares Purchased			Total Consideration				Average Price Per Share
	Number	Percent		Amount		Percent
Existing stockholders (1)	8,720,318	%		$	12,090,863	%		$	1.39
Option and warrant holders	2,863,248			$	2,990,380			$	1.04
New investors
Total		100.0	%	$		100.0	%

(1) Includes 5,398,660 shares of our preferred stock, which will convert automatically into 5,398,660 shares of common stock effective upon the closing of this offering.

Assuming the exercise of the foregoing outstanding options and warrants, dilution to new investors in net tangible book value per share would be $            .

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Selected Financial Data

The statements of operations data for the five fiscal years in the period ended December 27, 2003 and the balance sheet data as of December 28, 2002 and December 27, 2003 have been derived from our audited financial statements, which have been audited by Grant Thornton LLP, our independent auditors, and included elsewhere in this prospectus. The statements of operations data for the two years ended December 31, 1999 and December 30, 2000 and the balance sheet data as of December 31, 1999, December 30, 2000 and December 29, 2001 have been derived from our audited financial statements not included in this prospectus. The following selected financial data should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and related notes included elsewhere in this prospectus. The selected financial data in this section is not intended to replace our financial statements.

	Fiscal Year Ended (1)
	December 31, 1999			December 30, 2000			December 29, 2001		December 28, 2002		December 27, 2003
	(in thousands, except per share amounts)
Statements of Operations Data:
Net sales	$	2,309		$	23,032		$	40,299	$	57,254	$	81,138
Cost of sales		1,297			13,074			22,291		30,241		43,298
Gross margin		1,012			9,958			18,008		27,013		37,840
Selling, general and administrative expenses		2,454			14,171			17,334		24,028		33,046
Depreciation and amortization		34			329			540		855		2,098
Facility relocation costs (2)		—			—			—		—		559
Earnings from operations		(1,476	)		(4,542	)		134		2,130		2,137
Net interest income (expense)		21			(122	)		166		74		(29	)
Loss on disposal of assets		—			19			—		—		—
Earnings (loss) before income taxes		(1,455	)		(4,683	)		300		2,204		2,108
Income tax expense (benefit) (3)		1			1			4		1		(852	)
Net earnings (loss)		(1,456	)		(4,684	)		296		2,203		2,960
Deemed preferred stock dividend (4)		—			—			—		—		(1,765	)
Net earnings (loss) available to common stockholders	$	(1,456	)	$	(4,684	)	$	296	$	2,203	$	1,195
Net earnings (loss) per share (5):
Basic	$	(0.54	)	$	(1.71	)	$	0.10	$	0.75	$	0.37
Diluted	$	(0.31	)	$	(0.54	)	$	0.03	$	0.21	$	0.11
Weighted average shares used to compute net earnings (loss) per share:
Basic		2,674			2,745			2,833		2,951		3,261
Diluted		4,672			8,681			10,029		10,663		11,294

(footnotes on following page)

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	As of
	December 31, 1999			December 30, 2000			December 29, 2001			December 28, 2002			December 27, 2003
	(in thousands)
Balance Sheet Data:
Cash and cash equivalents	$	2,288		$	5,687		$	4,720		$	4,587		$	44
Working capital		389			5,250			5,805			5,111			1,646
Total assets		3,386			12,833			10,825			17,018			23,843
Total indebtedness		2,200			—			—			—			3,325
Convertible preferred stock (6)		2,040			12,232			12,232			12,232			12,084
Accumulated deficit		(1,496	)		(6,180	)		(5,884	)		(3,681	)		(2,486	)
Total stockholders’ equity		562			6,110			6,436			8,752			9,838

(1) We operate on a 52- or 53-week fiscal year, which ends on the Saturday closest to December 31. Each fiscal year consists of four 13-week quarters, with an extra week added onto the fourth quarter every five to six years.

(2) Costs associated with the relocation of our fulfillment center operations from Union City, California to Hebron, Kentucky.

(3) In fiscal year 2003, we recorded a net income tax benefit of $852 principally as a result of the reversal of a valuation allowance on our California state and federal net operating loss carryforwards.

(4) In May 2003, we repurchased 1,961 shares of our Series B preferred stock at a price of $3.45 per share, for aggregate consideration of $6,765. The excess of the repurchase price over the carrying value of the repurchased shares is reported as a deemed preferred stock dividend of $1,765 and subtracted from net earnings to arrive at net earnings available to common stockholders. The deemed preferred stock dividend in fiscal year 2003 reduced basic earnings per share by $0.54 to $0.37 and diluted earnings per share by $0.15 to $0.11.

(5) For more information regarding the calculation of net earnings per share, see Note 1 of our financial statements included elsewhere in this prospectus.

(6) All 5,399 outstanding shares of convertible preferred stock will convert automatically into 5,399 shares of common stock upon the closing of this offering.

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Management’s Discussion and Analysis of

Financial Condition and Results of Operations

You should read the following discussion of our financial condition and results of operations in conjunction with the financial statements and the notes to those statements included elsewhere in this prospectus. This discussion may contain forward-looking statements that involve risks and uncertainties. As a result of many factors, such as those set forth under “Risk Factors” and elsewhere in this prospectus, our actual results may differ materially from those anticipated in these forward-looking statements.

Overview

Design Within Reach is an integrated multi-channel provider of distinctive modern design furnishings and accessories. We market and sell our products to both residential and commercial customers through four integrated sales channels, consisting of our catalog, studios, website and direct sales force. We offer over 725 products in numerous categories, including chairs, tables, workspace and outdoor furniture, lighting, floor coverings, beds and related accessories, bathroom fixtures, fans and other home and office accessories. Our policy of having products “in stock and ready to ship” is a departure from the approach taken by traditional furnishings retailers, which typically requires customers to wait weeks or months to receive their products.

We established our business strategy on the premise that multiple, integrated sales channels improve customer convenience, reinforce brand awareness, enhance customer knowledge of our products, and produce operational benefits that ultimately improve market penetration and returns on capital. All of our sales channels utilize a single common inventory held at our Hebron, Kentucky fulfillment center and share centralized information technology systems, which together provide a level of scalability to facilitate our future growth. This integration further improves customer service, speeds delivery times and provides real-time data availability.

We have experienced significant growth in customers and net sales since our founding in 1998. We began selling products through our catalog and online in the second half of 1999, and we opened our first studio in November 2000. We generated a profit in each fiscal quarter from the second quarter of fiscal year 2001 through the fourth quarter of fiscal year 2003. In recent years, we have continued to increase sales across all distribution channels with particular growth in sales through our studios, which have increased in number from one at the end of 2001 to 16 studios operating in six states at the end of 2003. We expect to open 13 to 16 new studios in each of fiscal years 2004 and 2005, and as of March 15, 2004, we had opened one of these new studios and had signed leases for nine additional studios.

As one measure of the performance of our business, we analyze our total market penetration rates across all of our sales channels in the top 50 metropolitan areas in the United States by household population as identified by the U.S. Census Bureau. We calculate our market penetration rates in a particular metropolitan market area based on net sales per capita in that area. We base our decisions on where to open new studios by categorizing markets into five “tiers” based on household population statistics and supporting sales data collected from our other sales channels. We plan to open the majority of our new studios in markets in our top two tiers during 2004 and 2005. Although nearly all of our studios have been open less than two full years, our experience indicates that studio openings significantly improve our overall market penetration rates in the markets in which they are located even though the opening of a studio may initially have an adverse effect on sales growth in our other sales channels in the same market.

In January 2004, we moved our fulfillment operations from Union City, California to Hebron, Kentucky. The new facility, at approximately 217,000 square feet, is nearly 100,000 square feet larger than our previous Union City facility. We have a right of first refusal on an adjacent 100,000 square feet in the new facility, and we expect this facility to support our distribution capacity needs for at least the next four years. We support all of our sales channels through the new fulfillment center, and the vast majority of our inventory is received and distributed through it. A small portion of our merchandise is shipped directly by the manufacturers to our customers. In February 2004, we moved our corporate headquarters from an approximately 23,000 square foot facility in

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Oakland, California to an approximately 59,000 square foot facility in downtown San Francisco, California. We expect that this headquarters facility will provide us with adequate space for growth for at least the next five years. In fiscal year 2003, we incurred $559,000 in costs and $170,000 in accelerated depreciation expense on abandoned assets associated with the relocation of our fulfillment center operations, and we expect to incur approximately $175,000 in costs in the first quarter of 2004 to complete this relocation. We also anticipate incurring an additional $400,000 in costs during the first quarter of 2004 associated with the relocation of our headquarters.

We have funded our capital expenditures and working capital needs primarily through cash flows from operations, private sales of equity securities and borrowings under our bank credit facility, which includes a $7.5 million operating line of credit and a $2.5 million equipment line of credit.

Basis of Presentation

Net sales consist of studio sales, phone sales, online sales, other sales and shipping and handling fees, net of returns by customers. Studio sales consist of sales of merchandise to customers at our studios, phone sales consist of sales of merchandise through the toll-free numbers associated with our printed catalogs, online sales consist of sales of merchandise from orders placed through our website, and other sales consist of sales made by our business development executives to commercial customers and warehouse sales. Warehouse sales consist of periodic clearance sales at our fulfillment center of product samples and products that customers have returned. Shipping and handling fees consist of amounts we charge customers for the delivery of merchandise. Cost of sales consists of the cost of the products we sell and inbound and outbound freight costs. Handling costs, including our fulfillment center expenses, are included in selling, general and administrative expenses.

Selling, general and administrative expenses consist of studio costs, including salaries and studio occupancy costs, costs associated with publishing our catalogs and maintaining our website, and corporate and fulfillment center costs, including salaries and occupancy costs, among others.

We operate on a 52- or 53-week fiscal year, which ends on the Saturday closest to December 31. Each fiscal year consists of four 13-week quarters, with an extra week added onto the fourth quarter every five to six years. Our 2001 fiscal year ended on December 29, 2001, our 2002 fiscal year ended on December 28, 2002 and our 2003 fiscal year ended on December 27, 2003. Each of fiscal years 2001, 2002 and 2003 consisted of 52 weeks, and fiscal year 2004 will consist of 53 weeks.

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Results of Operations

Net Sales and Other Data.    The following table sets forth information for fiscal years 2001, 2002 and 2003 about our net sales by sales channel, total net sales, gross margin, operating expenses, earnings from operations, net interest income, income taxes and net earnings both in dollars and as a percentage of net sales.

	Fiscal year 2001		% of net sales		Fiscal year 2002		% of net sales		Fiscal year 2003			% of net sales
	(dollars in thousands)
Net sales:
Studio sales	$	2,368	5.9	%	$	4,719	8.2	%	$	24,626		30.4	%
Phone sales		20,544	51.0			23,985	41.9			25,460		31.4
Online sales		12,271	30.4			18,209	31.8			18,680		23.0
Other sales		986	2.4			4,143	7.2			4,618		5.7
Shipping and handling fees		4,130	10.2			6,198	10.8			7,754		9.6
Total net sales		40,299	100.0			57,254	100.0			81,138		100.0
Cost of sales		22,291	55.3			30,241	52.8			43,298		53.4
Gross margin		18,008	44.7			27,013	47.2			37,840		46.6
Selling, general and administrative expenses		17,334	43.0			24,028	42.0			33,046		40.7
Depreciation and amortization		540	1.3			855	1.5			2,098		2.6
Facility relocation costs		—	—			—	—			559		0.7
Earnings from operations		134	0.3			2,130	3.7			2,137		2.6
Interest income		166	0.4			74	0.1			13		—
Interest expense		—	—			—	—			(42	)	(0.1	)
Earnings before income taxes		300	0.7			2,204	3.8			2,108		2.6
Income tax expense (benefit)		4	—			1	—			(852	)	(1.1	)
Net earnings	$	296	0.7	%	$	2,203	3.8	%	$	2,960		3.6	%

The following table provides information for fiscal years 2001, 2002 and 2003 about the number of studios open at the end of each fiscal year, the number of catalogs circulated during each fiscal year, the number of online sessions during each fiscal year and the average order value during each fiscal year.

	Fiscal year 2001		Fiscal year 2002		Fiscal year 2003
Number of studios open at end of fiscal year (1)		1		7		16
Number of catalogs circulated		5,794,609		7,934,725		9,761,324
Number of online sessions		889,088		1,725,791		2,570,594
Average order value	$	785	$	762	$	917

(1) As of March 15, 2004, no studios had been closed.

Comparison of Fiscal Year 2003 to Fiscal Year 2002

Net Sales.    During fiscal year 2003, net sales increased $23.9 million, or 41.7%, to $81.1 million from $57.3 million in fiscal year 2002. Approximately $19.9 million of this increase was due to increased studio sales, which resulted primarily from our opening nine new studios during fiscal year 2003 and the results of a full year of operations from the six studios opened during fiscal year 2002, as well as increased demand for our products driven by increased marketing efforts in other sales channels. Approximately $1.9 million of the increase in net sales was due to increased phone and online sales, resulting primarily from the circulation of 23.0% more catalogs in fiscal year 2003 compared to fiscal year 2002 and additional marketing efforts through our website.

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Average order value increased 20.3% to $917 in fiscal year 2003 from $762 in fiscal year 2002. The balance of the increase in net sales was primarily due to increased sales generated by our direct sales force and increased shipping and handling fees. The increase in average order value resulted primarily from the increase in studio sales as a percentage of net sales. Our studios tend to have higher average order values compared to our phone and online sales channels because we believe that our customers tend to be more comfortable purchasing higher priced items after having an opportunity to touch and feel the item before making a purchase.

Cost of Sales.    Cost of sales increased $13.1 million, or 43.2%, to $43.3 million in fiscal year 2003 from $30.2 million in fiscal year 2002. As a percentage of net sales, cost of sales increased to 53.4% in fiscal year 2003 from 52.8% in fiscal year 2002. The slight increase in cost of sales as a percentage of net sales in fiscal year 2003 compared to fiscal year 2002 was primarily a result of a promotion in which we offered free shipping on products purchased during the period from March 1, 2003 to March 17, 2003, and the negative impact of the strengthening of the euro relative to the U.S. dollar, partially offset by lower product costs due to increased volumes of merchandise that we purchased and increased sales of higher margin products. In fiscal year 2003, we generated all of our net sales in U.S. dollars, but we purchased approximately 52% of our product inventories from manufacturers in Europe and paid for substantially all of these products in euros. During fiscal year 2003, the value of the U.S. dollar declined approximately 18.7% relative to the euro, which effectively increased the cost to us of merchandise sourced from Europe. To date, we have been able to negotiate reduced prices from some of our European vendors to partially offset the impact of the decline of the U.S. dollar relative to the euro, and we have increased our prices on certain items we source from Europe. However, a continued decline in the value of the U.S. dollar relative to the euro would further increase our cost of goods sold and decrease our gross margin. The dollar increase in cost of sales in fiscal year 2003 was primarily attributable to the 41.7% increase in net sales during the same period.

Selling, General and Administrative Expenses.    Selling, general and administrative expenses increased $9.0 million, or 37.5%, to $33.0 million in fiscal year 2003 from $24.0 million in fiscal year 2002. As a percentage of net sales, selling, general and administrative expenses decreased to 40.7% in fiscal year 2003 from 42.0% in fiscal year 2002. The decrease in these expenses as a percentage of net sales resulted from spreading catalog costs, fixed fulfillment center costs and corporate overhead expenses over increased net sales across all of our sales channels, partially offset by increases in costs associated with our studios as the number of studios has increased. The dollar increase in these expenses resulted primarily from the expenses associated with opening and operating new studios and mailing additional catalogs, as well as increased handling costs as our total volume of sales increased. We opened nine new studios during fiscal year 2003, compared to six new studios in fiscal year 2002, and mailed 23.0% more catalogs in fiscal year 2003 than in fiscal year 2002.

Depreciation and Amortization Expenses.    Depreciation and amortization expenses increased to $2.1 million in fiscal year 2003 from $855,000 in fiscal year 2002. As a percentage of net sales, depreciation and amortization expenses increased to 2.6% of net sales in fiscal year 2003 from 1.5% of net sales in fiscal year 2002. These expenses increased as a result of significant increases in spending on capital assets associated with our new studio openings and improvements in our management information systems and $170,000 in accelerated depreciation expense on abandoned assets associated with the relocation of our fulfillment center operations from Union City, California to Hebron, Kentucky.

Facility Relocation Costs.    In fiscal year 2003, we incurred $559,000 in costs associated with the relocation of our fulfillment operations from Union City, California to Hebron, Kentucky, and we expect to incur approximately $175,000 in costs in the first quarter of 2004 to complete this relocation. We also expect to incur approximately $400,000 in costs in the first quarter of 2004 associated with the relocation of our headquarters from Oakland, California to San Francisco, California.

Interest Income.    Interest income was $13,000 and $74,000 in fiscal years 2003 and 2002, respectively. Our interest income in each of fiscal years 2002 and 2003 was generated by interest paid on our cash and cash equivalents.

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Interest Expense.    We incurred $42,000 of interest expense in fiscal year 2003 related to short-term borrowings under our bank credit facility for working capital purposes and for capital expenditures associated with new studios. We did not have any interest expense in fiscal year 2002.

Income Taxes.    In fiscal year 2003, we recorded a net income tax benefit of $852,000 principally as a result of the reversal of a valuation allowance on our California state and federal net operating loss carryforwards. As of December 27, 2003, we had $29,000 of net operating loss carryforwards for federal income tax purposes and $4.3 million of net operating loss carryforwards for California state income tax purposes. We also had approximately $131,000 of California enterprise zone tax credits which may be impaired or limited in certain circumstances. We expect to use all of our net operating loss carryforwards for federal income tax purposes during the first quarter of fiscal year 2004, substantially all of our net operating loss carryforwards for California state income tax purposes by the end of fiscal year 2004 and all of our California enterprise zone tax credits by the end of fiscal year 2004. To the extent not used, our net operating loss carryforwards and tax credits will begin to expire in 2007. In addition, in fiscal year 2003, because of the uncertainty regarding their realizability in future periods, we recorded a partial valuation allowance on our deferred tax assets, consisting of net enterprise zone credit carryforwards associated with our Oakland headquarters facility.

Net Earnings.    As a result of the foregoing factors, net earnings increased to $3.0 million, or 3.6% of net sales, in fiscal year 2003 from $2.2 million, or 3.8% of net sales, in fiscal year 2002. Net earnings for fiscal year 2003 takes into account $559,000 in costs and $170,000 in accelerated depreciation expense on abandoned assets associated with the relocation of our fulfillment center and a tax benefit of $852,000 associated with the reversal of valuation allowances on certain deferred tax assets.

Comparison of Fiscal Year 2002 to Fiscal Year 2001

Net Sales.    During fiscal year 2002, net sales increased $17.0 million, or 42.1%, to $57.3 million from $40.3 million in fiscal year 2001. Approximately $2.4 million of this change resulted from an increase in studio sales, which resulted primarily from our opening six new studios during fiscal year 2002, compared to one studio opening in fiscal year 2001. The balance of the increase in net sales was primarily due to increased phone and online sales, resulting from the circulation of 36.9% more catalogs compared to fiscal year 2001 and additional marketing efforts through website. The average order value decreased approximately 2.9%. The decrease in average order value resulted primarily from increased online sales as a percentage of our net sales during fiscal year 2002.

Cost of Sales.    Cost of sales increased $8.0 million, or 35.7%, to $30.2 million in fiscal year 2002 from $22.3 million in fiscal 2001. As a percentage of net sales, cost of sales decreased to 52.8% in fiscal year 2002 from 55.3% in fiscal year 2001. The decrease in cost of sales as a percentage of net sales in fiscal year 2002 compared to fiscal year 2001 was primarily a result of lower product costs due to increased volumes of merchandise that we purchased and increased sales of higher margin products. The dollar increase in cost of sales in fiscal year 2002 was primarily attributable to the 42.1% increase in net sales during the same period.

Selling, General and Administrative Expenses.    Selling, general and administrative expenses increased $6.7 million, or 38.6%, to $24.0 million in fiscal year 2002 from $17.3 million in fiscal year 2001. As a percentage of net sales, selling, general and administrative expenses decreased to 42.0% in fiscal year 2002 from 43.0% in fiscal year 2001. The decrease as a percentage of net sales resulted from spreading catalog expenses, fixed fulfillment center costs and corporate overhead expenses over increased net sales across all of our sales channels, offset by increases in costs associated with our studios as the number of studios increased. The dollar increase in these expenses resulted primarily from the expenses associated with opening and operating new studios and mailing additional catalogs, as well as increased handling costs as our total volume of sales increased. We opened six new studios during fiscal year 2002 and mailed 36.9% more catalogs in fiscal year 2002 than fiscal year 2001.

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Depreciation and Amortization Expenses.    Depreciation and amortization expenses increased to $855,000 in fiscal year 2002 from $540,000 in fiscal year 2001. As a percentage of net sales, depreciation and amortization expenses increased to 1.5% in fiscal year 2002 from 1.3% in fiscal year 2001. These expenses increased as a result of significant investments we made in capital assets associated with our new studio openings and improvements in our management information systems.

Interest Income.    Interest income was $74,000 and $166,000 in fiscal years 2002 and 2001, respectively. The decrease in net interest income resulted primarily from reduced cash balances and lower average interest rates earned on our cash and cash equivalents balances during fiscal year 2002 compared to fiscal year 2001.

Interest Expense.    We did not have any interest expense in fiscal years 2002 and 2001.

Income Taxes.    As of December 28, 2002 and December 29, 2001, we had $1.8 million and $4.7 million of net operating loss carryforwards for federal income tax purposes, respectively, and $4.7 million and $4.7 million of net operating loss carryforwards for California state income tax purposes, respectively. We provided a full valuation allowance for these deferred tax benefits as of December 28, 2002 and December 29, 2001.

Net Earnings.    As a result of the foregoing factors, net earnings increased to $2.2 million, or 3.8% of net sales, in fiscal year 2002 from $296,000 , or 0.7% of net sales, in fiscal year 2001.

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Quarterly Results of Operations

The following table sets forth our unaudited quarterly results of operations for fiscal years 2002 and 2003. Each quarterly period presented below consisted of 13 weeks. The information for each of these periods has been prepared on the same basis as the audited financial statements included elsewhere in this prospectus. This information includes all adjustments, which consist only of normal and recurring adjustments, management considers necessary for the fair presentation of such data. This data should be read in conjunction with the audited financial statements included elsewhere in this prospectus. The results of operations for historical periods are not necessarily indicative of results for any future period. We expect quarterly results of operations to fluctuate depending on the timing and amount of net sales contributed by new studios, changes in catalog circulation and other marketing initiatives. Historically, we have undertaken marketing initiatives in the fourth quarter of each fiscal year, which have increased our net sales during such periods. We also generally have experienced lower demand for our products in the third quarter of each fiscal year.

	Quarter Ended
	Mar. 30, 2002		June 29, 2002		Sept. 28, 2002		Dec. 28, 2002		Mar. 29, 2003		June 28, 2003		Sept. 27, 2003			Dec. 27, 2003
	(dollars in thousands, except additional operating data)
Statement of Earnings Data
Net sales:
Studio sales	$	288	$	908	$	1,290	$	2,233	$	3,122	$	5,845	$	6,628		$	9,031
Phone sales		4,975		6,016		6,004		6,990		6,188		6,663		6,023			6,586
Online sales		3,380		4,716		5,330		4,783		4,198		4,377		4,053			6,052
Other sales		990		494		1,177		1,482		1,259		705		1,916			738
Shipping and handling fees		1,247		1,642		1,718		1,591		1,374		1,768		2,027			2,585
Total net sales		10,880		13,776		15,519		17,079		16,141		19,358		20,647			24,992
Cost of sales		5,763		7,180		8,166		9,132		8,856		10,210		10,852			13,380
Gross margin		5,117		6,596		7,353		7,947		7,285		9,148		9,795			11,612
Selling, general and administrative expenses		4,813		5,877		6,502		6,836		6,714		8,102		8,532			9,698
Depreciation and amortization		145		185		220		305		310		440		475			873
Facility relocation costs		—		—		—		—		8		1		28			522
Earnings from operations		159		534		631		806		253		605		760			519
Interest income		16		17		20		21		12		—		—			1
Interest expense		—		—		—		—		—		—		(21	)		(21	)
Earnings before income taxes		175		551		651		827		265		605		739			499
Income tax expense (benefit)		—		—		—		1		—		—		—			(852	)
Net earnings	$	175	$	551	$	651	$	826	$	265	$	605	$	739		$	1,351
Additional Operating Data
Number of studios open at the end of the quarter		2		2		4		7		10		12		14			16
Number of catalogs circulated		2,113,988		2,347,812		1,716,265		1,756,660		2,335,479		3,387,763		1,792,980			2,245,102
Number of online sessions		370,654		385,919		435,273		533,945		577,319		568,719		621,262			803,294
Average order value	$	711	$	781	$	801	$	749	$	833	$	1,003	$	1,043		$	832

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Liquidity and Capital Resources

We have funded our operations primarily through cash flows from operations, private placements of equity securities and short-term borrowings under our bank credit facility.

Discussion of Cash Flows

For the fiscal year ended December 27, 2003, cash and cash equivalents decreased by $4.5 million to $44,000 at the end of fiscal year 2003 from $4.6 million at the end of fiscal year 2002. Cash and cash equivalents decreased by $0.1 million to $4.6 million at the end of fiscal year 2002 from $4.7 million at the end of fiscal year 2001. The primary contributors to the decrease in cash and cash equivalents during fiscal year 2003 were the use of $7.4 million of cash for purchases of property and equipment and the use of $1.9 million of cash to repurchase a portion of the outstanding shares of our Series B preferred stock, net of the issuance of additional shares of our Series B preferred stock, offset by $1.4 million of cash provided by operating activities. The primary contributor to the decrease in cash and cash equivalents during fiscal year 2002 was the use of $3.4 million of cash for purchases of property and equipment offset by $3.2 million of cash provided by operating activities.

Net cash provided by (used in) operating activities was $1.4 million for fiscal year 2003, $3.2 million for fiscal year 2002 and ($616,000) for fiscal year 2001. Net cash provided by operating activities decreased in fiscal year 2003 compared to fiscal year 2002 primarily because of expenditures associated with opening nine new studios, including the maintenance of increased inventory levels to support additional sales from the new studios, partially offset by growth in net sales and gross margin. Net cash provided by (used in) operating activities increased in fiscal year 2002 compared to fiscal year 2001 because of the growth in net sales and gross margin achieved by our business, partially offset by expenditures associated with opening six new studios during fiscal year 2002.

Net cash used in investing activities was $7.4 million for fiscal year 2003, $3.4 million for fiscal year 2002 and $380,000 for fiscal year 2001. Net cash used in investing activities for fiscal years 2003, 2002 and 2001 was primarily attributable to expenditures for property and equipment for our studios and the implementation of new information technology systems.

In fiscal year 2004, we anticipate that our investment in property and equipment will increase to between $10.0 million and $12.0 million from $7.4 million in fiscal year 2003. This increase is a result of our planned opening of 13 to 16 new studios in fiscal year 2004, as well as our planned investment of approximately $2.0 million in additional information systems and technology. We expect our investment in property and equipment in subsequent years to increase due to the continued expansion of our studio channel. We plan to finance these investments from cash flows from operations, the proceeds of this offering, bank financing and future sales of debt or equity securities.

Net cash provided by financing activities was $1.5 million for fiscal year 2003, $113,000 for fiscal year 2002 and $29,000 for fiscal year 2001. Net cash provided by financing activities for fiscal year 2003 was primarily attributable to an increase in borrowings under our bank credit facility, partially offset by the use of $1.9 million to repurchase shares of our Series B preferred stock, net of the issuance of additional shares of our Series B preferred stock. Net cash provided by financing activities during fiscal years 2002 and 2001 resulted primarily from cash provided from exercises of employee stock options.

Until required for other purposes, our cash and cash equivalents are maintained in deposit accounts or highly liquid investments with remaining maturities of 90 days or less at the time of purchase.

Liquidity Sources, Requirements and Contractual Cash Requirements and Commitments

Our principal sources of liquidity as of March 15, 2004 consisted of: (1) $105,000 in cash and cash equivalents; (2) two tranches under our bank credit facility, consisting of a $7.5 million operating line of credit, of which $1.2 million had been drawn down and $850,000 had been used for outstanding letters of credit as of March 15, 2004, and a $2.5 million equipment line of credit, of which $1.7 million had been drawn down as of March 15, 2004; and (3) cash we expect to generate from operations during this fiscal year.

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Historically, our principal liquidity requirements have been to meet our working capital and capital expenditure needs.

We believe that our sources of cash will be sufficient to fund our operations and anticipated capital expenditures for at least the next 12 months. Our ability to fund these requirements and comply with the financial covenants under our bank credit agreement will depend on our future operations, performance and cash flow and is subject to prevailing economic conditions and financial, business and other factors, some of which are beyond our control. In addition, as part of our strategy, we intend to continue to expand our studio sales channel. Such expansion will require additional capital. We cannot assure you that additional funds from available sources will be available on terms acceptable to us, or at all.

The following table summarizes our future contractual obligations as of December 27, 2003:

	Payment due by period
Contractual Obligations (1)	Total		Less than 1 year		1-3 years		3-5 years		More than 5 years
	(in thousands)
Operating lease obligations	$	34,613	$	3,611	$	9,832	$	9,638	$	11,532
Capital lease obligation		392		109		262		21		—
Total	$	35,005	$	3,720	$	10,094	$	9,659	$	11,532

(1) Operating lease obligations consist of office, studio and fulfillment center lease obligations. Capital lease obligation consists of an obligation for the lease of certain equipment.

In addition, our credit agreement with Wells Fargo HSBC Trade Bank, N.A. provides for a $7.5 million operating line of credit and a $2.5 million equipment line of credit. The $7.5 million operating line of credit is subject to availability guidelines that specify the amount that can be borrowed under the facility at any given time to provide working capital and expires on July 31, 2004. Amounts borrowed under this line of credit bear interest at an annual rate equal to the lender’s prime lending rate plus 0.25%. The $2.5 million equipment line of credit is subject to availability guidelines that specify the amount that can be borrowed under the facility at any given time for capital expenditures and converts to a term loan on July 31, 2004, which will be amortized and fully paid over two years. Amounts borrowed under this line of credit bear interest at an annual rate equal to the lender’s prime lending rate plus 0.50%. Amounts borrowed under our credit agreement are secured by our accounts receivable, inventory and equipment. The credit agreement also sets forth a number of affirmative and negative covenants to which we must adhere, including financial covenants that require us to achieve positive net earnings in each quarter and limitations on capital expenditures. We have borrowed funds under these lines of credit from time to time and periodically have repaid such borrowings with available cash.

Quantitative and Qualitative Disclosures about Market Risk

All of our sales and a portion of our expenses are denominated in U.S. dollars, and our assets and liabilities together with our cash holdings are predominantly denominated in U.S. dollars. However, in fiscal year 2003 we obtained approximately 52% of our product inventories from manufacturers in Europe, and these transactions typically were denominated in currencies other than the U.S. dollar, principally the euro. During fiscal year 2003, the value of the U.S. dollar declined approximately 18.7% relative to the euro, which effectively increased the cost to us of merchandise sourced from Europe. As a result of such currency fluctuations, we have experienced and may continue to experience fluctuations in our operating results on an annual and a quarterly basis going forward. To mitigate our exchange rate risk relating to the euro, we typically purchase foreign currency forward contracts with maturities of less than 60 days relating to invoices for supplies of merchandise after the payable amount and due date of the invoice are known. We account for these contracts by adjusting the carrying amount of the contract to market and recognizing any corresponding gain or loss in selling, general and administrative expenses in each reporting period. Based on our euro-denominated purchases during fiscal year 2003, a hypothetical additional 10%

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weakening in the value of the dollar relative to the euro would have increased our cost of sales in fiscal year 2003 by approximately $1.7 million, and would have decreased both our net earnings and cash flows for that year by a corresponding amount. Future hedging transactions may not successfully mitigate losses caused by currency fluctuations. In addition to the direct effect of changes in exchange rates on cost of goods, changes in exchange rates also affect the volume of purchases or the foreign currency purchase price as vendors’ prices become more or less attractive. We expect to continue to experience the effect of exchange rate fluctuations on an annual and quarterly basis, and currency fluctuations could have a material adverse impact on our results of operations.

We are exposed to financial market risks, including changes in interest rates. All of the $3.3 million in debt outstanding under our bank credit facility as of December 27, 2003 was subject to variable interest rate fluctuations. Based on this debt level, a hypothetical 10% increase in our lender’s prime rate from the applicable rate at December 27, 2003 would have increased our net interest expense in fiscal year 2003 by approximately $5,000, and would have decreased both our earnings and cash flows by a corresponding amount. We currently do not engage in hedging transactions with respect to interest rate fluctuations. We cannot predict market fluctuations in interest rates. As a result, future results may differ materially from estimated results due to adverse changes in interest rates or debt availability.

We typically do not attempt to reduce or eliminate our market exposures on our investment securities because the majority of our investments are short-term. The fair value of our investment portfolio or related income would not be significantly impacted by either a 100 basis point increase or decrease in interest rates due mainly to the short-term nature of our investment portfolio.

Critical Accounting Policies

Our financial statements have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, sales and expenses. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Our critical accounting policies are set forth below.

Revenue recognition.    We recognize revenue on the date on which we estimate that the product has been received by the customer, and we record any payments received prior to the estimated date of receipt of the goods by the customer as deferred revenue until the estimated date of receipt. We use our third-party freight carrier information to estimate when delivery has occurred. Sales are recorded net of returns by customers. Significant management judgments and estimates must be made and used in connection with determining net sales recognized in any accounting period. Our management must make estimates of potential future product returns related to current period revenue. We analyze historical returns, current economic trends and changes in customer demand and acceptance of our products when evaluating the adequacy of the sales returns and other allowances in any accounting period. Although our actual returns historically have not differed materially from estimated returns, in the future, actual returns may differ materially from our reserves. As a result, our operating results and financial condition could be affected adversely. The reserve for returns was $442,000 and $560,000 as of December 27, 2003 and December 28, 2002, respectively. We recognize net sales revenue for shipping and handling fees charged to customers at the time products are estimated to have been received by customers.

Shipping and handling costs.    Shipping costs, which include inbound and outbound freight costs, are included in cost of sales. We record costs of shipping products to customers in our cost of sales at the time products are estimated to have been received by customers. Handling costs, which include fulfillment center expenses, call center expenses, and credit card fees, are included in selling, general and administrative expenses. Handling costs were $5.7 million, $4.3 million and $3.4 million for fiscal years 2003, 2002 and 2001, respectively. Our gross margin calculation may not be comparable to that of other entities, which may allocate all shipping and handling costs to cost of sales, resulting in lower gross margin, or to operating expenses, resulting in higher gross margin.

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Inventory.    Our inventory is valued at the lower of cost or market. Cost has been determined using the first in, first out method. We write down inventory for estimated obsolescence or damage equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future demand and market conditions. If actual market conditions or demand for our products are less favorable than projected by management, additional inventory write-downs may be required. Although our actual inventory write-downs historically have not differed materially from estimated inventory write downs, in the future, actual inventory write downs may differ materially from our reserves. As a result, our operating results and financial condition could be affected adversely. As of December 27, 2003 and December 28, 2002, we had reserves for inventory write-downs of approximately $754,000 and $531,000 , respectively.

Stock-based compensation.    We account for stock options granted to employees using the intrinsic value method in accordance with Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees.” As at December 27, 2003, we had not recognized any compensation expense for stock options in our financial statements, as all options granted up to that date have an exercise price equal to the estimated fair value of the underlying common stock on the date of grant. However, Statement of Financial Accounting Standard (“SFAS”) No. 123, “Accounting for Stock Based Compensation,” requires the disclosure of pro forma net earnings and earnings per share as if we had adopted the fair value method. Under SFAS No. 123, the fair value of stock-based awards to employees is calculated through the use of option pricing models. These models require subjective assumptions, including future stock price volatility and expected time to exercise, which affect the calculated values. Our calculations are based on a single option valuation approach and forfeitures are recognized as they occur.

Accounting for income taxes.    We record an estimated valuation allowance on our deferred tax assets if it is more likely than not that they will not be realized. Significant management judgment is required in determining our deferred tax assets and liabilities and any valuation allowance recorded against our net deferred tax assets, including judgments regarding whether or not we will generate sufficient taxable income to realize our deferred tax assets.

Amortization of prepaid catalog costs.    Prepaid catalog costs consist of third-party costs, including paper, printing, postage, name acquisition and mailing costs, for all of our direct response catalogs. Such costs are capitalized as prepaid catalog costs and are amortized over their expected period of future benefit. Such amortization is based upon the ratio of actual sales to the total of actual and estimated future sales on an individual catalog basis. The period of expected future benefit is calculated based on our projections of when approximately 90% of sales generated by the catalog will be made. Based on data we have collected, we historically have estimated that catalogs have a period of expected future benefit of two to four months. The period of expected future benefit of our catalogs would decrease if we were to publish new catalogs more frequently in each year, or increase if we published them less frequently. Prepaid catalog costs are evaluated for realizability at the end of each reporting period by comparing the carrying amount associated with each catalog to the estimated probable remaining future net benefit associated with that catalog. If the carrying amount is in excess of the estimated probable remaining future net benefit of the catalog, the excess is expensed in the reporting period.

Valuation of long-lived assets.    Long-lived assets held and used by us are reviewed for impairment whenever events or changes in circumstances indicate the net book value may not be recoverable. An impairment loss is recognized if the sum of the expected future cash flows from use of the asset is less than the net book value of the asset. The amount of the impairment loss will generally be measured as the difference between net book values of the assets and their estimated fair values. We did not record any impairment charges in fiscal years 2003, 2002 or 2001.

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Effect of Recent Accounting Pronouncements

In May 2003, the Financial Accounting Standards Board (the “FASB”) issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity.” SFAS No. 150 requires an issuer to classify a financial instrument that falls within its scope as a liability, or as an asset in some circumstances. Such instruments include those instruments that are mandatorily redeemable and, therefore, represent an unconditional obligation of the issuer to redeem them by transferring its assets at a specified or determinable date or upon an event that is certain to occur. SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003 and is effective at the beginning of the first interim period beginning after June 15, 2003, except for mandatorily redeemable financial instruments of nonpublic entities which are subject to the provisions of this Statement for the first period beginning after December 15, 2003. As a result, the adoption of SFAS No. 150 did not have any significant impact on our financial statements.

In December 2002, the FASB issued SFAS No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure.” SFAS No. 148 amends SFAS No. 123, “Accounting for Stock-Based Compensation,” to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The transition guidance and annual disclosure provisions of SFAS No. 148 are effective for our fiscal year ended December 27, 2003. We continue to account for stock-based compensation using the intrinsic value method in accordance with the provisions of APB Opinion No. 25, “Accounting for Stock Issued to Employees,” as allowed by SFAS No. 123. As a result, the adoption of SFAS No. 148 did not have any significant impact on our financial results.

In June 2002, Statement of Financial Accounting Standards No. 146, “Accounting for Costs Associated with Exit or Disposal Activities” was issued, which addresses accounting for restructuring and similar costs. SFAS No. 146 supersedes previous accounting guidance, principally Emerging Issues Task Force Issue No. 94-3. SFAS No. 146 requires that the liability for costs associated with an exit or disposal activity be recognized when the liability is incurred. SFAS No. 146 also establishes that the liability should be measured and recorded at fair value. Accordingly, SFAS No. 146 may affect the timing of recognizing future restructuring costs as well as the amounts recognized. We have adopted the provisions of SFAS No. 146 for restructuring activities initiated after December 31, 2002, and accordingly, recognized $559,000 of expenses related to the closure of our fulfillment center in Union City, California and opening of our new fulfillment center in Hebron, Kentucky.

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Business

Overview

Design Within Reach is an integrated multi-channel provider of distinctive modern design furnishings and accessories. We market and sell our products to both residential and commercial customers through four integrated sales channels, consisting of our catalog, studios, website and direct sales force. We believe we have developed a national presence in modern design furnishings and a brand recognized for design excellence among our customers and the design community. We believe that we have created a differentiated business model that enables us to provide products to our customers in a more convenient, efficient and economical manner. We strive to broaden the base of modern design consumers, who we believe have been underserved in the United States. Our policy of having products “in stock and ready to ship” is a departure from the approach taken by traditional furnishings retailers, which typically requires customers to wait weeks or months to receive their products. We have relationships with both internationally recognized and emerging designers, which allow us to offer our customers an array of innovative and often hard-to-find merchandise. Our differentiated business model along with a dedicated management team have enabled us to generate significant growth in customers and net sales over the last three years.

We established our business strategy on the premise that multiple, integrated sales channels improve customer convenience, reinforce brand awareness, enhance customer knowledge of our products, and produce operational benefits that ultimately improve market penetration and returns on capital. We believe most traditional furnishings retailers initially established their presence with one sales channel and subsequently added additional channels, thereby making integration across sales channels more difficult. Seamless channel integration is crucial to our success because a substantial portion of our customers purchase our products after having had contact with two, three or sometimes all four of our sales channels. All of our sales channels utilize a common inventory held at our centralized Hebron, Kentucky fulfillment center and share information technology systems, which together provide a level of scalability to facilitate future growth. This integration further improves customer service by speeding delivery times and providing real-time inventory information across all sales channels.

Our merchandise offering is comprised of products that we believe share an aesthetic appeal and feature distinctive modern design elements, superior quality and authenticity. We offer over 725 products in numerous categories, including chairs, tables, workspace and outdoor furniture, lighting, floor coverings, beds and related accessories, bathroom fixtures, fans and other home and office accessories. We offer products created by notable designers such as Ludwig Mies van der Rohe, Charles and Ray Eames, George Nelson and Philippe Starck, among others. Across each of our sales channels, we display merchandise in an educational context by providing detailed information regarding the designer and key design and functional elements about each product. We obtain our merchandise from select designers and manufacturers in Europe and North America that meet our stringent requirements for design, quality, packaging, and consistency of production and flow. We believe that our unique assortment of innovative and often hard-to-find products serves as a competitive advantage and provides our customers with a distinctive shopping experience.

We believe our success requires the development and maintenance of a broad base of residential and commercial customers. Our customers include design professionals, consumers with an interest in modern design and commercial clients. We target educated consumers focused on quality of life and interested in self-enrichment. Historically, our residential customers have been almost as likely to be male as female, have spanned a wide range of ages and typically have had household incomes greater than $50,000. In fiscal year 2003, our net sales were approximately 66% to residential customers and 34% to commercial customers. A significant percentage of our commercial sales is to small businesses with an interest in or focus on design, such as restaurants, salons and boutiques. In addition, recent well-known commercial customers include Coach, Inc., The Gap, Inc., Giorgio Armani SpA, Krispy Kreme Doughnuts, Inc., Microsoft Corporation, MTV Networks (a cable network owned by Viacom Inc.), Nike, Inc., Rhode Island School of Design, Victoria’s Secret (a division of Limited Brands Inc.), and Yale University.

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We also seek to establish close, lasting relationships with notable and emerging designers and manufacturers. While modern design products have been widely popular in Europe for decades, distribution channels in the United States have historically been limited principally to expensive boutiques and interior designers. This has restricted product availability and exposure in the United States, reducing opportunities for both designers and manufacturers. We believe we are providing European and American designers with broader, more efficient access to the U.S. modern design furnishings market. In that role, we have developed relationships with leading and emerging designers and manufacturers of design products, many of whom have sought us out as a platform for further exposure and distribution of their products.

We were founded and incorporated in 1998, and in April 1999 we received funding from a group of investors led by Jesse.Hansen&Co., a San Francisco-based private equity investment firm. We began selling products through our catalog and online in the second half of 1999. We opened our first studio in November 2000 and first generated a profit in the second quarter of 2001. During the last three years, we have continued to increase sales across all distribution channels with particular growth in studio sales. We have increased the number of our studios from one at the end of 2001 to 16 at the end of 2003. We expect to open 13 to 16 new studios during each of 2004 and 2005, and as of March 15, 2004, we had opened one of these new studios and had signed leases for nine additional studios.

Modern Design

Modern design is a twentieth century movement, the purpose of which is to utilize current technologies and production methods to create more useful products for a broad audience. The movement was driven by many important designers and architects, including Ludwig Mies van der Rohe, Charles and Ray Eames and Le Corbusier, among others, and has its origins within the German Bauhaus school in the 1920s and the post-World War II mid-century modernists. Modern design is concerned more with functionality than with appearance. As such, modern design is not a decorative style, but rather a discipline where a product’s form follows its function. A product achieves its value through utility and performance, and a well-designed product is one that performs its task especially well and elegantly. Characteristics of modern design furnishings are simplicity, originality, intelligent use of materials, quality, longevity and the avoidance of superfluous ornamentation or period styling. We offer products created by the classic authors of modern design, as well as products created by emerging designers, and strive in all aspects of our business to enhance appreciation of modern design.

Industry Overview

The residential and commercial furnishings market encompasses a variety of goods, including furniture, floor coverings, lighting and accessories. Sales in the U.S. home furnishings market were estimated at approximately $68.7 billion in 2002 and are projected to grow 8.7% to $74.7 billion in 2004, according to Datamonitor plc. Sales in the U.S. office furnishings market were approximately $10.3 billion in 2002 and are projected to grow approximately 3.1% to $10.7 billion in 2004, according to BIFMA International.

The modern design furnishings market is a sub-sector of the residential and commercial furnishings market. We believe that the upscale segment of this market, in which we operate, will continue to benefit from several long-term trends, including an increasing interest in modern design, middle-market consumers’ willingness to trade up for premium products, favorable demographic trends and consumers’ heightened focus on the home as a place of comfort and refuge.

We believe the increased focus on design covers a wide range of products both within and beyond the traditional furnishings market, from home computers to kitchen appliances. Consumers’ expanding focus on design has been featured in several new television programs, such as Bravo Network’s Queer Eye for the Straight Guy, which has featured some of our products, and The Learning Channel’s Trading Spaces, as well as in books and other publications, including Michael Silverstein’s latest book, Trading Up: The New American Luxury. We believe that middle-market consumers have more discretionary income than ever before and are willing to selectively trade up to better products. These consumers are driving increased sales of premium goods and services, which deliver higher quality, technical advantages and superior performance relative to conventional

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products. These premium products typically command higher prices and gross margins than traditional products. We believe that the household “cocooning” trend among consumers has also had a significant impact on our market. As more consumers retreat to their homes to spend time with family and friends, we believe that quality, home-related design products have become increasingly popular. We believe many consumers are interested in modern design products, but are not familiar with, or are hesitant to engage, the more traditional sales channels, such as interior designers or expensive boutiques.

Businesses have also begun to place more emphasis on modern design. We believe that many manufacturers are turning to design as an important differentiator of their products. A recent article in Fortune magazine highlighted organizational initiatives at several major corporations, which have created new positions for design professionals and promoted other design professionals, reflecting the growing importance of design in selling their products. We believe small businesses, which account for a significant portion of our commercial sales, historically have also had difficulties gaining access to modern design furnishings. We believe that the modern design furnishings industry has generally been structured to exclude small businesses as buyers due to: minimum order requirements; limited physical presence of product sellers in smaller markets; lack of interest from product distributors to sell to smaller buyers; and other constraints. According to the U.S. Census Bureau, small businesses, defined as employers with less than 100 employees, comprised 98.2% of all employers in 2001. We believe this large segment of the commercial market has traditionally been underserved and will continue to be particularly receptive to our product offerings.

We believe our business model makes design-oriented products available for convenient purchase to a broad array of residential and commercial consumers and provides enhanced consumer education and product information to our customers, helping us further expand and penetrate the market for modern design products.

Competitive Advantages

We believe our business strategy and competitive advantages position us to be a leading provider of modern design furnishings in the United States. We believe that our business model is differentiated in several key respects from those of traditional retailers and serves as a competitive advantage. We intend to increase market penetration through our strong brand authority, multiple and integrated sales channels, distinctive merchandising, strategic designer and manufacturer relationships, superior customer service and the efforts of our experienced management team.

Strong Brand Authority

Since our founding, an integral part of our strategy has been to build the Design Within Reach brand both within the design community and among residential and commercial consumers. To build our brand, we have cultivated relationships with leading designers, highlighted designers and classic design products throughout our sales channels, and carefully sourced products that embody the principles of enduring design, performance and authenticity. Our publications have broad consumer reach. We mail on average over 800,000 catalogs each month and more than 240,000 people receive our weekly electronic newsletter, “Design Notes.” We have also sponsored design conferences and other design education activities, such as studio events and design contests, which further increase public awareness of our brand. Through these activities, we believe that the Design Within Reach brand provides our products with authenticity among our customers and has become associated with design excellence both in the design community and with residential and commercial consumers with an interest in modern design.

Multiple, Integrated Sales Channels

We market and sell our products to both residential and commercial customers through four integrated sales channels, consisting of our catalog, studios, website and direct sales force. We believe our multi-channel strategy enhances our ability to access and serve our customers while improving operational efficiency.

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This strategy allows us to better serve customers who may prefer shopping for products in different formats, facilitates rapid and direct feedback as to customer needs and satisfaction, and provides broader exposure and reinforcement of the Design Within Reach brand. Customer service is further enhanced by providing superior convenience, by cost effectively communicating educational information about our products and design in general and by permitting customers to view our complete product selection. Since April 2003, approximately 67% of online buyers had previously been mailed a catalog but chose to purchase at www.dwr.com, often after visiting a studio or speaking with a customer service representative over the phone. Our studios enable us to provide the touch and feel of our merchandise to customers and provide a local presence for enhancing market penetration. Our website serves as an information source for both our studio and catalog customers, as well as for our own business development executives. We maintain consistent pricing across all of our sales channels for all of our customers.

Our strategy also improves operational efficiency through the utilization of a common inventory and centralized information systems. Operating from a common inventory allows us to maintain a high proportion of our products in stock at all times and facilitates more efficient inventory turns. In fiscal year 2003, we had an initial fulfillment rate, meaning the product was in stock and ready to ship at the time of order, of approximately 87%, and we achieved 4.3 turns of our inventory (defined as annual product cost of goods sold divided by average product inventory over the preceding thirteen months). In addition, our integrated channel strategy and common inventory enable us to centralize our management information systems, providing a highly scalable platform capable of supporting additional growth. A centralized system also permits us to utilize experience and information from each channel to benefit the others. For example, we deploy customer data from our catalog and online channels to identify promising markets and to increase the effectiveness of our studio site selection process.

Distinctive Merchandising

We seek to be a leader in identifying and selling products that are innovative and not widely available from other retailers. In fiscal year 2003, 26.0% of our net sales were derived from products for which we believe we were the sole supplier in the United States. We take a selective approach to product sourcing, and new products must meet our stringent standards for design, quality and authenticity before they are selected for inclusion in our product assortment. We ensure that the price, look and feel of our products is consistent across all sales channels, creating a sense of harmony for our customers. A crucial element of our merchandising is the belief that each well-designed product should be presented as a stand-alone item, rather than as part of a prepackaged set. Therefore, we present and describe our products in a clear, concise and specific manner, including by providing line drawings for each product with its measurements. We complement our merchandise mix with authoritative educational content regarding the designers of our products and other design topics. We believe that our merchandising approach delivers large average order values, along with attractive gross margins and returns on capital.

Strategic Designer, Manufacturer and Distributor Relationships

We purchase merchandise from select designers, manufacturers and distributors in Europe and North America that meet our stringent requirements for design, quality, packaging, and consistency of production and flow. We currently source products from over 200 vendors, many of which are small, family-owned businesses. We purchase products from our vendors frequently and in large volumes, and in many cases we are a vendor’s largest customer. As a result, we are able to develop long-lasting relationships with most of our vendors and often become the de facto sole provider of their products in the United States. In addition, we seek to strengthen our relationships with designers by highlighting the design community in our publications and on our website, as well as through our educational efforts across all sales channels. Our credibility and reputation with residential and commercial consumers for high quality, innovative modern design products is further enhanced by our relationships with larger, more prominent vendors from around the world, such as Herman Miller, Inc., Vitra Inc. and Kartell US Inc. Developing and maintaining our relationships with these designers and manufacturers is a critical component of our strategy.

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Superior Customer Service

Since inception, we have focused on providing superior customer service in each of our sales channels. Our policy of having products “in stock and ready to ship” is a departure from the traditional industry approach of requiring customers to wait weeks or months to receive their products. In fiscal year 2003, we had an initial fulfillment rate, meaning the product was in stock and ready to ship at the time of order, of approximately 87%, and we shipped substantially all in stock product by the next business day after receiving the order. With the opening of our new fulfillment center in Hebron, Kentucky, approximately 70% of the U.S. population is located within a two-day drive time for delivery, which should further enhance our level of customer service. Other key elements of our customer service include: well-designed and attractive catalogs; knowledgeable sales personnel; our easy-to-use website for around-the-clock purchases; a liberal product return policy; extensive product information; and insightful design-oriented commentary. Our sales personnel work in a coordinated fashion across all of our sales channels with the goal of providing a satisfying and educational experience to all customers. We typically hire our sales personnel from the design community, and we believe that their passion and knowledge enables them to interact effectively with design professionals and residential and commercial consumers in all channels. The turnover rate among our sales personnel has historically been low, which we believe results from our sales personnel seeing their position with us as a career opportunity.

Experienced Management Team

We were founded in 1998 by Robert Forbes, Jr., who continues to be our leading influence in modern design and our principal contact with the design community. Since May 2000, our senior management team has been led by our Chief Executive Officer Wayne Badovinus. Mr. Badovinus was formerly the President of Williams-Sonoma, Inc. and Chief Executive Officer of Eddie Bauer, Inc. Mr. Badovinus has assembled what we believe to be a first-class management team, who have on average approximately 20 years of experience with leading companies in the retail and consumer products industries. We believe that our team has successfully managed the business as evidenced by a demonstrated track record of profitable growth. We intend to continue to leverage our management team’s experience and acumen to execute our strategy effectively.

Growth Strategy

Our goal is to strengthen our position as a leading provider of modern design furnishings and accessories. We believe that as a truly integrated multi-channel business, we must measure ourselves by total market penetration, or sales across all of our channels. Accordingly, we focus on increasing the overall penetration of our target markets, rather than on increasing sales in a particular channel. This helps us avoid conflicts among channels, which often occurs in traditional retail models. We select our target markets based upon population statistics and our current sales in those markets. We intend to increase our market penetration nationwide and within selected markets by opening additional studios, expanding and refining our product offerings, increasing marketing within and across our sales channels and expanding market awareness and appreciation for design products.

Open Additional Studios

Our studios have become an integral part of our multi-channel strategy by providing customers with the ability to touch and feel our products and by bringing our philosophy and products to life. We believe that our studio concept has broad appeal, offers attractive financial returns and can be implemented successfully in many additional markets across the United States. We opened our first studio in November 2000 and have expanded from one studio at the end of 2001 to 16 studios at the end of 2003. We intend to expand our studio presence by opening 13 to 16 new studios in each of 2004 and 2005, in both new and existing markets. As of March 15, 2004, we had opened one of these new studios and had signed leases for nine additional studios. We generally seek to occupy street-front locations in moderate rent areas, which allows us to become visible and integrated in a neighborhood while obtaining attractive rental payments. We believe our studios have compelling unit-level economics. In fiscal year 2003, studios open the entire fiscal year had an average annual sales volume of $2.0 million and an average annual studio operating margin of 22.9%. These studios had an average 12-month

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payback on an average initial investment of approximately $415,000, including net buildout and pre-opening expenses and the cost of product floor samples. We intend to use the additional studios to gain market share and to secure a strong competitive position in each market where our studios are located, with support from our other sales channels.

Expand and Edit Product Offerings

We believe there are substantial opportunities in the near-term to utilize our brand attributes of enduring design, quality and authenticity to expand our product offerings within existing categories and enter into new, complementary categories. We regularly evaluate and edit our merchandise assortment based upon product performance, compatibility and margin. In recent years, we introduced several new product categories, such as bedroom furnishings and mattresses, bathroom fixtures and accessories, floor coverings and lighting. Products introduced since January 1, 2002 accounted for 49.4% of our net sales for fiscal year 2003. Bedroom furnishings, which we introduced in September 2001, is currently our fastest growing product segment, and we are currently considering the launch of children’s furniture products. We also intend to focus on and expand the number of product offerings for which we believe we are the sole supplier in the United States. We believe that any product that meets our standards for design attributes and quality is a candidate to be added to our product assortment, and in the future we may seek out opportunities to market products beyond residential and commercial furnishings and accessories.

Increase Marketing Within and Across Our Sales Channels

We believe that opportunities exist to expand net sales with marketing initiatives focused within and across each of our sales channels. We recently expanded the number of catalogs in circulation by introducing new, targeted catalogs that vary in size, merchandise selection and frequency of delivery. For example, we recently began to mail smaller catalogs containing our most popular products to prospective customers in markets where we have studios and in other select markets. We anticipate that this will enable us to more cost-effectively reach new customers, improve our response rates and order sizes and lower our per customer acquisition costs across all of our sales channels. We believe that we can enhance marketing efficiency by promoting our studio locations and openings in our catalogs and on our website and by utilizing customer data obtained from our catalog and online channels to target future studio openings. Our studios contain computers for online access to www.dwr.com, and we encourage in-studio sales personnel to promote online usage and to distribute our catalogs. To enhance online sales, we intend to develop additional website functionality and to implement additional third-party marketing agreements, such as our existing agreements with selected search engines. We also intend to add new business development executives who, working in conjunction with our studio proprietors, will target new commercial customers and work to expand sales to existing commercial customers.

Expand Market Awareness and Appreciation for Design Products

We intend to expand our addressable market by continuing to use each of our sales channels to promote innovative design products and to educate consumers on the principles of modern design. We seek to educate consumers through our weekly electronic newsletter, catalogs and other special publications, such as our republication of the classic design book How to See, by George Nelson, and through periodic design seminars, conferences, studio events and design contests. For example, we recently conducted an online contest asking customers to create chairs made from the corks and wire cages of champagne bottles. We received over 350 entries and, following the contest, we conducted traveling exhibitions of over 100 of the leading entries for display in our studios. We often host events featuring leading industry speakers and promote studios by hosting in-studio activities such as wine tastings for consumers and neighboring galleries. We believe that these activities enhance consumers’ appreciation of modern design and expand the market for our products.

Product Merchandising

Our merchandising strategy is to offer well-designed products that are versatile and can be comfortably integrated with other furnishings. As such, we are selective in the products we offer and present our products as stand-alone items, rather than as part of a prepackaged set. The principles that guide our merchandising decisions

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are authorship, attention to detail, simplicity, quality of materials and authenticity. Our product offering includes a refined assortment of chairs and tables, workspace and outdoor furniture, lighting, floor coverings, bedroom furnishings and related accessories, bathroom fixtures, fans and other home and office accessories.

We manage our merchandise offering utilizing five general product designations:

Ÿ Design Icons. These are products recognized throughout the design community and by knowledgeable residential and commercial consumers as legitimate examples of historically significant designs. Offering design icons for sale is a crucial element of our merchandising strategy since they carry their own design authority, which we use to build our Design Within Reach brand. We anticipate that design icons will continue to be an important part of our product assortment and will continue to represent a substantial portion of our net sales going forward. Examples of design icons that we offer include:

Noguchi Table – Designed in 1944 by Isamu Noguchi for Herman Miller, Inc., this is a practical glass-top table for commercial or residential use in which two simple, smoothly shaped solid wood pieces interlock to form a tripod that supports a three-quarter inch slab of transparent glass.

Arco Floor Lamp – Designed in 1962 by Achille Castiglioni and Pier Giacomo Castiglioni, this is a classic modern lighting design characterized by the dramatic arc of its stainless steel stem and the counterpoint provided by the substantial Carrara marble base. The lamp is designed to provide overhead lighting without ceiling suspension, and its light intensity makes it useful for reading, working or dining.

Ÿ Design Exclusives. These are products for which we believe we are the sole supplier in the United States. Design exclusives utilize the strength of the Design Within Reach brand to supplement their appeal to customers. Going forward we intend to focus on and expand the number of design exclusives that we market. We believe that we are developing the brand authority and marketing strength to introduce design exclusives, which may become recognized in the future as design icons. Examples of design exclusives that we offer include:

Globus Chair – Designed in 1993 by Jesus Gasca, this is a sophisticated and practical dining chair designed for both commercial and residential use. The chair has a stainless steel frame and wood lacquer back and stacks up to five chairs high.

Sussex Credenza – Designed in 2000 by Terence Woodgate and inspired by the shingled, angled roof of a Sussex cottage, this credenza features four louvered doors with dominant horizontal lines that mimic the credenza’s rectangular shape, oak veneer applied to all sides, compartments with adjustable shelves and a steel base that lends further aesthetic appeal and acts as a stable foundation.

Ÿ Design Solutions. These are products that we believe provide superior results in solving customer problems in functionality, aesthetic appeal and, in many cases, economy. We believe that the Design Within Reach brand further strengthens the appeal of these products as intelligent answers for residential and commercial customers’ furniture needs. We believe that commercial customers find many of these products particularly attractive because of their problem-solving attributes. Products designated as design solutions generally remain in our merchandise assortment until another product offering a better solution becomes available. Examples of design solutions that we offer include:

Coco Armchair – Designed in 2001 by Fratelli Tominaga, this is a lightweight and sturdy dining chair that is built for easy maneuvering. The chair is constructed from durable beechwood and features a continuous barrel backrest which doubles as an armrest and can be hung on a tabletop or stacked to open floor space for cleaning or storage. The chair’s seat is subtly contoured for comfort and a single piece of wood acts as the back leg and forms a portion of the backrest for maximum strength.

Sliding Sofa – Designed in 2000 by Pietro Arosio for Tacchini, this is a sofa with clean lines and modern proportions that easily transforms into a two-person bed by sliding the base of

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the sofa out from the backrest. Its seat cushions and backrest provide the platform for both sitting and sleeping, and it also comes with two large feather-filled pillows. The upholstery is fully removable for cleaning, and the aluminum frame is fitted with two casters for easy mobility.

Ÿ Performance Design. These are products designed to serve distinctive functional roles in the application for which they are used. They tend to have a predictable demand curve and, unlike design icons, may cycle out of our assortment as customer interest diminishes. Products designated as performance design typically represent a significant percentage of the new products offered in our catalogs. Based upon consumer response or product sales performance, these products may evolve into other of our product designations, such as design solutions. Examples of products designated as performance design that we offer include:

Cubitec Shelving – Designed in 1998 by Doron Lachish, this is a modular shelving system consisting of lightweight polypropylene panels, which may be easily assembled into multiple configurations of cubes. Each kit contains eighteen panels to create six cubes, which can be attached vertically or horizontally. The shelving comes in a variety of colors and can be used in a wide-range of residential and commercial environments.

Kyoto Chair – a clean-looking chair constructed with beechwood, with an unusual broad back. The Kyoto Chair is so named because it is a popular café chair in Japan.

Ÿ Design Accessories. These are products that supplement our larger assortment and enhance the utility of larger products. We have found design accessories to be important in increasing customer response rates and broadening our customer base. Design accessories also present opportunities for us to introduce new design products, which may evolve into significant separate product lines. Examples of design accessories that we offer include:

Nelson Ball Clock – Designed in the 1950’s by George Nelson, this is a thirteen-inch diameter circular clock, the circumference of which is comprised of twelve small balls each connected by a rod to the clock’s center.

PH5 Pendant Lamp – Designed in the 1950’s by Poul Henningsen, this is a hanging ceiling lamp that has been widely used in Europe for decades. The lamp’s shade is comprised of layers of varying sizes and shapes that direct light both horizontally and vertically. The lamp is compact enough to allow multiple lamps to be hung in the same setting and can be used in both residential and commercial applications.

We believe there are many product lines that can be developed in addition to residential and commercial furnishings and accessories, and we are constantly looking for ways to further leverage our brand recognition for design and quality. Our merchant and inventory planning teams meet weekly to review selling rates and make decisions regarding our merchandise assortment based on product performance. We manage over 725 active products and regularly review the bottom third of our assortment and discontinue unproductive items. This process allows us to introduce new items each year while maintaining our focus on product management and inventory turnover. For example, in fiscal year 2003, our top 25 products represented 35.9% of our net sales. We introduced 13 of these top 25 products since the beginning of 2002. When we discontinue an item, the remaining inventory of that item is offered as a clearance item through our website.

Sales Channels

We established our business strategy on the premise that multiple, integrated sales channels improve customer convenience, reinforce brand awareness, enhance customer knowledge of our products, and produce operational benefits that ultimately improve market penetration and returns on capital. The objective of each of our sales channels is to maximize total market penetration.

Catalog

Our full-color catalog is mailed every month and serves as our primary brand building and marketing tool. By mailing our catalogs in large quantities in selected markets, we are able to reach a substantial audience, reduce

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the need for large expenditures on traditional advertising and marketing and generate additional sales across all of our channels. In fiscal year 2003, we mailed over 9.7 million catalogs to existing and prospective customers. In fiscal year 2003, phone sales totaled $25.5 million, representing a 6.2% increase from the prior year.

Our catalog reflects the values of the modern design community, with clean and simple graphic layouts and low-density and easily-readable typeface. Copy is simple, direct and informative. Line drawings and measurements complete the straightforward presentation of each product. The catalog also addresses product functionality, such as the ability to stack chairs, the durability of fabrics and ergonomic features. Additionally, our catalogs provide historical information about our products, many of which have rich design legacies, and generally feature the designers pictured with their products. This approach signals to the customer our respect for the design community, and we believe that it has been one of the most appreciated aspects of our catalog.

Our catalog generally ranges from between 80 and 100 pages and contains between 350 and 400 products. Catalog circulation is focused on:

Ÿ current buyers;

Ÿ interior designers and architects;

Ÿ other professionals whose work involves design, such as graphic artists;

Ÿ subscribers to design-focused magazines; and

Ÿ purchasers of products from related consumer catalogs.

Recently, we introduced smaller catalogs as part of our circulation strategy. These smaller catalogs contain our most popular products and are mailed to prospective customers in markets where we have studios and in other select markets. We anticipate that this will enable us to more cost-effectively reach new customers, improve our response rates and order sizes and lower our per customer acquisition costs across all of our sales channels. These smaller catalogs will generally range from between 50 and 60 pages and contain between 200 and 240 products.

Studios

The role of our studios is to bring modern design to customers’ neighborhoods and allow them to experience our products first hand. In fiscal year 2003, studio sales totaled $24.6 million, representing a 421.9% increase from the prior year. We opened our first studio in San Francisco in November 2000 and operated a total of 16 studios as of the end of 2003. Like our catalog and website, our studios are designed to reinforce our multi-channel strategy. For example, in the second half of fiscal year 2003, approximately 48% of buyers in our studios had been mailed a catalog prior to making a purchase.

The design of our studios is understated and reflects the clean, simple aesthetics established by the catalog. This allows us to highlight the design elements of our merchandise. Studio sizes range from approximately 2,000 to 11,000 square feet. We are targeting our future studios to be approximately 3,300 square feet on average. Most studios are located in buildings with architectural elements such as brick walls, hardwood floors, high ceilings or exposed beams, which we believe provide the appropriate atmosphere for our products. Since studios are often located in architecturally distinctive buildings, sometimes not originally intended for retail use, our floor plans may vary. However, all of our studios feature designer-oriented graphics and include our “chair-wall,” which showcases a variety of the chairs we offer on clean white display risers. Each studio’s selection of tables, lounges, lighting, shelving and other items are displayed throughout the remainder of the studio. Signage is understated but informative and is meant to reflect our design community approach. Since our studios only contain product samples and do not stock inventory for purchase, we are able to devote substantially all of our studio space to showcasing and selling products while also reducing product shrinkage, in-studio costs and the number of studio personnel. Customers are encouraged to touch the products and treat the studio as their own design hub, allowing them to learn about our products in a friendly and informal atmosphere. Computers with direct connections to www.dwr.com are available in our studios, and salespeople are trained to take customers to our website and instruct them in its use.

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The following table provides information about our existing studios as of March 15, 2004.

Market / Location	Date Opened	Square Footage
New York
New York, New York—Soho	March 29, 2003	3,500
New York, New York—Chelsea	May 22, 2003	3,500
New York, New York—Brooklyn Heights	November 1, 2003	6,120
Los Angeles Area
Santa Monica, California	August 16, 2002	2,735
Beverly Hills, California	November 5, 2002	4,500
Newport Beach, California	November 10, 2002	4,396
Pasadena, California	January 29, 2003	5,750
Chicago
Chicago, Illinois	February 21, 2004	7,700
San Francisco Bay Area
San Francisco, California	November 15, 2000	2,000
Palo Alto, California	March 13, 2002	2,920
Oakland, California	July 1, 2002	2,300
Berkeley, California	November 1, 2003	3,941
Boston
Cambridge, Massachusetts	September 5, 2003	2,521
Dallas
Dallas, Texas	February 8, 2003	6,080
Miami / Fort Lauderdale
South Beach, Florida	May 17, 2003	5,315
Portland
Portland, Oregon	December 7, 2002	11,037
West Palm Beach
West Palm Beach, Florida	July 1, 2003	6,619

We generally staff our studios with one manager, whom we refer to as a proprietor, and two to three sales associates. We select proprietors from the design community who bring a passion for, and knowledge base about, design. The studio proprietors are responsible for creating traffic in the studios through in-house design events, hiring and training sales associates, and ultimately leading the sales effort for their studio. Because our studios contain only product samples and do not stock inventory for purchase, we are able to staff our studios leanly and our studio personnel are able to focus on delivering a superior level of service and information to our customers. Both studio proprietors and sales associates work on an incentive-based compensation structure that includes salary, commission and bonus. We believe that our studio employees have the opportunity to earn higher compensation than traditional home furnishings retail employees.

Target markets for studio openings are identified based partly on household population statistics, but also on supporting sales data collected from our other channels. Studios are located typically in moderate rent areas and usually occupy street-front space. In fiscal year 2003, studios open the entire fiscal year had an average annual sales volume of $2.0 million and an average annual studio operating margin of 22.9%. Our average initial investment per studio opened in fiscal year 2003 was approximately $500,000, including net build-out and pre-opening expenses and the cost of product floor samples.

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Website

We created our website, www.dwr.com, to be a readily available resource for modern design furnishings and to support sales and customer service activities 24 hours a day. In fiscal year 2003, our online sales totaled $18.7 million, representing a 2.6% increase from the prior year. Our website is designed to be consistent with our catalog, with clean and simple layouts. We believe that other features such as zoom, product color changes, and downloadable product specifications, increase functionality and differentiate our website from those of our competitors.

Online sales are an essential component of our multi-channel strategy. Since April 2003, approximately 67% of online buyers had previously been mailed a catalog but chose to purchase at www.dwr.com, often after visiting a studio or speaking with a customer service representative over the phone. In addition to driving traffic to our website through our other sales channels, we have entered into marketing agreements with selected search engines that provide us with key word rights in order to increase the number of visits to our website.

One additional feature that has developed into a central part of our strategy is a weekly outgoing e-mail called “Design Notes.” This newsletter currently has a circulation of more than 240,000 and covers a wide range of design topics. The newsletter provides information about our products and also features general industry discussions on topics such as urban design, automobile design, mass transit systems and profiles of specific designers. With an opt-out rate of 0.002% in fiscal year 2003, the newsletter is a valuable tool allowing us to make valuable contacts with design enthusiasts and potential customers. We have also used our website and “Design Notes” as testing grounds for new products, as they have proven to be effective media for receiving prompt customer feedback.

Business Development Executives

The role of our business development executives is to market and sell our products to commercial buyers, including restaurants, museums, universities, real estate developers and retailers, among others. Although our business development executives are responsible for establishing and maintaining relationships with our commercial customers, a substantial portion of our commercial sales are transacted in our other channels. In fiscal year 2003, net sales generated by our business development executives were $3.6 million, representing a 28.6% increase from the prior year. Business development executives generate average order values substantially higher than those in our other channels. In fiscal year 2003, the average order value generated by business development executives was approximately $2,591. Commercial sales through our business development executives tend to be for individual office spaces and to local or regional retailers. We currently do not focus our commercial business on larger, corporate wide furnishing programs.

Like our studio proprietors, our business development executives are hired from the design community and have a similar passion for, and knowledge of, design and our products. Business development executives generally work out of the studios and work closely with the studio proprietors. This cooperation is crucial to the success of both channels. While this channel is in the early development stage, we believe that the opportunity to add business development executives and increase our commercial business is substantial, and we expect to focus on this opportunity in our largest strategic markets over the next few years.

Product Sourcing

We continually seek to identify and introduce new products that meet our stringent design and quality standards. We provide designers and manufacturers with a forum through which they can significantly enhance the exposure and distribution of their products. We cultivate vendor relationships and host a biennial conference where we communicate openly with our vendor base regarding our expansion strategy and product requirements.

We employ a specialized merchandising team that actively participates with manufacturers and designers in the design process for many new products. Our founder and our merchandising team travel regularly to European and domestic markets visiting trade shows, designers and manufacturers in search of innovative new product

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offerings. Once a product has been approved for inclusion in our product assortment, we negotiate with the product’s vendor to secure product supply. In an effort to ensure consistent product flow from our manufacturers, our inventory planning team supplies select vendors with a six-month rolling forecast of projected purchases.

When determining which products to introduce, we estimate the potential sales, gross margin and returns on capital. We also assess whether a product has the potential to be available through mass merchant channels, which would dilute the uniqueness of the product. In fiscal year 2003, approximately 26.0% of our net sales were derived from products for which we believe we were the sole supplier in the United States. Going forward, we will seek to increase this percentage.

We depend on select designers, manufacturers and distributors to develop and manufacture products for us. We do not have any contractual relationships with these suppliers. However, we represent the largest share of business for many of them. We currently conduct business with over 200 designers, manufacturers and distributors, of which approximately 59% are located outside the United States. In fiscal year 2003, our largest vendor, Herman Miller, Inc., supplied us with products representing 10.4% of our net sales, and products supplied by our five largest vendors represented approximately 31.8% of net sales.

Customer Service

We are committed to providing our customers with courteous, knowledgeable and prompt service across all our channels. Our customer service center is located at our corporate headquarters and is open from 9:00 a.m. to 9:00 p.m. Eastern time, Monday through Friday, and 9:00 a.m. to 6:00 p.m. Eastern time on Saturday. During the second quarter of 2004, we expect to open an additional customer service center at our fulfillment center, which will extend our customer service hours of operation to include 6:00 a.m. to 9:00 a.m. Eastern time, Monday through Saturday. Our current customer service center is staffed with DWR representatives who are passionate about design and knowledgeable about our products. Our customer service representatives handled, on average, approximately 18,750 customer contacts each month in fiscal year 2003. Our representatives provide personal attention to customers who call toll free or send e-mails to request a catalog subscription, place an order or inquire about a product. Our customer service group also is responsible for resolving customer complaints. We seek to provide a superior customer experience. Therefore, if a customer is not satisfied with one of our products, he or she can return it for repair, replacement or refund.

We seek to hire and retain qualified sales and customer service representatives in both our customer service center and studio operations. As of March 15, 2004, over half of our studio personnel either had a degree in design or prior work experience as a design professional. Each new studio proprietor undergoes a thorough training program during which he or she is trained in all aspects of our business. Studio sales personnel are trained extensively prior to a new studio opening. This training focuses primarily on giving them a working knowledge of our products, augmenting their knowledge regarding featured designers and ensuring that they understand our high customer service standards. We have also developed ongoing programs conducted at each studio that are designed to keep each salesperson up-to-date on each new product offered.

During January 2004, we launched a private label credit card program, which is administered by World Financial Network National Bank. We bear no credit risk in connection with this program. As of March 15, 2004, approximately 419 cards had been issued, and we have experienced an average order value of $1,828 per card transaction.

Fulfillment

In January 2004, we moved our fulfillment operations from Union City, California to Hebron, Kentucky. All product orders from each of our sales channels are fulfilled from this facility, except in limited cases where the product is shipped directly to the customer from the manufacturer. The new facility, at approximately 217,000 square feet, is nearly 100,000 square feet larger than our previous Union City facility. We have a right of first refusal on an adjacent 100,000 square feet in the new facility, and we expect this facility to support our distribution

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capacity needs for at least the next four years. Additionally, this facility should enhance our level of customer service and order fulfillment, as approximately 70% of the U.S. population is now within a two day drive time for delivery. Shipment of products from our fulfillment center to our customers are through third-party carriers. Our goal is to ship the majority of customer orders within 24 to 48 hours after the order is received. In fiscal year 2003, we had an initial fulfillment rate, meaning the product was in stock and ready to ship at the time of order, of approximately 87%, and we shipped substantially all in stock product by the next business day after receiving the order.

Information Technology and Systems

We have invested significant resources to create a fast, reliable and secure network that facilitates companywide access to our operational systems and information. These systems, including our supply chain, order processing, distribution, financial and communication systems are located in our headquarters or warehouse data centers. Sales associates in all channels have high-speed access to real-time inventory data and customer order status 24 hours a day, seven days a week through their computers and the DWR order-entry system, eliminating the requirement for a point-of-sale system.

We have designed our customer, order and merchandise databases to collect and summarize detailed sales data at the market, studio, vendor, customer and product level. Maintaining sufficient inventory levels is crucial to our business, and real-time sales and inventory information is available to our merchandising staff and senior management for review. This allows us to focus on maximizing sales while minimizing our inventory investment. Each of our sales channels is fully integrated with the main computer system at our corporate headquarters, allowing us to transmit sales, inventory and customer data as well as receive data from headquarters on a real-time basis. This data integration enables corporate personnel to monitor current sales, inventory and merchandise information, providing the information necessary for inventory allocations and replenishment and customer database management.

Our website is located at a third-party hosting facility in Santa Clara, California. The hardware configuration includes firewalls, scalable servers, and other network enhancing features. This configuration allowed us to maintain 99.8% availability and a 1.7 second average response time over broadband during fiscal years 2002 and 2003.

Competition

The market for residential and commercial furnishings is fragmented with no single company holding a dominant market position. The market includes numerous smaller specialty retailers, as well as department stores, larger mass merchandisers and home furnishings stores, with department stores commanding a decreasing percentage of the furnishings industry compared to specialty retailers. In recent years, the industry has been characterized by consolidation, the withdrawal of certain retailers from the marketplace and a de-emphasis by traditional department stores on upscale merchandise, leaving fewer large competitors focused exclusively on this segment of the furnishings market.

We face competition from several sources, including the following:

Ÿ Modern design companies selling solely through a catalog and online, such as Oriac Design Corp. and Topdeq Corporation;

Ÿ Regional retailers specializing in modern design, such as Limn, The Magazine, Murray Moss and Slater/Marinoff & Co.;

Ÿ National or multinational retailers such as Crate & Barrel (a company owned by Euromarket Designs, Inc.), Ethan Allen Interiors, Inc., Home Decorators Collection, IKEA, Pottery Barn (a division of Williams-Sonoma, Inc.), Restoration Hardware, Inc. and Room & Board, Inc.; and

Ÿ Manufacturers, such as Herman Miller, Inc., Kartell US Inc., Knoll, Inc., Steelcase, Inc. and Vitra Inc., selling through authorized dealerships.

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Many of our competitors are larger than us and have substantially greater financial, marketing and other resources than we do. However, many smaller specialty retailers may lack the financial resources, infrastructure and national brand identity necessary to compete effectively with us.

The U.S. retail industry, along with the catalog and online commerce sectors are highly competitive, dynamic in nature and have undergone significant change over the past several years. Our ability to anticipate and respond successfully to these changes is critical to our long-term growth. If we are unable to maintain or increase our market share or compete effectively in the furnishings market, our business, financial condition and operating results would be adversely affected.

We believe that the ability to compete successfully is determined by a variety of factors, including quality of product selection, effective product presentation, customer service and pricing. We believe that we compete favorably on the basis of these factors.

Intellectual Property

We believe that our registered trademark, “Design Within Reach,” and the brand name recognition that we have developed are of significant value. We strive to preserve the quality of our brand name and protect our trademark and other intellectual property rights to ensure that the value of our proprietary rights is maintained. We rely on various intellectual property laws and contractual restrictions to protect our proprietary rights. These include copyright and trade secret laws and confidentiality, invention assignment and nondisclosure agreements with our employees, contractors and suppliers.

Properties

We currently lease an approximately 59,000 square foot facility in downtown San Francisco, California for our corporate headquarters. The lease for our corporate headquarters expires on March 10, 2010. We believe that this facility will provide us with adequate space for growth for at least the next five years.

We lease approximately 217,000 square feet of warehouse space in Hebron, Kentucky for use as our warehouse and fulfillment center. We have a right of first refusal on an adjacent 100,000 square feet, and we expect this facility to support our distribution capacity needs for at least the next four years. The lease expires on November 30, 2008.

As of March 15, 2004, we leased approximately 81,000 gross square feet for our 17 studios that are currently open and an aggregate of approximately 36,000 square feet for nine planned studios for which we have signed leases. For a listing of our studios, see “—Sales Channels—Studios.” Most of the studio leases have lease terms ranging from two to twelve years and provide for a minimum rent plus a percentage rent based upon sales after certain minimum thresholds are achieved. These leases generally require that we pay insurance, utilities, real estate taxes and repair and maintenance expenses.

Employees

At March 15, 2004, we had 157 employees, of whom 134 were engaged in selling and administrative functions, and 23 were involved in sourcing or fulfillment functions. We have never experienced a work stoppage, and none of our employees is represented by a labor union. We believe that our relations with our employees are good.

Legal Proceedings

From time to time, we may be involved in legal proceedings and litigation incidental to the normal conduct of our business. We are not currently involved in any material legal proceedings or litigation.

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Management

Executive Officers, Senior Management and Directors

The following table sets forth information with respect to our executive officers, senior management and directors as of March 15, 2004:

Name	Age	Position
Wayne Badovinus	60	President, Chief Executive Officer and Director
Robert Forbes, Jr.	53	Founder and Director
David Barnard	44	Chief Financial Officer and Secretary
John Ball	58	Vice President – Merchandising
Vincent Barriero	55	Chief Information Officer
Laura Sites-Reynolds	44	Vice President – Inventory Management
Carmela Krantz	42	Vice President – Human Resources
Ray Brunner	56	Vice President – Studios
John Hansen	44	Chairman of the Board
Hilary Billings (2)(3)	40	Director
Edward Friedrichs (2)(3)	60	Director
Terry Lee (1)	55	Director
William McDonagh (1)	48	Director
Lawrence Wilkinson (1)(3)	54	Director

(1) Member of audit committee.

(2) Member of compensation committee.

(3) Member of nominating and corporate governance committee.

Wayne Badovinus.    Mr. Badovinus has served as our president and chief executive officer since May 2000 and as a member of our board of directors since November 1998. From September 1998 to May 2000, Mr. Badovinus served on the faculty of Green Mountain College. Mr. Badovinus is currently a member of the board of directors of NapaStyle, Inc., a privately held media company. Mr. Badovinus holds a B.A. from the University of Washington.

Robert Forbes, Jr.    Mr. Forbes is our founder and has served as a member of our board of directors since November 1998. From July 1999 to May 2000, Mr. Forbes served as our chief executive officer. From November 1995 to January 1998, Mr. Forbes served as Vice President Business Development of Smith & Hawken, a subsidiary of CML Inc. Mr. Forbes is currently a member of the board of directors of the San Francisco Jazz Festival, a non-profit organization, and the International Design Conference at Aspen, a non-profit organization. Mr. Forbes holds a B.A. in Aesthetic Studies from the University of California Santa Cruz, an M.F.A. in Design from the State University of New York and an M.B.A. from Stanford University.

David Barnard.    Mr. Barnard has served as our secretary and chief financial officer since September 1999. From February 1999 to July 1999, Mr. Barnard served as chief financial officer of Tavolo, Inc., an Internet retailer of cooking and gourmet food items. From August 1997 to January 1999, Mr. Barnard served as chief financial officer of Reel.com, Inc., an Internet retailer of videos and DVDs. Mr. Barnard is currently a member of the board of directors of Pinnacle Rock Associates, a privately held company dedicated to improving business processes and implementing information systems. Mr. Barnard holds a B.A. in accountancy from Miami University.

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John Ball.    Mr. Ball has served as our vice president of merchandising since June 2001. From October 1997 to December 2000, Mr. Ball served as senior vice president of merchandising and marketing of Leslie’s Poolmart, Inc., a retailer of pool supplies. Mr. Ball holds a B.A. in finance from the University of North Texas.

Vincent Barriero.    Mr. Barriero has served as our chief information officer since July 2000. From May 1999 to May 2000, Mr. Barriero served as chief information officer of Tavolo, Inc., an Internet retailer of cooking and gourmet food items. From August 1997 through April 1999, Mr. Barriero served as vice president of information systems of Kendall-Jackson Wine Estates Ltd., a producer of premium wines. Mr. Barriero holds a B.A. from St. Mary’s College and an M.B.A. from Pepperdine University.

Laura Sites-Reynolds.    Ms. Sites-Reynolds has served as our vice president of inventory management since May 2000. From February 2000 to May 2000, Ms. Sites-Reynolds served as a consultant to, and from September 1998 to February 2000, as vice president of planning of, HomeChef Inc., a cooking school and retailer of kitchen supplies and equipment. Ms. Sites-Reynolds holds a B.S. in marketing from San Jose State University.

Carmela Krantz.    Ms. Krantz has served as our vice president of human resources since April 2002. From September 2000 through January 2002, Ms. Krantz served as vice president of human resources/administration for Reactivity, Inc., a software start-up company. From April 2000 through August 2000, Ms. Krantz served as vice president of human resources for Linuxcare, Inc., a company that provides system management products. From April 1998 through April 2000, Ms. Krantz served as vice president of human resources/corporate administration for Sydran Services, a restaurant franchisee. Ms. Krantz holds a B.A. in speech communication and a B.S. in political science from the University of Nevada at Reno.

Ray Brunner.    Mr. Brunner has served as our vice president of studios since April 2002. From June 1993 to April 2002, Mr. Brunner served as president of RGB & Associates, a strategic consulting company. Mr. Brunner holds a B.A. in business administration from Western Connecticut State University.

John Hansen.    Mr. Hansen has served as the chairman of our board of directors since November 2003 and as a member of our board of directors since November 1998. Since March 1998, Mr. Hansen has served as president of Jesse.Hansen & Co., a private equity firm. Mr. Hansen is currently a member of the boards of directors of Sagus International, Inc., a manufacturer and supplier of educational furnishings; NapaStyle, Inc., a multi-channel retailer of food and lifestyle products; MD Beauty, Inc., a retailer of cosmetic and skin care products; and Six Degrees Records, Ltd., an independent music label, each of which is privately held. Mr. Hansen holds an A.B. from Harvard College, an M.B.A. from Harvard Business School and a J.D. from University of California, Berkeley.

Hilary Billings.    Ms. Billings has served as a member of our board of directors since November 2003. Since April 2003, Ms. Billings has served as brand strategist of RedEnvelope, Inc., an Internet retailer of upscale gifts. From February 2000 to April 2003, Ms. Billings served as chief marketing officer and chairman of the board of RedEnvelope, Inc. From June 1999 to February 2000, Ms. Billings served as chief executive officer of RedEnvelope, Inc. From May 1999 to June 1999, Ms. Billings served as chief merchandising officer of RedEnvelope, Inc. From July 1997 to May 1999, Ms. Billings served as senior vice president of brand design for Starwood Hotels & Resorts Worldwide, Inc., a hotel and leisure company. Ms. Billings is currently a member of the boards of directors of Peet’s Coffee and Tea, Inc., a publicly held coffee and tea retailer, and Hanna Andersson, Inc., a privately held multi-channel specialty apparel company. Ms. Billings holds a B.A. from Brown University.

Edward Friedrichs.    Mr. Friedrichs has served as a member of our board of directors since July 2000. From October 2000 to September 2003, Mr. Friedrichs served as president and chief executive officer of Gensler…Architecture, Design & Planning Worldwide, a global architectural, design and strategic consulting firm. From October 1995 to October 2000, Mr. Friedrichs served as president of Gensler…Architecture, Design & Planning Worldwide. Mr. Friedrichs is currently a member of the board of overseers of the University of Pennsylvania School of Design and a member of the executive boards of the San Francisco Council and the Boy Scouts of America, a non-profit organization. Mr. Friedrichs holds a B.A. from Stanford University and an M.A. in Architecture from the University of Pennsylvania.

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Terry Lee.    Mr. Lee has served as a member of our board of directors since November 2003. Mr. Lee is currently co-chairman of Bell Sports Corp., a private company that sells bicycle helmets and accessories, since April 2001; executive chairman of Bay Travelgear, Inc., a private company that sells Arctic Zone coolers and lunch kits, luggage and sport bags, since August 2001; and chief executive officer of Bell Automotive Products, Inc., a private company that sells automotive accessories, since February 2000. Mr. Lee is also currently a member of the board of directors of Tailwind Sports Marketing, Inc., a company that owns the U.S. Postal Pro Bicycle Team, The Boys and Girls Club of Metropolitan Phoenix, a non profit organization, and USA Cycling, the national governing body for the sport of bicycling. Mr. Lee attended The University of Utah and Weber State College on a non-matriculated basis.

William McDonagh.    Mr. McDonagh has served as a member of our board of directors since March 2004. Mr. McDonagh is currently a partner of WaldenVC, a venture capital firm, since September 2000, and has been a management consultant since January 1999. From April 1994 to March 1998, Mr. McDonagh served as president and chief operating officer of Broderbund Software, Inc., a company that develops and markets computer software. Mr. McDonagh is currently a member of the board of directors of Carlston Family Foundation, a charitable organization supporting education and teachers in California. Mr. McDonagh holds a B.B.A. in accounting from the University of Notre Dame and an M.B.A. from Golden Gate University.

Lawrence Wilkinson.    Mr. Wilkinson has served as a member of our board of directors since May 2000. Mr. Wilkinson is currently the chairman of Heminge & Condell, a provider of corporate strategic counsel and venture design services, since November 1997, and co-founder of and counsel to Global Business Network, a strategic consulting organization, since November 1987. Mr. Wilkinson co-founded Oxygen Media, Inc. in June 1998, and served as its vice-chairman until January 2002. Mr. Wilkinson serves on the boards of Oxygen Media, Inc. and Ealing Studios, Ltd. He is a director of Public Radio International, a non-profit organization, and a member of the Board of Visitors of Davidson College. Mr. Wilkinson holds a B.A. from Davidson College, an M.B.A. from Harvard Business School and a B.Phil. from Oxford University.

Board Composition

Our board of directors currently consists of eight members. Our board of directors has determined that five of its members, Hilary Billings, Edward Friedrichs, Terry Lee, William McDonagh and Lawrence Wilkinson, are “independent directors” as defined under the rules of the Nasdaq Stock Market, Inc., or the Nasdaq Rules. All directors hold office until their successors have been elected and qualified or until their earlier death, resignation, disqualification or removal. Effective upon closing of this offering, our board of directors will be divided into three classes that will serve staggered three-year terms:

Ÿ Class I, whose term will expire at the annual meeting of stockholders to be held in 2005;

Ÿ Class II, whose term will expire at the annual meeting of stockholders to be held in 2006; and

Ÿ Class III, whose term will expire at the annual meeting of stockholders to be held in 2007.

Upon the closing of this offering, Class I will consist of John Hansen and Hilary Billings, Class II will consist of Robert Forbes, Jr., Edward Friedrichs and Terry Lee, and Class III will consist of Wayne Badovinus, William McDonagh and Lawrence Wilkinson. At each annual meeting of stockholders after the initial classification, the successors to directors whose terms will then expire serve from the time of election and qualification until the third annual meeting following election and until their successors are duly elected and qualified. In addition, a resolution of the board of directors or affirmative vote of the holders of at least two-thirds of our outstanding voting stock may change the authorized number of directors. Any additional directorships resulting from an increase in the number of directors will be distributed among the three classes so that, as nearly as possible, each class will consist of one third of the directors. This classification of the board of directors may have the effect of delaying or preventing changes in control or management of our company.

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Board Committees

As of the closing of this offering, our board of directors will have an audit committee, compensation committee and nominating and corporate governance committee.

Audit Committee.    The audit committee of our board of directors is responsible for reviewing and monitoring our financial statements and internal accounting procedures, recommending the selection of independent auditors by our board, evaluating the scope of the annual audit, reviewing audit results, consulting with management and our independent auditor prior to presentation of financial statements to stockholders and, as appropriate, initiating inquiries into aspects of our internal accounting controls and financial affairs. The audit committee will be comprised of William McDonagh, who will serve as chairman, Terry Lee and Lawrence Wilkinson. Each of these directors is “independent” as defined under and required by the federal securities laws, including Rule 10A-3(b)(i) under the Securities Exchange Act of 1934 and the Nasdaq Rules. In addition, our board of directors has determined that William McDonagh qualifies as an “audit committee financial expert” under the federal securities laws.

Compensation Committee.    The compensation committee of our board of directors reviews and recommends to the board the compensation and benefits of all of our executive officers, administers our stock option plans and establishes and reviews general policies relating to compensation and benefits of our employees. The compensation committee will be comprised of Edward Friedrichs, who will serve as chairman, and Hilary Billings, each of whom is an independent director for the purposes of the federal securities laws and the Nasdaq Rules.

Nominating and Corporate Governance Committee.    The nominating and corporate governance committee of our board of directors identifies prospective board candidates, recommends nominees for election to our board of directors, develops and recommends board member selection criteria, considers committee member qualification, recommends corporate governance principles to the board of directors, and provides oversight in the evaluation of the board of directors and each committee. The nominating and corporate governance committee will be comprised of Lawrence Wilkinson, who will serve as chairman, Edward Friedrichs and Hilary Billings, each of whom is an independent director for the purposes of the federal securities laws and the Nasdaq Rules.

Compensation Committee Interlocks and Insider Participation

Our board of directors did not have a compensation committee during fiscal year 2003. In fiscal year 2003, the compensation of our executive officers was determined by our board of directors based on performance and market data. No member of our compensation committee serves as a member of the board of directors or compensation committee of any entity that has one or more executive officers serving as a member of our board of directors or compensation committee.

Codes of Conduct and Ethics

Our board of directors has adopted a code of business conduct and ethics applicable to our directors, officers and employees, in accordance with applicable federal securities laws and the Nasdaq Rules.

Director Compensation

During fiscal year 2003, we did not compensate our non-employee directors for their service on our board of directors. During the first quarter of fiscal year 2004, we granted each of our five independent directors an option to purchase 30,000 shares of our common stock under our 1999 Stock Plan. Such option grants have an exercise price equal to the fair market value of our common stock on the date of grant and will vest in three equal annual installments commencing on the first anniversary of the date of grant. Following the closing of this offering, we will compensate non-employee directors for their service on our board of directors with an annual grant of an option to purchase 10,000 shares of our common stock under the 2004 Equity Incentive Award Plan, which will vest in full on the first anniversary of the date of grant, and we will compensate new non-employee directors for their service on our board of directors with an initial grant of an option to purchase 30,000 shares of our common

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stock under our 2004 Equity Incentive Award Plan, which will vest in three equal annual installments commencing on the first anniversary of the date of grant. Options granted to non-employee directors will have an exercise price equal to the fair market value of our common stock on the date of grant. We also reimburse our non-employee directors for their reasonable expenses incurred in attending board meetings. Directors who are also employees of our company do not receive any additional compensation for board service.

Executive Compensation

The following table shows compensation earned during the year ended December 27, 2003 by our Chief Executive Officer and our four most highly compensated executive officers for 2003, other than the Chief Executive Officer. We refer to these executives as the named executive officers in this prospectus. The information in the table includes salaries, bonuses, stock options granted and other miscellaneous compensation.

Summary Compensation Table

Name and Principal Position					Long-Term Compensation	All Other Compensation
	Annual Compensation				Securities Underlying Options (#)
	Salary		Bonus
Wayne Badovinus President and Chief Executive Officer	$	346,500	$	150,000	—		—
Robert Forbes, Jr. Founder	$	204,000	$	100,000	—		—
Vincent Barriero Chief Information Officer	$	205,000	$	74,100	2,500		—
John Ball Vice President – Merchandising	$	200,000	$	66,800	7,000		—
Ray Brunner Vice President – Studios	$	190,000	$	45,333	2,000	$	8,400	(1)

(1) Consists of temporary housing payments associated with Mr. Brunner’s relocation to Northern California upon joining us.

Option Grants in Fiscal Year 2003

The following table sets forth information regarding grants of stock options to each of the named executive officers during the fiscal year ended December 27, 2003. During the fiscal year ended December 27, 2003, we granted stock options to purchase 141,100 shares of common stock, all of which were granted to employees. All options were granted at the fair market value of our common stock, as determined by our board of directors, on the date of grant.

	Individual Grants						Potential Realizable Value at Assumed Annual Rates of Stock Price Appreciation for Option Term (1)
	Number of Shares of Common Stock Underlying Options Granted	Percentage of Total Options Granted to Employees in Fiscal Year		Exercise or Base Price Per Share		Expiration Date
							5%		10%
Wayne Badovinus	—	—			—	—		—		—
Robert Forbes, Jr.	—	—			—	—		—		—
Vincent Barriero	2,500	1.77	%	$	2.75	5/13/2013	$		$
John Ball	7,000	4.96	%	$	2.75	5/13/2013	$		$
Ray Brunner	2,000	1.42	%	$	2.75	5/13/2013	$		$

(footnotes on following page)

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(1) Potential realizable value is based upon the assumed initial public offering price of our common stock of $         , which is the midpoint of the range listed on the cover of this prospectus. Potential realizable values are net of exercise price, but before taxes associated with exercise. Amounts representing hypothetical gains are those that could be achieved if options are exercised at the end of the option term. The assumed 5% and 10% rates of stock price appreciation are provided in accordance with rules of the SEC, based on the assumed initial public offering price of $          per share and do not represent our estimate or projection of the future stock price.

Aggregated Option Exercises in Fiscal Year 2003 and Option Values at December 27, 2003

The following table sets forth the number of shares of common stock subject to exercisable and unexercisable stock options held as of December 27, 2003 by each of the named executive officers. The value realized and the value of unexercised in-the-money options at December 27, 2003, is calculated based on a value of $          per share of our common stock, which is the midpoint of the range listed on the cover of this prospectus, less the per share exercise price multiplied by the number of shares issued upon exercise of the options.

Name	Shares Acquired on Exercise	Value Realized	Number of Securities Underlying Unexercised Options at Fiscal Year-End (1)			Value of Unexercised In-the-Money Options at Fiscal Year-End
			Exercisable		Unexercisable	Exercisable	Unexercisable
Wayne Badovinus	—	—	500,000	(2)	—
Robert Forbes, Jr.	—	—	—		—	—	—
John Ball	—	—	107,000	(3)	—
Vincent Barriero	—	—	70,500	(4)	—
Ray Brunner	—	—	102,000	(5)	—

(1) The options set forth in the table are exercisable immediately upon the date of grant and vest in equal monthly installments over four years from the date of grant. These options may be exercised prior to the time such options are vested. All unvested shares are subject to repurchase by us at the exercise price paid for such shares.

(2) Includes 155,205 shares underlying options that were subject to repurchase by us as of December 27, 2003.

(3) Includes 46,603 shares underlying options that were subject to repurchase by us as of December 27, 2003.

(4) Includes 26,945 shares underlying options that were subject to repurchase by us as of December 27, 2003.

(5) Includes 69,205 shares underlying options that were subject to repurchase by us as of December 27, 2003.

Offer of Employment Letters

We are a party to an offer of employment letter dated February 22, 2000 with Wayne Badovinus. The letter provides that upon a change of control of us, if Mr. Badovinus is terminated or if he is not offered a new position with the acquiring company that is substantially similar to his current position as our Chief Executive Officer, fifty percent of his unvested options shall become immediately vested and exerciseable and Mr. Badovinus would be paid twelve months base salary either as a lump sum or as salary continuance. The letter also provides that if we terminate the employment of Mr. Badovinus for any reason other than for cause, fifty percent of his unvested options shall become immediately vested and exercisable and Mr. Badovinus would be paid twelve months base salary either in a lump sum or as salary continuance.

We are a party to an offer of employment letter dated February 22, 2000 with David Barnard. The agreement provides that upon a change of control of us, if Mr. Barnard is terminated or if he is not offered a new position with the acquiring company that is substantially similar to his current position as our Chief Financial Officer, twenty-five percent of his unvested options shall become immediately vested and exerciseable and Mr. Barnard would be paid twelve months base salary either in a lump sum or as salary continuance. The letter also provides that if we terminate the employment of Mr. Barnard for any reason other than for cause, twenty-five percent of his unvested stock options shall become immediately vested and exerciseable and Mr. Barnard would be paid twelve months base salary either in a lump sum or as salary continuance.

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Employee Benefit Plans

1999 Stock Plan

In January 1999, we adopted our 1999 Stock Plan, which was approved by our stockholders in January 1999. The plan allows us to issue incentive and nonstatutory stock options and make restricted stock awards. Our employees, outside directors and consultants are eligible to receive awards under the plan, but only employees may receive incentive stock options. We reserved a total of 3,100,000 shares of our common stock for issuance under the plan. As of March 15, 2004, there were 79,850 shares of our common stock available for issuance under the plan. The plan is administered by our board of directors, or a committee of our board appointed by the board to administer the plan. The board of directors or the committee administering the plan selects the participants who will receive awards and determines the terms and conditions of such awards. Our incentive and nonstatutory stock options and our restricted stock are generally subject to special forfeiture conditions, rights of repurchase, rights of first refusal and other transfer restrictions as the board of directors may determine.

In the event of certain corporate transactions, such as a merger or consolidation, the plan provides for: (1) the continuation of the outstanding options by us if we are the surviving corporation; (2) the assumption of the 1999 Stock Plan and the outstanding options by the surviving corporation or its parent; (3) the substitution by the surviving corporation or its parent of options with substantially the same terms; or (4) the cancellation of the outstanding options without payment of any consideration. In the event of a change in control, the plan provides that: (a) each outstanding award will vest if the repurchase right is not assigned to the entity that employs the optionee immediately after the change in control or its parent or subsidiary; and (b) each outstanding option will become exercisable in full if such options do not remain outstanding, are not assumed by the surviving corporation or its parent and the surviving corporation or its parent does not substitute options with substantially the same terms for such options. A change in control means: (i) the consummation of our merger or consolidation with or into another entity or any other corporate reorganization, if persons who were not our stockholders immediately prior to such merger, consolidation or other reorganization own immediately after such merger, consolidation or other reorganization 50% or more of the voting power of the outstanding securities of each of (A) the continuing or surviving entity and (B) any direct or indirect parent corporation of such continuing or surviving entity; or (ii) the sale, transfer or other disposition of all or substantially all of our assets.

2004 Equity Incentive Award Plan

In March 2004, our board of directors adopted our 2004 Equity Incentive Award Plan. We expect to obtain stockholder approval of this plan prior to, and we expect this plan will become effective concurrently with, the closing of this offering. The plan allows us to issue awards of incentive or nonqualified stock options, restricted stock or stock appreciation rights. Our employees, consultants and directors are eligible to receive awards under the plan, but only employees may receive incentive stock options. We have initially reserved a total of 500,000 shares of our common stock for issuance under the plan. The reserve will automatically increase on each December 31 during the term of the plan by an amount equal to the lesser of (1) 200,000 shares or (2) a lesser amount determined by the board of directors.

The plan is administered by our board of directors, or a committee of our board appointed by the board to administer the plan. The board of directors or the committee administering the plan selects the participants who will receive awards and determines the terms and conditions of such awards. Restricted stock is generally subject to forfeiture upon termination of the employee or consultant’s relationship with us for any reason, with exceptions for certain terminations for cause.

In the event of certain corporate transactions, such as a merger or consolidation or sale of all or substantially all of the assets of our company, the plan provides that each outstanding award may, and in some cases will, be assumed or replaced with a comparable award by our successor company or its parent. If the successor company or its parent does not assume or replace the awards, outstanding options will become 100% vested and exercisable immediately before the corporate transaction. To the extent that options accelerate due to a corporate transaction, the restrictions on restricted stock awards will also lapse. In the event of such a corporate transaction or a change in capitalization, the board of directors or the committee administering the plan also has the

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discretion to make adjustments, where appropriate, with respect to the number and types of shares that may be issued under the plan, the terms and conditions of outstanding awards and the grant or exercise price per share for outstanding awards in order to prevent dilution or enlargement of the benefits or potential benefits we intend to provide under the plan.

Employee Stock Purchase Plan

In March 2004, our board of directors adopted our Employee Stock Purchase Plan. We expect to obtain stockholder approval of this plan prior to, and we expect this plan will become effective concurrently with, the closing of this offering. The plan is designed to allow our eligible employees to purchase shares of common stock, at semi-annual intervals, with their accumulated payroll deductions.

We have initially reserved a total of 300,000 shares of our common stock for issuance under the plan. The reserve will automatically increase on each December 31 during the term of the plan by an amount equal to the lesser of (1) 100,000 shares or (2) a lesser amount determined by the board of directors.

The plan generally will have a series of successive 12-month offering periods. The first offering period will commence on the effective date of this offering and end on May 1, 2005.

Individuals whose customary employment is for more than 20 hours per week and who have been continuously employed by us for at least six months may join an offering period on the first day of the offering period or the beginning of any semi-annual purchase period within that period. Individuals who become eligible employees after the start of an offering period may join the plan at the beginning of any subsequent semi-annual purchase period.

Participants may contribute up to 15% of their cash earnings through payroll deductions, and the accumulated deductions will be applied to the purchase shares on each semi-annual purchase date. The purchase price per share will be equal to 85.0% of the fair market value per share on the participant’s entry date into the offering period or, if lower, 85.0% of the fair market value per share on the semi-annual purchase date.

If the fair market value per share of our common stock on any purchase date is less than the fair market value per share on the start date of the 12-month offering period, then that offering period will automatically terminate, and a new 12-month offering period will begin on the next business day. All participants in the terminated offering will be transferred to the new offering period.

In the event of a proposed sale of all or substantially all of our assets, or our merger with or into another company, the outstanding rights under the plan will be assumed or an equivalent right substituted by the successor company or its parent. If the successor company or its parent refuses to assume the outstanding rights or substitute an equivalent right, then all outstanding purchase rights will automatically be exercised prior to the effective date of the transaction. The purchase price will be equal to 85.0% of the market value per share on the participant’s entry date into the offering period in which an acquisition occurs or, if lower, 85.0% of the fair market value per share on the date the purchase rights are exercised.

The plan will terminate no later than the tenth anniversary of the plan’s initial adoption by the board of directors.

401(k) Plan

Effective in 2000, we adopted the Design Within Reach 401(k) plan covering our employees. The 401(k) plan is intended to qualify under Section 401(k) of the Internal Revenue Code of 1986, as amended, so that the contributions to the 401(k) plan by employees, and the investment earning thereon, are not taxable to employees until withdrawn from the 401(k) plan, and so that contributions by us, if any, will be deductible by us for federal income tax purposes when made. Under the 401(k) plan, employees may elect to reduce their current compensation by up to the statutorily prescribed annual limit and to have the amount of such reduction contributed to the 401(k) plan. The 401(k) plan permits, but does not require additional matching contributions to the 401(k) plan by us on behalf of all participants in the 401(k) plan. During fiscal year 2003, we made no contributions to the 401(k) plan.

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Limitation of Liability and Indemnification of Officers and Directors

As permitted by the Delaware General Corporation Law, we have adopted provisions in our certificate of incorporation and bylaws that limit or eliminate the personal liability of our directors for a breach of their fiduciary duty of care as a director. The duty of care generally requires that, when acting on behalf of the corporation, directors exercise an informed business judgment based on all material information reasonably available to them. Consequently, a director will not be personally liable to us or our stockholders for monetary damages or breach of fiduciary duty as a director, except for liability for:

Ÿ any breach of the director’s duty of loyalty to us or our stockholders;

Ÿ any act or omission not in good faith or that involves intentional misconduct or a knowing violation of law;

Ÿ any act related to unlawful stock repurchases, redemptions or other distributions or payment of dividends; or

Ÿ any transaction from which the director derived an improper personal benefit.

These limitations of liability do not affect the availability of equitable remedies such as injunctive relief or rescission. Our certificate of incorporation also authorizes us to indemnify our officers, directors and other agents to the full extent permitted under Delaware law.

As permitted by the Delaware General Corporation Law, our bylaws provide that:

Ÿ we may indemnify our directors, officers and employees to the fullest extent permitted by the Delaware General Corporation Law, subject to limited exceptions;

Ÿ we may advance expenses to our directors, officers and employees in connection with a legal proceeding to the fullest extent permitted by the Delaware General Corporation Law, subject to limited exceptions; and

Ÿ the rights provided in our bylaws are not exclusive.

We intend to enter into separate indemnification agreements with each of our directors and officers. See “Related Party Transactions—Indemnification Agreements” for more information.

At present, there is no pending litigation or proceeding involving any of our directors, officers, employees or agents in which indemnification by us is sought, nor are we aware of any threatened litigation or proceeding that may result in a claim for indemnification.

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Related Party Transactions

Common Stock

In October 1998, we engaged Jesse.Hansen&Co., a San Francisco-based private equity investment firm affiliated with John Hansen, the Chairman of our board of directors, to act as our financial advisor. In connection with this engagement, and as partial consideration for such financial advisory services, we issued to Jesse.Hansen&Co. a warrant to purchase 700,000 shares of our common stock at an exercise price of $1.50 per share. In 1998, Jesse.Hansen&Co. sold this warrant to JH Capital Partners, L.P., an entity affiliated with Jesse.Hansen&Co. and Mr. Hansen. This warrant is currently exercisable and expires in October 2004.

In November 1998, we sold 2,600,000 shares of our common stock at a price of $0.0001 per share to Robert Forbes, Jr., our founder and member of our board of directors.

From November 1998 to March 15, 2004, we granted options to purchase an aggregate of 1,754,500 shares of our common stock to our current directors and executive officers, including the executive officers named in the Summary Compensation Table, with exercise prices ranging from $0.25 to $7.00 per share. In October 2002, Wayne Badovinus, our President, Chief Executive Officer and a member of our board of directors, exercised options for 200,000 shares of our common stock at an exercise price of $0.25 per share. In October 2002, David Barnard, our Secretary and Chief Financial Officer, exercised options for 50,000 shares of our common stock at an exercise price of $0.25 per share, and in September 2003, Mr. Barnard exercised options for an additional 50,000 shares of our common stock at an exercise price of $0.25 per share. In July 2001, Vincent Barriero, our Chief Information Officer, exercised options for 25,000 shares of our common stock at an exercise price of $0.60 per share, and in August 2002, Mr. Barriero exercised options for an additional 25,000 shares of our common stock at an exercise price of $0.60 per share.

Preferred Stock

In April 1999, we issued and sold to investors an aggregate of 1,500,000 shares of our Series A preferred stock at a price of $1.00 per share for aggregate consideration of $1.5 million. In July 1999, we issued and sold to investors an aggregate of 500,000 shares of our Series A preferred stock at a price of $1.00 per share for aggregate consideration of $500,000.

In December 1999, we obtained bridge loans from some of our investors, including a bridge loan from Mr. Barnard in the principal amount of $50,000 and bridge loans from JH Capital Partners, L.P. in an aggregate principal amount of $1,505,000. In connection with these loans, we issued warrants to purchase an aggregate of 261,172 shares of our Series B preferred stock at an exercise price of $2.55 per share. Of these warrants, warrants to purchase 5,882 and 177,057 shares of our Series B preferred stock were issued to Mr. Barnard and JH Capital Partners, L.P., respectively. We anticipate that these warrants will be exercised for cash prior to the closing of this offering. The terms of the warrants provide that if they are not previously exercised for cash they will automatically be exercised on a net exercise basis immediately prior to the closing of this offering.

In May 2000, we issued and sold to Reed Business Information, a division of Reed Elsevier, Inc., an aggregate of 1,960,784 shares of our Series B preferred stock at a price of $2.55 per share for aggregate consideration of $5.0 million. In June 2000, we issued and sold to investors an aggregate of 1,952,154 shares of our Series B preferred stock at a price of $2.55 per share for aggregate consideration of $5.0 million.

In May 2003, we sold 1,406,506 shares of our Series B preferred stock at a price of $3.45 per share. We used the proceeds from these issuances, together with other available funds, to repurchase 1,960,784 shares of our Series B preferred stock at a price of $3.45 per share from Reed Business Information for aggregate consideration of $6.8 million.

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The following table presents the number of shares purchased by, and the number of shares subject to warrants issued to, each of our executive officers and directors and each person known to us to beneficially own more than 5% of our common stock or entities affiliated with them in the transactions described above. Each share of preferred stock, including shares of preferred stock issuable upon exercise of outstanding warrants, will convert automatically into one share of common stock upon the closing of this offering.

Name of Purchaser	Series A	Series B	Series B Warrants
5% Stockholders:
Entities affiliated with Jesse.Hansen&Co. (1)	1,071,429	2,031,112	177,057
SPI DWR Investments L.P. (2)	—	870,000	—
Directors and Executive Officers:
John Hansen (1)(3)	951,429	1,950,060	177,057
Wayne Badovinus	50,000	39,216	—
Robert Forbes, Jr.	25,000	—	—
Edward Friedrichs	—	28,985	—
Terry Lee	18,571	—	—
Lawrence Wilkinson	—	10,000	—
David Barnard	—	—	5,882

(1) These amounts include 951,429 shares of Series A preferred stock and 528,865 shares of Series B preferred stock owned by JH Capital Partners, L.P., 1,056,863 shares of Series B preferred stock owned by Jesse.Hansen Co-Investment Vehicle, LP, 364,332 shares of Series B preferred stock owned by JH Capital Partners II, L.P., 120,000 shares of Series A preferred stock and 81,052 shares of Series B preferred stock owned by Bear Stearns Securities Corporation as custodian for H. William Jesse, Jr. IRA R/O and warrants to purchase 177,057 shares of Series B preferred stock held by JH Capital Partners, L.P. These amounts do not include warrants to purchase 700,000 shares of our common stock held by JH Capital Partners, L.P. John Hansen is the President of Hansen Capital Management, Inc., which is one of the two general partners of each of JH Capital Partners, L.P. and Jesse.Hansen Co-Investment Vehicle, LP. H. William Jesse, Jr. is the President of Jesse Capital Management, Inc., which is the other general partner of each of JH Capital Partners, L.P. and Jesse.Hansen Co-Investment Vehicle, LP. Mr. Hansen is the manager of JHCO GP, LLC, which is the sole general partner of JH Capital Partners II, L.P.

(2) Prism Capital L.P., or Prism Capital, is the general partner of SPI DWR Investments L.P., or SPI DWR. Dennis Wong is the general partner of Prism Capital. The number of shares specified in the table above does not include 43,584 and 20,984 shares of Series B preferred stock indirectly owned by Prism Capital and Mr. Wong, respectively, through their interests in JH Capital Partners, LP and Jesse.Hansen Co-Investment Vehicle, L.P. Mr. Wong and Prism Capital disclaim beneficial ownership of the shares held by JH Capital Partners, LP and Jesse.Hansen Co-Investment Vehicle, L.P., except to the extent of their pecuniary interest in such shares, if any.

(3) Does not include 120,000 shares of Series A preferred stock and 81,052 shares of Series B preferred stock owned by Bear Stearns Securities Corporation as custodian for H. William Jesse, Jr. IRA R/O.

Registration Rights

In connection with the sale of shares of our Series B preferred stock in May and June 2000, we entered into an Investors’ Rights Agreement, dated as of May 12, 2000, with Jesse.Hansen Co-Investment Vehicle, LP, JH Capital Partners, L.P., Mr. Badovinus and the other investors party thereto, which, among other things, granted registration rights to holders of Series A preferred stock and Series B preferred stock with respect to the shares of common stock issuable upon conversion of the preferred stock. Under that agreement, following this offering, these holders will hold approximately              shares of our common stock and will have the right to require us to register their shares of common stock with the SEC so that they may be publicly resold or to include their shares in any registration statement we file.

Demand Registration Rights.    At any time after the effective date of the closing of this offering, subject to certain exceptions, the holders of at least 30% of the shares having registration rights have the right to demand that we file up to two registration statements. If the holders intend to distribute their shares by means of an underwritten offering, the underwriters will have the right to limit the number of shares having registration rights to be included in the registration statement, but not below 50% of the total number of shares included in the registration statement. If we are eligible to file a registration statement on Form S-3, holders of shares having

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registration rights have the right to demand that we file a registration statement on Form S-3 so long as the aggregate amount of securities to be sold under the registration statement on Form S-3 equals or exceeds $1.0 million.

Piggyback Registration Rights.    Following this offering, if we register any securities for public sale, subject to certain exceptions, stockholders with registration rights will have the right to include their shares in the registration statement. The underwriters of any underwritten offering will have the right to limit the number of shares having registration rights to be included in the registration statement, but not below 35% of the total number of shares included in the registration statement.

Expenses of Registration.    We will pay all expenses relating to any demand or piggyback registration other than underwriting discounts and commissions. However, we will not pay for the expenses of any demand registration if the request is subsequently withdrawn by the holders of a majority of the shares having registration rights.

Expiration of Registration Rights.    The registration rights described above will terminate for a particular stockholder at the time that such holder can resell all of its securities in a three-month period under Rule 144 of the Securities Act.

Other Transactions

Jesse.Hansen&Co. Transactions.    Since October 1998, we have retained Jesse.Hansen&Co. to serve as our financial advisor. In each of fiscal years 2001, 2002 and 2003, we paid Jesse.Hansen&Co. a total of $90,000 in retainer fees ($7,500 per month). Our financial advisory arrangement with Jesse.Hansen&Co. will terminate upon the closing of this offering.

Since November 2000, we have also leased space on a month-to-month basis for our San Francisco studio facility from Jesse.Hansen&Co. We paid $100,800 in aggregate rental payments under this lease for each of fiscal years 2001, 2002 and 2003.

NapaStyle, Inc. Loan.    In May 2003, we made a $100,000 loan to NapaStyle, Inc., which was repaid to us in full by the end of fiscal year 2003. In connection with this loan, NapaStyle, Inc. issued us a warrant to purchase 67,210 shares of NapaStyle, Inc. Series B preferred stock at an exercise price of $0.01 per share. The warrant expires on May 21, 2008. Mr. Hansen and Mr. Badovinus are members of the board of directors of NapaStyle, Inc.

Indemnification Agreements.    We intend to enter into separate indemnification agreements with each of our directors and officers, which may be broader than the specific indemnification provisions contained in the Delaware General Corporation Law. These indemnification agreements may require us, among other things, to indemnify our officers and directors against liabilities that may arise by reason of their status or service as directors or officers, other than liabilities arising from willful misconduct. These indemnification agreements also may require us to advance any expenses incurred by the directors or officers as a result of any proceeding against them as to which they could be indemnified.

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Principal and Selling Stockholders

Set forth below is information relating to the beneficial ownership of our common stock as of March 15, 2004, and as adjusted to reflect the sale of              shares of common stock in this offering by Design Within Reach and the sale of              shares of common stock in this offering by selling stockholders, by:

Ÿ each person known by us to beneficially own more than 5% of our common stock;

Ÿ each of our directors;

Ÿ each of the executive officers named in the Summary Compensation Table;

Ÿ all directors and executive officers as a group; and

Ÿ each of the selling stockholders.

The number of shares beneficially owned by each stockholder and each stockholder’s percentage ownership in the following table is based on 9,012,141 shares of common stock outstanding as of March 15, 2004, as adjusted to reflect the conversion of all outstanding shares of preferred stock into common stock upon the closing of this offering and the assumed exercise immediately prior to the closing of this offering of warrants to purchase 261,172 shares of our Series B preferred stock (which will convert automatically into 261,172 shares of common stock upon the closing of this offering).

We have agreed to bear the expenses (other than underwriting discounts and commissions) of the selling stockholders in connection with this offering and to indemnify them against certain liabilities, including liabilities under the Securities Act of 1933.

Beneficial ownership is determined in accordance with the rules of the SEC and generally includes any shares over which a person exercises sole or shared voting or investment power and shares of which a person has the right to acquire ownership within 60 days after March 15, 2004, if any. Except as otherwise indicated, and subject to applicable community property laws, the persons named in the table have sole voting and investment power with respect to all shares of common stock held by them. Unless otherwise indicated, the address of each officer, director and 5% stockholder listed below is c/o Design Within Reach, Inc., 225 Bush Street, 20^th Floor, San Francisco, California 94104.

Name of Beneficial Owner	Number of Shares Beneficially Owned Prior to Offering (1)	Number of Shares Being Offered (2)	Number of Shares Beneficially Owned After Offering	Percentage of Shares Beneficially Owned
				Before Offering		After Offering
5% Stockholders:
Entities affiliated with Jesse.Hansen&Co. (3)	4,664,406			48.0	%	%
SPI DWR Investments L.P. (4)	870,000			9.7
Directors and Named Executive Officers:
Wayne Badovinus	839,216			8.8
Robert Forbes, Jr.	1,905,500			21.1
John Ball	122,000			1.3
Vincent Barriero	135,500			1.5
Ray Brunner	117,000			1.3
John Hansen (5)	4,463,354			46.0
Hilary Billings	35,000			*		*
Edward Friedrichs	73,985			*		*
Terry Lee	48,571			*		*
William McDonagh	30,000			*		*
Lawrence Wilkinson	55,000			*		*
All executive officers and directors as a group (14 persons) (6)	8,261,126			73.7	%	%

(footnotes on following page)

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Name of Beneficial Owner	Number of Shares Beneficially Owned Prior to Offering (1)	Number of Shares Being Offered (2)	Number of Shares Beneficially Owned After Offering	Percentage of Shares Beneficially Owned
				Before Offering	After Offering
Other Selling Stockholders:
(7)

* Represents beneficial ownership of less than 1% of our outstanding common stock.

(1) The following table indicates the number of shares subject to options and warrants exercisable within sixty (60) days of March 15, 2004, held by individuals listed in the table above:

Name of Beneficial Owner	Shares Subject to Options Exercisable Within 60 Days
Wayne Badovinus	550,000
Robert Forbes, Jr.	—
John Ball	122,000
Vincent Barriero	85,500
Ray Brunner	117,000
John Hansen	—
Hilary Billings	35,000
Edward Friedrichs	45,000
Terry Lee	30,000
William McDonagh	30,000
Lawrence Wilkinson	45,000

(2) The selling stockholders named in the table below have granted the underwriters the option to purchase up to the number of shares shown next to their names to cover over-allotments. If the over-allotment option were exercised in full, the individuals would beneficially own the number and percentage of shares of Design Within Reach common stock shown in the table below:

Selling Stockholders	Shares Subject to Over-Allotment Option	Shares Beneficially Owned After the Offering if Over-Allotment Option is Exercised
		Number	Percent
To be completed by amendment.

(3) Represents (i) 2,227,062 shares held by JH Capital Partners, L.P., (ii) 700,000 shares issuable upon exercise of a currently exercisable warrant held by JH Capital Partners, L.P., (iii) 364,332 shares held by JH Capital Partners II, L.P., (iv) 1,159,210 shares held by Jesse.Hansen Co-Investment Vehicle, LP, (v) 201,052 shares held by Bear Stearns Securities Corporation as custodian for H. William Jesse, Jr. IRA R/O and (vi) 12,750 shares held by The Hansen Children’s Trust. John Hansen is the President of Hansen Capital Management, Inc., which is one of the two general partners of each of JH Capital Partners, L.P. and Jesse.Hansen Co-Investment Vehicle, LP. H. William Jesse, Jr. is the President of Jesse Capital Management, Inc., which is the other general partner of each of JH Capital Partners, L.P. and Jesse.Hansen Co-Investment Vehicle, LP. Mr. Hansen is the manager of JHCO GP, LLC, which is the sole general partner of JH Capital Partners II, L.P.              of the shares are being offered by                     , and                      of the shares are being offered by                     . The address for JH Capital Partners, L.P., JH Capital Partners II, L.P. and Jesse.Hansen Co-Investment Vehicle, LP is 451 Jackson Street, San Francisco, CA 94111-1615. Mr. Hansen and Mr. Jesse disclaim beneficial ownership of the shares held by JH Capital Partners, L.P. and Jesse.Hansen Co-Investment Vehicle, LP, except to the extent of their respective pecuniary interests in such shares, if any. Mr. Hansen disclaims beneficial ownership of the shares held by JH Capital Partners II, L.P., except to the extent of his pecuniary interest in such shares, if any.

(4) Represents 870,000 shares of Series B preferred stock owned by SPI DWR Investments L.P., or SPI DWR. Prism Capital L.P., or Prism Capital, is the general partner of SPI DWR. Dennis Wong is the general partner of Prism Capital. The address of SPI DWR, Prism Capital and Mr. Wong is 550 California Street, Suite 600, San Francisco, California 94104. This amount does not include the following number of shares of Series B preferred stock and common stock indirectly owned by Prism Capital and Mr. Wong through their interests in JH Capital Partners, LP and Jesse.Hansen Co-Investment Vehicle, L.P.: Prism Capital—43,584 shares of Series B preferred stock and 172,882 shares of common stock; Mr. Wong—20,984 shares of Series B preferred stock and 83,239 shares of common stock. Mr. Wong and Prism Capital disclaim beneficial ownership of the shares held by JH Capital Partners, LP and Jesse.Hansen Co-Investment Vehicle, L.P., except to the extent of their pecuniary interest in such shares, if any.

(5) Represents (i) 2,227,062 shares held by JH Capital Partners, L.P., (ii) 700,000 shares issuable upon exercise of a currently exercisable warrant held by JH Capital Partners, L.P., (iii) 364,332 shares held by JH Capital Partners II, L.P., (iv) 1,159,210 shares held by Jesse.Hansen Co-Investment Vehicle, LP., and (v) 12,750 shares held by The Hansen Children’s Trust. Mr. Hansen is the President of Hansen Capital Management, Inc., which is one of two general partners of each of JH Capital Partners, L.P. and Jesse.Hansen Co-Investment Vehicle, LP. Mr. Hansen disclaims beneficial ownership of the shares held by JH Capital Partners, L.P., Jesse.Hansen Co-Investment Vehicle, LP and JH Capital Partners II, L.P., except to the extent of his pecuniary interest in such shares, if any.

(6) Includes 2,287,349 shares subject to options and warrants exercisable within 60 days of March 15, 2004 held by our executive officers and directors.

(7) To be completed by amendment.

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Description of Capital Stock

Upon the closing of this offering, our authorized capital stock will consist of 30,000,000 shares of common stock, $0.001 par value per share, and 10,000,000 shares of preferred stock, $0.001 par value per share. As of March 15, 2004, and assuming the conversion of all outstanding preferred stock (including preferred stock subject to outstanding warrants) into common stock had occurred on that date, there would have been 9,012,141 shares of common stock outstanding held by stockholders of record. As of the same date, there were options outstanding to purchase 2,348,841 shares of common stock and warrants outstanding to purchase 700,000 shares of common stock.

The following is a summary of the rights of our common stock and preferred stock. This summary is not complete. For more detailed information, please see our certificate of incorporation and bylaws which have been filed as exhibits to the registration statement of which this prospectus is a part.

Common Stock

Dividend Rights.    Subject to preferences that may apply to shares of preferred stock outstanding at the time, the holders of outstanding shares of common stock are entitled to receive dividends out of assets legally available at the times and in the amounts as our board of directors may from time to time determine.

Voting Rights.    Each common stockholder is entitled to one vote for each share of common stock held on all matters submitted to a vote of stockholders. Cumulative voting for the election of directors is not provided for in our certificate of incorporation, which means that the holders of a majority of the shares voted can elect all of the directors then standing for election.

No Preemptive or Similar Rights.    No holder of our common stock is entitled to preemptive rights to subscribe for any shares of capital stock and our common stock is not subject to conversion or redemption.

Right to Receive Liquidation Distributions.    Upon our liquidation, dissolution or winding-up, the assets legally available for distribution to our stockholders are distributable ratably among the holders of our common stock and any participating preferred stock outstanding at that time, after payment of liquidation preferences, if any, on any outstanding preferred stock and payment of other claims of creditors. Each outstanding share of common stock is, and all shares of common stock to be outstanding upon completion of this offering will be, fully paid and nonassessable.

Preferred Stock

Upon the closing of this offering, no shares of, and no securities convertible into, our preferred stock will be outstanding.

Upon the closing of this offering, under our certificate of incorporation our board of directors will be authorized, subject to the limits imposed by the Delaware General Corporation Law, but without further action by our stockholders to issue shares of preferred stock in one or more series, to establish from time to time the number of shares to be included in each series, to fix the rights, preferences and privileges of the shares of each wholly unissued series and any of its qualifications, limitations and restrictions. Our board of directors can also increase or decrease the number of shares of any series, but not below the number of shares of that series then outstanding, without any further vote or action by our stockholders.

Our board of directors may authorize the issuance of preferred stock with voting or conversion rights that adversely affect the voting power or other rights of our common stockholders. The issuance of preferred stock, while providing flexibility in connection with possible acquisitions, financings and other corporate purposes, could have the effect of delaying, deferring or preventing our change in control and may cause the market price of our common stock to decline or impair the voting and other rights of the holders of our common stock. We have no current plans to issue any shares of preferred stock.

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Warrants

As of March 15, 2004 we had outstanding warrants to purchase: (i) 700,000 shares of our common stock issued to Jesse.Hansen&Co. at an exercise price of $1.50 per share that will expire on October 1, 2004; and (ii) 261,172 shares of our Series B preferred stock issued to various investors at an exercise price of $2.55 per share that will expire on the earlier of December 31, 2009 and the closing of this offering. Generally, each warrant contains provisions for the adjustment of its exercise price and the number of shares issuable upon its exercise upon the occurrence of any stock dividend or stock split. In addition, the shares of our common stock issuable upon any exercise of the warrants provide their holders with rights to have those shares registered with the SEC, as discussed more fully below. These warrants have net exercise provisions under which the holder may, in lieu of payment of the exercise price in cash, surrender the warrant and receive a net amount of shares based on the fair market value of our common stock at the time of exercise of the warrant after deduction of the aggregate exercise price. The warrants to purchase Series B preferred stock, if not previously exercised, will be automatically exercised pursuant to their net exercise provisions immediately prior to the closing of this offering. The shares issued upon exercise of those warrants will convert automatically into shares of our common stock upon the closing of this offering. After the closing of this offering, no warrants to acquire shares of our preferred stock will be outstanding.

Antitakeover Effects of Delaware Law and Provisions of Our Certificate of Incorporation and Bylaws

Delaware Takeover Statute.    We are subject to Section 203 of the Delaware General Corporation Law. This statute regulating corporate takeovers prohibits a publicly held Delaware corporation from engaging in any business combination with any interested stockholder for three years following the date that the stockholder became an interested stockholder, unless:

Ÿ prior to the date of the transaction, the board of directors of the corporation approved either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder;

Ÿ the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the number of shares outstanding (1) shares owned by persons who are directors and also officers and (2) shares owned by employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or

Ÿ on or subsequent to the date of the transaction, the business combination is approved by the board and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least two-thirds of the outstanding voting stock which is not owned by the interested stockholder.

Section 203 defines a business combination to include:

Ÿ any merger or consolidation involving the corporation and the interested stockholder;

Ÿ any sale, transfer, pledge or other disposition involving the interested stockholder of 10% or more of the assets of the corporation;

Ÿ subject to exceptions, any transaction that results in the issuance or transfer by the corporation of any stock of the corporation to the interested stockholder; or

Ÿ the receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial benefits provided by or through the corporation.

In general, Section 203 defines an interested stockholder as any entity or person beneficially owning 15% or more of the outstanding voting stock of the corporation and any entity or person affiliated with or controlling or controlled by the entity or person.

Certificate of Incorporation and Bylaw Provisions.    Provisions of our amended and restated certificate of incorporation and bylaws which will become effective upon the closing of this offering may have the effect of making it more difficult for a third party to acquire, or of discouraging a third party from attempting to acquire,

68

control of our company. Some of these provisions allow us to issue preferred stock without any vote or further action by the stockholders, eliminate the right of stockholders to act by written consent without a meeting, eliminate cumulative voting in the election of directors, divide our board into three classes that will serve staggered three-year terms. These provisions may make it more difficult for stockholders to take specific corporate actions and could have the effect of delaying or preventing a change in our control. The amendment of any of these provisions would require approval by holders of at least two-thirds of the outstanding common stock.

Transfer Agent and Registrar

We expect to appoint a transfer agent and registrar for our common stock prior to the closing of this offering.

Inclusion for Quotation on Nasdaq

We have applied to have our common stock included for quotation on the Nasdaq National Market under the symbol “DWRI.”

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Shares Eligible for Future Sale

Immediately prior to this offering, there has been no public market for our common stock. Future sales of substantial amounts of common stock in the public market could adversely affect prevailing market prices. Furthermore, since only a limited number of shares will be available for sale shortly after the offering because of contractual and legal restrictions on resale described below, sales of substantial amounts of common stock in the public market after the restrictions lapse could adversely affect the prevailing market price and our ability to raise equity capital in the future.

Upon completion of this offering,              shares of common stock will be outstanding, assuming no exercise of currently outstanding and exercisable options or warrants. Of these shares, the              shares sold in this offering, plus any additional shares sold upon exercise of the underwriters’ over-allotment option, will be freely transferable without restriction under the Securities Act, unless they are held by our “affiliates” as that term is used under the Securities Act and the rules and regulations promulgated thereunder. The remaining              shares of common stock held by existing stockholders are restricted shares. Restricted shares may be sold in the public market only if registered or if they qualify for an exemption from registration under Rules 144 or 701 promulgated under the Securities Act, which rules are summarized below.

As a result of lock-up agreements and the provisions of Rules 144 and 701, additional shares will be available for sale in the public market, subject to certain volume and other restrictions, as follows:

Ÿ              restricted shares will be eligible for immediate sale on the effective date of this offering;

Ÿ              restricted shares will be eligible for sale 90 days after the date of this prospectus;

Ÿ              restricted shares will be eligible for sale upon expiration of the lock-up agreements, which will occur 180 days after the date of this prospectus; and

Ÿ the remaining              restricted shares will be eligible for sale from time to time thereafter upon expiration of their applicable Rule 144 holding periods.

Following this offering, the holders of              shares of common stock have the right in specified circumstances to require us to register their shares under the Securities Act for resale to the public beginning one year from the effective date of this offering. If those holders, by exercising their demand registration rights, cause a large number of shares to be registered and sold in the public market, such sales could have an adverse effect on the market price for the common stock. If we were required to include in a registration that we initiated shares held by such holders upon the exercise of their piggyback registration rights, such sales may have an adverse effect on our ability to raise needed capital. In addition, we expect to file a registration statement on Form S-8 registering shares of common stock subject to outstanding stock options or reserved for issuance under our stock option and employee stock purchase plans. We expect to file this registration statement as soon as practicable after the effective date of this offering. Shares registered under this registration statement will, subject to Rule 144 volume limitations applicable to affiliates, be available for sale in the open market, unless such shares are subject to vesting restrictions with us or the lock-up agreements described above.

In general, under Rule 144 as in effect on the date of this prospectus, beginning 90 days after the effective date of this offering, our affiliates, or a person (or persons whose shares are aggregated) who has beneficially owned restricted shares (as defined under Rule 144) for at least one year, are entitled to sell within any three-month period a number of shares that does not exceed the greater of one percent of the then outstanding shares of common stock or the average weekly trading volume of the common stock on the Nasdaq National Market during the four calendar weeks immediately preceding the date on which notice of the sale is filed with the SEC. Sales under Rule 144 are subject to requirements relating to the manner of sale, notice and the availability of current public information about us. A person (or persons whose shares are aggregated) who was not our affiliate at any time during the 90 days immediately preceding the sale and who has beneficially owned restricted shares for at least two years is entitled to sell such shares under Rule 144(k) without regard to the limitations described above.

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Our employees, officers, directors or consultants who purchased or were awarded shares or options to purchase shares under a written compensatory plan or contract are entitled to rely on the resale provisions of Rule 701 under the Securities Act, which permits affiliates and non-affiliates to sell their Rule 701 shares without having to comply with the Rule 144 holding period restrictions, in each case commencing 90 days after the effective date of this offering. In addition, non-affiliates may sell Rule 701 shares without complying with the public information, volume and notice provisions of Rule 144.

Lock-Up Agreements

We, our officers and directors and substantially all other stockholders have agreed to a 180-day “lock up” with respect to                        shares of common stock and other of our securities that they beneficially own, including securities that are convertible into shares of common stock and securities that are exchangeable or exercisable for shares of common stock. This means that, for a period of 180 days following the date of this prospectus, subject to specified exceptions, we and such persons may not, directly or indirectly, offer, sell, pledge or otherwise dispose of these securities without the prior written consent of CIBC World Markets Corp.

Registration Rights

Following this offering, under specified circumstances and subject to customary conditions, holders of shares of our outstanding common stock will hold demand registration rights with respect to their shares of common stock, subject to the 180-day lock-up arrangement described above, to require us to register their shares of common stock under the Securities Act, and rights to participate in any future registrations of securities. If the holders of these registrable securities request that we register their shares, and if the registration is effected, these shares will become freely tradable without restriction under the Securities Act. Any sales of securities by these stockholders could have a material adverse effect on the trading price of our common stock.

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Underwriting

We and the selling stockholders have entered into an underwriting agreement with the underwriters named below. CIBC World Markets Corp., William Blair & Company, L.L.C. and SG Cowen Securities Corporation are acting as representatives of the underwriters.

The underwriting agreement provides for the purchase of a specific number of shares of common stock by each of the underwriters. The underwriters’ obligations are several, which means that each underwriter is required to purchase a specified number of shares, but is not responsible for the commitment of any other underwriter to purchase shares. Subject to the terms and conditions of the underwriting agreement, each underwriter has severally agreed to purchase the number of shares of common stock set forth opposite its name below:

Underwriter	Number of Shares
CIBC World Markets Corp
William Blair & Company, L.L.C.
SG Cowen Securities Corporation
Total

The underwriters have agreed to purchase all of the shares offered by this prospectus (other than those covered by the over-allotment option described below) if any are purchased. Under the underwriting agreement, if an underwriter defaults in its commitment to purchase shares, the commitments of non-defaulting underwriters may be increased or the underwriting agreement may be terminated, depending on the circumstances.

The shares should be ready for delivery on or about             , 2004 against payment in immediately available funds. The underwriters are offering the shares subject to various conditions and may reject all or part of any order. The representatives have advised us and the selling stockholders that the underwriters propose to offer the shares directly to the public at the public offering price that appears on the cover page of this prospectus. In addition, the representatives may offer some of the shares to other securities dealers at such price less a concession of $          per share. The underwriters may also allow, and such dealers may reallow, a concession not in excess of $          per share to other dealers. After the shares are released for sale to the public, the representatives may change the offering price and other selling terms at various times.

We and the selling stockholders have granted the underwriters an over-allotment option. This option, which is exercisable for up to 30 days after the date of this prospectus, permits the underwriters to purchase a maximum of              additional shares (             from us and              from the selling stockholders) to cover over-allotments. If the underwriters exercise all or part of this option, they will purchase shares covered by the option at the initial public offering price that appears on the cover page of this prospectus, less the underwriting discount. If this option is exercised in full, the total price to public will be $         , the total proceeds to us will be $          and the total proceeds to the selling stockholders will be $         . The underwriters have severally agreed that, to the extent the over-allotment option is exercised, they will each purchase a number of additional shares proportionate to the underwriter’s initial amount reflected in the foregoing table.

The following table provides information regarding the amount of the discount to be paid to the underwriters by us and the selling stockholders:

	Per Share	Total Without Exercise of Over-Allotment Option	Total With Full Exercise of Over-Allotment Option
Design Within Reach, Inc.	$	$	$
Selling stockholders
Total		$

We and the selling stockholders estimate that our portions of the total expenses of the offering, excluding the underwriting discount, will be approximately $              and $            , respectively.

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We and the selling stockholders have agreed to indemnify the underwriters against certain liabilities, including liabilities under the Securities Act of 1933.

We, our officers and directors and substantially all other stockholders have agreed to a 180-day “lock up” with respect to              shares of common stock and other of our securities that they beneficially own, including securities that are convertible into shares of common stock and securities that are exchangeable or exercisable for shares of common stock. This means that, subject to certain exceptions, for a period of 180 days following the date of this prospectus, we and such persons may not offer, sell, pledge or otherwise dispose of these securities without the prior written consent of CIBC World Markets Corp.

The representatives have informed us that they do not expect discretionary sales by the underwriters to exceed five percent of the shares offered by this prospectus.

The underwriters have reserved for sale up to              shares for employees, directors and other persons associated with us. These reserved shares will be sold at the initial public offering price that appears on the cover page of this prospectus. The number of shares available for sale to the general public in the offering will be reduced to the extent reserved shares are purchased by such persons. The underwriters will offer to the general public, on the same terms as other shares offered by this prospectus, any reserved shares that are not purchased by such persons.

There is no established trading market for the shares. The offering price for the shares has been determined by us, the selling stockholders and the representatives, based on the following factors:

Ÿ the history and prospects for the industry in which we compete;

Ÿ our past and present operations;

Ÿ our historical results of operations;

Ÿ our prospects for future business and earning potential;

Ÿ our management;

Ÿ the general condition of the securities markets at the time of this offering;

Ÿ the recent market prices of securities of generally comparable companies; and

Ÿ the market capitalization and stages of development of other companies which we and the representatives believe to be comparable to us.

Rules of the SEC may limit the ability of the underwriters to bid for or purchase shares before the distribution of the shares is completed. However, the underwriters may engage in the following activities in accordance with the rules:

Ÿ Stabilizing transactions – The representatives may make bids or purchases for the purpose of pegging, fixing or maintaining the price of the shares, so long as stabilizing bids do not exceed a specified maximum.

Ÿ Over-allotments and syndicate covering transactions – The underwriters may sell more shares of our common stock in connection with this offering than the number of shares than they have committed to purchase. This over-allotment creates a short position for the underwriters. This short sales position may involve either “covered” short sales or “naked” short sales. Covered short sales are short sales made in an amount not greater than the underwriters’ over-allotment option to purchase additional shares in this offering described above. The underwriters may close out any covered short position either by exercising their over-allotment option or by purchasing shares in the open market. To determine how they will close the covered short position, the underwriters will consider, among other things, the price of shares available for purchase in the open market, as compared to the price at which they may purchase shares through the over-allotment option. Naked short sales are short sales in excess of the over-allotment option. The underwriters must close out any naked short position by purchasing shares in the open market. A naked short position is more likely to be created if the underwriters are concerned that, in the open market after

73

pricing, there may be downward pressure on the price of the shares that could adversely affect investors who purchase shares in this offering.

Ÿ Penalty bids – If the representatives purchase shares in the open market in a stabilizing transaction or syndicate covering transaction, they may reclaim a selling concession from the underwriters and selling group members who sold those shares as part of this offering.

Similar to other purchase transactions, the underwriters’ purchases to cover the syndicate short sales or to stabilize the market price of our common stock may have the effect of raising or maintaining the market price of our common stock or preventing or mitigating a decline in the market price of our common stock. As a result, the price of the shares of our common stock may be higher than the price that might otherwise exist in the open market. The imposition of a penalty bid might also have an effect on the price of the shares if it discourages resales of the shares.

Neither we nor the underwriters makes any representation or prediction as to the effect that the transactions described above may have on the price of the shares. These transactions may occur on the Nasdaq National Market or otherwise. If such transactions are commenced, they may be discontinued without notice at any time.

Based on the number of shares outstanding on March 15, 2004 (assuming the conversion of all outstanding shares of preferred stock into common stock), certain employees of CIBC World Markets Corp. and William Blair & Company, L.L.C. indirectly own approximately 1.6%, in the aggregate, of our outstanding capital stock, through entities affiliated with Jesse.Hansen&Co.

Legal Matters

The validity of the common stock offered hereby will be passed upon for us by Latham & Watkins LLP, San Diego, California. Certain legal matters in connection with this offering will be passed upon for the underwriters by Simpson Thacher & Bartlett LLP, Palo Alto, California.

Experts

Grant Thornton LLP, independent auditors, have audited our financial statements at December 28, 2002 and December 27, 2003, and for each of the three years in the period ended December 27, 2003, as set forth in their report. We have included our financial statements in the prospectus and elsewhere in the registration statement in reliance on the report of Grant Thornton LLP, given on their authority as experts in accounting and auditing.

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Where You Can Find More Information

We have filed with the SEC a registration statement on Form S-1 under the Securities Act to register the shares of common stock offered hereby. The term registration statement means the original registration statement and any and all amendments thereto, including the schedules and exhibits to the original registration statement and any amendments. This prospectus, which constitutes a part of the registration statement, does not contain all of the information set forth in the registration statement or the exhibits and schedules filed therewith. For further information with respect to Design Within Reach, Inc. and the common stock offered hereby, reference is made to the registration statement and the exhibits and schedules filed therewith. Statements contained in this prospectus regarding the contents of any contract or any other document that is filed as an exhibit to the registration statement are not necessarily complete, and each such statement is qualified in all respects by reference to the full text of such contract or other document filed as an exhibit to the registration statement. A copy of the registration statement the exhibits and schedules filed therewith may be inspected without charge at the public reference room maintained by the SEC, located at 450 Fifth Street, N.W., Room 1200, Washington, DC 20549, and copies of all or any part of the registration statement may be obtained from such offices upon the payment of the fees prescribed by the SEC. Please call the SEC at 1-800- SEC-0330 for further information about the public reference room. The SEC also maintains an Internet website that contains reports, proxy and information statements and other information regarding registrants that file electronically with the SEC. The address of the site is www.sec.gov.

As a result of this offering, we will become subject to the information and periodic reporting requirements of the Securities Exchange Act of 1934, as amended, and, in accordance therewith, we will file periodic reports, proxy statements and other information with the SEC. Such periodic reports, proxy statements and other information will be available for inspection and copying at the public reference room and website of the SEC referred to above. We maintain a website at www.dwr.com. You may access our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act with the SEC free or charge at our website as soon as reasonably practicable after such material is electronically filed with, or furnished to, the SEC. The reference to our web address does not constitute incorporation by reference of the information contained at or accessible through this site.

We intend to furnish our stockholders with annual reports containing consolidated financial statements audited by our independent auditors and to make available to our stockholders quarterly reports for the first three quarters of each fiscal year containing unaudited interim condensed consolidated financial statements.

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Index To Financial Statements

	Page
Report of Independent Certified Public Accountants	F-2
Balance Sheets	F-3
Statements of Earnings	F-4
Statements of Stockholders’ Equity	F-5
Statements of Cash Flows	F-6
Notes to Financial Statements	F-7

F-1

Report of Independent Certified Public Accountants

Board of Directors and Stockholders of

Design Within Reach, Inc.

We have audited the accompanying balance sheets of Design Within Reach, Inc. as of December 27, 2003 and December 28, 2002 and the related statements of earnings, stockholders’ equity and cash flows for each of the three years in the period ended December 27, 2003. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Design Within Reach, Inc. as of December 27, 2003 and December 28, 2002 and the results of its operations and its cash flows for each of the three years in the period ended December 27, 2003 in conformity with accounting principles generally accepted in the United States of America.

/s/    Grant Thornton LLP

San Francisco, California

January 21, 2004

F-2

Design Within Reach, Inc.

Balance Sheets

(amounts in thousands)

	December 28, 2002			December 27, 2003
ASSETS
Current assets
Cash and cash equivalents	$	4,587		$	44
Accounts receivable (less allowance for doubtful accounts of $36 and $36)		1,061			620
Inventory, net		6,685			11,425
Prepaid catalog costs		566			614
Deferred income taxes, net of valuation allowance		—			1,022
Other current assets		354			680
Total current assets		13,253			14,405
Property and equipment, net		3,383			9,018
Deferred income taxes		—			309
Other non-current assets		382			111
Total assets	$	17,018		$	23,843
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable	$	3,115		$	4,852
Accrued expenses		3,019			2,714
Deferred revenue		948			687
Customer deposits and other liabilities		1,060			1,091
Bank credit facility		—			3,325
Capital lease obligation, current portion		—			90
Total current liabilities		8,142			12,759
Deferred rent and lease incentives		124			587
Capital lease obligation		—			260
Deferred income tax liabilities		—			399
Total liabilities		8,266			14,005
Stockholders’ equity
Preferred stock Series A – $1.00 par value; authorized 2,040 shares; issued and outstanding, 2,040 shares in 2002 and 2003		2,040			2,040
Preferred stock Series B – $1.00 par value; authorized 6,000 shares; issued and outstanding, 3,913 shares in 2002 and 3,359 shares in 2003		10,192			10,044
Common stock – no par value; authorized 13,000 shares; issued and outstanding, 3,219 shares in 2002 and 3,322 shares in 2003		201			240
Accumulated deficit		(3,681	)		(2,486	)
Total stockholders’ equity		8,752			9,838
Total liabilities and stockholders’ equity	$	17,018		$	23,843

The accompanying notes are an integral part of these financial statements.

F-3

Design Within Reach, Inc.

Statements of Earnings

(amounts in thousands, except per share data)

	Fiscal Year Ended
	December 29, 2001		December 28, 2002		December 27, 2003
Net sales	$	40,299	$	57,254	$	81,138
Cost of sales		22,291		30,241		43,298
Gross margin		18,008		27,013		37,840
Selling, general and administrative expenses		17,334		24,028		33,046
Depreciation and amortization		540		855		2,098
Facility relocation costs		—		—		559
Earnings from operations		134		2,130		2,137
Interest income (expense)
Interest income		166		74		13
Interest expense		—		—		(42	)
Earnings before income taxes		300		2,204		2,108
Income tax expense (benefit)		4		1		(852	)
Net earnings		296		2,203		2,960
Deemed preferred stock dividends		—		—		(1,765	)
Net earnings available to common stockholders	$	296	$	2,203	$	1,195
Net earnings per share:
Basic	$	0.10	$	0.75	$	0.37
Diluted	$	0.03	$	0.21	$	0.11
Weighted average shares used in calculation of net earnings per share:
Basic		2,833		2,951		3,261
Diluted		10,029		10,663		11,294

The accompanying notes are an integral part of these financial statements.

F-4

Design Within Reach, Inc.

Statements of Stockholders’ Equity

Fiscal Years ended December 29, 2001, December 28, 2002 and December 27, 2003

(amounts in thousands)

	Preferred Stock Series A			Preferred Stock Series B					Common Stock			Accumulated Deficit			Total
	Shares	Amount		Shares		Amount			Shares	Amount
Balance – December 31, 2000	2,040	$	2,040	3,913		$	10,192		2,796	$	58	$	(6,180	)	$	6,110
Issuance of common stock pursuant to employee stock option plan	—		—	—			—		74		29		—			29
Fair value of options issued to non-employees	—		—	—			—		—		1		—			1
Net earnings	—		—	—			—		—		—		296			296
Balance – December 29, 2001	2,040		2,040	3,913			10,192		2,870		88		(5,884	)		6,436
Issuance of common stock pursuant to employee stock option plan	—		—	—			—		349		113		—			113
Net earnings	—		—	—			—		—		—		2,203			2,203
Balance – December 28, 2002	2,040		2,040	3,913			10,192		3,219		201		(3,681	)		8,752
Issuance of common stock pursuant to employee stock option plan	—		—	—			—		103		39		—			39
Repurchase of Series B preferred stock	—		—	(1,961	)		(5,000	)	—		—		(1,765	)		(6,765	)
Issuance of Series B preferred stock				1,407			4,852						—			4,852
Net earnings	—		—	—			—		—		—		2,960			2,960
Balance – December 27, 2003	2,040	$	2,040	3,359		$	10,044		3,322	$	240	$	(2,486	)	$	9,838

The accompanying notes are an integral part of these financial statements.

F-5

Design Within Reach, Inc.

Statements of Cash Flows

(amounts in thousands)

	Fiscal Year Ended
	December 29, 2001			December 28, 2002			December 27, 2003
Cash flows from operating activities
Net earnings	$	296		$	2,203		$	2,960
Adjustments to reconcile net earnings to net cash provided by (used in) operating activities:
Depreciation and amortization		540			855			2,098
Fair value of stock options issued to non-employees		1			—			—
Change in assets and liabilities:
Accounts receivable		(151	)		(376	)		441
Inventory		1,589			(3,147	)		(4,740	)
Prepaid catalog costs		(354	)		24			(48	)
Deferred income taxes, net of valuation allowance		—			—			(1,331	)
Other current assets		(7	)		30			(326	)
Other non-current assets		(316	)		(47	)		271
Accounts payable		(1,350	)		942			1,737
Accrued expenses		(1,310	)		1,662			(305	)
Deferred revenue		189			512			(261	)
Customer deposits and other liabilities		257			389			31
Deferred rent and lease incentives		—			124			463
Deferred income tax liabilities		—			—			399
Net cash provided by (used in) operating activities		(616	)		3,171			1,389
Cash flows from investing activities
Purchases of property and equipment		(380	)		(3,417	)		(7,383	)
Net cash used in investing activities		(380	)		(3,417	)		(7,383	)
Cash flows from financing activities
Proceeds from issuance of common stock pursuant to employee stock option plan		29			113			39
Repurchase of Series B preferred stock		—			—			(6,765	)
Proceeds from issuance of Series B preferred stock		—			—			4,852
Net borrowing on bank credit facility		—			—			3,325
Net cash provided by financing activities		29			113			1,451
Net decrease in cash and cash equivalents		(967	)		(133	)		(4,543	)
Cash and cash equivalents at beginning of year		5,687			4,720			4,587
Cash and cash equivalents at end of year	$	4,720		$	4,587		$	44
Supplemental disclosure of cash flow information Cash paid during the year for:
Income taxes	$	23		$	—		$	—
Interest	$	—		$	—		$	42
Supplemental disclosure of non-cash investing and financing activities
Capital lease obligation incurred	$	—		$	—		$	350

The accompanying notes are an integral part of these financial statements.

F-6

Design Within Reach, Inc.

Notes to Financial Statements

(amounts in thousands, except per share data)

Note 1 – Summary of Significant Accounting Policies

Design Within Reach, Inc. (the “Company”) was incorporated in California in November 1998. The Company is an integrated multi-channel provider of distinctive modern design furnishings and accessories. The Company markets and sells its products to both residential and commercial customers through four sales channels consisting of its catalog, studios, website and direct sales force. The Company sells its products directly to customers throughout the United States.

The Company operates on a 52- or 53-week fiscal year, which ends on the Saturday closest to December 31. Each fiscal year consists of four 13-week quarters, with an extra week added onto the fourth quarter every five to six years. The Company’s 2001 fiscal year ended on December 29, 2001, its 2002 fiscal year ended on December 28, 2002 and its 2003 fiscal year ended on December 27, 2003. Each of fiscal years 2001, 2002 and 2003 consisted of 52 weeks.

Segment Reporting

The Company’s business is conducted in a single operating segment. The Company’s chief operating decision maker is the Chief Executive Officer who reviews a single set of financial data that encompasses the Company’s entire operations for purposes of making operating decisions and assessing performance.

Vendor Concentration

During the year ended December 27, 2003, sales of products supplied by one vendor constituted approximately 10.4% of net sales, while sales of products supplied by the Company’s top five vendors constituted approximately 31.8% of net sales.

Cash and Cash Equivalents

The Company considers all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents. Cash and cash equivalents consisted of the following at the end of fiscal years 2002 and 2003:

	2002		2003
Cash and time deposits	$	835	$	33
Short-term securities		3,752		11
Total	$	4,587	$	44

Short-term securities (generally money market funds deposited with major financial institutions) are stated at cost plus accrued interest, which approximates market value.

The Company, from time to time, maintains cash balances at financial institutions that are in excess of the amounts insured by the Federal Deposit Insurance Corporation up to $100. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk on cash and cash equivalents.

Accounts Receivable

The majority of the Company’s accounts receivable consist of amounts due from major credit card companies that are collected within five days after the customer’s credit card is charged and receivables due from commercial customers due within 30 days of the invoice date. The Company estimates its allowance for uncollectible receivables by considering a number of factors, including the length of time accounts receivable are past due and the Company’s previous loss history.

F-7

Design Within Reach, Inc.

Notes to Financial Statements – (Continued)

(amounts in thousands, except per share data)

Inventory

Inventory, net of an allowance for damaged, excess or obsolete goods, consists primarily of finished goods purchased from third-party manufacturers and is carried at the lower of cost (first-in, first-out) or market.

Estimated Fair Value of Financial Instruments

The carrying value of cash and cash equivalents, accounts receivable, accounts payable, and current portion of debt approximates their estimated fair values due to the short maturities of these instruments. The carrying value of long-term debt approximates its fair value based on current rates available to the Company for similar debt.

Foreign Currency Forward Contracts

The Company purchases certain merchandise from vendors located outside of the United States. The Company typically purchases foreign currency forward contracts with maturities of less than 60 days after the payable amount and due date are known. These contracts are accounted for by adjusting the carrying amount of the contract to market and recognizing any gain or loss in selling, general and administrative expenses in each reporting period. As of December 27, 2003, the Company had approximately $1,398 of foreign exchange contracts outstanding with an estimated fair value of $1,414.

Property and Equipment

Property and equipment are stated at cost and depreciated using a straight-line method over the assets’ estimated useful lives. Costs of maintenance and repairs are charged to expense as incurred; significant renewals and betterments are capitalized. Estimated useful lives are as follows:

Computer equipment and software	3-5 years
Office furniture and equipment	3 years
Leasehold improvements	10 years or life of lease, whichever is shorter

Asset Impairment

Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. If the undiscounted future cash flows from the long-lived assets are less than the carrying value, a loss is recognized equal to the difference between the carrying value and the fair value of the assets. Decisions to close a studio or facility also can result in accelerated depreciation over the revised useful life. When the Company closes a location that is under a long-term lease, the Company records a charge for the fair value of the liability associated with that lease at the cease-use date. The fair value of such liability is calculated based on the remaining lease rental payments due under the lease, reduced by estimated rental payments that could be reasonably obtained by the Company for subleasing the property to a third party. The estimate of future cash flows is based on the Company’s experience, knowledge and typically third-party advice or market data. However, these estimates can be affected by factors such as future studio profitability, real estate demand and economic conditions that can be difficult to predict.

Revenue Recognition

The Company recognizes sales and the related cost of sales at the time the products are estimated to have been received by customers. The Company’s customers may return ordered items for an exchange or refund. The Company provides an allowance based on projected product returns, taking into consideration historical experience and other factors. The returns allowance is recorded as a reduction to net sales for the estimated retail value of the projected product returns and as a reduction in cost of sales for the corresponding cost amount. Shipping and

F-8

Design Within Reach, Inc.

Notes to Financial Statements – (Continued)

(amounts in thousands, except per share data)

handling fees charged to the customer are recognized at the time the products are estimated to have been received by the customer and are included in net sales. Costs of shipping products to customers are recognized at the time the products are estimated to have been received by the customers and are included in cost of sales.

Sales of products typically are covered by warranties provided by the manufacturer of the product sold, therefore the Company has not recorded any warranty expense or liability.

Change in Accounting Principle

In January 2002, the Company changed its revenue recognition policy to be in accordance with the provisions of Securities and Exchange Commission’s Staff Accounting Bulletin No. 101 (“SAB 101”), “Revenue Recognition in Financial Statements.” Under SAB 101, the Company recognizes revenue at the time the products are estimated to have been received by customers. Previously, the Company recognized revenue upon shipment of products. The change in accounting principle was retroactively applied to all prior years. The net effect of the change on net earnings was a reduction of $69 for fiscal year 2001 and an increase of $189 for fiscal year 2002.

Income Taxes

Income taxes are computed using the asset and liability method under Statement of Financial Accounting Standards (“SFAS”) No. 109, “Accounting for Income Taxes.” Deferred income tax assets and liabilities are determined based on the differences between the financial reporting and tax bases of assets and liabilities and are measured using the currently enacted tax rates and laws currently in effect. The Company records an estimated valuation allowance on its deferred income tax assets if it is more likely than not that these deferred income tax assets will not be realized.

Prepaid Catalog Costs

Prepaid catalog costs consist of third-party costs, including paper, printing, postage, name acquisition and mailing costs, for all of the Company’s direct response catalogs. Such costs are capitalized and are amortized over their expected period of future benefit. Each catalog is generally fully amortized within two to four months of its initial mailing depending on circulation plans. At December 28, 2002 and December 27, 2003, the Company had prepaid catalog costs of $566 and $614, respectively. Other advertising costs are expensed as incurred. Prepaid catalog costs are evaluated for realizability at each reporting period by comparing the carrying amount associated with each catalog to the estimated probable remaining future net benefit associated with that catalog. If the carrying amount is in excess of the estimated probable remaining future net benefit of the catalog, the excess is expensed in the reporting period. Advertising expenses, including amortized catalog costs, were $6,701, $8,583 and $10,366 in 2001, 2002 and 2003, respectively.

Deferred Rent and Lease Incentives

Several of the Company’s operating leases contain free rent periods and many contain predetermined fixed increases of the minimum rental rate during the initial lease term. For these leases, the Company recognizes rental expense on a straight-line basis and records the difference between the amounts charged to expense and the rent paid as deferred rent.

Construction Allowance

As part of many of the Company’s lease agreements, the Company receives construction allowances from landlords for tenant improvements. The construction allowances are deferred and amortized on a straight-line basis over the life of the lease as a reduction of rent expense. Construction allowances of $3 and $335 were granted in 2002 and 2003, respectively, with the unamortized balance included in deferred rent and lease incentives.

F-9

Design Within Reach, Inc.

Notes to Financial Statements – (Continued)

(amounts in thousands, except per share data)

Studio Pre-opening Costs

Studio pre-opening costs are expensed as they are incurred.

Stock-Based Compensation

The Company accounts for stock-based employee compensation arrangements in accordance with the provisions of Accounting Principles Board (“APB”) Statement No. 25, “Accounting for Stock Issued to Employees,” and complies with the disclosure provisions of SFAS No. 123, “Accounting for Stock-Based Compensation,” as amended by SFAS No. 148, “Accounting for Stock-Based Compensation-Transition and Disclosure,” and related interpretations. No stock-based employee compensation cost is reflected in net earnings, as all options granted under the Company’s 1999 stock plan had exercise prices equal to the estimated fair value of the underlying common stock on the date of grant. The Company accounts for equity instruments issued to non-employees in accordance with the provisions of SFAS No. 123 and related interpretations. The following table illustrates the effect on net earnings if the Company had applied the fair value recognition provisions of SFAS No. 123 to stock-based employee compensation.

	2001			2002			2003
Net earnings – as reported	$	296		$	2,203		$	2,960
Deduct: Total stock-based employee compensation expense determined under fair value method for all awards		(50	)		(68	)		(88	)
Pro forma net earnings		246			2,135			2,872
Deemed preferred stock dividend		—			—			(1,765	)
Pro forma net earnings available to common stockholders	$	246		$	2,135		$	1,107
Basic earnings per share – as reported	$	0.10		$	0.75		$	0.37
Diluted earnings per share – as reported	$	0.03		$	0.21		$	0.11
Basic earnings per share – pro forma	$	0.09		$	0.72		$	0.34
Diluted earnings per share – pro forma	$	0.02		$	0.20		$	0.10

The fair value of option grants has been determined using the Black-Scholes option pricing model with the following weighted average assumptions: expected life of 10 years, interest rate at 4%, volatility of 0%, and no dividend yield. Volatility of the Company’s common stock may change upon the closing of a qualifying public offering.

Earnings per Share

Basic earnings per share is calculated by dividing the Company’s net earnings available to the Company’s common stockholders for the year by the number of weighted average common shares outstanding for the year. In accordance with Emerging Issues Task Force Topic No. D-53, the net earnings available to the Company’s common stockholders for the year ended December 27, 2003 is stated after recognizing deemed preferred stock dividends of $1,765. The amount of the deemed preferred stock dividends represents the excess of the consideration of $6,765 paid by the Company to Reed Business Information, a division of Reed Elsevier Inc., in connection with its repurchase from Reed Business Information of 1,961 shares of the Company’s Series B Preferred Stock in May 2003, over the carrying value of those shares of $5,000. Diluted earnings per share includes the effects of dilutive instruments, such as stock options, warrants and convertible preferred stock, and uses the average share price for the period in determining the number of incremental shares that are to be added to the weighted average number of shares outstanding.

F-10

Design Within Reach, Inc.

Notes to Financial Statements – (Continued)

(amounts in thousands, except per share data)

The following table summarizes the incremental shares from potentially dilutive securities, calculated using the treasury stock method at the end of each fiscal year:

	2001	2002	2003
Shares used to compute basic earnings per share	2,833	2,951	3,261
Add: Effect of dilutive securities
Preferred stock Series A	2,040	2,040	2,040
Preferred stock Series B	3,913	3,913	3,575
Effect of dilutive options outstanding	282	798	1,457
Warrants outstanding	961	961	961
Shares used to compute diluted earning per share	10,029	10,663	11,294

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management of the Company to make estimates and assumptions affecting the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, as well as revenues and expenses during the reporting period. The Company’s significant accounting estimates include estimates of market value used in calculating the value of inventory on a lower of cost or market basis, estimates of market value used in calculating the value of stock-based employee compensation, estimates of expected future cash flows used in the review for impairment of long-lived assets, estimates of the Company’s ability to realize its deferred tax assets which are also used to establish whether valuation allowances are needed on those assets, and estimates of returns used to calculate sales return reserves. Actual results could differ from those estimates and such differences could affect the results of operations reported in future periods.

Concentrations of Credit Risk

Financial instruments that potentially subject the Company to a concentration of credit risk consist of cash, cash equivalents, and accounts receivable. Cash and cash equivalents are deposited with high credit quality financial institutions. The majority of the Company’s accounts receivable consist of receivables due from major credit card companies that are collected within five days after the customer’s credit card is charged and receivables due from commercial customers due within 30 days of the invoice date.

New Accounting Pronouncements

In May 2003, the Financial Accounting Standards Board (the “FASB”) issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity.” SFAS No. 150 requires an issuer to classify a financial instrument that falls within its scope as a liability, or as an asset in some circumstances. Such instruments include those instruments that are mandatorily redeemable and, therefore, represent an unconditional obligation of the issuer to redeem them by transferring its assets at a specified or determinable date or upon an event that is certain to occur. SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003 and is effective at the beginning of the first interim period beginning after June 15, 2003, except for mandatorily redeemable financial instruments of nonpublic companies which are subject to the provisions of this Statement for the first period beginning after December 15, 2003. The Company does not have any mandatorily redeemable financial instruments subject to SFAS No. 150. As a result, the adoption of SFAS No. 150 did not have any significant impact on the Company’s financial statements.

F-11

Design Within Reach, Inc.

Notes to Financial Statements – (Continued)

(amounts in thousands, except per share data)

In December 2002, the FASB issued SFAS No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure.” SFAS No. 148 amends SFAS No. 123, “Accounting for Stock-Based Compensation,” to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The transition guidance and annual disclosure provisions of SFAS No. 148 are effective for the Company’s fiscal year ended December 27, 2003. The Company continues to account for stock-based compensation using the intrinsic value method in accordance with the provisions of APB Opinion No. 25, “Accounting for Stock Issued to Employees,” as allowed by SFAS No. 123. As a result, the adoption of SFAS No. 148 did not have any significant impact on the Company’s financial results.

In June 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities,” which addresses accounting for restructuring and similar costs. SFAS No. 146 supersedes previous accounting guidance, principally Emerging Issues Task Force Issue No. 94-3. SFAS No. 146 requires that the liabilities for costs associated with an exit or disposal activity be recognized when the liabilities are incurred. SFAS No. 146 also establishes that the liability should be measured and recorded at fair value. Accordingly, SFAS No. 146 may affect the timing of recognizing future restructuring costs as well as the amounts recognized. The Company has adopted the provisions of SFAS No. 146 for restructuring activities initiated after December 31, 2002, and accordingly, recognized $559 of expenses related to the closure of the fulfillment center in California.

Note 2 – Property and Equipment

Property and equipment consist of the following at the end of each fiscal year:

	2002			2003
Computer equipment and software	$	2,747		$	6,389
Office furniture and equipment		558			1,233
Leasehold improvements		1,836			4,798
		5,141			12,420
Less accumulated depreciation and amortization		(1,758	)		(3,856	)
Construction-in-progress		—			454
Total	$	3,383		$	9,018

Construction-in-progress consists of equipment under a capital lease of $350 and leasehold improvements of $104 to studios under construction. As of December 27, 2003, neither asset had been placed in service, and therefore no depreciation has been recorded.

F-12

Design Within Reach, Inc.

Notes to Financial Statements – (Continued)

(amounts in thousands, except per share data)

Note 3 – Income Taxes

The provision for income taxes consists of the following for each of the fiscal years:

	2001			2002			2003
Current
Federal	$	3		$	—		$	—
State		1			1			80
Total current		4			1			80
Deferred
Federal		99			751			775
State		20			(302	)		44
Total deferred		119			449			819
Change in valuation allowance		(119	)		(449	)		(1,751	)
Net deferred		—			—			(932	)
Net income tax expense (benefit)	$	4		$	1		$	(852	)

A reconciliation of the statutory federal income tax rate with the Company’s effective income tax rate is as follows:

Statutory federal rate	34.0	%	34.0	%	34.0	%
State income taxes, net of federal income tax benefit	5.8	%	5.8	%	5.8	%
Change in valuation allowance	(39.8	)%	(20.4	)%	(83.0	)%
Enterprise zone credit and other	0.0	%	(19.4	)%	2.8	%
Effective tax rate	0.0	%	0.0	%	(40.4	)%

Deferred income taxes reflect the impact of temporary differences between amounts of assets and liabilities for financial reporting purposes and such amounts as measured by tax laws. Temporary differences and carryforwards, which give rise to deferred tax assets and liabilities, are as follows at the end of each fiscal year:

	2002			2003
Deferred tax assets:
Net operating loss carryforwards	$	1,002		$	264
Credit carryforward		299			131
Accruals and reserves		426			601
Other		368			466
Total deferred tax assets		2,095			1,462
Deferred tax liabilities:
Property and equipment basis differences		213			399
Net deferred tax assets prior to valuation allowance	$	1,882		$	1,063
Valuation allowance		(1,882	)		(131	)
Net deferred tax assets	$	—		$	932

F-13

Design Within Reach, Inc.

Notes to Financial Statements – (Continued)

(amounts in thousands, except per share data)

At December 28, 2002, the Company had net operating loss carryforwards of approximately $1,808 and $4,725 for Federal and California state income taxes, respectively. The Company had net operating loss carryforwards of approximately $29 and $4,342 at December 27, 2003 for Federal and California state income taxes, respectively. These net operating loss carryforwards can be used to reduce future taxable income through 2020 for Federal income tax purposes and 2012 for California state income tax purposes. There are annual limitations on the use of the net operating loss carryforwards if corporate ownership changes.

Note 4 – Bank Credit Facility

During July 2002, the Company entered into an approximately one-year secured revolving line of credit with Wells Fargo HSBC Trade Bank (“the Bank”). The Company amended this agreement during July and November 2003. This facility provides an overall credit line of $10,000, comprised of a $7,500 operating line of credit for working capital and standby letters of credit and a $2,500 equipment line of credit for capital expenditure needs. Amounts borrowed under the credit agreement are secured by the Company’s accounts receivable, inventory and equipment. The Company’s permitted annual capital expenditures are limited under the credit agreement. The credit agreement also sets forth a number of affirmative and negative covenants to which the Company must adhere, including financial covenants that require us to achieve positive net earnings in each quarter and limitations on capital expenditures. As of December 27, 2003, the Company was in compliance with all covenants.

The Company’s maximum borrowing under the operating line of credit may not exceed the lesser of (a) $7,500 or (b) the total of (i) 75% of the Company’s eligible trade accounts receivable, plus (ii) 50% of the adjusted value of independently appraised acceptable inventory. This line of credit expires in July 2004. The interest rate for the operating line of credit during the term of the facility is based on the lender’s prime rate plus 0.25%. As of December 27, 2003, the interest rate for the operating line of credit was 4.25%. As of December 27, 2003, $1,670 in borrowings and $800 of stand-by letters of credit were outstanding and approximately $2,774 was available to be drawn. The maximum amount of borrowings outstanding during fiscal year 2002 and 2003 were $0 and $3,676, respectively.

The Company’s maximum borrowing under the equipment line of credit may not exceed $2,500. On July 31, 2004, the outstanding balance on this line of credit on that date will convert to a two-year term loan. The interest rate for the equipment line of credit during the term of the facility is based on the lender’s prime rate plus 0.50%. As of December 27, 2003, the interest rate for the equipment line of credit was 4.50%. As of December 27, 2003, the Company had submitted invoices for eligible equipment purchases totaling $383. As of December 27, 2003, $287 in borrowings were outstanding and nothing was available to be drawn on this facility as no additional invoices had been submitted.

Included in the bank credit facility amount outstanding on the balance sheet of $3,325, as of December 27, 2003, is $1,368 representing outstanding checks in excess of the cash balances in the Company’s bank accounts with the Bank.

Total interest expense during fiscal year 2003 was $42. There were no borrowings during fiscal years 2001 and 2002 and therefore no interest expense for those years.

Note 5 – Preferred Stock

The Company has two classes of preferred stock: Series A Preferred Stock and Series B Preferred Stock. Dividends are payable only when, and if declared by the board of directors of the Company (the “Board of Directors”) at the rate of $0.08 per share per annum for Series A Preferred Stock and $0.204 per share per annum for Series B Preferred Stock. Dividends are not cumulative. Each share of preferred stock may be converted, at the option of the

F-14

Design Within Reach, Inc.

Notes to Financial Statements – (Continued)

(amounts in thousands, except per share data)

holder, into a certain number of shares of common stock determined by a preset conversion rate. The conversion rate in effect as of December 27, 2003 was one share of common stock for each share of preferred stock. Each share of preferred stock has voting rights and powers equal to the voting rights and powers of the common stock. In the event of any liquidation, the holders of Series A Preferred Stock and Series B Preferred Stock are entitled to be paid out of the assets of the Company in an amount per share of Series A Preferred Stock and Series B Preferred Stock equal to the original issue price of such shares plus all declared and unpaid dividends on shares of such series of preferred stock. As of December 27, 2003 there were no declared and unpaid dividends on shares of such series of preferred stock. All outstanding shares of preferred stock will convert automatically into common stock in the event of a qualifying public offering at the then-effective conversion rate.

The Company repurchased 1,961 shares of Series B Preferred Stock from Reed Business Information, a division of Reed Elsevier Inc., during May 2003 at $3.45 per share for total of $6,765. These shares were originally issued during May 2000 at $2.55 per share. The Company simultaneously issued 1,407 shares of Series B Preferred Stock during May 2003 at $3.45 per share for total consideration of $4,852. The balance of 554 shares of Series B Preferred Stock was retired during May 2003. For the purpose of calculating earnings per share, the $1,765 excess of the fair value of the consideration transferred to the holder of the Series B Preferred Stock over the carrying value of $5,000 of that stock has been reported as a deemed preferred stock dividend and subtracted from the Company’s net earnings of $2,960, to arrive at the Company’s net earnings available to common stockholders of $1,195. The deemed preferred stock dividend reduced the Company’s basic earnings per share by $0.54 to $0.37 and diluted earnings per share by $0.15 to $0.11.

Note 6 – Warrants

In October 1998, the Company issued warrants to purchase 700 shares of the Company’s common stock exercisable at $1.50 per share in relation to an advising agreement with a major stockholder. Each warrant contains provisions for the adjustment of its exercise price and the number of shares issuable upon its exercise upon the occurrence of any stock dividend, reorganization, reclassification, consolidation, merger, sale or stock split. These warrants have net exercise provisions under which the holder may, in lieu of payment of the exercise price in cash, surrender the warrant and receive a net amount of shares based on the fair market value of the Company’s common stock at the time of exercise of the warrant after deduction of the aggregate exercise price. These warrants expire in October 2004.

In December 1999, the Company issued warrants to purchase an aggregate of 261 shares of the Company’s Series B Preferred Stock exercisable at $2.55 per share in relation to bridge loans made in December 1999. Each warrant contains provisions for the adjustment of its exercise price and the number of shares issuable upon its exercise upon the occurrence of any stock dividend or stock split. These warrants have net exercise provisions under which the holder may, in lieu of payment of the exercise price in cash, surrender the warrant and receive a net amount of shares based on the fair market value of the Company’s common stock at the time of exercise of the warrant after deduction of the aggregate exercise price. If not previously exercised, these warrants will be automatically exercised pursuant to their cashless exercise provisions immediately prior to the closing of a qualifying public offering of the Company’s common stock. These warrants expire in December 2009 or upon the closing of a qualifying public offering, whichever is earlier.

Note 7 – Stock Option Plan

Stock Options

The Design Within Reach, Inc. 1999 Stock Plan (the “Plan”) allows for the issuance of incentive stock options and nonstatutory stock options to purchase shares of the Company’s common stock. The Board of Directors most recently amended the Plan in October 2003, and the Company’s stockholders approved the Plan, as amended, in

F-15

Design Within Reach, Inc.

Notes to Financial Statements – (Continued)

(amounts in thousands, except per share data)

November 2003. The Company has reserved a total of 3,100 shares for issuance under the Plan, including 500 shares approved for grant during 2003, of which 557 shares remained available for grant at December 27, 2003. Shares subject to cancelled options are returned to the Plan and are available to be reissued. Under the Plan, incentive stock options may be granted only to employees, and nonstatutory stock options may be granted to employees, outside directors and consultants. Options granted under the Plan are for periods not to exceed ten years, and must be issued at prices not less than 100% of the fair market value for incentive stock options and not less than 85% of fair market value for nonstatutory options. Stock options granted to stockholders who own greater than 10% of the outstanding stock must be issued at prices not less than 110% of the fair market value of the stock on the date of grant. Options granted under the Plan generally vest within four years. The Plan allows certain options to be exercised prior to the time such options are vested. All unvested shares are subject to repurchase at the exercise price paid for such shares.

Option activity under the Plan is as follows for each of the fiscal years:

	Options Outstanding		Weighted Average Exercise Price
Balance, December 31, 2000	1,637		$	0.47
Options granted	323		$	0.60
Options exercised	(73	)	$	0.38
Options canceled	(346	)	$	0.53
Balance, December 29, 2001	1,541		$	0.49
Options granted	837		$	0.63
Options exercised	(351	)	$	0.32
Options canceled	(84	)	$	0.56
Balance, December 28, 2002	1,943		$	0.50
Options granted	141		$	2.75
Options exercised	(103	)	$	0.37
Options canceled	(79	)	$	0.60
Balance, December 27, 2003	1,902		$	0.67
Exercisable, December 29, 2001	585		$	0.34
Exercisable, December 28, 2002	612		$	0.43
Exercisable, December 27, 2003	1,032		$	0.50

F-16

Design Within Reach, Inc.

Notes to Financial Statements – (Continued)

(amounts in thousands, except per share data)

The following table summarizes information about stock options outstanding at December 27, 2003:

Options Outstanding				Options Exercisable
Exercise Prices	Number of Shares	Weighted Average Remaining Life (in years)	Weighted Average Exercise Price	Number Exercisable at December 27, 2003	Weighted Average Exercise Price
$0.25	547	5.9	$0.25	389	$	0.25
$0.60	1,200	7.8	$0.60	626	$	0.60
$2.00	15	8.8	$2.00	4	$	2.00
$2.75	140	9.5	$2.75	13	$	2.75
$0.25 to $2.75	1,902	7.4	$0.67	1,032	$	0.50

The weighted average fair value of options granted during the year ending December 27, 2003 was $0.91.

Note 8 – Commitments

The Company leases office space, studios and fulfillment center space under operating leases. The Company also has equipment under a capital lease. Future minimum lease payments as of December 27, 2003 are as follows:

Year ending December	Capital Lease			Operating Leases
2004	$	109		$	3,611
2005		131			4,753
2006		131			5,079
2007		21			5,004
2008		—			4,634
Thereafter		—			11,532
Minimum lease commitments	$	392		$	34,613
Less: Interest		(42	)
Present value of capital lease obligation	$	350
Less current portion		(90	)
Long-term portion	$	260

Rent expense, consisting of fixed minimum amounts and/or contingent rent based on a percentage of sales exceeding a stipulated amount, was $957, $1,605 and $3,215 for 2001, 2002 and 2003, respectively.

Note 9 – Related Party Transactions

The Company rents studio space from an affiliate of a significant stockholder of the Company and of the Company’s Chairman of the Board of Directors on a monthly basis. Rent expense related to this space for the year ended December 29, 2001, December 28, 2002 and December 27, 2003 was $101 for each of the three years. The Company received consulting services from the same affiliate on a monthly basis. Consulting expense related to these services for the year ended December 29, 2001, December 28, 2003, and December 27, 2003 was $90 for each of the three years.

F-17

Design Within Reach, Inc.

Notes to Financial Statements – (Continued)

(amounts in thousands, except per share data)

In May 2003, the Company made a $100 loan to NapaStyle, Inc., which was repaid to the Company in full by the end of fiscal year 2003. In connection with this loan, NapaStyle, Inc. issued the Company a warrant to purchase 67 shares of NapaStyle, Inc. Series B preferred stock at an exercise price of $0.01 per share. The warrant expires on May 21, 2008. The Company has not ascribed a fair market value to these warrants for financial statement purposes. The Company’s Chairman and Chief Executive Officer are members of the board of directors of NapaStyle, Inc., and some of the Company’s significant stockholders also are stockholders of NapaStyle, Inc.

Note 10 – Retirement Plan

The Company has a 401(k) savings plan. Employees may contribute up to 15% of their earnings to the plan. Company contributions to the plan are discretionary. The Company did not contribute to the plan in fiscal years 2001, 2002 or 2003.

Note 11 – Facility Relocation Costs

During fiscal year 2003, the Company incurred $729 in costs associated with the relocation of its fulfillment center operations from Union City, California to Hebron, Kentucky. These costs consisted of freight costs to transport inventory ($182), severance costs for certain fulfillment center employees ($71), relocation costs for certain fulfillment center employees ($42), outside service costs ($110), lease cancellation costs ($110), accelerated depreciation on abandoned assets ($170) and other miscellaneous costs ($44). All costs ($729) except accelerated depreciation ($170) are included in facility relocation costs ($559). The accelerated depreciation is included in depreciation expense. During the first quarter of fiscal year 2004, the Company expects to complete the relocation of its fulfillment center at an estimated cost of $175, which will be expensed at that time.

The Company signed a lease during the fourth quarter of 2003 for approximately sixty thousand square feet of office space and has plans to relocate its Oakland, California headquarters to San Francisco, California. Rental payments under this lease commence on June 1, 2004. During the first quarter of fiscal year 2004, the Company expects to incur approximately $400 in connection with the relocation of its headquarters.

Note 12 – Subsequent Events

The Company signed operating leases for studios after December 27, 2003 but before the date of this report. Future minimum lease payments for these leases are as follows:

Year ending December	Operating Leases
2004	$	730
2005		944
2006		968
2007		996
2008		1,024
Thereafter		5,136
Minimum lease commitments	$	9,798

F-18

Design Within Reach, Inc.

Shares

Common Stock

PROSPECTUS

            , 2004

CIBC World Markets

William Blair & Company

SG Cowen

You should rely only on the information contained in this prospectus. No dealer, salesperson or other person is authorized to give information that is not contained in this prospectus. This prospectus is not an offer to sell nor is it seeking an offer to buy these securities in any jurisdiction where the offer or sale is not permitted. The information contained in this prospectus is correct only as of the date of this prospectus, regardless of the time of the delivery of this prospectus or any sale of these securities.

Until                 , 2004 (25 days after the commencement of the offering), all dealers that effect transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers’ obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. Other Expenses of Issuance and Distribution.

The following table sets forth all costs and expenses, other than the underwriting discounts and commissions payable by the Registrant in connection with the sale and distribution of the common stock being registered. All amounts shown are estimates except for the Securities and Exchange Commission registration fee, the NASD filing fee and the Nasdaq National Market application fee.

SEC registration fee	$	7,286
NASD filing fee		6,350
Nasdaq National Market application fee		100,000
Accounting fees and expenses		*
Legal fees and expenses		*
Printing and engraving expenses		*
Blue sky fees and expenses		10,000
Transfer agent and registrar fees and expenses		*
Miscellaneous		*
Total		*

* To be completed by amendment.

ITEM 14. Indemnification of Directors and Officers

As permitted by Section 102(b)(7) of the Delaware General Corporation Law, we have adopted provisions in our amended and restated certificate of incorporation and bylaws that limit or eliminate the personal liability of our directors for a breach of their fiduciary duty of care as a director. The duty of care generally requires that, when acting on behalf of the corporation, directors exercise an informed business judgment based on all material information reasonable available to them. Consequently, a director will not be personally liable to us or our stockholders for monetary damages or breach of fiduciary duty as a director except for:

Ÿ any breach of the director’s duty of loyalty to us or our stockholders;

Ÿ any act or omission not in good faith or that involves intentional misconduct or a knowing violation of law;

Ÿ any act related to unlawful stock repurchases, redemptions or other distributions or payment of dividends; or

Ÿ any transaction from which the director derived an improper personal benefit.

These limitations of liability do not affect the availability of equitable remedies such as injunctive relief or rescission. Our amended and restated certificate or incorporation also authorizes us to indemnify our officers, directors and other agents to the fullest extent permitted under Delaware law.

As permitted by Section 145 of the Delaware General Corporation Law, our bylaws provide that:

Ÿ we may indemnify our directors, officers and employees to the fullest extent permitted by the Delaware General Corporation Law, subject to limited exceptions;

Ÿ we may advance expenses to our directors, officers and employees in connection with a legal proceeding to the fullest extent permitted by the Delaware General Corporation Law, subject to limited exceptions; and

Ÿ the rights provided in our bylaws are not exclusive.

Our amended and restated certificate of incorporation, attached as Exhibit 3.01 hereto, and our bylaws, attached as Exhibit 3.02 hereto, provide for the indemnification provisions described above and elsewhere herein. In addition, we intend to enter into separate indemnification agreements, a form of which is attached as Exhibit 10.01 hereto,

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with our directors and officers which may be broader than the specific indemnification provisions contained in the Delaware General Corporation Law. These indemnification agreements may require us, among other things, to indemnify our officers and directors against liabilities that may arise by reason of their status or service as directors or officers, other than liabilities arising from willful misconduct. These indemnification agreements also may require us to advance any expenses incurred by the directors or officers as a result of any proceeding against them as to which they could be indemnified. In addition, we have purchased a policy of directors’ and officers’ liability insurance that insures our directors and officers against the cost of defense, settlement or payment of a judgment in some circumstances. These indemnification provisions and the indemnification agreements may be sufficiently broad to permit indemnification of our officers and directors for liabilities, including reimbursement of expenses incurred, arising under the Securities Act.

The form of Underwriting Agreement, attached as Exhibit 1.01 hereto, provides for indemnification by the underwriters of us and our officers and directors for specified liabilities, including matters arising under the Securities Act.

We intend to purchase a directors’ and officers’ liability insurance policy that insures our directors and officers against the cost of defense, settlement or payment of a judgment in some circumstances.

ITEM 15. Recent Sales of Unregistered Securities

The following list sets forth information regarding all securities sold by us over the past three years which were not registered under the Securities Act:

(1) In May 2003, we issued and sold to accredited investors 1,406,506 shares of our Series B preferred stock at a price of $3.45 per share, for aggregate proceeds of $4.85 million. We used the proceeds from these issuances, together with other available funds, to repurchase 1,960,784 shares of our Series B preferred stock at a price of $3.45 per share from Reed Business Information, a division of Reed Elsevier, Inc., for aggregate consideration of $6.76 million.

(2) Between March 15, 2001 and March 15, 2004, we granted options to purchase 1,722,350 shares of our common stock to employees, directors and consultants under our 1999 Stock Plan, as amended, at exercise prices ranging from $0.60 to $7.00 per share. Of the options granted, 1,592,832 remain outstanding, 30,268 shares of common stock have been purchased pursuant to exercises of stock options and 99,250 shares have been cancelled and returned to the 1999 Stock Plan option pool.

The offers, sales, and issuances of the securities described in paragraph (1) were deemed to be exempt from registration under the Securities Act in reliance on Rule 506 of Regulation D in that the issuance of securities to the accredited investors did not involve a public offering. The purchasers of securities in each such transaction represented their intention to acquire the securities for investment only and not with a view to or for sale in connection with any distribution thereof and appropriate legends were affixed to the share certificates issued in such transactions. Each of the recipients of securities in the transactions described in paragraph (1) were accredited investors under Rule 501 of Regulation D.

The offers, sales and issuances of the options and common stock described in paragraph (2) were deemed to be exempt from registration under the Securities Act in reliance on Rule 701 in that the transactions were under compensatory benefit plans and contracts relating to compensation as provided under such rule. The recipients of such options and common stock were our employees, directors or bona fide consultants and received the securities under our stock incentive plan. Appropriate legends were affixed to the share certificates issued in such transactions. Each of these recipients had adequate access, through employment or other relationships, to information about us.

There were no underwriters employed in connection with any of the transactions set forth in this Item 15.

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ITEM 16. Exhibits and Financial Statement Schedules.

(a) The following exhibits are filed herewith:

Exhibit Number		Exhibit Title
1.01	*	Form of Underwriting Agreement
3.01		Form of Amended and Restated Certificate of Incorporation to be in effect upon the closing of this offering
3.02		Form of Bylaws to be in effect upon the closing of this offering
4.01	*	Form of Specimen Common Stock Certificate
4.02		Warrant, dated October 2, 1998, issued to Jesse Hansen & Co.
4.03		Investors’ Rights Agreement, dated May 12, 2000, by and among Design Within Reach, Inc. and the investors named therein
4.04		Amendment to Investors’ Rights Agreement, dated May 8, 2003, by and among Design Within Reach, Inc. and the investors named therein
5.01	*	Opinion of Latham & Watkins LLP
10.01		Form of Indemnification Agreement entered into by Design Within Reach, Inc. and its directors and executive officers
10.02		Sublease Agreement, dated October 23, 2003, by and between National Broadcasting Company, Inc. and Design Within Reach, Inc.
10.03		Lease Agreement, dated October 2, 2003, by and between Dugan Financing LLC and Design Within Reach, Inc.
10.04		Design Within Reach, Inc. 1999 Stock Plan, amended as of October 29, 2003
10.05		Design Within Reach, Inc. 2004 Equity Incentive Award Plan
10.06		Design Within Reach, Inc. Employee Stock Purchase Plan
10.07		Credit Agreement, dated as of July 10, 2002, by and between Design Within Reach, Inc. and Wells Fargo HSBC Trade Bank, N.A.
10.08		First Amendment to Credit Agreement, dated as of July 30, 2003, by and between Design Within Reach, Inc. and Wells Fargo HSBC Trade Bank, N.A.
10.09		Second Amendment to Credit Agreement, dated as of November 18, 2003, by and between Design Within Reach, Inc. and Wells Fargo HSBC Trade Bank, N.A.
10.10		Private Label Credit Card Program Agreement, dated as of November 13, 2003, between World Financial Network National Bank and Design Within Reach, Inc.
10.11		Offer of Employment Letter dated February 22, 2000 between Design Within Reach, Inc. and Wayne Badovinus
10.12		Offer of Employment Letter dated February 22, 2000 between Design Within Reach, Inc. and David Barnard
23.01	*	Consent of Latham & Watkins LLP (included in Exhibit 5.01)
23.02		Consent of Grant Thornton LLP, independent auditors
24.01		Power of Attorney. Reference is made to the signature page hereto

* To be filed by amendment.

(b) Financial statement schedules.

No financial statement schedules are provided because the information called for is not required or is shown either in the consolidated financial statements or the notes thereto.

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ITEM 17. Undertakings.

The undersigned registrant hereby undertakes to provide to the underwriters at the closing specified in the Underwriting Agreement, certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser.

Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the provisions described under Item 14 above, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by us of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.

The undersigned registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective; and

(2) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

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SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the city of San Francisco, state of California, on March 24, 2004.

DESIGN WITHIN REACH, INC.
By:	/s/    WAYNE BADOVINUS
	Wayne Badovinus
	President and Chief Executive Officer

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints Wayne Badovinus and David Barnard and each of them acting individually, as his true and lawful attorneys-in-fact and agents, each with full power of substitution, for him in any and all capacities, to sign any and all amendments to this Registration Statement, including post-effective amendments or any abbreviated registration statement and any amendments thereto filed pursuant to Rule 462(b) increasing the number of securities for which registration is sought, and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, with full power of each to act alone, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully for all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or his or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated.

Name	Title	Date
/s/    WAYNE BADOVINUS         Wayne Badovinus	President, Chief Executive Officer and Director (Principal Executive Officer)	March 24, 2004
/s/    DAVID BARNARD         David Barnard	Chief Financial Officer (Principal Financial and Accounting Officer)	March 24, 2004
/s/    ROBERT FORBES         Robert Forbes	Director	March 24, 2004
/s/    HILARY BILLINGS         Hilary Billings	Director	March 24, 2004
/s/    EDWARD FRIEDRICHS         Edward Friedrichs	Director	March 24, 2004
/s/    JOHN HANSEN         John Hansen	Director	March 24, 2004

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Name	Title	Date
/s/    TERRY LEE         Terry Lee	Director	March 24, 2004
/s/    WILLIAM MCDONAGH         William McDonagh	Director	March 24, 2004
/s/    LAWRENCE WILKINSON         Lawrence Wilkinson	Director	March 24, 2004

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EXHIBIT INDEX

Exhibit Number		Exhibit Title
1.01	*	Form of Underwriting Agreement
3.01		Form of Amended and Restated Certificate of Incorporation to be in effect upon the closing of this offering
3.02		Form of Bylaws to be in effect upon the closing of this offering
4.01	*	Form of Specimen Common Stock Certificate
4.02		Warrant, dated October 2, 1998, issued to Jesse Hansen & Co.
4.03		Investors’ Rights Agreement, dated May 12, 2000, by and among Design Within Reach, Inc. and the investors named therein
4.04		Amendment to Investors’ Rights Agreement, dated May 8, 2003, by and among Design Within Reach, Inc. and the investors named therein
5.01	*	Opinion of Latham & Watkins LLP
10.01		Form of Indemnification Agreement entered into by Design Within Reach, Inc. and its directors and executive officers
10.02		Sublease Agreement, dated October 23, 2003, by and between National Broadcasting Company, Inc. and Design Within Reach, Inc.
10.03		Lease Agreement, dated October 2, 2003, by and between Dugan Financing LLC and Design Within Reach, Inc.
10.04		Design Within Reach, Inc. 1999 Stock Plan, amended as of October 29, 2003
10.05		Design Within Reach, Inc. 2004 Equity Incentive Award Plan
10.06		Design Within Reach, Inc. Employee Stock Purchase Plan
10.07		Credit Agreement, dated as of July 10, 2002, by and between Design Within Reach, Inc. and Wells Fargo HSBC Trade Bank, N.A.
10.08		First Amendment to Credit Agreement, dated as of July 30, 2003, by and between Design Within Reach, Inc. and Wells Fargo HSBC Trade Bank, N.A.
10.09		Second Amendment to Credit Agreement, dated as of November 18, 2003, by and between Design Within Reach, Inc. and Wells Fargo HSBC Trade Bank, N.A.
10.10		Private Label Credit Card Program Agreement, dated as of November 13, 2003, between World Financial Network National Bank and Design Within Reach, Inc.
10.11		Offer of Employment Letter dated February 22, 2000 between Design Within Reach, Inc. and Wayne Badovinus
10.12		Offer of Employment Letter dated February 22, 2000 between Design Within Reach, Inc. and David Barnard
23.01	*	Consent of Latham & Watkins LLP (included in Exhibit 5.01)
23.02		Consent of Grant Thornton LLP, independent auditors
24.01		Power of Attorney. Reference is made to the signature page hereto

* To be filed by amendment.

EX-3.01

Exhibit 3.01

AMENDED AND RESTATED

CERTIFICATE OF INCORPORATION

OF

DESIGN WITHIN REACH, INC.

Design Within Reach, Inc. (the “Corporation”), a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware (the “DGCL”), DOES HEREBY CERTIFY:

1. The name of the Corporation is Design Within Reach, Inc.

2. That by action taken by the Board of Directors at a meeting held on March 3, 2004 resolutions were duly adopted setting forth a proposed amendment and restatement of the Certificate of Incorporation of the Corporation, declaring said amendment and restatement to be advisable and directing its officers to submit said amendment and restatement to the stockholders of the Corporation for consideration thereof. The resolution setting forth the proposed amendment and restatement is as follows:

“THEREFORE, BE IT RESOLVED, that the Certificate of Incorporation of the Corporation is hereby amended to read in its entirety as follows, subject to the required consent of the stockholders of the Corporation:

FIRST: The name of the Corporation (hereinafter the “Corporation”) is Design Within Reach, Inc.

SECOND: The address, including street, number, city and county, of the registered office of the Corporation in the State of Delaware is 1209 Orange Street, Wilmington, County of New Castle, Delaware 19801; and the name of the Registered Agent of the Corporation at such address is The Corporation Trust Company.

THIRD: The nature of the business or purposes to be conducted or promoted is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware (the “DGCL”).

FOURTH: The Corporation is authorized to issue two classes of stock to be designated, respectively, Common Stock, par value $0.001 per share (“Common Stock”) and Preferred Stock, par value $0.001 per share (“Preferred Stock”). The total number of shares the Corporation shall have the authority to issue is forty million (40,000,000) shares, thirty million (30,000,000) shares of which shall be Common Stock and ten million (10,000,000) shares of which shall be Preferred Stock.

(1) Common Stock. The voting, dividend and liquidation rights of the holders of the Common Stock are subject to and qualified by the rights of the holders of the Preferred Stock of any series as may be designated by the Board of Directors upon any issuance of the Preferred Stock or any series. The holders of the Common Stock are entitled to one vote for each share held at all meetings of stockholders. There shall be no cumulative voting.

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Dividends may be declared and paid on the Common Stock from funds lawfully available therefor as and when determined by the Board of Directors and subject to any preferential dividend rights of any then outstanding Preferred Stock. Upon the dissolution or liquidation of the Corporation, whether voluntary or involuntary, holders of the Corporation will be entitled to receive ratably all assets of the Corporation available for distribution to stockholders, subject to any preferential rights of any then outstanding Preferred Stock.

(2) Preferred Stock. Shares of Preferred Stock may be issued from time to time in one or more series, each of such series to have such terms as stated in the resolution or resolutions providing for the establishment of such series adopted by the Board of Directors of the Corporation as hereinafter provided. Authority is hereby expressly granted to the Board of Directors of the Corporation to issue, from time to time, shares of Preferred Stock in one or more series, and, in connection with the establishment of any such series by resolution or resolutions, to determine and fix such voting powers, full or limited, or no voting powers, and such other powers, designations, preferences and relative, participating, optional and other special rights, and the qualifications, limitations and restrictions thereof, if any, including, without limitation, dividend rights, conversion rights, redemption privileges and liquidation preferences, as shall be stated in such resolution or resolutions, all to the fullest extent permitted by the DGCL. Without limiting the generality of the foregoing, the resolution or resolutions providing for the establishment of any series of Preferred Stock may, to the extent permitted by law, provide that such series shall be superior to, rank equally with or be junior to the Preferred Stock of any other series. The powers, preferences and relative, participating, optional and other special rights of each series of Preferred Stock, and the qualifications, limitations or restrictions thereof, if any, may be different from those of any and all other series at any time outstanding. Except as otherwise expressly provided in the resolution or resolutions providing for the establishment of any series of Preferred Stock, no vote of the holders of shares of Preferred Stock or Common Stock shall be a prerequisite to the issuance of any shares of any series of the Preferred Stock authorized by and complying with the conditions of this Certificate of Incorporation.

FIFTH: (1) The business and affairs of the Corporation shall be managed by or under the direction of a Board of Directors having that number of directors set out in the Bylaws of the Corporation as adopted or as set forth from time to time by a duly adopted amendment thereto by the Board of Directors or stockholders of the Corporation.

(2) No director (other than directors elected by one or more series of Preferred Stock) may be removed from office by the stockholders except for cause and, in addition to any other vote required by law, upon the affirmative vote of not less than 66 ²/3% of the total voting power of all outstanding securities of the Corporation then entitled to vote generally in the election of directors, voting together as a single class.

(3) The directors of the Corporation, other than directors elected by one or more series of Preferred Stock, shall be divided into three classes, designated Class I, Class II and Class III. Each class shall consist, as nearly as may be possible, of one-third of the total number of directors (other than directors elected by one or more series of Preferred Stock) constituting the entire Board of Directors. Each director (other than directors elected by

2

one or more series of Preferred Stock) shall serve for a term ending on the date of the third annual meeting of stockholders next following the annual meeting at which such director was elected, provided that directors initially designated as Class I directors shall serve for a term ending on the date of the 2005 annual meeting, directors initially designated as Class II directors shall serve for a term ending on the date of the 2006 annual meeting and directors initially designated as Class III directors shall serve for a term ending on the date of the 2007 annual meeting. Notwithstanding the foregoing, each director shall hold office until such director’s successor shall have been duly elected and qualified or until such director’s earlier death, resignation or removal. If the number of directors (other than directors elected by one or more series of Preferred Stock) is changed, any increase or decrease shall be apportioned among the classes so as to maintain the number of directors in each class as nearly equal as possible, but in no event will a decrease in the number of directors shorten the term of any incumbent director. Vacancies on the Board of Directors resulting from death, resignation, removal or otherwise and newly created directorships resulting from any increase in the number of directors (other than directors elected by one or more series of Preferred Stock) may be filled solely by a vote of a majority of the directors then in office (although less than a quorum) or by a sole remaining director, and each director so elected shall hold office for a term that shall coincide with the remaining term of the class to which such director shall have been elected. Whenever the holders of one or more classes or series of Preferred Stock shall have the right, voting separately as a class or series, to elect directors, the nomination, election, term of office, filling of vacancies, removal and other features of such directorships shall not be governed by this Article FIFTH unless otherwise provided for in the certificate of designation for such classes or series.

SIXTH: The Corporation is to have perpetual existence.

SEVENTH: The following provisions are inserted for the management of the business and the conduct of the affairs of the Corporation and for the further definition of the powers of the Corporation and its directors and stockholders:

(1) The Board of Directors is expressly authorized to make, adopt, amend, alter, rescind or repeal the Bylaws of the Corporation. Notwithstanding the foregoing, the stockholders may adopt, amend, alter, rescind or repeal the Bylaws with, in addition to any other vote required by law, the affirmative vote of the holders of not less than 66 ²/3% of the total voting power of all outstanding securities of the Corporation then entitled to vote generally in the election of directors, voting together as a single class.

(2) Elections of directors need not be by written ballot unless the Bylaws of the Corporation so provide.

(3) Any action required or permitted to be taken at any annual or special meeting of stockholders may be taken only upon the vote of stockholders at an annual or special meeting duly noticed and called in accordance with the DGCL and may not be taken by written consent of stockholders without a meeting.

(4) Special meetings of the stockholders of the Corporation for any purpose or purposes may be called at any time by the Chairman of the Board of Directors or the

3

President or at the written request of a majority of the members of the Board of Directors and may not be called by any other person; provided, however, that if and to the extent that any special meeting of stockholders may be called by any other person or persons specified in any provisions of the Certificate of Incorporation or any amendment thereto or any certificate filed under Section 151(g) of the DGCL, then such special meeting may also be called by the person or persons, in the manner, at the times and for the purposes so specified.

EIGHTH: (a) Subject to Article EIGHTH (c), the Corporation shall indemnify and hold harmless any person who is or was a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Corporation) by reason of the fact that he or she is or was a director or officer of the Corporation, or is or was serving at the request of the Corporation as a director or officer of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him or her in connection with such action, suit or proceeding if he or she acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he or she reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his or her conduct was unlawful.

(b) Subject to Article EIGHTH (c), the Corporation shall indemnify and hold harmless any person who is or was a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that he or she is or was a director or officer of the Corporation, or is or was serving at the request of the Corporation as a director or officer of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise against expenses (including attorneys’ fees) actually and reasonably incurred by him or her in connection with the defense or settlement of such action or suit if he or she acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the Corporation; except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the Corporation unless and only to the extent that the Court of Chancery of the State of Delaware or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery of the State of Delaware or such other court shall deem proper.

(c) Any indemnification under this Article EIGHTH (unless ordered by a court) shall be made by the Corporation only as authorized in the specific case upon a determination that indemnification of the director or officer or other person entitled to indemnification under this Article EIGHTH is proper in the circumstances because he or she has

4

met the applicable standard of conduct set forth in Article EIGHTH (a) or Article EIGHTH (b), as the case may be. Such determination shall be made, with respect to an officer or director, (i) by the Board of Directors by a majority vote of directors who were not parties to such action, suit or proceeding, even if constituting less than a quorum, (ii) by a committee of directors who were not parties to such action, suit or proceeding even if constituting less than a quorum, (iii) if there are no such directors, or if such directors so direct, by independent legal counsel in a written opinion or (iv) by the stockholders. To the extent, however, that a present or former director or officer of the Corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in Article EIGHTH (a) or Article EIGHTH (b), or in defense of any claim, issue or matter therein, he or she shall be indemnified against expenses (including attorneys’ fees) actually and reasonably incurred by him or her in connection therewith, without the necessity of authorization in the specific case.

(d) Notwithstanding any contrary determination in the specific case under Article EIGHTH (c), and notwithstanding the absence of any determination thereunder, any present or former director or officer of the Corporation may apply to the Court of Chancery of the State of Delaware for indemnification to the extent otherwise permissible under Article EIGHTH (a) and Article EIGHTH (b). The basis of such indemnification by a court shall be a determination by such court that indemnification of such person is proper in the circumstances because he or she has met the applicable standards of conduct set forth in Article EIGHTH (a) or Article EIGHTH (b), as the case may be. Neither a contrary determination in the specific case under Article EIGHTH (c) nor the absence of any determination thereunder shall be a defense to such application or create a presumption that such person seeking indemnification has not met any applicable standard of conduct. Notice of any application for indemnification pursuant to this Article EIGHTH (d) shall be given to the Corporation promptly upon the filing of such application. If successful, in whole or in part, such person seeking indemnification in the Court of Chancery of the State of Delaware shall also be entitled to be paid the expense of prosecuting such application.

(e) Expenses incurred by a person who is or was a director or officer of the Corporation in defending or investigating a threatened or pending action, suit or proceeding shall be paid by the Corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of such person to repay such amount if it shall ultimately be determined that he or she is not entitled to be indemnified by the Corporation as authorized in this Article EIGHTH.

(f) The indemnification and advancement of expenses provided by or granted pursuant to this Article EIGHTH shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any bylaw, agreement, contract, vote of stockholders or disinterested directors or pursuant to the direction (howsoever embodied) of any court of competent jurisdiction or otherwise, both as to action in his or her official capacity and as to action in another capacity while holding such office, it being the policy of the Corporation that indemnification of the persons specified in Article EIGHTH (a) and Article EIGHTH (b) shall be made to the fullest extent permitted by law. The provisions of this Article EIGHTH shall not be deemed to preclude the indemnification of any person who is not specified in Article EIGHTH (a) or Article EIGHTH (b) but whom the Corporation has the power or obligation to indemnify under the provisions of the DGCL or otherwise.

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(g) The Corporation may purchase and maintain insurance on behalf of any person who is or was a director or officer of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise against any liability asserted against him or her and incurred by him or her in any such capacity, or arising out of his or her status as such, whether or not the Corporation would have the power or the obligation to indemnify him or her against such liability under the provisions of this Article EIGHTH or Section 145 of the DGCL.

(h) For purposes of this Article EIGHTH, references to “the Corporation” shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had the power and authority to indemnify its directors or officers, so that any person who is or was a director or officer of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, shall stand in the same position under the provisions of this Article EIGHTH with respect to the resulting or surviving corporation as he or she would have with respect to such constituent corporation if its separate existence had continued. For purposes of this Article EIGHTH, references to “fines” shall include any excise taxes assessed on a person with respect to an employee benefit plan; and references to “serving at the request of the Corporation” shall include any service as a director, officer, employee or agent of the Corporation which imposes duties on, or involves services by, such person with respect to an employee benefit plan, its participants or beneficiaries; and a person who acted in good faith and in a manner he or she reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner “not opposed to the best interests of the Corporation” as referred to in this Article EIGHTH. For purposes of any determination under Article EIGHTH (c), a person shall be deemed to have acted in good faith in a manner he or she reasonably believed to be in or not opposed to the best interests of the Corporation, or, with respect to any criminal action or proceeding, to have had no reasonable cause to believe his or her conduct was unlawful, if his or her action is based on the records or books of account of the Corporation or another enterprise, or on information supplied to him or her by the officers of the Corporation or another enterprise in the course of their duties, or on the advice of legal counsel for the Corporation or another enterprise or on information or records given or reports made to the Corporation or another enterprise by an independent certified public accountant or by an appraiser or other expert selected with reasonable care by the Corporation or another enterprise. The term “another enterprise” as used in this Article EIGHTH (h) shall mean any other corporation or any partnership, joint venture, trust, employee benefit plan or other enterprise of which such person is or was serving at the request of the Corporation as a director, officer, employee or agent. The provisions of this Article EIGHTH (h) shall not be deemed to be exclusive, or to limit in any way, the circumstances in which a person may be deemed to have met the applicable standard of conduct set forth in Article EIGHTH (a) or (b), as the case may be.

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(i) The indemnification and advancement of expenses provided by, or granted pursuant to, this Article EIGHTH shall, unless otherwise provided when authorized or ratified, continue as to a person who has ceased to be a director or officer of the Corporation and shall inure to the benefit of the heirs, executors and administrators of such a person.

(j) Notwithstanding anything contained in this Article EIGHTH to the contrary, except for proceedings to enforce rights to indemnification (which shall be governed by Article EIGHTH (d)), the Corporation shall not be obligated to indemnify any person in connection with a proceeding (or part, thereof) initiated by such person unless such proceeding (or part thereof) was authorized or consented to by the Board of Directors of the Corporation.

(k) The Corporation may, to the extent authorized from time to time by the Board of Directors, provide rights to indemnification and to the advancement of expenses to employees and agents of the Corporation similar to those conferred in this Article EIGHTH to directors and officers of the Corporation.

NINTH: A director of the Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, provided that this Article shall not eliminate or limit the liability of a director (i) for any breach of his or her duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of the law, (iii) under Section 174 of the DGCL or (iv) for any transaction from which the director derives an improper personal benefit.

If the DGCL is hereafter amended to authorize corporate action further limiting or eliminating the personal liability of directors, then the liability of the director to the Corporation shall be limited or eliminated to the fullest extent permitted by the DGCL, as so amended from time to time. Any amendment, repeal or modification of this Article shall be prospective only, and shall not adversely affect any right or protection of a director of the Corporation under this Article NINTH in respect of any act or omission occurring prior to the time of such amendment, repeal or modification.

TENTH: Each reference in this Certificate of Incorporation to any provision of the DGCL refers to the specified provision of the DGCL, as the same now exists or as it may hereafter be amended or superseded.

ELEVENTH: The Corporation reserves the right at any time and from time to time to amend, alter, change or repeal any provision contained in this Certificate of Incorporation, in the manner now or hereafter prescribed by the laws of the State of Delaware; and all rights conferred on stockholders, directors or any other persons herein are granted subject to this reservation; provided, however, that no amendment, alteration, change or repeal may be made to Article FIFTH, SEVENTH, EIGHTH, NINTH or ELEVENTH without the affirmative vote of the holders of at least 66 ²/3% of the outstanding voting stock of the corporation, voting together as a single class.”

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3. That said Amended and Restated Certificate of Incorporation has been consented to and authorized by the holders of a majority of the issued and outstanding stock entitled to vote in accordance with the provisions of Section 228 of the DGCL.

4. That said Amended and Restated Certificate of Incorporation was duly adopted in accordance with the applicable provisions of Sections 242 and 245 of the DGCL.

IN WITNESS WHEREOF, Design Within Reach, Inc. has caused this Certificate to be signed by Wayne Badovinus, its Chief Executive Officer and David Barnard, its Secretary, this          day of                      2004.

Design Within Reach, Inc.,
a Delaware corporation
By:
	Name: Wayne Badovinus
	Title: Chief Executive Officer

ATTEST

Name: David Barnard

Title: Secretary

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EX-3.02

Exhibit 3.02

BYLAWS

OF

DESIGN WITHIN REACH, INC.

TABLE OF CONTENTS

		PAGE
ARTICLE I. OFFICES		1
Section 1.	REGISTERED OFFICES.	1
Section 2.	OTHER OFFICES.	1
ARTICLE II. MEETINGS OF STOCKHOLDERS		1
Section 1.	PLACE OF MEETINGS.	1
Section 2.	ANNUAL MEETING OF STOCKHOLDERS.	1
Section 3.	QUORUM; ADJOURNED MEETINGS AND NOTICE THEREOF.	1
Section 4.	VOTING.	1
Section 5.	PROXIES.	2
Section 6.	SPECIAL MEETINGS.	2
Section 7.	NOTICE OF STOCKHOLDERS’ MEETINGS.	2
Section 8.	FIXING DATE FOR DETERMINATION OF STOCKHOLDERS OF RECORD.	2
Section 9.	NOTICE OF STOCKHOLDER BUSINESS AND NOMINATIONS.	3
Section 10.	MAINTENANCE AND INSPECTION OF STOCKHOLDER LIST.	5
Section 11.	STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING.	5
ARTICLE III. DIRECTORS		6
Section 1.	THE NUMBER OF DIRECTORS.	6
Section 2.	VACANCIES.	6
Section 3.	POWERS.	6
Section 4.	PLACE OF DIRECTORS’ MEETINGS.	6
Section 5.	REGULAR MEETINGS.	7
Section 6.	SPECIAL MEETINGS.	7
Section 7.	QUORUM.	7
Section 8.	ACTION WITHOUT MEETING.	7
Section 9.	TELEPHONIC MEETINGS.	7
Section 10.	COMMITTEES OF DIRECTORS.	7
Section 11.	MINUTES OF COMMITTEE MEETINGS.	8
Section 12.	COMPENSATION OF DIRECTORS.	8
ARTICLE IV. OFFICERS		8
Section 1.	OFFICERS.	8
Section 2.	ELECTION OF OFFICERS.	8

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Section 3.	SUBORDINATE OFFICERS.	8
Section 4.	COMPENSATION OF OFFICERS.	8
Section 5.	TERM OF OFFICE; REMOVAL AND VACANCIES.	8
Section 6.	POWERS AND DUTIES OF OFFICERS.	9
ARTICLE V. INDEMNIFICATION OF EMPLOYEES AND AGENTS		9
ARTICLE VI. CERTIFICATES OF STOCK		9
Section 1.	CERTIFICATES.	9
Section 2.	SIGNATURES ON CERTIFICATES.	9
Section 3.	STATEMENT OF STOCK RIGHTS, PREFERENCES, PRIVILEGES.	9
Section 4.	LOST CERTIFICATES.	10
Section 5.	TRANSFERS OF STOCK.	10
Section 6.	REGISTERED STOCKHOLDERS.	10
ARTICLE VII. GENERAL PROVISIONS		10
Section 1.	CHECKS.	10
Section 2.	FISCAL YEAR.	10
Section 3.	CORPORATE SEAL.	10
Section 4.	MANNER OF GIVING NOTICE.	10
Section 5.	WAIVER OF NOTICE.	11
ARTICLE VIII. AMENDMENTS		11

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BYLAWS

OF

DESIGN WITHIN REACH, INC.

ARTICLE I.

OFFICES

Section 1. REGISTERED OFFICES. The registered office shall be in the City of Wilmington, County of New Castle, State of Delaware.

Section 2. OTHER OFFICES. The corporation may also have offices at such other places both within and without the State of Delaware as the Board of Directors (the “Board”) may from time to time determine or the business of the corporation may require.

ARTICLE II.

MEETINGS OF STOCKHOLDERS

Section 1. PLACE OF MEETINGS. Meetings of stockholders shall be held at any place within or outside the State of Delaware designated by the Board. In the absence of any such designation, stockholders’ meetings shall be held at the principal executive office of the corporation.

Section 2. ANNUAL MEETING OF STOCKHOLDERS. The annual meeting of stockholders shall be held each year on a date and time designated by the Board. At each annual meeting directors shall be elected, and any other proper business may be transacted.

Section 3. QUORUM; ADJOURNED MEETINGS AND NOTICE THEREOF. A majority of the stock issued and outstanding and entitled to vote at any meeting of stockholders, the holders of which are present in person or represented by proxy, shall constitute a quorum for the transaction of business except as otherwise provided by law, by the Certificate of Incorporation or by these Bylaws. A quorum, once established, shall not be broken by the withdrawal of enough votes to leave less than a quorum, and the votes present may continue to transact business until adjournment. If, however, such quorum shall not be present or represented at any meeting of the stockholders, a majority of the voting stock represented in person or by proxy may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present or represented. At such adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally notified. If the adjournment is for more than thirty days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote thereat.

Section 4. VOTING. When a quorum is present at any meeting, in all matters other than the election of directors, the vote of the holders of a majority of the stock having voting power present in person or represented by proxy and entitled to vote on a particular question shall decide such question brought before such meeting, unless the question is one upon which by express provision of the statutes, the Certificate of Incorporation or these Bylaws, a different vote is required in which case such express provision shall govern and control the decision of such question. Directors shall be elected by a plurality of the votes of the stock present in person or represented by proxy at the meeting and entitled to vote on the election of directors.

Section 5. PROXIES. At each meeting of the stockholders, each stockholder having the right to vote may vote in person or may authorize another person or persons to act for him or her by proxy appointed by an instrument in writing subscribed by such stockholder and bearing a date not more than three years prior to said meeting, unless said instrument provides for a longer period. All proxies must be filed with the Secretary of the corporation at the beginning of each meeting in order to be counted in any vote at the meeting. Each stockholder shall have one vote for each share of stock having voting power, registered in his name on the books of the corporation on the record date set by the Board as provided in Article II, Section 8 hereof.

Section 6. SPECIAL MEETINGS. Special meetings of the stockholders, for any purpose or purposes, unless otherwise prescribed by statute or by the Certificate of Incorporation, may be called by the Chairman of the Board or the President or by one or more stockholders holding shares in the aggregate entitled to cast not less than 10% of the votes at any such meeting and shall be called by the President or the Secretary at the request in writing of a majority of the members of the Board. Business transacted at any special meeting of stockholders shall be limited to the purposes stated in the notice.

Section 7. NOTICE OF STOCKHOLDERS’ MEETINGS. Whenever stockholders are required or permitted to take any action at a meeting, a written notice of the meeting shall be given, which notice shall state the place, date and hour of the meeting, and, in the case of a special meeting, the purpose or purposes for which the meeting is called. The written notice of any meeting shall be given to each stockholder entitled to vote at such meeting not less than ten nor more than sixty days before the date of the meeting. If mailed, notice is deemed given when deposited in the United States mail, postage prepaid, directed to the stockholder at his address as it appears on the records of the corporation.

Section 8. FIXING DATE FOR DETERMINATION OF STOCKHOLDERS OF RECORD. In order that the corporation may determine the stockholders entitled to notice of, or to vote at, any meeting of stockholders or any adjournment thereof, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board, and which record date: (a) in the case of determination of stockholders entitled to vote at any meeting of stockholders or adjournment thereof, shall, unless otherwise required by law, not be more than sixty nor less than ten days before the date of such meeting; and (b) in the case of any other action, shall not be more than sixty days prior to such other action. If no record date is fixed: (i) the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held; and (ii) the record date for determining stockholders for any other purpose shall be at the close of business on the day on which the Board adopts the resolution relating thereto. A determination of stockholders of record entitled to notice of, or to vote at, a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board may fix a new record date for the adjourned meeting.

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Section 9. NOTICE OF STOCKHOLDER BUSINESS AND NOMINATIONS.

(a) Nominations of persons for election to the Board of the corporation and the proposal of business to be considered by the stockholders may be made at an annual meeting of stockholders (i) pursuant to the corporation’s notice of meeting (or any supplement thereto), (ii) by or at the direction of the Board or (iii) by any stockholder of the corporation who was a stockholder of record at the time notice provided for in this Section 9 is given to the Secretary of the corporation, who is entitled to vote at the meeting and who complies with the notice procedures in this Section 9.

(b) For nominations or other business to be properly brought before an annual meeting by a stockholder pursuant to clause (iii) of paragraph (a) of this Section 9, the stockholder must have given timely notice thereof in writing to the Secretary of the corporation, and any such proposed business other than the nominations of persons for election to the Board must constitute a proper matter for stockholder action. To be timely, a stockholder’s notice shall be delivered to the Secretary at the principal executive offices of the corporation not later than the close of business on the ninetieth day nor earlier than the close of business on the one hundred twentieth day prior to the first anniversary of the preceding year’s annual meeting; provided, however, that in the event that the date of the annual meeting is more than thirty days before or more than sixty days after such anniversary date, notice by the stockholder to be timely must be so delivered not earlier than the close of business on the one hundred twentieth day prior to such annual meeting and not later than the close of business on the later of the ninetieth day prior to such annual meeting or the tenth day following the earlier of (i) the day on which notice of the meeting was mailed or (ii) the date public announcement of the date of such meeting is first made by the corporation. In no event shall the public announcement of an adjournment or postponement of an annual meeting commence a new time period (or extend any time period) for the giving of a stockholder’s notice as described above. Such stockholder’s notice shall set forth: (A) as to each person whom the stockholder proposes to nominate for election or re-election as a director, all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors in an election contest, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Rule 14a-101 thereunder (including such person’s written consent to being named in the proxy statement as a nominee and to serving as a director if elected); (B) as to any other business that the stockholder proposes to bring before the meeting, a brief description of the business desired to be brought before the meeting, the text of the proposal or business (including the text of any resolutions proposed for consideration and, in the event that such business includes a proposal to amend the Bylaws, the language of the proposed amendment), the reasons for conducting such business at the meeting and any material interest in such business of such stockholder and the beneficial owner, if any, on whose behalf the nomination or proposal is made; and (C) as to the stockholder giving the notice and the beneficial owner, if any, on whose behalf the nomination or proposal is made, (I) the name and address of such stockholder and of such beneficial owner, as they appear on the corporation’s books, (II) the class and number of shares of capital stock of the corporation which are owned beneficially and of record by such stockholder and such beneficial owner, (III) a representation that the stockholder

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is a holder of record of stock of the corporation entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to propose such business or nomination and (IV) a representation whether the stockholder or the beneficial owner, if any, intends or is part of a group which intends (y) to deliver a proxy statement and/or form of proxy to holders of at least the percentage of the corporation’s outstanding capital stock required to approve or adopt the proposal or elect the nominee and/or (z) otherwise to solicit proxies from stockholders in support of such proposal or nomination. The foregoing notice requirements shall be deemed satisfied by a stockholder if the stockholder has notified the corporation of his or her intention to present a proposal at an annual meeting in compliance with Rule 14a-8 (or any successor thereof) promulgated under the Exchange Act and such stockholder’s proposal has been included in a proxy statement that has been prepared by the corporation to solicit proxies for such annual meeting. The corporation may require any proposed nominee to furnish such other information as it may reasonably require to determine the eligibility of such proposed nominee to serve as a director of the corporation.

(c) Only such business shall be conducted at a special meeting of stockholders as shall have been brought before the meeting pursuant to the corporation’s notice of meeting. Nominations of persons for election to the Board may be made at a special meeting of stockholders at which directors are to be elected pursuant to the corporation’s notice of meeting (i) by or at the direction of the Board or (ii) provided that the Board has determined that directors shall be elected at such meeting, by any stockholder of the corporation who is a stockholder of record at the time the notice provided for in this Section 9 is delivered to the Secretary of the corporation, who is entitled to vote at the meeting and who complies with the notice procedures set forth in this Section 9. In the event the corporation calls a special meeting of stockholders for the purpose of electing one or more directors to the Board, any such stockholder entitled to vote in such election of directors may nominate a person or persons (as the case may be) for election to such position(s) as specified in the corporation’s notice of meeting, if the stockholder’s notice required by paragraph (b) of this Section 9 shall be delivered to the Secretary at the principal executive offices of the corporation not earlier than the close of business on the one hundred twentieth day prior to such special meeting and not later than the close of business on the later of (i) the ninetieth day prior to such special meeting or (ii) the tenth day following the day on which public announcement is first made of the date of the special meeting and of the nominees proposed by the Board to be elected at such meeting. In no event shall the public announcement of an adjournment or postponement of a special meeting commence a new time period (or extend any time period) for the giving of a stockholder’s notice as described above.

(d) (i) Only such persons who are nominated in accordance with the procedures set forth in this Section 9 shall be eligible to be elected at an annual or special meeting of stockholders of the corporation to serve as directors, and only such business shall be conducted at a meeting of stockholders as shall have been brought before the meeting in accordance with the procedures set forth in this Section 9. Except as otherwise provided by law, the chairman of the meeting shall have the power and duty (A) to determine whether a nomination or any business proposed to be brought before the meeting was made or proposed, as the case may be, in accordance with the procedures set forth in this Section 9 (including whether the stockholder or beneficial owner, if any, on whose behalf the nomination or proposal is made solicited (or is part of a group which solicited) or did not so solicit, as the case may be, proxies in support of such stockholder’s nominee or proposal in compliance with such stockholder’s

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representation as required by paragraph (b) of this Section 9) and (B) if any proposed nomination or business was not made or proposed in compliance with this Section 9, to declare that such nomination shall be disregarded or that such proposed business shall not be transacted. Notwithstanding the foregoing provisions of this Section 9, if the stockholder (or a qualified representative of the stockholder) does not appear at the annual or special meeting of stockholders of the corporation to present a nomination or business, such nomination shall be disregarded and such proposed business shall not be transacted, notwithstanding that proxies in respect of such vote may have been received by the corporation.

(ii) For purposes of this Section 9, “public announcement” shall include disclosure in a press release reported by PRNewswire, Business Wire, the Dow Jones News Service, Associated Press or comparable national news service or in a document publicly filed by the corporation with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act.

(iii) Notwithstanding the foregoing provisions of this Section 9, a stockholder shall also comply with all applicable requirements of the Exchange Act and the rules and regulations promulgated thereunder with respect to the matters set forth in this Section 9. Nothing in this Section 9 shall be deemed to affect any rights (A) of stockholders to request inclusion of proposals in the corporation’s proxy statement pursuant to Rule 14a-8 under the Exchange Act or (B) of the holders of any series of preferred stock of the corporation to elect directors pursuant to any applicable provisions of the Certificate of Incorporation.

Section 10. MAINTENANCE AND INSPECTION OF STOCKHOLDER LIST. The officer who has charge of the stock ledger of the corporation shall prepare and make, at least ten days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present.

Section 11. STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING. Unless otherwise provided in the Certificate of Incorporation, any action required to be taken at any annual or special meeting of stockholders of the corporation, or any action which may be taken at any annual or special meeting of such stockholders, may be taken without a meeting, without prior notice and without a vote, if a consent in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted and shall be delivered to the corporation by delivery to its registered office in Delaware, its principal place of business or to an officer or agent of the corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Every written consent shall bear the date of signature of each stockholder who signs the consent, and no written consent shall be effective to take the

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corporate action referred to therein unless, within sixty days of the earliest dated consent delivered in the manner required by this Section 11 to the corporation, written consents signed by a sufficient number of holders to take action are delivered to the corporation by delivery to its registered office in Delaware, its principal place of business or to an officer or agent of the corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery made to a corporation’s registered office shall be by hand or by certified or registered mail, return receipt requested. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing.

ARTICLE III.

DIRECTORS

Section 1. THE NUMBER OF DIRECTORS. The number of directors which shall constitute the whole Board shall be not less than three nor more than fifteen. The actual number of directors shall be fixed from time to time solely by resolution adopted by the affirmative vote of a majority of the directors. The directors need not be stockholders. The directors shall be elected at the annual meeting of the stockholders, except as provided in Section 2 of this Article, and each director elected shall hold office until his successor is elected and qualified; provided, however, that unless otherwise restricted by the Certificate of Incorporation or by law, any director or the entire Board may be removed, for cause, from the Board at any meeting of stockholders by not less than 66 ²/3% of the outstanding stock of the Corporation.

Section 2. VACANCIES. Vacancies on the Board by reason of death, resignation, retirement, disqualification, removal from office or otherwise, and newly created directorships resulting from any increase in the authorized number of directors may be filled by a vote of the majority of the directors then in office, although less than a quorum, or by a sole remaining director. The directors so chosen shall hold office until the next annual election of directors and until their successors are duly elected and shall qualify, unless sooner displaced. If there are no directors in office, then an election of directors may be held in the manner provided by statute. If, at the time of filling any vacancy or any newly created directorship, the directors then in office shall constitute less than a majority of the whole Board (as constituted immediately prior to any such increase), the Court of Chancery may, upon application of any stockholder or stockholders holding at least ten percent of the total number of the shares at the time outstanding having the right to vote for such directors, summarily order an election to be held to fill any such vacancies or newly created directorships, or to replace the directors chosen by the directors then in office.

Section 3. POWERS. The property and business of the corporation shall be managed by or under the direction of its Board. In addition to the powers and authorities by these Bylaws expressly conferred upon them, the Board may exercise all such powers of the corporation and do all such lawful acts and things as are not by statute, by the Certificate of Incorporation or by these Bylaws directed or required to be exercised or done by the stockholders.

Section 4. PLACE OF DIRECTORS’ MEETINGS. The directors may hold their meetings, have one or more offices and keep the books of the corporation outside of the State of Delaware.

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Section 5. REGULAR MEETINGS. Regular meetings of the Board may be held without notice at such time and place as shall from time to time be determined by the Board.

Section 6. SPECIAL MEETINGS. Special meetings of the Board may be called by the Chairman of the Board or the President on forty-eight hours’ notice to each director, either personally or by mail or by telegram; special meetings shall be called by the President or the Secretary in like manner and on like notice on the written request of two directors, unless the Board consists of only one director, in which case special meetings shall be called by the President or Secretary in like manner or on like notice on the written request of the sole director.

Section 7. QUORUM. At all meetings of the Board a majority of the authorized number of directors shall be necessary and sufficient to constitute a quorum for the transaction of business, and the vote of a majority of the directors present at any meeting at which there is a quorum shall be the act of the Board, except as may be otherwise specifically provided by statute, by the Certificate of Incorporation or by these Bylaws. If a quorum shall not be present at any meeting of the Board, the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present. If only one director is authorized, such sole director shall constitute a quorum.

Section 8. ACTION WITHOUT MEETING. Unless otherwise restricted by the Certificate of Incorporation or these Bylaws, any action required or permitted to be taken at any meeting of the Board, or of any committee thereof, may be taken without a meeting, if all members of the Board or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board or committee.

Section 9. TELEPHONIC MEETINGS. Unless otherwise restricted by the Certificate of Incorporation or these Bylaws, members of the Board, or any committee designated by the Board, may participate in a meeting of the Board, or any committee, by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such participation in a meeting shall constitute presence in person at such meeting.

Section 10. COMMITTEES OF DIRECTORS. The Board may, by resolution passed by a majority of the whole Board, designate one or more committees, each such committee to consist of one or more of the directors of the corporation. The Board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he, she or they constitute a quorum, may unanimously appoint another member of the Board to act at the meeting in the place of any such absent or disqualified member. Any such committee, to the extent provided in the resolution of the Board, shall have and may exercise all the powers and authority of the Board in the management of the business and affairs of the corporation and may authorize the seal of the corporation to be affixed to all papers which may require it; but no such committee shall have the power or authority in reference to amending the Certificate of Incorporation, adopting an agreement of merger or consolidation, recommending to the stockholders the sale, lease or exchange of all or substantially all of the corporation’s property and assets, recommending to the stockholders a

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dissolution of the corporation or a revocation of a dissolution, or amending the Bylaws of the corporation; and, unless the resolution or the Certificate of Incorporation expressly so provide, no such committee shall have the power or authority to declare a dividend or to authorize the issuance of stock.

Section 11. MINUTES OF COMMITTEE MEETINGS. Each committee shall keep regular minutes of its meetings and report the same to the Board when required.

Section 12. COMPENSATION OF DIRECTORS. Unless otherwise restricted by the Certificate of Incorporation or these Bylaws, the Board shall have the authority to fix the compensation of directors. The directors may be paid their expenses, if any, of attendance at each meeting of the Board and may be paid a fixed sum for attendance at each meeting of the Board or a stated salary as director. No such payment shall preclude any director from serving the corporation in any other capacity and receiving compensation therefor. Members of special or standing committees may be allowed like compensation for attending committee meetings.

ARTICLE IV.

OFFICERS

Section 1. OFFICERS. The officers of this corporation shall be chosen by the Board and shall include a President, a Secretary and a Chief Financial Officer or Treasurer. The corporation may also have at the discretion of the Board such other officers as are desired, including one or more Vice Presidents, one or more Assistant Secretaries and Assistant Treasurers and such other officers as may be appointed in accordance with the provisions of Section 3 hereof. In the event there are two or more Vice Presidents, then one or more may be designated as Executive Vice President, Senior Vice President or other similar or dissimilar title. At the time of the election of officers, the directors may by resolution determine the order of their rank. Any number of offices may be held by the same person, unless the Certificate of Incorporation or these Bylaws otherwise provide.

Section 2. ELECTION OF OFFICERS. The Board, at its first meeting after each annual meeting of stockholders, shall choose the officers of the corporation.

Section 3. SUBORDINATE OFFICERS. The Board may appoint such other officers and agents as it shall deem necessary who shall hold their offices for such terms and shall exercise such powers and perform such duties as shall be determined from time to time by the Board.

Section 4. COMPENSATION OF OFFICERS. The salaries of all officers and agents of the corporation shall be fixed by the Board.

Section 5. TERM OF OFFICE; REMOVAL AND VACANCIES. The officers of the corporation shall hold office until their successors are chosen and qualify in their stead. Any officer elected or appointed by the Board may be removed at any time by the affirmative vote of a majority of the Board. If the office of any officer or officers becomes vacant for any reason, the vacancy shall be filled by the Board.

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Section 6. POWERS AND DUTIES OF OFFICERS. The officers of the corporation shall have such powers and duties in the management of the corporation as may be prescribed in a resolution by the Board and, to the extent not so provided, as generally pertain to their respective offices, subject to the control of the Board.

ARTICLE V.

INDEMNIFICATION OF EMPLOYEES AND AGENTS

The corporation may indemnify every person who is or was a party or is or was threatened to be made a party to any action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he or she is or was an employee or agent of the corporation or, while an employee or agent of the corporation, is or was serving at the request of the corporation as an employee or agent or trustee of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, against expenses (including counsel fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him or her in connection with such action, suit or proceeding, to the extent permitted by applicable law.

ARTICLE VI.

CERTIFICATES OF STOCK

Section 1. CERTIFICATES. Every holder of stock of the corporation shall be entitled to have a certificate signed by, or in the name of the corporation by, the President or a Vice President and by the Secretary or an Assistant Secretary, or the Treasurer or an Assistant Treasurer of the corporation, certifying the number of shares represented by the certificate owned by such stockholder in the corporation.

Section 2. SIGNATURES ON CERTIFICATES. Any or all of the signatures on the certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if he or she were such officer, transfer agent or registrar at the date of issue.

Section 3. STATEMENT OF STOCK RIGHTS, PREFERENCES, PRIVILEGES. If the corporation shall be authorized to issue more than one class of stock or more than one series of any class, the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualification, limitations or restrictions of such preferences and/or rights shall be set forth in full or summarized on the face or back of the certificate which the corporation shall issue to represent such class or series of stock, provided that, except as otherwise provided in section 202 of the General Corporation Law of Delaware, in lieu of the foregoing requirements, there may be set forth on the face or back of the certificate which the corporation shall issue to represent such class or series of stock, a statement that the corporation will furnish without charge to each stockholder who so requests the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights.

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Section 4. LOST CERTIFICATES. The Board may direct a new certificate or certificates to be issued in place of any certificate or certificates theretofore issued by the corporation alleged to have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen or destroyed. When authorizing such issue of a new certificate or certificates, the Board may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate or certificates, or his legal representative, to advertise the same in such manner as it shall require and/or to give the corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the corporation with respect to the certificate alleged to have been lost, stolen or destroyed.

Section 5. TRANSFERS OF STOCK. Upon surrender to the corporation, or the transfer agent of the corporation, of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignation or authority to transfer, it shall be the duty of the corporation to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books.

Section 6. REGISTERED STOCKHOLDERS. The corporation shall be entitled to treat the holder of record of any share or shares of stock as the holder in fact thereof and accordingly shall not be bound to recognize any equitable or other claim or interest in such share on the part of any other person, whether or not it shall have express or other notice thereof, except as expressly provided by the laws of the State of Delaware.

ARTICLE VII.

GENERAL PROVISIONS

Section 1. CHECKS. All checks or demands for money and notes of the corporation shall be signed by such officer or officers as the Board may from time to time designate.

Section 2. FISCAL YEAR. The fiscal year of the corporation shall be fixed by resolution of the Board.

Section 3. CORPORATE SEAL. The corporate seal shall have inscribed thereon the name of the corporation and shall be in such form as may be approved from time to time by the Board.

Section 4. MANNER OF GIVING NOTICE. Whenever, under the law, the Certificate of Incorporation or these Bylaws, notice is required to be given to any director or stockholder, it shall not be construed to mean personal notice, but such notice may be given in writing, by mail, addressed to such director or stockholder, at his address as it appears on the records of the corporation, with postage thereon prepaid, and such notice shall be deemed to be given at the time when the same shall be deposited in the United States mail. Notice to directors may also be given by telegram, telecopier or other means of communication permitted by law.

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Section 5. WAIVER OF NOTICE. Whenever any notice is required to be given under the law, the Certificate of Incorporation or these Bylaws, a waiver thereof in writing, signed by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent thereto. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at nor the purpose of any regular or special meeting of the stockholders, directors or members of a committee of directors need be specified in any written waiver of notice.

ARTICLE VIII.

AMENDMENTS

These Bylaws may be altered, amended or repealed or new Bylaws may be adopted by the stockholders or by the Board in accordance with the terms of the Certificate of Incorporation. If the power to adopt, amend or repeal Bylaws is conferred upon the Board by the Certificate of Incorporation, it shall not divest or limit the power of the stockholders to adopt, amend or repeal Bylaws.

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EX-4.02

EXHIBIT 4.02

THIS WARRANT AND THE SECURITIES TO BE ISSUED UPON THE EXERCISE OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”),AND MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.

WARRANT TO PURCHASE A MAXIMUM OF

700,000 SHARES OF COMMON STOCK OF

DESIGN WITHIN REACH, INC.

October 2, 1998 (the “Effective Date”)

This certifies that JESSE HANSEN & Co. (“Holder”) is entitled to purchase from DESIGN WITHIN REACH, INC. (the “Company”) a maximum of 700,000 fully paid and nonassessable shares of the Company’s common stock, no par value (the “Common Stock”), for cash at a price of $1.50 per share (the “Warrants”) (the purchase price specified above is referred to as the “Purchase Price”) prior October 1, 2004 (the “Expiration Date”) upon surrender to the Company at its principal office (or at such other location as the Company may advise Holder in writing) of this Warrant properly endorsed with the Subscription Form attached hereto duly filled in and signed and, if applicable, upon payment in cash or by check of the applicable Purchase Price for the number of shares for which this Warrant is being exercised determined in accordance with the provisions hereof. This Warrant is being delivered to Holder in connection with that Agreement dated the date hereof between the Company and Holder (the “Agreement”). The Purchase price and the number of shares purchasable hereunder are subject to adjustment as provided in Section 3 of this Warrant.

This Warrant is subject to the following terms and conditions:

1. EXERCISE; ISSUANCE OF CERTIFICATES; PAYMENT FOR SHARES.

1.1 Exercise.

(a) The purchase rights set forth in this Warrant are exercisable by the Holder, in whole or in part, at any time, or from time to time, prior to the expiration of the appropriate Expiration Date, by tendering to the Company at its principal office a notice of exercise in the form attached hereto as Exhibit A (the “Notice of Exercise”), duly completed and executed. Promptly upon receipt of the Notice of Exercise and the payment of the purchase price in accordance with the terms set forth below, the Company shall issue to the Holder a certificate for the number of purchased shares.

(b) The Exercise Price may be paid at the Holder’s election either (i) by cash or check, or (ii) by surrender of Warrants (“Net Issuance”) as determined below. If the Holder elects the Net Issuance method, the Company will issue Common Stock in accordance with the following formula:

X = Y(A-B)

            A

Where:	X	=	the number of shares of Common Stock to be issued to the Holder.
	Y	=	the number of shares of Common Stock requested to be exercised under this Warrant.
	A	=	the fair market value of one (1) share of Common Stock (at the date of such calculation).
	B	=	the Exercise Price (as adjusted to the date of such calculation).

For purposes of the above calculation, fair market value of one share of Common Stock shall be determined by the Company’s Board of Directors in good faith; provided, however, that where there is a public market for the Common Stock, the fair market value per share shall be the product of (i) the average of the closing prices of the Common Stock quoted on The Nasdaq National Market System (or similar system) or on any exchange on which the Common Stock is listed, whichever is applicable, over the twenty-one (21) day period ending three (3) days before the day the current fair market value is being determined and (ii) the number of shares of Common Stock into which each share of Common Stock is convertible at the time of such exercise.

(c) Upon partial exercise by either cash or Net Issuance, upon surrender of this Warrant the Company shall promptly issue an amended Warrant representing the remaining number of shares purchasable hereunder. All other terms and conditions of such amended Warrant shall be identical to those contained herein, including, but not limited to, the Effective Date.

(d) The right to purchase Common Stock under this Warrant shall be subject to the following purchase option (the “Purchase Option”), which shall be exercisable by the Company in the event that Holder resigns or is terminated as the Company’s financial advisor pursuant to the terms of that engagement letter dated October 2, 1998 between the Company and Holder:

(i) on October 2, 1998 (the “Repurchase Date”), the Company shall have the right to purchase one-third of the Warrants from Holder for $0.01 per share of Common Stock underlying such Warrants, which purchase option shall decrease in equal installments over the thirty-six (36) months immediately following the Repurchase Date so that the Purchase Option shall terminate on that date which is thirty-six (36) months following the Repurchase Date; and

(ii) on the Repurchase Date, the Company shall have the right to purchase one-third of the Warrants from Holder for $0.01 per share of Common Stock underlying such Warrants, which purchase option shall decrease in equal installments

over the forty-eight (48) months immediately following the Repurchase Date Date so that the Purchase Option shall terminate on that date which is forty-eight (48) months following the Repurchase Date.

The Purchase Option shall terminate in the event of: (1) a Change of Control (as defined herein) or (2) an initial public offering of the Common Stock under the Securities Act of 1933, as amended. A “Change of Control” shall mean a merger or consolidation of the Company with or into another entity or any other corporate reorganization, if more than 50% of the combined voting power of the continuing or surviving entity’s securities outstanding immediately after such merger, consolidation or other reorganization is owned by persons who were not shareholders of the Company immediately prior to the merger, consolidation or reorganization. A transaction shall not constitute a Change of Control if its sole purpose is to change the state of the Company’s incorporation or to create a holding company that will be owned in substantially the same proportions by the persons who held the Company’s securities immediately before such transaction.

1.2 General. Shares of Common Stock purchased under this Warrant will be and are deemed to be issued to Holder as the record owner of such shares as of the close of business on the date on which this Warrant is surrendered, properly endorsed, the completed and executed Subscription Form delivered and, if applicable, payment made for such shares. Certificates for the shares of Common Stock so purchased, together with any other securities or property to which Holder is entitled upon such exercise, will be delivered to Holder by the Company at the Company’s expense within five business days after the rights represented by this Warrant have been so exercised. In case of a purchase of less than all the shares that may be purchased under this Warrant, the Company will cancel this Warrant and execute and deliver a new Warrant of like tenor for the balance of the shares purchasable under this Warrant surrendered upon such purchase to Holder within the same period of time. Each stock certificate delivered will be in such denominations of Common Stock as may be requested by Holder and will be registered in the name of Holder.

1.3 Right of First Refusal. If Holder proposes to sell or transfer this Warrant or any Common Stock then Holder shall promptly give written notice (the “Notice”) the Company at least thirty (30) days prior to the closing of such sale or transfer. The Notice shall describe in reasonable detail the proposed sale or transfer including, without limitation, the portion of this Warrant or number of shares Common Stock to be sold or transferred, the nature of such sale or transfer, the consideration to be paid, and the name and address of each prospective purchaser or transferee. The Company shall have the right, exercisable upon written notice to Holder within fifteen (15) days after the Notice, to purchase such Common Stock on the same terms and conditions; provided, however, in the event that the Company declines to exercise such right, Holder may sell such Common Stock on the terms described in the Notice for a period of ninety days thereafter.

2. SHARES TO BE FULLY PAID; RESERVATION OF SHARES.

All shares of Common Stock issued upon the exercise of this Warrant will, upon issuance, be duly authorized, validly issued, fully paid and nonassessable and free from all preemptive rights of any stockholder and free of all taxes, liens and charges with respect to the issue thereof. During the period within which this Warrant may be exercised, the Company will at all times have authorized and reserved, for the purpose of issue or transfer upon exercise of the subscription rights evidenced by this Warrant, a sufficient number of shares of authorized but unissued Common Stock, or other securities and property, when and as required to provide for the exercise of the rights represented by this Warrant. The Company will take all such action as may be necessary to ensure that such shares of Common Stock may be issued as provided herein without violation of any applicable law or regulation; provided, however, that the Company will not be required to effect a registration under federal or state securities laws with respect to such exercise. The Company will not take any action that would result in any adjustment of the Purchase Price if the total number of shares of Common Stock issuable after such action upon exercise of all outstanding warrants, together with all shares of Common Stock then outstanding and all shares of Common Stock then issuable upon exercise of all options and upon the conversion of all convertible securities then outstanding, would exceed the total number of shares of Common Stock then authorized by the Company’s Articles of Incorporation.

3. ADJUSTMENT OF PURCHASE PRICE AND NUMBER OF SHARES.

The Purchase Price and the number of shares purchasable upon the exercise of this Warrant will be subject to adjustment from time to time upon the occurrence of certain events described in this Section 3. Upon each adjustment of the Purchase Price, Holder will thereafter be entitled to purchase, at the Purchase Price resulting from such adjustment, the number of shares obtained by multiplying the Purchase Price in effect immediately prior to such adjustment by the number of shares purchasable pursuant hereto immediately prior to such adjustment, and dividing the product thereof by the Purchase Price resulting from such adjustment.

3.1 Subdivision or Combination of Stock. If the Company at any time subdivides its outstanding shares of Common Stock into a greater number of shares, the Purchase Price in effect immediately prior to such subdivision will be proportionately reduced, and conversely, if the outstanding shares of Common Stock of the Company are combined into a smaller number of shares, the Purchase Price in effect immediately prior to such combination will be proportionately increased.

3.2 Dividends in Common Stock, Other Stock, Property, Reclassification. If at any time or from time to time holders of Common Stock (or any shares of stock or other securities at the time receivable upon the exercise of this Warrant) receive or become entitled to receive, without payment therefor,

(a) Common Stock or any shares of stock or other securities that are at any time directly or indirectly convertible into or exchangeable for Common Stock, or any rights or options to subscribe for, purchase or otherwise acquire any of the foregoing by way of dividend or other distribution,

(b) any cash paid or payable otherwise than as a cash dividend, or

(c) Common Stock or additional stock or other securities or property (including cash) by way of spinoff, split-up, reclassification, combination of shares or similar corporate rearrangement (other than (1) shares of Common Stock issued as a stock split, adjustments in respect of which will be covered by the terms of Section 3.1 or (2) an event for which adjustment is otherwise made pursuant to Section 3.4),

then and in each such case, Holder will, upon the exercise of this Warrant, be entitled to receive, in addition to the number of shares of Common Stock receivable thereupon, and without payment of any additional consideration therefor, the amount of stock and other securities and property (including cash in the cases referred to in clauses (b) and (c) above) that Holder would hold on the date of such exercise had it been Holder of record of such Common Stock as of the date on which holders of Common Stock received or became entitled to receive such shares or all other additional stock and other securities and property.

3.3 Reorganization, Reclassification, Consolidation, Merger or Sale. If any capital reorganization of the capital stock of the Company, or any consolidation or merger of the Company with another corporation, or the sale of all or substantially all of its assets to another corporation is effected in such a way that holders of Common Stock are entitled to receive stock, securities, or other assets or property, then, as a condition of such reorganization, reclassification, consolidation, merger or sale, lawful and adequate provisions will be made whereby Holder will thereafter have the right to purchase and receive (in lieu of the shares of Common Stock immediately theretofore purchasable and receivable upon the exercise of this Warrant) such shares of stock, securities or other assets or property as may be issued or payable with respect to or in exchange for a number of outstanding shares of such Common Stock equal to the number of shares of such stock immediately theretofore purchasable and receivable upon the exercise of the rights represented hereby; provided, however, that in the event the value of the stock, securities or other assets or property (determined in good faith by the Board) issuable or payable with respect to one share of Common Stock immediately theretofore purchasable and receivable upon the exercise of the rights represented hereby is in excess of the Purchase Price hereof effective at the time of the merger and securities received in such reorganization, if any, are publicly traded, then this Warrant will expire unless exercised prior to the reorganization. In any reorganization described above, appropriate provision will be made with respect to the rights and interests of Holder of this Warrant to the end that the provisions hereof (including, without limitation, provisions for adjustments of the Purchase Price and of the number of shares purchasable and receivable upon the exercise of this Warrant) will thereafter be applicable, as nearly as may be, in relation to any shares of stock, securities or assets thereafter deliverable upon the exercise hereof. The Company will not effect any such consolidation, merger or sale unless, prior to the consummation thereof, the successor corporation (if other than the Company) resulting from such consolidation or the corporation purchasing such assets will assume by written

instrument, executed and mailed or delivered to Holder, the obligation to deliver to Holder such shares of stock, securities or assets as, in accordance with the foregoing provisions, Holder may be entitled to purchase.

3.4 Notice of Adjustment. Upon any adjustment of the Purchase Price or any increase or decrease in the number of shares purchasable upon the exercise of this Warrant, the Company will give written notice thereof to Holder, which notice will state the Purchase Price resulting from such adjustment and the increase or decrease, if any, in the number of shares purchasable at such price upon the exercise of this Warrant, setting forth in reasonable detail the method of calculation and the facts upon which such calculation is based.

3.5 Other Notices. If at any time:

(a) the Company declares any cash dividend upon its Common Stock;

(b) the Company declares any dividend upon the Common Stock payable in stock or makes any special dividend or other distribution to holders of Common Stock;

(c) the Company offers for subscription pro rata to holders of Common Stock any additional shares of stock of any class or other rights;

(d) there is any capital reorganization or reclassification of the capital stock of the Company; or consolidation or merger of the Company with, or sale of all or substantially all of its assets to, another corporation; or

(e) there is a voluntary or involuntary dissolution, liquidation or winding-up of the Company;

then, in any one or more of said cases, the Company will give Holder (a) at least 10 days’ prior written notice of the date on which the books of the Company will close or a record will be taken for such dividend, distribution or subscription rights or for determining rights to vote in respect of any such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding-up, and (b) in the case of any such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation, winding-up or public offering, at least 30 days’ prior written notice of the date when the same will take place; provided, however, that Holder will make a best efforts attempt to respond to such notice as early as possible after the receipt thereof. Any notice given in accordance with the foregoing clause (a) will also specify, in the case of any such dividend, distribution or subscription rights, the date on which holders of Common Stock will be entitled thereto. Any notice given in accordance with the foregoing clause (b) will also specify the date on which Holders of Common Stock will be entitled to exchange their Common Stock for securities or other property deliverable upon such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation, winding-up, conversion or public offering, as the case may be.

3.6 Certain Events. If any change in the outstanding Common Stock or any other event occurs as to which the other provisions of this Section 3 are not strictly applicable or if strictly applicable would not fairly protect the purchase rights of Holder in accordance with such provisions, then the Board will make an adjustment in the number and class of shares available under this Warrant, the Purchase Price or the application of such provisions, so as to protect such purchase rights as aforesaid. The adjustment will be such as will give Holder upon exercise for the same aggregate Purchase Price the total number, class and kind of shares as it would have owned had this Warrant been exercised prior to the event and had it continued to hold such shares until after the event requiring adjustment.

4. ISSUE TAX.

The issuance of certificates for shares of Common Stock upon the exercise of this Warrant will be made without charge to Holder for any issue tax (other than any applicable income taxes) in respect thereof; provided, however, that the Company will not be required to pay any tax that may be payable in respect of any transfer involved in the issuance and delivery of any certificate in a name other than that of Holder.

5. CLOSING OF BOOKS.

The Company will at no time close its transfer books against the transfer of any warrant or of any shares of Common Stock issued or issuable upon the exercise of any warrant in any manner that interferes with the timely exercise of this Warrant.

6. NO VOTING OR DIVIDEND RIGHTS; LIMITATION OF LIABILITY.

Nothing contained in this Warrant will be construed as conferring upon Holder the right to vote or to consent or to receive notice as a stockholder of the Company or any other matters or any rights whatsoever as a stockholder of the Company. No dividends or interest will be payable or accrued in respect of this Warrant or the interest represented hereby or the shares purchasable hereunder until, and only to the extent that, this Warrant has been exercised. No provisions hereof, in the absence of affirmative action by Holder to purchase shares of Common Stock, and no mere enumeration herein of the rights or privileges of Holder, will give rise to any liability of Holder for the Purchase Price or as a stockholder of the Company, whether such liability is asserted by the Company or by its creditors.

7. MODIFICATION AND WAIVER.

This Warrant and any provision hereof may be changed, waived, discharged or terminated only by an instrument in writing signed by the party against which enforcement of the same is sought.

8. NOTICES.

9. Any notice, or other communication hereunder will be given in writing and will be deemed effectively given as of the date delivered if delivered by hand or facsimile (confirmed by hand delivery, nationally-recognized overnight delivery serve or registered or certified mail), one day after deposit with a nationally-recognized overnight delivery courier service or three days after deposit with the United States post office, by registered or certified mail with postage and fees prepaid, addressed to Holder at its address as shown on the books of the Company or to the Company at its principal executive offices or such other address as either may from time to time provide to the other by 10 days’ advance written notice in accordance with this Section 8.

10. DESCRIPTIVE HEADINGS AND GOVERNING LAW.

The description headings of the several sections and paragraphs of this Warrant are inserted for convenience only and do not constitute a part of this Warrant. This Warrant will be construed and enforced in accordance with, and the rights of the parties will be governed by, the laws of the State of California.

11. LOST WARRANTS.

Upon receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction, or mutilation of this Warrant and, in the case of any such loss, theft or destruction, upon receipt of an indemnity reasonably satisfactory to the Company, or in the case of any such mutilation upon surrender and cancellation of such Warrant, the Company, at its expense, will make and deliver a new Warrant, of like tenor, in lieu of the lost, stolen, destroyed or mutilated Warrant.

12. FRACTIONAL SHARES.

No fractional shares will be issued upon exercise of this Warrant. The Company will, in lieu of issuing any fractional share, pay Holder a sum in cash equal to such fraction multiplied by the then effective Purchase Price.

[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]

The Company has caused this Warrant to be duly executed by its officers, thereunto duly authorized on the date hereof.

DESIGN WITHIN REACH, INC.

Signature:

Printed Name:

Title:

ACCEPTED:

JESSE HANSEN & CO.

Signature:

Print Name:

Title:

EXHIBIT A

SUBSCRIPTION FORM

Date:                         

Design Within Reach, Inc.

455 Jackson Street

San Francisco, CA 94111

Ladies and Gentlemen:

The undersigned (“Purchaser”) hereby elects to exercise this Warrant issued to it by Design Within Reach, Inc. (the “Company”) and dated                     , 1999 (the “Warrant”) and to purchase thereunder                      shares of the Common Stock of the Company (the “Shares”) at a purchase price of $             per Share for an aggregate purchase price of $             (the “Purchase Price”).

Pursuant to the terms of this Warrant the undersigned has delivered the Purchase Price herewith in full in cash or by certified check or wire transfer. In connection with such purchase and in order to comply with the exemptions from registration relied upon by the Company, Purchaser represents, warrants and agrees as follows:

Purchaser is acquiring the Common Stock for its own account, to hold for investment, and Purchaser will not make any sale, transfer or other disposition of the Common Stock in violation of the Securities Act of 1933, as amended (the “Act”), or the General Rules and Regulations promulgated thereunder by the Securities and Exchange Commission or in violation of any applicable state securities law.

Purchaser has been advised that the Common Stock has not been registered under the Act or state securities laws on the ground that this transaction is exempt from registration, and that reliance by the Company on such exemptions is predicated in part on Purchaser’s representations set forth in this letter.

Purchaser has been informed that under the Act, the Common Stock must be held indefinitely unless it is subsequently registered under the Act or unless an exemption from such registration (such as Rule 144) is available with respect to any proposed transfer or disposition by Purchaser of the Common Stock. Purchaser further agrees that the Company may refuse to permit Purchaser to sell, transfer or dispose of the Common Stock (except as permitted under Rule 144) unless there is in effect a registration statement under the Act and any applicable state securities laws covering such transfer, or unless Purchaser furnishes an opinion of counsel reasonably satisfactory to counsel for the Company, to the effect that such registration is not required.

Purchaser has carefully read this letter and has discussed its requirements and other applicable limitations upon Purchaser’s resale of the Common Stock with Purchaser’s counsel.

Very truly yours,

JESSE HANSEN & CO.

Signature:

Printed Name:

Title:

EX-4.03

EXHIBIT 4.03

INVESTORS’ RIGHTS AGREEMENT

MAY 12, 2000

TABLE OF CONTENTS

			Page
1.	Registration Rights		1
	1.1	Definitions	1
	1.2	Request for Registration	2
	1.3	Company Registration	4
	1.4	Form S-3 Registration	5
	1.5	Obligations of the Company	6
	1.6	Information from Holder	7
	1.7	Expenses of Registration	7
	1.8	Delay of Registration	7
	1.9	Indemnification	8
	1.10	Reports Under Securities Exchange Act of 1934	10
	1.11	Assignment of Registration Rights	10
	1.12	Limitations on Subsequent Registration Rights	11
	1.13	“Market Stand-Off” Agreement	11
	1.14	Termination of Registration Rights	12
	1.15	Further Limitations on Disposition	12
2.	Covenants of the Company		12
	2.1	Delivery of Financial Statements	12
	2.2	Inspection	13
	2.3	Termination of Information and Inspection Covenants	13
	2.4	Special Right of Reed Elsevier	13
	2.5	Right of First Offer	14
	2.6	Termination of Certain Covenants	15
3.	Miscellaneous		15
	3.1	Successors and Assigns	15
	3.2	Governing Law	16
	3.3	Counterparts	16
	3.4	Titles and Subtitles	16
	3.5	Notices	16
	3.6	Expenses	16
	3.7	Entire Agreement: Amendments and Waivers	16
	3.8	Severability	16
	3.9	Aggregation of Stock	16

INVESTORS’ RIGHTS AGREEMENT

THIS INVESTORS’ RIGHTS AGREEMENT is made as of the 12th day of May, 2000, by and among Design Within Reach, Inc., a California corporation (the “Company”), and the investors listed on Schedule A hereto, each of which is herein referred to as an “Investor”.

RECITALS

WHEREAS, the Company and certain of the Investors are parties to the Series B Preferred Stock Purchase Agreement of even date herewith (the “Series B Agreement”);

WHEREAS, in order to induce the Company to approve the issuance of the Series B Preferred Stock and to induce certain of the Investors to invest funds in the Company pursuant to the Series B Agreement, the Investors and the Company hereby agree that this Agreement shall govern the rights of the Investors to cause the Company to register shares of Common Stock issued or issuable to them and certain other matters as set forth herein;

NOW, THEREFORE, THE PARTIES HEREBY AGREE AS FOLLOWS:

1. Registration Rights. The Company covenants and agrees as follows:

1.1 Definitions. For purposes of this Section 1:

(a) The term “Act” means the Securities Act of 1933, as amended.

(b) The term “Form S-3” means such form under the Act as in effect on the date hereof or any registration form under the Act subsequently adopted by the SEC that permits inclusion or incorporation of substantial information by reference to other documents filed by the Company with the SEC.

(c) The term “Holder” means any person owning or having the right to acquire Registrable Securities or any assignee thereof in accordance with Section 1.11 hereof.

(d) The term “Initial Offering” means the Company’s first firm commitment underwritten public offering of its Common Stock under the Act.

(e) The term “Major Investor” means an Investor that holds not less than 500,000 shares of Registrable Securities.

(f) The term “1934 Act” means the Securities Exchange Act of 1934, as amended.

(g) The term “Qualified Public Offering” means a firmly underwritten public offering of shares of Common Stock of the Company at a per share price not

less than $12.00 (as adjusted for stock splits, dividends and the like) and for a total offering of not less than $20,000,000 (before deduction of underwriters commissions and expenses).

(h) The term “register,” “registered,” and “registration” refer to a registration effected by preparing and filing a registration statement or similar document in compliance with the Act, and the declaration or ordering of effectiveness of such registration statement or document.

(i) The term “Registrable Securities” means (i) the Common Stock issuable or issued upon conversion of the Series A Preferred Stock and Series B Preferred Stock, and (ii) any Common Stock of the Company issued as (or issuable upon the conversion or exercise of any warrant, right or other security that is issued as) a dividend or other distribution with respect to, or in exchange for, or in replacement of, the shares referenced in (i) above, excluding in all cases, however, any Registrable Securities sold by a person in a transaction in which his rights under this Section 1 are not assigned.

(j) The number of shares of “Registrable Securities” outstanding shall be determined by the number of shares of Common Stock outstanding that are, and the number of shares of Common Stock issuable pursuant to then exercisable or convertible securities that are, Registrable Securities.

(k) The term “SEC” shall mean the Securities and Exchange Commission.

1.2 Request for Registration.

(a) Subject to the conditions of this Section 1.2, if the Company shall receive at any time after the effective date of the Initial Offering, a written request from the Holders of thirty percent (30%) or more of the Registrable Securities then outstanding (the “Initiating Holders”) that the Company file a registration statement under the Act covering the registration of Registrable Securities with an anticipated aggregate offering price of at least $5,000,000, then the Company shall, within twenty (20) days of the receipt thereof, give written notice of such request to all Holders, and subject to the limitations of this Section 1.2, use its best efforts to effect, as soon as practicable, the registration under the Act of all Registrable Securities that the Initiating Holders and all other Holders with remaining registration rights under this Section 1.2 who elect to join in the demand registration (collectively, the “Registering Holders”) request to be registered in a written request received by the Company within twenty (20) days of the mailing of the Company’s notice pursuant to this Section 1.2(a).

(b) If the Initiating Holders intend to distribute the Registrable Securities covered by their request by means of an underwriting, they shall so advise the Company as a part of their request made pursuant to this Section 1.2 and the Company shall include such information in the written notice referred to in Section 1.2(a). In such event the right of any Holder to include its Registrable Securities in such registration shall be conditioned upon such Holder’s participation in such underwriting and the inclusion of such Holder’s Registrable Securities in the underwriting (unless otherwise mutually agreed by a majority in interest of the Initiating Holders and such Holder) to the extent provided herein. All Holders

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proposing to distribute their securities through such underwriting shall enter into an underwriting agreement in customary form with the underwriter or underwriters selected for such underwriting by the Company (which underwriter or underwriters shall be reasonably acceptable to a majority in interest of the Registering Holders). Notwithstanding any other provision of this Section 1.2, if the underwriter advises the Company that marketing factors require a limitation of the number of securities underwritten (including Registrable Securities), then the Company shall so advise all Holders of Registrable Securities that would otherwise be underwritten pursuant hereto, and the number of shares that may be included in the underwriting shall be allocated to the Holders of such Registrable Securities as follows: First, to the Registering Holders and the Company (in the event that the Company also desires to sell securities in such offering); provided that in no event shall the Registering Holders be cut back to less than 50% of the aggregate securities to be sold in the offering; and second, to other Holders of Registrable Securities requesting inclusion in the offering. If either the Registering Holders or the other Holders of Registrable Securities are prevented from selling all securities which they desire to sell as a result of the foregoing cut back provisions, any such cut back shall be on a pro rata basis based on the Registrable Securities owned by the respective Registering Holders (in the case of cut backs limiting sales by the Registering Holders) or other Holders of the Registrable Securities (in the case of cut backs not limiting sales by the Registering Holders). Any Registrable Securities excluded or withdrawn from such underwriting shall be withdrawn from the registration. If any of the Registering Holders is required to cut back the amount of Registrable Securities which such Holder desires to sell, such Holder shall have the right to withdraw its request for registration, in which case none of its Registrable Securities shall be registered as part of the offering and the offering shall not be deemed to have utilized one of such Holder’s registration rights pursuant to Section l.2(c)(ii).

(c) The Company shall not be required to effect a registration pursuant to this Section 1.2:

(i) in any particular jurisdiction in which the Company would be required to execute a general consent to service of process in effecting such registration, unless the Company is already subject to service in such jurisdiction and except as may be required under the Act; or

(ii) after the Company has effected two (2) registrations pursuant to this Section 1.2, and such registrations have been declared or ordered effective; or

(iii) during the period starting with the date forty five (45) days prior to the Company’s good faith estimate of the date of the filing of, and ending on a date one hundred eighty (180) days following the effective date of, a Company-initiated registration subject to Section 1.3 below, provided that the Company is actively employing in good faith all reasonable efforts to cause such registration statement to become effective; or

(iv) if the Initiating Holders propose to dispose of Registrable Securities that may be registered on Form S-3 pursuant to Section 1.4 hereof; or

(v) if the Company shall furnish to Holders requesting a registration statement pursuant to this Section 1.2, a certificate signed by the Company’s Chief

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Executive Officer or Chairman of the Board stating that in the good faith judgment of the Board of Directors of the Company, it would be seriously detrimental to the Company and its shareholders for such registration statement to be effected at such time, in which event the Company shall have the right to defer such filing for a period of not more than ninety (90) days after receipt of the request of the Initiating Holders, provided that such right to delay a request shall be exercised by the Company not more than once in any twelve (12)-month period; or

(vi) if, within thirty (30) days of any registration request pursuant to this Section 1.2, the Company delivers notice to the Holders requesting such registration of its intent to file a registration for such initial offering within ninety (90) days.

1.3 Company Registration.

(a) If (but without any obligation to do so) the Company proposes to register (including for this purpose a registration effected by the Company for shareholders other than the Holders) any of its stock or other securities under the Act in connection with the public offering of such securities (other than a registration relating solely to the sale of securities to participants in a Company stock plan, a registration relating to a corporate reorganization or other transaction under Rule 145 of the Act, a registration on any form that does not include substantially the same information as would be required to be included in a registration statement covering the sale of the Registrable Securities, or a registration in which the only Common Stock being registered is Common Stock issuable upon conversion of debt securities that are also being registered), the Company shall, at such time, promptly give each Holder written notice of such registration. Upon the written request of each Holder given within twenty (20) days after mailing of such notice by the Company in accordance with Section 3.5, the Company shall, subject to the provisions of Section 1.3(c), use all reasonable efforts to cause to be registered under the Act all of the Registrable Securities that each such Holder has requested to be registered.

(b) Right to Terminate Registration. The Company shall have the right to terminate or withdraw any registration initiated by it under this Section 1.3 prior to the effectiveness of such registration whether or not any Holder has elected to include securities in such registration. The expenses of such withdrawn registration shall be borne by the Company in accordance with Section 1.7 hereof.

(c) Underwriting Requirements. In connection with any offering involving an underwriting of shares of the Company’s capital stock, the Company shall not be required under this Section 1.3 to include any of the Holders’ securities in such underwriting unless they accept the terms of the underwriting as agreed upon between the Company and the underwriters selected by it and enter into the underwriting agreement in customary form with an underwriter or underwriters selected by the Company, and then only in such quantity as the underwriters determine in their sole discretion will not jeopardize the success of the offering by the Company. If the total amount of securities, including Registrable Securities, requested by Holders to be included in such offering exceeds the amount of securities sold other than by the Company that the underwriters determine in their sole discretion (with written notice by such underwriters to the selling Holders of the reasons for such exclusion) is

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compatible with the success of the offering, then the Company shall be required to include in the offering only that number of such securities, including Registrable Securities, that the underwriters determine in their sole discretion will not jeopardize the success of the offering (the securities so included to be apportioned pro rata among the selling Holders according to the total amount of securities entitled to be included therein owned by each selling Holder or in such other proportions as shall mutually be agreed to by such selling Holders), but in no event shall (i) the amount of securities of the selling Holders included in the offering be reduced below thirty-five percent (35%) of the total amount of securities included in such offering, unless such offering is the initial public offering of the Company’s securities, in which case the selling Holders may be excluded if the underwriters make the determination described above and no other shareholder’s securities are included, or (ii) notwithstanding (i) above, any shares being sold by a shareholder exercising a demand registration right similar to that granted in Section 1.2 be excluded from such offering. In no event will shares of any other selling shareholder be included in such registration which would reduce the number of shares which may be included by Holders without the written consent of Holders of not less than a majority of the Registrable Securities proposed to be sold in the offering. For purposes of the preceding parenthetical concerning apportionment, for any selling shareholder that is a Holder of Registrable Securities and that is a partnership or corporation, the partners, retired partners and shareholders of such Holder, or the estates and family members of any such partners and retired partners and any trusts for the benefit of any of the foregoing persons shall be deemed to be a single “selling Holder,” and any pro rata reduction with respect to such “selling Holder” shall be based upon the aggregate amount of Registrable Securities owned by all such related entities and individuals.

1.4 Form S-3 Registration. In case the Company shall receive from any Holder a written request or requests that the Company effect a registration on Form S-3 and any related qualification or compliance with respect to all or a part of the Registrable Securities owned by such Holder or Holders, the Company shall:

(a) promptly give written notice of the proposed registration, and any related qualification or compliance, to all other Holders; and

(b) use its best efforts to effect, as soon as practicable, such registration and all such qualifications and compliances as may be so requested and as would permit or facilitate the sale and distribution of all or such portion of such Holders’ Registrable Securities as are specified in such request, together with all or such portion of the Registrable Securities of any other Holders joining in such request as are specified in a written request given within twenty (20) days after receipt of such written notice from the Company, provided, however, that the Company shall not be obligated to effect any such registration, qualification or compliance, pursuant to this section 1.4:

(i) if Form S-3 is not available for such offering by the Holders;

(ii) if the Holders, together with the holders of any other securities of the Company entitled to inclusion in such registration, propose to sell Registrable Securities and such other securities (if any) at an aggregate price to the public (net of

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any underwriters’ discounts or commissions) of less than $1,000,000;

(iii) if the Company shall furnish to the Holders a certificate signed by the Chief Executive Officer or Chairman of the Board of the Company stating that in the good faith judgment of the Board of Directors of the Company, it would be seriously detrimental to the Company and its shareholders for such Form S-3 Registration to be effected at such time, in which event the Company shall have the right to defer the filing of the Form S-3 registration statement for a period of not more than ninety (90) days after receipt of the request of the Holder or Holders under this Section 1.4; provided, however, that the Company shall not utilize this right more than once in any twelve month period;

(iv) if the Company has, within the twelve (12) month period preceding the date of such request, already effected two registrations on Form S-3 for the Holders pursuant to this Section 1.4; or

(v) in any particular jurisdiction in which the Company would be required to qualify to do business or to execute a general consent to service of process in effecting such registration, qualification or compliance.

(c) Subject to the foregoing, the Company shall file a registration statement covering the Registrable Securities and other securities so requested to be registered as soon as practicable after receipt of the request or requests of the Holders. Registrations effected pursuant to this Section 1.4 shall not be counted as requests for registration effected pursuant to Sections 1.2.

1.5 Obligations of the Company. Whenever required under this Section 1 to effect the registration of any Registrable Securities, the Company shall, as expeditiously as reasonably possible:

(a) prepare and file with the SEC a registration statement with respect to such Registrable Securities and use all reasonable efforts to cause such registration statement to become effective, and, upon the request of the Holders of a majority of the Registrable Securities registered thereunder, keep such registration statement effective for a period of up to one hundred twenty (120) days or, if earlier, until the distribution contemplated in the Registration Statement has been completed;

(b) prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection with such registration statement as may be necessary to comply with the provisions of the Act with respect to the disposition of all securities covered by such registration statement;

(c) furnish to the Holders such numbers of copies of a prospectus, including a preliminary prospectus, in conformity with the requirements of the Act, and such other documents as they may reasonably request in order to facilitate the disposition of Registrable Securities owned by them;

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(d) use all reasonable efforts to register and qualify the securities covered by such registration statement under such other securities or Blue Sky laws of such jurisdictions as shall be reasonably requested by the Holders, provided that the Company shall not be required in connection therewith or as a condition thereto to qualify to do business or to file a general consent to service of process in any such states or jurisdictions;

(e) in the event of any underwritten public offering, enter into and perform its obligations under an underwriting agreement, in usual and customary form, with the managing underwriter of such offering;

(f) notify each Holder of Registrable Securities covered by such registration statement at any time when a prospectus relating thereto is required to be delivered under the Act or the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing;

(g) cause all such Registrable Securities registered pursuant hereunder to be listed on each securities exchange on which similar securities issued by the Company are then listed; and

(h) provide a transfer agent and registrar for all Registrable Securities registered pursuant hereunder and a CUSIP number for all such Registrable Securities, in each case not later than the effective date of such registration.

1.6 Information from Holder. It shall be a condition precedent to the obligations of the Company to take any action pursuant to this Section 1 with respect to the Registrable Securities of any selling Holder that such Holder shall furnish to the Company such information regarding itself, the Registrable Securities held by it, and the intended method of disposition of such securities as shall be required to effect the registration of such Holder’s Registrable Securities.

1.7 Expenses of Registration. All expenses other than underwriting discounts and commissions incurred in connection with registrations, filings or qualifications pursuant to Sections 1.2, 1.3 and 1 .4, including (without limitation) all registration, filing and qualification fees, printers’ and accounting fees, fees and disbursements of counsel for the Company and the reasonable fees and disbursements of one counsel for the selling Holders shall he borne by the Company. Notwithstanding the foregoing, the Company shall not be required to pay for any expenses of any registration proceeding begun pursuant to Section 1.2 or Section 1.4 if the registration request is subsequently withdrawn at the request of the Holders of a majority of the Registrable Securities to be registered (in which case all participating Holders shall bear such expenses pro rata based upon the number of Registrable Securities that were to be requested in the withdrawn registration and such withdrawn registration shall not count as one of the registrations provided for under said sections).

1.8 Delay of Registration. No Holder shall have any right to obtain or seek an injunction restraining or otherwise delaying any such registration as the result of any

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controversy that might arise with respect to the interpretation or implementation of this Section 1.

1.9 Indemnification. In the event any Registrable Securities are included in a registration statement under this Section 1:

(a) To the extent permitted by law, the Company will indemnify and hold harmless each Holder, the partners or officers, directors and shareholders of each Holder, legal counsel and accountants for each Holder, any underwriter (as defined in the Act) for such Holder and each person, if any, who controls such Holder or underwriter within the meaning of the Act or the 1934 Act, against any losses, claims, damages or liabilities (joint or several) to which they may become subject under the Act, the 1934 Act or any state securities laws, insofar as such losses, claims, damages, or liabilities (or actions in respect thereof) arise out of or are based upon any of the following statements, omissions or violations (collectively a “Violation”): (i) any untrue statement or alleged untrue statement of a material fact contained in such registration statement, including any preliminary prospectus or final prospectus contained therein or any amendments or supplements thereto, (ii) the omission or alleged omission to state therein a material fact required to be stated therein, or necessary to make the statements therein not misleading, or (iii) any violation or alleged violation by the Company of the Act, the 1934 Act, any state securities laws or any rule or regulation promulgated under the Act, the 1934 Act or any state securities laws; and the Company will reimburse each such Holder, underwriter or controlling person for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that the indemnity agreement contained in this subsection 1.9(a) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Company (which consent shall not be unreasonably withheld), nor shall the Company be liable in any such case for any such loss, claim, damage, liability or action to the extent that it arises out of or is based upon a Violation that occurs in reliance upon and in conformity with written information furnished expressly for use in connection with such registration by any such Holder, underwriter or controlling person; provided further, however, that the foregoing indemnity agreement with respect to any preliminary prospectus shall not inure to the benefit of any Holder or underwriter, or any person controlling such Holder or underwriter, from whom the person asserting any such losses, claims, damages or liabilities purchased shares in the offering, if a copy of the prospectus (as then amended or supplemented if the Company shall have furnished any amendments or supplements thereto) was not sent or given by or on behalf of such Holder or underwriter to such person, if required by law so to have been delivered, at or prior to the written confirmation of the sale of the shares to such person, and if the prospectus (as so amended or supplemented) would have cured the defect giving rise to such loss, claim, damage or liability.

(b) To the extent permitted by law, each selling Holder will severally but not jointly indemnify and hold harmless the Company, each of its directors, each of its officers who has signed the registration statement, each person, if any, who controls the Company within the meaning of the Act, legal counsel and accountants for the Company, any underwriter, any other Holder selling securities in such registration statement and any controlling person of any such underwriter or other Holder, against any losses, claims, damages or liabilities

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(joint or several) to which any of the foregoing persons may become subject, under the Act, the 1934 Act or any state securities laws, insofar as such losses, claims, damages or liabilities (or actions in respect thereto) arise out of or are based upon any Violation, in each case to the extent (and only to the extent) that such Violation occurs in reliance upon and in conformity with written information furnished by such Holder expressly for use in connection with such registration; and each such Holder will severally but not jointly reimburse any person intended to be indemnified pursuant to this subsection 1.9(b), for any legal or other expenses reasonably incurred by such person in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that the indemnity agreement contained in this subsection 1.9(b) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Holder (which consent shall not be unreasonably withheld), provided that in no event shall any indemnity under this subsection 1.9(b) exceed the gross proceeds from the offering received by such Holder.

(c) Promptly after receipt by an indemnified party under this Section 1.9 of notice of the commencement of any action (including any governmental action), such indemnified party will, if a claim in respect thereof is to be made against any indemnifying party under this Section 1.9, deliver to the indemnifying party a written notice of the commencement thereof and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume the defense thereof with counsel mutually satisfactory to the parties; provided, however, that an indemnified party (together with all other indemnified parties that may be represented without conflict by one counsel) shall have the right to retain one separate counsel, with the fees and expenses to be paid by the indemnifying party, if representation of such indemnified party by the counsel retained by the indemnifying party would be inappropriate due to actual or potential differing interests between such indemnified party and any other party represented by such counsel in such proceeding. The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action, to the extent prejudicial to its ability to defend such action, shall relieve such indemnifying party of any liability to the indemnified party under this Section 1.9, but the omission so to deliver written notice to the indemnifying party will not relieve it of any liability that it may have to any indemnified party otherwise than under this Section 1.9.

(d) If the indemnification provided for in this Section 1.9 is held by a court of competent jurisdiction to be unavailable to an indemnified party with respect to any loss, liability, claim, damage or expense referred to herein, then the indemnifying party, in lieu of indemnifying such indemnified party hereunder, shall contribute to the amount paid or payable by such indemnified party as a result of such loss, liability, claim, damage or expense in such proportion as is appropriate to reflect the relative fault of the indemnifying party on the one hand and of the indemnified party on the other in connection with the statements or omissions that resulted in such loss, liability, claim, damage or expense, as well as any other relevant equitable considerations. The relative fault of the indemnifying party and of the indemnified party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission to state a material fact relates to information supplied by the indemnifying party or by the indemnified party and the parties’ relative intent,

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knowledge, access to information, and opportunity to correct or prevent such statement or omission.

(e) Notwithstanding the foregoing, to the extent that the provisions on indemnification and contribution contained in the underwriting agreement entered into in connection with an underwritten public offering of Registrable Securities are in conflict with the foregoing provisions, the provisions in the underwriting agreement shall control.

(f) The obligations of the Company and Holders under this Section 1.9 shall survive the completion of any offering of Registrable Securities in a registration statement under this Section 1, and otherwise.

1.10 Reports Under Securities Exchange Act of 1934. With a view to making available to the Holders the benefits of Rule 144 promulgated under the Act and any other rule or regulation of the SEC that may at any time permit a Holder to sell securities of the Company to the public without registration or pursuant to a registration on Form S-3, the Company agrees to:

(a) make and keep public information available, as those terms are understood and defined in SEC Rule 144, at all times after ninety (90) days after the effective date of the Initial Offering;

(b) file with the SEC in a timely manner all reports and other documents required of the Company under the Act and the 1934 Act; and

(c) furnish to any Holder, so long as the Holder owns any Registrable Securities, forthwith upon request (i) a written statement by the Company that it has complied with the reporting requirements of SEC Rule 144 (at any time after ninety (90) days after the effective date of the Initial Offering), the Act and the 1934 Act (at any time after it has become subject to such reporting requirements), or that it qualifies as a registrant whose securities may be resold pursuant to Form S-3 (at any time after it so qualifies), (ii) a copy of the most recent annual or quarterly report of the Company and such other reports and documents so filed by the Company, and (iii) such other information as may be reasonably requested in availing any Holder of any rule or regulation of the SEC that permits the selling of any such securities without registration or pursuant to such form.

1.11 Assignment of Registration Rights. The rights to cause the Company to register Registrable Securities pursuant to this Section 1 may be assigned (but only with all related obligations) by a Holder to a transferee or assignee of such securities that (i) is a subsidiary, parent, partner, limited partner, retired partner (or commonly controlled by the parent) or shareholder of a Holder, (ii) is a Holder’s family member or trust for the benefit of an individual Holder, or (iii) after such assignment or transfer, holds at least 100,000 shares of Registrable Securities (subject to appropriate adjustment for stock splits, stock dividends, combinations and other recapitalizations) or all of such Holder’s Registrable Securities if less than 100,000 shares, provided: (a) the Company is, within a reasonable time after such transfer, furnished with written notice of the name and address of such transferee or assignee and the securities with respect to which such registration rights are being assigned; (b) such transferee or

10

assignee agrees in writing to be bound by and subject to the terms and conditions of this Agreement, including without limitation the provisions of Section 1.13 below; and (c) such assignment shall be effective only if immediately following such transfer the further disposition of such securities by the transferee or assignee is restricted under the Act.

1.12 Limitations on Subsequent Registration Rights.

(a) From and after the date of this Agreement, the Company shall not, without the prior written consent of the Holders of a majority of the Registrable Securities (which majority shall include REI (as hereafter defined) as long as REI is a Major Investor), enter into any agreement with any holder or prospective holder of any securities of the Company that would allow such holder or prospective holder (i) to include such securities in any registration filed under Section 1.3 hereof, unless under the terms of such agreement, such holder or prospective holder may include such securities in any such registration only to the extent that the inclusion of such securities will not reduce the amount of the Registrable Securities of the Holders that are included or (ii) to demand registration of their securities.

(b) The Company represents that as of the date hereof and except as provided for herein, no person or entity has registration rights with respect to securities issued by the Company.

1.13 “Market Stand-Off” Agreement. Each Holder hereby agrees that it will not, without the prior written consent of the managing underwriter, during the period commencing on the date of the final prospectus relating to the Company’s Initial Offering and ending on the date specified by the Company and the managing underwriter (such period not to exceed one hundred eighty (180) days) (i) lend, offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, or otherwise transfer or dispose of, directly or indirectly, any shares of Common Stock or any securities convertible into or exercisable or exchangeable for Common Stock (whether such shares or any such securities are then owned by the Holder or are thereafter acquired), or (ii) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of the Common Stock, whether any such transaction described in clause (i) or (ii) above is to be settled by delivery of Common Stock or such other securities, in cash or otherwise. The foregoing provisions of this Section 1.13 shall apply only to the Company’s Initial Offering of equity securities, shall not apply to the sale of any shares to an underwriter pursuant to an underwriting agreement, and shall only be applicable to the Holders if all officers and directors and greater than five percent (5%) shareholders of the Company enter into similar agreements. The underwriters in connection with the Company’s initial public offering are intended third party beneficiaries of this Section 1.13 and shall have the right, power and authority to enforce the provisions hereof as though they were a party hereto.

In order to enforce the foregoing covenant, the Company may impose stop-transfer instructions with respect to the Registrable Securities of each Holder (and the shares

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or securities of every other person subject to the foregoing restriction) until the end of such period.

1.14 Termination of Registration Rights. No Holder shall be entitled to exercise any right provided for in this Section 1 after, as to any Holder, such time at which all Registrable Securities held by such Holder (and any affiliate of the Holder with whom such Holder must aggregate its sales under Rule 144) can be sold in any three (3)-month period without registration in compliance with Rule 144 of the Act.

1.15 Further Limitations on Disposition. Each Investor agrees not to make any disposition of all or any portion of the Registrable Securities unless and until the transferee has agreed in writing for the benefit of the Company to be bound by this Agreement and:

(a) There is then in effect a registration statement under the Act covering such proposed disposition and such disposition is made in accordance with such registration statement; or

(b) (i) Such Investor shall have notified the Company of the proposed disposition and shall have furnished the Company with a detailed statement of the circumstances surrounding the proposed disposition, and (ii) if reasonably requested by the Company, such Investor shall have furnished the Company with an opinion of counsel, reasonably satisfactory to the Company that such disposition will not require opinions of counsel for transactions made pursuant to Rule 144 except in unusual circumstances.

(c) Notwithstanding the provisions of Paragraphs (a) and (b) above, no such registration statement or opinion of counsel shall be necessary for a transfer by an Investor that is a partnership to a partner of such partnership or a retired partner of such partnership who retires after the date hereof, or to the estate of any such partner or retired partner or the transfer by gift, will or intestate succession of any partner to his or her spouse or the siblings, lineal descendants or ancestors of such partner or his or her spouse, if the transferee agrees in writing to be subject to the terms hereof to the same extent as if he or she were an original Investor hereunder.

2. Covenants of the Company.

2.1 Delivery of Financial Statements. The Company shall deliver:

(a) to each Investor, as soon as practicable, but in any event within ninety (90) days after the end of each fiscal year of the Company, an income statement for such fiscal year, a balance sheet of the Company and statement of shareholder’s equity as of the end of such year, and a statement of cash flows for such year, such year-end financial reports to be in reasonable detail, prepared in accordance with generally accepted accounting principles

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(“GAAP”), and audited and certified by independent public accountants of nationally recognized standing selected by the Company;

(b) to each Investor, as soon as practicable, but in any event within forty-five (45) days after the end of each of the first three (3) quarters of each fiscal year of the Company, an unaudited income statement, statement of cash flows for such fiscal quarter and an unaudited balance sheet as of the end of such fiscal quarter.

(c) to each Major Investor, within thirty (30) days of the end of each month, an unaudited income statement and statement of cash flows and balance sheet for and as of the end of such month, in reasonable detail;

(d) to each Major Investor, as soon as practicable, but in any event at least thirty (30) days prior to the end of each fiscal year, an annual operating plan for the next fiscal year, prepared on a monthly basis, including balance sheets, income statements and statements of cash flows for such months and, as soon as prepared, any other budgets or revised budgets prepared by the Company;

(e) with respect to the financial statements called for in subsections (b) and (c) of this Section 2.1, an instrument executed by the Chief Financial Officer or President of the Company certifying that such financials were prepared in accordance with GAAP consistently applied with prior practice for earlier periods (with the exception of footnotes that may be required by GAAP) and fairly present the financial condition of the Company and its results of operation for the period specified, subject to year-end audit adjustment; and

(f) to each Investor, such other information relating to the financial condition, business, prospects or corporate affairs of the Company as the Investor or any assignee of the Investor may from time to time request, provided, however, that the Company shall not be obligated under this subsection (f) or any other subsection of Section 2.1 to provide information that it deems in good faith to be a trade secret or similar confidential information.

2.2 Inspection. The Company shall permit each Investor, at such Investor’s expense, to visit and inspect the Company’s properties, to examine its books of account and records and to discuss the Company’s affairs, finances and accounts with its officers, all at such reasonable times as may be requested by the Investor; provided, however, that the Company shall not be obligated pursuant to this Section 2.2 to provide access to any information that it reasonably considers to be a trade secret or similar confidential information.

2.3 Termination of Information and Inspection Covenants. The covenants set forth in Sections 2.1 and 2.2 shall terminate as to Investors and be of no further force or effect upon a Qualified Public Offering.

2.4 Special Right of Reed Elsevier. Subject to the terms and conditions specified in this Section 2.4, the Company hereby grants to Reed Elsevier Inc. (“REI”) a right of first offer with respect to future sales by the Company of its shares of, or securities convertible into or exchangeable or exercisable for any shares of, any class of its capital

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stock which are convertible into Common Stock (“Shares”) so that after giving effect to the acquisition of the Shares, REI’s ownership interest in the Company’s fully-diluted Shares will equal thirty percent (30%) (the “Target Ownership”). REI shall have a period of thirty (30) days after notice from the Company of the Shares to be offered and a general description (i.e., term sheet) of the rights, preferences and price of such Shares) to notify the Company whether it will exercise its right of first offer. Failure of REI to timely notify the Company of acceptance shall be deemed a rejection of the offer. This right of first offer shall continue until the first to occur of: (i) the date REI reaches the Target Ownership; (ii) the date REI rejects an offer pursuant to this Section 2.4 in part or in whole; or (iii) as provided in Section 2.6.

If rights of REI under Section 2.4 are in effect immediately prior to the filing of a registration statement with respect to the Company’s initial public offering, REI shall have the right to subscribe to a special class of Preferred Stock which would have a mandatory conversion feature and convert into Common Stock immediately before the effective date of the initial public offering at the initial public offering price. Except with respect to conversion price, such special class of Preferred Stock will have rights and preferences otherwise substantially identical to the most recent class of Preferred Stock which the Company has issued. REI shall be entitled to subscribe to an amount of this special class of Preferred Stock so that immediately prior to the closing of initial public offering (at the anticipated initial public offering price) REI’s percentage ownership of the Shares will equal the Target Ownership.

2.5 Right of First Offer. Subject to the terms and conditions specified in Section 2.4 and this Section 2.5, the Company hereby grants to each Major Investor a right of first offer with respect to future sales by the Company of its Shares (as hereinafter defined). For purposes of this Section 2.5, Major Investor includes any general partners and affiliates of a Major Investor. A Major Investor shall be entitled to apportion the right of first offer hereby granted it among itself and its partners and affiliates in such proportions as it deems appropriate.

Each time the Company proposes to offer any Shares, the Company shall first make an offering of such Shares to each Major Investor in accordance with the following provisions.

(a) The Company shall deliver a notice in accordance with Section 3.5 (“Notice”) to the Major Investors stating (i) its bona fide intention to offer such Shares, (ii) the number of such Shares to be offered, and (iii) the price and terms upon which it proposes to offer such Shares.

(b) By written notification received by the Company, within twenty (20) calendar days after receipt of the Notice, the Major Investor may elect to purchase or obtain, at the price and on the terms specified in the Notice, up to that portion of such Shares that equals the proportion that the number of shares of Common Stock issued and held, or issuable upon conversion of the Series A Preferred Stock and/or Series B Preferred Stock then held, by

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such Investor bears to the total number of shares of Common Stock of the Company then outstanding (assuming full conversion of all convertible securities).

(c) If all Shares that Investors are entitled to obtain pursuant to subsection 2.5(b) are not elected to be obtained as provided in subsection 2.5(b) hereof, the Company may, during the ninety (90) day period following the expiration of the period provided in subsection 2.5(b) hereof, offer the remaining unsubscribed portion of such Shares to any person or persons at a price not less than, and upon terms no more favorable to the offeree than those specified in the Notice. If the Company does not enter into an agreement for the sale of the Shares within such period, or if such agreement is not consummated within ninety (90) days of the execution thereof, the right provided hereunder shall be deemed to be revived and such Shares shall not be offered unless first reoffered to the Major Investors in accordance herewith.

(d) The right of first offer in this paragraph 2.5 shall not be applicable to (i) the issuance or sale of shares of Common Stock (or options therefor) to employees, directors and consultants for the primary purpose of soliciting or retaining their services; (ii) the issuance of securities pursuant to a bona fide, firmly underwritten public offering of shares of Common Stock, registered under the Act, (iii) the issuance of securities pursuant to the conversion or exercise of convertible or exercisable securities, (iv) the issuance of stock pursuant to any rights or agreements outstanding as of the date of this Agreement, options and warrants outstanding as of the date of this Agreement and stock issued pursuant to any such rights or agreements granted after the date of this Agreement; provided, that the rights of first refusal established by this Section applied with respect to the initial sale or grant by the Company of such rights or agreements; (v) shares of Common Stock issued in connection with any stock split, stock dividend or recapitalization of the Company; (vi) any equity securities issued pursuant to any equipment leasing or loan arrangement, or debt financing from a bank or similar financial or lending institution; (vii) the issuance of securities in connection with a bona fide business acquisition of or by the Company, whether by merger, consolidation, sale of assets, sale or exchange of stock or otherwise or (viii) the issuance of stock, warrants or other securities or rights to persons or entities with which the Company has business relationships provided such issuances are for other than primarily equity financing purposes.

2.6 Termination of Certain Covenants. The covenants set forth in Sections 2.4 and 2.5 shall terminate and be of no further force or effect upon the consummation a Qualified Public Offering.

3. Miscellaneous.

3.1 Successors and Assigns. Except as otherwise provided herein, the terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors and assigns of the parties (including transferees of any shares of Registrable Securities). Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and assigns any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement.

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3.2 Governing Law. This Agreement shall be governed by and construed under the laws of the State of California as applied to agreements among California residents entered into and to be performed entirely within California.

3.3 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

3.4 Titles and Subtitles. The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement.

3.5 Notices. Unless otherwise provided, any notice required or permitted under this Agreement shall be given in writing and shall be deemed effectively given upon personal delivery to the party to be notified or upon delivery by confirmed facsimile transmission, nationally recognized overnight courier service, or upon deposit with the United States Post Office, by registered or certified mail, postage prepaid and addressed to the party to be notified at the address indicated for such party on the signature page hereof, or at such other address as such party may designate by ten (10) days’ advance written notice to the other parties.

3.6 Expenses. If any action at law or in equity is necessary to enforce or interpret the terms of this Agreement, the prevailing party shall be entitled to reasonable attorneys’ fees, costs and necessary disbursements in addition to any other relief to which such party may be entitled.

3.7 Entire Agreement: Amendments and Waivers. This Agreement (including the Exhibits hereto, if any) constitutes the full and entire understanding and agreement among the parties with regard to the subjects hereof and thereof. Any term of this Agreement may be amended and the observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of the Company and the holders of a majority of the Registrable Securities. Any amendment or waiver effected in accordance with this paragraph shall be binding upon each holder of any Registrable Securities each future holder of all such Registrable Securities, and the Company.

3.8 Severability. If one or more provisions of this Agreement are held to be unenforceable under applicable law, such provision shall be excluded from this Agreement and the balance of the Agreement shall be interpreted as if such provision were so excluded and shall be enforceable in accordance with its terms.

3.9 Aggregation of Stock. All shares of Registrable Securities held or acquired by affiliated entities or persons shall be aggregated together for the purpose of determining the availability of any rights under this Agreement.

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IN WITNESS WHEREOF, the parties hereto have executed the Investor Rights Agreement as of the date set forth in the first paragraph hereof.

COMPANY: DESIGN WITHIN REACH, INC.	INVESTORS: JESSE.HANSEN CO-INVESTMENT VEHICLE, LP
Signature:	Signature:
Print Name:	Print Name:
Title:	Title:
Address: 455 Jackson Street San Francisco, CA 94111	Address: 451 Jackson Street, 3rd Floor San Francisco, CA 94111
	JH CAPITAL PARTNERS, L.P.
	Signature:
	Print Name:
	Title:
	Address: 451 Jackson Street, 3rd Floor San Francisco, CA 94111
	OTHER INVESTORS:
	Signature:
	Print Name:
	Address:
	Entity Name:
	Signature:
	Print Name:
	Title:
	Address:

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EX-4.04

EXHIBIT 4.04

AMENDMENT TO

INVESTORS’ RIGHTS AGREEMENT

This Amendment to Investors’ Rights Agreement (this “Amendment”) is made effective as of May 8, 2003 by and between Design Within Reach, Inc., a California corporation (the “Company”), and the holders of the Company’s capital stock who are parties to that certain Investors’ Rights Agreement dated as of May 12, 2000 (the “Investors’ Rights Agreement”).

WHEREAS, the Company and certain holders of the Company’s capital stock entered into the Investors’ Rights Agreement which governs the rights of certain investors in the Company’s capital stock; and

WHEREAS, the Company and the holders of at least a majority of the Company’s outstanding Common Stock, Series A Preferred Stock and Series B Preferred Stock desire to amend the Investors’ Rights Agreement regarding the matters set forth below.

NOW, THEREFORE, in consideration of the foregoing recitals and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:

1. Section 2.4 of the Investors’ Rights Agreement is hereby deleted in its entirety.

2. Section 3 is hereby amended to add Section 3.10, which shall read as follows: “Section 3.10 Addition of Investors. Notwithstanding anything to the contrary contained herein, if the Company shall issue additional shares of its Preferred Stock or Common Stock, and the Company shall require such purchaser to become a party to this Agreement, then any such purchaser may become a party to this Agreement by executing and delivering an additional counterpart signature page to this Agreement and shall be deemed a ‘Holder’, ‘Investor’, and/or ‘Major Investor’, as applicable, hereunder”.

3. Except as expressly modified hereby, the Investors’ Rights Agreement shall remain in full force and effect in accordance with its original terms.

4. This Amendment shall be governed, construed and enforced in accordance with the laws of the State of California, without regard to principles of conflict of laws.

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IN WITNESS WHEREOF, the parties have executed this Amendment as of the date first set forth above.

DESIGN WITHIN REACH, INC.		COMMON STOCKHOLDERS:
By:
Name:	David Barnard		ROBERT J. FORBES, JR.
Title:	Chief Financial Officer
			Robert J. Forbes, Jr.
			OTHER COMMON STOCKHOLDERS:
			Signature:
			Print Name:
		SERIES A PREFERRED STOCKHOLDERS:
			JH CAPITAL PARTNERS, L.P.
				By:	Hansen Capital Management, Its General Partner
			Signature:
			Print Name:
			Title:
			OTHER SERIES A PREFERRED STOCKHOLDERS:
			Signature:
			Print Name:

SIGNATURE PAGE TO AMENDMENT

SERIES B PREFERRED STOCKHOLDERS:
	REED ELSEVIER INC.
	Signature:
	Print Name:
	Title:
	JESSE.HANSEN CO-INVESTMENT VEHICLE, L.P.
	By:	Hansen Capital Management, Its General Partner
	Signature:
	Print Name:
	Title:
	JH CAPITAL PARTNERS, L.P.
	By:	Hansen Capital Management, Its General Partner
	Signature:
	Print Name:
	Title:
	OTHER SERIES B PREFERRED STOCKHOLDERS:
	Signature:
	Print Name:

SIGNATURE PAGE TO AMENDMENT

EX-10.01

Exhibit 10.01

INDEMNIFICATION AGREEMENT

This Indemnification Agreement (“Agreement”) is made as of                                 , 2004 by and between Design Within Reach, Inc., a Delaware corporation (the “Company”), and                                                                   (“Indemnitee”).

RECITALS

WHEREAS, highly competent persons have become more reluctant to serve corporations as directors or in other capacities unless they are provided with adequate protection through insurance or adequate indemnification against inordinate risks of claims and actions against them arising out of their service to and activities on behalf of the corporation;

WHEREAS, the Board of Directors of the Company (the “Board”) has determined that, in order to attract and retain qualified individuals, the Company will attempt to maintain on an ongoing basis, at its sole expense, liability insurance to protect persons serving the Company and its subsidiaries from certain liabilities. Although the furnishing of such insurance has been a customary and widespread practice among United States-based corporations and other business enterprises, the Company believes that, given current market conditions and trends, such insurance may be available to it in the future only at higher premiums and with more exclusions. At the same time, directors, officers and other persons in service to corporations or business enterprises are being increasingly subjected to expensive and time-consuming litigation relating to, among other things, matters that traditionally would have been brought only against the Company or business enterprise itself. The certificate of incorporation and bylaws of the Company require indemnification of the officers and directors of the Company. Indemnitee may also be entitled to indemnification pursuant to the General Corporation Law of the State of Delaware (“DGCL”). The certificate of incorporation, bylaws and the DGCL expressly provide that the indemnification provisions set forth therein are not exclusive and thereby contemplate that contracts may be entered into between the Company and members of the Board, officers and other persons with respect to indemnification;

WHEREAS, the uncertainties relating to such insurance and to indemnification have increased the difficulty of attracting and retaining such persons;

WHEREAS, the Board has determined that the increased difficulty in attracting and retaining such persons is detrimental to the best interests of the Company’s stockholders and that the Company should act to assure such persons that there will be increased certainty of such protection in the future;

WHEREAS, it is reasonable, prudent and necessary for the Company contractually to obligate itself to indemnify, and to advance expenses on behalf of, such persons to the fullest extent permitted by applicable law so that they will serve or continue to serve the Company free from undue concern that they will not be so indemnified;

WHEREAS, this Agreement is a supplement to and in furtherance of the certificate of incorporation and bylaws of the Company and any resolutions adopted pursuant thereto and shall not be deemed a substitute therefor, nor to diminish or abrogate any rights of Indemnitee thereunder; and

WHEREAS, Indemnitee does not regard the protection available under the Company’s certificate of incorporation, bylaws and insurance as adequate in the present circumstances and may not be willing to serve as an officer or director without adequate protection, and the Company desires Indemnitee to serve in such capacity. Indemnitee is willing to serve, to continue to serve and to take on additional service for or on behalf of the Company on the condition that he or she be so indemnified.

NOW, THEREFORE, in consideration of the promises and the covenants contained herein, the Company and Indemnitee do hereby covenant and agree as follows:

1. Services to the Company. Indemnitee will serve or continue to serve as an officer, director or key employee of the Company for so long as Indemnitee is duly elected or appointed or until Indemnitee tenders his or her resignation.

2. Definitions. As used in this Agreement:

(a) “Beneficial Owner” shall have the meaning given to such term in Rule 13d-3 under the Exchange Act; provided, however, that Beneficial Owner shall exclude any Person otherwise becoming a Beneficial Owner by reason of the stockholders of the Company approving a merger of the Company with another entity.

(b) A “Change in Control” shall be deemed to occur upon the earliest to occur after the date of this Agreement of any of the following events:

(i) Acquisition of Stock by Third Party. Any Person (as defined below) is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company representing twenty percent (20%) or more of the combined voting power of the Company’s then outstanding securities;

(ii) Change in Board of Directors. During any period of two (2) consecutive years (not including any period prior to the execution of this Agreement), individuals, who at the beginning of such period constitute the Board, and any new director (other than a director designated by a person who has entered into an agreement with the Company to effect a transaction described in Sections 2(b)(i), 2(b)(iii) or 2(b)(iv)) whose election by the Board or nomination for election by the Company’s stockholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute at least a majority of the members of the Board;

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(iii) Corporate Transactions. The effective date of a merger or consolidation of the Company with any other entity, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior to such merger or consolidation continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than 50.1% of the combined voting power of the voting securities of the surviving entity outstanding immediately after such merger or consolidation and with the power to elect at least a majority of the board of directors or other governing body of such surviving entity;

(iv) Liquidation. The approval by the stockholders of the Company of a complete liquidation of the Company or an agreement or series of agreements for the sale or disposition by the Company of all or substantially all of the Company’s assets; or

(v) Other Events. There occurs any other event of a nature that would be required to be reported in response to

Item 6(e) of Schedule 14A of Regulation 14A (or a response to any similar item on any similar schedule or form) promulgated under the Exchange Act (as defined below), whether or not the Company is then subject to such reporting requirement.

(c) “Corporate Status” describes the status of a person who is or was a director, officer, trustee, general partner, managing member, fiduciary, employee or agent of the Company or of any other Enterprise (as defined below) which such person is or was serving at the request of the Company.

(d) “Disinterested Director” means a director of the Company who is not and was not a party to the Proceeding in respect of which indemnification is sought by Indemnitee.

(e) “Enterprise” shall mean the Company and any other corporation, limited liability company, partnership, joint venture, trust, employee benefit plan or other enterprise of which Indemnitee is or was serving at the request of the Company as a director, officer, trustee, general partner, managing member, fiduciary, employee or agent.

(f) “Exchange Act” shall mean the Securities Exchange Act of 1934, as amended.

(g) “Expenses” shall include all reasonable attorneys’ fees, retainers, court costs, transcript costs, fees of experts, witness fees, travel expenses, duplicating costs, printing and binding costs, telephone charges, postage, delivery service fees and all other disbursements or expenses of the type customarily incurred in connection with prosecuting, defending, preparing to prosecute or defend, investigating, being or preparing to be a witness in, or otherwise participating in, a Proceeding. Expenses also shall include expenses incurred in connection with any appeal resulting from any Proceeding, including, without limitation, the premium, security for and other costs relating to any cost bond, supersedeas bond or other appeal bond or its equivalent. Expenses shall not include amounts paid in settlement by Indemnitee or the amount of judgments or fines against Indemnitee.

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(h) “Independent Counsel” means a law firm, or a member of a law firm, that is experienced in matters of corporation law and neither presently is, nor in the past five years has been, retained to represent: (i) the Company or Indemnitee in any matter material to either such party (other than with respect to matters concerning Indemnitee under this Agreement, or of other indemnitees under similar indemnification agreements), or (ii) any other party to the Proceeding giving rise to a claim for indemnification hereunder. Notwithstanding the foregoing, the term “Independent Counsel” shall not include any person who, under the applicable standards of professional conduct then prevailing, would have a conflict of interest in representing either the Company or Indemnitee in an action to determine Indemnitee’s rights under this Agreement. The Company agrees to pay the reasonable fees and expenses of the Independent Counsel referred to above and to fully indemnify such counsel against any and all Expenses, claims, liabilities and damages arising out of or relating to this Agreement or its engagement pursuant hereto.

(i) “Person” shall have the meaning set forth in Sections 13(d) and 14(d) of the Exchange Act; provided, however, that Person shall exclude (i) the Company, (ii) any trustee or other fiduciary holding securities under an employee benefit plan of the Company and (iii) any corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company.

(j) The term “Proceeding” shall include any threatened, pending or completed action, suit, arbitration, alternate dispute resolution mechanism, investigation, inquiry, administrative hearing or any other actual, threatened or completed proceeding, whether brought in the right of the Company or otherwise and whether of a civil, criminal, administrative or investigative nature, in which Indemnitee was, is or will be involved as a party or otherwise by reason of the fact that Indemnitee is or was a director or officer of the Company, by reason of any action taken (or failure to act) by him or her or of any action (or failure to act) on his or her part while acting as a director or officer of the Company, or by reason of the fact that he or she is or was serving at the request of the Company as a director, officer, trustee, general partner, managing member, fiduciary, employee or agent of any other Enterprise, in each case whether or not serving in such capacity at the time any liability or expense is incurred for which indemnification, reimbursement or advancement of expenses can be provided under this Agreement.

(k) References to “other enterprise” shall include employee benefit plans; references to “fines” shall include any excise tax assessed with respect to any employee benefit plan; references to “serving at the request of the Company” shall include any service as a director, officer, employee or agent of the Company which imposes duties on, or involves services by, such director, officer, employee or agent with respect to an employee benefit plan, its participants or beneficiaries; and a person who acted in good faith and in a manner he or she reasonably believed to be in the best interests of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner “not opposed to the best interests of the Company” as referred to in this Agreement.

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3. Indemnity in Third-Party Proceedings. The Company shall indemnify Indemnitee in accordance with the provisions of this Section 3 if Indemnitee is, or is threatened to be made, a party to or a participant (as a witness or otherwise) in any Proceeding, other than a Proceeding by or in the right of the Company to procure a judgment in its favor. Pursuant to this Section 3, Indemnitee shall be indemnified against all Expenses, judgments, fines, penalties and amounts paid in settlement (including all interest, assessments and other charges paid or payable in connection with or in respect of such Expenses, judgments, fines, penalties and amounts paid in settlement) actually and reasonably incurred by Indemnitee or on his or her behalf in connection with such Proceeding or any claim, issue or matter therein, if Indemnitee acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the Company and, in the case of a criminal proceeding, he or she had no reasonable cause to believe that his or her conduct was unlawful.

4. Indemnity in Proceedings by or in the Right of the Company. The Company shall indemnify Indemnitee in accordance with the provisions of this Section 4 if Indemnitee is, or is threatened to be made, a party to or a participant (as a witness or otherwise) in any Proceeding by or in the right of the Company to procure a judgment in its favor. Pursuant to this Section 4, Indemnitee shall be indemnified against all Expenses actually and reasonably incurred by Indemnitee or on his or her behalf in connection with such Proceeding or any claim, issue or matter therein, if Indemnitee acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the Company. No indemnification for Expenses shall be made under this Section 4 in respect of any claim, issue or matter as to which Indemnitee shall have been finally adjudged by a court to be liable to the Company, unless and only to the extent that any court in which the Proceeding was brought or the Delaware Court of Chancery shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, Indemnitee is fairly and reasonably entitled to indemnification.

5. Indemnification for Expenses of a Party Who is Wholly or Partly Successful. Notwithstanding any other provisions of this Agreement, to the extent that Indemnitee is a party to (or a participant in) and is successful, on the merits or otherwise, in any Proceeding or in defense of any claim, issue or matter therein, in whole or in part, the Company shall indemnify Indemnitee against all Expenses actually and reasonably incurred by him or her in connection therewith. If Indemnitee is not wholly successful in such Proceeding but is successful, on the merits or otherwise, as to one or more but less than all claims, issues or matters in such Proceeding, the Company shall indemnify Indemnitee against all Expenses actually and reasonably incurred by him or her or on his or her behalf in connection with each successfully resolved claim, issue or matter. If Indemnitee is not wholly successful in such Proceeding, the Company also shall indemnify Indemnitee against all Expenses reasonably incurred in connection with a claim, issue or matter related to any claim, issue or matter on which Indemnitee was successful. For purposes of this Section and without limitation, the termination of any claim, issue or matter in such a Proceeding by dismissal, with or without prejudice, shall be deemed to be a successful result as to such claim, issue or matter.

6. Indemnification For Expenses of a Witness. Notwithstanding any other provision of this Agreement, to the extent that Indemnitee is, by reason of his Corporate Status, a witness in any Proceeding to which Indemnitee is not a party, he shall be indemnified against all Expenses actually and reasonably incurred by him or her or on his or her behalf in connection therewith.

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7. Additional Indemnification.

(a) Notwithstanding any limitation in Sections 3, 4 or 5, the Company shall indemnify Indemnitee to the fullest extent permitted by law if Indemnitee is a party to or threatened to be made a party to any Proceeding (including a Proceeding by or in the right of the Company to procure a judgment in its favor) against all Expenses, judgments, fines, penalties and amounts paid in settlement (including all interest, assessments and other charges paid or payable in connection with or in respect of such Expenses, judgments, fines, penalties and amounts paid in settlement) actually and reasonably incurred by Indemnitee in connection with the Proceeding. No indemnity shall be made under this Section 7(a) on account of Indemnitee’s conduct which constitutes a breach of Indemnitee’s duty of loyalty to the Company or its stockholders or is an act or omission not in good faith or which involves intentional misconduct or a knowing violation of the law.

(b) For purposes of Section 7(a), the meaning of the phrase “to the fullest extent permitted by law” shall include, but not be limited to:

(i) the fullest extent permitted by the provision of the DGCL that authorizes or contemplates additional indemnification by agreement or the corresponding provision of any amendment to or replacement of the DGCL; and

(ii) the fullest extent authorized or permitted by any amendments to or replacements of the DGCL adopted after the date of this Agreement that increase the extent to which a corporation may indemnify its officers and directors.

8. Exclusions. Notwithstanding any other provision in this Agreement, the Company shall not be obligated under this Agreement to indemnify Indemnitee in connection with any claim made against Indemnitee:

(a) for which payment has actually been received by or on behalf of Indemnitee under any insurance policy or other indemnity provision, except with respect to any excess beyond the amount actually received under any insurance policy or other indemnity provision;

(b) for an accounting of profits made from the purchase and sale (or sale and purchase) by Indemnitee of securities of the Company within the meaning of Section 16(b) of the Exchange Act or similar provisions of state statutory law or common law; or

(c) except as otherwise provided in Sections 13(d)-(f) hereof, prior to a Change in Control, in connection with any Proceeding (or any part of any Proceeding) initiated by Indemnitee, including any Proceeding (or any part of any Proceeding) initiated by Indemnitee against the Company or its directors, officers, employees or other indemnitees, unless (i) the Board of Directors of the Company authorized the Proceeding (or any part of any Proceeding) prior to its initiation or (ii) the Company provides the indemnification, in its sole discretion, pursuant to the powers vested in the Company under applicable law.

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9. Advances of Expenses; Defense of Claim.

(a) Notwithstanding any provision of this Agreement to the contrary, the Company shall advance the expenses incurred by Indemnitee in connection with any Proceeding within ten (10) days after the receipt by the Company of a statement or statements requesting such advances from time to time, whether prior to or after final disposition of any Proceeding. Advances shall be unsecured and interest free. Advances shall be made without regard to Indemnitee’s ability to repay the expenses and without regard to Indemnitee’s ultimate entitlement to indemnification under the other provisions of this Agreement. Advances shall include any and all reasonable Expenses incurred pursuing an action to enforce this right of advancement, including Expenses incurred preparing and forwarding statements to the Company to support the advances claimed. Indemnitee shall qualify for advances solely upon the execution and delivery to the Company of an undertaking providing that Indemnitee undertakes to repay the advance to the extent that it is ultimately determined that Indemnitee is not entitled to be indemnified by the Company. This Section 9(a) shall not apply to any claim made by Indemnitee for which indemnity is excluded pursuant to Section 8.

(b) The Company will be entitled to participate in the Proceeding at its own expense.

(c) The Company shall not settle any action, claim or Proceeding (in whole or in part) which would impose any Expense, judgment, fine, penalty or limitation on Indemnitee without Indemnitee’s prior written consent.

10. Procedure for Notification and Application for Indemnification.

(a) Within sixty (60) days after the actual receipt by Indemnitee of notice that he or she is a party to or a participant (as a witness or otherwise) in any Proceeding, Indemnitee shall submit to the Company a written notice identifying the Proceeding. The omission by Indemnitee to notify the Company will not relieve the Company from any liability which it may have to Indemnitee (i) otherwise than under this Agreement and (ii) under this Agreement except to the extent the Company can establish that such omission to notify resulted in actual prejudice to the Company.

(b) Indemnitee shall thereafter deliver to the Company a written application to indemnify Indemnitee in accordance with this Agreement. Such application(s) may be delivered from time to time and at such time(s) as Indemnitee deems appropriate in his or her sole discretion. Following such a written application for indemnification by Indemnitee, Indemnitee’s entitlement to indemnification shall be determined in accordance with Section 11(a) of this Agreement.

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11. Procedure Upon Application for Indemnification.

(a) Upon written request by Indemnitee for indemnification pursuant to Section 10(b), a determination, if required by applicable law, with respect to Indemnitee’s entitlement thereto shall be made in the specific case: (i) by a majority vote of the Disinterested Directors, even if constituting less than a quorum of the Board; or (ii) if so requested by Indemnitee, in his or her sole discretion, by Independent Counsel in a written opinion to the Board, a copy of which shall be delivered to Indemnitee. If it is so determined that Indemnitee is entitled to indemnification, payment to Indemnitee shall be made within ten (10) days after such determination. Indemnitee shall reasonably cooperate with the person, persons or entity making such determination with respect to Indemnitee’s entitlement to indemnification, including providing to such person, persons or entity upon reasonable advance request any documentation or information which is not privileged or otherwise protected from disclosure and which is reasonably available to Indemnitee and reasonably necessary to such determination. Any costs or expenses (including attorneys’ fees and disbursements) incurred by Indemnitee in so cooperating with the person, persons or entity making such determination shall be borne by the Company (irrespective of the determination as to Indemnitee’s entitlement to indemnification) and the Company hereby indemnifies and agrees to hold Indemnitee harmless therefrom.

(b) In the event the determination of entitlement to indemnification is to be made by Independent Counsel pursuant to Section 11(a) hereof, the Independent Counsel shall be selected as provided in this Section 11(b). If a Change in Control shall not have occurred, the Independent Counsel shall be selected by the Board of Directors, and the Company shall give written notice to Indemnitee advising him of the identity of the Independent Counsel so selected. If a Change in Control shall have occurred, the Independent Counsel shall be selected by Indemnitee (unless Indemnitee shall request that such selection be made by the Board of Directors, in which event the preceding sentence shall apply), and Indemnitee shall give written notice to the Company advising it of the identity of the Independent Counsel so selected. In either event, Indemnitee or the Company, as the case may be, may, within 10 days after such written notice of selection shall have been received, deliver to the Company or to Indemnitee, as the case may be, a written objection to such selection; provided, however, that such objection may be asserted only on the ground that the Independent Counsel so selected does not meet the requirements of “Independent Counsel” as defined in Section 2 of this Agreement, and the objection shall set forth with particularity the factual basis of such assertion. Absent a proper and timely objection, the person so selected shall act as Independent Counsel. If such written objection is so made and substantiated, the Independent Counsel so selected may not serve as Independent Counsel unless and until such objection is withdrawn or a court of competent jurisdiction has determined that such objection is without merit. If, within 20 days after submission by Indemnitee of a written request for indemnification pursuant to Section 10(b) hereof, no Independent Counsel shall have been selected and not objected to, either the Company or Indemnitee may petition a court of competent jurisdiction (the “Court”) for resolution of any objection which shall have been made by the Company or Indemnitee to the other’s selection of Independent Counsel and/or for the appointment as Independent Counsel of a person selected by the Court or by such other person as the Court shall designate, and the person with respect to whom all objections are so resolved or the person so appointed shall act as Independent Counsel under Section 11(a) hereof. Upon the due commencement of any judicial proceeding or

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arbitration pursuant to Section 13(a) of this Agreement, Independent Counsel shall be discharged and relieved of any further responsibility in such capacity (subject to the applicable standards of professional conduct then prevailing).

(c) The Company agrees to pay the reasonable fees of Independent Counsel and to fully indemnify such Independent Counsel against any and all Expenses, claims, liabilities and damages arising out of or relating to this Agreement or its engagement pursuant hereto.

12. Presumptions and Effect of Certain Proceedings.

(a) In making a determination with respect to entitlement to indemnification hereunder, the person or persons or entity making such determination shall presume that Indemnitee is entitled to indemnification under this Agreement if Indemnitee has submitted a request for indemnification in accordance with Section 10(b) of this Agreement, and the Company shall have the burden of proof to overcome that presumption in connection with the making by any person, persons or entity of any determination contrary to that presumption. Neither the failure of the Company (including by the Board or Independent Counsel) to have made a determination prior to the commencement of any action pursuant to this Agreement that indemnification is proper in the circumstances because Indemnitee has met the applicable standard of conduct, nor an actual determination by the Company (including by the Board or Independent Counsel) that Indemnitee has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that Indemnitee has not met the applicable standard of conduct.

(b) If the person, persons or entity empowered or selected under Section 11 of this Agreement to determine whether Indemnitee is entitled to indemnification shall not have made a determination within sixty (60) days after receipt by the Company of the request therefor, the requisite determination of entitlement to indemnification shall be deemed to have been made and Indemnitee shall be entitled to such indemnification, absent (i) a misstatement by Indemnitee of a material fact, or an omission of a material fact necessary to make Indemnitee’s statement not materially misleading, in connection with the request for indemnification or (ii) a prohibition of such indemnification under applicable law; provided, however, that such 60-day period shall be extended for a reasonable time, not to exceed an additional thirty (30) days, if the person, persons or entity making the determination with respect to entitlement to indemnification in good faith requires such additional time for the obtaining or evaluating of documentation and/or information relating thereto.

(c) The termination of any Proceeding or of any claim, issue or matter therein, by judgment, order, settlement or conviction, or upon a plea of nolo contendere or its equivalent, shall not (except as otherwise expressly provided in this Agreement) of itself adversely affect the right of Indemnitee to indemnification or create a presumption that Indemnitee did not act in good faith and in a manner which he or she reasonably believed to be in or not opposed to the best interests of the Company or, with respect to any criminal Proceeding, that Indemnitee had reasonable cause to believe that his or her conduct was unlawful.

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(d) For purposes of any determination of good faith, Indemnitee shall be deemed to have acted in good faith if Indemnitee’s action is based on the records or books of account of the Enterprise, including financial statements, or on information supplied to Indemnitee by the officers of the Enterprise in the course of their duties, or on the advice of legal counsel for the Enterprise or on information or records given or reports made to the Enterprise by an independent certified public accountant or by an appraiser or other expert selected by the Enterprise. The provisions of this Section 12(d) shall not be deemed to be exclusive or to limit in any way the other circumstances in which Indemnitee may be deemed or found to have met the applicable standard of conduct set forth in this Agreement.

(e) The knowledge and/or actions, or failure to act, of any other director, trustee, partner, managing member, fiduciary, officer, agent or employee of the Enterprise shall not be imputed to Indemnitee for purposes of determining the right to indemnification under this Agreement.

13. Remedies of Indemnitee.

(a) In the event that (i) a determination is made pursuant to Section 11 of this Agreement that Indemnitee is not entitled to indemnification under this Agreement, (ii) advancement of Expenses is not timely made pursuant to Section 9 of this Agreement, (iii) no determination of entitlement to indemnification shall have been made pursuant to Section 11(a) of this Agreement within the time period specified in Section 12(b) of this Agreement, (iv) payment of indemnification is not made pursuant to Section 5, 6, 7 or the last sentence of Section 11(a) of this Agreement within ten (10) days after receipt by the Company of a written request therefor or (v) payment of indemnification pursuant to Section 3 or Section 4 of this Agreement is not made within ten (10) days after a determination has been made that Indemnitee is entitled to indemnification, Indemnitee shall be entitled to an adjudication by a court of his or her entitlement to such indemnification or advancement of Expenses. Alternatively, Indemnitee, at his or her option, may seek an award in arbitration to be conducted by a single arbitrator pursuant to the Commercial Arbitration Rules of the American Arbitration Association. The Company shall not oppose Indemnitee’s right to seek any such adjudication or award in arbitration.

(b) In the event that a determination shall have been made pursuant to Section 11(a) of this Agreement that Indemnitee is not entitled to indemnification, any judicial proceeding or arbitration commenced pursuant to this Section 13 shall be conducted in all respects as a de novo trial or arbitration on the merits, and Indemnitee shall not be prejudiced by reason of that adverse determination. In any judicial proceeding or arbitration commenced pursuant to this Section 13, the Company shall have the burden of proving Indemnitee is not entitled to indemnification or advancement of Expenses, as the case may be, and the Company may not refer to or introduce into evidence any determination pursuant to Section 11(a) of this Agreement adverse to Indemnitee for any purpose. If Indemnitee commences a judicial proceeding or arbitration pursuant to this Section 13, Indemnitee shall not be required to reimburse the Company for any advances pursuant to Section 9 until a final determination is made with respect to Indemnitee’s entitlement to indemnification (as to which all rights of appeal have been exhausted or lapsed).

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(c) If a determination shall have been made pursuant to Section 11(a) of this Agreement that Indemnitee is entitled to indemnification, the Company shall be bound by such determination in any judicial proceeding or arbitration commenced pursuant to this Section 13, absent (i) a misstatement by Indemnitee of a material fact, or an omission of a material fact necessary to make Indemnitee’s statement not materially misleading, in connection with the request for indemnification or (ii) a prohibition of such indemnification under applicable law.

(d) In the event that Indemnitee, pursuant to this Section 13, seeks a judicial adjudication of or an award in arbitration to enforce his or her rights under, or to recover damages for breach of, this Agreement, Indemnitee shall be entitled to recover from the Company, and shall be indemnified by the Company against, any and all Expenses actually and reasonably incurred by him or her in such judicial adjudication or arbitration. If it shall be determined in said judicial adjudication or arbitration that Indemnitee is entitled to receive part but not all of the indemnification or advancement of Expenses sought, Indemnitee shall be entitled to recover from the Company, and shall be indemnified by the Company against, any and all Expenses reasonably incurred by Indemnitee in connection with such judicial adjudication or arbitration.

(e) The Company shall be precluded from asserting in any judicial proceeding or arbitration commenced pursuant to this Section 13 that the procedures and presumptions of this Agreement are not valid, binding and enforceable and shall stipulate in any such court or before any such arbitrator that the Company is bound by all the provisions of this Agreement.

(f) The Company shall indemnify Indemnitee to the fullest extent permitted by law against all Expenses and, if requested by Indemnitee, shall (within ten (10) days after the Company’s receipt of such written request) advance such Expenses to Indemnitee, which are incurred by Indemnitee in connection with any judicial proceeding or arbitration brought by Indemnitee for (i) indemnification or advances of Expenses by the Company under this Agreement or any other agreement or provision of the Company’s certificate of incorporation or bylaws now or hereafter in effect or (ii) recovery or advances under any insurance policy maintained by any person for the benefit of Indemnitee, regardless of whether Indemnitee ultimately is determined to be entitled to such indemnification, advance or insurance recovery, as the case may be.

14. Non-exclusivity; Survival of Rights; Insurance; Subrogation.

(a) The rights of indemnification and to receive advancement of Expenses as provided by this Agreement shall not be deemed exclusive of any other rights to which Indemnitee may at any time be entitled under applicable law, the Company’s certificate of incorporation, the Company’s bylaws, any agreement, a vote of stockholders, a resolution of directors or otherwise. No amendment, alteration or repeal of this Agreement or of any provision hereof shall limit or restrict any right of Indemnitee under this Agreement in respect of any action taken or omitted by such Indemnitee in his Corporate Status prior to such amendment, alteration or repeal. The parties hereto intend that, to the extent that a change in Delaware law, whether by statute or judicial decision, permits greater indemnification or advancement of Expenses than would be afforded currently under the Company’s bylaws and this Agreement, the

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Indemnitee shall enjoy by this Agreement the greater benefits so afforded by such change. No right or remedy herein conferred is intended to be exclusive of any other right or remedy, and every other right and remedy shall be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law, in equity or otherwise. The assertion or employment of any right or remedy hereunder or otherwise, shall not prevent the concurrent assertion or employment of any other right or remedy.

(b) To the extent that the Company maintains an insurance policy or policies providing liability insurance for directors, officers, trustees, partners, managing members, fiduciaries, employees or agents of the Company or of any other Enterprise which such person serves at the request of the Company, Indemnitee shall be covered by such policy or policies in accordance with its or their terms to the maximum extent of the coverage available for any such director, trustee, partner, managing member, fiduciary, officer, employee or agent under such policy or policies. If, at the time the Company receives notice from any source of a Proceeding as to which Indemnitee is a party or a participant (as a witness or otherwise), the Company has director and officer liability insurance in effect, the Company shall give prompt notice of such Proceeding to the insurers in accordance with the procedures set forth in the respective policies. The Company shall thereafter take all necessary or desirable action to cause such insurers to pay, on behalf of Indemnitee, all amounts payable as a result of such Proceeding in accordance with the terms of such policies.

(c) In the event of any payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee, who shall execute all papers required and take all action necessary to secure such rights, including execution of such documents as are necessary to enable the Company to bring suit to enforce such rights.

(d) The Company shall not be liable under this Agreement to make any payment of amounts otherwise indemnifiable hereunder (or for which advancement is provided hereunder) if and to the extent that Indemnitee has otherwise actually received such payment under any insurance policy, contract, agreement or otherwise.

(e) The Company’s obligation to indemnify or advance Expenses hereunder to Indemnitee who is or was serving at the request of the Company as a director, officer, trustee, partner, managing member, fiduciary, employee or agent of any other Enterprise shall be reduced by any amount Indemnitee has actually received as indemnification or advancement of expenses from such Enterprise.

15. Duration of Agreement. This Agreement shall continue until and terminate upon the later of: (a) ten (10) years after the date that Indemnitee shall have ceased to serve as a director or officer of the Company or as a director, officer, trustee, partner, managing member, fiduciary, employee or agent of any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise which Indemnitee served at the request of the Company; or (b) one (1) year after the final termination of any Proceeding (including any rights of appeal thereto) then pending in respect of which Indemnitee is granted rights of indemnification or advancement of Expenses hereunder and of any Proceeding commenced by Indemnitee pursuant to Section 13 of this Agreement relating thereto (including any rights of appeal of any Section 13 Proceeding).

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16. Severability. If any provision or provisions of this Agreement shall be held to be invalid, illegal or unenforceable for any reason whatsoever: (a) the validity, legality and enforceability of the remaining provisions of this Agreement (including, without limitation, each portion of any Section of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that is not itself invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby and shall remain enforceable to the fullest extent permitted by law; (b) such provision or provisions shall be deemed reformed to the extent necessary to conform to applicable law and to give the maximum effect to the intent of the parties hereto; and (c) to the fullest extent possible, the provisions of this Agreement (including, without limitation, each portion of any Section of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that is not itself invalid, illegal or unenforceable) shall be construed so as to give effect to the intent manifested thereby.

17. Enforcement and Binding Effect.

(a) The Company expressly confirms and agrees that it has entered into this Agreement and assumed the obligations imposed on it hereby in order to induce Indemnitee to serve as a director or officer of the Company, and the Company acknowledges that Indemnitee is relying upon this Agreement in serving as a director or officer of the Company.

(b) This Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter hereof and supersedes all prior agreements and understandings, oral, written and implied, between the parties hereto with respect to the subject matter hereof.

(c) The indemnification and advancement of expenses provided by or granted pursuant to this Agreement shall apply to Indemnitee’s service as an officer, director or key employee of the Company prior to the date of this Agreement.

(d) The indemnification and advancement of expenses provided by or granted pursuant to this Agreement shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person.

18. Modification and Waiver. No supplement, modification or amendment of this Agreement shall be binding unless executed in writing by the parties hereto. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provisions of this Agreement nor shall any waiver constitute a continuing waiver.

19. Notice by Indemnitee. Indemnitee agrees promptly to notify the Company in writing upon being served with any summons, citation, subpoena, complaint, indictment, information or other document relating to any Proceeding or matter which may be subject to indemnification or advancement of Expenses covered hereunder. The failure of Indemnitee to so notify the Company shall not relieve the Company of any obligation which it may have to Indemnitee under this Agreement or otherwise, except as provided in Section 10(a).

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20. Notices. All notices, requests, demands and other communications under this Agreement shall be in writing and shall be deemed to have been duly given (a) if delivered by hand and if receipt is acknowledged in writing by the party to whom said notice or other communication shall have been directed or (b) if mailed by certified or registered mail with postage prepaid, on the third business day after the date on which it is so mailed:

(a) If to Indemnitee, at the address indicated on the signature page of this Agreement, or such other address as Indemnitee shall provide in writing to the Company.

(b) If to the Company to:

Design Within Reach, Inc.

225 Bush Street, 20^th Floor

San Francisco, California 94104

Attn.: General Counsel

or to any other address as may have been furnished to Indemnitee in writing by the Company.

21. Contribution. To the fullest extent permissible under applicable law, if the indemnification provided for in this Agreement is unavailable to Indemnitee for any reason whatsoever, the Company, in lieu of indemnifying Indemnitee, shall contribute to the amount incurred by Indemnitee, whether for judgments, fines, penalties, excise taxes, amounts paid or to be paid in settlement and/or for Expenses, in connection with any claim relating to an indemnifiable event under this Agreement, in such proportion as is deemed fair and reasonable in light of all of the circumstances of such Proceeding in order to reflect: (i) the relative benefits received by the Company and Indemnitee as a result of the event(s) and/or transaction(s) giving rise to such Proceeding; and/or (ii) the relative fault of the Company (and its directors, officers, employees and agents) and Indemnitee in connection with such event(s) and/or

transaction(s).

22. Applicable Law and Consent to Jurisdiction. This Agreement and the legal relations among the parties shall be governed by, and construed and enforced in accordance with, the laws of the State of Delaware, without regard to its conflict of laws rules. Except with respect to any arbitration commenced by Indemnitee pursuant to Section 13(a) of this Agreement, the Company and Indemnitee hereby irrevocably and unconditionally (i) agree that any action or proceeding arising out of or in connection with this Agreement shall be brought only in the Chancery Court of the State of Delaware (the “Delaware Court”) and not in any other state or federal court in the United States of America or any court in any other country, (ii) consent to submit to the exclusive jurisdiction of the Delaware Court for purposes of any action or proceeding arising out of or in connection with this Agreement, (iii) appoint, to the extent such party is not a resident of the State of Delaware, irrevocably The Corporation Trust Company, 1209 Orange Street, Wilmington, Delaware 19801, as its agent in the State of Delaware as such party’s agent for acceptance of legal process in connection with any such action or proceeding against such party with the same legal force and validity as if served upon

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such party personally within the State of Delaware, (iv) waive any objection to the laying of venue of any such action or proceeding in the Delaware Court and (v) waive and agree not to plead or to make any claim that any such action or proceeding brought in the Delaware Court has been brought in an improper or inconvenient forum.

23. Identical Counterparts. This Agreement may be executed in one or more counterparts, each of which shall for all purposes be deemed to be an original but all of which together shall constitute one and the same Agreement. Only one such counterpart signed by the party against whom enforceability is sought needs to be produced to evidence the existence of this Agreement.

24. Miscellaneous. Use of the masculine pronoun shall be deemed to include usage of the feminine pronoun where appropriate. The headings of the sections and paragraphs of this Agreement are inserted for convenience only and shall not be deemed to constitute part of this Agreement or to affect the construction thereof.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

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IN WITNESS WHEREOF, the parties have caused this Agreement to be signed as of the day and year first above written.

DESIGN WITHIN REACH, INC.,	INDEMNITEE
a Delaware corporation
By:
Name:		[NAME]
Title:
	Address:

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EX-10.02

EXHIBIT 10.02

SUBLEASE AGREEMENT

This Sublease Agreement (this “Sublease”) is made as of August    , 2003, by and between National Broadcasting Company, Inc., a Delaware corporation (“Sublandlord”) and Design Within Reach, a California corporation (“Subtenant”), with regard to the following facts:

A. Xoom.com, Inc. was the original tenant under an Office Lease, dated as of August 13, 1999, with OAIC Bush Street, LLC, a Delaware limited liability company (the “Original Master Landlord”). Xoom.com, Inc. assigned the Office Lease to NBC Internet, Inc., a Delaware corporation (“NBCi”). NBCi and the Original Master Landlord amended the Office Lease by: (i) a First Amendment to Lease (“First Amendment”), dated as of February 15, 2000; (ii) a Storage Space License and Mail Room Agreement and Second Amendment to Lease (“Second Amendment”), dated as of February 22, 2000; and (iii) a Third Amendment to Lease (“Third Amendment”), dated as of May 17, 2000 (the lease and all of the aforementioned amendments and agreements are collectively referred to as the “Master Lease”) with Original Master Landlord for a Lease term that expires March 31, 2010. A copy of the Master Lease is attached to this Sublease and marked as Exhibit A and incorporated herein. Under the Master Lease, Sublandlord leases office space currently consisting of 220,135 rentable square feet on portions or all of the 7th, 8th, 9th, 12th, 13th, 14th, 19th, 20th, 21st and 22nd floors (the “Premises”), of the building located at 225 Bush Street, San Francisco, California (the “Building”).

B. On or about November 1, 2000, the Original Master Landlord sold the Building to WXIII/225 Bush, LLC, GEM Laredo 225 Bush, LLC, and Citrine 225 Bush, LLC who are now the master landlord under the Master Lease (collectively, the “Master Landlord”).

C. Sublandlord is the successor-in-interest by operation of law to NBCi’s interest as tenant under the Master Lease and all of NBCi’s rights and obligations thereunder.

D. Subtenant desires to sublease from Sublandlord that portion of the Premises, which is the entire 20th, 21st and 22nd floors of the Building, and which shall be deemed to consist of 59,188 rentable square feet (the “Subleased Premises”). Sublandlord has agreed to sublease the Subleased Premises to Subtenant on the terms, covenants and conditions stated in this Sublease.

NOW, THEREFORE, in consideration of the mutual covenants contained in this Sublease, and for valuable consideration, the receipt and sufficiency of which are acknowledged by the parties, the parties agree as follows:

1. Sublease. Sublandlord subleases to Subtenant and Subtenant subleases from Sublandlord the Subleased Premises, subject to the terms, covenants, and conditions contained in this Sublease.

2. Subleased Premises.

2.1 The Subleased Premises shall consist of 59,188 rentable square feet, comprising the entire 20th, 21st and 22nd floors of the Building as shown on Exhibit B hereto.

2.2 Sublandlord hereby designates Frank Morano, whose telephone number is (212) 664-7072, e-mail address is frank.morano@nbc.com, and street address is 30 Rockefeller Plaza, New York, New York, 10112, to act as its representative (“Sublandlord Move-In Representative”) and such person as Subtenant designates from time to time, to act as its representative (“Subtenant Move-In Representative”) for purposes of authorizing and executing any and all documents or other writings (following the Sublease execution) pertaining to construction of the improvements in the Subleased Premises such as approval of plans and specifications for Subtenant’s improvements and submission of requests for payment of the allowance in connection with the preparation of the Subleased Premises for occupancy by Subtenant. Subtenant and Sublandlord shall have the right to rely on any approvals and authorizations and documents executed by the Sublandlord Move In Representative and the Subtenant Move-In Representative, respectively, and, any provisions in this Sublease to the contrary notwithstanding, all notices from Subtenant to Sublandlord, or vice versa, regarding any move-in related construction matters shall be deemed to have been satisfied if delivered to the Sublandlord Move-In Representative or the Subtenant Move-In Representative, as appropriate, as provided above. Sublandlord shall have the right to change the Sublandlord Move-In Representative at any time upon notice to Subtenant and Subtenant shall have the right to change the Subtenant Move-In Representative at any time upon notice to Sublandlord.

3. Term.

3.1 Subject to the conditions set forth herein, the terms and provisions of this Sublease shall be effective between Sublandlord and Subtenant upon the full execution hereof; provided that the term of this Sublease shall commence on the latest to occur of (i) the date of this Sublease or (ii) the date of Master Landlord’s written consent to this Sublease as evidenced by the Non-Disturbance Agreement described in Section 11.11 hereof (the “Commencement Date”) and shall expire on March 10, 2010, unless sooner terminated as provided in the Master Lease or herein. Sublandlord agrees that the Subleased Premises shall be deemed delivered to Subtenant upon the Commencement Date.

3.2 Subject to all of the terms and conditions of this Sublease and the Master Lease, except the obligation to pay base rent for the Subleased Premises, upon the Commencement Date, Subtenant shall have full, uninterrupted and exclusive possession of the Subleased Premises.

4. Rent.

4.0 As used herein, the term “Rent Commencement Date” shall mean June 1, 2004.

4.1 Subtenant shall pay base rent for the Subleased Premises in the amount of (i) Seventy-Eight Thousand Nine Hundred Seventeen and 33/100 Dollars ($78,917.33) per month from June 1, 2004 through February 28, 2006; (ii) One Hundred Three Thousand Five Hundred Seventy-Nine Dollars ($103,579.00) per month from March 1, 2006 through February 29, 2008; and (iii) One Hundred Eight Thousand Five Hundred Eleven and 33/100 Dollars ($108,511.33) per month from March 1, 2008 through March 10, 2010, in each case without deduction, notice, demand or offset. Subtenant shall pay the base rent for the Subleased

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Premises for the first full month’s base rent due under the Sublease in the amount of Seventy-Eight Thousand Nine Hundred Seventeen and 33/100 Dollars ($78,917.33) (the “Initial Payment”) in advance upon Subtenant’s execution of this Sublease, but in the event Master Landlord does not consent to this Sublease, Sublandlord shall return the Initial Payment to Subtenant within ten (10) days following notice thereof. Rent for any partial month shall be pro-rated.

4.2 (a) Any and all other monetary obligations of Subtenant under this Sublease or applicable provisions of the Master Lease shall be deemed to be additional rent. Those obligations shall include, without limitation, Subtenant’s obligation to pay Subtenant’s share of all (i) Expenses pursuant to, and as defined in, Paragraph 5 of the Master Lease, based upon a Base Year of 2004, and (ii) Real Estate Taxes pursuant to and as defined in, Paragraph 5 of the Master Lease, based upon a Base Year of 2004. The Subleased Premises comprises 26.88% of the rentable square footage of the Premises and 10.66% of the rentable square footage of the Building (“Subtenant’s Share”). Subtenant’s Share shall be adjusted to the extent the Master Landlord amends or terminates the Master Lease as to any portion of the Premises. Subtenant’s Share of the Expenses and Real Estate Taxes due under the Master Lease and this Sublease shall reflect the applicable one of these percentages (unless a greater percentage of an expense or tax is attributable to Subtenant).

(b) Notwithstanding anything herein or in the Master Lease to the contrary, a failure by Sublandlord to bill Subtenant for any Expenses or for any Real Estate Taxes within one hundred eighty (180) days after Sublandlord receives a corresponding invoice from Master Landlord for the period for which such relate, shall relieve Subtenant of any obligation or duty to pay any amount that may otherwise be due for that period.

4.3 Other than monthly estimates of Subtenant’s Share of Expenses and Real Estate Taxes and yearly reconciliation amounts, which shall be paid pursuant to Paragraph 5 of the Master Lease, Subtenant shall pay all bills submitted from Sublandlord for any other monetary obligations to Sublandlord under this Sublease within twenty (20) days of receipt.

4.4 The provisions of the Master Lease providing Sublandlord the right to contest and audit statements for Expenses or Real Estate Taxes shall inure to the benefit of Subtenant with respect to both the statements provided by Sublandlord and the underlying statements from Master Landlord. In the event Subtenant desires to contest or audit the Expenses or Real Estate Taxes of the Building, to the extent Master Landlord will not allow Subtenant to perform such contest or audit, then Sublandlord will act on behalf of and as directed by Subtenant at the expense of Subtenant.

5. Use. Subtenant agrees to use the Subleased Premises only in accordance with the provisions of the Master Lease and for general business and professional office use, and for no other purpose.

6. Master Lease. As applied to this Sublease, the words “Landlord” and “Tenant”, and “Premises” in the Master Lease will be deemed to refer to Sublandlord, Subtenant and Subleased Premises, respectively, under this Sublease, as applicable. Except as otherwise expressly provided in Section 8 of this Sublease, the covenants, agreements, provisions, and

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conditions of the Master Lease, to the extent that they relate to the Subleased Premises, and to the extent that they are not inconsistent with the terms of this Sublease, are made a part of and incorporated into this Sublease as if recited in full in this Sublease. Except as otherwise specifically provided in this Sublease, the rights and obligations of the Landlord and Tenant under the Master Lease will be deemed the rights and obligations of Sublandlord and Subtenant, respectively, under this Sublease, and will inure to the benefit of, and be binding on, Sublandlord and Subtenant, respectively.

7. Performance by Sublandlord; Status of Master Lease.

7.1 Subtenant recognizes that Sublandlord is not in a position to render any of the services or to perform any of the obligations required of Master Landlord by the terms of the Master Lease. Therefore, despite anything to the contrary in this Sublease, Subtenant agrees that performance by Sublandlord of its obligations under this Sublease is conditioned upon performance by the Master Landlord of its corresponding obligations under the Master Lease, and except as provided in Section 7.2 below, Sublandlord shall not be liable to Subtenant for any default of the Master Landlord under the Master Lease.

7.2 Provided that there exists no Event of Default by Sublandlord under the Master Lease, Subtenant shall not have any claim against Sublandlord based on the Master Landlord’s failure or refusal to comply with any of the provisions of the Master Lease unless that failure or refusal is a result of Sublandlord’s act or failure to act. Despite the Master Landlord’s failure or refusal to comply with any of those provisions of the Master Lease, this Sublease shall remain in full force and effect and Subtenant shall pay the base rent and additional rent and all other charges provided for in this Sublease without any abatement, deduction or setoff. Except as expressly provided in this Sublease, Subtenant agrees to be subject to, and bound by, all of the applicable covenants, agreements, terms, provisions, and conditions of the Master Lease with respect to the Subleased Premises, as though Subtenant were the Tenant under the Master Lease.

7.3 Except as set forth in Section 11.3 below, whenever the consent of the Master Landlord is required under the Master Lease or whenever the Master Landlord fails to perform its obligations under the Master Lease, Sublandlord agrees to use commercially reasonable efforts to obtain that consent or performance on behalf of Subtenant. Such commercially reasonable efforts shall include efforts to contact (in person, by telephone and/or in writing) and negotiate with Master Landlord, but shall not include instituting litigation or any other proceedings.

7.4 As of the date of this Sublease, Sublandlord has neither given nor received a notice of default under the Master Lease and has no actual knowledge of any facts or circumstances which, with the passage of time or the giving of notice, would constitute a default under the Master Lease.

7.5 (a) Sublandlord agrees not to modify the Master Lease in a manner that adversely affects Subtenant’s rights or obligations under this Sublease and shall deliver a copy of any modification to Subtenant promptly after entry therein. Neither Subtenant nor Sublandlord shall commit or allow any act or omission that would result in the failure or breach of any of the

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covenants, provisions, or conditions of the Master Lease on the part of the Tenant under the Master Lease.

(b) Subtenant shall have the right to cure any default by Sublandlord under the Master Lease relating to the Subleased Premises or Subtenant’s rights under this Sublease.

8. Variations from Master Lease. As between Sublandlord and Subtenant, the terms and conditions of the Master Lease are modified as stated below in this Section 8.

8.1 Base Rent; Term. Despite anything to the contrary stated in the Master Lease, the term of this Sublease, the base rent and additional rent payable under this Sublease are set forth in Sections 3 and 4 herein.

8.2 Brokers. Sublandlord and Subtenant represent and warrant to each other that, except as provided herein, no broker, agent, commission salesperson, or other person has represented Sublandlord or Subtenant in the negotiations for and procurement of this Sublease and of the Subleased Premises and that no commissions, fees, or compensation of any kind are due and payable in connection herewith to any broker, agent, commission salesperson, or other person as a result of any act or agreement of Sublandlord or Subtenant. Sublandlord and Subtenant agree to indemnify and hold each other harmless from all loss, liability, damage, claim, judgment, cost or expense (including reasonable attorneys’ fees and court costs) suffered or incurred by the other party as a result of a breach by Sublandlord or Subtenant, as applicable, of the representation and warranty contained in the immediately preceding sentence or as a result of Sublandlord’s or Subtenant’s failure to pay commissions, fees or compensation due to any broker who represented Sublandlord or Subtenant, whether or not disclosed, or as a result of any claim for any fee, commission or similar compensation with respect to this Sublease made by any broker, agent or finder claiming to have dealt with Sublandlord or Subtenant, whether or not such claim is meritorious. No broker or finder has been involved by either party in connection with the consummation of this Sublease, except for CB Richard Ellis, on behalf of Sublandlord, and The CAC Group, on behalf of Subtenant. Sublandlord shall pay a commission for this Sublease pursuant to a separate agreement between Sublandlord and CB Richard Ellis. The provisions of this Section 8.2 shall survive the expiration or earlier termination of this Sublease.

8.3 Insurance and Condemnation Proceeds/Additional Insureds. Despite anything contained in the Master Lease to the contrary, as between Sublandlord and Subtenant only, in the event of damage to or condemnation of the Subleased Premises, all insurance proceeds or condemnation awards received by Sublandlord under the Master Lease (except for Subtenant’s personal property and relocation expenses) shall be deemed to be the property of Sublandlord, and Sublandlord shall have no obligation to rebuild or restore the Subleased Premises. Subtenant shall comply with the provisions of Paragraph 14 of the Master Lease and, where additional insureds are required to be named on any policies required of Subtenant, Subtenant shall name as additional insureds all of the parties specified in Paragraph 14 of the Master Lease and also name Sublandlord.

8.4 Amounts Payable. All amounts payable under this Sublease by Subtenant are payable directly to Sublandlord.

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8.5 Provisions of Master Lease not Applicable or Modified. This Sublease is subject and subordinate to the Master Lease, and all other agreements to which the Master Lease is subordinate.

As between Sublandlord and Subtenant, however, the following provisions of the Master Lease shall not apply to the Sublease if set forth below, or shall apply as modified by the parentheticals following the paragraph reference. For the Master Lease: the Basic Lease Information (to the extent that it pertains to the Premises and not the Subleased Premises in such matters as term commencement date, term expiration date, base monthly rental, base expense year and base tax year), Paragraphs 3, 8(a), 10 (no Subtenant obligations to remove Alterations installed by Sublandlord), 12 (no Subtenant obligation to remove Alterations installed by Sublandlord), 18(b) (will apply to the extent of the modifications in Section 10 of this Sublease), 18(e) the last sentence of the first paragraph and the second and third paragraphs are deleted; 18(f) (in the first sentence those rights shall only apply to Master Landlord and not Sublandlord), 18(h), 18(k), 18(1), and 18(m), 35, 40, 47(a) (the third sentence is deleted), 47(b), 47(c) and 47(d), 47(e) and 47(f), 49, 51, 52, 53(a), 54 (only applicable pro-rata for the ration between the Subleased Premises and the Premises), 56, 57, Exhibit C, Exhibit F, and Schedule l. The provisions of the First Amendment will not apply to this Sublease, except for the provisions of Paragraph 13 thereof. The provisions of the Second Amendment will not apply to this Sublease. The provisions of the Third Amendment will not apply to this Sublease except to the extent of reflecting the increase in size of the Premises and change in Tenant’s Share of Expenses and Real Estate Taxes.

8.6 “AS-IS”. (a) Sublandlord shall deliver the Subleased Premises to Subtenant in their current “AS-IS, WHERE-IS” condition and Subtenant accepts delivery in such condition without any express or implied representations or warranties from Sublandlord, or any agent, employee or representative of Sublandlord, regarding the condition or completeness of the Subleased Premises or their suitability or fitness for Subtenant’s proposed use or compliance with any applicable laws, rules, codes or regulations, including, without limitation, San Francisco building codes or ADA requirements. Notwithstanding the foregoing, Sublandlord agrees to deliver the Subleased Premises to Subtenant broom-clean, and with all mechanical systems within the Subleased Premises in good working order. Subtenant’s rights to make any improvements or alterations to the Subleased Premises and Subtenant’s obligation to restore the Subleased Premises to its as-delivered condition upon termination of this Sublease, shall be governed by the provisions of Exhibit C and Paragraph 10 of the Master Lease, provided, that the consent of both Sublandlord and Master Landlord shall be required thereunder. Upon Sublandlord’s review of the plans for Subtenant’s alterations, Sublandlord shall notify Subtenant as to whether Subtenant shall be required to restore the Subleased Premises to their original condition upon expiration or termination of this Sublease; provided that if Master Landlord does not require restoration of Subtenant’s improvements or alterations in the Subleased Premises upon the expiration or termination of this Sublease, Sublandlord shall be deemed to have waived any requirement to so restore. Compliance with any and all applicable laws, rules, regulations and codes (including without limitation ADA requirements) with respect to the Subleased Premises shall be the responsibility of Subtenant and shall be at Subtenant’s expense, if such compliance requirements arise from Subtenant’s alterations in the Subleased Premises.

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(b) All supervisory, management, review or oversight, plan review or approval fees, and any requirements for payment or performance bonds that Master Landlord may require under the terms of the Master Lease, or otherwise, in connection with the improvements to be made by Subtenant to the Subleased Premises, shall be paid or provided by Subtenant.

(c) Subtenant shall deliver plans for its work in the Subleased Premises to Sublandlord for its transmittal to Master Landlord which Sublandlord shall do within three (3) business days after approval by Sublandlord.

(d) Notwithstanding anything herein or in the Master Lease to the contrary, Subtenant shall, with respect to any alterations made by Subtenant, relinquish such alterations at the end of the Sublease term in the condition required by the Master Landlord as part of its consent to Subtenant’s alterations.

8.7 Hazardous Substances. (a) In furtherance of, and not in contradiction of the provisions of the Master Lease, Subtenant shall defend (with counsel approved by Sublandlord), indemnify and hold harmless Sublandlord, and its parent, subsidiary and affiliated companies, against any and all claims, losses, liabilities, costs and damages (collectively, “Claims”) arising in connection with or in any way relating to the use or occupancy of the Subleased Premises by Subtenant, which arise under or relate to Environmental Laws or Hazardous Substances, arising from facts or conditions which occur on or after the Commencement Date. Such Claims shall include without limitation: (1) remedial actions; (2) personal injury, wrongful death, economic loss or property damage claims; (3) claims for natural resource damages; (4) violations of law; or (5) any other cost, loss or damage directly resulting therefrom. This indemnification is supplementary to, and not in replacement of, the indemnification required elsewhere in this Sublease.

(b) Subtenant agrees that this Sublease shall exclusively define Subtenant’s rights and Sublandlord’s obligations with respect to environmental, health and safety matters related to the Sublease Premises. In no event shall Sublandlord be liable for any loss of profit, loss or interruption of business, denial of use of the Subleased Premises, or other consequential or indirect damages. Any demand or claim made upon Sublandlord pursuant to this Sublease must be made within one year of the expiration or earlier termination of this Sublease. Except with respect to the rights set forth herein, Subtenant, for itself and its parent, subsidiary and affiliated entities effective as of the Commencement Date, releases and discharges Sublandlord and its parent, subsidiary and affiliated companies from any and all claims (whether at law, in equity, or otherwise), rights of subrogation and contribution and remedies of any nature whatsoever, known or unknown, relating to or arising out of Environmental Laws or the processing, disposal, handling, use or release of Hazardous Substances in the Subleased Premises and arising on or after the Commencement Date. Subtenant knowingly and voluntarily waives the provisions of Section 1542 of the California Civil Code (set forth below), as well as any other statute, law or rule of similar effect, and acknowledges and agrees that this waiver is an essential and material term of this Sublease, and without such waiver this Sublease would not have been entered into.

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“A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH A CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY EFFECTED HIS SETTLEMENT WITH THE DEBTOR.”

(c) Sublandlord agrees to provide Subtenant with all documentation in Sublandlord’s possession regarding the existence of Hazardous Materials in the Subleased Premises.

(d) “Environmental Laws” shall mean any and all past, present and future local/municipal, state, federal or international law, statute, treaty, directive, decision, judgment, award, regulation, decree, rule, code of practice, guidance, order, direction, consent, authorization, permit or similar requirement, approval or standard concerning environmental, health or safety matters (including, but not limited to, the clean-up standards and practices for Hazardous Materials) in buildings, equipment, soil, subsurface strata, air, surface water, or ground water, set forth in applicable law.

(e) “Hazardous Materials” means any and all dangerous substances, hazardous substances, toxic substances, radioactive substances, hazardous wastes, special wastes, controlled wastes, oils, petroleum and petroleum products, hazardous chemicals and any other materials which may be harmful to human health or the environment.

8.8 Conflicts. As between Sublandlord and Subtenant only, in the event of a conflict between the terms of the Master Lease and the terms of this Sublease, the terms of this Sublease will control.

9. Indemnity. In addition to the provisions of Paragraph 16 of the Master Lease, Subtenant agrees to protect, defend, indemnify, and hold Sublandlord harmless from and against any and all liabilities, claims, expenses, losses and damages (including reasonable attorney’s fees and costs), that may at any time be asserted against Sublandlord by the Master Landlord directly resulting from the failure of Subtenant to perform any of the covenants, agreements, terms, provisions, or conditions contained in this Sublease or the Master Lease that Subtenant is obligated to perform under the provisions of this Sublease, except to the extent caused by the intentional or negligent act or failure to act of Sublandlord or any of its affiliates and their respective agents or employees.

10. Assignment or Subleasing. (a) Any activity with respect to this Sublease which could be construed to be covered by the “Assignment and Subletting” provisions of Paragraph 18 (as modified by this Sublease) of the Master Lease shall be subject to the consent of Sublandlord in addition to the consent of Master Landlord, as set forth in Paragraph 18 of the Master Lease. Subject to Paragraph 18 of the Master Lease, including, without limitation, Master Landlord’s rights to fifty percent (50%) of any sums above the rate paid by Sublandlord under the Master Lease (after subtracting out-of-pocket market rate leasing commissions paid to third party brokers), Subtenant shall be entitled to fifty percent (50%) of the remaining excess compensation or consideration for rents received on any sub-sublease or assignment of the Sublease in excess of the rents charged under the higher of (i) this Sublease or (ii) the Master Lease, after subtracting out-of-pocket market rate leasing commissions paid to third party brokers to the

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extent not already subtracted above. Subtenant shall have the same rights and obligations as Sublandlord under the provisions of Paragraph 18(b) of the Master Lease, except that (i) the definition of Affiliate in Paragraph 18(b)(i) (National Broadcasting Company, Inc.) shall be deemed deleted as to Subtenant, and (ii) the definition of Affiliate shall be deemed to include a subsidiary of Subtenant.

(b) Notwithstanding anything in this Sublease to the contrary, a sale of the assets, stock or ownership interests of Subtenant shall not require the consent of Sublandlord hereunder; provided that the successor or purchaser shall have a net worth equal to or greater than Subtenant on the day prior to such sale. Moreover, Subtenant shall have the right, without the consent of Sublandlord (a “Permitted Transfer”) either (a) to sublet the Subleased Premises, or portions thereof, or (b) to assign this Sublease in connection with any of the following: (1) sale of any of the stock or ownership interests or assets of Subtenant, (2) merger or consolidation of Subtenant, (3) an assignment or sublet or management or similar arrangement to an entity which is, directly or indirectly, controlled by, controlling or under common control with Subtenant; provided that in each case the transferee, sublessee or assignee shall have a net worth equal to or greater than Subtenant on the day prior to such sale. without Sublandlord’s consent. Sublandlord shall have no right to increase the Rent under this Sublease, to recapture any or all of the Subleased Premises or terminate the Sublease in connection with such Permitted Transfer; provided, however, that Subtenant shall reimburse Sublandlord for its actual, out-of-pocket expenses incurred in connection with such Permitted Transfer. Any sublet or assignment hereunder shall not release or discharge Subtenant or from any liability, whether past, present, or future, under this Sublease, and Subtenant shall continue fully liable thereunder. Subtenant shall deliver to Sublandlord promptly after the effective date of any such transfer, an executed copy of each such sublease or assignment.

(c) Subtenant acknowledges that any assignment, sublease or transfer (including without limitation a Permitted Transfer) shall require the consent of the Master Landlord to the extent set forth in the Master Lease.

11. General Provisions.

11.1 Amendment. Any agreement made after the date of this Sublease is ineffective to amend, modify, waive, release, terminate, or effect an abandonment of this Sublease, in whole or in part, unless that agreement is in writing, is signed by the parties to this Sublease, and specifically states that agreement modifies this Sublease.

11.2 Further Assurances. Each party to this Sublease will at its own cost and expense execute and deliver such further documents and instruments and will take such other actions as may be reasonably required or appropriate to evidence or carry out the intent and purposes of this Sublease.

11.3 Sublease Conditioned upon Consent of Master Landlord. Sublandlord agrees to comply with all of the requirements of the Master Lease in seeking the consent or approval of the Master Landlord to this Sublease within five (5) business days after Subtenant’s execution and delivery of this Sublease to Sublandlord and to thereafter use commercially reasonable efforts to have the Master Landlord consent or prove to this Sublease and to enter into

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the Non-Disturbance Agreement described in Section 11.11 hereof. The Master Landlord’s written consent to this Sublease in accordance with the terms of Paragraph 18 of the Master Lease is a condition precedent to the validity of this Sublease. This condition is for the benefit of both Sublandlord and Subtenant. Master Landlord’s consent to this Sublease must be in a form that is acceptable to Sublandlord and Subtenant in their sole discretion. If (i) the Master Landlord’s consent has not been obtained, and (ii) duplicate originals of the consent have not been delivered to Subtenant within the time periods set forth in Paragraph 18 of the Master Lease, Sublandlord and Subtenant shall each thereafter have the right, subject to the terms of this Section 11.3, to terminate this Sublease pursuant to a notice (the “Termination Notice”) delivered to the other party. If Sublandlord fails to deliver to Subtenant the consent of Master Landlord to this Sublease within ten (10) days following receipt of the Subtenant’s Termination Notice (“Subtenant’s Termination Date”), this Sublease shall automatically terminate and the parties shall be released from any further obligations under this Sublease and Sublandlord shall return to Subtenant all sums delivered by Subtenant to Sublandlord for base rent or any security deposit, including the return of any letter of credit provided pursuant to the terms hereof. If, however, Sublandlord delivers to Subtenant the consent of Master Landlord on or before the Subtenant’s Termination Date, the condition set forth in this Section 11.3 shall be satisfied and this Sublease shall continue in full force and effect. A Termination Notice delivered from Sublandlord to Subtenant (“Sublandlord’s Termination Notice”) shall be deemed effective upon delivery, but shall in no event be delivered after Sublandlord delivers to Subtenant the consent of Master Landlord to this Sublease.

11.4 Capitalized Terms. All terms spelled with initial capital letters in this Sublease that are not expressly defined in this Sublease shall have the respective meanings given such terms in the Master Lease.

11.5 Counterparts. This Sublease may be executed in one or more counterparts; all so executed shall constitute one sublease, binding upon all of the parties to this Sublease, notwithstanding that all of the parties are not signatory to the same counterpart.

11.6 Financial Statements. Upon Sublandlord’s written request therefor, but not more often than one time per year, Subtenant shall promptly furnish to Sublandlord a financial statement for its most recent fiscal quarter or year, as applicable, prepared in accordance with generally accepted accounting principles and certified to be true and correct by Subtenant (on a quarterly basis) and Subtenant’s accounting firm (on a yearly basis).

11.7 Representations and Warranties. (a) Subtenant represents and warrants that, at the time of Subtenant’s execution of this Sublease: (i) there has been no material adverse change in Subtenant’s financial statement and condition from the time when Subtenant first communicated these matters to Sublandlord and delivered to Sublandlord its financial statement; and (ii) Subtenant has received all necessary approvals necessary to enter into this Sublease and the person(s) executing this Sublease on behalf of Subtenant have the full power and authority to do so and bind Subtenant to the terms and provisions thereof.

(b) Sublandlord represents and warrants that, at the time of Sublandlord’s execution of this Sublease, Sublandlord has received all necessary approvals necessary to enter into this Sublease and the person(s) executing this Sublease on behalf of

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Sublandlord have the full power and authority to do so and bind Sublandlord to the terms and provisions hereof.

11.8 Signage. Pursuant to Paragraph 47 of the Master Lease (as limited by this Sublease), and at Subtenant’s sole cost and expense, Subtenant shall have the right to main floor directory signage and signage in each of the 20th, 21st and 22nd Floor elevator lobbies.

11.9 Master Landlord, Sublandlord and Subtenant Addresses for Notices. Except as contemplated by Section 2.2, all notices, consents, demands and other communications from one party to the other that are given pursuant to the terms of this Sublease shall be in writing and sent either (i) by deposit in the United States mail, certified or registered, return receipt requested; (ii) by overnight courier service; or (iii) by personal delivery, in each case addressed as follows:

Master Landlord:	WXIII/225 Bush, LLC c/o Flynn Properties, Inc. 225 Bush Street, Suite 1470 San Francisco, CA 94104 Attention: David Murphy, Director of Real Estate
	Teachers Insurance and Annuity Association of America 730 Third Avenue New York, NY 10017 Attention: Director of Portfolio Management, National Accounts, Mortgage and Real Estate Application #3247, Mortgage #000491100
	Teachers Insurance and Annuity Association of America 730 Third Avenue New York, NY 10017 Attention: Vice President and Chief Counsel, Mortgage and Real Estate Law Application #3247, Mortgage #000491100
Sublandlord:	National Broadcasting Company, Inc. 30 Rockefeller Plaza New York, NY 10112 Attention: Corporate Real Estate
	National Broadcasting Company, Inc. 30 Rockefeller Plaza New York, NY 10112 Attention: Law Department

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Subtenant:	Prior to the Rent Commencement Date: Design Within Reach 283 Fourth Street Oakland, California 94607 Attention: Chief Financial Officer
With a copy to:	Design Within Reach 283 Fourth Street Oakland, California 94607 Attention: Vice President of Real Estate
With a copy to:	Gardner Carton & Douglas LLP 191 N. Wacker Drive Suite 3700 Chicago, Illinois 60606 Attention: Barnett P. Ruttenberg, Esq.

Notices shall be effective upon receipt.

11.10 Publicity. Sublandlord and Subtenant expressly agree that there shall be no press release or other publicity originated by the parties hereto or any representative thereof concerning the Sublease without the prior written consent of both parties.

11.11 Non-Disturbance Agreement. Upon the execution and delivery of this Sublease by Sublandlord, Sublandlord shall provide to Subtenant a Non-Disturbance Agreement from the Master Landlord, in the form attached hereto as Exhibit D. Subtenant agrees that any costs incurred by Sublandlord in obtaining such Non-Disturbance Agreement from the Master Landlord shall be reimbursed to Sublandlord by Subtenant on demand.

11.12 Parking. Sublandlord shall make available to Subtenant, and Subtenant shall take from Sublandlord, eight (8) parking stalls in the Building garage, at the rate charged by the parking garage operator. The use of such parking stalls shall be upon such terms and conditions as the parking garage operator shall establish from time to time.

11.13 Furniture. Subtenant shall purchase the furniture (including workstation, office and conference furniture, but expressly excluding chairs) currently located in the Sublease Premises and more particularly described on Exhibit C hereto, for the sum of One Dollar ($1.00). Subtenant agrees that upon such purchase, Sublandlord shall transfer its right, title and interest in such furniture to Subtenant by bill of sale reasonably approved by Subtenant, without representation or warranty of any kind, express or implied other than the fact that Sublandlord owns all of such furniture free and clear of any liens or encumbrances, security agreements, conditional sales agreements, any similar or dissimilar encumbrance or reservation.

11.14 Tenant Improvement Allowance. In further consideration of this Lease, Sublandlord shall provide for Subtenant’s benefit a tenant improvement allowance of Seven Hundred Fifty Thousand, Eight Hundred Seventy-Four Dollars ($750,874.00) (the “Tenant

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Allowance”). Such funds may be applied by Subtenant towards the cost of construction of Subtenant’s improvements in the Subleased Premises, including without limitation architectural and engineering fees and other soft costs, and costs of acquiring and installing wiring and cabling for data and telecommunications, and any other costs and expenses permitted under Paragraph 6(a) of Exhibit C to the Master Lease. In the event Subtenant does not use all or any portion of the Tenant Allowance for the payment of the foregoing costs, Subtenant shall not be entitled to any excess funds. Sublandlord shall pay such tenant improvement allowance upon presentation by Subtenant of invoices from contractors, subcontractors and suppliers, for work and materials provided to or in the Subleased Premises, along with waivers of mechanic’s or materialmen’s liens with respect to such work or materials. The Tenant Allowance shall be paid in accordance with Exhibit C of the Master Lease. Upon completion of Subtenant’s work, Subtenant shall deliver to Sublandlord final lien waivers from Subtenant’s general contractor and all subcontractors and material suppliers.

11.15 Security Deposit. (a) Subtenant shall within three (3) business days following Sublandlord’s delivering evidence to Subtenant of Sublandlord’s execution of this Sublease (the “Security Delivery Date”), deposit with Sublandlord the sum of One Hundred Eighty-Seven Thousand Four Hundred Twenty-Eight and 67/100 Dollars ($187,428.67) (the “Security Amount”) as security for the full and faithful performance and observance by Subtenant of the terms of this Sublease.

(b) If Subtenant defaults in the full and prompt payment and performance of any of Subtenant’s covenants and obligations under this Sublease, including the payment of base rent and Additional Rent, and such default continues beyond applicable notice and grace periods, Sublandlord may, but shall not be required to, draw upon such Security Amount and use, apply or retain the whole or any part thereof, to the extent required for the payment of any base rent or Additional Rent or any other sums as to which Subtenant is in default or for any sum which Sublandlord may expend or may be required to expend by reason of Subtenant’s default in respect of any of the terms, covenants and conditions of this Sublease, including any damages or deficiency in the reletting of the Subleased Premises, whether such damages or deficiency accrue before or after summary proceedings or other reentry by Sublandlord. If Sublandlord shall so use, apply or retain the whole or any part, Subtenant shall within five (5) days of written notice deposit with Sublandlord a sum equal to the amount so used, applied or retained, as security as aforesaid, failing which Sublandlord shall have the same rights and remedies as for the non-payment of base rent beyond the applicable grace period. If Subtenant shall fully and faithfully comply with all of Subtenant’s covenants and obligations under this Sublease, the Security Amount or any portion thereof which have not been so used, applied or retained and any additional amounts deposited with Sublandlord under the preceding sentence, shall be returned or paid over to Subtenant on the expiration date of this Sublease. In the event of any sale, transfer or assignment of all or substantially all of its interest in the Subleased Premises, Sublandlord shall have the right to transfer such amounts deposited with Sublandlord, as the case may be, to the vendee, transferee or assignee, and Sublandlord shall, upon the transfer of its interest to, and the assumption of this Sublease by, such vendee, transferee or assignee, be released by Subtenant from all liability for the return or payment thereof, and Subtenant shall look solely to the new sublandlord for the return or payment of the same. Except in connection with an assignment of this Sublease as permitted hereunder, Subtenant shall not assign or encumber or attempt to assign or encumber the Security Amount

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deposited with Sublandlord, and neither Sublandlord nor its successors or assigns shall be bound by any such assignment, encumbrance, attempted assignment or attempted encumbrance.

In lieu of a cash security deposit, Subtenant, prior to the Security Delivery Date, may furnish Sublandlord an Irrevocable Letter of Credit (the “LC”) for the benefit of Sublandlord in the amount of the Security Deposit, which LC Sublandlord may draw upon in the event of a Default by Subtenant in the payment of any Rent due under this Sublease, for reimbursement of the costs of curing any Default by Subtenant under this Sublease, or on account of Subtenant’s failure to renew an expiring LC as set forth below. The LC shall be issued by a United Stated bank reasonably satisfactory to Sublandlord. The LC shall provide that Sublandlord may draw on the LC by furnishing a Sight Draft in the amount demanded, together with a statement by Sublandlord that a Default has occurred and that Sublandlord is entitled to draw upon the LC in the amount being demanded by Sublandlord. The initial LC shall be valid through at least September 30, 2004, and Subtenant shall cause the LC to be renewed no later than sixty (60) days prior to its expiration date and any renewal shall be for at least a 12-month period. If Subtenant fails to renew an expiring LC (and furnish Sublandlord the renewal document) at least sixty (60) days prior to an expiration, Sublandlord shall be entitled thereafter to draw upon the LC in the full amount of the LC in which event Sublandlord shall retain said money as a cash security deposit. If at any time Sublandlord draws upon the LC (except as set forth in the immediately preceding sentence), Subtenant shall, within five (5) days thereafter, cause the LC to be increased back to the full amount provided for herein.

WHEREAS, Sublandlord and Subtenant have executed this Sublease as of the date specified above.

Sublandlord		Subtenant
National Broadcasting Company, Inc., a Delaware corporation		Design Within Reach, a California corporation
By:		By:
	Name: Title:		Name: Title:

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EX-10.03

EXHIBIT 10.03

LEASE AGREEMENT

THIS LEASE is executed this 2nd day of October, 2003, by and between DUGAN FINANCING LLC, a Delaware limited liability company (“Landlord”), and DESIGN WITHIN REACH, INC., a California corporation (“Tenant”).

WITNESSETH:

ARTICLE 1 - LEASE OF PREMISES

Section 1.01. Basic Lease Provisions and Definitions.

A. Leased Premises (shown outlined on Exhibit A attached hereto): 2360 Progress Drive, Hebron, Kentucky 41048; Building No. 1 (the “Building”); located in Skyport 275 Business Park (the “Park”);

B. Rentable Area: approximately 216,668 square feet;

C. Tenant’s Proportionate Share;

Months 1-9	0.00	%
Months 10-12	63.64	%**
Months 13-60	68.39	%;

D. Minimum Annual Rent*:

Year 1 (months 1-9)	$	0.00	(9 months)
Year 1 (months 10-12)	$	170,352.00	(3 months)**
Year 2 (months 13-21)	$	549,253.35	(9 months)
Year 2 (months 22-24)	$	189,584.49	(3 months)
Year 3 (months 25-33)	$	568,753.47	(9 months)
Year 3 (months 34-36)	$	194,459.52	(3 months)
Year 4 (months 37-45)	$	528,128.28	(9 months)
Year 4 (months 46-48)	$	182,001.12	(3 months)
Year 5 (months 49-57)	$	546,003.36	(9 months)
Year 5 (months 58-60)	$	187,417.83	(3 months);

E. Monthly Rental Installments*:

Months 1-9	$	0.00 per month
Months 10-12	$	56,784.00 per month	**
Months 13-21	$	61,028.15 per month
Months 22-33	$	63,194.83 per month
Months 34-36	$	64,819.84 per month
Months 37-45	$	58,680.92 per month
Months 46-57	$	60,667.04 per month
Months 58-60	$	62,472.61 per month;

* A schedule of the net Minimum Annual Rent per square foot plus Landlord’s Share of Expenses is attached hereto as Schedule 1.

** Tenant’s Proportionate Share, Minimum Annual Rent and Monthly Rental Installments are calculated on 201,600 square feet of the Leased Premises.

F. Landlord’s Share of Expenses: $0.55 times the rentable area of the Leased Premises which is included in the Minimum Annual Rent;

G. Lease Term: Five (5) years and Zero (0) months;

H. Target Commencement Date: December 1, 2003;

I. Security Deposit: $61,028.15;

J. Guarantor(s): None;

K. Brokers: Duke Realty Services Limited Partnership representing Landlord and Colliers International representing Tenant;

L. Permitted Use: General office, warehousing and distribution of furniture, furnishings and all other merchandise offered in Tenant’s catalogue for sale and related purposes;

M. Address for notices:

Landlord:	Dugan Financing LLC c/o Duke Realty Services Limited Partnership Attn: Senior Property Manager 4555 Lake Forest Drive, Suite 400 Cincinnati, OH 45242
With a copy to:	Dugan Financing LLC c/o Duke Realty Services Limited Partnership Attn: Nick Anthony 600 East 96th Street, Suite 100 Indianapolis, IN 46240
Tenant:	Design Within Reach, Inc. Attn: Chief Financial Officer 283 Fourth Street Oakland, CA 94607

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With a copy to:	Barnett P. Ruttenberg, Esq. Gardner Carton & Douglas 191 N. Wacker Drive Suite 3700 Chicago, IL 60606
Address for rental and other payments:
	Dugan Financing LLC 75 Remittance Drive, Suite 1128 Chicago, IL 60675-1128

Section 1.02. Leased Premises. Landlord hereby leases to Tenant and Tenant leases from Landlord, under the terms and conditions herein, the Leased Premises.

ARTICLE 2 - TERM AND POSSESSION

Section 2.01. Term. The term of this Lease (“Lease Term”) shall be for the period of time as set forth in Section 1.01(G) hereof, and shall commence on the date (the “Commencement Date”) that is the later to occur of (i) the Target Commencement Date and (ii) Substantial Completion (as hereinafter defined) of the Tenant Improvements (as hereinafter defined).

Section 2.02. Construction of Tenant Improvements.

(a) Tenant has personally inspected the Leased Premises and accepts the same “AS IS” without representation or warranty by Landlord of any kind except as specifically provided in this Lease and with the understanding that Landlord shall have no responsibility with respect thereto except to construct in a good and workmanlike manner the improvements described in the scope of work attached hereto as Exhibit B and made a part hereof (the “Tenant Improvements”) at Landlord’s sole cost and expense. Landlord shall cause construction drawings of the Tenant Improvements to be prepared at Landlord’s cost. Tenant shall review and approve such plans in accordance with the proposed construction schedule given Tenant by Landlord, a copy of which is attached hereto as Exhibit B-1.

(b) Landlord shall provide Tenant with a proposed schedule for the construction and installation of the Tenant Improvements and shall notify Tenant of any material changes to said schedule. Tenant agrees to coordinate with Landlord regarding the installation of Tenant’s phone and data wiring and any other trade related fixtures that will need to be installed in the Leased Premises prior to Substantial Completion. In addition, if and to the extent permitted by applicable laws, rules and ordinances, Tenant shall have the right to enter the Leased Premises for thirty (30) days prior to the scheduled date for Substantial Completion (as may be modified from time to time) in order to install fixtures (such as racking) and otherwise prepare the Leased Premises for occupancy (which right shall expressly exclude making any structural modifications). Landlord shall not require Tenant to pay Landlord a construction deposit or provide Landlord with a performance or similar bond for the installations being done by Tenant

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prior to the Commencement Date. During any entry prior to the Commencement Date (i) Tenant shall comply with all terms and conditions of this Lease other than the obligation to pay rent, (ii) Tenant shall not interfere with Landlord’s completion of the Tenant Improvements, (iii) Tenant shall cause its personnel and contractors to comply with the terms and conditions of Landlord’s rules of conduct (which Landlord agrees to furnish to Tenant upon request), and (iv) Tenant shall not begin operation of its business. Tenant acknowledges that Tenant shall be responsible for obtaining all applicable permits and inspections relating to any such entry by Tenant.

(c) For purposes of this Lease (i) “Substantial Completion” (or any grammatical variation thereof) shall mean completion of construction of the Tenant Improvements based on an open warehouse floor plan, subject only to punchlist items to be identified by Landlord and Tenant in a joint inspection of the Leased Premises prior to Tenant’s occupancy, the completion of which will not materially affect Tenant’s use and occupancy of, or ability to obtain an occupancy permit for the Leased Premises (Tenant acknowledging, however, that even if Landlord has Substantially Completed the Tenant Improvements, Landlord may not be able to obtain an occupancy permit for the Leased Premises because of the need for completion of all or a portion of improvements being installed in the Leased Premises directly by Tenant, and Tenant assumes all responsibility for all inspections required after Tenant’s racking system is installed), and (ii) “Tenant Delay” shall mean any delay in the completion of the Tenant Improvements attributable to Tenant, including, without limitation, (A) Tenant’s failure to meet any time deadlines specified herein or in the proposed schedule given to Tenant by Landlord, (B) Change Orders, (C) Tenant’s requirements for special work or materials, finishes or installations other than Building standard, (D) the performance of any other work in the Leased Premises by any person, firm or corporation employed by or on behalf of Tenant, or any failure to complete or delay in completion of such work, and (E) any other act or omission of Tenant. Landlord shall complete any punchlist items within thirty (30) days after the Commencement Date or such later date as may be required for any specific punchlist item.

(d) Notwithstanding anything to the contrary contained in Section 2.01 above, if Substantial Completion of the Tenant Improvements is delayed beyond the Target Commencement Date as a result of Tenant Delay, then, for purposes of determining the Commencement Date, Substantial Completion of the Tenant Improvements shall be deemed to have occurred on the date that Substantial Completion of the Tenant Improvements would have occurred but for such Tenant Delay. Without limiting the foregoing, Landlord shall use commercially reasonable speed and diligence to Substantially Complete the Tenant Improvements within sixty (60) days following execution of this Lease by Landlord and Tenant. Promptly following the Commencement Date, Tenant shall execute Landlord’s Letter of Understanding, acknowledging (x) the Commencement Date of this Lease, and (y) except for any punchlist items, that Tenant has accepted the Leased Premises. If Tenant takes possession of and occupies the Leased Premises, Tenant shall be deemed to have accepted the Leased Premises and that the condition of the Leased Premises and the Building was at the time satisfactory and in conformity with the provisions of this Lease in all respects, subject to any punchlist items.

(e) Notwithstanding the above, provided the Leased Premises have not been delivered to Tenant on or before sixty-five (65) days after receipt of a fully executed Lease by Tenant, completed with the Tenant Improvements, subject to punch list items and any delays not

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caused by the acts of Landlord, then Landlord shall provide Tenant one (1) day’s minimum annual rental abatement for each day of delay after such sixty-five (65) day period in addition to the rent abatement reflected in Section 1.01D and E hereof. Such abatement shall be Tenant’s sole remedy for Landlord’s failure to deliver the Leased Premises as set forth above, and Tenant shall not be entitled to damages (consequential or otherwise) as a result thereof. Further, notwithstanding the above and provided Tenant has obtained any municipal consents required to be obtained by Tenant for its racking and storage, Tenant may move its inventory into the Leased Premises commencing on the sixty-sixth (66^th) day after receipt of a fully executed Lease.

Section 2.03. Surrender of the Premises. Upon the expiration or earlier termination of this Lease, Tenant shall immediately surrender the Leased Premises to Landlord in broom-clean condition and in good condition and repair. Tenant shall also remove its personal property, trade fixtures and any of Tenant’s alterations designated by Landlord at the time Landlord approves such alterations, promptly repair any damage caused by such removal, and restore the Leased Premises to the condition existing prior to the installation of such items. Tenant shall not be required to remove the Tenant Improvements. If Tenant fails to do so, Landlord may restore the Leased Premises to such condition at Tenant’s expense, Landlord may cause all of said property to be removed at Tenant’s expense, and Tenant hereby agrees to pay all the costs and expenses thereby reasonably incurred. All Tenant property which is not removed within ten (10) days following Landlord’s written demand therefor shall be conclusively deemed to have been abandoned by Tenant, and Landlord shall be entitled to dispose of such property at Tenant’s cost without thereby incurring any liability to Tenant. The provisions of this section shall survive the expiration or other termination of this Lease.

Section 2.04. Holding Over. If Tenant retains possession of the Leased Premises after the expiration or earlier termination of this Lease, Tenant shall become a tenant from month to month at one hundred fifty percent (150%) of the Monthly Rental Installment in effect at the end of the Lease Term, and otherwise upon the terms, covenants and conditions herein specified, so far as applicable. Acceptance by Landlord of rent in such event shall not result in a renewal of this Lease, and Tenant shall vacate and surrender the Leased Premises to Landlord upon Tenant being given thirty (30) days’ prior written notice from Landlord to vacate. Neither Landlord nor Tenant shall have the right to deem this Lease extended for any period beyond a thirty (30) day tenancy. This Section 2.04 shall in no way constitute a consent by Landlord to any holding over by Tenant upon the expiration or earlier termination of this Lease, nor limit Landlord’s remedies in such event. If Tenant pays holdover rent and then Landlord and Tenant execute an amendment of the Lease to extend the term then Landlord shall apply the holdover amount in excess of one hundred percent of the Monthly Rental Installment in effect for up to two (2) months to future rent due.

ARTICLE 3 - RENT

Section 3.01. Base Rent. Tenant shall pay to Landlord the Minimum Annual Rent in the Monthly Rental Installments, in advance, without deduction or offset, beginning on the Commencement Date and on or before the first day of each and every calendar month thereafter during the Lease Term. The Monthly Rental Installment for partial calendar months shall be prorated.

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Section 3.02. Additional Rent. In addition to the Minimum Annual Rent Tenant shall pay to Landlord for each calendar year during the Lease Term, as “Additional Rent,” Tenant’s Proportionate Share of all costs and expenses incurred by Landlord during the Lease Term for Real Estate Taxes and Operating Expenses for the Building and common areas (collectively “Common Area Charges”) to the extent such Common Area Charges exceed Landlord’s Share of Expenses.

“Operating Expenses” shall mean all of Landlord’s expenses for operation, repair, replacement and maintenance to keep the Building and common areas in good order, condition and repair (including all additional direct costs and expenses of operation and maintenance of the Building which Landlord reasonably determines it would have paid or incurred during such year if the Building had been fully occupied), including, but not limited to, management fees; utilities; stormwater discharge fees; license, permit, inspection and other fees; fees and assessments imposed by any covenants or owners’ association; security services; insurance premiums and deductibles, painting, and maintenance, repair and replacement of the driveways, parking areas (including snow removal), exterior lighting, landscaped areas, walkways, curbs, drainage strips, sewer lines, exterior walls, foundation, structural frame, roof and gutters. The cost of any capital improvement shall be amortized over the useful life of such improvement, and only the amortized portion shall be included in Operating Expenses.

Operating Expenses shall not include the following:

1. Leasing commissions.

2. The cost of tenant finish improvements provided solely for the benefit of other tenants or proposed tenants in the Building.

3. Costs of correcting building code violations which violations were in existence on the Commencement Date.

4. Depreciation on the Building.

5. The cost of utilities, services and repairs separately charged to and paid by another tenant in the Building.

6. Principal payment, interest payments and financing costs associated with Building financing.

7. Legal fees associated with the preparation, interpretation and/or enforcement of leases.

8. Repairs and replacements for which and to the extent that Landlord has been reimbursed by insurance and/or paid pursuant to warranties.

9. Advertising and promotional expenses.

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10. Costs representing amounts paid to an affiliate of Landlord for services or materials which are in excess of the amounts which would have been paid in the absence of such relationship.

11, Salaries or fringe benefits of Landlord’s personnel above the grade of senior property manager.

12. Costs incurred by Landlord as a result of Landlord’s breach of this Lease or any other lease with another tenant of the Building.

13. Costs incurred in connection with the construction, reconstruction, redevelopment or expansion of the Building.

14. Any fines, penalties or additional costs imposed upon Landlord due to violations of any applicable law.

“Real Estate Taxes” shall include any form of real estate tax or assessment or service payments in lieu thereof, and any license fee, commercial rental tax, improvement bond or other similar charge or tax (other than inheritance, personal income or estate taxes or excise or franchise taxes) imposed upon the Building or common areas (or against Landlord’s business of leasing the Building) by any authority having the power to so charge or tax, together with costs and expenses of contesting the validity or amount of Real Estate Taxes. Any assessments shall be spread over the longest period allowed by law without the payment of interest, fines or penalties.

Section 3.03. Payment of Additional Rent. Landlord shall estimate the total amount of Additional Rent to be paid by Tenant during each calendar year of the Lease Term, pro-rated for any partial years. Commencing on the Commencement Date, Tenant shall pay to Landlord each month, at the same time the Monthly Rental Installment is due, an amount equal to one-twelfth (1/12) of the estimated Additional Rent for such year. Within a reasonable time after the end of each calendar year, Landlord shall submit to Tenant a statement of the actual amount of such Additional Rent and within thirty (30) days after receipt of such statement, Tenant shall pay any deficiency between the actual amount owed and the estimates paid during such calendar year. In the event of overpayment, Landlord shall credit the amount of such overpayment toward the next installments of Minimum Rent. If Landlord has not delivered a statement of the actual amount of such Additional Rent within one (1) year following the year for which such statement or expenses relates, then Landlord shall have no further right to collect any increases in previously billed expenses for such time period.

Section 3.04. Late Charges. Tenant acknowledges that Landlord shall incur certain additional unanticipated administrative and legal costs and expenses if Tenant fails to timely pay any payment required hereunder. Therefore, in addition to the other remedies available to Landlord hereunder, if any payment required to be paid by Tenant to Landlord hereunder shall become overdue, such unpaid amount shall bear interest from the due date thereof to the date of payment at the prime rate (as reported in the Wall Street Journal) of interest (“Prime Rate”) plus six percent (6%) per annum.

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Section 3.05. Nature of Rent. Landlord and Tenant agree that any base rent, percentage rent, if any, and all Additional Rent paid to Landlord under this Lease (collectively referred to in this Section as “Rent”) shall qualify as “rents from real property” within the meaning of Section 512(b)(3) of the Internal Revenue Code of 1986, as amended (the “Code”) and the U.S. Department of Treasury Regulations promulgated thereunder (the “Regulations”). In the event that Landlord, in its sole discretion, determines that there is any risk that all or part of any Rent shall not qualify as “rents from real property” for the purposes of Section 512(b)(3) of the Code and the Regulations promulgated thereunder, Tenant agrees (i) to cooperate with Landlord to restructure this Lease so as to cause all Rent to qualify as “rents from real property”, and (ii) to permit an assignment of this Lease, provided, however, that any adjustments required pursuant to this paragraph shall be made so as to produce the equivalent Rent (in economic terms) payable prior to such adjustment.

Section 3.06. Tenant Verification. Tenant shall have the right to inspect, at reasonable times and in a reasonable manner, during the ninety (90) day period following the delivery of Landlord’s statement of the actual amount of the Additional Rent, such of Landlord’s books of account and records as pertain to and contain information concerning such costs and expenses in order to verify the amounts thereof. Such inspection shall take place at Landlord’s Chicago area office. Such inspection shall be conducted only by Tenant or a certified public accountant that is not being compensated for its services on a contingency fee basis. Tenant shall sign a confidentiality agreement with Landlord prior to its inspection of Landlord’s books and records. Tenant shall also agree to follow Landlord’s reasonable procedures for auditing such books and records. Tenant shall provide Landlord with a copy of its findings within sixty (60) days after completion of the audit. Tenant’s failure to exercise its rights hereunder within said ninety (90) day period shall be deemed a waiver of its right to inspect or contest the method, accuracy or amount of the Additional Rent.

ARTICLE 4 - SECURITY DEPOSIT

Tenant, upon execution of this Lease, shall deposit with Landlord the Security Deposit as security for the performance by Tenant of all of Tenant’s obligations contained in this Lease. In the event of a default by Tenant, Landlord may apply all or any part of the Security Deposit to cure all or any part of such default; and Tenant agrees to promptly, upon demand, deposit such additional sum with Landlord as may be required to maintain the full amount of the Security Deposit. All sums held by Landlord pursuant to this section shall be without interest. At the end of the Lease Term, provided that there is then no uncured default, Landlord shall return the Security Deposit to Tenant.

At its option, upon execution of this Lease, Tenant may provide to Landlord an irrevocable letter of credit, in the form attached hereto as Exhibit G in lieu of a cash Security Deposit. The letter of credit shall be in the amount of Sixty-one Thousand Twenty-eight Dollars and fifteen Cents ($61,028.15) and shall constitute the “Security Deposit” for the full and faithful performance by Tenant of all of the terms, conditions and covenants contained in the Lease on the part of the Tenant to be performed, including but not limited to the payment of rent. Landlord shall be entitled to draw upon the letter of credit (i) upon a default by Tenant of any term, condition or covenant in the Lease, or (ii) unless, no later than forty-five (45) days prior to the expiration of the letter of credit Tenant delivers to Landlord a renewal or replacement

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thereof. If such letter of credit has not been renewed at least forty-five (45) days prior to the expiration date thereof, Landlord may immediately draw upon such letter of credit and hold the cash proceeds thereof in lieu of such letter of credit. Such letter of credit shall not expire less than ninety (90) days after the expiration or earlier termination of this Lease. In the event of a sale of the Building of which the Leased Premises are a part, Landlord shall have the right to transfer the Security Deposit to its purchaser and Landlord shall be released by Tenant from all responsibility for the return of such, and Tenant agrees to look solely to the new purchaser for the return of such Security Deposit.

ARTICLE 5 - USE

Section 5.01. Use of Leased Premises. The Leased Premises are to be used by Tenant solely for the Permitted Use and for no other purposes without the prior written consent of Landlord.

Section 5.02. Covenants of Tenant Regarding Use. Tenant shall (i) use and maintain the Leased Premises and conduct its business thereon in a safe, careful, reputable and lawful manner, (ii) comply with all laws, rules, regulations, orders, ordinances, directions and requirements of any governmental authority or agency, now in force or which may hereafter be in force, including without limitation those which shall impose upon Landlord or Tenant any duty with respect to or triggered by a change in the use or occupation of, or any improvement or alteration to, the Leased Premises, and (iii) comply with and obey all reasonable directions of the Landlord, including the Rules and Regulations attached hereto as Exhibit C and as may be modified from time to time by Landlord on reasonable notice to Tenant. Tenant shall not do or permit anything to be done in or about the Leased Premises or common areas which will in any way obstruct or interfere with the rights of other tenants or occupants of the Building or injure or annoy them. Landlord shall not be responsible to Tenant for the non-performance by any other tenant or occupant of the Building of any of the Building Rules and Regulations but agrees to take reasonable measures to assure such other tenant’s compliance. Tenant shall not overload the floors of the Leased Premises. All damage to the floor structure or foundation of the Building due to improper positioning or storage of items or materials shall be repaired by Landlord at the sole expense of Tenant, who shall reimburse Landlord immediately therefor upon demand. Tenant shall not use the Leased Premises, or allow the Leased Premises to be used, for any purpose or in any manner which would invalidate any policy of insurance now or hereafter carried on the Building or increase the rate of premiums payable on any such insurance policy unless Tenant reimburses Landlord as Additional Rent for any increase in premiums charged.

Section 5.03. Landlord’s Rights Regarding Use. In addition to the rights specified elsewhere in this Lease, Landlord shall have the following rights regarding the use of the Leased Premises or the common areas, each of which may be exercised without notice or liability to Tenant, (a) Landlord may install such signs, advertisements, notices or tenant identification information as it shall deem necessary or proper; (b) Landlord shall have the right at any time to control, change or otherwise alter the common areas or utilities servicing the Building as it shall deem necessary or proper; and (c) Landlord or Landlord’s agent shall be permitted to inspect or examine the Leased Premises at any reasonable time, and Landlord shall have the right to make any repairs to the Leased Premises which are necessary for its preservation; provided, however, that any repairs made by Landlord shall be at Tenant’s expense, except as provided in

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Section 7.02 hereof. Landlord shall incur no liability to Tenant for such entry, nor shall such entry constitute an eviction of Tenant or a termination of this Lease, or entitle Tenant to any abatement of rent therefor.

ARTICLE 6 - UTILITIES AND SERVICES

Tenant shall obtain in its own name and pay directly to the appropriate supplier the cost of all utilities and services serving the Leased Premises. However, if any services or utilities are jointly metered with other property, Landlord shall make a reasonable determination of Tenant’s proportionate share of the cost of such utilities and services (at rates that would have been payable if such utilities and services had been directly billed by the utilities or services providers) and Tenant shall pay such share to Landlord within fifteen (15) days after receipt of Landlord’s written statement. Landlord shall not be liable in damages or otherwise for any failure or interruption of any utility or other Building service and no such failure or interruption shall entitle Tenant to terminate this Lease or withhold sums due hereunder.

Notwithstanding anything in this Lease to the contrary, if (i) the restoration of service is entirely within Landlord’s control, (ii) Landlord negligently fails to restore such service within a reasonable time, and (iii) the Leased Premises are untenantable (meaning that Tenant is unable to use such space in the normal course of its business for the use permitted under this Lease) for more than three (3) consecutive business days, then Tenant shall notify Landlord (and Landlord’s lender, if any) in writing that Tenant intends to abate rent. If service has not been restored within three (3) days of Landlord’s receipt of Tenant’s notice, then Minimum Annual Rent and Additional Rent shall abate on a per diem basis for each day after such three (3) day period during which the Leased Premises remain untenantable. Such abatement shall be Tenant’s sole remedy for Landlord’s failure to restore service as set forth above, and Tenant shall not be entitled to damages (consequential or otherwise) as a result thereof.

In the event of utility “deregulation”, Landlord shall choose the service provider.

ARTICLE 7 - MAINTENANCE AND REPAIRS

Section 7.01. Tenant’s Responsibility. During the Lease Term, Tenant shall, at its own cost and expense, maintain the Leased Premises in good condition, regularly servicing and promptly making all repairs and replacements thereto, including but not limited to the electrical systems, heating and air conditioning systems (“HVAC”), plate glass, floors, windows and doors, sprinkler and plumbing systems, and shall obtain a preventive maintenance contract on the heating, ventilating and air-conditioning systems, and provide Landlord with a copy thereof. The preventive maintenance contract shall meet or exceed Landlord’s standard maintenance criteria, and shall provide for the inspection and maintenance of the heating, ventilating and air conditioning system on not less than a semi-annual basis.

Notwithstanding the above, Landlord shall warrant the HVAC for a period of one (1) year from the Commencement Date, excluding normal wear and tear and repairs or replacements made necessary by the acts or omissions of Tenant. Landlord shall enforce on Tenant’s behalf any existing warranties held by Landlord for the HVAC.

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Section 7.02. Landlord’s Responsibility. During the Lease Term, Landlord shall maintain in good condition and repair, and replace as necessary, the roof, exterior walls, foundation and structural frame of the Building and the parking and landscaped areas, the costs of which shall be included in Operating Expenses; provided, however, that to the extent any of the foregoing items require repair because of the negligence, misuse, or default of Tenant, its employees, agents, customers or invitees, Landlord shall make such repairs solely at Tenant’s expense. Landlord shall correct any defects in the Tenant Improvements discovered by Tenant within one (1) year of the Commencement Date.

Section 7.03. Alterations. Tenant shall not permit alterations in or to the Leased Premises unless and until the plans have been approved by Landlord in writing. As a condition of such approval, Landlord may require Tenant to remove the alterations and restore the Leased Premises upon termination of this Lease; otherwise, all such alterations shall at Landlord’s option become a part of the realty and the property of Landlord, and shall not be removed by Tenant. Tenant shall ensure that all alterations shall be made in accordance with all applicable laws, regulations and building codes, in a good and workmanlike manner and of quality equal to or better than the original construction of the Building. Upon completion of the work, Tenant shall provide lien waivers from the subcontractors or a final affidavit of lien waiver from the general contractor, and such lien waiver shall be in a form acceptable to Landlord. No person shall be entitled to any lien derived through or under Tenant for any labor or material furnished to the Leased Premises, and nothing in this Lease shall be construed to constitute a consent by Landlord to the creation of any lien. If any lien is filed against the Leased Premises for work claimed to have been done for or material claimed to have been furnished to Tenant, Tenant shall cause such lien to be discharged of record or bonded over or provide Landlord with an endorsement to Landlord’s title insurance policy within thirty (30) days after notice of filing. Tenant shall indemnify Landlord from all costs, losses, expenses and attorneys’ fees in connection with any construction or alteration and any related lien.

If Tenant requests any alterations to the Leased Premises, then Tenant shall deliver plans therefor to Landlord for its reasonable approval. Landlord shall review such plans at no cost to the Tenant and shall communicate its approval or dissatisfaction (together with Landlord’s specific and detailed comments on the plans submitted by Tenant that if complied with would constitute approved plans) within fifteen (15) business days after receipt of the plans. If Landlord fails to act within such fifteen (15) business day period, Tenant will provide Landlord with a second notice and Landlord shall have ten (10) business days after receipt of such second notice to approve such plans. If Landlord fails to approve such plans within such ten (10) day period such plans shall be deemed approved. Approval of any Tenant submitted plans by Landlord shall not constitute an implication, representation or certification by Landlord that such plans are accurate, sufficient, efficient or are in compliance with applicable statutes, codes, ordinances or other regulations governing such matters, the responsibility for which being solely that of Tenant.

Notwithstanding the above, Tenant may install, remove and/or replace any trade equipment and fixtures used in Tenant’s business in or to the Leased Premises, in each case without submitting plans and specifications to Landlord or obtaining Landlord’s approval.

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ARTICLE 8 - CASUALTY

Section 8.01. Casualty. In the event of total or partial destruction of the Building or the Leased Premises by fire or other casualty, Landlord agrees to promptly restore and repair the Leased Premises; provided, however, Landlord’s obligation hereunder shall be limited to the reconstruction of such of the tenant finish improvements as were originally required to be made by Landlord, if any. Rent shall proportionately abate during the time that the Leased Premises or part thereof are unusable because of any such damage. Landlord shall use reasonable efforts to notify Tenant of the time for restoration of the Leased Premises within thirty (30) days after the casualty date. Notwithstanding the foregoing, if the Leased Premises are (i) so destroyed that they cannot be repaired or rebuilt within one hundred eighty (180) days from the casualty date; or (ii) destroyed by a casualty which is not covered by the insurance required hereunder or, if covered, such insurance proceeds are not released by any mortgagee entitled thereto or are insufficient to rebuild the Building and the Leased Premises; then, in case of a clause (i) casualty, either Landlord or Tenant may, or, in the case of a clause (ii) casualty, then Landlord may, upon thirty (30) days’ written notice to the other party, terminate this Lease with respect to matters thereafter accruing. Landlord shall use reasonable diligence in completing such reconstruction and repairs, but in the event Landlord fails to complete the same within one hundred eighty (180) days from the date of the casualty, Tenant may, at its option, terminate this Lease by giving Landlord written notice of such termination within ten (10) days after the expiration of such one hundred eighty (180) day period, whereupon both parties shall be released from all further obligations and liability hereunder.

Section 8.02. Fire and Extended Coverage Insurance. During the Lease Term, Landlord shall maintain customary all risk coverage insurance on the Building, but shall not protect Tenant’s property on the Leased Premises; and, notwithstanding the provisions of Section 9.01, Landlord shall not be liable for any casualty damage to Tenant’s property, regardless of cause, including the negligence of Landlord and its employees, agents and invitees. Tenant hereby expressly waives any right of recovery against Landlord for casualty damage to any property of Tenant located in or about the Leased Premises, however caused, including the negligence of Landlord and its employees, agents and invitees. Notwithstanding the provisions of Section 9.01 below, Landlord hereby expressly waives any rights of recovery against Tenant for casualty damage to the Leased Premises or the Building which is insured against under Landlord’s all risk coverage insurance. All insurance policies maintained by Landlord or Tenant as provided in this Lease shall contain an agreement by the insurer waiving the insurer’s right of subrogation against the other party to this Lease.

ARTICLE 9 - LIABILITY INSURANCE

Section 9.01. Tenant’s Responsibility. Landlord shall not be liable to Tenant or to any other person for (i) damage to property or injury or death to persons due to the condition of the Leased Premises, the Building or the common areas, or (ii) the occurrence of any accident in or about the Leased Premises or the common areas, or (iii) any act or neglect of Tenant or any other tenant or occupant of the Building or of any other person, unless such damage, injury or death is directly and solely the result of Landlord’s negligence; and Tenant hereby releases Landlord from any and all liability for the same. Tenant shall be liable for, and shall indemnify and defend Landlord from, any and all liability for (i) any act or neglect of Tenant and any

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person coming on the Leased Premises or common areas by the license of Tenant, express or implied, (ii) any damage to the Leased Premises, and (iii) any loss of or damage or injury to any person (including death resulting therefrom) or property occurring in, on or about the Leased Premises, regardless of cause, except for any loss or damage from fire or casualty insured as provided in Section 8.02 and except for that caused solely and directly by Landlord’s negligence. This provision shall survive the expiration or earlier termination of this Lease.

Section 9.02. Tenant’s Insurance. Tenant shall carry general public liability and property damage insurance, issued by one or more insurance companies acceptable to Landlord, with the following minimum coverages:

A. Worker’s Compensation: minimum statutory amount.

B. Commercial General Liability Insurance, including blanket, contractual liability, broad form property damage, personal injury, completed operations, products liability, and fire damage: Not less than $3,000,000 Combined Single Limit for both bodily injury and property damage.

C. All Risk Coverage, Vandalism and Malicious Mischief, and Sprinkler Leakage insurance, if applicable, for the full cost of replacement of Tenant’s property.

D. Business interruption insurance.

The insurance policies shall protect Tenant and Landlord as their interests may appear, naming Landlord and Landlord’s managing agent and mortgagee as additional insureds, and shall provide that they may not be canceled on less than thirty (30) days’ prior written notice to Landlord. Tenant shall furnish Landlord with Certificates of Insurance evidencing all required coverages on or before the Commencement Date. If Tenant fails to carry such insurance and furnish Landlord with such Certificates of Insurance after a request to do so, Landlord may obtain such insurance and collect the cost thereof from Tenant.

ARTICLE 10 - EMINENT DOMAIN

If all or any substantial part of the Building or common areas shall be acquired by the exercise of eminent domain, Landlord may terminate this Lease by giving written notice to Tenant within fifteen (15) days after possession thereof is so taken. If all or any part of the Leased Premises shall be acquired by the exercise of eminent domain so that the Leased Premises shall become unusable by Tenant for the Permitted Use, Tenant may terminate this Lease by giving written notice to Landlord within fifteen (15) days after possession thereof is so taken. All damages awarded shall belong to Landlord; provided, however, that Tenant may claim dislocation damages if such amount is not subtracted from Landlord’s award.

ARTICLE 11 - ASSIGNMENT AND SUBLEASE

Tenant shall not assign this Lease or sublet the Leased Premises in whole or in part without Landlord’s prior written consent, which consent shall not be unreasonably withheld, delayed or denied. In the event of any assignment or subletting, Tenant shall remain primarily liable hereunder. The acceptance of rent from any other person shall not be deemed to be a

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waiver of any of the provisions of this Lease or to be a consent to the assignment of this Lease or the subletting of the Leased Premises. Without in any way limiting Landlord’s right to refuse to consent to any assignment or subletting of this Lease, Landlord reserves the right to refuse to give such consent if in Landlord’s opinion (i) the Leased Premises are or may be in any way adversely affected; (ii) the business reputation of the proposed assignee or subtenant is unacceptable; or (iii) the financial worth of the proposed assignee or subtenant is insufficient to meet the obligations hereunder. Landlord further expressly reserves the right to refuse to give its consent to any subletting if the proposed rent is to be less than the then current rent for similar premises in the Park or if the proposed assignee or subtenant is an existing tenant in the Building or Park. If Tenant shall make any assignment or sublease, with Landlord’s consent, for a rental in excess of the rent payable under this Lease, Tenant shall pay to Landlord fifty percent (50%) of any such excess rental upon receipt. Tenant agrees to reimburse Landlord for reasonable accounting and attorneys’ fees incurred in conjunction with the processing and documentation of any such requested assignment, subletting or any other hypothecation of this Lease or Tenant’s interest in and to the Leased Premises.

Notwithstanding the foregoing, Tenant may assign the Lease or sublease all or any portion of the Leased Premises without Landlord’s consent to any of the following (a “Permitted Transferee”), provided that the Permitted Transferee’s financial condition, creditworthiness and business reputation following the transfer are equal to or exceed those of Tenant: (i) any successor corporation or other entity resulting from a merger or consolidation of Tenant; (ii) any purchaser of all or substantially all of Tenant’s assets, stock or ownership interests of Tenant; or (iii) any entity which controls, is controlled by, or is under common control with Tenant. Tenant shall give Landlord thirty (30) days prior written notice of such assignment or sublease. Any Permitted Transferee shall assume in writing all of Tenant’s obligations under this Lease. Tenant shall nevertheless at all times remain fully responsible and liable for the payment of rent and the performance and observance of all of Tenant’s other obligations under this Lease. Nothing in this paragraph is intended to nor shall permit Tenant to transfer its interest under this Lease as part of a fraud or subterfuge to intentionally avoid its obligations under this Lease (for example, transferring its interest to a shell corporation that subsequently files a bankruptcy), and any such transfer shall constitute an event of Default hereunder.

ARTICLE 12 - TRANSFERS BY LANDLORD

In the event of a sale or transfer of such interest (except a mortgage or other transfer as security for a debt), the “Landlord” named herein, or in the case of a subsequent transfer, the transferor shall, after the date of such transfer, be automatically released from all personal liability for the performance or observance of any term, condition, covenant or obligation required to be performed or observed by Landlord hereunder, and the transferee shall be deemed to have assumed all of such terms, conditions, covenants and obligations. Within ten (10) days following receipt of a written request from Landlord, Tenant shall execute and deliver to Landlord, without cost, an estoppel certificate in such form as Landlord may reasonably request certifying (i) that this Lease is in full force and effect and unmodified or stating the nature of any modification, (ii) the date to which rent has been paid, (iii) that there are not, to Tenant’s knowledge, any uncured defaults or specifying such defaults if any are claimed, and (iv) any other matters or state of facts reasonably required respecting the Lease. Such estoppel may be relied upon by Landlord and by any purchaser or mortgagee of the Building.

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This Lease is and shall be expressly subject and subordinate at all times to the lien of any present or future mortgage or deed of trust encumbering fee title to the Leased Premises. If any such mortgage or deed of trust be foreclosed, upon request of the mortgagee or beneficiary (“Landlord’s Mortgagee”), as the case may be, Tenant will attorn to the purchaser at the foreclosure sale. The foregoing provisions are declared to be self-operative and no further instruments shall be required to effect such subordination and/or attornment; provided, however, that subordination of this Lease to any present or future mortgage or trust deed shall be conditioned upon the mortgagee, beneficiary, or purchaser at foreclosure, as the case may be agreeing that Tenant’s occupancy of the Leased Premises and other rights under this Lease shall not be disturbed by reason of the foreclosure of such mortgage or trust deed, as the case may be, so long as Tenant is not in default under this Lease; and further provided that Tenant agrees upon request by any such mortgagee, beneficiary, or purchaser at foreclosure, as the case may be, to execute such non-disturbance, subordination and/or attornment instruments as may be reasonably required by such person to confirm such non-disturbance subordination and/or attornment.

Any Landlord’s Mortgagee may elect, at any time, unilaterally, to make this Lease superior to its mortgage or other interest in the Leased Premises by so notifying Tenant in writing.

Tenant shall not seek to enforce any remedy it may have for any default on the part of Landlord without first giving written notice by certified mail, return receipt requested, specifying the default in reasonable detail, to any Landlord’s Mortgagee whose address has been given to Tenant, and affording such Landlord’s Mortgagee a reasonable opportunity to perform Landlord’s obligations hereunder.

If Landlord’s Mortgagee shall succeed to the interest of Landlord under this Lease, Landlord’s Mortgagee shall not be: (1) liable for any act or omission of any prior landlord (including Landlord); (2) bound by any rent or additional rent or advance rent which Tenant might have paid for more than the current month to any prior landlord (including Landlord), and all such rent shall remain due and owing, notwithstanding such advance payment; (3) bound by any security or advance rental deposit made by Tenant which is not delivered or paid over to Landlord’s Mortgagee and with respect to which Tenant shall look solely to Landlord for refund or reimbursement (provided, however, that Landlord shall be responsible for delivering any Security Deposit hereunder to Landlord’s Mortgagee at the time Landlord’s Mortgagee succeeds to Landlord’s interest hereunder); (4) bound by any termination, amendment or modification of this Lease made without Landlord’s Mortgagee’s consent and written approval, except for those terminations, amendments and modifications permitted to be made by Landlord without Landlord’s Mortgagee’s consent pursuant to the terms of the loan documents between Landlord and Landlord’s Mortgagee; (5) subject to the defenses which Tenant might have against any prior landlord (including Landlord); and (6) subject to the offsets which Tenant might have against any prior landlord (including Landlord) except for those offset rights which (A) are expressly provided in this Lease, (B) relate to periods of time following the acquisition of the Building by Landlord’s Mortgagee, and (C) Tenant has provided written notice to Landlord’s Mortgagee and provided Landlord’s Mortgagee a reasonable opportunity (the duration of which shall not exceed thirty (30) days after Landlord’s Mortgagee takes possession of the Building) to cure the event giving rise to such offset event. Notwithstanding the foregoing, Landlord’s Mortgagee shall be subject to Section 2.02(e). Landlord’s Mortgagee shall have no liability or

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responsibility under or pursuant to the terms of this Lease or otherwise after it ceases to own an interest in the Building. Nothing in this Lease shall be construed to require Landlord’s Mortgagee to see to the application of the proceeds of any loan, and Tenant’s agreements set forth herein shall not be impaired on account of any modification of the documents evidencing and securing any loan.

ARTICLE 13 - DEFAULT AND REMEDY

Section 13.01. Default. The occurrence of any of the following shall be a “Default”:

(a) Tenant fails to pay any Monthly Rental Installment or Additional Rent within five (5) days after the same is due, or Tenant fails to pay any other amounts due Landlord from Tenant within ten (10) days after the same is due. Notwithstanding the foregoing, Landlord shall provide Tenant with a written courtesy notice of such default and Tenant shall have an additional five (5) days following delivery of such notice to cure such default before Landlord exercises its default remedies; provided, however, that Landlord shall not be required to give such courtesy notice more than one (1) time with respect to any particular default, nor more than two (2) times in any consecutive twelve (12) month period with respect to any payment defaults in the aggregate.

(b) Tenant fails to perform or observe any other term, condition, covenant or obligation required under this Lease for a period of ten (10) days after notice thereof from Landlord; provided, however, that if the nature of Tenant’s default is such that more than ten (10) days are reasonably required to cure, then such default shall be deemed to have been cured if Tenant commences such performance within said ten (10) day period and thereafter diligently completes the required action within a reasonable time.

(c) Tenant shall assign or sublet all or a portion of the Leased Premises in contravention of the provisions of Article 11 of this Lease.

(d) All or substantially all of Tenant’s assets in the Leased Premises or Tenant’s interest in this Lease are attached or levied under execution (and Tenant does not discharge the same within sixty (60) days thereafter); a petition in bankruptcy, insolvency or for reorganization or arrangement is filed by or against Tenant (and Tenant fails to secure a stay or discharge thereof within sixty (60) days thereafter); Tenant is insolvent and unable to pay its debts as they become due; Tenant makes a general assignment for the benefit of creditors; Tenant takes the benefit of any insolvency action or law; the appointment of a receiver or trustee in bankruptcy for Tenant or its assets if such receivership has not been vacated or set aside within thirty (30) days thereafter; or, dissolution or other termination of Tenant’s corporate charter if Tenant is a corporation.

(e) In addition to the defaults and remedies described herein, the parties agree that if Tenant is in violation of the performance of any (but not necessarily the same) term or condition of this Lease three (3) or more times during any twelve (12) month period, regardless of whether such violations are ultimately cured, then such conduct shall, at Landlord’s option, represent a separate Default and any notice given to Tenant for a default under this subsection (e) shall reference this section in bold.

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Section 13.02. Remedies. Upon the occurrence of any Default, Landlord shall have the following rights and remedies, in addition to those allowed by law or in equity, any one or more of which may be exercised without further notice to Tenant:

(a) Landlord may apply the Security Deposit or re-enter the Leased Premises and cure any Default of Tenant, and Tenant shall reimburse Landlord as additional rent for any costs and expenses which Landlord thereby incurs; and Landlord shall not be liable to Tenant for any loss or damage which Tenant may sustain by reason of Landlord’s action.

(b) Landlord may terminate this Lease or, without terminating this Lease, terminate Tenant’s right to possession of the Leased Premises as of the date of such Default, and thereafter (i) neither Tenant nor any person claiming under or through Tenant shall be entitled to possession of the Leased Premises, and Tenant shall immediately surrender the Leased Premises to Landlord; and (ii) Landlord may re-enter the Leased Premises and dispossess Tenant and any other occupants of the Leased Premises by any lawful means and may remove their effects, without prejudice to any other remedy which Landlord may have. Upon the termination of this Lease, Landlord may declare the present value (discounted at the Prime Rate of interest) of all rent which would have been due under this Lease for the balance of the Lease Term less the fair market rental value as determined by Landlord to be immediately due and payable, whereupon Tenant shall be obligated to pay the same to Landlord, together with all loss or damage which Landlord may sustain by reason of Tenant’s Default (“Default Damages”), which shall include without limitation expenses of preparing the Leased Premises for re-letting, demolition, repairs, tenant finish improvements and brokers’ and attorneys’ fees, it being expressly understood and agreed that the liabilities and remedies specified in this subsection (b) shall survive the termination of this Lease.

(c) Landlord may, without terminating this Lease, re-enter the Leased Premises and re-let all or any part thereof for a term different from that which would otherwise have constituted the balance of the Lease Term and for rent and on terms and conditions different from those contained herein, whereupon Tenant shall be immediately obligated to pay to Landlord as liquidated damages the difference between the rent provided for herein and that provided for in any lease covering a subsequent re-letting of the Leased Premises, for the period which would otherwise have constituted the balance of the Lease Term, together with all of Landlord’s Default Damages.

(d) Landlord may sue for injunctive relief or to recover damages for any loss resulting from the breach.

Section 13.03. Landlord’s Default and Tenant’s Remedies. Landlord shall be in default if it fails to perform any term, condition, covenant or obligation required under this Lease for a period of thirty (30) days after written notice thereof from Tenant to Landlord; provided, however, that if the term, condition, covenant or obligation to be performed by Landlord is such that it cannot reasonably be performed within thirty (30) days, such default shall be deemed to have been cured if Landlord commences such performance within said thirty-day period and thereafter diligently undertakes to complete the same. Upon the occurrence of any such default, Tenant may sue for injunctive relief or to recover damages for any loss directly resulting from

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the breach, but Tenant shall not be entitled to terminate this Lease or withhold, offset or abate any sums due hereunder.

Section 13.04. Limitation of Landlord’s Liability. If Landlord shall fail to perform any term, condition, covenant or obligation required to be performed by it under this Lease and if Tenant shall, as a consequence thereof, recover a money judgment against Landlord, Tenant agrees that it shall look solely to Landlord’s right, title and interest in and to the Building for the collection of such judgment; and Tenant further agrees that no other assets of Landlord shall be subject to levy, execution or other process for the satisfaction of Tenant’s judgment.

Section 13.05. Nonwaiver of Defaults. Neither party’s failure or delay in exercising any of its rights or remedies or other provisions of this Lease shall constitute a waiver thereof or affect its right thereafter to exercise or enforce such right or remedy or other provision. No waiver of any default shall be deemed to be a waiver of any other default. Landlord’s receipt of less than the full rent due shall not be construed to be other than a payment on account of rent then due, nor shall any statement on Tenant’s check or any letter accompanying Tenant’s check be deemed an accord and satisfaction. No act or omission by Landlord or its employees or agents during the term of this Lease shall be deemed an acceptance of a surrender of the Leased Premises, and no agreement to accept such a surrender shall be valid unless in writing and signed by Landlord.

Section 13.06. Attorneys’ Fees. If either party defaults in the performance or observance of any of the terms, conditions, covenants or obligations contained in this Lease and the non-defaulting party obtains a judgment against the defaulting party, then the defaulting party agrees to reimburse the non-defaulting party for the attorneys’ fees incurred thereby.

ARTICLE 14 - LANDLORD’S RIGHT TO RELOCATE TENANT

[Intentionally Omitted]

ARTICLE 15 - TENANT’S RESPONSIBILITY REGARDING

ENVIRONMENTAL LAWS AND HAZARDOUS SUBSTANCES

Section 15.01. Definitions.

(a) “Environmental Laws” - All present or future federal, state and municipal laws, ordinances, rules and regulations applicable to the environmental and ecological condition of the Leased Premises, the rules and regulations of the Federal Environmental Protection Agency or any other federal, state or municipal agency or governmental board or entity having jurisdiction over the Leased Premises.

(b) “Hazardous Substances” - Those substances included within the definitions of “hazardous substances,” “hazardous materials,” “toxic substances” “solid waste” or “infectious waste” under Environmental Laws.

Section 15.02. Compliance. Tenant, at its sole cost and expense, shall promptly comply with the Environmental Laws including any notice from any source issued pursuant to the Environmental Laws or issued by any insurance company which shall impose any duty upon

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Tenant with respect to the use, occupancy, maintenance or alteration of the Leased Premises whether such notice shall be served upon Landlord or Tenant.

Section 15.03. Restrictions on Tenant. Tenant shall operate its business and maintain the Leased Premises in compliance with all Environmental Laws. Tenant shall not cause or permit the use, generation, release, manufacture, refining, production, processing, storage or disposal of any Hazardous Substances on, under or about the Leased Premises, or the transportation to or from the Leased Premises of any Hazardous Substances, except as necessary and appropriate for its Permitted Use in which case the use, storage or disposal of such Hazardous Substances shall be performed in compliance with the Environmental Laws and the highest standards prevailing in the industry.

Section 15.04. Notices, Affidavits, Etc. Tenant shall immediately notify Landlord of (i) any violation by Tenant, its employees, agents, representatives, customers, invitees or contractors of the Environmental Laws on, under or about the Leased Premises, or (ii) the presence or suspected presence of any Hazardous Substances on, under or about the Leased Premises and shall immediately deliver to Landlord any notice received by Tenant relating to (i) and (ii) above from any source. Tenant shall execute affidavits, representations and the like within five (5) days of Landlord’s request therefor concerning Tenant’s best knowledge and belief regarding the presence of any Hazardous Substances on, under or about the Leased Premises.

Section 15.05. Landlord’s Rights. Landlord and its agents shall have the right, but not the duty, upon advance notice (except in the case of emergency when no notice shall be required) to inspect the Leased Premises and conduct tests thereon to determine whether or the extent to which there has been a violation of Environmental Laws by Tenant or whether there are Hazardous Substances on, under or about the Leased Premises. In exercising its rights herein, Landlord shall use reasonable efforts to minimize interference with Tenant’s business but such entry shall not constitute an eviction of Tenant, in whole or in part, and Landlord shall not be liable for any interference, loss, or damage to Tenant’s property or business caused thereby.

Section 15.06. Tenant’s Indemnification. Tenant shall indemnify Landlord and Landlord’s managing agent from any and all claims, losses, liabilities, costs, expenses and damages, including attorneys’ fees, costs of testing and remediation costs, incurred by Landlord in connection with any breach by Tenant of its obligations under this Article 15. The covenants and obligations under this Article 15 shall survive the expiration or earlier termination of this Lease.

Section 15.07. Landlord’s Representation. Notwithstanding anything contained in this Article 15 to the contrary, Tenant shall not have any liability to Landlord under this Article 15 resulting from any conditions existing, or events occurring, or any Hazardous Substances existing or generated, at, in, on, under or in connection with the Leased Premises prior to the Commencement Date of this Lease except to the extent Tenant exacerbates the same.

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ARTICLE 16 - MISCELLANEOUS

Section 16.01. Benefit of Landlord and Tenant. This Lease shall inure to the benefit of and be binding upon Landlord and Tenant and their respective successors and assigns.

Section 16.02. Governing Law. This Lease shall be governed in accordance with the laws of the State where the Building is located.

Section 16.03. Guaranty. [Intentionally Omitted]

Section 16.04. Force Majeure. Landlord and Tenant (except with respect to any rent payment obligation) shall be excused for the period of any delay in the performance of any obligation hereunder when such delay is occasioned by causes beyond its control, including but not limited to work stoppages, boycotts, slowdowns or strikes; shortages of materials, equipment, labor or energy; unusual weather conditions; or acts or omissions of governmental or political bodies.

Section 16.05. Examination of Lease. Submission of this instrument for examination or signature to Tenant does not constitute a reservation of or option for Lease, and it is not effective as a Lease or otherwise until execution by and delivery to both Landlord and Tenant.

Section 16.06. Indemnification for Leasing Commissions. The parties hereby represent and warrant that the only real estate brokers involved in the negotiation and execution of this Lease are the Brokers. Landlord agrees to pay any commission due the Brokers. Each party shall indemnify the other from any and all liability for the breach of this representation and warranty on its part and shall pay any compensation to any other broker or person who may be entitled thereto.

Section 16.07. Notices. Any notice required or permitted to be given under this Lease or by law shall be deemed to have been given if it is written and delivered in person or by overnight courier or mailed by certified mail, postage prepaid, to the party who is to receive such notice at the address specified in Article 1. When so mailed, the notice shall be deemed to have been given as of the date it was received, refused or returned undeliverable. Either party may change its address by giving written notice thereof to the other party. Any notice of late payment and default under this Lease shall go to Tenant’s notice addresses set forth in Article 1 hereof. Any notice required by law to be sent to the Leased Premises shall be sent to the Leased Premises and the notice addresses set forth in Article 1 hereof.

Section 16.08. Partial Invalidity; Complete Agreement. If any provision of this Lease shall be held to be invalid, void or unenforceable, the remaining provisions shall remain in full force and effect. This Lease represents the entire agreement between Landlord and Tenant covering everything agreed upon or understood in this transaction. There are no oral promises, conditions, representations, understandings, interpretations or terms of any kind as conditions or inducements to the execution hereof or in effect between the parties. No change or addition shall be made to this Lease except by a written agreement executed by Landlord and Tenant.

Section 16.09. Financial Statements. During the Lease Term and any extensions thereof, Tenant shall provide to Landlord upon Landlord’s request, a copy of Tenant’s most recent

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financial statements prepared as of the end of Tenant’s fiscal year. Such financial statements shall be certified and audited or signed by the chief financial officer of Tenant who shall attest to the truth and accuracy of the information set forth in such statements. All financial statements provided by Tenant to Landlord hereunder shall be prepared in conformity with generally accepted accounting principles, consistently applied. All financial statements for Tenant not generally available to the public shall be held confidential by Landlord. If Tenant becomes a public company, Tenant shall provide Landlord only with its most current published annual report, in lieu of other financial statements.

Section 16.10. Representations and Warranties. The undersigned represent and warrant that (i) such party is duly organized, validly existing and in good standing (if applicable) in accordance with the laws of the state under which it was organized; and (ii) the individual executing and delivering this Lease has been properly authorized to do so, and such execution and delivery shall bind such party.

Section 16.11. Agency Disclosure. [Intentionally Omitted]

Section 16.12. Signs. Tenant may, at its own expense, erect a sign concerning the business of Tenant which shall be in keeping with the decor and other signs on the Building. All signage (including the signage described in the preceding sentence) in or about the Leased Premises shall be first approved by Landlord and shall be in compliance with the applicable codes and any recorded restrictions applicable to the Building. Tenant agrees to maintain any sign in good state of repair, and upon expiration of the Lease Term, Tenant agrees to promptly remove such signs and repair any resulting damage to the Leased Premises. Tenant shall also have the non-exclusive right to install a sign on any monument signage servicing the Building appropriate directional signage. The location of Tenant’s monument sign is depicted on Exhibit D attached hereto. Tenant shall pay for its sign on the monument sign and any directional signage. The sign shall be installed, maintained and repaired by Tenant at its sole cost and expense and shall comply with all laws. Tenant shall pay its proportionate share for maintaining and repairing the monument sign. Landlord shall have the right to approve all signs, including the location, size, color and style, which approval shall not be unreasonably withheld. Upon the expiration or early termination of this Lease, Tenant shall remove the sign from the monument sign and repair any damage caused by such removal at Tenant’s sole cost and expense. Tenant, at Tenant’s expense, shall be responsible for all necessary permits for any signage described herein, and Tenant shall provide Landlord a copy of such permit prior to the installation of such sign or signs.

Section 16.13. ERISA Matters.

(a) Tenant acknowledges that it has been advised that an affiliate of Landlord is a collective investment fund (the “Fund”) which holds the assets of one or more employee benefit plans or retirement arrangements which are subject to Title I of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”) and/or Section 4975 of the Internal Revenue Code of 1986, as amended (the “Code”) (each a “Plan”), and with respect to which Morgan Guaranty Trust Company of New York (“MGT”) is the Trustee and that, as a result, Landlord may be prohibited by law from engaging in certain transactions.

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(b) Landlord hereby represents and warrants to Tenant that, as of the date hereof, the only Plans whose assets are invested in the Fund which, together with the interests of any other Plans maintained by the same employer or employee organization, represent a collective interest in the Fund in excess of ten percent (10%) of the total interests in the Fund (each, a “10% Plan”) are referenced on Exhibit E (collectively, the “Existing 10% Plan”).

(c) Tenant represents and warrants that as of the date hereof, and at all times while it is a Tenant under this Lease, one of the following statements is, and will continue to be, true: (1) Tenant is not a “party in interest” (as defined in Section 3(14) of ERISA) or a “disqualified person” (as defined in Section 4975 of the Code) (each, a “Party in Interest”) with respect to the Existing 10% Plan or, (2) if Tenant is a Party in Interest, that:

(A) neither Tenant nor its “affiliate” (as defined in Section V(c) of PTCE 84-14, “Affiliate”) has, or during the immediately preceding one (1) year has, exercised the authority to either: (i) appoint or terminate MGT as the qualified professional asset manager (as defined in Section V(a) of PTCE 84-14, “QPAM”) of any of the assets of the Existing 10% Plan with respect to which Tenant or its Affiliate is a Party in Interest; or (ii) negotiate the terms of the management agreement with MGT, including renewals or modifications thereof, on behalf of the Existing 10% Plan; and

(B) neither Tenant nor any entity controlling, or controlled by, Tenant owns a five percent (5%) or more interest (within the meaning of PTCE 84-14, “5% Interest”) in J.P. Morgan Chase & Co.

(d) In the event that Landlord or the Fund notifies Tenant in writing that a Plan other than the Existing 10% Plan may become a 10% Plan, Tenant will, within ten (10) days of such notification, inform the Fund in writing as to whether it can make the same representations which it made in subsection (c) of this Section with respect to such prospective 10% Plan. Thereafter, if based on such representations made by Tenant such Plan becomes a 10% Plan, Tenant represents and warrants that, at all times during the period Tenant is a tenant under the Lease, one of the statements set forth in subsection (c) will be true with respect to such 10% Plan.

Section 16.14. Right of First Refusal. Provided that (i) Tenant is not in Default hereunder, and (ii) Tenant originally named herein or a Permitted Assignee remains in possession of and has been continuously operating in the entire Leased Premises throughout the Lease Term, and (iii) subject to any rights of other tenants to the Refusal Space, as defined below, Tenant shall have a continuous right of first refusal (the “Refusal Option”) to lease additional space in the Building crosshatched on the attached Exhibit F (the “Refusal Space”) as such space becomes available for leasing during the Lease Term. The term for the Refusal Space shall be coterminous with the Lease Term with a minimum term of two (2) years. The Refusal Space shall be offered to Tenant at the rental rate then being quoted by Landlord to a specific third party prospective tenant for such space adjusted for the difference in the term for the third party and the remaining Lease Term. Tenant acknowledges and agrees that the Refusal Space offered to Tenant based on a specific third party deal may contain more or less square footage than the Refusal Space outlined in Exhibit F. Upon notification in writing by Landlord that the Refusal Space is available, Tenant shall have seven (7) business days in which to notify Landlord in writing of its election to lease the Refusal Space at such rental rates and at such square footage

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described above, in which event this Lease shall be amended to incorporate such Refusal Space. If Landlord and Tenant cannot agree on the form of the amendment within seven (7) business days after delivery of such amendment from Landlord to Tenant, then Landlord may lease the Refusal Space to the prospective third party. It is understood and agreed that this Refusal Option shall not be construed to prevent any tenant in the Building from extending or renewing its lease. Landlord represents to Tenant that as of the date of this Lease, no other tenant in the Building has any rights to the refusal space.

Section 16.15. Expansion Needs. Any time during the Lease Term and provided that (i) Tenant is not in Default hereunder, (ii) the creditworthiness of Tenant is then acceptable to Landlord, (iii) Tenant originally named herein or a Permitted Transferee remains in possession of and has been continuously operating in the entire Leased Premises throughout the Lease Term, (iv) space is available, and (v) Tenant requires no less than an additional 100,132 square feet, and (vi) Tenant has provided Landlord written notice of its desire to expand (“Tenant’s Expansion Notice”), Landlord will use commercially reasonable efforts to accommodate Tenant’s expansion needs first in the Building, and if not available, in another building owned by Landlord, or an affiliated entity of Landlord, or a new build-to-suit facility constructed by Landlord in any event located in the Commonwealth of Kentucky within ten (10) miles of the Leased Premises. Tenant shall have the right to approve the location of the expansion space. Landlord shall provide Tenant with the location and terms for Tenant’s expansion needs or notice that Landlord does not have any expansion space (“Landlord’s Notice”) within thirty (30) days after receipt of Tenant’s Expansion Notice. Tenant shall have thirty (30) days after receipt of Landlord’s Notice to accept the terms of Landlord’s Notice, or to negotiate and reach an agreement with Landlord for its expansion, or to exercise its option to terminate described in Section 16.16 below, if applicable. If Landlord and Tenant mutually agree and execute a new lease or amendment to this Lease for such expansion space, Tenant shall immediately surrender the Leased Premises to Landlord in accordance with the terms and provisions of this Lease and each party shall be released from further liability hereunder; provided, however, that such termination shall not affect any right or obligation arising prior to termination or which specifically survives the termination of this Lease. Tenant shall not be required to move to the expansion space until such expansion space is ready for Tenant’s occupancy.

Section 16.16. Option to Terminate. Provided Tenant is not in Default hereunder, and provided further that Tenant properly exercised its option to expand as set forth in Section 16.15 hereof and Landlord and Tenant cannot agree on the terms for such expansion, Tenant shall have the option to terminate this Lease effective as of the end of the thirty-sixth (36th) month of the Lease Term. This option shall be exercised by (i) Tenant’s giving written notice to Landlord of its intention to terminate at least six (6) months prior to the effective date of such termination, and (ii) Tenant’s payment to Landlord of an amount equal to Two Hundred Eighty-five Thousand Dollars and Zero Cents ($285,000.00), which payment shall accompany the notice provided in (i) above. Such payment is made in consideration for Landlord’s grant of this option to terminate, to compensate Landlord for rental and other concessions given to Tenant, and for other good and valuable consideration. Such payment shall not in any manner affect Tenant’s obligations to pay Minimum Annual Rent and Additional Rent or to perform its obligations under the Lease up to and including the date of termination. Failure to timely and properly exercise this option shall forever waive and extinguish it. If such option is validly exercised, then upon such termination, Tenant shall surrender the Leased Premises to Landlord in

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accordance with the terms of this Lease and each party shall be released from further liability hereunder; provided, however, that such termination shall not affect any right or obligation arising prior to termination or which survives termination of the Lease.

Section 16.17. Compliance with Laws. Landlord represents to Tenant that as of the Commencement Date, to the best of Landlord’s knowledge, the Leased Premises shall be in compliance with applicable laws, regulations, codes and statutes except to the extent such compliance requires Tenant to comply with some requirement.

IN WITNESS WHEREOF, the parties hereto have executed this Lease as of the day and year first above written.

LANDLORD:
DUGAN FINANCING LLC, a Delaware limited liability company
By:	Dugan Realty, L.L.C., its sole member
	By:	Duke Realty Limited Partnership, its manager
		By:	Duke Realty Corporation, its general partner
			By:
				Kevin T. Rogus Senior Vice President

TENANT:

DESIGN WITHIN REACH, INC.,

a California corporation

By:

Printed:

Title:

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EX-10.04

EXHIBIT 10.04

DESIGN WITHIN REACH, INC. 1999 STOCK PLAN

SECTION 1. ESTABLISHMENT AND PURPOSE.

The purpose of the Plan is to offer selected individuals an opportunity to acquire a proprietary interest in the success of the Company, or to increase such interest, by purchasing Shares of the Company’s Stock. The Plan provides both for the direct award or sale of Shares and for the grant of Options to purchase Shares. Options granted under the Plan may include Nonstatutory Options as well as ISOs intended to qualify under Section 422 of the Code.

Capitalized terms are defined in Section 12.

SECTION 2. ADMINISTRATION.

(a) Committees of the Board of Directors. The Plan may be administered by one or more Committees. Each Committee shall consist of one or more members of the Board of Directors who have been appointed by the Board of Directors. Each Committee shall have such authority and be responsible for such functions as the Board of Directors has assigned to it. If no Committee has been appointed, the entire Board of Directors shall administer the Plan. Any reference to the Board of Directors in the Plan shall be construed as a reference to the Committee (if any) to whom the Board of Directors has assigned a particular function.

(b) Authority of the Board of Directors. Subject to the provisions of the Plan, the Board of Directors shall have full authority and discretion to take any actions it deems necessary or advisable for the administration of the Plan. All decisions, interpretations and other actions of the Board of Directors shall be final and binding on all Purchasers, all Optionees and all persons deriving their rights from a Purchaser or Optionee.

SECTION 3. ELIGIBILITY.

(a) General Rule. Only Employees, Outside Directors and Consultants shall be eligible for the grant of Options or the direct award or sale of Shares. Only Employees shall be eligible for the grant of ISOs.

(b) Ten-Percent Stockholders. An individual who owns more than 10% of the total combined voting power of all classes of outstanding stock of the Company, its Parent or any of its Subsidiaries shall not be eligible for designation as an Optionee or Purchaser unless (i) the Exercise Price is at least 110% of the Fair Market Value of a Share on the date of grant, (ii) the Purchase Price (if any) is at least 100% of the Fair Market Value of a Share and (iii) in the case of an ISO, such ISO by its terms is not exercisable after the expiration of five years from the date of grant. For purposes of this Subsection (b), in determining stock ownership, the attribution rules of Section 424(d) of the Code shall be applied.

SECTION 4. STOCK SUBJECT TO PLAN.

(a) Basic Limitation. Shares offered under the Plan may be authorized but unissued Shares or treasury Shares. The aggregate number of Shares that may be issued under the Plan (upon exercise of Options or other rights to acquire Shares) shall not exceed 1,850,000 Shares, subject to adjustment pursuant to Section 8. The number of Shares that are subject to Options or other rights outstanding at any time under the Plan shall not exceed the number of Shares that then remain available for issuance under the Plan. The Company, during the term of the Plan, shall at all times reserve and keep available sufficient Shares to satisfy the requirements of the Plan.

(b) Additional Shares. In the event that any outstanding Option or other right for any reason expires or is canceled or otherwise terminated, the Shares allocable to the unexercised portion of such Option or other right shall again be available for the purposes of the Plan. In the event that Shares issued under the Plan are reacquired by the Company pursuant to any forfeiture provision, right of repurchase or right of first refusal, such Shares shall again be available for the purposes of the Plan, except that the aggregate number of Shares which may be issued upon the exercise of ISOs shall in no event exceed 1,850,000 Shares (subject to adjustment pursuant to Section 8).

SECTION 5. TERMS AND CONDITIONS OF AWARDS OR SALES.

(a) Stock Purchase Agreement. Each award or sale of Shares under the Plan (other than upon exercise of an Option) shall be evidenced by a Stock Purchase Agreement between the Purchaser and the Company. Such award or sale shall be subject to all applicable terms and conditions of the Plan and may be subject to any other terms and conditions which are not inconsistent with the Plan and which the Board of Directors deems appropriate for inclusion in a Stock Purchase Agreement. The provisions of the various Stock Purchase Agreements entered into under the Plan need not be identical.

(b) Duration of Offers and Nontransferability of Rights. Any right to acquire Shares under the Plan (other than an Option) shall automatically expire if not exercised by the Purchaser within 30 days after the grant of such right was communicated to the Purchaser by the Company. Such right shall not be transferable and shall be exercisable only by the Purchaser to whom such right was granted.

(c) Purchase Price. The Purchase Price of Shares to be offered under the Plan shall not be less than 85% of the Fair Market Value of such Shares, and a higher percentage may be required by Section 3(b). Subject to the preceding sentence, the Purchase Price shall be determined by the Board of Directors at its sole discretion. The Purchase Price shall be payable in a form described in Section 7.

(d) Withholding Taxes. As a condition to the purchase of Shares, the Purchaser shall make such arrangements as the Board of Directors may require for the satisfaction of any federal, state, local or foreign withholding tax obligations that may arise in connection with such purchase.

(e) Restrictions on Transfer of Shares and Minimum Vesting. Any Shares awarded or sold under the Plan shall be subject to such special forfeiture conditions, rights of

repurchase, rights of first refusal and other transfer restrictions as the Board of Directors may determine. Such restrictions shall be set forth in the applicable Stock Purchase Agreement and shall apply in addition to any restrictions that may apply to holders of Shares generally. In the case of a Purchaser who is not an officer of the Company, an Outside Director or a Consultant, any right to repurchase the Purchaser’s Shares at the original Purchase Price (if any) upon termination of the Purchaser’s Service shall lapse at least as rapidly as 20% per year over the five-year period commencing on the date of the award or sale of the Shares. Any such right may be exercised only within 90 days after the termination of the Purchaser’s Service for cash or for cancellation of indebtedness incurred in purchasing the Shares.

(f) Accelerated Vesting. Unless the applicable Stock Purchase Agreement provides otherwise, any right to repurchase a Purchaser’s Shares at the original Purchase Price (if any) upon termination of the Purchaser’s Service shall lapse and all of such Shares shall become vested if (i) the Company is subject to a Change in Control before the Purchaser’s Service terminates and (ii) the repurchase right is not assigned to the entity that employs the Purchaser immediately after the Change in Control or to its parent or subsidiary.

SECTION 6. TERMS AND CONDITIONS OF OPTIONS.

(a) Stock Option Agreement. Each grant of an Option under the Plan shall be evidenced by a Stock Option Agreement between the Optionee and the Company. Such Option shall be subject to all applicable terms and conditions of the Plan and may be subject to any other terms and conditions which are not inconsistent with the Plan and which the Board of Directors deems appropriate for inclusion in a Stock Option Agreement. The provisions of the various Stock Option Agreements entered into under the Plan need not be identical.

(b) Number of Shares. Each Stock Option Agreement shall specify the number of Shares that are subject to the Option and shall provide for the adjustment of such number in accordance with Section 8. The Stock Option Agreement shall also specify whether the Option is an ISO or a Nonstatutory Option.

(c) Exercise Price. Each Stock Option Agreement shall specify the Exercise Price. The Exercise Price of an ISO shall not be less than 100% of the Fair Market Value of a Share on the date of grant, and a higher percentage may be required by Section 3(b). The Exercise Price of a Nonstatutory Option shall not be less than 85% of the Fair Market Value of a Share on the date of grant, and a higher percentage may be required by Section 3(b). Subject to the preceding two sentences, the Exercise Price under any Option shall be determined by the Board of Directors at its sole discretion. The Exercise Price shall be payable in a form described in Section 7.

(d) Withholding Taxes. As a condition to the exercise of an Option, the Optionee shall make such arrangements as the Board of Directors may require for the satisfaction of any federal, state, local or foreign withholding tax obligations that may arise in connection with such exercise. The Optionee shall also make such arrangements as the Board of Directors may require for the satisfaction of any federal, state, local or foreign withholding tax obligations that may arise in connection with the disposition of Shares acquired by exercising an Option.

(e) Exercisability. Each Stock Option Agreement shall specify the date when all or any installment of the Option is to become exercisable. In the case of an Optionee who is not an officer of the Company, an Outside Director or a Consultant, an Option shall become exercisable at least as rapidly as 20% per year over the five-year period commencing on the date of grant. Subject to the preceding sentence, the exercisability provisions of any Stock Option Agreement shall be determined by the Board of Directors at its sole discretion.

(f) Accelerated Exercisability. Unless the applicable Stock Option Agreement provides otherwise, all of an Optionee’s Options shall become exercisable in full if (i) the Company is subject to a Change in Control before the Optionee’s Service terminates, (ii) such Options do not remain outstanding, (iii) such Options are not assumed by the surviving corporation or its parent and (iv) the surviving corporation or its parent does not substitute options with substantially the same terms for such Options.

(g) Basic Term. The Stock Option Agreement shall specify the term of the Option. The term shall not exceed 10 years from the date of grant, and a shorter term may be required by Section 3(b). Subject to the preceding sentence, the Board of Directors at its sole discretion shall determine when an Option is to expire.

(h) Nontransferability. No Option shall be transferable by the Optionee other than by beneficiary designation, will or the laws of descent and distribution. An Option may be exercised during the lifetime of the Optionee only by the Optionee or by the Optionee’s guardian or legal representative. No Option or interest therein may be transferred, assigned, pledged or hypothecated by the Optionee during the Optionee’s lifetime, whether by operation of law or otherwise, or be made subject to execution, attachment or similar process.

(i) Termination of Service (Except by Death). If an Optionee’s Service terminates for any reason other than the Optionee’s death, then the Optionee’s Options shall expire on the earliest of the following occasions:

(i) The expiration date determined pursuant to Subsection (g) above;

(ii) The date three months after the termination of the Optionee’s Service for any reason other than Disability, or such later date as the Board of Directors may determine; or

(iii) The date six months after the termination of the Optionee’s Service by reason of Disability, or such later date as the Board of Directors may determine.

The Optionee may exercise all or part of the Optionee’s Options at any time before the expiration of such Options under the preceding sentence, but only to the extent that such Options had become exercisable before the Optionee’s Service terminated (or became exercisable as a result of the termination) and the underlying Shares had vested before the Optionee’s Service terminated (or vested as a result of the termination). The balance of such Options shall lapse

when the Optionee’s Service terminates. In the event that the Optionee dies after the termination of the Optionee’s Service but before the expiration of the Optionee’s Options, all or part of such Options may be exercised (prior to expiration) by the executors or administrators of the Optionee’s estate or by any person who has acquired such Options directly from the Optionee by beneficiary designation, bequest or inheritance, but only to the extent that such Options had become exercisable before the Optionee’s Service terminated (or became exercisable as a result of the termination) and the underlying Shares had vested before the Optionee’s Service terminated (or vested as a result of the termination).

(j) Leaves of Absence. For purposes of Subsection (i) above, Service shall be deemed to continue while the Optionee is on a bona fide leave of absence, if such leave was approved by the Company in writing and if continued crediting of Service for this purpose is expressly required by the terms of such leave or by applicable law (as determined by the Company).

(k) Death of Optionee. If an Optionee dies while the Optionee is in Service, then the Optionee’s Options shall expire on the earlier of the following dates:

(i) The expiration date determined pursuant to Subsection (g) above; or

(ii) The date 12 months after the Optionee’s death.

All or part of the Optionee’s Options may be exercised at any time before the expiration of such Options under the preceding sentence by the executors or administrators of the Optionee’s estate or by any person who has acquired such Options directly from the Optionee by beneficiary designation, bequest or inheritance, but only to the extent that such Options had become exercisable before the Optionee’s death or became exercisable as a result of the death. The balance of such Options shall lapse when the Optionee dies.

(1) No Rights as a Stockholder. An Optionee, or a transferee of an Optionee, shall have no rights as a stockholder with respect to any Shares covered by the Optionee’s Option until such person becomes entitled to receive such Shares by filing a notice of exercise and paying the Exercise Price pursuant to the terms of such Option.

(m) Modification, Extension and Assumption of Options. Within the limitations of the Plan, the Board of Directors may modify, extend or assume outstanding Options or may accept the cancellation of outstanding Options (whether granted by the Company or another issuer) in return for the grant of new Options for the same or a different number of Shares and at the same or a different Exercise Price. The foregoing notwithstanding, no modification of an Option shall, without the consent of the Optionee, impair the Optionee’s rights or increase the Optionee’s obligations under such Option.

(n) Restrictions on Transfer of Shares and Minimum Vesting. Any Shares issued upon exercise of an Option shall be subject to such special forfeiture conditions, rights of repurchase, rights of first refusal and other transfer restrictions as the Board of Directors may determine. Such restrictions shall be set forth in the applicable Stock Option Agreement and

shall apply in addition to any restrictions that may apply to holders of Shares generally. In the case of an Optionee who is not an officer of the Company, an Outside Director or a Consultant:

(i) Any right to repurchase the Optionee’s Shares at the original Exercise Price upon termination of the Optionee’s Service shall lapse at least as rapidly as 20% per year over the five-year period commencing on the date of the option grant;

(ii) Any such right may be exercised only for cash or for cancellation of indebtedness incurred in purchasing the Shares; and

(iii) Any such right may be exercised only within 90 days after the later of (A) the termination of the Optionee’s Service or (B) the date of the option exercise.

(o) Accelerated Vesting. Unless the applicable Stock Option Agreement provides otherwise, any right to repurchase an Optionee’s Shares at the original Exercise Price upon termination of the Optionee’s Service shall lapse and all of such Shares shall become vested if (i) the Company is subject to a Change in Control before the Optionee’s Service terminates and (ii) the repurchase right is not assigned to the entity that employs the Optionee immediately after the Change in Control or to its parent or subsidiary.

SECTION 7. PAYMENT FOR SHARES.

(a) General Rule. The entire Purchase Price or Exercise Price of Shares issued under the Plan shall be payable in cash or cash equivalents at the time when such Shares are purchased, except as otherwise provided in this Section 7.

(b) Surrender of Stock. To the extent that a Stock Option Agreement so provides, all or any part of the Exercise Price may be paid by surrendering, or attesting to the ownership of, Shares that are already owned by the Optionee. Such Shares shall be surrendered to the Company in good form for transfer and shall be valued at their Fair Market Value on the date when the Option is exercised. The Optionee shall not surrender, or attest to the ownership of, Shares in payment of the Exercise Price if such action would cause the Company to recognize compensation expense (or additional compensation expense) with respect to the Option for financial reporting purposes.

(c) Services Rendered. At the discretion of the Board of Directors, Shares may be awarded under the Plan in consideration of services rendered to the Company, a Parent or a Subsidiary prior to the award. At the discretion of the Board of Directors, Shares may also be awarded under the Plan in consideration of services to be rendered to the Company, a Parent or a Subsidiary after the award, except that the par value of such Shares, if newly issued, shall be paid in cash or cash equivalents.

(d) Promissory Note. To the extent that a Stock Option Agreement or Stock Purchase Agreement so provides, all or a portion of the Exercise Price or Purchase Price (as the case may be) of Shares issued under the Plan may be paid with a full-recourse promissory note. However, the par value of the Shares, if newly issued, shall be paid in cash or cash equivalents.

The Shares shall be pledged as security for payment of the principal amount of the promissory note and interest thereon. The interest rate payable under the terms of the promissory note shall not be less than the minimum rate (if any) required to avoid the imputation of additional interest under the Code. Subject to the foregoing, the Board of Directors (at its sole discretion) shall specify the term, interest rate, amortization requirements (if any) and other provisions of such note.

(e) Exercise/Sale. To the extent that a Stock Option Agreement so provides, and if Stock is publicly traded, payment may be made all or in part by the delivery (on a form prescribed by the Company) of an irrevocable direction to a securities broker approved by the Company to sell Shares and to deliver all or part of the sales proceeds to the Company in payment of all or part of the Exercise Price and any withholding taxes.

(f) Exercise/Pledge. To the extent that a Stock Option Agreement so provides, and if Stock is publicly traded, payment may be made all or in part by the delivery (on a form prescribed by the Company) of an irrevocable direction to pledge Shares to a securities broker or lender approved by the Company, as security for a loan, and to deliver all or part of the loan proceeds to the Company in payment of all or part of the Exercise Price and any withholding taxes.

SECTION 8. ADJUSTMENT OF SHARES.

(a) General. In the event of a subdivision of the outstanding Stock, a declaration of a dividend payable in Shares, a declaration of an extraordinary dividend payable in a form other than Shares in an amount that has a material effect on the Fair Market Value of the Stock, a combination or consolidation of the outstanding Stock into a lesser number of Shares, a recapitalization, a spin-off, a reclassification or a similar occurrence, the Board of Directors shall make appropriate adjustments in one or more of (i) the number of Shares available for future grants under Section 4, (ii) the number of Shares covered by each outstanding Option or (iii) the Exercise Price under each outstanding Option.

(b) Mergers and Consolidations. In the event that the Company is a party to a merger or consolidation, outstanding Options shall be subject to the agreement of merger or consolidation. Such agreement, without the Optionees’ consent, may provide for:

(i) The continuation of such outstanding Options by the Company (if the Company is the surviving corporation);

(ii) The assumption of the Plan and such outstanding Options by the surviving corporation or its parent;

(iii) The substitution by the surviving corporation or its parent of options with substantially the same terms for such outstanding Options; or

(iv) The cancellation of such outstanding Options without payment of any consideration.

(c) Reservation of Rights. Except as provided in this Section 8, an Optionee or Purchaser shall have no rights by reason of (i) any subdivision or consolidation of shares of stock of any class, (ii) the payment of any dividend or (iii) any other increase or decrease in the number of shares of stock of any class. Any issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall not affect, and no adjustment by reason thereof shall be made with respect to, the number or Exercise Price of Shares subject to an Option. The grant of an Option pursuant to the Plan shall not affect in any way the right or power of the Company to make adjustments, reclassifications, reorganizations or changes of its capital or business structure, to merge or consolidate or to dissolve, liquidate, sell or transfer all or any part of its business or assets.

SECTION 9. SECURITIES LAW REQUIREMENTS.

(a) General. Shares shall not be issued under the Plan unless the issuance and delivery of such Shares comply with (or are exempt from) all applicable requirements of law, including (without limitation) the Securities Act of 1933, as amended, the rules and regulations promulgated thereunder, state securities laws and regulations, and the regulations of any stock exchange or other securities market on which the Company’s securities may then be traded.

(b) Financial Reports. The Company each year shall furnish to Optionees, Purchasers and stockholders who have received Stock under the Plan its balance sheet and income statement, unless such Optionees, Purchasers or stockholders are key Employees whose duties with the Company assure them access to equivalent information. Such balance sheet and income statement need not be audited.

SECTION 10. NO RETENTION RIGHTS.

Nothing in the Plan or in any right or Option granted under the Plan shall confer upon the Purchaser or Optionee any right to continue in Service for any period of specific duration or interfere with or otherwise restrict in any way the rights of the Company (or any Parent or Subsidiary employing or retaining the Purchaser or Optionee) or of the Purchaser or Optionee, which rights are hereby expressly reserved by each, to terminate his or her Service at any time and for any reason, with or without cause.

SECTION 11. DURATION AND AMENDMENTS.

(a) Term of the Plan. The Plan, as set forth herein, shall become effective on the date of its adoption by the Board of Directors, subject to the approval of the Company’s stockholders. In the event that the stockholders fail to approve the Plan within 12 months after its adoption by the Board of Directors, any grants of Options or sales or awards of Shares that have already occurred shall be rescinded, and no additional grants, sales or awards shall be made thereafter under the Plan. The Plan shall terminate automatically 10 years after its adoption by the Board of Directors and may be terminated on any earlier date pursuant to Subsection (b) below.

(b) Right to Amend or Terminate the Plan. The Board of Directors may amend, suspend or terminate the Plan at any time and for any reason; provided, however, that any amendment of the Plan which increases the number of Shares available for issuance under the Plan (except as provided in Section 8), or which materially changes the class of persons who are eligible for the grant of ISOs, shall be subject to the approval of the Company’s stockholders. Stockholder approval shall not be required for any other amendment of the Plan.

(c) Effect of Amendment or Termination. No Shares shall be issued or sold under the Plan after the termination thereof, except upon exercise of an Option granted prior to such termination. The termination of the Plan, or any amendment thereof, shall not affect any Share previously issued or any Option previously granted under the Plan.

SECTION 12. DEFINITIONS.

(a) “Board of Directors” shall mean the Board of Directors of the Company, as constituted from time to time.

(b) “Change in Control” shall mean:

(i) The consummation of a merger or consolidation of the Company with or into another entity or any other corporate reorganization, if persons who were not shareholders of the Company immediately prior to such merger, consolidation or other reorganization own immediately after such merger, consolidation or other reorganization 50% or more of the voting power of the outstanding securities of each of (A) the continuing or surviving entity and (B) any direct or indirect parent corporation of such continuing or surviving entity; or

(ii) The sale, transfer or other disposition of all or substantially all of the Company’s assets.

A transaction shall not constitute a Change in Control if its sole purpose is to change the state of the Company’s incorporation or to create a holding company that will be owned in substantially the same proportions by the persons who held the Company’s securities immediately before such transaction.

(c) “Code” shall mean the Internal Revenue Code of 1986, as amended.

(d) “Committee” shall mean a committee of the Board of Directors, as described in Section 2(a).

(e) “Company” shall mean Design Within Reach, Inc., a California corporation.

(f) “Consultant” shall mean a person who performs bona fide services for the Company, a Parent or a Subsidiary as a consultant or advisor, excluding Employees and Outside Directors.

(g) “Disability” shall mean that the Optionee is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment.

(h) “Employee” shall mean any individual who is a common-law employee of the Company, a Parent or a Subsidiary.

(i) “Exercise Price” shall mean the amount for which one Share may be purchased upon exercise of an Option, as specified by the Board of Directors in the applicable Stock Option Agreement.

(j) “Fair Market Value” shall mean the fair market value of a Share, as determined by the Board of Directors in good faith. Such determination shall be conclusive and binding on all persons.

(k) “ISO” shall mean an employee incentive stock option described in Section 422(b) of the Code.

(l) “Nonstatutory Option” shall mean a stock option not described in Sections 422(b) or 423(b) of the Code.

(m) “Option” shall mean an ISO or Nonstatutory Option granted under the Plan and entitling the holder to purchase Shares.

(n) “Optionee” shall mean an individual who holds an Option.

(o) “Outside Director” shall mean a member of the Board of Directors who is not an Employee.

(p) “Parent” shall mean any corporation (other than the Company) in an unbroken chain of corporations ending with the Company, if each of the corporations other than the Company owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. A corporation that attains the status of a Parent on a date after the adoption of the Plan shall be considered a Parent commencing as of such date.

(q) “Plan” shall mean this Design Within Reach, Inc. 1999 Stock Plan.

(r) “Purchase Price” shall mean the consideration for which one Share may be acquired under the Plan (other than upon exercise of an Option), as specified by the Board of Directors.

(s) “Purchaser” shall mean an individual to whom the Board of Directors has offered the right to acquire Shares under the Plan (other than upon exercise of an Option).

(t) “Service” shall mean service as an Employee, Outside Director or Consultant.

(u) “Share” shall mean one share of Stock, as adjusted in accordance with Section 8 (if applicable).

(v) “Stock” shall mean the Common Stock of the Company.

(w) “Stock Option Agreement” shall mean the agreement between the Company and an Optionee which contains the terms, conditions and restrictions pertaining to the Optionee’s Option.

(x) “Stock Purchase Agreement” shall mean the agreement between the Company and a Purchaser who acquires Shares under the Plan which contains the terms, conditions and restrictions pertaining to the acquisition of such Shares.

(y) “Subsidiary” means any corporation (other than the Company) in an unbroken chain of corporations beginning with the Company, if each of the corporations other than the last corporation in the unbroken chain owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. A corporation that attains the status of a Subsidiary on a date after the adoption of the Plan shall be considered a Subsidiary commencing as of such date.

PLAN ADOPTION AND AMENDMENTS/ADJUSTMENTS

SUMMARY PAGE

Date of Board Action	Action	Section/Effect of Amendment	Date of Shareholder Approval
January 1, 1999	Initial Plan Adoption		January 1, 1999
November 12, 1999	Amendment	Increase Options from 500,000 to 1,000,000 shares	November 30, 1999
February 25, 2000	Amendment	Increase Options from 1,000,000 to 1,850,000 shares	February 25, 2000
December 14, 2000	Amendment	Increase Options from 1,850,000 to 2,100,00	April 13, 2001
May 7, 2002	Amendment	Increase Options from 2,100,000 to 2,600,000	May 7, 2002
October 29, 2003	Amendment	Increase Options from 2,600,000 to 3,100,000	November 21, 2003

EX-10.05

Exhibit 10.05

DESIGN WITHIN REACH, INC.

2004 EQUITY INCENTIVE AWARD PLAN

ARTICLE 1

PURPOSE

1.1 GENERAL. The purpose of the Design Within Reach, Inc. 2004 Equity Incentive Award Plan (the “Plan”) is to promote the success and enhance the value of Design Within Reach, Inc. (the “Company”) by linking the personal interests of the members of the Board, employees, officers, and executives of the Company and any Subsidiary, to those of Company stockholders and by providing such individuals with an incentive for outstanding performance to generate superior returns to Company stockholders. The Plan is further intended to provide flexibility to the Company in its ability to motivate, attract, and retain the services of members of the Board, employees, officers, and executives of the Company upon whose judgment, interest, and special effort the successful conduct of the Company’s operation is largely dependent.

ARTICLE 2

DEFINITIONS AND CONSTRUCTION

2.1 DEFINITIONS. The following words and phrases shall have the following meanings:

(a) “Award” means an Option, a Restricted Stock award, a Stock Appreciation Right award, a Performance Share award, a Dividend Equivalents award, a Stock Payment award, a Deferred Stock award, or a Performance-Based Award granted to a Participant pursuant to the Plan.

(b) “Award Agreement” means any written agreement, contract, or other instrument or document evidencing an Award.

(c) “Board” means the Board of Directors of the Company.

(d) “Cause” unless otherwise defined in an employment or services agreement between the Participant and the Company or a Subsidiary, means dishonesty, fraud, misconduct, unauthorized use or disclosure of confidential information or trade secrets, or conviction or confession of a crime punishable by law (except minor violations), in each case as determined by the Board, and its determination shall be conclusive and binding.

(e) “Change of Control” means and includes each of the following:

(1) the acquisition, directly or indirectly, by any “person” or “group” (as those terms are defined in Sections 3(a)(9), 13(d) and 14(d) of the Exchange Act and the rules thereunder) of “beneficial ownership” (as determined pursuant to Rule 13d-3 under the Exchange Act) of securities entitled to vote generally in the election of directors (“voting securities”) of the Company that represent 50% or more of the combined voting power of the Company’s then outstanding voting securities, other than

(A) an acquisition by a trustee or other fiduciary holding securities under any employee benefit plan (or related trust) sponsored or maintained by the Company or any person controlled by the Company or by any employee benefit plan (or related trust) sponsored or maintained by the Company or any person controlled by the Company, or

(B) an acquisition of voting securities by the Company or a corporation owned, directly or indirectly by the stockholders of the Company in substantially the same proportions as their ownership of the stock of the Company, or

(C) an acquisition of voting securities pursuant to a transaction described in clause (3) below that would not be a Change of Control under clause (3);

Notwithstanding the foregoing, neither of the following events shall constitute an “acquisition” by any person or group for purposes of this subsection (e): an acquisition of the Company’s securities by the Company which causes the Company’s voting securities beneficially owned by a person or group to represent 50% or more of the combined voting power of the Company’s then outstanding voting securities; provided, however, that if a person or group shall become the beneficial owner of 50% or more of the combined voting power of the Company’s then outstanding voting securities by reason of share acquisitions by the Company as described above and shall, after such share acquisitions by the Company, become the beneficial owner of any additional voting securities of the Company, then such acquisition shall constitute a Change of Control; or

(2) during any period of two consecutive years, individuals who, at the beginning of such period, constitute the Board together with any new director(s) (other than a director designated by a person who shall have entered into an agreement with the Company to effect a transaction described in clauses (1) or (3) of this subsection (e)) whose election by the Board or nomination for election by the Company’s stockholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the two year period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof; or

(3) the consummation by the Company (whether directly involving the Company or indirectly involving the Company through one or more intermediaries) of (x) a merger, consolidation, reorganization, or business combination or (y) a sale or other disposition of all or substantially all of the Company’s assets or (z) the acquisition of assets or stock of another entity, in each case other than a transaction

(A) which results in the Company’s voting securities outstanding immediately before the transaction continuing to represent (either by remaining outstanding or by being converted into voting securities of the Company or the person that, as a result of the transaction, controls, directly or indirectly, the Company or owns, directly or indirectly, all or substantially all of the Company’s assets or otherwise succeeds to the business of the Company (the Company or such person, the “Successor Entity”)) directly or indirectly, at least a majority of the combined voting power of the Successor Entity’s outstanding voting securities immediately after the transaction, and

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(B) after which no person or group beneficially owns voting securities representing 50% or more of the combined voting power of the Successor Entity; provided, however, that no person or group shall be treated for purposes of this clause (B) as beneficially owning 50% or more of combined voting power of the Successor Entity solely as a result of the voting power held in the Company prior to the consummation of the transaction; or

(4) the Company’s stockholders approve a liquidation or dissolution of the Company.

The Committee shall have full and final authority, which shall be exercised in its discretion, to determine conclusively whether a Change of Control of the Company has occurred pursuant to the above definition, and the date of the occurrence of such Change of Control and any incidental matters relating thereto.

(f) “Code” means the Internal Revenue Code of 1986, as amended.

(g) “Committee” means the committee of the Board described in Article 12.

(h) “Covered Employee” means an Employee who is, or could be, a “covered employee” within the meaning of Section 162(m) of the Code.

(i) “Deferred Stock” means a right to receive a specified number of shares of Stock during specified time periods pursuant to Article 8.

(j) “Disability” means, for purposes of this Plan, that the Participant qualifies to receive long-term disability payments under the Company’s long-term disability insurance program, as it may be amended from time to time.

(k) “Dividend Equivalents” means a right granted to a Participant pursuant to Article 8 to receive the equivalent value (in cash or Stock) of dividends paid on Stock.

(l) “Employee” means any officer or other employee (as defined in accordance with Section 3401(c) of the Code) of the Company or any Subsidiary.

(m) “Exchange Act” means the Securities Exchange Act of 1934, as amended.

(n) “Fair Market Value” shall mean, as of any date, the value of Stock determined as follows:

(1) If the Stock is listed on any established stock exchange or a national market system, including without limitation the Nasdaq National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its Fair Market Value shall be the closing sales price for such stock (or the closing bid, if no sales were reported) as quoted on such exchange or system for the last market trading day prior to the date of determination, as reported in The Wall Street Journal or such other source as the Committee deems reliable;

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(2) If the Stock is regularly quoted by a recognized securities dealer but selling prices are not reported, its Fair Market Value shall be the mean of the closing bid and asked prices for the Stock on the date prior to the date of determination as reported in The Wall Street Journal or such other source as the Committee deems reliable; or

(3) In the absence of an established market for the Stock, the Fair Market Value thereof shall be determined in good faith by the Committee.

(o) “Good Reason” means the occurrence of any of the following events or conditions and the failure of the successor corporation to cure such event or condition within 30 days after receipt of written notice from the Participant:

(1) a change in the Participant’s status, position or responsibilities (including reporting responsibilities) that, in the Participant’s reasonable judgment, represents a substantial reduction in the status, position or responsibilities as in effect immediately prior thereto; the assignment to the Participant of any duties or responsibilities that, in the Participant’s reasonable judgment, are materially inconsistent with such status, position or responsibilities; or any removal of the Participant from or failure to reappoint or reelect the Participant to any of such positions, except in connection with the termination of the Participant’s employment for Cause, as a result of his or her Disability or death, or by the Participant other than for Good Reason;

(2) a material reduction in the Participant’s annual base salary, except in connection with a general reduction in the compensation of the successor corporation’s personnel with similar status and responsibilities;

(3) the successor corporation’s requiring the Participant (without the Participant’s consent) to be based at any place outside a 50-mile radius of his or her place of employment prior to a Change of Control, except for reasonably required travel on the successor corporation’s business that is not materially greater than such travel requirements prior to the Change of Control;

(4) the successor corporation’s failure to provide the Participant with compensation and benefits substantially equivalent (in terms of benefit levels and/or reward opportunities) to those provided for under each material employee benefit plan, program and practice as in effect immediately prior to the Change of Control;

(5) any material breach by the successor corporation of its obligations to the Participant under the Plan or any substantially equivalent plan of the successor corporation; or

(6) any purported termination of the Participant’s employment or service relationship for Cause by the successor corporation that is not in accordance with the definition of Cause under the Plan.

(p) “Incentive Stock Option” means an Option that is intended to meet the requirements of Section 422 of the Code or any successor provision thereto.

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(q) “Non-Employee Director” means a member of the Board who qualifies as a “Non-Employee Director” as defined in Rule 16b-3(b)(3) of the Exchange Act, or any successor definition adopted by the Board.

(r) “Non-Qualified Stock Option” means an Option that is not intended to be an Incentive Stock Option.

(s) “Option” means a right granted to a Participant pursuant to Article 5 of the Plan to purchase a specified number of shares of Stock at a specified price during specified time periods. An Option may be either an Incentive Stock Option or a Non-Qualified Stock Option.

(t) “Participant” means a person who, as a member of the Board, consultant to the Company or Employee, has been granted an Award pursuant to the Plan.

(u) “Performance-Based Award” means an Award granted to selected Covered Employees pursuant to Articles 6 and 8, but which is subject to the terms and conditions set forth in Article 9. All Performance-Based Awards are intended to qualify as Qualified Performance-Based Compensation.

(v) “Performance Criteria” means the criteria that the Committee selects for purposes of establishing the Performance Goal or Performance Goals for a Participant for a Performance Period. The Performance Criteria that will be used to establish Performance Goals are limited to the following: net earnings (either before or after interest, taxes, depreciation and amortization), net losses, sales or revenue, operating earnings, operating cash flow, return on net assets, return on stockholders’ equity, return on assets, return on capital, stockholder returns, gross or net profit margin, earnings per share, price per share of Stock, and market share, any of which may be measured either in absolute terms or as compared to any incremental increase or as compared to results of a peer group. The Committee shall, within the time prescribed by Section 162(m) of the Code, define in an objective fashion the manner of calculating the Performance Criteria it selects to use for such Performance Period for such Participant.

(w) “Performance Goals” means, for a Performance Period, the goals established in writing by the Committee for the Performance Period based upon the Performance Criteria. Depending on the Performance Criteria used to establish such Performance Goals, the Performance Goals may be expressed in terms of overall Company performance or the performance of a division, business unit, or an individual. The Committee, in its discretion, may, within the time prescribed by Section 162(m) of the Code, adjust or modify the calculation of Performance Goals for such Performance Period in order to prevent the dilution or enlargement of the rights of Participants (i) in the event of, or in anticipation of, any unusual or extraordinary corporate item, transaction, event, or development, or (ii) in recognition of, or in anticipation of, any other unusual or nonrecurring events affecting the Company, or the financial statements of the Company, or in response to, or in anticipation of, changes in applicable laws, regulations, accounting principles, or business conditions.

(x) “Performance Period” means the one or more periods of time, which may be of varying and overlapping durations, as the Committee may select, over which the attainment of one or more Performance Goals will be measured for the purpose of determining a Participant’s right to, and the payment of, a Performance-Based Award.

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(y) “Performance Share” means a right granted to a Participant pursuant to Article 8, to receive cash, Stock, or other Awards, the payment of which is contingent upon achieving certain performance goals established by the Committee.

(z) “Plan” means this Design Within Reach, Inc. 2004 Equity Incentive Award Plan, as it may be amended from time to time.

(aa) “Public Trading Date” means the first date upon which Stock is listed (or approved for listing) upon notice of issuance on any securities exchange or designated (or approved for designation) upon notice of issuance as a national market security on an interdealer quotation system.

(bb) “Qualified Performance-Based Compensation” means any compensation that is intended to qualify as “qualified performance-based compensation” as described in Section 162(m)(4)(C) of the Code.

(cc) “Restricted Stock” means Stock awarded to a Participant pursuant to Article 6 that is subject to certain restrictions and to risk of forfeiture.

(dd) “Stock” means the common stock of the Company and such other securities of the Company that may be substituted for Stock pursuant to Article 11.

(ee) “Stock Appreciation Right” or “SAR” means a right granted pursuant to Article 7 to receive a payment equal to the excess of the Fair Market Value of a specified number of shares of Stock on the date the SAR is exercised over the Fair Market Value on the date the SAR was granted as set forth in the applicable Award Agreement.

(ff) “Stock Payment” means (a) a payment in the form of shares of Stock, or (b) an option or other right to purchase shares of Stock, as part of any bonus, deferred compensation or other arrangement, made in lieu of all or any portion of the compensation, granted pursuant to Article 8.

(gg) “Subsidiary” means any corporation or other entity of which a majority of the outstanding voting stock or voting power is beneficially owned directly or indirectly by the Company.

ARTICLE 3

SHARES SUBJECT TO THE PLAN

3.1 NUMBER OF SHARES.

(a) Subject to Article 11, the aggregate number of shares of Stock which may be issued or transferred pursuant to Awards under the Plan shall be the sum of (i) 500,000 shares plus (ii) any shares of Stock which the Company repurchases using the cash proceeds received by the Company from Option exercises and from the value of any tax deductions realized by the Company with respect to Option exercises. In addition to the foregoing, subject to Article 11,

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commencing on January 1, 2005 and on each January 1 thereafter during the term of the Plan, the number of shares of Stock which may be issued or transferred pursuant to Awards under the Plan shall be increased by that number of shares of Stock equal to the lesser of (i) 200,000 shares; or (ii) a lesser amount determined by the Board. The payment of Dividend Equivalents in conjunction with any outstanding Awards shall not be counted against the shares available for issuance under the Plan.

(b) To the extent that an Award terminates, expires, or lapses for any reason, any shares of Stock subject to the Award shall again be available for the grant of an Award pursuant to the Plan. Additionally, any shares of Stock tendered or withheld to satisfy the grant or exercise price or tax withholding obligation pursuant to any Award shall again be available for the grant of an Award pursuant to the Plan. To the extent permitted by applicable law or any exchange rule, shares of Stock issued in assumption of, or in substitution for, any outstanding awards of any entity acquired in any form of combination by the Company or any Subsidiary shall not be counted against shares of Stock available for grant pursuant to this Plan.

3.2 STOCK DISTRIBUTED. Any Stock distributed pursuant to an Award may consist, in whole or in part, of authorized and unissued Stock, treasury Stock or Stock purchased on the open market.

3.3 LIMITATION ON NUMBER OF SHARES SUBJECT TO AWARDS. Notwithstanding any provision in the Plan to the contrary, and subject to Article 11: the maximum number of shares of Stock with respect to one or more Awards that may be granted to any one Participant in any calendar year shall be 500,000.

ARTICLE 4

ELIGIBILITY AND PARTICIPATION

4.1 ELIGIBILITY.

(a) GENERAL. Persons eligible to participate in this Plan include Employees, consultants to the Company and all members of the Board, as determined by the Committee.

(b) FOREIGN PARTICIPANTS. In order to assure the viability of Awards granted to Participants employed in foreign countries, the Committee may provide for such special terms as it may consider necessary or appropriate to accommodate differences in local law, tax policy, or custom. Moreover, the Committee may approve such supplements to, or amendments, restatements, or alternative versions of, the Plan as it may consider necessary or appropriate for such purposes without thereby affecting the terms of the Plan as in effect for any other purpose; provided, however, that no such supplements, amendments, restatements, or alternative versions shall increase the share limitations contained in Sections 3.1 and 3.3 of the Plan.

4.2 ACTUAL PARTICIPATION. Subject to the provisions of the Plan, the Committee may, from time to time, select from among all eligible individuals, those to whom Awards shall be granted and shall determine the nature and amount of each Award. No individual shall have any right to be granted an Award pursuant to this Plan.

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ARTICLE 5

STOCK OPTIONS

5.1 GENERAL. The Committee is authorized to grant Options to Participants on the following terms and conditions:

(a) EXERCISE PRICE. The exercise price per share of Stock subject to an Option shall be determined by the Committee and set forth in the Award Agreement; provided that the exercise price for any Option shall not be less than par value of a share of Stock on the date of grant.

(b) TIME AND CONDITIONS OF EXERCISE. The Committee shall determine the time or times at which an Option may be exercised in whole or in part, provided that the term of any Option granted under the Plan shall not exceed ten years, and provided further, that in the case of a Non-Qualified Stock Option, such Option shall be exercisable for one year after the date of the Participant’s death. The Committee shall also determine the performance or other conditions, if any, that must be satisfied before all or part of an Option may be exercised.

(c) PAYMENT. The Committee shall determine the methods by which the exercise price of an Option may be paid, the form of payment, including, without limitation, cash, promissory note bearing interest at no less than such rate as shall then preclude the imputation of interest under the Code, shares of Stock held for longer than six months having a Fair Market Value on the date of delivery equal to the aggregate exercise price of the Option or exercised portion thereof, or other property acceptable to the Committee (including through the delivery of a notice that the Participant has placed a market sell order with a broker with respect to shares of Stock then issuable upon exercise of the Option, and that the broker has been directed to pay a sufficient portion of the net proceeds of the sale to the Company in satisfaction of the Option exercise price, provided that payment of such proceeds is then made to the Company upon settlement of such sale), and the methods by which shares of Stock shall be delivered or deemed to be delivered to Participants. Notwithstanding any other provision of the Plan to the contrary, no Participant who is a member of the Board or an “executive officer” of the Company within the meaning of Section 13(k) of the Exchange Act shall be permitted to pay the exercise price of an Option in any method which would violate Section 13(k).

(d) EVIDENCE OF GRANT. All Options shall be evidenced by a written Award Agreement between the Company and the Participant. The Award Agreement shall include such additional provisions as may be specified by the Committee.

5.2 INCENTIVE STOCK OPTIONS. Incentive Stock Options shall be granted only to Employees and the terms of any Incentive Stock Options granted pursuant to the Plan must comply with the following additional provisions of this Section 5.2:

(a) EXERCISE PRICE. The exercise price per share of Stock shall be set by the Committee, provided that the exercise price for any Incentive Stock Option shall not be less than 100% of the Fair Market Value on the date of grant.

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(b) EXPIRATION OF OPTION. An Incentive Stock Option may not be exercised to any extent by anyone after the first to occur of the following events:

(1) Ten years from the date it is granted, unless an earlier time is set in the Award Agreement.

(2) One year after the date of the Participant’s termination of employment or service on account of Disability or death, unless in the case of death a shorter or longer period is designated in the Award Agreement. Upon the Participant’s Disability or death, any Incentive Stock Options exercisable at the Participant’s Disability or death may be exercised by the Participant’s legal representative or representatives, by the person or persons entitled to do so pursuant to the Participant’s last will and testament, or, if the Participant fails to make testamentary disposition of such Incentive Stock Option or dies intestate, by the person or persons entitled to receive the Incentive Stock Option pursuant to the applicable laws of descent and distribution.

(c) INDIVIDUAL DOLLAR LIMITATION. The aggregate Fair Market Value (determined as of the time the Option is granted) of all shares of Stock with respect to which Incentive Stock Options are first exercisable by a Participant in any calendar year may not exceed $100,000.00 or such other limitation as imposed by Section 422(d) of the Code, or any successor provision. To the extent that Incentive Stock Options are first exercisable by a Participant in excess of such limitation, the excess shall be considered Non-Qualified Stock Options.

(d) TEN PERCENT OWNERS. An Incentive Stock Option shall be granted to any individual who, at the date of grant, owns stock possessing more than ten percent of the total combined voting power of all classes of Stock of the Company only if such Option is granted at a price that is not less than 110% of Fair Market Value on the date of grant and the Option is exercisable for no more than five years from the date of grant.

(e) TRANSFER RESTRICTION. The Participant shall give the Company prompt notice of any disposition of shares of Stock acquired by exercise of an Incentive Stock Option within (1) two years from the date of grant of such Incentive Stock Option or (2) one year after the transfer of such shares of Stock to the Participant.

(f) EXPIRATION OF INCENTIVE STOCK OPTIONS. No Award of an Incentive Stock Option may be made pursuant to this Plan after the tenth anniversary of the Expiration Date.

(g) RIGHT TO EXERCISE. During a Participant’s lifetime, an Incentive Stock Option may be exercised only by the Participant.

ARTICLE 6

RESTRICTED STOCK AWARDS

6.1 GRANT OF RESTRICTED STOCK. The Committee is authorized to make Awards of Restricted Stock to any Participant selected by the Committee in such amounts and subject to such terms and conditions as determined by the Committee. All Awards of Restricted Stock shall be evidenced by a written Restricted Stock Award Agreement.

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6.2 ISSUANCE AND RESTRICTIONS. Restricted Stock shall be subject to such restrictions on transferability and other restrictions as the Committee may impose (including, without limitation, limitations on the right to vote Restricted Stock or the right to receive dividends on the Restricted Stock). These restrictions may lapse separately or in combination at such times, pursuant to such circumstances, in such installments, or otherwise, as the Committee determines at the time of the grant of the Award or thereafter.

6.3 FORFEITURE. Except as otherwise determined by the Committee at the time of the grant of the Award or thereafter, upon termination of employment or service during the applicable restriction period, Restricted Stock that is at that time subject to restrictions shall be forfeited; provided, however, that the Committee may provide in any Restricted Stock Award Agreement that restrictions or forfeiture conditions relating to Restricted Stock will be waived in whole or in part in the event of terminations resulting from specified causes, and the Committee may in other cases waive in whole or in part restrictions or forfeiture conditions relating to Restricted Stock.

6.4 CERTIFICATES FOR RESTRICTED STOCK. Restricted Stock granted pursuant to the Plan may be evidenced in such manner as the Committee shall determine. If certificates representing shares of Restricted Stock are registered in the name of the Participant, certificates must bear an appropriate legend referring to the terms, conditions, and restrictions applicable to such Restricted Stock, and the Company may, at its discretion, retain physical possession of the certificate until such time as all applicable restrictions lapse.

ARTICLE 7

STOCK APPRECIATION RIGHTS

7.1 GRANT OF STOCK APPRECIATION RIGHTS. A Stock Appreciation Right may be granted to any Participant selected by the Committee. A Stock Appreciation Right may be granted (a) in connection and simultaneously with the grant of an Option, (b) with respect to a previously granted Option, or (c) independent of an Option. A Stock Appreciation Right shall be subject to such terms and conditions not inconsistent with the Plan as the Committee shall impose and shall be evidenced by an Award Agreement.

7.2 COUPLED STOCK APPRECIATION RIGHTS.

(a) A Coupled Stock Appreciation Right (“CSAR”) shall be related to a particular Option and shall be exercisable only when and to the extent the related Option is exercisable.

(b) A CSAR may be granted to a Participant for no more than the number of shares subject to the simultaneously or previously granted Option to which it is coupled.

(c) A CSAR shall entitle the Participant (or other person entitled to exercise the Option pursuant to the Plan) to surrender to the Company unexercised a portion of the Option to which the CSAR relates (to the extent then exercisable pursuant to its terms) and to receive from the Company in exchange therefor an amount determined by multiplying the difference obtained by subtracting the Option exercise price from the Fair Market Value of a share of Stock on the date of exercise of the CSAR by the number of shares of Stock with respect to which the CSAR shall have been exercised, subject to any limitations the Committee may impose.

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7.3 INDEPENDENT STOCK APPRECIATION RIGHTS.

(a) An Independent Stock Appreciation Right (“ISAR”) shall be unrelated to any Option and shall have a term set by the Committee. An ISAR shall be exercisable in such installments as the Committee may determine. An ISAR shall cover such number of shares of Stock as the Committee may determine. The exercise price per share of Stock subject to each ISAR shall be set by the Committee; provided, however, that, the Committee in its sole and absolute discretion may provide that the ISAR may be exercised subsequent to a termination of employment or service, as applicable, or following a Change in Control of the Company, or because of the Participant’s retirement, death or disability, or otherwise.

(b) An ISAR shall entitle the Participant (or other person entitled to exercise the ISAR pursuant to the Plan) to exercise all or a specified portion of the ISAR (to the extent then exercisable pursuant to its terms) and to receive from the Company an amount determined by multiplying the difference obtained by subtracting the exercise price per share of the ISAR from the Fair Market Value of a share of Stock on the date of exercise of the ISAR by the number of shares of Stock with respect to which the ISAR shall have been exercised, subject to any limitations the Committee may impose.

7.4 PAYMENT AND LIMITATIONS ON EXERCISE.

(a) Payment of the amounts determined under Section 7.2(c) and 7.3(b) above shall be in cash, in Stock (based on its Fair Market Value as of the date the Stock Appreciation Right is exercised) or a combination of both, as determined by the Committee.

(b) To the extent any payment under Section 7.2(c) or 7.3(b) is effected in Stock it shall be made subject to satisfaction of all provisions of Article 5 above pertaining to Options.

ARTICLE 8

OTHER TYPES OF AWARDS

8.1 PERFORMANCE SHARE AWARDS. Any Participant selected by the Committee may be granted one or more Performance Share awards which may be denominated in a number of shares of Stock or in a dollar value of shares of Stock and which may be linked to any one or more of the Performance Criteria or other specific performance criteria determined appropriate by the Committee, in each case on a specified date or dates or over any period or periods determined by the Committee. In making such determinations, the Committee shall consider (among such other factors as it deems relevant in light of the specific type of award) the contributions, responsibilities and other compensation of the particular Participant.

8.2 DIVIDEND EQUIVALENTS.

(a) Any Participant selected by the Committee may be granted Dividend

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Equivalents based on the dividends declared on the shares of Stock that are subject to any Award, to be credited as of dividend payment dates, during the period between the date the Award is granted and the date the Award is exercised, vests or expires, as determined by the Committee. Such Dividend Equivalents shall be converted to cash or additional shares of Stock by such formula and at such time and subject to such limitations as may be determined by the Committee.

(b) Dividend Equivalents granted with respect to Options or SARs that are intended to be Qualified Performance-Based Compensation shall be payable, with respect to pre-exercise periods, regardless of whether such Option or SAR is subsequently exercised.

8.3 STOCK PAYMENTS. Any Participant selected by the Committee may receive Stock Payments in the manner determined from time to time by the Committee. The number of shares shall be determined by the Committee and may be based upon the Performance Criteria or other specific performance criteria determined appropriate by the Committee, determined on the date such Stock Payment is made or on any date thereafter.

8.4 DEFERRED STOCK. Any Participant selected by the Committee may be granted an award of Deferred Stock in the manner determined from time to time by the Committee. The number of shares of Deferred Stock shall be determined by the Committee and may be linked to the Performance Criteria or other specific performance criteria determined to be appropriate by the Committee, in each case on a specified date or dates or over any period or periods determined by the Committee. Stock underlying a Deferred Stock award will not be issued until the Deferred Stock award has vested, pursuant to a vesting schedule or performance criteria set by the Committee. Unless otherwise provided by the Committee, a Participant awarded Deferred Stock shall have no rights as a Company stockholder with respect to such Deferred Stock until such time as the Deferred Stock Award has vested and the Stock underlying the Deferred Stock Award has been issued.

8.5 TERM. The term of any Award of Performance Shares, Dividend Equivalents, Stock Payments or Deferred Stock shall be set by the Committee in its discretion.

8.6 EXERCISE OR PURCHASE PRICE. The Committee may establish the exercise or purchase price of any Award of Performance Shares, Deferred Stock or Stock Payments; provided, however, that such price shall not be less than the par value of a share of Stock, unless otherwise permitted by applicable state law.

8.7 EXERCISE UPON TERMINATION OF EMPLOYMENT OR SERVICE. An Award of Performance Shares, Dividend Equivalents, Deferred Stock and Stock Payments shall only be exercisable or payable while the Participant is an Employee, consultant to the Company or a member of the Board, as applicable; provided, however, that the Committee in its sole and absolute discretion may provide that an Award of Performance Shares, Dividend Equivalents, Stock Payments or Deferred Stock may be exercised or paid subsequent to a termination of employment or service, as applicable, or following a Change in Control of the Company, or because of the Participant’s retirement, death or disability, or otherwise; provided, however, that any such provision with respect to Performance Shares shall be subject to the requirements of Section 162(m) of the Code that apply to Qualified Performance-Based Compensation.

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8.8 FORM OF PAYMENT. Payments with respect to any Awards granted under this Article 8 shall be made in cash, in Stock or a combination of both, as determined by the Committee.

8.9 AWARD AGREEMENT. All Awards under this Article 8 shall be subject to such additional terms and conditions as determined by the Committee and shall be evidenced by a written Award Agreement.

ARTICLE 9

PERFORMANCE-BASED AWARDS

9.1 PURPOSE. The purpose of this Article 9 is to provide the Committee the ability to qualify Awards other than Options and SARs and that are granted pursuant to Articles 6 and 8 as Qualified Performance-Based Compensation. If the Committee, in its discretion, decides to grant a Performance-Based Award to a Covered Employee, the provisions of this Article 9 shall control over any contrary provision contained in Articles 6 or 8; provided, however, that the Committee may in its discretion grant Awards to Covered Employees that are based on Performance Criteria or Performance Goals but that do not satisfy the requirements of this Article 9.

9.2 APPLICABILITY. This Article 9 shall apply only to those Covered Employees selected by the Committee to receive Performance-Based Awards. The designation of a Covered Employee as a Participant for a Performance Period shall not in any manner entitle the Participant to receive an Award for the period. Moreover, designation of a Covered Employee as a Participant for a particular Performance Period shall not require designation of such Covered Employee as a Participant in any subsequent Performance Period and designation of one Covered Employee as a Participant shall not require designation of any other Covered Employees as a Participant in such period or in any other period.

9.3 PROCEDURES WITH RESPECT TO PERFORMANCE-BASED AWARDS. To the extent necessary to comply with the Qualified Performance-Based Compensation requirements of Section 162(m)(4)(C) of the Code, with respect to any Award granted under Articles 6 and 8 which may be granted to one or more Covered Employees, no later than ninety (90) days following the commencement of any fiscal year in question or any other designated fiscal period or period of service (or such other time as may be required or permitted by Section 162(m) of the Code), the Committee shall, in writing, (i) designate one or more Covered Employees, (ii) select the Performance Criteria applicable to the Performance Period, (iii) establish the Performance Goals, and amounts of such Awards, as applicable, which may be earned for such Performance Period, and (iv) specify the relationship between Performance Criteria and the Performance Goals and the amounts of such Awards, as applicable, to be earned by each Covered Employee for such Performance Period. Following the completion of each Performance Period, the Committee shall certify in writing whether the applicable Performance Goals have been achieved for such Performance Period. In determining the amount earned by a Covered Employee, the Committee shall have the right to reduce or eliminate (but not to increase) the amount payable at a given level of performance to take into account additional factors that the Committee may deem relevant to the assessment of individual or corporate performance for the Performance Period.

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9.4 PAYMENT OF PERFORMANCE-BASED AWARDS. Unless otherwise provided in the applicable Award Agreement, a Participant must be employed by the Company or a Subsidiary on the day a Performance-Based Award for such Performance Period is paid to the Participant. Furthermore, a Participant shall be eligible to receive payment pursuant to a Performance-Based Award for a Performance Period only if the Performance Goals for such period are achieved. In determining the amount earned under a Performance-Based Award, the Committee may reduce or eliminate the amount of the Performance-Based Award earned for the Performance Period, if in its sole and absolute discretion, such reduction or elimination is appropriate.

9.5 ADDITIONAL LIMITATIONS. Notwithstanding any other provision of the Plan, any Award which is granted to a Covered Employee and is intended to constitute Qualified Performance-Based Compensation shall be subject to any additional limitations set forth in Section 162(m) of the Code (including any amendment to Section 162(m) of the Code) or any regulations or rulings issued thereunder that are requirements for qualification as qualified performance-based compensation as described in Section 162(m)(4)(C) of the Code, and the Plan shall be deemed amended to the extent necessary to conform to such requirements.

ARTICLE 10

PROVISIONS APPLICABLE TO AWARDS

10.1 STAND-ALONE AND TANDEM AWARDS. Awards granted pursuant to the Plan may, in the discretion of the Committee, be granted either alone, in addition to, or in tandem with, any other Award granted pursuant to the Plan. Awards granted in addition to or in tandem with other Awards may be granted either at the same time as or at a different time from the grant of such other Awards.

10.2 AWARD AGREEMENT. Awards under the Plan shall be evidenced by Award Agreements that set forth the terms, conditions and limitations for each Award which may include the term of an Award, the provisions applicable in the event the Participant’s employment or service terminates, and the Company’s authority to unilaterally or bilaterally amend, modify, suspend, cancel or rescind an Award.

10.3 LIMITS ON TRANSFER. No right or interest of a Participant in any Award may be pledged, encumbered, or hypothecated to or in favor of any party other than the Company or a Subsidiary, or shall be subject to any lien, obligation, or liability of such Participant to any other party other than the Company or a Subsidiary. Except as otherwise provided by the Committee, no Award shall be assigned, transferred, or otherwise disposed of by a Participant other than by will or the laws of descent and distribution. The Committee by express provision in the Award or an amendment thereto may permit an Award (other than an Incentive Stock Option) to be transferred to, exercised by and paid to certain persons or entities related to the Participant, including but not limited to members of the Participant’s family, charitable institutions, or trusts or other entities whose beneficiaries or beneficial owners are members of the Participant’s family and/or charitable institutions, or to such other persons or

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entities as may be expressly approved by the Committee, pursuant to such conditions and procedures as the Committee may establish. Any permitted transfer shall be subject to the condition that the Committee receive evidence satisfactory to it that the transfer is being made for estate and/or tax planning purposes (or to a “blind trust” in connection with the Participant’s termination of employment or service with the Company or a Subsidiary to assume a position with a governmental, charitable, educational or similar non-profit institution) and on a basis consistent with the Company’s lawful issue of securities.

10.4 BENEFICIARIES. Notwithstanding Section 10.3, a Participant may, in the manner determined by the Committee, designate a beneficiary to exercise the rights of the Participant and to receive any distribution with respect to any Award upon the Participant’s death. A beneficiary, legal guardian, legal representative, or other person claiming any rights pursuant to the Plan is subject to all terms and conditions of the Plan and any Award Agreement applicable to the Participant, except to the extent the Plan and Award Agreement otherwise provide, and to any additional restrictions deemed necessary or appropriate by the Committee. If the Participant is married and resides in a community property state, a designation of a person other than the Participant’s spouse as his beneficiary with respect to more than 50% of the Participant’s interest in the Award shall not be effective without the prior written consent of the Participant’s spouse. If no beneficiary has been designated or survives the Participant, payment shall be made to the person entitled thereto pursuant to the Participant’s will or the laws of descent and distribution. Subject to the foregoing, a beneficiary designation may be changed or revoked by a Participant at any time provided the change or revocation is filed with the Committee.

10.5 STOCK CERTIFICATES. Notwithstanding anything herein to the contrary, the Company shall not be required to issue or deliver any certificates evidencing shares of Stock pursuant to the exercise of any Award, unless and until the Board has determined, with advice of counsel, that the issuance and delivery of such certificates is in compliance with all applicable laws, regulations of governmental authorities and, if applicable, the requirements of any exchange on which the shares of Stock are listed or traded. All Stock certificates delivered pursuant to the Plan are subject to any stop-transfer orders and other restrictions as the Committee deems necessary or advisable to comply with federal, state, or foreign jurisdiction, securities or other laws, rules and regulations and the rules of any national securities exchange or automated quotation system on which the Stock is listed, quoted, or traded. The Committee may place legends on any Stock certificate to reference restrictions applicable to the Stock. In addition to the terms and conditions provided herein, the Board may require that a Participant make such reasonable covenants, agreements, and representations as the Board, in its discretion, deems advisable in order to comply with any such laws, regulations, or requirements. The Committee shall have the right to require any Participant to comply with any timing or other restrictions with respect to the settlement or exercise of any Award, including a window-period limitation, as may be imposed in the discretion of the Committee.

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ARTICLE 11

CHANGES IN CAPITAL STRUCTURE

11.1 ADJUSTMENTS. In the event of any stock dividend, stock split, combination or exchange of shares, merger, consolidation, spin-off, recapitalization or other distribution (other than normal cash dividends) of Company assets to stockholders, or any other change affecting the shares of Stock or the share price of the Stock, the Committee shall make such proportionate adjustments, if any, as the Committee in its discretion may deem appropriate to reflect such change with respect to (i) the aggregate number and type of shares that may be issued under the Plan (including, but not limited to, adjustments of the limitations in Sections 3.1 and 3.3); (ii) the terms and conditions of any outstanding Awards (including, without limitation, any applicable performance targets or criteria with respect thereto); and (iii) the grant or exercise price per share for any outstanding Awards under the Plan. Any adjustment affecting an Award intended as Qualified Performance-Based Compensation shall be made consistent with the requirements of Section 162(m) of the Code.

11.2 ACCELERATION UPON A CHANGE OF CONTROL. If a Change of Control occurs and a Participant’s Awards are not converted, assumed, or replaced by a successor, such Awards shall become fully exercisable and all forfeiture restrictions on such Awards shall lapse. Upon, or in anticipation of, a Change in Control, the Committee may cause any and all Awards outstanding hereunder to terminate at a specific time in the future and shall give each Participant the right to exercise such Awards during a period of time as the Committee, in its sole and absolute discretion, shall determine. In the event that the terms of any agreement between the Company or any Company subsidiary or affiliate and a Participant contains provisions that conflict with and are more restrictive than the provisions of this Section 11.2, this Section 11.2 shall prevail and control and the more restrictive terms of such agreement (and only such terms) shall be of no force or effect. Except as otherwise provided in the Agreement evidencing the Award, any such Awards that are assumed or replaced in a Change of Control and do not otherwise accelerate at that time shall become fully exercisable and all forfeiture restrictions on such Awards shall lapse in the event that the Participant’s employment or service relationship with the successor corporation should terminate (i) in connection with the Change of Control or (ii) subsequently within two years following such Change of Control, unless such employment or service relationship is terminated by the successor corporation for Cause or by the Participant voluntarily without Good Reason.

11.3 OUTSTANDING AWARDS – CERTAIN MERGERS. Subject to any required action by the stockholders of the Company, in the event that the Company shall be the surviving corporation in any merger or consolidation (except a merger or consolidation as a result of which the holders of shares of Stock receive securities of another corporation), each Award outstanding on the date of such merger or consolidation shall pertain to and apply to the securities that a holder of the number of shares of Stock subject to such Award would have received in such merger or consolidation.

11.4 OUTSTANDING AWARDS – OTHER CHANGES. In the event of any other change in the capitalization of the Company or corporate change other than those specifically referred to in this Article 11, the Committee may, in its absolute discretion, make such adjustments in the number and class of shares subject to Awards outstanding on the date on which such change occurs and in the per share grant or exercise price of each Award as the Committee may consider appropriate to prevent dilution or enlargement of rights.

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11.5 NO OTHER RIGHTS. Except as expressly provided in the Plan, no Participant shall have any rights by reason of any subdivision or consolidation of shares of stock of any class, the payment of any dividend, any increase or decrease in the number of shares of stock of any class or any dissolution, liquidation, merger, or consolidation of the Company or any other corporation. Except as expressly provided in the Plan or pursuant to action of the Committee under the Plan, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number of shares of Stock subject to an Award or the grant or exercise price of any Award.

ARTICLE 12

ADMINISTRATION

12.1 COMMITTEE. Unless and until the Board delegates administration to a Committee as set forth below, the Plan shall be administered by the Board. The Board may delegate administration of the Plan to a Committee or Committees of one or more members of the Board, and the term “Committee” shall apply to any person or persons to whom such authority has been delegated. If administration is delegated to a Committee, the Committee shall have, in connection with the administration of the Plan, the powers theretofore possessed by the Board, including the power to delegate to a subcommittee any of the administrative powers the Committee is authorized to exercise (and references in this Plan to the Board shall thereafter be to the Committee or subcommittee), subject, however, to such resolutions, not inconsistent with the provisions of the Plan, as may be adopted from time to time by the Board. Notwithstanding the foregoing, however, from and after the Public Trading Date, a Committee of the Board shall administer the Plan and the Committee shall consist solely of two or more members of the Board each of whom is both an “outside director,” within the meaning of Section 162(m) of the Code, and a Non-Employee Director. Within the scope of such authority, the Board or the Committee may (i) delegate to a committee of one or more members of the Board who are not outside directors,” within the meaning of Section 162(m) of the Code the authority to grant awards under the Plan to eligible persons who are either (1) not then “covered employees,” within the meaning of Section 162(m) of the Code and are not expected to be “covered employees” at the time of recognition of income resulting from such award or (2) not persons with respect to whom the Company wishes to comply with Section 162(m) of the Code and/or (ii) delegate to a committee of one or more members of the Board who are not Non-Employee Directors, the authority to grant awards under the Plan to eligible persons who are not then subject to Section 16 of the Exchange Act. The Board may abolish the Committee at any time and revest in the Board the administration of the Plan. Appointment of Committee members shall be effective upon acceptance of appointment. Committee members may resign at any time by delivering written notice to the Board. Vacancies in the Committee may only be filled by the Board.

12.2 ACTION BY THE COMMITTEE. A majority of the Committee shall constitute a quorum. The acts of a majority of the members present at any meeting at which a quorum is present, and acts approved in writing by a majority of the Committee in lieu of a meeting, shall be deemed the acts of the Committee. Each member of the Committee is entitled

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to, in good faith, rely or act upon any report or other information furnished to that member by any officer or other employee of the Company or any Subsidiary, the Company’s independent certified public accountants, or any executive compensation consultant or other professional retained by the Company to assist in the administration of the Plan.

12.3 AUTHORITY OF COMMITTEE. Subject to any specific designation in the Plan, the Committee has the exclusive power, authority and discretion to:

(a) Designate Participants to receive Awards;

(b) Determine the type or types of Awards to be granted to each Participant;

(c) Determine the number of Awards to be granted and the number of shares of Stock to which an Award will relate;

(d) Determine the terms and conditions of any Award granted pursuant to the Plan, including, but not limited to, the exercise price, grant price, or purchase price, any reload provision, any restrictions or limitations on the Award, any schedule for lapse of forfeiture restrictions or restrictions on the exercisability of an Award, and accelerations or waivers thereof, any provisions related to non-competition and recapture of gain on an Award, based in each case on such considerations as the Committee in its sole discretion determines; provided, however, that the Committee shall not have the authority to accelerate the vesting or waive the forfeiture of any Performance-Based Awards;

(e) Determine whether, to what extent, and pursuant to what circumstances an Award may be settled in, or the exercise price of an Award may be paid in, cash, Stock, other Awards, or other property, or an Award may be canceled, forfeited, or surrendered;

(f) Prescribe the form of each Award Agreement, which need not be identical for each Participant;

(g) Decide all other matters that must be determined in connection with an Award;

(h) Establish, adopt, or revise any rules and regulations as it may deem necessary or advisable to administer the Plan;

(i) Interpret the terms of, and any matter arising pursuant to, the Plan or any Award Agreement; and

(j) Make all other decisions and determinations that may be required pursuant to the Plan or as the Committee deems necessary or advisable to administer the Plan.

12.4 DECISIONS BINDING. The Committee’s interpretation of the Plan, any Awards granted pursuant to the Plan, any Award Agreement and all decisions and determinations by the Committee with respect to the Plan are final, binding, and conclusive on all parties.

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ARTICLE 13

EFFECTIVE AND EXPIRATION DATE

13.1 EFFECTIVE DATE. The Plan is effective as of the later of (i) the date the Plan is approved by the Company’s stockholders and (ii) the date on which the Company’s registration statement on Form S-1 filed with respect to the Company’s initial public offering becomes effective (the “Effective Date”).

13.2 EXPIRATION DATE. The Plan will expire on, and no Award may be granted pursuant to the Plan after, the earlier of the tenth anniversary of (i) the Effective Date or (ii) the date this Plan is approved by the Board (the “Expiration Date”). Any Awards that are outstanding on the tenth anniversary of the Expiration Date shall remain in force according to the terms of the Plan and the applicable Award Agreement. Each Award Agreement shall provide that it will expire on the tenth anniversary of the date of grant of the Award to which it relates.

ARTICLE 14

AMENDMENT, MODIFICATION, AND TERMINATION

14.1 AMENDMENT, MODIFICATION, AND TERMINATION. With the approval of the Board, at any time and from time to time, the Committee may terminate, amend or modify the Plan; provided, however, that (i) to the extent necessary and desirable to comply with any applicable law, regulation, or stock exchange rule, the Company shall obtain stockholder approval of any Plan amendment in such a manner and to such a degree as required, and (ii) shareholder approval is required for any amendment to the Plan that (A) increases the number of shares available under the Plan (other than any adjustment as provided by Article 11), (B) permits the Committee to grant Options with an exercise price that is below Fair Market Value on the date of grant, or (C) permits the Committee to extend the exercise period for an Option beyond ten years from the date of grant.

14.2 AWARDS PREVIOUSLY GRANTED. No termination, amendment, or modification of the Plan shall adversely affect in any material way any Award previously granted pursuant to the Plan without the prior written consent of the Participant.

ARTICLE 15

GENERAL PROVISIONS

15.1 NO RIGHTS TO AWARDS. No Participant, employee, or other person shall have any claim to be granted any Award pursuant to the Plan, and neither the Company nor the Committee is obligated to treat Participants, employees, and other persons uniformly.

15.2 NO STOCKHOLDERS RIGHTS. No Award gives the Participant any of the rights of a stockholder of the Company unless and until shares of Stock are in fact issued to such person in connection with such Award.

15.3 WITHHOLDING. The Company or any Subsidiary shall have the authority and the right to deduct or withhold, or require a Participant to remit to the Company, an amount sufficient to satisfy federal, state, local and foreign taxes (including the Participant’s FICA obligation) required by law to be withheld with respect to any taxable event concerning a

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Participant arising as a result of this Plan. The Committee may in its discretion and in satisfaction of the foregoing requirement allow a Participant to elect to have the Company withhold shares of Stock otherwise issuable under an Award (or allow the return of shares of Stock) having a Fair Market Value equal to the sums required to be withheld. Notwithstanding any other provision of the Plan, the number of shares of Stock which may be withheld with respect to the issuance, vesting, exercise or payment of any Award (or which may be repurchased from the Participant of such Award within six months after such shares of Stock were acquired by the Participant from the Company) in order to satisfy the Participant’s federal, state, local and foreign income and payroll tax liabilities with respect to the issuance, vesting, exercise or payment of the Award shall be limited to the number of shares which have a Fair Market Value on the date of withholding or repurchase equal to the aggregate amount of such liabilities based on the minimum statutory withholding rates for federal, state, local and foreign income tax and payroll tax purposes that are applicable to such supplemental taxable income.

15.4 NO RIGHT TO EMPLOYMENT OR SERVICES. Nothing in the Plan or any Award Agreement shall interfere with or limit in any way the right of the Company or any Subsidiary to terminate any Participant’s employment or services at any time, nor confer upon any Participant any right to continue in the employ or service of the Company or any Subsidiary.

15.5 UNFUNDED STATUS OF AWARDS. The Plan is intended to be an “unfunded” plan for incentive compensation. With respect to any payments not yet made to a Participant pursuant to an Award, nothing contained in the Plan or any Award Agreement shall give the Participant any rights that are greater than those of a general creditor of the Company or any Subsidiary.

15.6 INDEMNIFICATION. To the extent allowable pursuant to applicable law, each member of the Committee or of the Board shall be indemnified and held harmless by the Company from any loss, cost, liability, or expense that may be imposed upon or reasonably incurred by such member in connection with or resulting from any claim, action, suit, or proceeding to which he or she may be a party or in which he or she may be involved by reason of any action or failure to act pursuant to the Plan and against and from any and all amounts paid by him or her in satisfaction of judgment in such action, suit, or proceeding against him or her, provided he or she gives the Company an opportunity, at its own expense, to handle and defend the same before he or she undertakes to handle and defend it on his or her own behalf. The foregoing right of indemnification shall not be exclusive of any other rights of indemnification to which such persons may be entitled pursuant to the Company’s Certificate of Incorporation or Bylaws, as a matter of law, or otherwise, or any power that the Company may have to indemnify them or hold them harmless.

15.7 RELATIONSHIP TO OTHER BENEFITS. No payment pursuant to the Plan shall be taken into account in determining any benefits pursuant to any pension, retirement, savings, profit sharing, group insurance, welfare or other benefit plan of the Company or any Subsidiary except to the extent otherwise expressly provided in writing in such other plan or an agreement thereunder.

15.8 EXPENSES. The expenses of administering the Plan shall be borne by the Company and its Subsidiaries.

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15.9 TITLES AND HEADINGS. The titles and headings of the Sections in the Plan are for convenience of reference only and, in the event of any conflict, the text of the Plan, rather than such titles or headings, shall control.

15.10 FRACTIONAL SHARES. No fractional shares of Stock shall be issued and the Committee shall determine, in its discretion, whether cash shall be given in lieu of fractional shares or whether such fractional shares shall be eliminated by rounding up or down as appropriate.

15.11 LIMITATIONS APPLICABLE TO SECTION 16 PERSONS. Notwithstanding any other provision of the Plan, the Plan, and any Award granted or awarded to any Participant who is then subject to Section 16 of the Exchange Act, shall be subject to any additional limitations set forth in any applicable exemptive rule under Section 16 of the Exchange Act (including any amendment to Rule 16b-3 of the Exchange Act) that are requirements for the application of such exemptive rule. To the extent permitted by applicable law, the Plan and Awards granted or awarded hereunder shall be deemed amended to the extent necessary to conform to such applicable exemptive rule.

15.12 GOVERNMENT AND OTHER REGULATIONS. The obligation of the Company to make payment of awards in Stock or otherwise shall be subject to all applicable laws, rules, and regulations, and to such approvals by government agencies as may be required. The Company shall be under no obligation to register pursuant to the Securities Act of 1933, as amended, any of the shares of Stock paid pursuant to the Plan. If the shares paid pursuant to the Plan may in certain circumstances be exempt from registration pursuant to the Securities Act of 1933, as amended, the Company may restrict the transfer of such shares in such manner as it deems advisable to ensure the availability of any such exemption.

15.13 GOVERNING LAW. The Plan and all Award Agreements shall be construed in accordance with and governed by the laws of the State of Delaware.

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EX-10.06

Exhibit 10.06

DESIGN WITHIN REACH, INC.

EMPLOYEE STOCK PURCHASE PLAN

Design Within Reach, Inc., a Delaware corporation (the “Company”), hereby adopts the Design Within Reach, Inc. Employee Stock Purchase Plan (the “Plan”), effective as of the Effective Date (as defined herein).

1. Purpose. The purposes of the Plan are as follows:

(a) To assist employees of the Company and its Designated Subsidiaries (as defined below) in acquiring a stock ownership interest in the Company pursuant to a plan which is intended to qualify as an “employee stock purchase plan” within the meaning of Section 423(b) of the Internal Revenue Code of 1986, as amended.

(b) To help employees provide for their future security and to encourage them to remain in the employment of the Company and its Designated Subsidiaries.

2. Definitions.

(a) “Administrator” shall mean the administrator of the Plan, as determined pursuant to Section 14 hereof.

(b) “Board” shall mean the Board of Directors of the Company.

(c) “Code” shall mean the Internal Revenue Code of 1986, as amended.

(d) “Committee” shall mean the committee appointed to administer the Plan pursuant to Section 14 hereof.

(e) “Common Stock” shall mean the common stock of the Company.

(f) “Company” shall mean Design Within Reach, Inc., a Delaware corporation, and any successor by merger, consolidation or otherwise.

(g) “Compensation” shall mean all base straight time gross earnings and commissions, exclusive of payments for overtime, shift premium, incentive compensation, incentive payments, bonuses, expense reimbursements, fringe benefits and other compensation.

(h) “Designated Subsidiary” shall mean any Subsidiary which has been designated by the Administrator from time to time in its sole discretion as eligible to participate in the Plan. The Administrator may designate, or terminate the designation of, a subsidiary as a Designated Subsidiary without the approval of the stockholders of the Company.

(i) “Effective Date” shall mean the date on which the Company’s Registration Statement on Form S-1 filed with respect to the Company’s initial public offering becomes effective.

(j) “Eligible Employee” shall mean an Employee of the Company or a Designated Subsidiary: (i) who does not, immediately after the Option is granted, own stock possessing five percent (5%) or more of the total combined voting power or value of all classes of stock of the Company, a Parent or a Subsidiary (as determined under Section 423(b)(3) of the Code); (ii) whose customary employment is for more than twenty (20) hours per week; and (iii) who has been continuously employed by the Company for at least six months. For purposes of clause (i), the rules of Section 424(d) of the Code with regard to the attribution of stock ownership shall apply in determining the stock ownership of an individual, and stock which an employee may purchase under outstanding options shall be treated as stock owned by the employee. For purposes of the Plan, the employment relationship shall be treated as continuing intact while the individual is on sick leave or other leave of absence approved by the Company or Designated Subsidiary and meeting the requirements of Treasury Regulation Section 1.421-7(h)(2). Where the period of leave exceeds ninety (90) days and the individual’s right to reemployment is not guaranteed either by statute or by contract, the employment relationship shall be deemed to have terminated on the ninety-first (91^st) day of such leave.

(k) “Employee” shall mean any person who renders services to the Company or a Subsidiary in the status of an employee within the meaning of Code Section 3401(c). “Employee” shall not include any director of the Company or a Subsidiary who does not render services to the Company or a Subsidiary in the status of an employee within the meaning of Code Section 3401(c).

(l) “Enrollment Date” shall mean the first Trading Day of each Offering Period.

(m) “Exercise Date” shall mean the last Trading Day of each Purchase Period.

(n) “Fair Market Value” shall mean, as of any date, the value of Common Stock determined as follows:

(i) If the Common Stock is listed on any established stock exchange or a national market system, including without limitation the Nasdaq National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its Fair Market Value shall be the closing sales price for such stock (or the closing bid, if no sales were reported) as quoted on such exchange or system for the last market trading day prior to the date of determination, as reported in The Wall Street Journal or such other source as the Administrator deems reliable;

(ii) If the Common Stock is regularly quoted by a recognized securities dealer but selling prices are not reported, its Fair Market Value shall be the mean of the closing bid and asked prices for the Common Stock on the date prior to the date of determination as reported in The Wall Street Journal or such other source as the Administrator deems reliable;

(iii) In the absence of an established market for the Common Stock, the Fair Market Value thereof shall be determined in good faith by the Administrator; or

(iv) For purposes of the first Offering Period under the Plan, the Fair Market Value shall be the initial price to the public as set forth in the final prospectus included within the registration statement in Form S-1 filed with the Securities and Exchange Commission for the initial public offering of the Company’s Common Stock (the “Registration Statement”).

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(o) “Offering Period” shall mean (i) the period commencing on the Effective Date and ending on the last Trading Day on or before the May 1 or November 1 following the Effective Date that is at least six (6) months but not more than twelve (12) months following the Effective Date, and (ii) subject to Section 24, each twelve- (12) month period commencing on any November 1 or May 1 after the Effective Date and terminating on the last Trading Day in the periods ending twelve (12) months later. The duration and timing of Offering Periods may be changed pursuant to Section 4 of this Plan.

(p) “Parent” means any corporation, other than the Company, in an unbroken chain of corporations ending with the Company if, at the time of the determination, each of the corporations other than the Company owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain.

(q) “Plan” shall mean this Design Within Reach, Inc. Employee Stock Purchase Plan.

(r) “Purchase Period” shall mean the approximately six (6) month period commencing after one Exercise Date and ending with the next Exercise Date, except that the first Purchase Period of any Offering Period shall commence on the Enrollment Date and end with the next Exercise Date. Notwithstanding the foregoing, the first Purchase Period with respect to the initial Offering Period under the Plan shall end on the last Trading Day on or before the next occurring June 1 following the Effective Date and such period may be more or less than six-months in duration.

(s) “Purchase Price” shall mean 85% of the Fair Market Value of a share of Common Stock on the Enrollment Date or on the Exercise Date, whichever is lower; provided, however, that the Purchase Price may be adjusted by the Administrator pursuant to Section 20; provided, further, that the Purchase Price shall not be less than the par value of a share of Common Stock.

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

(u) “Trading Day” shall mean a day on which national stock exchanges and the Nasdaq System are open for trading.

3. Eligibility.

(a) Any Eligible Employee who shall be employed by the Company or a Designated Subsidiary on a given Enrollment Date for an Offering Period shall be eligible to participate in the Plan during such Offering Period, subject to the requirements of Section 5 and the limitations imposed by Section 423(b) of the Code.

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(b) Each person who, during the course of an Offering Period, first becomes an Eligible Employee subsequent to the Enrollment Date will be eligible to become a participant in the Plan on the first day of the first Purchase Period following the day on which such person becomes an Eligible Employee, subject to the requirements of Section 5 and the limitations imposed by Section 423(b) of the Code.

(c) No Eligible Employee shall be granted an option under the Plan which permits his rights to purchase stock under the Plan, and to purchase stock under all other employee stock purchase plans of the Company, any Parent or any Subsidiary subject to the Section 423, to accrue at a rate which exceeds $25,000 of fair market value of such stock (determined at the time the option is granted) for each calendar year in which the option is outstanding at any time. For purpose of the limitation imposed by this subsection, the right to purchase stock under an option accrues when the option (or any portion thereof) first becomes exercisable during the calendar year, the right to purchase stock under an option accrues at the rate provided in the option, but in no case may such rate exceed $25,000 of fair market value of such stock (determined at the time such option is granted) for any one calendar year, and a right to purchase stock which has accrued under an option may not be carried over to any option. This limitation shall be applied in accordance with Section 423(b)(8) of the Code and the Treasury Regulations thereunder.

4. Offering Periods. Subject to Section 24, the Plan shall be implemented by consecutive, overlapping Offering Periods which shall continue until the Plan expires or is terminated in accordance with Section 20 hereof. The Administrator shall have the power to change the duration of Offering Periods (including the commencement dates thereof) with respect to future offerings without stockholder approval if such change is announced at least five (5) days prior to the scheduled beginning of the first Offering Period to be affected thereafter.

5. Participation.

(a) Each Eligible Employee who is employed by the Company or a Designated Subsidiary on the calendar day immediately preceding the Effective Date shall automatically become a participant in the Plan with respect to the first Offering Period. Each such participant shall be granted an option to purchase shares of Common Stock and shall be enrolled in such first Offering Period to the extent of fifteen percent (15%) of his or her Compensation for the pay days during the first Offering Period (or, if less, the maximum amount of contributions permitted to be made by such participant for such Offering Period by payroll deduction under the terms of this Plan). Participants wishing to purchase shares of Common Stock during the first Offering Period shall do so by making a lump sum cash payment to the Company not later than ten (10) calendar days before each Exercise Date of such Offering Period, and each such payment may be made in an amount not exceeding fifteen percent (15%) of such participant’s Compensation for the pay days occurring during such Offering Period and occurring prior to such lump sum payment; provided, however, that such participant shall not be required to make such lump sum cash payments, or exercise all or any portion of such option to purchase shares of Common Stock by making such lump sum payments. Following the Effective Date, each such participant may, during the period designated from time to

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time by the Administrator for such purpose, elect to make such contributions (or a lesser amount of contributions) for the first Offering Period by payroll deductions in accordance with Section 6, in lieu of making contributions in such lump sum cash payments under this subsection (a), or may elect to make no contributions for such Offering Period; provided, however, that, to make contributions by payroll deductions, such participant must complete the form of subscription agreement provided by the Company for the first Offering Period under this Plan. If (i) during such Offering Period, such a participant elects to make contributions by payroll deduction, or elects to make no contributions for such Offering Period, or (ii) on or prior to the tenth (10^th) calendar day before the last Exercise Date of such Offering Period, such a participant fails to make any lump sum cash payment, such participant shall be deemed to have elected not to make contributions by lump sum payment with respect to such first Offering Period. Except as described in subsection (e) below, a participant may not make contributions by lump sum payment for any Offering Period other than the first Offering Period.

(b) Following the first Offering Period, an Eligible Employee may become a participant in the Plan by completing a subscription agreement authorizing payroll deductions in the form of Exhibit A to this Plan and filing it with the Company’s payroll office fifteen (15) days (or such shorter or longer period as may be determined by the Administrator, in its sole discretion) prior to the applicable Enrollment Date.

(c) Each person who, during the course of an Offering Period, first becomes an Eligible Employee subsequent to the Enrollment Date will be eligible to become a participant in the Plan on the first day of the first Purchase Period following the day on which such person becomes an Eligible Employee. Such person may become a participant in the Plan by completing a subscription agreement authorizing payroll deductions in the form of Exhibit A to this Plan and filing it with the Company’s payroll office fifteen (15) days (or such shorter or longer period as may be determined by the Administrator, in its sole discretion) prior to the first day of any Purchase Period during the Offering Period in which such person becomes an Eligible Employee. The rights granted to such participant shall have the same characteristics as any rights originally granted during that Offering Period except that the first day of the Purchase Period in which such person initially participates in the Plan shall be the “Enrollment Date” for all purposes for such person, including determination of the Purchase Price.

(d) Except as provided in subsection (a), payroll deductions for a participant shall commence on the first payroll following the Enrollment Date and shall end on the last payroll in the Offering Period to which such authorization is applicable, unless sooner terminated by the participant as provided in Section 10 hereof.

(e) During a leave of absence approved by the Company or a Subsidiary and meeting the requirements of Treasury Regulation Section 1.421-7(h)(2), a participant may continue to participate in the Plan by making cash payments to the Company on each pay day equal to the amount of the participant’s payroll deductions under the Plan for the pay day immediately preceding the first day of such participant’s leave of absence. If a leave of absence is unapproved or fails to meet the requirements of Treasury Regulation Section 1.421-7(h)(2), the participant will cease automatically to participate in the Plan. In such event, the company will automatically cease to deduct the participant’s payroll under the Plan. The Company will pay to the participant his or her total payroll deductions for the quarterly purchase period, in cash in one lump sum (without interest), as soon as practicable after the participant ceases to participate in the Plan.

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(f) A participant’s completion of a subscription agreement will enroll such participant in the Plan for each successive Purchase Period and each subsequent Offering Period on the terms contained therein until the participant either submits a new subscription agreement, withdraws from participation under the Plan as provided in Section 10 hereof or otherwise becomes ineligible to participate in the Plan.

6. Payroll Deductions.

(a) At the time a participant files his or her subscription agreement, he or she shall elect to have payroll deductions made on each pay day during the Offering Period in an amount from one percent (1%) to fifteen percent (15%) of the Compensation which he or she receives on each pay day during the Offering Period.

(b) All payroll deductions made for a participant shall be credited to his or her account under the Plan and shall be withheld in whole percentages only. Except as described in Section 5(a) hereof, a participant may not make any additional payments into such account.

(c) A participant may discontinue his or her participation in the Plan as provided in Section 10 hereof, or may increase or decrease the rate of his or her payroll deductions during the Offering Period by completing or filing with the Company a new subscription agreement authorizing a change in payroll deduction rate. The Administrator may, in its discretion, limit the number of participation rate changes during any Offering Period. The change in rate shall be effective with the first full payroll period following five (5) business days after the Company’s receipt of the new subscription agreement (or such shorter or longer period as may be determined by the Administrator, in its sole discretion).

(d) Notwithstanding the foregoing, to the extent necessary to comply with Section 423(b)(8) of the Code and Section 3(c) hereof, a participant’s payroll deductions may be decreased to zero percent (0%) at any time during a Purchase Period.

(e) At the time the option is exercised, in whole or in part, or at the time some or all of the Company’s Common Stock issued under the Plan is disposed of, the participant must make adequate provision for the Company’s federal, state, or other tax withholding obligations, if any, which arise upon the exercise of the option or the disposition of the Common Stock. At any time, the Company may, but shall not be obligated to, withhold from the participant’s compensation the amount necessary for the Company to meet applicable withholding obligations, including any withholding required to make available to the Company any tax deductions or benefits attributable to sale or early disposition of Common Stock by the Employee.

7. Grant of Option. On the Enrollment Date of each Offering Period, each Eligible Employee participating in such Offering Period shall be granted an option to purchase on each Exercise Date during such Offering Period (at the applicable Purchase Price) up to a number of shares of the Company’s Common Stock determined by dividing such participant’s payroll

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deductions accumulated prior to such Exercise Date and retained in the participant’s account as of the Exercise Date by the applicable Purchase Price; provided, however, that in no event shall a participant be permitted to purchase during each Offering Period more than 200,000 shares of the Company’s Common Stock (subject to any adjustment pursuant to Section 19) and during each Purchase Period more than 50,000 shares of the Company’s Common Stock (subject to any adjustment pursuant to Section 19); and provided, further, that such purchase shall be subject to the limitations set forth in Sections 3(c) and 13 hereof. The Administrator may, for future Offering Periods, increase or decrease, in its absolute discretion, the maximum number of shares of the Company’s Common Stock a participant may purchase during each Purchase Period and Offering Period. Exercise of the option shall occur as provided in Section 8 hereof, unless the participant has withdrawn pursuant to Section 10 hereof or otherwise becomes ineligible to participate in the Plan. The option shall expire on the last day of the Offering Period.

8. Exercise of Option.

(a) Unless a participant withdraws from the Plan as provided in Section 10 hereof or otherwise becomes ineligible to participate in the Plan, his or her option for the purchase of shares shall be exercised automatically on the Exercise Date, and the maximum number of full shares subject to the option shall be purchased for such participant at the applicable Purchase Price with the accumulated payroll deductions in his or her account. No fractional shares shall be purchased; any payroll deductions accumulated in a participant’s account which are not sufficient to purchase a full share shall be retained in the participant’s account for the subsequent Purchase Period or Offering Period. During a participant’s lifetime, a participant’s option to purchase shares hereunder is exercisable only by him or her.

(b) If the Administrator determines that, on a given Exercise Date, the number of shares with respect to which options are to be exercised may exceed (i) the number of shares of Common Stock that were available for sale under the Plan on the Enrollment Date of the applicable Offering Period, or (ii) the number of shares available for sale under the Plan on such Exercise Date, the Administrator may in its sole discretion (x) provide that the Company shall make a pro rata allocation of the shares of Common Stock available for purchase on such Enrollment Date or Exercise Date, as applicable, in as uniform a manner as shall be practicable and as it shall determine in its sole discretion to be equitable among all participants exercising options to purchase Common Stock on such Exercise Date, and continue all Offering Periods then in effect, or (y) provide that the Company shall make a pro rata allocation of the shares available for purchase on such Enrollment Date or Exercise Date, as applicable, in as uniform a manner as shall be practicable and as it shall determine in its sole discretion to be equitable among all participants exercising options to purchase Common Stock on such Exercise Date, and terminate any or all Offering Periods then in effect pursuant to Section 20 hereof. The Company may make pro rata allocation of the shares available on the Enrollment Date of any applicable Offering Period pursuant to the preceding sentence, notwithstanding any authorization of additional shares for issuance under the Plan by the Company’s stockholders subsequent to such Enrollment Date. The balance of the amount credited to the account of each participant which has not been applied to the purchase of shares of stock shall be paid to such participant in one lump sum in cash as soon as reasonably practicable after the Exercise Date, without any interest thereon.

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9. Deposit of Shares. As promptly as practicable after each Exercise Date on which a purchase of shares occurs, the Company may arrange for the deposit, into each participant’s account with any broker designated by the Company to administer this Plan, of the number of shares purchased upon exercise of his or her option.

10. Withdrawal.

(a) A participant may withdraw all but not less than all of the payroll deductions credited to his or her account and not yet used to exercise his or her option under the Plan at any time by giving written notice to the Company in the form of Exhibit A to this Plan. All of the participant’s payroll deductions credited to his or her account during the Offering Period shall be paid to such participant as soon as reasonably practicable after receipt of notice of withdrawal and such participant’s option for the Offering Period shall be automatically terminated, and no further payroll deductions for the purchase of shares shall be made for such Offering Period. If a participant withdraws from an Offering Period, payroll deductions shall not resume at the beginning of the succeeding Offering Period unless the participant delivers to the Company a new subscription agreement.

(b) A participant’s withdrawal from an Offering Period shall not have any effect upon his or her eligibility to participate in any similar plan which may hereafter be adopted by the Company or in succeeding Offering Periods which commence after the termination of the Offering Period from which the participant withdraws.

11. Termination of Employment. Upon a participant’s ceasing to be an Eligible Employee, for any reason, he or she shall be deemed to have elected to withdraw from the Plan and the payroll deductions credited to such participant’s account during the Offering Period shall be paid to such participant or, in the case of his or her death, to the person or persons entitled thereto under Section 15 hereof, as soon as reasonably practicable and such participant’s option for the Offering Period shall be automatically terminated.

12. Interest. No interest shall accrue on the payroll deductions or lump sum contributions of a participant in the Plan.

13. Shares Subject to Plan.

(a) Subject to adjustment upon changes in capitalization of the Company as provided in Section 19 hereof, the maximum number of shares of the Company’s Common Stock which shall be made available for sale under the Plan shall be 300,000 shares, plus an annual increase to be added on each December 31 during the term of the Plan equal to the least of (i) 100,000 shares, or (ii) a lesser amount determined by the Board. If any right granted under the Plan shall for any reason terminate without having been exercised, the Common Stock not purchased under such right shall again become available for issuance under the Plan. The stock subject to the Plan may be unissued shares or reacquired shares, bought on the market or otherwise.

(b) With respect to shares of stock subject to an option granted under the Plan, a participant shall not be deemed to be a stockholder of the Company, and the participant shall not

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have any of the rights or privileges of a stockholder, until such shares have been issued to the participant or his or her nominee following exercise of the participant’s option. No adjustments shall be made for dividends (ordinary or extraordinary, whether in cash securities, or other property) or distribution or other rights for which the record date occurs prior to the date of such issuance, except as otherwise expressly provided herein.

14. Administration.

(a) The Plan shall be administered by the Board unless and until the Board delegates administration to a Committee as set forth below. The Board may delegate administration of the Plan to a Committee comprised of two or more members of the Board, each of whom is a “non-employee director” within the meaning of Rule 16b-3 which has been adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended, and which is otherwise constituted to comply with applicable law, and the term “Committee” shall apply to any persons to whom such authority has been delegated. If administration is delegated to a Committee, the Committee shall have, in connection with the administration of the Plan, the powers theretofore possessed by the Board, including the power to delegate to a subcommittee any of the administrative powers the Committee is authorized to exercise, subject, however, to such resolutions, not inconsistent with the provisions of the Plan, as may be adopted from time to time by the Board. Each member of the Committee shall serve for a term commencing on a date specified by the Board and continuing until the member dies or resigns or is removed from office by the Board. References in this Plan to the “Administrator” shall mean the Board unless administration is delegated to a Committee or subcommittee, in which case references in this Plan to the Administrator shall thereafter be to the Committee or subcommittee.

(b) It shall be the duty of the Administrator to conduct the general administration of the Plan in accordance with the provisions of the Plan. The Administrator shall have the power to interpret the Plan and the terms of the options and to adopt such rules for the administration, interpretation, and application of the Plan as are consistent therewith and to interpret, amend or revoke any such rules. The Administrator at its option may utilize the services of an agent to assist in the administration of the Plan including establishing and maintaining an individual securities account under the Plan for each participant. In its absolute discretion, the Board may at any time and from time to time exercise any and all rights and duties of the Administrator under the Plan.

(c) All expenses and liabilities incurred by the Administrator in connection with the administration of the Plan shall be borne by the Company. The Administrator may, with the approval of the Board, employ attorneys, consultants, accountants, appraisers, brokers or other persons. The Administrator, the Company and its officers and directors shall be entitled to rely upon the advice, opinions or valuations of any such persons. All actions taken and all interpretations and determinations made by the Administrator in good faith shall be final and binding upon all participants, the Company and all other interested persons. No member of the Board shall be personally liable for any action, determination or interpretation made in good faith with respect to the Plan or the options, and all members of the Board shall be fully protected by the Company in respect to any such action, determination, or interpretation.

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15. Designation of Beneficiary.

(a) A participant may file a written designation of a beneficiary who is to receive any shares and cash, if any, from the participant’s account under the Plan in the event of such participant’s death subsequent to an Exercise Date on which the option is exercised but prior to delivery to such participant of such shares and cash. In addition, a participant may file a written designation of a beneficiary who is to receive any cash from the participant’s account under the Plan in the event of such participant’s death prior to exercise of the option. If a participant is married and the designated beneficiary is not the spouse, spousal consent shall be required for such designation to be effective.

(b) Such designation of beneficiary may be changed by the participant at any time by written notice to the Company. In the event of the death of a participant and in the absence of a beneficiary validly designated under the Plan who is living at the time of such participant’s death, the Company shall deliver such shares and/or cash to the executor or administrator of the estate of the participant, or if no such executor or administrator has been appointed (to the knowledge of the Company), the Company, in its discretion, may deliver such shares and/or cash to the spouse or to any one or more dependents or relatives of the participant, or if no spouse, dependent or relative is known to the Company, then to such other person as the Company may designate.

16. Transferability. Neither payroll deductions credited to a participant’s account nor any rights with regard to the exercise of an option or to receive shares under the Plan may be assigned, transferred, pledged or otherwise disposed of in any way (other than by will, the laws of descent and distribution or as provided in Section 15 hereof) by the participant. Any such attempt at assignment, transfer, pledge or other disposition shall be without effect, except that the Company may treat such act as an election to withdraw funds from an Offering Period in accordance with Section 10 hereof.

17. Use of Funds. All payroll deductions received or held by the Company under the Plan may be used by the Company for any corporate purpose, and the Company shall not be obligated to segregate such payroll deductions.

18. Reports. Individual accounts shall be maintained for each participant in the Plan. Statements of account shall be given to participating Employees at least annually, which statements shall set forth the amounts of payroll deductions, the Purchase Price, the number of shares purchased and the remaining cash balance, if any.

19. Adjustments Upon Changes in Capitalization, Dissolution, Liquidation, Merger or Asset Sale.

(a) Changes in Capitalization. Subject to any required action by the stockholders of the Company, the number of shares of Common Stock which have been authorized for issuance under the Plan but not yet placed under option, the maximum number of shares each participant may purchase each Purchase Period (pursuant to Section 7), as well as the price per share and the number of shares of Common Stock covered by each option under the Plan which has not yet been exercised shall be proportionately adjusted for any increase or decrease in the number of issued shares of

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Common Stock resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the Common Stock, or any other increase or decrease in the number of shares of Common Stock effected without receipt of consideration by the Company; provided, however, that conversion of any convertible securities of the Company shall not be deemed to have been “effected without receipt of consideration.” Such adjustment shall be made by the Administrator, whose determination in that respect shall be final, binding and conclusive. Except as expressly provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Common Stock subject to an option.

(b) Dissolution or Liquidation. In the event of the proposed dissolution or liquidation of the Company, the Offering Period then in progress shall be shortened by setting a new Exercise Date (the “New Exercise Date”), and shall terminate immediately prior to the consummation of such proposed dissolution or liquidation, unless provided otherwise by the Administrator. The New Exercise Date shall be before the date of the Company’s proposed dissolution or liquidation. The Administrator shall notify each participant in writing, at least ten (10) business days prior to the New Exercise Date, that the Exercise Date for the participant’s option has been changed to the New Exercise Date and that the participant’s option shall be exercised automatically on the New Exercise Date, unless prior to such date the participant has withdrawn from the Offering Period as provided in Section 10 hereof.

(c) Merger or Asset Sale. In the event of a proposed sale of all or substantially all of the assets of the Company, or the merger of the Company with or into another corporation, each outstanding option shall be assumed or an equivalent option substituted by the successor corporation or a Parent or Subsidiary of the successor corporation. In the event that the successor corporation refuses to assume or substitute for the option, any Purchase Periods then in progress shall be shortened by setting a New Exercise Date and any Offering Periods then in progress shall end on the New Exercise Date. The New Exercise Date shall be before the date of the Company’s proposed sale or merger. The Administrator shall notify each participant in writing, at least ten (10) business days prior to the New Exercise Date, that the Exercise Date for the participant’s option has been changed to the New Exercise Date and that the participant’s option shall be exercised automatically on the New Exercise Date, unless prior to such date the participant has withdrawn from the Offering Period as provided in Section 10 hereof.

20. Amendment or Termination.

(a) The Board may at any time and for any reason terminate or amend the Plan. Except as provided in Section 19 hereof, no such termination can affect options previously granted, provided that an Offering Period may be terminated by the Board if the Board determines that the termination of the Offering Period or the Plan is in the best interests of the Company and its stockholders. Except as provided in Section 19 and this Section 20 hereof, no amendment may make any change in any option theretofore granted which adversely affects the rights of any participant without the consent of such participant. To the extent necessary to comply with Section 423 of the Code (or any successor rule or provision or any other applicable law, regulation or stock exchange rule), the Company shall obtain stockholder approval in such a manner and to such a degree as required.

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(b) Without stockholder consent and without regard to whether any participant rights may be considered to have been “adversely affected,” the Administrator shall be entitled to change the Offering Periods, limit the frequency and/or number of changes in the amount withheld during an Offering Period, establish the exchange ratio applicable to amounts withheld in a currency other than U.S. dollars, permit payroll withholding in excess of the amount designated by a participant in order to adjust for delays or mistakes in the Company’s processing of properly completed withholding elections, establish reasonable waiting and adjustment periods and/or accounting and crediting procedures to ensure that amounts applied toward the purchase of Common Stock for each participant properly correspond with amounts withheld from the participant’s Compensation, and establish such other limitations or procedures as the Administrator determines in its sole discretion advisable which are consistent with the Plan.

(c) In the event the Board determines that the ongoing operation of the Plan may result in unfavorable financial accounting consequences, the Board may, in its discretion and, to the extent necessary or desirable, modify or amend the Plan to reduce or eliminate such accounting consequence including, but not limited to:

(i) altering the Purchase Price for any Offering Period including an Offering Period underway at the time of the change in Purchase Price;

(ii) shortening any Offering Period so that the Offering Period ends on a new Exercise Date, including an Offering Period underway at the time of the Administrator action; and

(iii) allocating shares.

Such modifications or amendments shall not require stockholder approval or the consent of any Plan participants.

21. Notices. All notices or other communications by a participant to the Company under or in connection with the Plan shall be deemed to have been duly given when received in the form specified by the Company at the location, or by the person, designated by the Company for the receipt thereof.

22. Conditions To Issuance of Shares. The Company shall not be required to issue or deliver any certificate or certificates for shares of Stock purchased upon the exercise of options prior to fulfillment of all the following conditions:

(a) The admission of such shares to listing on all stock exchanges, if any, on which is then listed; and

(b) The completion of any registration or other qualification of such shares under any state or federal law or under the rulings or regulations of the Securities and Exchange Commission or any other governmental regulatory body, which the Administrator shall, in its absolute discretion, deem necessary or advisable; and

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(c) The obtaining of any approval or other clearance from any state or federal governmental agency which the Administrator shall, in its absolute discretion, determine to be necessary or advisable; and

(d) The payment to the Company of all amounts which it is required to withhold under federal, state or local law upon exercise of the option; and

(e) The lapse of such reasonable period of time following the exercise of the Option as the Administrator may from time to time establish for reasons of administrative convenience.

23. Term of Plan. The Plan shall become effective on the Effective Date. Subject to approval by the stockholders of the Company in accordance with this Section, the Plan shall be in effect until the tenth (10^th) anniversary of the date of the initial adoption of the Plan by the Board, unless sooner terminated under Section 20 hereof. The Plan shall be submitted for the approval of the Company’s stockholders within twelve (12) months after the date of the initial adoption of the Plan by the Board.

24. Automatic Transfer to Low Price Offering Period. To the extent permitted by any applicable laws, regulations, or stock exchange rules, if the Fair Market Value of the Common Stock on any Exercise Date in an Offering Period is lower than the Fair Market Value of the Common Stock on the Enrollment Date of such Offering Period, then (i) a new twelve- (12) month Offering Period will automatically begin on the first trading day following that Exercise Date, and (ii) all participants in such Offering Period shall be automatically withdrawn from such Offering Period immediately after the exercise of their option on such Exercise Date and automatically re-enrolled in the immediately following Offering Period as of the first day thereof.

25. Equal Rights and Privileges. All Eligible Employees of the Company (or of any Designated Subsidiary) will have equal rights and privileges under this Plan so that this Plan qualifies as an “employee stock purchase plan” within the meaning of Section 423 of the Code or applicable Treasury regulations thereunder. Any provision of this Plan that is inconsistent with Section 423 or applicable Treasury regulations will, without further act or amendment by the Company, the Board or the Administrator, be reformed to comply with the equal rights and privileges requirement of Section 423 or applicable Treasury regulations.

26. No Employment Rights. Nothing in the Plan shall be construed to give any person (including any Eligible Employee or participant) the right to remain in the employ of the Company, a Parent or a Subsidiary or to affect the right of the Company, any Parent or any Subsidiary to terminate the employment of any person (including any Eligible Employee or participant) at any time, with or without cause.

27. Notice of Disposition of Shares. Each participant shall give prompt notice to the Company of any disposition or other transfer of any shares of stock purchased upon exercise of an option if such disposition or transfer is made: (a) within two (2) years from the Enrollment Date of the Offering Period in which the shares were purchased or (b) within one (1) year after the Exercise Date on which such shares were purchased. Such notice shall specify the date of such disposition or other transfer and the amount realized, in cash, other property, assumption of indebtedness or other consideration, by the participant in such disposition or other transfer.

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28. Governing Law. The validity and enforceability of this Plan shall be governed by and construed in accordance with the laws of the State of Delaware without regard to otherwise governing principles of conflicts of law.

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EX-10.07

EXHIBIT 10.07

CREDIT AGREEMENT

by and between

DESIGN WITHIN REACH, INC., a California corporation

and

WELLS FARGO HSBC TRADE BANK, N.A.

Dated as of

July 10, 2002

Exhibit A — Addendum to Credit Agreement

Exhibit B — Revolving Credit Facility Supplement

Exhibit C — Collateral/Credit Support Document

Exhibit D — Borrowing Base Certificate

WELLS FARGO HSBC TRADE BANK CREDIT AGREEMENT

DESIGN WITHIN REACH, INC. (“Borrower”), organized under the laws of the State of California whose chief executive office is located at the address specified after its signature to this Agreement (“Borrower’s Address”) and WELLS FARGO HSBC TRADE BANK, N.A. (“Trade Bank”), whose address is specified after its signature to this Agreement, have entered into this CREDIT AGREEMENT as of July 10, 2002 (“Effective Date”). All references to this “Agreement” include those covenants included in the Addendum to Agreement (“Addendum”) attached as Exhibit A hereto.

I. CREDIT FACILITY

1.1 The Facility. Subject to the terms and conditions of this Agreement, Trade Bank will make available to Borrower a Revolving Credit Facility (“Facility”) for which a Facility Supplement (“Supplement”) is attached as Exhibit B hereto. Additional terms for the Facility (and each subfacility thereof (“Subfacility”)) are set forth in the Supplement. The Facility will be available from the Closing Date up to and until July 31, 2003 (“Facility Termination Date”). Collateral and credit support required for the Facility is set forth in Exhibit C hereto. Definitions for those capitalized terms not otherwise defined are contained in Article 8 below.

1.2 Credit Extension Limit. The aggregate outstanding amount of all Credit Extensions may at no time exceed the lesser of (a) Two Million Five Hundred Thousand Dollars ($2,500,000) or (b) the Borrowing Base in effect from to time (“Overall Credit Limit”). The aggregate outstanding amount of all Credit Extensions outstanding at any time under Revolving Credit Facility may not exceed that amount specified as the “Credit Limit” in the Supplement for the Facility, and the aggregate outstanding amount of all Credit Extensions outstanding at any time under each Subfacility (or any subcategory thereof) may not exceed that amount specified as the “Credit Sublimit” in the Supplement for the Facility. An amount equal to 100% of each unfunded Credit Extension shall be used in calculating the outstanding amount of Credit Extensions under this Agreement.

The Subfacility(s) of the Revolving Credit Facility are as follows:

(1) Sight Commercial Letters of Credit

(2) Standby Letters of Credit

1.3 Overadvance. All Credit Extensions made hereunder shall be added to and deemed part of the Obligations when made. If, at any time and for any reason, the aggregate outstanding amount of all Credit Extensions made pursuant to this Agreement exceeds the dollar limitation in Section 1.2 or the Borrowing Base, then Borrower shall immediately pay to Trade Bank on demand, in cash, the amount of such excess.

1.4 Repayment; Interest and Fees. Each funded Credit Extension shall be repaid by Borrower, and shall bear interest from the date of disbursement at those per annum rates and such interest shall be paid, at the times specified in the Supplement, Note or Facility Document. Borrower agrees to pay to Trade Bank with respect to (a) the Revolving Credit Facility, interest at a per annum rate equal to the Prime Rate plus .50% as specified in the Note, and (b) the Subfacilities, the fees specified in the Supplement as well as those fees specified in the relevant Facility Document(s). Interest and fees will be calculated on the basis of a 365 day year, actual days elapsed. Any overdue payments of principal (and interest to the extent

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permitted by law) shall bear interest at a per annum floating rate equal to the Prime Rate plus 5.00%.

1.5 Prepayments. Credit Extensions under any Facility may only be prepaid in accordance with the terms of the related Supplement. At the time of any prepayment (including, but not limited to, any prepayment which is a result of the occurrence of an Event of Default and an acceleration of the Obligations) Borrower will pay to Trade Bank all interest accrued on the amount so prepaid to the date of such prepayment and all costs, expenses and fees specified in the Loan Documents.

II. REPRESENTATIONS AND WARRANTIES

Borrower represents and warrants to Trade Bank that the following representations and warranties are true and correct:

2.1 Legal Status. Borrower is duly organized and existing and in good standing under the laws of the jurisdiction indicated in this Agreement, and is qualified or licensed to do business in all jurisdictions in which such qualification or licensing is required and in which the failure to so qualify or to be so licensed could have a material adverse affect on Borrower.

2.2 Authorization and Validity. The execution, delivery and performance of this Agreement, and all other Loan Documents to which Borrower is a party, have been duly and validly authorized, executed and delivered by Borrower and constitute legal, valid and binding agreements of Borrower, and are enforceable against Borrower in accordance with their respective terms.

2.3 Borrower’s Name. The name of Borrower set forth at the end of this Agreement is its correct name. If Borrower is conducting business under a fictitious business name, Borrower is in compliance with all laws relating to the conduct of such business under such name.

2.4 Financial Condition and Statements. All financial statements of Borrower delivered to Trade Bank have been prepared in conformity with GAAP, and completely and accurately reflect the financial condition of Borrower (and any consolidated Subsidiaries), in accordance with GAAP at the times and for the periods stated in such financial statements. Neither Borrower nor any Subsidiary has any material contingent liability not reflected in the aforesaid financial statements. Since the date of the financial statements delivered to Trade Bank for the last fiscal period of Borrower to end before the Effective Date, there has been no material adverse change in the financial condition, business or prospects of Borrower. Borrower is solvent.

2.5 Litigation. Except as disclosed in writing to Trade Bank prior to the Effective Date, there is no action, claim, suit, litigation, proceeding or investigation pending or (to best of Borrower’s knowledge) threatened by or against or affecting Borrower or any Subsidiary in any court or before any governmental authority, administrator or agency which may result in (a) any material adverse change in the financial condition or business of Borrower, or (b) any material impairment of the ability of Borrower to carry on its business in substantially the same manner as it is now being conducted.

2.6 No Violation. The execution, delivery, and performance by Borrower of each of the Loan Documents do not violate any provision of any law or regulation, or contravene any provision of the Articles of Incorporation or By-Laws of Borrower, or result in a breach of or

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constitute a default under any contract, obligation, indenture, or other instrument to which Borrower is a party or by which Borrower may be bound.

2.7 Income Tax Returns. Borrower has no knowledge of any pending assessments or adjustments of its income tax payable with respect to any year.

2.8 No Subordination. There is no agreement, indenture, contract, or instrument to which Borrower is a party or by which Borrower may be bound that requires the subordination in right of payment of any of Borrower’s obligations subject to this Agreement to any other obligation of Borrower.

2.9 ERISA. Borrower is in compliance in all material respects with all applicable provisions of the Employee Retirement Income Security Act of 1974, as amended or recodified from time to time (“ERISA”); Borrower has not violated any provision of any defined employee pension benefit plan (as defined in ERISA) maintained or contributed to by Borrower (each, a “Plan”); no Reportable Event, as defined in ERISA, has occurred and is continuing with respect to any Plan initiated by Borrower; Borrower has met its minimum funding requirements under ERISA with respect to each Plan; and each Plan will be able to fulfill its benefit obligations as they come due in accordance with the Plan documents and under GAAP.

2.10 Other Obligations. Except as disclosed in writing to Trade Bank prior to the Effective Date, neither Borrower nor any Subsidiary are in default of any obligation for borrowed money, any purchase money obligation or any material lease, commitment, contract, instrument or obligation.

2.11 No Defaults. No Event of Default, or event which with the giving of notice or the passage of time or both would constitute an Event of Default, has occurred and is continuing.

2.12 Information Provided to Trade Bank. The information provided to the Trade Bank concerning Borrower’s business is true and correct in all material respects.

2.13 Environmental Matters. Except as disclosed by Borrower to Trade Bank in writing prior to the Effective Date, Borrower (as well as any Subsidiary) is each in compliance in all material respects with all applicable Federal or state environmental, hazardous waste, health and safety statutes, and any rules or regulations adopted pursuant thereto, which govern or affect any Borrower’s or any Subsidiary’s operations and/or properties, including without limitation, the Comprehensive Environmental Response, Compensation and Liability Act of 1980, the Superfund Amendments and Reauthorization Act of 1986, the Federal Resource Conservation and Recovery Act of 1976, the Federal Toxic Substances Control Act and the California Health and Safety Code, as any of the same may be amended, modified or supplemented from time to time. None of the operations of Borrower or of any Subsidiary is the subject of any Federal or state investigation evaluating whether any remedial action involving a material expenditure is needed to respond to a release of any toxic or hazardous waste or substance into the environment.

III. CONDITIONS TO EXTENDING FACILITIES

3.1 Conditions to Initial Credit Extension. The obligation of Trade Bank to make the first Credit Extension is subject to the fulfillment to Trade Bank’s satisfaction of the following conditions:

(a) Approval of Trade Bank Counsel. All legal matters relating to making the Facilities available to Borrower must be satisfactory to counsel for Trade Bank.

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(b) Documentation. Trade Bank must have received, in form and substance satisfactory to Trade Bank, the following documents and instruments duly executed and in full force and effect:

(1) a corporate borrowing resolution and incumbency certificate if Borrower is a corporation, a partnership or joint venture borrowing certificate if Borrower is a partnership or joint venture, and a limited liability company borrowing certificate if Borrower is a limited liability company;

(2) the Facility Documents for each Facility, including, but not limited to, note(s) (“Notes”) for any Revolving Credit or Term Loan Facility, Trade Bank’s standard Continuing Commercial Letter of Credit Agreement or Continuing Standby Letter of Credit Agreement for any letter of credit Facility;

(3) those guarantees, security agreements, deeds of trust, subordination agreements, intercreditor agreements, factoring agreements, tax service contracts, and other Collateral Documents required by Trade Bank to evidence the collateral/credit support specified in the Supplement;

(4) if an audit or inspection of any books, records or property is specified in the Supplement for any Facility, an audit or inspection report from Wells Fargo or another auditor or inspector acceptable to Trade Bank reflecting values and property conditions satisfactory to Trade Bank; and

(5) if insurance is required in the Addendum, the insurance policies specified in the Addendum (or other satisfactory proof thereof) from insurers acceptable to Trade Bank.

3.2 Conditions to Making Each Credit Extension. The obligation of Trade Bank to make each Credit Extension is subject to the fulfillment to Trade Bank’s satisfaction of the following conditions:

(a) Representations and Warranties. The representations and warranties contained in this Agreement, the Facility Documents and the Collateral Documents will be true and correct in all material respects on and as of the date of the Credit Extension with the same effect as though such representations and warranties had been made on and as of such date;

(b) Documentation. Trade Bank must have received, in form and substance satisfactory to Trade Bank, the following documents and instruments duly executed and in full force and effect:

(1) if the Credit Extension is the issuance of a Commercial Letter of Credit, Trade Bank’s standard Application For Commercial Letter

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of Credit or standard Application and Agreement For Commercial Letter of Credit;

(2) if the Credit Extension is the issuance of a Standby Letter of Credit, Trade Bank’s standard Application For Standby Letter of Credit or standard Application and Agreement For Standby Letter of Credit;

(3) if a Borrowing Base Certificate is required for the Credit Extension, a Borrowing Base Certificate demonstrating compliance with the requirements for such Credit Extension.

(c) Fees. Trade Bank must have received any fees required by the Loan Documents to be paid at the time such Credit Extension is made.

IV. AFFIRMATIVE COVENANTS

Borrower covenants that so long as Trade Bank remains committed to make Credit Extensions to Borrower, and until payment of all Obligations and Credit Extensions, Borrower will comply with each of the following covenants: (For purposes of this Article IV, and Article V below, reference to “Borrower” may also extend to Borrower’s subsidiaries, if so specified in the Addendum.)

4.1 Punctual Payments. Punctually pay all principal, interest, fees and other Obligations due under this Agreement or under any Loan Document at the time and place and in the manner specified herein or therein.

4.2 Notification to Trade Bank. Promptly, but in no event more than 5 calendar days after the occurrence of each such event, provide written notice in reasonable detail of each of the following:

(a) Occurrence of a Default. The occurrence of any Event of Default or any event which with the giving of notice or the passage of time or both would constitute an Event of Default;

(b) Borrower’s Trade Names; Place of Business. Any change of Borrower’s (or any Subsidiary’s) name, trade name or place of business, or chief executive officer;

(c) Litigation. Any action, claim, proceeding, litigation or investigation threatened or instituted by or against or affecting Borrower (or any Subsidiary) in any court or before any government authority, administrator or agency which may materially and adversely affect Borrower’s (or any Subsidiary’s) financial condition or business or Borrower’s ability to carry on its business in substantially the same manner as it is now being conducted;

(d) Uninsured or Partially Uninsured Loss. Any uninsured or partially uninsured loss through liability or property damage or through fire, theft or any other cause affecting Borrower’s (or any Subsidiary’s) property in excess of the aggregate amount required hereunder;

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(e) Reports Made to Insurance Companies. Copies of all material reports made to insurance companies; and

(f) ERISA. The occurrence and nature of any Reportable Event or Prohibited Transaction, each as defined in ERISA, or any funding deficiency with respect to any Plan.

4.3 Books and Records. Maintain at Borrower’s address books and records in accordance with GAAP, and permit any representative of Trade Bank, at any reasonable time, to inspect, audit and examine such books and records, to make copies of them, and to inspect the properties of Borrower.

4.4 Tax Returns and Payments. Timely file all tax returns and reports required by foreign, federal, state and local law, and timely pay all foreign, federal, state and local taxes, assessments, deposits and contributions owed by Borrower. Borrower may, however, defer payment of any contested taxes, provided that Borrower (i) in good faith contests Borrower’s obligation to pay the taxes by appropriate proceedings promptly instituted and diligently conducted, (ii) notifies Trade Bank in writing of the commencement of, and any material development in, the proceedings, (iii) posts bonds or takes any other steps required to keep the contested taxes from becoming a lien upon any of the Collateral, and (iv) makes provision, to Trade Bank’s satisfaction, for eventual payment of such taxes in the event Borrower is obligated to make such payment.

4.5 Compliance with Laws. Comply in all material respects with the provisions of all foreign, federal, state and local laws and regulations relating to Borrower, including, but not limited to, those relating to Borrower’s ownership of real or personal property, the conduct and licensing of Borrower’s business, and health and environmental matters.

4.6 Taxes and Other Liabilities. Pay and discharge when due any and all indebtedness, obligations, assessments and taxes, both real and personal, including without limitation federal and state income taxes and state and local property taxes and assessments, except (a) such as Borrower may in good faith contest or as to which a bona fide dispute may arise, and (b) for which Borrower has made provision, to Trade Bank’s satisfaction, for eventual payment thereof in the event that Borrower is obligated to make such payment.

4.7 Insurance. Maintain and keep in force insurance of the types and in amounts customarily carried in lines of business similar to that of Borrower, including, but not limited to, fire, extended coverage, public liability, flood, property damage and workers’ compensation, with all such insurance to be in amounts satisfactory to Trade Bank and to be carried with companies approved by Trade Bank before such companies are retained, and deliver to Trade Bank from time to time at Trade Bank’s request schedules setting forth all insurance then in effect. All insurance policies shall name Trade Bank as an additional loss payee, and shall contain a lenders loss payee endorsement in form reasonably acceptable to Trade Bank. (Upon receipt of the proceeds of any such insurance, Trade Bank shall apply such proceeds in reduction of the outstanding funded Credit Extensions and shall hold any remaining proceeds as collateral for the outstanding unfunded Credit Extensions, as Trade Bank shall determine in its sole discretion, except that, provided no Event of Default has occurred and is continuing, Trade Bank shall release to Borrower insurance proceeds with respect to equipment totaling less than $100,000, which shall be utilized by Borrower for the replacement of the equipment with respect to which the insurance proceeds were paid, if Trade Bank receives reasonable assurance that the insurance proceeds so released will be so used.) If Borrower fails to provide or pay for any insurance, Trade Bank may, but is not obligated to, obtain the insurance at Borrower’s expense.

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4.8 Further Assurances. At Trade Bank’s request and in form and substance satisfactory to Trade Bank, execute all documents and take all such actions at Borrower’s expense as Trade Bank may deem reasonably necessary or useful to perfect and maintain Trade Bank’s perfected security interest in the Collateral and in order to fully consummate all of the transactions contemplated by the Loan Documents.

V. NEGATIVE COVENANTS

Borrower covenants that so long as Trade Bank remains committed to make any Credit Extensions to Borrower and until all Obligations and Credit Extensions have been paid, Borrower will not:

5.1 Merge or Consolidation, Transfer of Assets. Merge into or consolidate with any other entity; make any substantial change in the nature of Borrower’s business as conducted as of the date hereof; acquire all or substantially all of the assets of any other entity; nor sell, lease, transfer or otherwise dispose of all or a substantial or material portion of Borrower’s assets except in the ordinary course of its business.

5.2 Use of Proceeds. Borrower will not use the proceeds of any Credit Extension except for the purposes, if any, specified for such Credit Extension in the Supplement covering the Facility under which such Credit Extension is made.

5.3 Liens. Mortgage, pledge, grant or permit to exist a security interest in, or lien upon, all or any portion of Borrower’s assets now owned or hereafter acquired, except (i) any of the foregoing in favor of Trade Bank or which is existing as of, and disclosed to Trade Bank in writing prior to, the date hereof (ii) purchase money security interests, or (iii) any other liens imposed by operation of law which do not exceed $50,000 in the aggregate.

5.4 Acquisitions of Assets. Borrower will not acquire any assets or enter into any other transaction outside the ordinary course of Borrower’s business.

5.5 Loans and Investments. Borrower will not make any loans or advances to, or investments in, any person or entity except for (i) accounts receivable created in the ordinary course of Borrower’s business and (ii) loans to employees of Borrower not to exceed $10,000 in the aggregate.

5.6 Indebtedness For Borrowed Money. Borrower will not incur any indebtedness for borrowed money, except to Trade Bank and except for indebtedness subordinated to the Obligations by an instrument or agreement in form acceptable to Trade Bank.

5.7 Guarantees. Borrower will not guarantee or otherwise become liable with respect to the obligations of any other person or entity, except for endorsement of instruments for deposit into Borrower’s account in the ordinary course of Borrower’s business.

5.8 Investments in, or Acquisitions of, Subsidiaries. Borrower will not make any investments in, or form or acquire, any subsidiaries.

5.9 Capital Expenditures. Borrower shall not make any capital expenditures in an aggregate amount in excess of $3,000,000 during fiscal year 2002 and $500,000 during fiscal year 2003.

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VI. EVENTS OF DEFAULT AND REMEDIES

6.1 Events of Default. The occurrence of any of the following shall constitute an “Event of Default”:

(a) Failure to Make Payments When Due. Borrower’s failure to pay principal, interest, fees or other amounts when due under any Loan Document.

(b) Failure to Perform Obligations. Any failure by Borrower to comply with any covenant or obligation in this Agreement or in any Loan Document (other than those referred to in subsection (a) above), and such default shall continue for a period of twenty calendar days from the earlier of (i) Borrower’s failure to notify Trade Bank of such Event of Default pursuant to Section 4.2(a) above, or (ii) Trade Bank’s notice to Borrower of such Event of Default.

(c) Untrue or Misleading Warranty or Statement. Any warranty, representation, financial statement, report or certificate made or delivered by Borrower under any Loan Document is untrue or misleading in any material respect when made or delivered.

(d) Defaults Under Other Loan Documents. Any “Event of Default” occurs under any other Loan Document; any Guaranty is no longer in full force and effect (or any claim thereof made by Guarantor) or any failure of a Guarantor to comply with the provisions thereof; or any breach of the provisions of any Subordination Agreement or Intercreditor Agreement by any party other than the Trade Bank.

(e) Defaults Under Other Agreements or Instruments. Any default in the payment or performance of any obligation, or the occurrence of any event of default, under the terms of any other agreement or instrument pursuant to which Borrower, any Subsidiary or any Guarantor or general partner of Borrower has incurred any debt or other material liability to any person or entity.

(f) Concealing or Transferring Property. Borrower conceals, removes or transfers any part of its property with intent to hinder, delay or defraud its creditors, or makes or suffers any transfer of any of its property which may be fraudulent under any bankruptcy, fraudulent conveyance or similar law.

(g) Judgments and Levies Against Borrower. The filing of a notice of judgment lien against Borrower, or the recording of any abstract of judgment against Borrower, in any county in which Borrower has an interest in real property, or the service of a notice of levy and/or of a writ of attachment or execution, or other like process, against the assets of Borrower, or the entry of a judgment against Borrower.

(h) Event or Condition Impairing Payment or Performance. Any event occurs or condition arises which Trade Bank in good faith believes impairs or is substantially likely to impair the prospect of payment or

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performance by Borrower of the Obligations, including, but not limited to any material adverse change in Borrower’s financial condition, business or prospects.

(i) Voluntary Insolvency. Borrower, any Subsidiary or any Guarantor (i) becomes insolvent, (ii) suffers or consents to or applies for the appointment of a receiver, trustee, custodian or liquidator of itself or any of its property, (iii) generally fails to pay its debts as they become due, (iv) makes a general assignment for the benefit of creditors, or (v) files a voluntary petition in bankruptcy, or seeks reorganization, in order to effect a plan or other arrangement with creditors or any other relief under the Bankruptcy Reform Act, Title 11 of the United States Code, as amended or recodified from time to time (“Bankruptcy Code”), or under any state or Federal law granting relief to debtors, whether now or hereafter in effect.

(j) Involuntary Insolvency. Any involuntary petition or proceeding pursuant to the Bankruptcy Code or any other applicable state or federal law relating to bankruptcy, reorganization or other relief for debtors is filed or commenced against Borrower, any Subsidiary or Guarantor, or an order for relief is entered against it by any court of competent jurisdiction under the Bankruptcy Code or any other applicable state or federal law relating to bankruptcy, reorganization or other relief for debtors.

(k) Change in Ownership. Any change greater than 20% in the ownership of Borrower, any general partner of Borrower or any Guarantor which the Trade Bank determines, in its sole discretion, may adversely affect the creditworthiness of Borrower or credit support for the Obligations.

6.2 Remedies. Upon the occurrence of any Event of Default, or at any time thereafter while an Event of Default is continuing, Trade Bank, at its option, and without notice or demand of any kind (all of which are hereby expressly waived by Borrower), may do any one or more of the following: (a) terminate Trade Bank’s obligation to make Credit Extensions or to make available to Borrower the Facilities or other financial accommodations; (b) accelerate and declare all or any part of the Obligations to be immediately due, payable, and performable, notwithstanding any deferred or installment payments allowed by any instrument evidencing or relating to any Credit Extension; and/or (c) exercise all its rights, powers and remedies available under the Loan Documents, or accorded by law, including, but not limited to, the right to resort to any or all Collateral or other security for any of the Obligations and to exercise any or all of the rights of a beneficiary or secured party pursuant to applicable law. Notwithstanding the provisions in the foregoing sentence, if any Event of Default set out in subsections (i) and (j) of Section 6.1 above shall occur, then all the remedies specified in the preceding sentence shall automatically take effect without notice or demand of any kind (all of which are hereby expressly waived by Borrower) with respect to any and all Obligations. All rights, powers and remedies of Trade Bank may be exercised at any time by Trade Bank and from time to time after the occurrence and during the continuance of an Event of Default, are cumulative and not exclusive, and shall be in addition to any other rights, powers or remedies provided by law or equity.

VII. GENERAL PROVISIONS

7.1 Notices. All notices to be given under this Agreement shall be in writing and shall be given personally or by regular first-class mail, by certified mail return receipt requested, by a private delivery service which obtains a signed receipt, or by facsimile transmission

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addressed to Trade Bank or Borrower at the address indicated after their signature to this Agreement, or at any other address designated in writing by one party to the other party. Trade Bank is hereby authorized by Borrower to act on such instructions or notices sent by facsimile transmission or telecommunications device which Trade Bank believes come from Borrower. All notices shall be deemed to have been given upon delivery, in the case of notices personally delivered or delivered by private delivery service, upon the expiration of 3 calendar days following the deposit of the notices in the United States mail, in the case of notices deposited in the United States mail with postage prepaid, or upon receipt, in the case of notices sent by facsimile transmission.

7.2 Waivers. No delay or failure of Trade Bank in exercising any right, power or remedy under any of the Loan Documents shall affect or operate as a waiver of such right, power or remedy; nor shall any single or partial exercise of any such right, power or remedy preclude, waive or otherwise affect any other or further exercise thereof or the exercise of any other right, power or remedy. Any waiver, consent or approval by Trade Bank under any of the Loan Documents must be in writing and shall be effective only to the extent set out in such writing.

7.3 Benefit of Agreement. The provisions of the Loan Documents shall be binding upon and inure to the benefit of the respective successors, assigns, heirs, executors, administrators, beneficiaries and legal representatives of Borrower and Trade Bank; provided, however, that Borrower may not assign or transfer any of its rights under any Loan Document without the prior written consent of Trade Bank, and any prohibited assignment shall be void. No consent by Trade Bank to any assignment shall release Borrower from its liability for the Obligations unless such release is specifically given by Trade Bank to Borrower in writing. Trade Bank reserves the right to sell, assign, transfer, negotiate or grant participations in all or any part of, or any interest in, Trade Bank’s rights and benefits under each of the Loan Documents. In connection therewith, Trade Bank may disclose any information relating to the Facilities, Borrower or its business, or any Guarantor or its business.

7.4 Joint and Several Liability. If Borrower consists of more than one person or entity, the liability of each of them shall be joint and several, and the compromise of any claim with, or the release of, any one such Borrower shall not constitute a compromise with, or a release of, any other such Borrower.

7.5 No Third Party Beneficiaries. This Agreement is made and entered into for the sole protection and benefit of Borrower and Trade Bank and their respective permitted successors and assigns, and no other person or entity shall be a third party beneficiary of, or have any direct or indirect cause of action or claim in connection with, any of the Loan Documents to which it is not a party.

7.6 Governing Law and Jurisdiction. This Agreement shall, unless provided differently in any Loan Document, be governed by, and be construed in accordance with, the internal laws of the State of California, except to the extent Trade Bank has greater rights or remedies under federal law whether as a national bank or otherwise. Borrower and Trade Bank (a) agree that all actions and proceedings relating directly or indirectly to this Agreement shall be litigated in courts located within California; (b) consent to the jurisdiction of any such court and consent to service of process in any such action or proceeding by personal delivery or any other method permitted by law; and (c) waive any and all rights Borrower may have to object to the jurisdiction of any such court or to transfer or change the venue of any such action or proceeding.

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7.7 Mutual Waiver of Jury Trial. Borrower and Trade Bank each hereby waive the right to trial by jury in any action or proceeding based upon, arising out of, or in any way relating to, (a) any Loan Document, (b) any other present or future agreement, instrument or document between Trade Bank and Borrower, or (c) any conduct, act or omission of Trade Bank or Borrower or any of their directors, officers, employees, agents, attorneys or any other persons or entities affiliated with Trade Bank or Borrower, which waiver will apply in all of the mentioned cases whether the case is a contract or tort case or any other case. Borrower represents and warrants that no officer, representative or agent of Trade Bank has represented, expressly or otherwise, that Trade Bank would not seek to enforce this waiver of jury trial.

7.8 Severability. Should any provision of any Loan Document be prohibited by, or invalid under applicable law, or held by any court of competent jurisdiction to be void or unenforceable, such defect shall not affect, the validity of the other provisions of the Loan Documents.

7.9 Entire Agreement; Amendments. This Agreement and the other Loan Documents are the final, entire and complete agreement between Borrower and Trade Bank concerning the Credit Extensions and the Facilities; supersede all prior and contemporaneous negotiations and oral representations and agreements. There are no oral understandings, representations or agreements between the parties concerning the Credit Extensions or the Facilities which are not set forth in the Loan Documents. This Agreement and the Supplement(s) may not be waived, amended or superseded except in a writing executed by Borrower and Trade Bank.

7.10 Collection of Payments. Unless otherwise specified in any Loan Document, other than this Agreement or any Note, all principal, interest and any fees due to Trade Bank by Borrower under this Agreement, the Addendum, any Supplement, any Facility Document, any Collateral Document or any Note, will be paid by Trade Bank having Wells Fargo debit any of Borrower’s accounts with Wells Fargo and forwarding such amount debited to Trade Bank, without presentment, protest, demand for reimbursement or payment, notice of dishonor or any other notice whatsoever, all of which are hereby expressly waived by Borrower. Such debit will be made at the time principal, interest or any fee is due to Trade Bank pursuant to this Agreement, the Addendum, any Supplement, any Facility Document, any Collateral Document or any Note.

7.11 Costs, Expenses and Attorneys’ Fees. Borrower will reimburse Trade Bank for all costs and expenses, including, but not limited to, reasonable attorneys’ fees and expenses (which counsel may be Trade Bank or Wells Fargo employees), expended or incurred by Trade Bank in the preparation and negotiation of this Agreement, the Notes, the Collateral Documents, the Addendum, and the Facility Documents, in amending this Agreement, the Collateral Documents, the Notes, the Addendum, or the Facility Documents, in collecting any sum which becomes due Trade Bank on the Notes, under this Agreement, the Collateral Documents, the Addendum, the Supplement(s), or any of the Facility Documents, in the protection, perfection, preservation and enforcement of any and all rights of Trade Bank in connection with this Agreement, the Notes, any of the Collateral Documents, any of the Supplement(s), any of the Addendum, or any of the Facility Documents, including, without limitation, the fees and costs incurred in any out-of-court work out or a bankruptcy or reorganization proceeding.

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VIII. DEFINITIONS

8.1 “Accounts Receivable” means all presently existing and hereafter arising “Rights to Payment” (as that term is defined in the “Continuing Security Agreement - Rights to Payment and Inventory” executed by Borrower in favor of Trade Bank) which arise from the sale, lease or other disposition of Inventory, or from performance of contracts for service, manufacture, construction or repair, together with all goods returned by Borrower’s customers in connection with any of the foregoing.

8.2 “Agreement” means this Agreement and the Addendum attached hereto, as corrected or modified from time to time by Trade Bank and Borrower.

8.3 “Banking Day” means each day except Saturday, Sunday and a day specified as a holiday by federal or California statute.

8.4 “Borrowing Base” means an amount equal to the sum of: (a) seventy-five percent (75%) of Borrower’s Eligible Accounts Receivable, plus (b) forty percent (40%) of Borrower’s Eligible Inventory. All of the foregoing shall be determined by Trade Bank upon receipt and review of all collateral reports required hereunder and such other documents and collateral information as Trade Bank may from time to time require. Borrower acknowledges that said Borrowing Base was established by Trade Bank with the understanding that, among other items, the aggregate of all returns, rebates, discounts, credits, and allowances for the immediately preceding three (3) months at all times shall be less than five percent (5%) of Borrower’s gross sales for said period. If such dilution of Borrower’s accounts for the immediately preceding three (3) months at any time exceeds five percent (5%) of Borrower’s gross sales for said period, or if there at any time exists any other matters, events, conditions or contingencies which Trade Bank reasonably believes may affect payment of any portion of Borrower’s accounts, Trade Bank, in its reasonable discretion, may reduce the foregoing advance rate against Borrower’s Eligible Accounts Receivable to a percentage appropriate to reflect such additional dilution and/or establish reserves against Borrower’s Eligible Accounts Receivable.

8.5 “Closing Date” means the date on which the first Credit Extension is made.

8.6 “Collateral” means all property securing the Obligations.

8.7 “Collateral Documents” means those security agreement(s), deed(s) of trust, guarantee(s), subordination agreement(s), intercreditor agreement(s), and other credit support documents and instruments required by the Trade Bank to effect the collateral and credit support requirements set forth in the Supplement with respect to the Facilities.

8.8 “Credit” means any discount, allowance, credit, rebate, or adjustment granted by Borrower with respect to an Account Receivable.

8.9 “Credit Extension” means each extension of credit under the Facilities (whether funded or unfunded), including, but not limited to, (a) the issuance of sight or usance commercial letters of credit or commercial letters of credit supported by back-up letters of credit, (b) the issuance of standby letters of credit, (c) the issuance of shipping guarantees, (d) the making of revolving credit working capital loans, (e) the making of loans against imports for letters of credit, (f) the making of clean import loans outside letters of credit, (g) the making of advances against export orders, (h) the making of advances against export letters of credit, (i)

Page 12

the making of advances against outgoing collections, (j) the making of term loans, and (k) the entry into foreign exchange contracts.

8.10 “Credit Limit” means, with respect to the any Facility, the amount specified under the column labeled “Credit Limit” in the Supplement for that related Facility.

8.11 “Credit Sublimit” means, with respect to any Subfacility, the amount specified after the name of that Subfacility under the column labeled “Credit Sublimit” in the Supplement for the related Facility.

8.12 “Dollars” and “$” means United States dollars.

8.13 “Eligible Accounts Receivable” means those Accounts Receivable which have been created in the ordinary course of Borrower’s business and upon which Borrower’s right to receive payment is absolute and not contingent upon the fulfillment of any conditions whatsoever, and shall not include:

(a) any account which is past due sixty (60) days after the invoice date with respect to Accounts Receivable with payment terms of net thirty (30) or net sixty (60) days from invoice date; and any [or one] day after the due date with respect to Accounts Receivable with payment terms of net 90 days;

(b) any account for which there are any right of setoff, defense or discount (except regular discounts allowed in the ordinary course of business to promote prompt payment) or for which any defense or counterclaim has been asserted;

(c) any account which represents an obligation of any state or municipal government or of the United States government or any political subdivision thereof;

(d) any account which represents an obligation of an account debtor located in a foreign country;

(e) any account which arises from the sale or lease to or performance of services for, or represents an obligation of, an employee, affiliate, partner, parent or subsidiary of Borrower.

(f) that portion of any account which represents interim or progress billings or retention rights on the part of the account debtor;

(g) any account which represents an obligation of any account debtor when twenty percent (20%) or more of Borrower’s accounts from such account debtor is not eligible pursuant to (a) above;

(h) that portion of any account from an account debtor which represents the amount by which Borrower’s total accounts receivable from said account debtor exceeds twenty-five percent (25%) of Borrower’s total accounts receivable;

(i) any account deemed ineligible by Trade Bank when Trade Bank, in its sole discretion, deems the creditworthiness or financial condition of the

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account debtor, or the industry in which the account debtor is engaged, to be unsatisfactory.

8.14 “Eligible Inventory” means all Inventory of Borrower comprised of finished goods (other than Inventory deemed ineligible in Trade Bank’s sole discretion), that have been in Borrower’s stock for not more than twelve (12) calendar months, valued at the lower of cost or fair market value on a first in first out basis in accordance with GAAP, that is subject to no liens other than liens in favor of Trade Bank, and is located at Borrower’s warehouses in the United States.

8.15 “Facility Documents” means, with respect to any Facility, those documents specified in the Supplement for that Facility, and any other documents customarily required by Trade Bank for such Facility.

8.16 “Facility Termination Date” means, with respect to any Facility, the date specified in the Supplement for that Facility after which no further Credit Extensions will be made under that Facility.

8.17 “GAAP” means generally accepted accounting principles, which are applicable to the circumstances, as of the date of determination, set out in the opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants and in the statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as may be approved by a significant segment of the accounting profession.

8.18 “Inventory” has the meaning assigned to such term in the “Continuing Security Agreement — Rights to Payment and Inventory” executed by Borrower in favor of Trade Bank.

8.19 “Loan Documents” means this Agreement, the Addendum, the Supplement(s), the Facility Documents and the Collateral Documents.

8.20 “Note” has the meaning specified in Section 3.1(b)(2) above.

8.21 “Obligations” means (a) the obligation of Borrower to pay principal, interest and fees on all funded Credit Extensions and fees on all unfunded Credit Extensions, and (b) the obligation of Borrower to pay and perform when due all other indebtedness, liabilities, obligations and covenants required under the Loan Documents.

8.22 “Person” means and includes natural persons, corporations, limited partnerships, general partnerships, joint stock companies, joint ventures, associations, companies, trusts, banks, trust companies, land trusts, business trusts or other organizations, whether or not legal entities, and governments and agencies and political subdivisions thereof.

8.23 “Prime Rate” means the rate most recently announced by Wells Fargo at its principal office in San Francisco, California as its “Prime Rate”, with the understanding that the Prime Rate is one of Wells Fargo’s base rates and serves as the basis upon which effective rates of interest are calculated for those loans making reference thereto, and is evidenced by the recording thereof after its announcement in such internal publication or publications as Wells Fargo may designate. Any change in an interest rate resulting from a change in the Prime Rate shall become effective as of 12:01 a.m. of the Banking Day on which each change in the Prime Rate is announced by Wells Fargo.

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8.24 “Subsidiary” means (i) any corporation at least the majority of whose securities having ordinary voting power for the election of directors (other than securities having such power only by reason of the happening of a contingency) are at the time owned by Borrower and/or one or more Subsidiaries, and (ii) any joint venture or partnership in which Borrower and/or one or more Subsidiaries has a majority interest.

8.25 “Wells Fargo” means Wells Fargo Bank, N.A.

IX. ARBITRATION

9.1 Arbitration. The parties hereto agree, upon demand by any party, to submit to binding arbitration all claims, disputes and controversies between or among them (and their respective employees, officers, directors, attorneys, and other agents), whether in tort, contract or otherwise arising out of or relating to in any way (i) the loan and related loan and security documents which are the subject of this Agreement and its negotiation, execution, collateralization, administration, repayment, modification, extension, substitution, formation, inducement, enforcement, default or termination; or (ii) requests for additional credit.

9.2 Governing Rules. Any arbitration proceeding will (i) proceed in a location in California selected by the American Arbitration Association (“AAA”); (ii) be governed by the Federal Arbitration Act (Title 9 of the United States Code), notwithstanding any conflicting choice of law provision in any of the documents between the parties; and (iii) be conducted by the AAA, or such other administrator as the parties shall mutually agree upon, in accordance with the AAA’s commercial dispute resolution procedures, unless the claim or counterclaim is at least $1,000,000.00 exclusive of claimed interest, arbitration fees and costs in which case the arbitration shall be conducted in accordance with the AAA’s optional procedures for large, complex commercial disputes (the commercial dispute resolution procedures or the optional procedures for large, complex commercial disputes to be referred to, as applicable, as the “Rules”). If there is any inconsistency between the terms hereof and the Rules, the terms and procedures set forth herein shall control. Any party who fails or refuses to submit to arbitration following a demand by any other party shall bear all costs and expenses incurred by such other party in compelling arbitration of any dispute. Nothing contained herein shall be deemed to be a waiver by any party that is a bank of the protections afforded to it under 12 U.S.C. §91 or any similar applicable state law.

9.3 No Waiver of Provisional Remedies, Self-Help and Foreclosure. The arbitration requirement does not limit the right of any party to (i) foreclose against real or personal property collateral; (ii) exercise self-help remedies relating to collateral or proceeds of collateral such as setoff or repossession; or (iii) obtain provisional or ancillary remedies such as replevin, injunctive relief, attachment or the appointment of a receiver, before during or after the pendency of any arbitration proceeding. This exclusion does not constitute a waiver of the right or obligation of any party to submit any dispute to arbitration or reference hereunder, including those arising from the exercise of the actions detailed in sections (i), (ii) and (iii) of this paragraph.

9.4 Arbitrator Qualifications and Powers. Any arbitration proceeding in which the amount in controversy is $5,000,000.00 or less will be decided by a single arbitrator selected according to the Rules, and who shall not render an award of greater than $5,000,000.00. Any dispute in which the amount in controversy exceeds $5,000,000.00 shall be decided by majority vote of a panel of three arbitrators; provided however, that all three arbitrators must actively participate in all hearings and deliberations. The arbitrator will be a neutral attorney licensed in the State of California or a neutral retired judge of the state or federal judiciary of California, in

Page 15

either case with a minimum of ten years experience in the substantive law applicable to the subject matter of the dispute to be arbitrated. The arbitrator will determine whether or not an issue is arbitratable and will give effect to the statutes of limitation in determining any claim. In any arbitration proceeding the arbitrator will decide (by documents only or with a hearing at the arbitrator’s discretion) any pre-hearing motions which are similar to motions to dismiss for failure to state a claim or motions for summary adjudication. The arbitrator shall resolve all disputes in accordance with the substantive law of California and may grant any remedy or relief that a court of such state could order or grant within the scope hereof and such ancillary relief as is necessary to make effective any award. The arbitrator shall also have the power to award recovery of all costs and fees, to impose sanctions and to take such other action as the arbitrator deems necessary to the same extent a judge could pursuant to the Federal Rules of Civil Procedure, the California Rules of Civil Procedure or other applicable law. Judgment upon the award rendered by the arbitrator may be entered in any court having jurisdiction. The institution and maintenance of an action for judicial relief or pursuit of a provisional or ancillary remedy shall not constitute a waiver of the right of any party, including the plaintiff, to submit the controversy or claim to arbitration if any other party contests such action for judicial relief.

9.5 Discovery. In any arbitration proceeding discovery will be permitted in accordance with the Rules. All discovery shall be expressly limited to matters directly relevant to the dispute being arbitrated and must be completed no later than 20 days before the hearing date and within 180 days of the filing of the dispute with the AAA. Any requests for an extension of the discovery periods, or any discovery disputes, will be subject to final determination by the arbitrator upon a showing that the request for discovery is essential for the party’s presentation and that no alternative means for obtaining information is available.

9.6 Class Proceedings and Consolidations. The resolution of any dispute arising pursuant to the terms of this Agreement shall be determined by a separate arbitration proceeding and such dispute shall not be consolidated with other disputes or included in any class proceeding.

9.7 Payment Of Arbitration Costs And Fees. The arbitrator shall award all costs and expenses of the arbitration proceeding.

9.8 Real Property Collateral; Judicial Reference. Notwithstanding anything herein to the contrary, no dispute shall be submitted to arbitration if the dispute concerns indebtedness secured directly or indirectly, in whole or in part, by any real property unless (i) the holder of the mortgage, lien or security interest specifically elects in writing to proceed with the arbitration, or (ii) all parties to the arbitration waive any rights or benefits that might accrue to them by virtue of the single action rule statute of California, thereby agreeing that all indebtedness and obligations of the parties, and all mortgages, liens and security interests securing such indebtedness and obligations, shall remain fully valid and enforceable. If any such dispute is not submitted to arbitration, the dispute shall be referred to a referee in accordance with California Code of Civil Procedure Section 638 et seq., and this general reference agreement is intended to be specifically enforceable in accordance with said Section 638. A referee with the qualifications required herein for arbitrators shall be selected pursuant to the AAA’s selection procedures. Judgment upon the decision rendered by a referee shall be entered in the court in which such proceeding was commenced in accordance with California Code of Civil Procedure Sections 644 and 645.

9.9 Miscellaneous. To the maximum extent practicable, the AAA, the arbitrators and the parties shall take all action required to conclude any arbitration proceeding within 180 days of the filing of the dispute with the AAA. No arbitrator or other party to an arbitration

Page 16

proceeding may disclose the existence, content or results thereof, except for disclosures of information by a party required in the ordinary course of its business or by applicable law or regulation. If more than one agreement for arbitration by or between the parties potentially applies to a dispute, the arbitration provision most directly related to the documents between the parties or the subject matter of the dispute shall control. This Agreement may be amended or modified only in writing signed by each party hereto. If any provision of this Agreement shall be held to be prohibited by or invalid under applicable law such provision shall be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or any remaining provisions of this Agreement. This arbitration provision shall survive termination, amendment or expiration of any of the documents or any relationship between the parties.

Borrower and Trade Bank have caused this Agreement to be executed by their duly authorized officers or representatives on the date first written above.

“BORROWER”

DESIGN WITHIN REACH, INC.

By:

Title:

Borrower’s Address:

283 Fourth Street

Oakland, CA 94607

“LENDER”

WELLS FARGO HSBC TRADE BANK,

NATIONAL ASSOCIATION

By:

Title:

Lender’s Address:

525 Market Street, 25th Floor

San Francisco, CA 94105

Page 17

WELLS FARGO HSBC TRADE BANK EXHIBIT A ADDENDUM TO CREDIT AGREEMENT

THIS ADDENDUM IS ATTACHED TO THE CREDIT AGREEMENT (“CREDIT AGREEMENT”) BETWEEN WELLS FARGO HSBC TRADE BANK AND THE FOLLOWING BORROWER:

NAME OF BORROWER: DESIGN WITHIN REACH, INC.

ADDITIONAL AFFIRMATIVE COVENANTS

The following covenants are part of Article IV of the Credit Agreement:

REPORTS. Borrower will furnish the following information or deliver the following reports to Trade Bank at the times indicated below:

• Annual Financial Statements: Not later than one hundred twenty (120) calendar days after and as of the end of each of Borrower’s fiscal years, an annual unqualified audited financial statement of Borrower prepared by a certified public accountant acceptable to Trade Bank and prepared in accordance with GAAP, to include balance sheet, income statement, statement of cash flow, and customary footnotes.

• Monthly Financial Statements: Not later than thirty (30) calendar days after and as of the end of each calendar month, a financial statement of Borrower, prepared by Borrower, to include balance sheet and income statement.

Certificate of Compliance: At the time each financial statement of Borrower required above is delivered to Trade Bank, a certificate of the president or chief financial officer of Borrower that said financial statements are accurate and that there exists no Event of Default under the Agreement nor any condition, act or event which with the giving of notice or the passage of time or both would constitute an Event of Default.

• Borrowing Base Certificate: Not later than fifteen (15) calendar days after and as of the end of each month, a borrowing base certificate.

• Accounts Receivable Aged Listing: Not later than fifteen (15) calendar days after and as of each month-end, an aged listing of accounts receivable, including both factored and unfactored accounts.

• Accounts Payable Aged Listing: Not later than fifteen (15) calendar days after and as of each month-end, an aged listing of accounts payable.

• Inventory List: Not later than fifteen (15) calendar days after and as of the end of each month, an inventory report showing the types, locations and unit or dollar values of all the inventory collateral.

• Insurance: Borrower will maintain in full force and effect insurance coverage on all Borrower’s property, including, but not limited to, the following types of insurance coverage:

policies of fire insurance

marine cargo insurance

business personal property insurance

Page 1 of 2

All the insurance referred to in the preceding sentence must be in form, substance and amounts, and issued by companies, satisfactory to Trade Bank, and cover risks required by Trade Bank and contain loss payable endorsements in favor of Trade Bank.

FINANCIAL COVENANTS. Borrower will maintain the following (if Borrower has any Subsidiaries which must be consolidated under GAAP, the following applies to Borrower and the consolidated Subsidiaries):

• Tangible Net Worth. Not at any time less than $6,200,000. (“Tangible Net Worth” means the aggregate of total shareholders’ equity determined in accordance with GAAP plus indebtedness which is subordinated to the Obligations to Trade Bank under a subordination agreement in form and substance acceptable to Trade Bank or by subordination language acceptable to Trade Bank in the instrument evidencing such indebtedness less (i) all assets which would be classified as intangible assets under GAAP, including, but not limited to, goodwill, licenses, patents, trademarks, trade names, copyrights, capitalized software and organizational costs, licenses and franchises, and (ii) assets which Trade Bank determines in its business judgment would not be available or would be of relatively small value in a liquidation of Borrower’s business, including, loans to officers or affiliates and other items).

• Total Liabilities divided by Tangible Net Worth. Not at any time greater than 1.0 to 1.0. (“Tangible Net Worth” has the meaning given to it above, and “Total Liabilities” excludes indebtedness which is subordinated to the Obligations to Trade Bank under a subordination agreement in form and substance acceptable to Trade Bank or by subordination language acceptable to Trade Bank in the instrument evidencing such indebtedness.)

• Quick Asset Ratio. Not at any time less than .40 to 1.0. “Quick Asset Ratio” means “Quick Assets” divided by total current liabilities, and “Quick Assets” means cash on hand or on deposit in banks, readily marketable securities issued by the United States, readily marketable commercial paper rated “A-1” by Standard & Poor’s Corporation (or a similar rating by a similar rating organization), certificates of deposit and bankers acceptances, and accounts receivable (net of allowance for doubtful accounts).

• Net Income After Taxes. Not less than $1 on a quarterly basis (determined as of each fiscal quarter end).

BY SIGNING HERE BORROWER AGREES TO THE DESIGNATED PROVISIONS IN THIS ADDENDUM:

(SIGNATURE)

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WELLS FARGO HSBC TRADE BANK EXHIBIT B REVOLVING CREDIT FACILITY SUPPLEMENT

THIS SUPPLEMENT IS AN INTEGRAL PART OF THE CREDIT AGREEMENT BETWEEN WELLS FARGO HSBC TRADE BANK AND THE FOLLOWING BORROWER:

NAME OF BORROWER: DESIGN WITHIN REACH, INC.

FACILITY TERMINATION DATE: July 31, 2003

CREDIT LIMIT FOR THIS REVOLVING CREDIT LOAN FACILITY AND SUBLIMITS: Credit Limit: the lesser of (a) Two Million Five Hundred Thousand Dollars ($2,500,000) or (b) the Borrowing Base in effect from time to time.

CREDIT SUBLIMITS: Subject to the Revolving Credit Facility Credit Limit, the Credit Sublimit for each Subfacility specified below refers to the aggregate amount which may be outstanding at any one time under each such Subfacility.

•      Sight Commercial Letters of Credit	$	1,500,000
•      Standby Letters of Credit	$	1,500,000

FACILITY DESCRIPTION: Trade Bank will make the Revolving Credit Facility available to finance Borrower’s working capital requirements. Subject to the credit sublimits specified above, the Revolving Credit Facility may be supported by (i) a standby letter of credit in favor of Trade Bank, (ii) a guarantee or (iii) accounts receivable, inventory or other collateral. Revolving Credit Loans cannot be used to repay outstanding Revolving Credit Loans or Term Loans that have matured or to repay amounts due under any other Facilities provided to Borrower.

FACILITY DOCUMENTS:

• Revolving Credit Loans Note: The term and prepayment conditions of the Loans under Revolving Credit Facility are set forth in Revolving Credit Loans Note.

INTEREST RATES:

• Loans under Revolving Credit Facility: All outstanding Loans under Revolving Credit Facility will bear interest at the following rate:

Prime Rate: The Prime Rate plus .50% per annum.

Interest Payment Dates: Interest on all outstanding Loans under Revolving Credit Facility will be paid at least once each month on the last day of the month.

FEES:

• Facilities Fee: Borrower will pay the following Facilities Fee to Trade Bank before any Facility, including this Facility, is made available to Borrower: $6,250.

• Sight Commercial Credits:

Issuance of Fees/Fees For Increasing Credit Amounts or Extending Expiration Dates: (Minimum $150)

1/8 of 1% of the amount of each Sight Commercial Credit and of any increase in such amount.

Payable: At the time each Sight Commercial Credit is issued or increased and at the time the expiration date of any Sight Commercial Credit is extended.

Page 1 of 3

Amendment Fees: (Minimum $100)

$100 for each amendment, unless the amendment is an increase in the Sight Commercial Credit amount or an extension of the expiration date, in which case the Issuance Fee above will substitute for any Amendment Fee.

Payable: At the time each amendment is issued.

Negotiation/Payment/Examination Fees: (Minimum $125)

1/4 of 1% of the face amount of each drawing under each Sight Commercial Credit.

Payable: At the time any draft or other documents are negotiated, paid or examined.

• Standby Credits:

Commission Fees/Fees For Increasing Credit Amounts or Extending Expiration Dates: (Minimum $410)

2% of the amount of each Standby Credit and of any increase in such amount.

Payable: At the time each Standby Credit is issued or increased and at the time the expiration date of any Standby Credit is extended.

Amendment Fees: (Minimum $130)

$130 for each amendment, unless the amendment is an increase in the Standby Credit amount or an extension of the expiration date, in which case the Commission Fee above will substitute for any Amendment Fee.

Payable: At the time each amendment is issued.

Negotiation/Payment/Examination Fees: (Minimum $250)

1/4 of 1% of the face amount of each drawing under each Standby Credit.

Payable: At the time any draft or other documents are negotiated, paid or examined.

COLLATERAL: See Exhibit C – Collateral/Credit Support Document.

SUBFACILITIES DESCRIPTION, PURPOSE, DOCUMENTS, TERM, AND PREPAYMENTS:

• Sight Commercial Credits:

Description and Purpose: Trade Bank will issue sight commercial letters of credit (each a “Sight Commercial Credit”) for the account of Borrower for the purpose or purposes stated below. Subject to the credit sublimits specified above, these Sight Commercial Credits will be transferable or not transferable and have the goods related to them consigned to or not consigned to, or controlled by or not controlled by, Trade Bank. The Sight Commercial Credit Sublimit specified above refers to the aggregate undrawn amount of all Sight Commercial Credits which may be at any one time outstanding under this Facility together with the aggregate amount of all drafts drawn under such sight Commercial Credits which have not been reimbursed as provided below at such time.

This Subfacility may only be used for the following purpose: For the importation of furniture.

Documents:

Before the first Sight Commercial Credit is issued:

Trade Bank’s standard form Commercial Letter of Credit Agreement;

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Before each Sight Commercial Credit is issued:

Trade Bank’s standard form Application For Commercial Letter of Credit;

Before each Sight Commercial Credit is amended:

Trade Bank’s standard form Application For Amendment To Letter of Credit;

Term: No Sight Commercial Credit may expire more than one hundred eighty (180) calendar days after the date it is issued.

• Standby Credits:

Description and Purpose: Trade Bank will issue standby letters of credit (each a “Standby Credit”) for the account of Borrower for the purpose or purposes stated below. Subject to the credit sublimits specified above, these Standby Credits will be issued to support Borrower’s open account trade terms, bid and performance bonds, industrial revenue bonds, worker’s compensation obligations and or the moving of Borrower as a new customer from another bank to Trade Bank. The Standby Credit Sublimit specified above refers to the aggregate undrawn amount of all Standby Credits which may be at any one time outstanding under this Subfacility together with the aggregate amount of all drafts drawn under such Standby Credits which have not been reimbursed as provided below at such time.

This Subfacility may only be used for the following purpose: To secure lease deposits for new retail space.

Documents:

Before the first Standby Credits is issued:

Trade Bank’s standard form Standby Letter of Credit Agreement.

Before each Standby Credit is issued:

Trade Bank’s standard form Application For Standby Letter of Credit.

Before each Standby Credit is amended:

Trade Bank’s standard form Application For Amendment To Letter of Credit.

Term: No Standby Credit will expire more than three hundred sixty (360) calendar days after the date it is issued. Standby Credits will be available by sight drafts only.

REIMBURSEMENT FOR SIGHT COMMERCIAL CREDITS AND STANDBY CREDITS:

The amount of each drawing paid by Trade Bank under a Sight Commercial Credit or Standby Credit will be reimbursed to Trade Bank as follows:

by Trade Bank having Wells Fargo Bank debit any of Borrower’s accounts with Wells Fargo Bank and forwarding such amount debited to Trade Bank; or

immediately on demand of Trade Bank; or

by treating such amount drawn as an advance to Borrower under Borrower’s Revolving Credit Facility.

DEFAULT INTEREST RATE ON UNREIMBURSED SIGHT COMMERCIAL CREDITS AND STANDBY CREDITS:

Default interest will accrue at a per annum rate equal to the Prime Rate plus five percent (5.00%) (“Default Interest Rate”) and be paid at least once each month as follows:

All drawings (i) under Sight Commercial Credits and (ii) under Standby Credits, not reimbursed on the day they are paid by Trade Bank, will bear interest at the Default Interest Rate from the date they are paid to the date such payment is fully reimbursed.

BY INITIALING HERE BORROWER AGREES TO ALL THE TERMS OF THIS SUPPLEMENT:                     

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EXHIBIT C

WELLS FARGO HSBC TRADE BANK COLLATERAL/CREDIT SUPPORT DOCUMENT

• Personal Property Security From Borrower:                                                                   

First priority lien in the following assets of Borrower:

accounts receivable

inventory

Collateral Documents:

Security Agreement: Rights to Payment and Inventory

UCC-1 Financing Statement

BY INITIALING HERE BORROWER AGREES TO ALL THE TERMS OF THIS EXHIBIT:___________

EXHIBIT D

WELLS FARGO HSBC TRADE BANK BORROWING BASE CERTIFICATE

						For Month Ended:___________________
COMPANY NAME: Design Within Reach, Inc.
1.	Previous Aged Trial Balance As Of: ______________
	(Trade Receivables only) $ _________________
2.	Additions:	Gross Invoices	$ ___________	(Cash Sales Included _______________)
		Credit Memos	$ (___________)
3.	Deductions:	Cash Receipts	$ (___________)
		Cash Discounts	$ (___________)
	SUBTOTAL		$ ___________
4.	Journal Entries:	Refunds
		Misc. Debit Adj.	$ ___________
		Write-Offs	$ (___________)
		Misc. Credit Adj.	$ (___________)
	SUBTOTAL		$ ___________
5.	Control Balance (Sum lines 1, 2, 3 and 4)			$ ___________
6a.	G/L Balance			$ ___________
6b.	Aging Balance
6c.	Beginning A/R Balance (use the lower of 5, 6a, or 6b)			$ ___________
7.	Less: Ineligible Accounts Receivable from Exhibit 1			$ (___________)
8.	Net Eligible Accounts Receivable (Line 6c minus Line 7)			$ ___________
9.	Maximum Advance on Accounts Receivable (75% of Line 8)				$ ___________
10.	Total Finished Goods Inventory from Exhibit 1			$ ___________
11.	Less: Ineligible Finished Goods Inventory from Exhibit 1			$ ___________
12.	Net Eligible Finished Goods Inventory (Line 10 less Line 11)			$ ___________
13.	Maximum Advance on Finished Goods Inventory			$ ___________
	(40% of Line 12)			$ ___________
14.	Plus: Inventory in Transit and Inventory under Open Letters of Credit			$ ___________
15.	Maximum Advance on Inventory in Transit and Inventory under Open Letters of Credit (40% of Line 14)			$ ___________
16.	Maximum Advance on Inventory: (Line 13 plus Line 15)			$ ___________
17.	Maximum Advance on A/R and Inventory (Line 9 plus Line 16)				$ ___________
18.	Maximum Borrowing Base (Line 17 or $2,500,000, whichever is lower)				$ ___________
21.	Less: Outstanding Loan Balance as of ________________
21a.	Loan			$(___________)
21b.	Open Letters of Credit (100%)			$(___________)
21c.		SUBTOTAL			$(___________)
22.	Availability (Overadvance) (Line 20 minus Line 21c)				$ ___________

Exhibit 1 to

Borrowing Base Certificate

For Month Ended: ___________________________

Design Within Reach, Inc.

INELIGIBLE ACCOUNTS RECEIVABLE
1.	Past 60 days for invoices with due dates 30 or 60 days after invoice date; and past 1 day for invoices with due dates 90 or greater after invoice date	$_____________
2.	20% excess delinquency	$_____________
3.	Intra-company or subsidiary entity receivable (unless approved by Trade Bank)	$_____________
4.	Accounts subject to contingencies	$_____________
5.	That portion of Accounts from account debtors exceeding 25% of total accounts outstanding	$_____________
6.	Accounts owing from account debtor outside of U.S. or Canada	$_____________
7.	Accounts owing from U.S. or governmental agency or entity	$_____________
8.	Total Ineligible Accounts Receivable (Total Lines 1-7)	$_____________
INVENTORY		$_____________
9.	Finished Goods	$_____________
10.	Reserves	$_____________
Total Inventory (Total Lines 9-10)		$_____________
INELIGIBLE INVENTORY		$_____________
11.	Display Items and Floor demos.	$_____________
12.	Slow-moving, Unsellable Items (In Borrower’s stock for 365 calendar days or more)	$_____________
13.	Damaged, Defective Items	$_____________
14.	Obsolete, Discontinued, Close-out Items	$_____________
15.	Packaging and Shipping Materials	$_____________
16.	Supplies	$_____________
17.	Private Label	$_____________
18.	Bill and Hold	$_____________
19.	Returned Items	$_____________
20.	Consigned Inventory	$_____________
Ineligible Inventory (Total lines 11-20)		$_____________

CERTIFICATION

Reference is made to the Credit Agreement, dated July 10, 2002 (“Credit Agreement”) between the undersigned (“Borrower”) and the WELLS FARGO HSBC TRADE BANK, N.A. (“Trade Bank”). Terms defined in the Credit Agreement or in the Attachment to this Certificate and used in the above Borrowing Base Certificate shall have the meanings assigned to them in the Credit Agreement.

The above accounts and inventory are assigned to Trade Bank and a security interest granted in accordance with the terms and conditions of the existing Continuing Security Agreement: Rights to Payment and Inventory (“Security Agreement”) between undersigned and Trade Bank to which reference is made. We hereby certify that the foregoing is true and correct in all particulars and the accounts described above as collateral for loans represent accounts which conform to the representations and warranties set forth in the Credit Agreement and Security Agreement.

Design Within Reach, Inc.	ACCEPTED: WELLS FARGO HSBC TRADE BANK, N.A.
	Received by:
By:	By:
Title:	Title:
Date:	Date:

Attached hereto are true and correct copies of each of the following:

a. Detailed agings of accounts receivable and accounts payable.

b. Exhibit 1 – calculation and description of ineligible accounts, inventory values by category and ineligible inventory.

c. A reconciliation of A/R aging (Line 6b) to G/L (Line 6a) if difference exists.

EX-10.08

EXHIBIT 10.08

FIRST AMENDMENT TO CREDIT AGREEMENT

THIS FIRST AMENDMENT TO CREDIT AGREEMENT (this “Amendment”) is entered into as of July 30, 2003, by and between DESIGN WITHIN REACH, INC., a California corporation (“Borrower”), and WELLS FARGO HSBC TRADE BANK, NATIONAL ASSOCIATION (“Trade Bank”).

RECITALS

WHEREAS, Borrower is currently indebted to Trade Bank pursuant to the terms and conditions of that certain Credit Agreement between Borrower and Trade Bank dated as of July 10, 2002, as amended from time to time (“Credit Agreement”).

WHEREAS, Trade Bank and Borrower have agreed to certain changes in the terms and conditions set forth in the Credit Agreement and have agreed to amend the Credit Agreement to reflect said changes.

NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree that the Credit Agreement shall be amended as follows:

I. Article I. CREDIT FACILITY, Section 1.1 The Facility is hereby amended by deleting “July 31, 2003” as the Facility Termination Date, and by substituting “July 31, 2004” therefor.

II. The first sentence of Article I. CREDIT FACILITY, Section 1.2 Credit Extension Limit, is hereby deleted in its entirety, and the following substituted therefor:

“1.2 Credit Extension Limit. The aggregate outstanding amount of all Credit Extensions may at no time exceed the lesser of (a) Five Million Five Hundred Thousand Dollars ($5,500,000) or (b) the Borrowing Base in effect from time to time (“Overall Credit Limit”).”

III. The second sentence of Article I. CREDIT FACILITY, Section 1.4 Repayment; Interest and Fees, is hereby deleted in its entirety, and the following substituted therefor:

“Borrower agrees to pay to Trade Bank with respect to (a) the Revolving Credit Facility, interest at a per annum rate equal to the Prime Rate plus .25% as specified in the Note, and (b) the Subfacilities, the fees specified in the Supplement as well as those fees specified in the relevant Facility Document(s).”

IV. Article V. NEGATIVE COVENANTS, Section 5.9 Capital Expenditures is hereby deleted in its entirety, and the following substituted therefor:

“5.9 Capital Expenditures. Borrower shall not make any capital expenditures in an aggregate amount in excess of $7,500,000 during each fiscal year 2003 and 2004.”

V. The first sentence of Article VIII. DEFINITIONS, Section 8.4 Borrowing Base, is hereby deleted in its entirety, and the following substituted therefor:

“8.4 Borrowing Base. means an amount equal to the sum of: (a) seventy-five percent (75%) of Borrower’s Eligible Accounts Receivable, plus (b) fifty percent (50%) of Borrower’s Eligible Inventory and Studio Inventory.”

VI. EXHIBIT A, ADDENDUM TO CREDIT AGREEMENT is hereby deleted in its entirety, and the attached EXHIBIT A, ADDENDUM TO CREDIT AGREEMENT all terms of which are incorporated herein by this reference, shall be substituted therefor.

VII. EXHIBIT B, REVOLVING CREDIT FACILITY SUPPLEMENT is hereby deleted in its entirety, and the attached EXHIBIT B REVOLVING CREDIT FACILITY SUPPLEMENT all terms of which are incorporated herein by this reference, shall be substituted therefor.

VIII. Borrower shall pay to Trade Bank a non-refundable commitment fee equal to $8,750, which fee shall be due and payable upon execution of this Amendment.

Except as specifically provided herein, all terms and conditions of the Credit Agreement remain in full force and effect, without waiver or modification. All terms defined in the Credit Agreement shall have the same meaning when used in this Amendment. This Amendment and the Credit Agreement shall be read together, as one document.

Borrower hereby remakes all representations and warranties contained in the Credit Agreement and reaffirms all covenants set forth therein. Borrower further certifies that as of the date of this Amendment there exists no Event of Default as defined in the Credit Agreement, nor any condition, act or event which with the giving of notice or the passage of time or both would constitute any such Event of Default.

IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed as of the day and year first written above.

DESIGN WITHIN REACH, INC.	WELLS FARGO HSBC TRADE BANK, NATIONAL ASSOCIATION
By:	By:
Title:		Andrew Wood Assistant Vice President

EXHIBIT A

WELLS FARGO HSBC TRADE BANK ADDENDUM TO CREDIT AGREEMENT

THIS ADDENDUM IS ATTACHED TO THE CREDIT AGREEMENT (“CREDIT AGREEMENT”) BETWEEN WELLS FARGO HSBC TRADE BANK AND THE FOLLOWING BORROWER:

NAME OF BORROWER: DESIGN WITHIN REACH, INC.

ADDITIONAL AFFIRMATIVE COVENANTS

The following covenants are part of Article IV of the Credit Agreement:

REPORTS. Borrower will furnish the following information or deliver the following reports to Trade Bank at the times indicated below:

• Annual Financial Statements: Not later than one hundred twenty (120) calendar days after and as of the end of each of Borrower’s fiscal years, an annual unqualified audited financial statement of Borrower prepared by a certified public accountant acceptable to Trade Bank and prepared in accordance with GAAP, to include balance sheet, income statement, statement of cash flow, and source and application of funds statement.

• Monthly Financial Statements: Not later than thirty (30) calendar days after and as of the end of each calendar month, a financial statement of Borrower, prepared by Borrower, to include balance sheet and income statement.

Certificate of Compliance: At the time each financial statement of Borrower required above is delivered to Trade Bank, a certificate of the president or chief financial officer of Borrower that said financial statements are accurate and that there exists no Event of Default under the Agreement nor any condition, act or event which with the giving of notice or the passage of time or both would constitute an Event of Default.

• Borrowing Base Certificate: Not later than fifteen (15) calendar days after and as of the end of each month, a borrowing base certificate.

• Accounts Receivable Aged Listing: Not later than fifteen (15) calendar days after and as of each month-end, an aged listing of accounts receivable, including both factored and unfactored accounts.

• Accounts Payable Aged Listing: Not later than fifteen (15) calendar days after and as of each month-end, an aged listing of accounts payable.

• Inventory List: Not later than fifteen (15) calendar days after and as of the end of each month, an inventory report showing the types, locations and unit or dollar values of all the inventory collateral.

• Insurance: Borrower will maintain in full force and effect insurance coverage on all Borrower’s property, including, but not limited to, the following types of insurance coverage:

policies of fire insurance

marine cargo insurance

business personal property insurance

All the insurance referred to in the preceding sentence must be in form, substance and amounts, and issued by companies, satisfactory to Trade Bank, and cover risks required by Trade Bank and contain loss payable endorsements in favor of Trade Bank.

FINANCIAL COVENANTS. Borrower will maintain the following (if Borrower has any Subsidiaries which must be consolidated under GAAP, the following applies to Borrower and the consolidated Subsidiaries):

• Tangible Net Worth. Not less than $6,200,000, to be measured monthly. (“Tangible Net Worth” means the aggregate of total shareholders’ equity determined in accordance with GAAP plus indebtedness which is subordinated to the Obligations to Trade Bank under a subordination agreement in form and substance acceptable to Trade Bank or by subordination language acceptable to Trade Bank in the instrument evidencing such indebtedness less (i) all assets which would be classified as intangible assets under GAAP, including, but not limited to, goodwill, licenses, patents, trademarks, trade names, copyrights, capitalized software and organizational costs, licenses and franchises, and (ii) assets which Trade Bank determines in its business judgment would not be available or would be of relatively small value in a liquidation of Borrower’s business, including, but not limited to loans to officers or affiliates and other items).

• Total Liabilities divided by Tangible Net Worth. Not greater than 2.0 to 1.0, to be measured monthly. (“Tangible Net Worth” has the meaning given to it above, and “Total Liabilities” excludes indebtedness which is subordinated to the Obligations to Trade Bank under a subordination agreement in form and substance acceptable to Trade Bank or by subordination language acceptable to Trade Bank in the instrument evidencing such indebtedness.)

• Fixed Charge Coverage Ratio. Not less than 1.5 to 1.0 on a year-to-date basis, to be measured quarterly, with Fixed Charge Coverage Ratio defined as the sum of EBITDA plus lease expense divided by the sum of current portion of long-term debt plus interest expense plus lease expense, and with EBITDA defined as net profit before tax plus interest expense (net of capitalized interest expense), depreciation expense and amortization expense.

• Net Income After Taxes. Not less than $1 on a quarterly basis (determined as of each fiscal quarter end).

BY SIGNING HERE BORROWER AGREES TO THE DESIGNATED PROVISIONS IN THIS ADDENDUM:

DESIGN WITHIN REACH, INC.

By:

Title:

WELLS FARGO HSBC TRADE BANK EXHIBIT B REVOLVING CREDIT FACILITY SUPPLEMENT

THIS SUPPLEMENT IS AN INTEGRAL PART OF THE CREDIT AGREEMENT BETWEEN WELLS FARGO HSBC TRADE BANK AND THE FOLLOWING BORROWER:

NAME OF BORROWER: DESIGN WITHIN REACH, INC.

FACILITY TERMINATION DATE: July 31, 2004

CREDIT LIMIT FOR THIS REVOLVING CREDIT LOAN FACILITY AND SUBLIMITS: Credit Limit: the lesser of (a) Five Million Five Hundred Thousand Dollars ($5,500,000) or (b) the Borrowing Base in effect from time to time.

CREDIT SUBLIMITS: Subject to the Revolving Credit Facility Credit Limit, the Credit Sublimit for each Subfacility specified below refers to the aggregate amount which may be outstanding at any one time under each such Subfacility.

•      Sight Commercial Letters of Credit	$	2,500,000
•      Standby Letters of Credit	$	2,500,000

FACILITY DESCRIPTION: Trade Bank will make the Revolving Credit Facility available to finance Borrower’s working capital requirements. Subject to the credit sublimits specified above, the Revolving Credit Facility may be supported by (i) a standby letter of credit in favor of Trade Bank, (ii) a guarantee or (iii) accounts receivable, inventory or other collateral. Revolving Credit Loans cannot be used to repay outstanding Revolving Credit Loans or Term Loans that have matured or to repay amounts due under any other Facilities provided to Borrower.

FACILITY DOCUMENTS:

• Revolving Credit Loans Note: The term and prepayment conditions of the Loans under Revolving Credit Facility are set forth in Revolving Credit Loans Note.

INTEREST RATES:

• Loans under Revolving Credit Facility: All outstanding Loans under Revolving Credit Facility will bear interest at the following rate:

Prime Rate: The Prime Rate plus .25% per annum.

Interest Payment Dates: Interest on all outstanding Loans under Revolving Credit Facility wilt be paid at least once each month on the last day of the month.

FEES:

• Sight Commercial Credits:

Issuance Fees/Fees For Increasing Credit Amounts or Extending Expiration Dates: (Minimum $150)

1/8 of 1% of the amount of each Sight Commercial Credit and of any increase in such amount.

Payable: At the time each Sight Commercial Credit is issued or increased and at the time the expiration date of any Sight Commercial Credit is extended.

Amendment Fees: (Minimum $100)

$100 for each amendment, unless the amendment is an increase in the Sight Commercial Credit amount or an extension of the expiration date, in which case the Issuance Fee above will substitute for any Amendment Fee.

Payable: At the time each amendment is issued.

Negotiation/Payment/Exam nation Fees: (Minimum $125)

1/4 of 1% of the face amount of each drawing under each Sight Commercial Credit.

Payable: At the time any draft or other documents are negotiated, paid or examined.

• Standby Credits:

Commission Fees/Fees For Increasing Credit Amounts or Extending Expiration Dates: (Minimum $410)

2% of the amount of each Standby Credit and of any increase in such amount.

Payable: At the time each Standby Credit is issued or increased and at the time the expiration date of any Standby Credit is extended.

Amendment Fees: (Minimum $130)

$130 for each amendment, unless the amendment is an increase in the Standby Credit amount or an extension of the expiration date, in which case the Commission Fee above will substitute for any Amendment Fee.

Payable: At the time each amendment is issued.

Negotiation/Payment/Examination Fees: (Minimum $250)

1/4 of 1% of the face amount of each drawing under each Standby Credit.

Payable: At the time any draft or other documents are negotiated, paid or examined.

COLLATERAL: See Exhibit C - Collateral/Credit Support Document.

SUBFACILITIES DESCRIPTION, PURPOSE, DOCUMENTS, TERM, AND PREPAYMENTS:

• Sight Commercial Credits:

Description And Purpose: Trade Bank will issue sight commercial letters of credit (each a “Sight Commercial Credit”) for the account of Borrower for the purpose or purposes stated below. Subject to the credit sublimits specified above, these Sight Commercial Credits will be transferable or not transferable and have the goods related to them consigned to or not consigned to, or controlled by or not controlled by, Trade Bank. The Sight Commercial Credit Sublimit specified above refers to the aggregate undrawn amount of all Sight Commercial Credits which may be at any one time outstanding under this Facility together with the aggregate amount of all drafts drawn under such Sight Commercial Credits which have not been reimbursed as provided below at such time.

This Subfacility may only be used for the following purpose: For the importation of furniture.

Documents:

Before the first Sight Commercial Credit is issued:

Trade Bank’s standard form Commercial Letter of Credit Agreement;

Before each Sight Commercial Credit is issued:

Trade Bank’s standard form Application For Commercial Letter of Credit;

Before each Sight Commercial Credit is amended:

Trade Bank’s standard form Application For Amendment To Letter of Credit;

Term: No Sight Commercial Credit may expire more than one hundred eighty (180) calendar days after the date it is issued.

• Standby Credits:

Description And Purpose: Trade Bank will issue standby letters of credit (each a “Standby Credit”) for the account of Borrower for the purpose or purposes stated below. Subject to the credit sublimits specified above, these Standby Credits will be issued to support Borrower’s open account trade terms, bid and performance bonds, industrial revenue bonds, worker’s compensation obligations and or the moving of Borrower as a new customer from another bank to Trade Bank. The Standby Credit Sublimit specified above refers to the aggregate undrawn amount of all Standby Credits which may be at any one time outstanding under this Subfacility together with the aggregate amount of all drafts drawn under such Standby Credits which have not been reimbursed as provided below at such time.

This Subfacility may only be used for the following purposes: To secure lease deposits for new retail space and to provide assurance of payment to suppliers.

Documents:

Before the first Standby Credit is issued:

Trade Bank’s standard form Standby Letter of Credit Agreement.

Before each Standby Credit is issued:

Trade Bank’s standard form Application For Standby Letter of Credit.

Before each Standby Credit is amended:

Trade Bank’s standard form Application For Amendment To Letter of Credit.

Term: No Standby Credit will expire more than three hundred sixty (360) calendar days after the date it is issued. Standby Credits will be available by sight drafts only.

REIMBURSEMENTS FOR SIGHT COMMERCIAL CREDITS AND STANDBY CREDITS:

The amount of each drawing paid by Trade Bank under a Sight Commercial Credit or Standby Credit will be reimbursed to Trade Bank as follows:

by Trade Bank having Wells Fargo Bank debit any of Borrower’s accounts with Wells Fargo Bank and forwarding such amount debited to Trade Bank; or

immediately on demand of Trade Bank; or

by treating such amount drawn as an advance to Borrower under Borrower’s Revolving Credit Facility.

DEFAULT INTEREST RATE ON UNREIMBURSED SIGHT COMMERCIAL CREDITS AND STANDBY CREDITS:

Default interest will accrue at a per annum rate equal to the Prime Rate plus five percent (5.00%) (“Default Interest Rate”) and be paid at least once each month as follows:

All drawings (i) under Sight Commercial Credits and (ii) under Standby Credits, not reimbursed on the day they are paid by Trade Bank, will bear interest at the Default Interest Rate from the date they are paid to the date such payment is fully reimbursed.

BY INITIALING HERE BORROWER AGREES TO ALL THE TERMS OF THIS SUPPLEMENT:                     

EX-10.09

EXHIBIT 10.09

SECOND AMENDMENT TO CREDIT AGREEMENT

THIS SECOND AMENDMENT TO CREDIT AGREEMENT (this “Amendment”) is entered into as of November 18, 2003, by and between DESIGN WITHIN REACH, INC., a California corporation (“Borrower”), and WELLS FARGO HSBC TRADE BANK, NATIONAL ASSOCIATION (“Trade Bank”).

RECITALS

WHEREAS, Borrower is currently indebted to Trade Bank pursuant to the terms and conditions of that certain Credit Agreement between Borrower and Trade Bank dated as of July 10, 2002, as amended from time to time (“Credit Agreement”).

WHEREAS, Trade Bank and Borrower have agreed to certain changes in the terms and conditions set forth in the Credit Agreement and have agreed to amend the Credit Agreement to reflect said changes.

NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree that the Credit Agreement shall be amended as follows:

I. The cover page is hereby amended by deleting “EXHIBIT B — Revolving Credit Facility Supplement”, and by substituting “EXHIBIT B - Facility Supplements” therefor.

II. Article I. CREDIT FACILITY, Sections 1.1, 1.2, and 1.4 are hereby deleted in their entirety, and the following substituted therefor:

“I. CREDIT FACILITIES

1.1 The Facilities. Subject to the terms and conditions of this Agreement, Trade Bank will make available to Borrowers each of those credit facilities (“Facilities”) for which a Facility Supplement (“Supplement”) is attached as Exhibit B hereto. Additional terms for each individual Facility (and each subfacility thereof (“Subfacility”)) are set forth in the Supplement for that Facility. Each Facility will be available from the Closing Date until the Facility Termination Date for that Facility. Collateral and credit support required for each Facility are set forth in Exhibit C hereto. Definitions for those capitalized terms not otherwise defined are contained in Article 8 below.

1.2 Credit Extension Limit. The aggregate outstanding amount of all Credit Extensions may at no time exceed the lesser of (a) Ten Million Dollars ($10,000,000) or (b) the Borrowing Base in effect from time to time (“Overall Credit Limit”). The aggregate outstanding amount of all Credit Extensions outstanding at any time under any Facility may not exceed that amount specified as the “Credit Limit” in the Supplement for that Facility,

and the aggregate outstanding amount of all Credit Extensions outstanding at any time under each Subfacility (or any subcategory thereof) may not exceed that amount specified as the “Credit Sublimit” in the Supplement for the relevant Facility. An amount equal to 100% of each unfunded Credit Extension shall be used in calculating the outstanding amount of Credit Extensions under this Agreement.

1.4 Repayment; Interest and Fees. Each funded Credit Extension shall be repaid by Borrowers, and, shall bear interest from the date of disbursement at those per annum rates and such interest shall be paid, at the times specified in the applicable Supplement, Note or Facility Document. With respect to each Facility, Borrowers agree to pay to Trade Bank the fees specified in the related Supplement as well as those fees specified in the relevant Facility Document(s). lnterest and fees will be calculated on the basis of a 365 day year, actual days elapsed. Any overdue payments of principal (and interest to the extent permitted by law) shall bear interest at a per annum floating rate equal to the Prime Rate plus 5.00%.”

III. EXHIBIT B, REVOLVING CREDIT FACILITY SUPPLEMENT is hereby amended by deleting “Five Million Five Hundred Thousand Dollars ($5,500,000)” as the Credit Limit and by substituting “Seven Million Five Hundred Thousand Dollars ($7,500,000)” therefor.

IV. The attached EXHIBIT B, TERM COMMITMENT CREDIT FACILITY SUPPLEMENT is hereby added to the Credit Agreement, all terms of which are incorporated herein by this reference.

V. EXHIBIT C, COLLATERAL/CREDIT SUPPORT DOCUMENT is hereby deleted in its entirety, and the attached EXHIBITC, COLLATERAL/CREDIT SUPPORT DOCUMENT, all terms of which are incorporated herein by this reference, shall be substituted therefor.

Borrower shall pay to Trade Bank a non-refundable commitment fee for the Term Commitment Credit Facility equal to $6,250.00, which fee shall be due and payable upon execution of this Amendment.

Except as specifically provided herein, all terms and conditions of the Credit Agreement remain in full force and effect, without waiver or modification. All terms defined in the Credit Agreement shall have the same meaning when used in this Amendment. This Amendment and the Credit Agreement shall be read together, as one document.

Borrower hereby remakes all representations and warranties contained in the Credit Agreement and reaffirms all covenants set forth therein. Borrower further certifies that as of the date of this Amendment there exists no Event of Default as defined in the Credit Agreement, nor any condition, act or event which with the giving of notice or the passage of time or both would constitute any such Event of Default.

IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed as of the day and year first written above.

DESIGN WITHIN REACH, INC.	WELLS FARGO HSBC TRADE BANK, NATIONAL ASSOCIATION
By:	By:
Title:		AndrewWood
		Assistant Vice President

EXHIBIT B

WELLS FARGO HSBC TRADE BANK TERM COMMITMENT CREDIT FACILITY SUPPLEMENT

THIS SUPPLEMENT IS AN INTEGRAL PART OF THE CREDIT AGREEMENT BETWEEN WELLS FARGO HSBC TRADE BANK AND THE FOLLOWING BORROWER:

NAME OF BORROWER: DESIGN WITHIN REACH, INC.

FACILITY TERMINATION DATE: July 31, 2006

CREDIT LIMIT FOR THIS TERM COMMITMENT CREDIT FACILITY: Credit Limit: $2,500,000

FACILITY DESCRIPTION:

Trade Bank will make Term Commitment Loan to Borrower for the specific purposes set forth below. Term Commitment Loan may be supported by (i) a standby letter of credit in favor of Trade Bank, (ii) a guarantee, (iii) accounts receivable, inventory, equipment, or (iv) other collateral.

FACILITY PURPOSE: To finance equipment purchases.

FACILITY DOCUMENTS: Term Commitment Note

INTEREST RATE: The outstanding Term Commitment Loan will bear interest at the following rate:

• Prime Rate: The Prime Rate plus .50% per annum.

Interest Payment Dates: Interest on the outstanding Term Commitment Loan will be paid at least once each month on the last day of the month.

PREPAYMENTS: Prepayments of outstanding Term Commitment Loan are permitted at any time, in any amount and without penalty.

COLLATERAL: See Exhibit C – Collateral/Credit Support Document.

BY INITIALING HERE BORROWER AGREES TO ALL THE TERMS OF THIS SUPPLEMENT:                     

EXHIBIT C

WELLS FARGO HSBC TRADE BANK COLLATERAL/CREDIT SUPPORT DOCUMENT

• Personal Property Security From Borrower:

First priority lien in the following assets of Borrower:

accounts receivable

inventory

equipment

Collateral Documents:

Security Agreement: Rights to Payment and Inventory

Security Agreement: Equipment and Fixtures

UCC-1 Financing Statement

BY INITIALING HERE BORROWER AGREES TO ALL THE TERMS OF THIS EXHIBIT:                     

EX-10.10

EXHIBIT 10.10

PRIVATE LABEL CREDIT CARD PROGRAM AGREEMENT

BETWEEN

WORLD FINANCIAL NETWORK NATIONAL BANK

AND

DESIGN WITHIN REACH, INC.

DATED AS OF NOVEMBER 13, 2003

TABLE OF CONTENTS

SECTION 1 DEFINITIONS
1.1	Certain Definitions
1.2	Other Definitions
SECTION 2 THE PLAN
2.1	Establishment and Operation of the Plan
2.2	Applications for Credit Under the Plan; Billing Statements
2.3	Operating Procedures
2.4	Plan Documents
2.5	Marketing
2.6	Administration of Accounts
2.7	Credit Decision
2.8	Ownership of Accounts and Mailing Lists
2.9	Protection Programs and Enhancement Marketing Services
2.10	Ownership of DWR Name
2.11	Cardholder Loyalty Program
SECTION 3 OPERATION OF THE PLAN
3.1	Honoring Credit Cards
3.2	Additional Operating Procedures
3.3	Cardholder Disputes Regarding Goods or Services
3.4	No Special Agreements
3.5	Cardholder Disputes Regarding Violations of Law or Regulation
3.6	Payment to DWR; Ownership of Accounts; Fees; Accounting
3.7	Insertion of DWR’s Promotional Materials and Statement Messages
3.8	Payments
3.9	Chargebacks
3.10	Assignment of Title in Charged Back Purchases
3.11	Promotion of Program and Card Plan; Non-Competition
3.12	Postage
3.13	Reports
SECTION 4 REPRESENTATIONS AND WARRANTIES OF DWR
4.1	Organization, Power and Qualification
4.2	Authorization, Validity and Non-Contravention
4.3	Accuracy of Information
4.4	Validity of Charge Slips
4.5	Compliance with Law
4.6	DWR’s Name, Trademarks and Service Marks
4.7	Intellectual Property Rights

i

TABLE OF CONTENTS, Continued

SECTION 5 COVENANTS OF DWR
5.1	Notices of Changes
5.2	Financial Statements
5.3	Inspection
5.4	DWR’s Business
5.5	DWR’s Stores
5.6	Insurance
SECTION 6 REPRESENTATIONS AND WARRANTIES OF BANK
6.1	Organization, Power and Qualification
6.2	Authorization, Validity and Non-Contravention
6.3	Accuracy of Information
6.4	Compliance with Law
6.5	Intellectual Property Rights
SECTION 7 COVENANTS OF BANK
7.1	Notices of Changes
7.2	Financial Statement
7.3	Inspection
7.4	Bank’s Business
7.5	Insurance
SECTION 8 INDEMNIFICATION
8.1	Indemnification Obligations
8.2	Limitation on Liability
8.3	No Warranties
8.4	Notification of Indemnification; Conduct of Defense
SECTION 9 TERM AND TERMINATION
9.1	Term
9.2	Termination with Cause by Bank; Bank Termination Events
9.3	Termination with Cause by DWR; DWR Termination Events
9.4	Termination of Particular State
9.5	Purchase of Accounts
9.6	Termination of Plan Participation

ii

TABLE OF CONTENTS, Continued

SECTION 10 MISCELLANEOUS
10.1	Entire Agreement
10.2	Coordination of Public Statements
10.3	Amendment
10.4	Successors and Assigns
10.5	Waiver
10.6	Severability
10.7	Notices
10.8	Captions and Cross-References
10.9	Governing Law
10.10	Counterparts
10.11	Force Majeure
10.12	Relationship of Parties
10.13	Survival
10.14	Mutual Drafting
10.15	Independent Contractor
10.16	No Third Party Beneficiaries
10.17	Confidentiality
10.18	Taxes
Schedules
1.1	Discount Rate and Promotional Programs
2.1	Service Standards
2.5	Marketing Promotions
2.8	Monthly Master File Information
3.13	Bank Reports

iii

PRIVATE LABEL CREDIT CARD PROGRAM AGREEMENT

THIS PRIVATE LABEL CREDIT CARD PROGRAM AGREEMENT is made as of this 13th day of November, 2003 (the “Effective Date”) by and between DESIGN WITHIN REACH, INC., with its principal office at 283 Fourth Street, Oakland, California 94607 (hereinafter referred to as “DWR”), and WORLD FINANCIAL NETWORK NATIONAL BANK, with its principal office at 800 Tech Center Drive, Gahanna, Ohio 43230, (hereinafter referred to as “Bank”).

WITNESSETH:

WHEREAS, DWR has requested Bank to extend credit to qualifying individuals in the form of private label open-ended credit card accounts for the purchase of Goods and Services from DWR and DWR’s Stores and to issue Credit Cards to such individuals; and

WHEREAS, Bank shall own all such Credit Card Accounts, and Cardholder payments will be sent to such location as Bank shall from time to time direct; and

WHEREAS, Bank has agreed to extend credit under Credit Card Accounts subject to the terms and conditions as more fully set forth herein;

NOW THEREFORE, in consideration of the terms and conditions hereof, and for other good and valuable consideration, the receipt of which is hereby mutually acknowledged by the parties, DWR and Bank agree as follows.

SECTION 1. DEFINITIONS

1.1 Certain Definitions. As used herein and unless otherwise required by the context, the following terms shall have the following respective meanings.

“Account” shall mean an individual open-end revolving line of credit established by Bank for a Customer pursuant to the terms of a Credit Card Agreement.

“Address Verification Service” shall mean an adjunct process to the credit authorization process where the Cardholder’s reported billing address is verified against the Bank’s address on file for such Cardholder.

“Affiliate” shall mean with respect to either Bank or DWR any entity Chat is owned by, owns, or is under common control with such party.

“Agreement” shall mean this Private Label Credit Card Program Agreement and any future amendments or supplements thereto.

“Applicable Law” shall mean any applicable federal, state or local law, rule, or regulation.

“Applicant” shall mean an individual who is a Customer of DWR and DWR’s Stores, who applies for an Account under the Plan.

1

“Batch Prescreen Application” shall mean a process where Bank’s offer of credit is made to certain Customers prequalified by Bank, in a batch mode typically within a catalog environment.

“Business Day” shall mean any day, except Saturday, Sunday or a day on which banks in Ohio are required to be closed.

“Cardholder” shall mean any natural person to whom an Account has been issued by Bank and/or any authorized user of the Account.

“Charge Slip” shall mean a sales receipt, register receipt tape, invoice or other documentation, whether in hard copy or electronic form, in each case evidencing a Purchase that is to be charged to a Cardholder’s Account.

“Credit Card” shall mean the plastic credit card issued by Bank to Cardholders for purchasing Goods and Services pursuant to the Plan.

“Credit Card Agreement” shall mean the open-end revolving credit agreement between a Cardholder and Bank governing the Account and Cardholder’s use of the Credit Card, together with any modifications or amendments which may be made to such agreement.

“Credit Sales Day” shall mean any day, whether or not a Business Day, on which Goods and/or Services are sold by DWR and DWR’s Stores.

“Credit Slip” shall mean a sales credit receipt or other documentation, whether in hard copy or electronic form, evidencing a return or exchange of Goods or a credit on an Account as an adjustment by DWR or DWR’s Stores for goodwill or for Services rendered or not rendered by DWR or DWR’s Stores to a Cardholder.

“Customer” shall mean any individual consumer who is a customer or potential customer of DWR or DWR’s Stores.

“Discount Fee” shall mean an amount to be charged by Bank equal to Net Sales multiplied by the Discount Rate.

“Discount Rate” shall have the meaning set forth in Schedule 1.1.

“DWR Deposit Account” shall mean a deposit account maintained by DWR as set forth in Section 3.6(a).

“DWR’s Stores” shall mean those certain retail locations selling Goods and/or Services, which are owned and operated by DWR or which are licensees or franchisees of DWR.

“Effective Date” shall mean the date set forth in the first paragraph on page one of this Agreement.

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“Electronic Bill Presentment and Payment” shall mean a procedure where Cardholders can elect to receive their Account billing statements electronically and that also allows them an opportunity to remit their Account payment to Bank electronically.

“Equal Payment Purchases” shall mean Purchases subject to a minimum purchase amount set by Bank for which Bank sets equal monthly payments over a specified term to collect the balance related to the Purchase.

“Extended Term” shall have the meaning set forth in Section 9.1.

“Forms” shall have the meaning set forth in Section 2.4.

“Goods and/or Services” shall mean those goods and/or services sold at retail by DWR and/or DWR’s Stores through stores, catalog, or Internet to the general public for individual, personal, family or household use.

Initial Term” shall have the meaning set forth in Section 9.1.

“Instant Credit Application” shall mean an in store or catalog application procedure designed to open Accounts at point of sale or order entry whereby an application for credit is communicated to Bank either verbally at point of sale or systemically during the catalog order entry process according to Bank’s Operating Procedures.

“Loyalty Program” shall have the meaning set forth in Section 2.11.

“Name Rights” shall have the meaning set forth in Section 2.10.

“Net Proceeds” shall mean Purchases less: (i) credits to Accounts for the return or exchange of Goods or a credit on an Account as an adjustment by DWR and DWR’s Stores for goodwill or for Services rendered or not rendered by DWR or DWR’s Stores to a Cardholder, all as shown in the Transaction Records (as corrected by Bank in the event of any computational error), calculated each Business Day; (ii) payments from Cardholders received by DWR and DWR’s Stores from Cardholders on Bank’s behalf; (iii) any applicable Discount Fees in effect on the date of calculation; and (iv) any other fees or charges imposed by Bank pursuant to this Agreement.

“Net Sales” shall mean Purchases, less credits or refunds for Goods and/or Services, all as shown in the Transaction Records (as corrected by Bank in the event of any computational error), calculated each Business Day.

“On-Line Prescreen” shall mean a process where a pre-screened offer of credit is made to Customers meeting Bank’s credit criteria in a real-time pre-approved process according to Bank’s Operating Procedures. The process utilizes traditional order entry data elements to build Customer records. The Customer records are pre-screened by a credit bureau using Bank’s established criteria to determine if an offer of credit is appropriate. Customer records passing the

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Bank’s pre-screening credit criteria are returned to the point of order entry where the pre-approved offer to open an Account is made. Records not passing the credit criteria are not returned and no offer is made.

“Operating Procedures” shall mean Bank’s written instructions and procedures provided to DWR dated October 24, 2003 to be followed by DWR and DWR’s Stores in connection with the Plan, as may be amended from time to time pursuant to Section 2.3.

“Plan” shall mean the private label credit card program established and administered by Bank for Customers of DWR and DWR’s Stores by virtue of this Agreement.

“Plan Commencement Date” shall mean the date on which Bank commences operation of the Plan. Bank shall be deemed to have commenced operation of the Plan on the earlier of the date on which Bank begins to issue new Accounts or the date on which Bank notifies DWR in writing that Bank has commenced operation of the Plan.

“Plan Year” shall mean each consecutive twelve (12) month period commencing on the Plan Commencement Date or the first day of the first full calendar month following the Plan Commencement Date if the Plan Commencement Date is not the first day of a calendar month and each anniversary thereof.

“Prescreen Acceptance” shall mean a point of sale procedure designed to recognize and activate Bank’s pre-approved offers for Accounts for Customers.

“Promotional Programs” shall mean any special Cardholder payment terms approved by Bank for certain Purchases, including without limitation deferred finance charges and deferred payments and subject to any terms and conditions set forth in writing by Bank. The initial Promotional Programs approved by Bank, if any, are set forth in Schedule 1.1.

“Purchase” shall mean a purchase of Goods and/or Services, including without limitation all applicable taxes and shipping costs, with a specific extension of credit by Bank to a Cardholder using an Account as provided for under this Agreement.

“Quick Credit” shall mean an in-store application procedure designed to open Accounts as expeditiously as possible at point of sale, whereby an application for an Account is processed without a paper application being completed by an Applicant. An Applicant’s credit card (Visa, MasterCard, American Express, Discover or other Bank approved private label card) is electronically read by a terminal that captures the Applicant’s name and credit card account number. Other data shall be entered into that same terminal by the DWR’s Store associate as specified in the Operating Procedures. This data is used by Bank to request a credit bureau report and make a decision whether to approve or decline the Applicant.

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“Regular Revolving Purchases” shall mean Purchases which are not subject to any Promotional Programs.

“Renewal Term” shall have the meaning set forth in Section 9.1.

“Roll to Revolve Rate” shall mean, for each Deferred Billing Program, the total dollar amount of the Accounts Receivable for the Deferred Billing Program that are not paid in full prior to the end of the deferral period divided by the total dollar amount of the Purchases for the particular Deferred Billing Program, and expressed as a percentage.

“Term” shall mean the Initial Term, Extended and any Renewal Terms.

“Transaction Record” shall mean, with respect to each Purchase of Goods or Services by a Cardholder from DWR and/or DWR’s Stores, each credit or return applicable to a Purchase of Goods or Services, and each payment received by DWR and DWR’s Stores from a Cardholder on Bank’s behalf: (a) the Charge Slip or Credit Slip corresponding to the Purchase, credit or return; or (b) a computer readable tape/cartridge or electronic transmission containing the following information: the Account number of the Cardholder, the DWR’s Store number at which the Purchase, credit or return was made, the total of (i) the Purchase price of Goods or Services purchased or amount of the credit, as applicable, plus (ii) the date of the transaction, a description of the Goods or Services purchased, credited or returned and the authorization code, if any, obtained by DWR or DWR’s Store prior to completing the transaction; or (c) electronic record whereby DWR or DWR’s Store electronically transmits the information described in subsection (b) hereof to a network provider (selected by DWR at its expense), which in turn transmits such information to Bank by a computer tape/cartridge or electronic tape or transmission.

1.2 Other Definitions. As used herein, terms defined in the introductory paragraph hereof and in other sections of this Agreement shall have such respective defined meanings. Defined terms stated in the singular shall include reference to the plural and vice versa.

SECTION 2. THE PLAN

2.1 Establishment and Operation of the Plan. (a) The Plan is established for the primary purpose of providing Customer financing for Goods and Services purchased from DWR and DWR’s Stores. DWR and Bank shall use reasonable efforts to commence the Plan on or before March 31, 2004, or such other date as the parties mutually agree upon in writing. Qualified Applicants desiring to use the Plan shall be granted an Account by Bank with a credit line in an amount to be determined by Bank in its discretion for each individual Applicant. Subject to Section 3.6(d) and Applicable Law Bank shall determine the terms and conditions of the Account to be contained in a Credit Card Agreement.

(b) Bank shall operate the Plan in accordance with the Service Standards set forth in Schedule 2.1. Within twenty (20) days after the end of each calendar month, Bank will deliver to

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DWR a summary report from the account manager for DWR setting forth in reasonable detail Bank’s performance during such calendar month with regard to the Service Standards.

2.2 Applications for Credit Under the Plan; Billing Statements. (a) Applicants who wish to apply for an Account under the Plan must submit a completed application on a form or in an electronic format approved by Bank, and Bank shall grant or deny the request for credit based solely upon Bank’s credit criteria. DWR or DWR’s Stores shall provide a copy of the Credit Card Agreement to the Applicant to be retained for the Applicant’s records. The application shall be submitted to Bank by the Applicant or submitted by DWR or DWR’s Stores on behalf of the Applicant, as required in the Operating Procedures. If Bank grants the request for an Account, Bank will issue a Credit Card to the Applicant which accesses an individual line of credit in an amount determined by Bank.

(b) Bank shall make available to DWR and DWR shall utilize a Quick Credit application procedure, as well as Batch Prescreen and On-Line Prescreen application procedures. DWR shall use its commercially reasonable efforts to install, within three (3) months after the Effective Date, systems and equipment in all of DWR’s catalog call centers that shall utilize On-Line Prescreen application procedures as the primary source for application processing. If as of the Plan Commencement Date DWR’s catalog call centers are not utilizing On-Line Prescreen application procedures as the primary source of application processing, then DWR shall pay to Bank a monthly fee equal to $10,000 per month until such time as Bank shall reasonably determine that all of DWR’s catalog call centers are satisfactorily utilizing On-Line Prescreen application procedures as the primary source for application processing.

(c) DWR agrees that it and DWR’s Stores will keep confidential the information on such applications and shall not disclose the information to anyone other than authorized representatives of Bank.

(d) All Cardholders will receive from Bank a periodic statement (the “Billing Statement”) listing the amounts of Purchases made and credits received and other information, as required by Applicable Law or deemed desirable by Bank.

(e) Bank shall make available to DWR and its Customers Internet application procedures, Charge Slip processing and Cardholder Account customer service. In the event DWR chooses to utilize this functionality, DWR shall be responsible for integrating and maintaining on its website, at its sole expense, a link to the Bank’s Internet website. DWR represents and warrants that, to integrate and maintain the link, and to provide access to the Bank’s Internet website and reduce technical errors, its software providing the link will function, in all material respects and continue to function, in a sound technical manner. DWR shall appropriately monitor the link to ensure it is functioning properly. In the event Bank changes or otherwise modifies the website address for Bank’s Internet site, DWR wilt either update or modify the link as directed by Bank. In providing the link, DWR shall make it clear and conspicuous that the Customer is leaving DWR’s website and is being directed to Bank’s website for the exclusive purpose of accessing Bank’s website. DWR agrees that, in connection with the link, it will only use Bank’s name, or any logo, statements, or any other information that is related to Bank, only as directed by Bank or as approved in advance and in writing by Bank. Without limiting the generality of the scope of required approvals, but by way of example, DWR shall seek Bank’s approval not only with respect to content, but also with respect to any typestyle,

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color, or abbreviations used in connection with the link. DWR will promote (through methods mutually agreed upon by Bank and DWR) to its Customers the Bank’s Electronic Bill Presentment and Payment.

2.3 Operating Procedures. DWR and DWR’s Stores shall observe and comply with the Operating Procedures and such other reasonable procedures as Bank may prescribe on not less than thirty (30) days’ prior notice to DWR or otherwise required by Applicable Law. DWR shall ensure that DWR’s Stores’ employees are trained regarding the Operating Procedures and shall ensure their compliance with them. The Operating Procedures may be amended or modified by Bank from time to time in its reasonable discretion; provided, however, that Bank shall first consult with DWR regarding any proposed amendment or modification and unless such changes are required by Applicable Law, a copy of any such amendment or modification shall be provided to DWR at least sixty (60) Business Days before its effective date (the “Notice Date”), and for those changes required by Applicable Law, notice shall be given as soon as practicable.

2.4 Plan Documents. Bank shall design, with DWR’s review, the Credit Card Agreement, application, Credit Card, card mailer and billing statement to be used under the Plan, subject to and in compliance with the requirements of Applicable Law. The degree to which DWR’s tradenames, trademarks, servicemarks or logos appear on applications, card mailers, Credit Cards, billing statements, letters, and other documents and forms (collectively, “Forms”) is a matter to be determined by Bank after consultation and coordination with DWR and subject to DWR’s right to reject any Form as provided in Section 2.10, and in accordance with Applicable Law. Bank shall provide at Bank’s expense appropriate quantities of the Credit Card Agreements, applications, Credit Card plastics, card mailer and billing statements. DWR shall pay the costs of all Credit Card plastics, including embossing and encoding, card carriers, envelopes, Credit Card Agreements and postage related to any reissuances requested by DWR for any reissuance of Credit Cards to Cardholders (other than replacements made by Bank from time to time at a Cardholder’s request on an individual basis). In the event any Forms become obsolete as a result of changes requested by DWR, DWR shall reimburse Bank for the direct costs associated with any unused obsolete Forms. In the event any Forms become obsolete as a result of changes in Applicable Law or made by Bank, Bank shall be obligated for the costs associated with any unused obsolete Forms. Only one design shall be used for each form. In the event DWR’s catalog service center cannot support Bank’s required real-time Cardholder notification requirements, DWR shall pay the direct costs incurred in connection with any required inactive Cardholder mailings. DWR, at its sole expense, shall replace all in-store signage at DWR’s Stores and all catalog collateral as it relates to advertising of the Plan and as mutually agreed to by Bank and DWR due to any changes in the Plan or as otherwise required by Applicable Law.

2.5 Marketing. DWR agrees to use its commercially reasonable efforts to advertise and promote the Plan wherever Customers can purchase Goods and Services, including, without limitation, those marketing promotions set forth in Schedule 2.5 and such other methods mutually agreed upon by DWR and Bank. DWR and Bank will jointly agree upon programs to market the Plan, both initially and on a continuing basis. Once DWR and Bank agree upon standards for the use of Bank’s and DWR’s names or any trademark, service mark or trade name of Bank and DWR, neither party will deviate from such standards without express prior written

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approval of the other party. Upon Bank’s reasonable request, DWR shall permit Bank to assist DWR with training of employees at DWR’s Stores regarding signage and advertising of the Plan.

2.6 Administration of Accounts. Bank shall perform, in compliance with Applicable Law, all functions necessary to administer and service the Accounts, including but not limited to: making all necessary credit investigations; notifying Applicants in writing of acceptance or rejection of credit under the Plan; preparing and mailing billing statements; making collections; handling Cardholder inquiries; and processing payments.

2.7 Credit Decision. The decision to extend credit to any Applicant under the Plan shall be Bank’s decision. Bank will work in good faith with DWR to develop business strategies with respect to the issuance of Credit Cards which are intended to maximize the potential of the Plan, and which are mutually beneficial to DWR and Bank. DWR may from time to time request Bank to consider offering certain types of special credit programs. Bank shall reasonably consider DWR’s requests and negotiate with DWR in good faith. However, Bank shall, in its sole discretion, subject to Applicable Laws and safety and soundness considerations, determine whether or not to offer any of such programs. In the event Bank agrees to any special credit program, DWR and Bank shall mutually agree upon any special terms and fees associated with the program.

2.8 Ownership of Accounts and Mailing Lists. The Customer’s names and addresses and other Customer information collected by DWR and set forth in DWR’s records, other than information obtained directly from Bank, from Bank’s agent or collected by DWR on behalf of Bank, shall be the exclusive property of DWR. During the Term of this Agreement, DWR, shall as requested by Bank, make the names and addresses of Customers available to Bank, as permitted by Applicable Law to be used only for purposes of solicitation of such Customers to become Cardholders of Bank and in connection with the administration of the Plan in accordance with the terms of this Agreement. Bank shall provide to DWR monthly one (1) master file extract initially containing the information set forth on Schedule 2.8 to the extent such information is available to Bank, and any other information agreed to by DWR and Bank, to the extent permitted by Applicable Law, which DWR may use solely in connection with maintaining and servicing the Accounts and for the purpose of marketing its Goods and Services to the Cardholders, as permitted by Applicable Law. DWR shall keep such Cardholder information confidential and shall not sell, lease, transfer or disclose such information to any third party without Bank’s prior written consent. The Accounts and all information related thereto, including without limitation the receivables, names, addresses, credit and transaction information of Cardholders, as set forth in Bank’s records shall be the exclusive property of Bank during and after the Term of this Agreement unless the Accounts are purchased by DWR pursuant to Section 9. During the Term of this Agreement Bank shall use such Cardholder information only in connection with the Plan and for Bank’s business purposes in connection with its credit card business, including without limitation portfolio analyses, setting policies and procedures, collections, sale of charged off Accounts and benchmarking, and in accordance with this Agreement and Applicable Law. DWR and Bank acknowledge that the Customer information owned by DWR under this Section 2.8 and the Cardholder information owned by Bank under this Section 2.8 may be duplicative. Bank shall have the right to take a security interest in the Goods purchased with an Account to the extent permitted by Applicable Law.

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2.9 Protection Programs and Enhancement Marketing Services. (a) DWR and Bank agree that Bank will exclusively make available to Cardholders various types of insurance and/or debt cancellation programs (collectively referred to herein as “Protection Programs”) offered by Bank and/or its vendors or Affiliates. Such Protection Programs may include, but are not limited to, credit life insurance, accidental death and disability insurance and debt cancellation programs. Bank shall, prior to offering any Protection Programs to Cardholders, review the proposed solicitations and offerings with DWR. The solicitations and offerings shall not contain DWR’s endorsement but may reference DWR’s Name Rights (defined below). Bank may make up to twelve (12) offers for such Protection Programs per Plan Year, which may be communicated through various channels, including without limitation, statement inserts. The fees for Protection Programs shall be charged to the applicable Cardholder’s Account. DWR will reasonably assist Bank’s effort to offer Protection Programs so long as such assistance will not require DWR to incur any expense or cost.

(b) DWR and Bank agree that Bank may make available to Cardholders various types of other products and services (collectively referred to herein as “Enhancement Marketing Services”) through solicitations made in connection with their Accounts. Such Enhancement Marketing Services may include, but are not limited, to travel clubs, legal services, card registration programs and merchandise products. Such Enhancement Marketing Services will be offered through various direct marketing channels including but not limited to direct mail, telemarketing, call transfer, call to confirm, statement inserts, statement messaging and IVR. Subject to Section 2.9(d) below, Bank shall have the right to utilize a minimum of 1 statement insert and 1 statement envelope (bangtail) each month during a Plan Year for Enhancement Marketing Services. The charges for the products and services will be billed to the applicable Cardholder’s Account when appropriate. The solicitations and offerings shall not contain DWR’s endorsement but may reference DWR’s Name Rights (defined below).

(c) DWR shall receive from Bank twenty-five percent (25%) of the net profit (Bank’s revenues, commissions and other incentives minus Bank’s total direct expenses) generated by Protection Programs (to the extent permitted by Applicable Law and Bank’s insurer) and Enhancement Marketing Services, payment to be made on a monthly basis, together with a statement setting forth the revenues, expenses and profits in reasonable detail.

(d) Each and every Enhancement Marketing Service and the related advertising materials shall be subject to the prior approval of DWR, which approval shall not be unreasonably withheld or delayed (it being understood that DWR may withhold such approval if it determines in its reasonable discretion that the advertising of such products or services is inconsistent with the image of DWR’s business). With ninety (90) days prior written notice to Bank, DWR may reasonably withdraw its approval for any specific Enhancement Marketing Service.

2.10 Ownership of DWR Name. Anything in this Agreement to the contrary notwithstanding, DWR shall retain all rights in and to DWR’s name and the name selected by DWR for use on the Credit Card and all trademarks, service marks and other rights pertaining to such names (collectively, the “Name Rights”), and all goodwill associated with the use of the Name Rights whether under this Agreement or otherwise shall inure to the benefit of the DWR. DWR shall have the right, in its sole and absolute discretion, to prohibit the use of any of its Name Rights in any Forms, advertisements or other materials proposed to be used by Bank

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which DWR in its reasonable business judgment deems objectionable or improper. Bank shall cease all use of the Name Rights upon the termination of this Agreement for any reason unless Bank retains the Accounts after termination of the Agreement, in which case Bank may use the Name Rights solely in connection with the administration and collection of the balance due on the Accounts. Subject to the foregoing, DWR grants Bank the right to use DWR’s Name Rights in connection with Bank and its Affiliates’ product marketing and promotional materials and literature in written and electronic form and their business client lists.

2.11 Cardholder Loyalty Program. At DWR’s request, Bank will provide DWR with system functionality tied to the Accounts to support DWR’s Cardholder loyalty program (the “Loyalty Program”), at no additional charge, to the extent DWR’s Loyalty Program is consistent with Bank’s existing or future functionality offered to other Bank clients and is facilitated using monthly billing statements to active Accounts and does not include stand-alone mailings. Provided, however, that Bank will support stand-alone Cardholder mailings and zero-balance statements in conjunction with the Loyalty Program at DWR’s expense. Bank will, at DWR’s request, upon the terms, conditions and fees mutually agreed upon in writing by the parties, provide back office servicing and administration support for DWR’s Loyalty Program. The Loyalty Program will provide for loyalty point accumulation, tracking, lookup/reporting, and redemption where coupon is part of the billing statement, at no additional charge to DWR, consistent with Bank’s existing or future functionality offered to other Bank clients. DWR is the owner of the Loyalty Program and will be responsible for determining and funding the reward related to the Loyalty Program and for ensuring that the Loyalty Program complies with all Applicable Laws.

SECTION 3. OPERATION OF THE PLAN

3.1 Honoring Credit Cards. DWR agrees that DWR and DWR’s Stores will honor any Credit Card properly issued and currently authorized by Bank pursuant to the Plan, and shall deliver to Bank all Transaction Records evidencing transactions made under the Plan, in accordance with the provisions of this Agreement and the Operating Procedures.

3.2 Additional Operating Procedures. In addition to the procedures, instructions and practices contained in the Operating Procedures, DWR agrees that DWR and DWR’s Stores will comply with the following procedures:

(a) In each Credit Card transaction DWR and DWR’s Stores must obtain all the information contained in clause (b) of the definition of Transaction Record. The date which appears on the Charge Slip or Credit Slip will be prima facie evidence of the transaction date, and DWR shall use its reasonable best efforts to transmit all Transaction Records relating to such Charge Slip and/or Credit Slip so that Bank receives such Transaction Records no later than the second Business Day after the transaction date. The “Cardholder Copy” of each Charge Slip shall be delivered to the Cardholder at the time of the transaction if the Cardholder is in the store.

(b) All Charge Slips will evidence the total price of the sale minus any cash down payment. DWR shall retain the “Merchant Copy” of all DWR and DWR’s Store generated Charge and Credit Slips for each transaction for a period of twelve (12) months from the date of presentation to Bank or in the case of Promotional Programs, twelve (12) months from the end of the applicable Promotional Program.

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(c) DWR and DWR’s Stores will maintain a fair policy for the exchange and return of Goods and adjustment for Services rendered and for that purpose will give credit to Accounts upon such exchange, return or adjustment. DWR and DWR’s Stores will not make cash refunds to Cardholders on Credit Card Purchases. If any Goods are returned, price adjustment is allowed, or debt for Services is adjusted, DWR and DWR’s Stores will notify the Bank and provide appropriate documentation thereof to the Cardholder. Upon receipt of Transaction Records reflecting a credit to which there has been a corresponding debit, Bank will net against amounts payable by Bank to DWR the total shown on the Credit Slip, and credit the Cardholder’s Account in the amount of such Credit Slip. If the DWR Deposit Account contains insufficient funds, DWR shall remit the amount of such Credit Slips, or any unpaid portion thereof, to Bank within five (5) business days after written demand.

(d) DWR’s Stores shall not, when the Cardholder or authorized user is present in the store, accept a transaction to be charged to an Account without presentation of a Credit Card or proper identification as outlined in the Operating Procedures.

3.3 Cardholder Disputes Regarding Goods or Services. DWR and DWR’s Stores shall act promptly to investigate and work to resolve disputes with Cardholders regarding Goods or Services obtained through DWR and DWR’s Stores pursuant to the Plan. DWR and DWR’s Stores shall timely process credits or refunds for Cardholders utilizing the Plan.

3.4 No Special Agreements. Neither DWR nor DWR’s Stores will extract any special agreement, condition or security from Cardholders in connection with their use of a Credit Card, unless approved in advance by Bank in writing.

3.5 Cardholder Disputes Regarding Violations of Law or Regulation. DWR shall assist Bank in further investigating and using its reasonable efforts to help resolve any Applicant or Cardholder claim, dispute, or defense which may be asserted under Applicable Law.

3.6 Payment to DWR; Ownership of Accounts; Fees; Accounting. (a) DWR shall electronically transmit all Transaction Records from DWR and DWR’s Stores to Bank in a format acceptable to Bank. Upon receipt, Bank shall use commercially reasonable efforts to promptly verify and process such Transaction Records, and in the time frames specified herein, Bank will remit to DWR an amount equal to the Net Proceeds indicated by such Transaction Records for the Credit Sales Day(s) for which such remittance is made. In the event Bank discovers any discrepancies in the amount of Transaction Records submitted by DWR or paid by Bank to DWR, Bank shall notify DWR in detail of the discrepancy, and credit DWR, or net against amounts owed to DWR, as the case may be, in a subsequent daily settlement. Bank will transfer funds via Automated Clearing House (“ACH”) to an account designated in writing by DWR to Bank (the “DWR Deposit Account”). If Transaction Records are received by Bank’s processing center before 12 noon Eastern time on a Business Day, Bank will initiate such ACH transfer by 12 noon Eastern time on the next Business Day thereafter. In the event that the Transaction Records are received after 12 noon Eastern time on a Business Day, then Bank will initiate such transfer no later than 12 noon Eastern time on the second Business Day thereafter. Bank shall remit funds to one DWR designated account and shall not remit funds to individual DWR Stores. The term “initiate” shall mean that Bank shall transmit an ACH file to Bank’s financial institution for settlement on the next Business Day.

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(b) Bank shall own all the Accounts under the Plan from the time of establishment, and except as otherwise provided herein, neither DWR nor DWR’s Stores shall have any right to any indebtedness on an Account or to any Account payment from a Cardholder arising out of or in connection with any Purchases under the Plan. Effective upon the delivery of each Charge Slip by DWR and DWR’s Stores to Bank and payment to DWR by Bank pursuant to Section 3.6(a), DWR and DWR’s Stores shall be deemed to have transferred, conveyed, assigned and surrendered to Bank all right, title or interest in all such Charge Slips and in all other rights and writings evidencing such Purchases, if any.

(c) All Transaction Records are subject to review and acceptance by Bank. In the event of a computational or similar error of an accounting or record keeping nature with respect to such Transaction Records, Bank may credit to the DWR’s Deposit Account or net against the Net Proceeds (as the case may be) the proper amount as corrected. If the Net Proceeds are insufficient, DWR shall remit the proper amount to Bank immediately upon written demand. Upon any such correction Bank shall give prompt notice thereof to DWR.

(d) Subject to Applicable Law and the terms and conditions set forth in the Credit Card Agreement, Bank shall initially charge each Cardholder a finance charge on the unpaid balance in their Account for Regular Revolving Purchases at an annual percentage rate equal to 22.8%, with a default rate equal to 24.99%; a $1 minimum finance charge; late fees equal to a minimum of $29; returned check fees equal to a minimum of $25. Bank may make any changes in these terms of the Credit Card Agreement at any time as required by Applicable Law or on an individual Account by Account basis in connection with its servicing of the Accounts. With respect to any other changes in terms affecting the APR and/or fees charged by Bank as set forth above Bank will, prior to making any changes, review and discuss such changes with DWR in order to maximize the potential of the Plan and mutually benefit DWR and the Bank, and will not make such changes without DWR’s prior approval unless required by Applicable Law or for Bank’s safety and soundness.

(e) DWR and DWR’s Stores shall obtain and maintain at their own expense such point of sale terminals, cash registers, network (electronic communication interchange system), telephone or other communication lines, software, hardware and other items of equipment as are necessary for it to request and receive authorizations, transmit Charge Slip and Credit Slip information, process Credit Card Applications and perform its obligations under this Agreement. The computer programs and telecommunications protocols necessary to facilitate communications between Bank and DWR and DWR’s Stores shall be determined by Bank from time to time subject to reasonable prior notice of any change in such programs, equipment or protocols.

(f) DWR may from time to time offer Promotional Programs to Cardholders. DWR shall be responsible for ensuring that all Purchases subject to any Promotional Programs are properly designated as such on the Transaction Record in accordance with Bank’s instructions.

(g) Bank may if DWR fails to pay Bank any amounts due to Bank (and not subject to a good faith dispute) pursuant to this Agreement for more than thirty (30) days after the due date, offset such amounts against the Net Proceeds or any other amounts owed by Bank to DWR under this Agreement.

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3.7 Insertion of DWR’s Promotional Materials and Statement Messages. Bank will upon request of DWR from time to time insert DWR’s promotional materials for DWR’s Goods and Services, which are provided by DWR at DWR’s expense, into the Account billing statements and new Credit Card mailers, so long as the materials: (a) are provided to Bank at least fifteen (15) Business Days prior to the scheduled mailing date of such statements or notices; (b) if they reference Bank or the Plan in any manner, are approved by Bank as to content, in Bank’s reasonable discretion; (c) meet all size, weight, or other specifications for such inserts as shall be reasonably set by Bank from time to time; (d) there is sufficient space in Bank’s standard envelope for the insert in addition to any legally required material, Cardholder notices and other materials which Bank is including in the mailing; and (e) DWR pays any and all additional postage costs caused by Bank’s insertion of materials provided by DWR, if instructed by DWR to insert regardless of the additional postage costs. DWR may also, if desired, put text messages on the statements as reasonably approved by Bank provided such messages meet all size or other specifications for such messages as shall be reasonably set by Bank from time to time and there is sufficient space in Bank’s standard statement in addition to any legally required material and Cardholder notices which Bank is including in the statement.

3.8 Payments. All payments to be made by Cardholders with respect to any amounts outstanding on the Accounts shall be made in accordance with the instructions of Bank and at the location or address specified by Bank. DWR hereby authorizes Bank, or any of its employees or agents, to endorse “World Financial Network National Bank” upon all or any checks, drafts, money orders or other evidence of payment, made payable to DWR and intended as payment on an Account, that may come into Bank’s possession from Cardholders and to credit said payment against the appropriate Cardholder’s Account. DWR further agrees that if DWR is permitted by Bank to receive any payment made with respect to the Plan, DWR and DWR’s Stores will on Bank’s behalf hold such payment in trust for Bank and will within one (1) Business Day after receipt include the amount of such payment in the Transaction Records sent to Bank pursuant to this Agreement. Bank will charge the amount of such payment against the DWR Deposit Account, or, if the DWR Deposit Account contains insufficient funds, DWR shall remit the amount of such payment, or any unpaid portion thereof, to Bank immediately upon written demand. Payments made by Cardholders at DWR’s Stores shall not be deemed received by Bank until Bank receives and accepts the Transaction Records. Bank has the sole right to receive and retain all payments made with respect to all Accounts and to pursue collection of all amounts outstanding, unless an Account or Purchase is charged back to DWR pursuant to the provisions of Sections 3.9 and 3.10 hereof. DWR shall promptly comply with any written instruction by Bank or any successor to Bank to cease accepting Account payments and thereafter inform Cardholders who wish to make payments that payments should be made to Bank.

3.9 Chargebacks. Bank shall have the right to demand immediate purchase by DWR of any Purchase and charge back to DWR the unpaid balance (including principal, accrued and billed finance charges) relating to any such Purchase, if and whenever:

(a) Any Applicant or Cardholder claim, defense or dispute is asserted against Bank with respect to such Purchase or the Account as a result of an action or inaction by DWR and/or DWR’s Stores pursuant to and within the time limits under Applicable Law;

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(b) Bank determines that with respect to such Purchase or the Account: (i) there is a breach of any warranty or representation made by or with respect to DWR under this Agreement; (ii) there is a failure by DWR to comply with any term or condition of this Agreement, which failure shall not have been cured within fifteen (15) days after receipt of written notice thereof from Bank; or (iii) after receipt of a fraud affidavit from the Cardholder Bank determines that the signature on any Charge Slip has been forged or is counterfeit; or

(c) After reasonable notice to DWR, any Purchase amount is not paid when due, and the Cardholder has stated in writing that the Cardholder’s reason for such nonpayment is an alleged breach of warranty or representation by DWR or DWR’s Stores or the result of a dispute by a Cardholder in connection with the sale of Goods, or the furnishing of Services by DWR or DWR’s Stores to such Cardholder; or

(d) For any chargeback reason as set forth in the Operating Procedures.

3.10 Assignment of Title in Charged Back Purchases. With respect to any amount of a Purchase to be charged back to and to be purchased by DWR, DWR shall either pay such amount directly to Bank in immediately available funds or Bank will offset such amount as part of the Net Proceeds to be paid to DWR, to the extent the balance thereof is sufficient. Upon payment of such amount by DWR to Bank, or off-setting, as the case may be, Bank shall assign and transfer to DWR, without recourse, all of Bank’s right, title and interest in and to such Purchase and deliver all documentation (or copies) in Bank’s possession with respect thereto. DWR further consents to all extensions or compromises given any Cardholder with respect to any such Purchase, and agrees that such shall not affect any liability of DWR hereunder or right of Bank to charge back any Purchase as provided in this Agreement; provided, however, that Bank shall not have the right to charge back for any Purchase the amount of any reductions, or compromises of amounts owed by a Cardholder to Bank. DWR shall not resubmit or re-transmit any charged back Purchases to Bank, without Bank’s prior written consent.

3.11 Promotion of Program and Card Plan; Non-Competition. Throughout the Term of this Agreement, DWR shall use commercially reasonable efforts to market, promote, participate in and support the Plan as set forth in this Agreement. DWR agrees that in consideration and as an inducement for Bank to make the Plan available to DWR as outlined in this Agreement and the Operating Procedures, from the Effective Date and for as long as this Agreement is in existence, neither DWR nor its Affiliates will, without the prior written consent of Bank, contract or establish with any other credit card processor/provider or provide or process on its own behalf any “private label” or “co-brand” revolving credit or other credit card issuance or processing arrangement or programs similar in purpose to the Plan or to the services and transactions contemplated under this Agreement, except that if either party provides notice of termination pursuant to Section 9.1 of this Agreement or if DWR terminates under Section 9.3, DWR may enter into a contract with another credit card processor/provider effective on or after termination of this Agreement. Notwithstanding the foregoing, nothing contained in this Agreement will be construed to prohibit or prevent DWR from: (i) accepting any major general purpose credit card (including without limitation, American Express Card, MasterCard, Visa, or NOVUS), any form of general purpose debit card or fixed payment (installment) credit programs for Applicants declined by Bank, as a means of payment by Cardholders for purchase of Goods and Services; (ii) entering into a contract with another credit card provider for a particular state after Bank has terminated the operation of the Plan in such state pursuant to Section 9.4; or (iii) acquiring, being

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acquired by or merging with other entities that have a private label credit card program or processing arrangement similar to the Plan as long as such other similar credit plan is not promoted, marketed, honored or accepted by DWR or DWR’s Stores or for the purchase of Goods and/or Services.

3.12 Postage. Any increase(s) in excess of two cents, in the aggregate, during the two-year period commencing on the Effective Date and during any two-year period thereafter, in the cost of mailing Account billing statements, form letters or new Credit Cards due to an increase in the first class pre-sort cost of postage from the United States Postal Service which increase occurs on or after the date of execution of this Agreement and during such initial two-year period or during any subsequent two-year period, as the case may be, shall be borne by DWR. Adjustments will be made for any subsequent decreases in the cost of postage. Bank will use commercially reasonable efforts to obtain the best bulk rate discount. All other increases in postage costs shall be borne by Bank.

3.13 Reports. Bank will deliver to DWR the reports set forth in Schedule 3.13 attached hereto as specified therein. Bank may provide any additional reports requested by DWR upon such terms and at the costs mutually agreed to by the parties.

SECTION 4. REPRESENTATIONS AND WARRANTIES OF DWR

DWR hereby represents and warrants to Bank as follows:

4.1 Organization, Power and Qualification. DWR is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation and has full corporate power and authority to enter into this Agreement and to carry out the provisions of this Agreement. DWR is duly qualified and in good standing to do business in all jurisdictions where DWR is located, except where the failure to so qualify would not have a material adverse effect on the business of the DWR, or where the failure to so qualify would not have a material adverse effect on DWR’s or Bank’s ability to continue operation of the Plan.

4.2 Authorization, Validity and Non-Contravention. (a) This Agreement has been duly authorized by all necessary corporate proceedings, has been duly executed and delivered by DWR and is a valid and legally binding agreement of DWR duly enforceable in accordance with its terms (except as such enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium and other laws relating to or affecting creditors’ rights generally and by general equity principles).

(b) No consent, approval, authorization, order, registration or qualification of or with any court or regulatory authority or other governmental body having jurisdiction over DWR is required for, and the absence of which would adversely affect, the legal and valid execution and delivery of this Agreement, and the performance of the transactions contemplated by this Agreement.

(c) The execution and delivery of this Agreement by DWR hereunder and the compliance by DWR with all provisions of this Agreement: (i) will not conflict with or violate any Applicable Law; and (ii) will not conflict with or result in a breach of or default under any of the terms or provisions of any indenture, loan agreement or other contract or agreement under

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which DWR is an obligor or by which its property is bound where such conflict, breach or default would have a material adverse effect on DWR, nor will such execution, delivery or compliance violate or result in the violation of the Articles of Incorporation or By-Laws of DWR.

4.3 Accuracy of Information. All factual information furnished by DWR to Bank in writing at any time pursuant to any requirement of, or furnished in response to any written request of Bank under this Agreement or any transaction contemplated hereby has been, and all such factual information hereafter furnished by DWR to Bank will be, to DWR’s best knowledge and belief, true and accurate in every respect material to the transactions contemplated hereby on the date as of which such information was or will be stated or certified.

4.4 Validity of Charge Slips. (a) As of the date any Transaction Records are presented to Bank in accordance with the provisions of this Agreement, each Charge Slip relating to such Transaction Records shall represent the obligation of a Cardholder in the respective amount set forth therein for Goods sold or Services rendered, together with applicable taxes, if any, and shall not involve any element of credit for any other purpose.

(b) As of the date any Transaction Records are presented to Bank in accordance with the provisions of this Agreement, DWR has no knowledge or notice of any fact or matter which would immediately or ultimately impair the validity of any Charge Slip relating to such Transaction Records, the transaction evidenced thereby, or its collectibility.

4.5 Compliance with Law. Any action or inaction taken by DWR and DWR’s Stores (where DWR or DWR’s Stores have a duty to act) in connection with the Plan and the sales of Goods and Services shall be in compliance with all Applicable Law except where the failure to comply does not or will not have a material adverse effect on DWR, the Bank or the Plan.

4.6 DWR’s Name, Trademarks and Service Marks. DWR has the legal right to use and to permit the Bank to use, to the extent set forth herein, the various tradenames, trademarks, logos and service marks utilized by DWR in the conduct of its business.

4.7 Intellectual Property Rights. In the event DWR provides any software or hardware to Bank, DWR has the legal right to such software or hardware and the right to permit Bank to use such software or hardware, and such use shall not violate any intellectual property rights of any third party. Any software or other technology developed by or for DWR or its Affiliates, to facilitate the Program, including but not limited to, software and software modifications developed in response to Bank’s request or to accommodate Bank’s special requirements and all derivative works, regardless of the developer thereof, will remain the exclusive property of DWR and/or its Affiliates. Nothing in this Agreement shall be deemed to convey a proprietary interest to Bank or any third party in any of the software, hardware, technology or any of the derivative works thereof which are owned or licensed by DWR and/or its Affiliates.

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SECTION 5. COVENANTS OF DWR

DWR hereby covenants and agrees as follows:

5.1 Notices of Changes. DWR will as soon as reasonably possible notify Bank of any: (a) change in the name or form of business organization of DWR, change in the location of its chief executive office or the location of the office where its records concerning the Plan are kept; (b) merger or consolidation of DWR or the sale of a significant portion of its stock or of any substantial amount of its assets not in the ordinary course of business or any change in the control of DWR; (c) material adverse change in its financial condition or operations or the commencement of any litigation which would have a material adverse effect on DWR; or (d) the planned opening or closing of any DWR Store. DWR will furnish such additional information with respect to any of the foregoing as Bank may request for the purpose of evaluating the effect of such change on the financial condition and operations of DWR and on the Plan.

5.2 Financial Statements. DWR shall furnish to Bank as soon as available the following information pertaining to DWR: (a) a consolidated balance sheet as of the close of each fiscal year; (b) a consolidated statement of income, retained earnings and paid-in capital to the close of each fiscal year; (c) a consolidated statement of cash flow to the close of each such period; and (d) a copy of the opinion submitted by DWR’s independent certified public accountants in connection with such of the financial statements as have been audited.

5.3 Inspection. DWR will permit, once per Plan Year, unless Bank has reasonable cause to do so, authorized representatives designated by Bank, at Bank’s expense, to visit and inspect, to the extent permitted by Applicable Law, any of the DWRs and DWR’s Stores, books and records pertaining to Transaction Records and the Plan and to make copies and take extracts therefrom, and to discuss the same with its officers and independent public accountants, all at reasonable times during normal business hours.

5.4 DWR’s Business. DWR shall do or cause to be done all things necessary to preserve and keep in full force and effect its corporate existence and to comply with all Applicable Laws in connection with its business and the sale of Goods and Services. DWR shall provide to Bank annually a forecast of DWR’s total sales and the forecasted number of stores, for the next year.

5.5 DWR’s Stores. DWR shall cause all of DWR’s Stores to comply with the obligations, restrictions and limitations of this Agreement as such are applicable at the point of sale of the Goods and Services.

5.6 Insurance. DWR shall maintain insurance policies with insurers and in such amounts and against such types of loss and damage as are customarily maintained by other companies within DWR’s industry engaged in similar businesses as DWR.

SECTION 6. REPRESENTATIONS AND WARRANTIES OF BANK

Bank hereby represents and warrants to DWR as follows:

6.1 Organization, Power and Qualification. Bank is a national banking association duly organized, validly existing and in good standing under the laws of the United States of America and has full corporate power and authority to enter into this Agreement and to carry out

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the provisions of this Agreement. Bank is duly qualified and in good standing to do business in all jurisdictions where such qualification is necessary for Bank to carry out its obligations under this Agreement.

6.2 Authorization, Validity and Non-Contravention. (a) This Agreement has been duly authorized by all necessary corporate proceedings, has been duly executed and delivered by Bank and is a valid and legally binding agreement of Bank duly enforceable in accordance with its terms (except as such enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium and other laws relating to or affecting creditors’ rights generally and by general equity principles).

(b) No consent, approval, authorization, order, registration or qualification of or with any court or regulatory authority or other governmental body having jurisdiction over Bank is required for, and the absence of which would materially adversely affect, the legal and valid execution and delivery of this Agreement, and the performance of the transactions contemplated by this Agreement.

(c) The execution and delivery of this Agreement by Bank hereunder and the compliance by Bank with all provisions of this Agreement: (i) will not conflict with or violate any Applicable Law; (ii) will not conflict with or result in a breach of the terms or provisions of any indenture, loan agreement or other contract or agreement under which Bank is an obligor or by which its property is bound where such conflict, breach or default would have a material adverse effect on Bank, nor will such execution, delivery or compliance violate or result in the violation of the Charter or By-Laws of Bank.

6.3 Accuracy of Information. All factual information furnished by Bank to DWR in writing at any time pursuant to any requirement of, or furnished in response to any written request of DWR under this Agreement or any transaction contemplated hereby has been, and all such factual information hereafter furnished by Bank to DWR will be, to Bank’s best knowledge and belief, true and accurate in every respect material to the transactions contemplated hereby on the date as of which such information has or will be stated or certified.

6.4 Compliance with Law. Any action or inaction taken by Bank (where Bank has a duty to act) in connection with the Plan shall be in compliance with all Applicable Law except where the failure to so comply does not or will not have a material adverse effect on the Bank, DWR or the Plan.

6.5 Intellectual Property Rights. In the event Bank provides any software or hardware to DWR, Bank has the legal right to such software or hardware and the right to permit DWR to use such software or hardware, and such use shall not violate any intellectual property rights of any third party. Any software or other technology developed by or for Bank or its Affiliates, to facilitate the Program, including but not limited to, software and software modifications developed in response to DWR’s request or to accommodate DWR’s special requirements and all derivative works, regardless of the developer thereof, will remain the exclusive property of Bank and/or its Affiliates. Nothing in this Agreement shall be deemed to convey a proprietary interest to DWR or any third party in any of the software, hardware, technology or any of the derivative works thereof which are owned or licensed by Bank and/or its Affiliates.

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SECTION 7. COVENANTS OF BANK

Bank hereby covenants and agrees as follows:

7.1 Notices of Changes. Bank will as soon as reasonably possible notify DWR of any: (a) change in the name or form of business organization of Bank, change in the location of its chief executive office or the location of the office where its records concerning the Plan are kept; (b) merger or consolidation of Bank or the sale of a significant portion of its stock or of any substantial amount of its assets not in the ordinary course of business or any change in the control of Bank; (c) material adverse change in its financial condition or operations or the commencement of any litigation which would have a material adverse effect on the Plan. Bank will furnish such additional information with respect to any of the foregoing as DWR may request for the purpose of evaluating the effect of such transaction on the financial condition and operations of Bank and on the Plan.

7.2 Financial Statement. Bank shall furnish to DWR upon request by DWR and as soon as available the following information pertaining to Bank: (a) a consolidated balance sheet as of the close of each fiscal year; (b) a consolidated statement of income, retained earnings and paid-in capital to the close of each fiscal year; (c) a consolidated statement of cash flow to the close of each such period; and (d) a copy of the opinion submitted by Bank’s independent certified public accountants in connection with such of the financial statements as have been audited.

7.3 Inspection. Bank will permit, once per Plan Year unless DWR has reasonable cause to do so, authorized representatives designated by DWR, at DWR’s expense, to visit and inspect, to the extent permitted by Applicable Law, any of Bank’s books and records pertaining to the Discount Fees, the Protection Programs and Enhancement Marketing Services revenues and expenses set forth in Section 2.9, and Purchases, and any other fees or charges charged by Bank to DWR pursuant to this Agreement, and to make copies and take extracts therefrom, and to discuss the same with its officers and independent public accountants, all at reasonable times during normal business hours. Bank shall permit DWR, once per Plan Year, during normal business hours and upon reasonable notice, and in a manner which does not disrupt the operations, to visit the offices at which services relating to the Plan are provided, to monitor the activities of Bank and its subcontractors.

7.4 Bank’s Business. Bank shall do or cause to be done all things necessary to preserve and keep in full force and effect its corporate existence and to comply with all Applicable Laws in connection, with its business and the issuance of credit by Bank.

7.5 Insurance. Bank shall maintain insurance policies with insurers and in such amounts and against such types of loss and damage as are customarily maintained by other banks engaged in similar businesses as Bank.

SECTION 8. INDEMNIFICATION

8.1 Indemnification Obligations. (a) DWR shall be liable to and shall indemnify and hold Bank and its Affiliates and their respective officers, directors, employees, subcontractors and their successors and assigns, harmless from any and all Losses (as hereinafter defined)

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incurred by reason of: (i) DWR’s breach of any representation, warranty or covenant hereunder; (ii) DWR’s failure to perform its obligations hereunder; (iii) any damage caused by or related to Goods or Services charged to an Account; and (iv) any action or failure to act by DWR and/or DWR’s Stores (where DWR or DWR’s Store has a duty to act) and their respective officers, directors and employees which results in a claim against Bank, its officers, employees, Affiliates, unless the proximate cause of any such claim is an act or failure to act by Bank, its officers, directors or employees.

(b) Bank shall be liable to and shall indemnify and hold DWR and its Affiliates and their respective officers, directors, employees, sub-contractors and their successors and assigns, harmless from any and all Losses (as hereinafter defined) incurred by reason of: (i) Bank’s breach of any representation, warranty or covenant hereunder; (ii) Bank’s failure to perform its obligations hereunder; and (iii) any action or failure to act by Bank (where Bank has a duty to act) and its officers, directors, and employees which results in a claim against DWR, its officers, employees, Affiliates, unless the proximate cause of any such claim is an act or failure to act by DWR and its respective officers, directors or employees.

(c) For purposes of this Section 8.1 the term “Losses” shall mean any liability, damage, costs, fees, losses, judgments, penalties, fines, and expenses, including without limitation, any reasonable attorneys’ fees, disbursements, settlements (which require the other party’s consent which shall not be unreasonably withheld), and court costs, reasonably incurred by Bank or DWR, as the case may be, without regard to whether or not such Losses would be deemed material under this Agreement except that Losses may not include any overhead costs that either party would normally incur in conducting its everyday business.

8.2 LIMITATION ON LIABILITY. (a) IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER PARTY FOR ANY INCIDENTAL, INDIRECT, SPECIAL OR CONSEQUENTIAL DAMAGES ARISING OUT OF THIS AGREEMENT, PROVIDED, HOWEVER, THAT THIS LIMITATION SHALL NOT APPLY WITH RESPECT TO A PARTY’S INTENTIONAL BREACH OF THIS AGREEMENT.

(b) BANK’S TOTAL ANNUAL LIABILITY TO DWR FOR ALL DAMAGES FOR ANY CAUSE WHATSOEVER OCCURRING DURING ANY YEAR OF THE TERM OF THIS AGREEMENT, SHALL NOT EXCEED ONE HUNDRED THOUSAND DOLLARS ($100,000). BANK’S TOTAL CUMULATIVE LIABILITY TO DWR FOR ALL DAMAGES FOR ANY CAUSE WHATSOEVER, SHALL NOT EXCEED THREE HUNDRED THOUSAND DOLLARS ($300,000); PROVIDED, HOWEVER, THAT THIS LIMITATION SHALL NOT APPLY WITH RESPECT TO BANK’S INTENTIONAL BREACH OF THIS AGREEMENT.

(c) DWR’S TOTAL ANNUAL LIABILITY TO BANK FOR ALL DAMAGES FOR ANY CAUSE WHATSOEVER OCCURRING DURING ANY YEAR OF THE TERM OF THIS AGREEMENT, SHALL NOT EXCEED ONE HUNDRED THOUSAND DOLLARS ($100,000). DWR’S TOTAL CUMULATIVE LIABILITY TO BANK FOR ALL DAMAGES FOR ANY CAUSE WHATSOEVER, SHALL NOT EXCEED THREE HUNDRED THOUSAND DOLLARS ($300,000); PROVIDED, HOWEVER, THAT THIS LIMITATION SHALL NOT APPLY WITH RESPECT TO DWR’S INTENTIONAL BREACH OF THIS AGREEMENT.

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8.3 NO WARRANTIES. EXCEPT AS PROVIDED HEREIN, THERE ARE NO EXPRESS OR IMPLIED WARRANTIES, INCLUDING THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE, RESPECTING THE SERVICES AND/OR OTHER PRODUCTS SOLD OR PROVIDED BY BANK PURSUANT TO THIS AGREEMENT.

8.4 Notification of Indemnification; Conduct of Defense. (a) In no case shall the indemnifying party be liable under Section 8.1 of this Agreement with respect to any claim or claims made against the indemnified party or any other person so indemnified unless it shall be notified in writing of the nature of the claim within a reasonable time after the assertion thereof, but failure to so notify the indemnifying party shall not relieve it from any liability which it may have under other provisions of this Agreement.

(b) The indemnifying party shall be entitled to participate, at its own expense, in the defense, or, if it so elects, within a reasonable time after receipt of such notice, to assume the defense of any suit brought against the indemnified party which gives rise to a claim against the indemnifying party, but, if the indemnifying party so elects to assume the defense, such defense shall be conducted by counsel chosen by it and approved by the indemnified party or the person or persons so indemnified, who are the defendant or defendants in any suit so brought, which approval shall not be unreasonably withheld. If the indemnifying party elects to assume the conduct of the defense of any suit brought to enforce any such claim and retains counsel to do so, the indemnified party or the person or persons so indemnified who are the defendant or defendants in the suit, shall bear the fees and expenses of any additional counsel thereafter retained by the indemnified party or such other person or persons.

SECTION 9. TERM AND TERMINATION

9.1 Term. This Agreement shall become effective as of the Effective Date when executed by authorized officers of each of the parties and, unless otherwise terminated as provided herein, shall remain in effect for five (5) years from the Plan Commencement Date plus any additional calendar days needed to end the Term on the last day of a calendar month (the “Initial Term”) and shall be extended for two (2) years thereafter (the “Extended Term”) at Bank’s option upon at least one hundred and eighty (180) days prior written notice from Bank to DWR prior to the end of the Initial Term. Thereafter the Term shall automatically renew for successive three (3) year terms (each a “Renewal Term”) unless either party provides the other with at least twelve (12) months’ written notice of its intention to terminate the Agreement prior to the expiration of the Extended or then current Renewal Term.

9.2 Termination with Cause by Bank; Bank Termination Events. Any of the following conditions or events shall constitute a “Bank Termination Event” hereunder, and Bank may terminate this Agreement immediately without further action if such Bank Termination Event occurs:

(a) If DWR shall: (i) generally not pay its debts as they become due; (ii) file, or consent by answer or otherwise to the filing against it, of a petition for relief, reorganization or arrangement or any other petition in bankruptcy, for liquidation or to take advantage of any bankruptcy or insolvency law of any jurisdiction; (iii) make an assignment for the benefit of its creditors; (iv) consent to the appointment of a custodian, receiver, trustee or other officer with

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similar powers of itself or of any substantial part of its property; (v) be adjudicated insolvent or be liquidated; (vi) take corporate action for the purpose of any of the foregoing and such event shall materially adversely affect the ability of DWR to perform under this Agreement or the Plan; (vii) have a materially adverse change in its financial condition, including, but not limited to receiving a bond downgrade or being downgraded by a rating agency to a rating below an investment grade rating; or (viii) receive an adverse opinion by its auditors or accountants as to its viability as a going concern; or (ix) breach or fail to perform or observe any covenant or other term contained in any creditor loan agreement, debt instrument or any other material agreement to which it is bound, which results in an acceleration of debt in an amount exceeding $500,000; or

(b) If a court or government authority of competent jurisdiction shall enter an order appointing, without consent by DWR, a custodian, receiver, trustee or other officer with similar powers with respect to it or with respect to any substantial part of its property, or if an order for relief shall be entered in any case or proceeding for liquidation or reorganization or otherwise to take advantage of any bankruptcy or insolvency law of any jurisdiction, or ordering the dissolution, winding up or liquidation of DWR, or if any petition for any such relief shall be filed against DWR and such petition shall not be dismissed within sixty (60) days; or

(c) If DWR shall default in the performance of or compliance with any material term or violates in a material respect any of the covenants, representations, warranties or agreements contained in this Agreement and DWR shall not have remedied such default within thirty (30) days after written notice thereof shall have been received by DWR from Bank; or

(d) If at anytime the average price point of the Goods and/or Services sold by DWR materially changes from the average price point of the Goods and/or Services sold by DWR on the date of execution of this Agreement; or

(e) If DWR fails within three (3) months after the Effective Date to utilize (as determined by Bank) On-Line Prescreen application procedures as the primary source for application processing in all of its catalog call centers and Bank notifies DWR of its intent to terminate by the sixth month after the Effective Date. If Bank exercises its right to terminate pursuant to this Section 9.2(e), DWR (i) agrees to pay to Bank the sum of one hundred and fifty thousand dollars ($150,000) to reimburse Bank for its costs associated with commencing the Plan, and (ii) further agrees that neither DWR nor its Affiliates will for a one year period after the termination date of this Agreement establish with any other credit card processor/provider or provide or process on its own behalf any “private label” or “co-brand” revolving credit or other credit card issuance or processing arrangement or programs similar in purpose to the Plan or to the services and transactions contemplated under this Agreement, except that this restriction will not be construed to prohibit or prevent DWR from accepting any major general purpose credit card (including without limitation, American Express Card, MasterCard, Visa, or NOVUS), or any form of general purpose debit card or fixed payment (installment) credit programs.

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9.3 Termination with Cause by DWR; DWR Termination Events. Any of the following conditions or events shall constitute a “DWR Termination Event” hereunder, and DWR may terminate this Agreement immediately without further action if such DWR Termination Event occurs:

(a) If Bank shall: (i) generally not be paying its debts as they become due; (ii) file or consent by answer or otherwise to the filing against it, of a petition for relief, reorganization or arrangement or any other petition in bankruptcy, for liquidation or to take advantage of any bankruptcy or insolvency law of any jurisdiction; (iii) make an assignment for the benefit of its creditors; (iv) consent to the appointment of a custodian, receiver, trustee or other officer with similar powers for itself or of any substantial part of its property; (v) be adjudicated insolvent or be liquidated; or (vi) take corporate action for the purpose of any of the foregoing and such event shall materially adversely affect the ability of Bank to perform under this Agreement or the operation of the Plan and such event shall materially adversely affect the ability of Bank to perform under this Agreement or the Plan; or (vii) have a materially adverse change in its financial condition, including, but not limited to being downgraded by a rating agency to a rating below an investment grade rating; or (viii) receive an adverse opinion by its auditors or accountants as to its viability as a going concern; or (ix) breach or fail to perform or observe any covenant or other term contained in any creditor loan agreement, debt instrument or any other material agreement to which it is bound, which results in an acceleration of debt in an amount exceeding $500,000; or

(b) If a court or government authority of competent jurisdiction shall enter an order appointing, without consent by Bank, a custodian, receiver, trustee or other officer with similar powers with respect to it or with respect to any substantial part of its property, or if an order for relief shall be entered in any case or proceeding for liquidation or reorganization or otherwise to take advantage of any bankruptcy or insolvency law of any jurisdiction, or ordering the dissolution, winding up or liquidation of Bank, or if any petition for any such relief shall be filed against Bank and such petition shall not be dismissed within sixty (60) days; or

(c) If Bank shall default in the performance of or compliance with any material term (other than the Service Standards) or violates in any material respect any of the covenants, representations, warranties or agreements contained in this Agreement and Bank shall not have remedied such default within thirty (30) days (ten (10) days in the case of failure to pay DWR pursuant to Section 3.6(a)) after written notice thereof shall have been received by Bank from DWR; or

(d) If Bank fails for two (2) consecutive months to perform any one of the same Service Standards in a Service Factor Category, and such failure is not the result of an act of DWR, DWR’s Stores, or as a result of a force majeure event specified in Section 10.11, and Bank fails to remedy such failure within thirty (30) days after receipt of written notice from DWR.

9.4 Termination of Particular State. In addition, upon thirty (30) days prior written notice, Bank may terminate the operation of the Plan in a particular state or jurisdiction if the Applicable Law of the state or jurisdiction is amended or interpreted in such a manner so as to render all or any part of the Plan illegal or unenforceable, and in such event Bank will, if requested, assist DWR with finding a new credit provider for such state or jurisdiction.

9.5 Purchase of Accounts. Upon the termination of this Agreement by either party or termination of the Plan in a particular state, DWR or its designee shall purchase from Bank all unpaid and outstanding Accounts (in the case of termination in a particular state, for the purposes of this Section 9.5, the term “Accounts” shall refer to Accounts belonging to Cardholders with

23

billing addresses in such state) and the listing of names and addresses of such Cardholders at a commercially reasonable purchase price to be determined by Bank which shall not be greater than one hundred two percent (102%) of the book value of the Accounts and the receivables related thereto, including without limitation all accrued finance charges and fees, whether or not billed or posted to the Accounts.

In the case of either termination of the Agreement or termination of the Plan in a particular state and upon payment of the purchase price to Bank, Bank shall assign to DWR or its designee, without recourse, all of its right, title and interest in and to the Accounts and receivables related thereto being transferred and will deliver all related documentation.

SECTION 10. MISCELLANEOUS

10.1 Entire Agreement. This Agreement constitutes the entire Agreement and supersedes all prior agreements and understandings, whether oral or written, among the parties hereto with respect to the subject matter hereof and merges all prior discussions between them.

10.2 Coordination of Public Statements. Bank’s parent company, Alliance Data Systems Corporation, as a public company, will issue a news release disclosing this Agreement between DWR and Bank, such news release must be approved by both parties prior to its issuance. In addition, either party or its Affiliate may file this Agreement with the Securities and Exchange Commission and/or describe this Agreement in filings made with the Securities and Exchange Commission, if it determines that it is obligated to do so and such party complies with the requirements of Section 10.17(a) with respect thereto. In all other cases, except as required by Applicable Law, neither party will make any public announcement of the Plan or provide any information concerning the Plan to any representative of any news, trade or other media without the prior approval of the other party, which approval will not be unreasonably withheld. Neither party will respond to any inquiry from any public or governmental authority, except as required by law, concerning the Plan without prior consultation and coordination with the other party. Upon Bank’s reasonable request from time to time, DWR may in its discretion provide references or participate in marketing campaigns or testimonial initiatives for Bank regarding the services provided by Bank in connection with the Plan.

10.3 Amendment. Except as otherwise provided for in this Agreement, the provisions herein may be modified only upon the mutual agreement of the parties, however, no such modification shall be effective until reduced to writing and executed by both parties.

10.4 Successors and Assigns. This Agreement and all obligations and rights arising hereunder shall be binding upon and inure to the benefit of the parties hereto and their respective successors, transferees and assigns. Either party may assign its rights and obligations under this Agreement.

10.5 Waiver. No waiver of the provisions hereto shall be effective unless in writing and signed by the party to be charged with such waiver. No waiver shall be deemed to be a continuing waiver in respect of any subsequent breach or default either of similar or different nature unless expressly so stated in writing. No failure or delay on the part of either party in exercising any power or right under this Agreement shall be deemed to be a waiver, nor does any

24

single or partial exercise of any power or right preclude any other or further exercise, or the exercise of any other power or right.

10.6 Severability. If any of the provisions or parts of the Agreement are determined to be illegal, invalid or unenforceable in any respect under any applicable statute or rule of law, such provisions or parts shall be deemed omitted without affecting any other provisions or parts of the Agreement which shall remain in full force and effect, unless the declaration of the illegality, invalidity or unenforceability of such provision or provisions substantially frustrates the continued performance by, or entitlement to benefits of, either party, in which case this Agreement may be terminated by the affected party, without penalty.

10.7 Notices. All communications and notices pursuant hereto to either party shall be in writing and addressed or delivered to it at its address shown below, or at such other address as may be designated by it by notice to the other party, and shall be deemed given when delivered by hand, or two (2) Business Days after being mailed (with postage prepaid) or when received by receipted courier service:

If to Bank: 800 TechCenter Drive Gahanna, OH 43230 Attn.: Daniel T. Groomes, President	If to DWR: 283 Fourth Street Oakland, CA 94607 Attn.: Benjamin Dixon, Controller
With a Copy to: Karen Morauski, VP & Counsel

10.8 Captions and Cross-References. The table of contents and various captions in this Agreement are included for convenience only and shall not affect the meaning or interpretation of any provision of this Agreement. References in this Agreement to any Section are to such Section of this Agreement.

10.9 GOVERNING LAW. THIS AGREEMENT SHALL BE A CONTRACT MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF OHIO, REGARDLESS OF THE DICTATES OF OHIO CONFLICTS OF LAW, AND THE PARTIES HEREBY SUBMIT TO EXCLUSIVE JURISDICTION AND VENUE IN THE UNITED STATES FEDERAL DISTRICT COURT FOR THE SOUTHERN DISTRICT OF OHIO OR ANY OF THE STATE COURTS LOCATED IN FRANKLIN COUNTY, OHIO.

10.10 Counterparts. This Agreement may be signed in one or more counterparts, all of which shall be taken together as one agreement.

10.11 Force Majeure. Neither party will be responsible for any failure or delay in performance of its obligations under this Agreement because of circumstances beyond its reasonable control, and not due to the fault or negligence of such party, including, but not limited to, acts of God, flood, criminal acts, fire, riot, computer viruses or hackers where such party has utilized commercially reasonable means to prevent the same, accident, strikes or work stoppage, embargo, sabotage, inability to obtain material, equipment or phone lines, government action (including any laws, ordinances, regulations or the like which restrict or prohibit the providing of the services contemplated by this Agreement), and other causes whether or not of the same class

25

or kind as specifically named above. In the event a party is unable to perform substantially for any of the reasons described in this Section, it will notify the other party promptly of its inability so to perform, and if the inability continues for at least one-hundred eighty (180) consecutive days (thirty (30) days in the cases of credit authorizations and processing of new Accounts), the party so notified may then terminate this Agreement forthwith. This provision shall not, however, release the party unable to perform from using its best efforts to avoid or remove such circumstance and such party unable to perform shall continue performance hereunder with the utmost dispatch whenever such causes are removed.

10.12 Relationship of Parties. This Agreement does not constitute the parties as partners or joint venturers and neither party will so represent itself.

10.13 Survival. No termination of this Agreement shall in any way affect or impair the powers, obligations, duties, rights, indemnities, liabilities, covenants or warranties and/or representations of the parties with respect to times and/or events occurring prior to such termination. No powers, obligations, duties, rights, indemnities, liabilities, covenants or warranties and/or representations of the parties with respect to times and/or events occurring after termination shall survive termination except for the following Sections: Section 2.10, Section 3.3, Section 3.5, Section 3.6, Section 3.8, Section 3.9, Section 3.10, Section 8, Section 9.5, Section 10.7, Section 10.9, Section 10.11, Section 10.17 and Section 10.18.

10.14 Mutual Drafting. This Agreement is the joint product of DWR and Bank and each provision hereof has been subject to mutual consultation, negotiation and agreement of DWR and Bank; therefore to the extent any language in this Agreement is determined to be ambiguous, it shall not be construed for or against any party based on the fact that either party controlled the drafting of the document.

10.15 Independent Contractor. The parties hereby declare and agree that Bank is engaged in an independent business, and shall perform its obligations under this Agreement as an independent contractor; that any of Bank’s personnel performing the services hereunder are agents, employees, Affiliates, or subcontractors of Bank and are not agents, employees, Affiliates, or subcontractors of DWR; that Bank has and hereby retains the right to exercise full control of and supervision over the performance of Bank’s obligations hereunder and full control over the employment, direction, compensation and discharge of any and all of the Bank’s agents, employees, Affiliates, or subcontractors, including compliance with workers’ compensation, unemployment, disability insurance, social security, withholding and all other federal, state and local laws, rules and regulations governing such matters; that Bank shall be responsible for Bank’s own acts and those of Bank’s agents, employees, Affiliates, and subcontractors; and that except as expressly set forth in this Agreement, Bank does not undertake by this Agreement or otherwise to perform any obligation of DWR, whether regulatory or contractual, or to assume any responsibility for DWR’s business or operations.

10.16 No Third Party Beneficiaries. The provisions of this Agreement are for the benefit of the parties hereto and not for any other person or entity.

10.17 Confidentiality. (a) Neither party shall disclose any information not of a public nature concerning the business or properties of the other party which it learns as a result of negotiating or implementing this Agreement, including, without limitation, the terms and

26

conditions of this Agreement, Customer names, Cardholder personal or Account information, sales volumes, test results, and results of marketing programs, Plan reports generated by Bank, trade secrets, business and financial information, source codes, business methods, procedures, know-how and other information of every kind that relates to the business of either party except to the extent disclosure is required by applicable law, is necessary for the performance of the disclosing party’s obligation under this Agreement, or is agreed to in writing by the other party; provided that: (i) prior to disclosing any confidential information to any third party, the party making the disclosure shall give notice to the other party of the nature of such disclosure and of the fact that such disclosure will be made; and (ii) prior to filing a copy of this Agreement with any governmental authority or agency, the filing party will consult with the other party with respect to such filing and shall redact such portions of this Agreement which the other party requests be redacted, unless, in the filing party’s reasonable judgment based on the advice of its counsel (which advice shall have been discussed with counsel to the other party), the filing party concludes that such request is inconsistent with the filing party’s obligations under applicable laws. Neither party shall acquire any property or other right, claim or interest, including any patent right or copyright interest, in any of the systems, procedures, processes, equipment, computer programs and/or information of the other by virtue of this Agreement. Neither party shall use the other party’s name for advertising or promotional purposes without such other party’s written consent.

(b) The obligations of this Section, shall not apply to any information, other than consumer personal information:

(i) which is generally known to the trade or to the public at the time of such disclosure; or

(ii) which becomes generally known to the trade or the public subsequent to the time of such disclosure; provided, however, that such general knowledge is not the result of a disclosure in violation of this Section; or

(iii) which is obtained by a party from a source other than the other party, without breach of this Agreement or any other obligation of confidentiality or secrecy owed to such other party or any other person or organization; or

(iv) which is independently conceived and developed by the disclosing party and proven by the disclosing party through tangible evidence not to have been developed as a result of a disclosure of information to the disclosing party, or any other person or organization which has entered into a confidential arrangement with the non-disclosing party.

(c) If any disclosure is made pursuant to the provisions of this Section, to any Affiliate or third party, the disclosing party shall be responsible for ensuring that such Affiliate or third party keeps all such information in confidence and that any third party executes a confidentiality agreement provided by the non-disclosing party. Each party covenants that at all times it shall have in place procedures designed to assure that each of its employees who is given access to the other party’s confidential information shall protect the privacy of such information. Each party acknowledges that any breach of the confidentiality provisions of this Agreement by it will result in irreparable damage to the other party and therefore in addition to any other

27

remedy that may be afforded by law any breach or threatened breach of the confidentiality provisions of this Agreement may be prohibited by restraining order, injunction or other equitable remedies of any court. The provisions of this Section will survive termination or expiration of this Agreement.

10.18 Taxes. DWR will be responsible for, and agrees to pay, all sales, use, excise, and value-added taxes, or taxes of a similar nature (excluding personal property taxes and taxes based on Bank’s income which shall be borne by Bank), imposed by the United States, any state or local government, or other taxing authority, on all services provided by Bank under this Agreement. The parties agree to cooperate with each other to minimize any applicable sales, use, or similar tax and, in connection therewith, the parties shall provide each other with any relevant tax information as reasonably requested (including without limitation, resale or exemption certificates, multi-state exemption certificates, information concerning the use of assets, materials and notices of assessments). All amounts set forth in this Agreement are expressed and shall be paid in lawful U.S. dollars.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement in manner and form sufficient to bind them as of the date first above written.

DESIGN WITHIN REACH, INC.	WORLD FINANCIAL NETWORK NATIONAL BANK
By:	By:
Title:	Title:
Date:	Date:

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Schedule 1.1

Discount Rate and Promotional Programs

A. DISCOUNT RATE FOR REGULAR REVOLVING PURCHASES

The Discount Rate will be assessed by Bank at 1.80% for all Regular Revolving Purchases, and will be subject to adjustment by Bank on a quarterly basis. After the end of each quarter, Bank will review the Net Sales for such prior three (3) months period. The prior three (3) month’s Discount Fees will be recalculated by Bank as follows: The Discount Rate on Regular Revolving Purchases will be 1.80% for all Regular Revolving Purchases made during the prior three (3) months that represented up to 10% of the aggregate Net Sales for such prior three (3) months. For all Regular Revolving Purchases in excess of 10% of the aggregate Net Sales for such prior three (3) months, a Discount Rate of 2.50% shall apply. Bank shall then compare the actual Discount Fees paid by DWR for the prior three (3) months, to the Discount Fees recalculated pursuant to this paragraph and shall advise DWR in writing of any deficit amount to be paid by DWR to Bank. Such deficit amount will be either invoiced by Bank to DWR or netted against any future Net Proceeds due to DWR.

Example 1:

For January, February and March, it is determined that there were $1,000,000 in aggregate Net Sales and $150,000 was attributed to Regular Revolving Purchases. During January, February and March, $2,700 ($150,000 multiplied by 1.80%) was paid by DWR for Discount Fees for Regular Revolving Purchases. The Bank will adjust the Discount Fees for January, February and March as follows:

$100,000 (10% of aggregate Net Sales) multiplied by 1.80% = $1,800

$50,000 (amount of Regular Revolving Purchases in excess of 10% of Net Sales ($150,000 minus $100,000)) multiplied by 2.50% = $1,250

The Discount Fees to be paid by DWR for January, February and March, as recalculated, equal $3,050 ($1,800 plus $1,250). Therefore, in addition to the $2,700 Discount Fees paid by DWR during January, February and March, DWR shall pay to the Bank additional $350 (The recalculated Discount Fees of $3,050 minus the actual Discount Fees paid of $2,700) as a result of the recalculation.

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Example 2:

For April, May and June, it is determined that there were $2,000,000 in aggregate Net Sales and $150,000 was attributed to Regular Revolving Purchases. During April, May and June, $2,700 ($150,000 multiplied by 1.80%) was paid by DWR for Discount Fees for Regular Revolving Purchases. No adjustment or refund of the Discount Fees for April, May and June are necessary as set forth below:

$150,000 of Regular Revolving Purchases is 7.5% of aggregate Net Sales ($150,000 divided by $2,000,000). Since the Regular Revolving Purchases did not exceed the 10% threshold, the Discount Fees are $2,700 for the months of April, May and June and no adjustment is necessary.

B. DISCOUNT RATE FOR PURCHASES SUBJECT TO DEFERRED BILLING PROGRAM (PROMOTIONAL PROGRAMS).

The Discount Rate for Purchases subject to the Deferred Billing Program will be as set forth in the table below, subject to adjustment pursuant to the following paragraph. DWR shall not, without Bank’s prior written consent, utilize the Deferred Billing Program for more than two separate instances of two consecutive calendar week periods during any Plan Year.

Deferred Billing Programs

Discount Rate and Other Terms & Conditions
Length of Deferral Period	90 Days
Discount Rate	2.15%
Minimum Payment Requirements	Not Required
Roll to Revolve Rate Assumption	10%
Discount Rate Adjustment Amount	.04%
Required Minimum Purchase Amount	$999
Finance Charges	Accrued during deferral period

Bank shall on a quarterly basis review the actual average Roll to Revolve Rate for the prior three months and shall adjust the Discount Rate set forth in the table, up or down, for Purchases subject to the Deferred Billing Program for the next three month period if the actual average Roll to Revolve Rate for the Deferred Billing Program is not equal to the Roll to Revolve Rate Assumption set forth in the table above. The amount of the adjustment shall be equal to the Discount Rate Adjustment Amount set forth in the table above multiplied by the variance between the Roll to Revolve Rate Assumption and the actual average Roll to Revolve Rate. If the actual Roll to Revolve Rate exceeds the Roll to Revolve Rate Assumption, then the Discount Rate would be reduced, and vice versa.

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For Example:

If at the end of the three months being evaluated, the average Roll to Revolve Rate for the 90 days Deferred Billing Program Purchases was fifteen percent (15%), then the resulting Discount Rate adjustment to the 90 days Deferred Billing Program would be calculated as follows:

10% (Roll to Revolve Rate Assumption) minus 15% (actual average Roll to Revolve Rate) which is -5%. Multiply -5 by .04% (the Discount Rate Adjustment amount) which is equal to -.20%

The Discount Rate for Purchases under the 90 days Deferred Billing Program would be reduced by 0.20% to arrive at 1.95% as the new Discount Rate.

C. DISCOUNT RATE FOR EQUAL PAYMENT PURCHASES (PROMOTIONAL PROGRAMS).

The Discount Rates for Equal Payment Purchases will be as set forth in the table below.

Equal Payment Period	Initial APR	Discount Rate	Required Minimum Purchase Amount
12 months	9.90%	3.13%		$	999
24 months	9.90%	4.50%		$	1,999

The APR’s are subject to adjustment by Bank pursuant to Section 3.6(d) and are also subject to adjustment by Bank for any increases in the Prime Rate if the Prime Rate increases above 4.75%. Every month Bank shall compare the Prime Rate, as published on the last Business Day of the prior month in the Wall Street Journal, to a benchmark of 4.75%. Bank shall have the right to increase the APRs set forth above or the then current applicable APRs by the amount of the increase from the benchmark, and will provide all notices to Cardholders as required by Applicable Law.

For Example:

If the Prime Rate at the end of the month is 5.00% (an increase of ..25% compared to the benchmark) and the then current APR for the 12 Months Equal Payment Purchases Program is 9.90% then the APR for the 12 Months Equal Payment Purchases Program may be increased by Bank from the rate of 9.90% to 10.15%.

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Schedule 2.1

Service Standards

Service Factor Category		Service Standards
Telephone Service Factors:
1.	Average Speed of Answer for New Accounts, Authorizations, Customer Service	1.	At least 80% of calls answered within 25 seconds.
2.	Abandon Rate for New Accounts, Authorizations, Customer Service	2.	5.0% or less.
New Account Service Factors:
3.	Quick Credit and Telephone Credit Application Referrals - Response Time	3.	At least 90% of the applications will be processed within 5 minutes.
4.	Processing mail-in applications including prescreens	4.	6 Business Days or less.
Customer Service Factors:
5.	Response to written Cardholder inquiries	5.	90% within 8 Business Days. 100% within 31 Business Days.

Assumptions:

• All Standards are expressed as simple monthly averages and are measured on a monthly calendar basis.

• Telephone Service Factors are reported and tracked based on the servicer’s department averages.

• Response time for credit application inquiries means those Applicants which Bank has approved or declined. Applicants which Bank is reviewing under special circumstances such as a suspected fraudulent application, shall not be included in the measurement of the Standard.

• Bank shall begin to measure the Service Standards’ performance at the commencement of the first Plan Year.

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Schedule 2.5

Marketing Promotions

DWR will promote and advertise the Plan as set forth below:

1. Training of sales associates to ask Customers if the purchases can be charged to the Credit Card.

2. Employee Training and motivational supplies such as badges advertising the Plan to be worn on the sales floor.

3. Agree to a targeted minimum number of applications per store (e.g. New Accounts by Store Goals).

4. POS signage announcing credit and/or inviting customer to apply for an Account. In addition, inclusion of card references as appropriate with TV, Print, Direct Mail or other advertising medias.

5. Where phones are available at POS, add Bank’s referral key and at a minimum make available at the Customer Service desk. When Quick Credit referral occurs, store immediately contacts Bank.

6. Include store application goals in store managers’ compensation plan.

7. Immediate call to Bank on all authorization referrals.

8. Employee incentives per approved Account application.

9. Establish district and regional incentives for the respective managers - similar to store management criteria.

10. Statement inserts and messaging promoting use of the card and link card to merchandise and the relationship.

11. Quarterly marketing review and planning meetings - mutually agree on annual marketing plan and review status of current plan.

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Schedule 2.8

Monthly Master File Information

Account Number

Month Account Opened

Year Account Opened

Store Account Opened

Cardholder Name

Cardholder’s Street Address

Cardholder’s City

Cardholder’s State

Cardholder’s Zip Code

Cardholder’s Home Phone Number

Date of Last Purchase

Cardholder’s Open to Buy

Number of Purchases Monthly

Amount of Purchases Monthly, YTD

Number of Returns Monthly

Amount of Returns Monthly

Date of Birth

Items Purchased

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Schedule 3.13

Bank Reports

Catalog Standard Reports
Frequency	Name	Description
Daily and Weekly	OLPS	On-line prescreen report activity, number sent to bureau, number opened.
Weekly	APPROVED FILE / WEEKLY ADDS	Accounts opened in the previous week.
Hard Goods Standard Reports
Frequency	Name	Description
Weekly	APPLICATION TRACKING	New account processing: number submitted, duped, pending, declined, activated and percentages. Six sorts available: 1.      Region, District, Store - D Version; 2.      Region, District, Store, App Type – E Version; 3.      Division, App Type - F Version; 4.      Region, District, Store, Associate – G Version; 5.      Region, District, Store, Associate, App - H Version; 6.      Prescreen, list ID, origin - I Version.
Daily	DAILY DISBURSEMENT	Sales, Returns, Discount and Net funding released to DWR.
Monthly	MONTHLY DISBURSEMENT	Sales, Returns, Discount and Net funding released to DWR.
Daily	DAILY IQ	Daily funding report.
Monthly	STORE SETTLEMENT BY PLAN	Posted sates and returns.
Daily	MERCHANT DISCOUNT CALCULATION	Merchant discount calculation.
Monthly	STATISTICAL SUMMARY	Portfolio statistics.

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Hard Goods Standard Reports
Frequency	Name	Description
Monthly	OPEN TO BUY	Cardholder listing of open to buy. This report is produced on as needed basis.
Weekly	LOGGED APPLICATIONS	Insurance by store.
Monthly	MONTHLY EXTRACT FILE	Month end tape containing data elements for all portfolio Cardholders. Can be used for direct mailings.
Monthly	KEY MEASURES REPORT	High level executive overview of program key measures (market share, average transaction, applications, new Accounts)

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EX-10.11

EXHIBIT 10.11

February 22, 2000

Wayne Badovinus

1816 Morgan Horse Farm Road

Weybridge, VT 05735

Dear Wayne,

On behalf of Design Within Reach, Inc., (the “Company”), I am pleased to offer you a position as Chief Executive Officer, reporting to Board of Directors. The terms of your new position with the Company are as set forth below:

You will be paid a salary at a rate of $20,833.33 per month, payable in installments pursuant to the Company’s regular payroll policy.

In connection with the commencement of your full-time employment, the Company will recommend that the Board of Directors’ grant you an additional option to purchase 400,000 shares of the Company’s Common Stock (“Shares”), with an exercise price equal to the fair market value on the date of the grant. Vesting will, of course, depend on your continued employment with the Company. One fourth of these option shares will vest at the first anniversary of your employment and an additional on forty-eighth (1/48) will vest for each additional full month of your employment. This option will be an incentive option to the maximum extent allowed by the tax code, and will be subject to the terms of the Company’s 1999 Stock Plan and the Stock Option Agreement between you and the Company. This additional grant brings your total option pool with the company to a total of 500,000 shares.

In addition to the acceleration of vesting provision outlined in the 1999 Stock Option Plan, fifty percent of your unvested options shall become immediately vested and exercisable upon a change of control and your employment is terminated or if you are not offered

a new position with the acquiring company that is not substantially similar to your current position as CEO. As well as the acceleration of vesting, you will be paid twelve months base salary either in lump sum or as salary continuance.

In the event the Company terminates your employment for any reason other than for cause, 50% of your unvested options at the time of termination will become immediately vested and exercisable. As well as the acceleration of vesting, you will be paid twelve months base salary either in lump sum or as salary continuance

The Company will reimburse or pay relocation costs associated with your move from Vermont to the Bay Area. The physical move will be directly billed to the Company by a mutually approved moving company. Interim storage fees will be included. In addition, the company will pay realtor fees and closing costs for the sale of your Vermont residence. Should you purchase a home in the Bay Area, the Company will also pay closing costs associated with this purchase. In the event you voluntarily terminate employment with the Company prior to two years, all relocation fees will be repaid on a pro-rata basis.

This letter supersedes any prior representation or agreements between you and the company whether written or oral. This agreement may not be modified or amended except by a written agreement signed by an authorized representative of the company and you. Should you accept our offer, please indicate your acceptance and your preferred starting date in the space provided at the end of the signature page.

You agree that, to the best of your ability, you will at all times loyally and conscientiously perform all of the duties and obligations required of and from you pursuant to the express and implicit terms hereof, and to the reasonable satisfaction of the Company. During the term of your employment, you further agree that you will devote all of your business time and attention to the business of the Company, that the Company will be entitled to all of the benefits and profits arising from or incident to all such work services and advice, and that

you will not render commercial or professional services of any nature to any person or organization, whether or not for compensation, without prior written consent of the Company’s Board of Directors. You agree that you will not directly or indirectly engage or participate in any business that is competitive in any manner with the business of the Company. Nothing in this letter agreement will prevent you from accepting speaking or presentation engagements, for which you may receive honoraria, or from serving on the board of a charitable organization, or from owning no more than one percent (1%) of the outstanding equity securities of a corporation whose stock is listed on a national stock exchange.

Your acceptance of this offer and commencement of employment with the Company is contingent upon the execution, and delivery to an officer of the Company, of the Company’s Confidential Information and Invention Assignment Agreement, a copy of which is enclosed for your review and execution (the “Confidential Agreement”), prior to your start date.

You agree to follow the Company’s strict policy that employees must not disclose, either directly or indirectly, and information, including any of the terms of this agreement, regarding salary, stock purchase or option allocations to any person, including other employees of the Company; provided, however, that you may discuss such terms with members of your immediate family and any legal, tax, or accounting specialists who provide you with individual legal, tax, or accounting advice.

Your employment with the Company will be on an “at will” basis, meaning that either you or the Company may terminate your employment at any time for any reason or no reason, without further obligation or liability.

For purposes of federal immigration law, you will be required to provide the Company documentary evidence of your identity and eligibility for employment in the United Sates. Such documentation must be provided to us within three (3) business days of your date of hire, or our employment relationship with you may be terminated.

I am delighted to be able to extend this offer to you on behalf of the Company, and we look forward to working with you. To indicate your acceptance, please sign and date one copy of this letter, indication your preferred starting date in the space provided, and return to the Company together with the signed Confidentiality Agreement, either in person or at the address shown below:

Design Within Reach, Inc

455 Jackson Street

San Francisco, CA 94111

These agreements together set forth the terms of your employment with the Company, and supersede any prior representations or agreements, whether written or oral. This letter may not be modified or amended except by a written agreement, signed by both the Company and you.

Design Within Reach, Inc.
/s/    Rob Forbes	Date 3/20/00
Rob Forbes
/s/    Wayne Badnovinus	Date 3/12/2000
Wayne Badnovinus
Accepted and Agreed

EX-10.12

EXHIBIT 10.12

455 Jackson Street San Francisco, CA 94111 Tel 800 944.2233    Fax 800 846.0411 www.dwr.com

February 22, 2000

David Barnard

2087 Braemar Rd

Oakland, CA 94602

Dear David,

On behalf of Design Within Reach, Inc., (the “Company”), I am pleased to offer you a position as Chief Executive Officer, reporting to Board of Directors. The terms of your new position with the Company are as set forth below:

You will be paid a salary at a rate of $10,833.33 per month, payable in installments pursuant to the Company’s regular payroll policy.

In connection with the commencement of your full-time employment, the Company will recommend that the Board of Directors’ grant you an additional option to purchase 220,000 shares of the Company’s Common Stock (“Shares”), with an exercise price equal to the fair market value on the date of the grant. Vesting will, of course, depend on your continued employment with the Company. One fourth of these option shares will vest at the first anniversary of your employment and an additional on forty-eighth (1/48) will vest for each additional full month of your employment. This option will be an incentive option to the maximum extent allowed by the tax code, and will be subject to the terms of the Company’s 1999 Stock Plan and the Stock Option Agreement between you and the Company. This additional grant brings your total option pool with the company to a total of 240,000 shares.

In addition to the acceleration of vesting provision outlined in the 1999 Stock Option Plan, twenty-fifty percent of your unvested options shall become immediately vested and exercisable upon a change of control and your employment is terminated or if you are not offered a new position with the acquiring company that is not substantially similar to your current position as CFO. As well as the acceleration of vesting, you will be paid twelve months base salary either in lump sum or as salary continuance.

In the event the Company terminates your employment for any reason other than for cause, 25% of your unvested options at the time of termination will become immediately vested and exercisable. As well as the acceleration of vesting, you will be paid twelve months base salary either in lump sum or as salary continuance

This letter supersedes any prior representation or agreements between you and the company whether written or oral. This agreement may not be modified or amended except by a written agreement signed by an authorized representative of the company and you.

455 Jackson Street San Francisco, CA 94111 Tel 800 944.2233    Fax 800 846.0411 www.dwr.com

Should you accept our offer, please indicate your acceptance and your preferred starting date in the space provided at the end of the signature page.

You agree that, to the best of your ability, you will at all times loyally and conscientiously perform all of the duties and obligations required of and from you pursuant to the express and implicit terms hereof, and to the reasonable satisfaction of the Company. During the term of your employment, you further agree that you will devote all of your business time and attention to the business of the Company, that the Company will be entitled to all of the benefits and profits arising from or incident to all such work services and advice, and that you will not render commercial or professional services of any nature to any person or organization, whether or not for compensation, without prior written consent of the Company’s Board of Directors. You agree that you will not directly or indirectly engage or participate in any business that is competitive in any manner with the business of the Company. Nothing in this letter agreement will prevent you from accepting speaking or presentation engagements, for which you may receive honoraria, or from serving on the board of a charitable organization, or from owning no more than one percent (1%) of the outstanding equity securities of a corporation whose stock is listed on a national stock exchange.

Your acceptance of this offer and commencement of employment with the Company is contingent upon the execution, and delivery to an officer of the Company, of the Company’s Confidential Information and Invention Assignment Agreement, a copy of which is enclosed for your review and execution (the “Confidential Agreement”), prior to your start date of September 1, 1999.

You agree to follow the Company’s strict policy that employees must not disclose, either directly or indirectly, and information, including any of the terms of this agreement, regarding salary, stock purchase or option allocations to any person, including other employees of the Company; provided, however, that you may discuss such terms with members of your immediate family and any legal, tax, or accounting specialists who provide you with individual legal, tax, or accounting advice.

Your employment with the Company will be on an “at will” basis, meaning that either you or the Company may terminate your employment at any time for any reason or no reason, without further obligation or liability.

For purposes of federal immigration law, you will be required to provide the Company documentary evidence of your identity and eligibility for employment in the United Sates. Such documentation must be provided to us within three (3) business days of your date of hire, or our employment relationship with you may be terminated.

I am delighted to be able to extend this offer to you on behalf of the Company, and we look forward to working with you. To indicate your acceptance, please sign and date

2

455 Jackson Street San Francisco, CA 94111 Tel 800 944.2233    Fax 800 846.0411 www.dwr.com

one copy of this letter, and return to the Company together with the signed Confidentiality Agreement, either in person or at the address shown below:

Design Within Reach, Inc

455 Jackson Street

San Francisco, CA 94111

These agreements together set forth the terms of your employment with the Company, and supersede prior representations or agreements, whether written or oral. This letter may not be modified or amended except by a written agreement, signed by both the Company and you.

Design Within Reach, Inc.

/s/    Rob Forbes	Date    2/25/00
Rob Forbes
/s/    David Barnard	Date    2/25/00
David Bamard

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EX-23.02

EXHIBIT 23.02

CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

We have issued our report dated January 21, 2004, accompanying the financial statements of Design Within Reach, Inc. contained in the Registration Statement and Prospectus. We consent to the use of the aforementioned report in the Registration Statement and Prospectus, and to the use of our name as it appears under the caption “Experts.”

/s/    Grant Thornton LLP

San Francisco, California

March 19, 2004